10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2013

or

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

For the transition period from                          to                        

Commission File Number 001-31901

PROTECTIVE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

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

2801 HIGHWAY 280 SOUTH

BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices and zip code)

(205) 268-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

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

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

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

Number of shares of Common Stock, $1.00 Par Value, outstanding as of May 1, 2013:  5,000,000

PROTECTIVE LIFE INSURANCE COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED MARCH 31, 2013

TABLE OF CONTENTS

PART I
		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Condensed Statements of Income For The Three Months Ended March 31, 2013 and 2012	3
	Consolidated Condensed Statements of Comprehensive Income (Loss) For The Three Months Ended March 31, 2013 and 2012	4
	Consolidated Condensed Balance Sheets as of March 31, 2013 and December 31, 2012	5
	Consolidated Condensed Statement of Shareowner’s Equity For The Three Months Ended March 31, 2013	7
	Consolidated Condensed Statements of Cash Flows For The Three Months Ended March 31, 2013 and 2012	8
	Notes to Consolidated Condensed Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	101
Item 4.	Controls and Procedures	101
PART II
Item 1A.	Risk Factors and Cautionary Factors that may Affect Future Results	102
Item 6.	Exhibits	109
	Signature	110

2

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Revenues
Premiums and policy fees	$	723,200		$	692,398
Reinsurance ceded	(325,840		)	(296,295		)
Net of reinsurance ceded	397,360			396,103
Net investment income	439,012			443,532
Realized investment gains (losses):
Derivative financial instruments	3,607			(29,909		)
All other investments	(4,246		)	35,483
Other-than-temporary impairment losses	(1,340		)	(34,099		)
Portion recognized in other comprehensive income (before taxes)	(3,244		)	15,503
Net impairment losses recognized in earnings	(4,584		)	(18,596		)
Other income	54,434			75,142
Total revenues	885,583			901,755
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (2013 - $306,578; 2012 - $282,776)	580,976			587,009
Amortization of deferred policy acquisition costs and value of business acquired	50,039			53,687
Other operating expenses, net of reinsurance ceded: (2013 - $41,746; 2012 - $47,751)	144,754			119,991
Total benefits and expenses	775,769			760,687
Income before income tax	109,814			141,068
Income tax expense	35,936			45,212
Net income	$	73,878		$	95,856

See Notes to Consolidated Condensed Financial Statements

3

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Net income	$	73,878		$	95,856
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (2013 - $(76,334); 2012 - $5,238)	(141,762		)	9,728
Reclassification adjustment for investment amounts included in net income, net of income tax: (2013 - $(2,700); 2012 - $(379))	(5,015		)	(703		)
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: (2013 - $4,219; 2012 - $1,571)	7,837			2,917
Change in accumulated (loss) gain - derivatives, net of income tax: (2013 - $1,543; 2012 - $2,872)	2,866			5,333
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2013 - $174; 2012 - $235)	323			438
Total other comprehensive income (loss)	(135,751		)	17,713
Total comprehensive income (loss)	$	(61,873	)	$	113,569

See Notes to Consolidated Condensed Financial Statements

4

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

	As of
	March 31, 2013		December 31, 2012
	(Dollars In Thousands)
Assets
Fixed maturities, at fair value (amortized cost: 2013 - $27,196,813; 2012 - $26,661,310)	$	30,047,749	$	29,769,978
Fixed maturities, at amortized cost (fair value: 2013 - $334,579; 2012 - $319,163)	315,000		300,000
Equity securities, at fair value (cost: 2013 - $406,661; 2012 - $371,827)	376,117		373,715
Mortgage loans (2013 and 2012 includes: $728,671 and $765,520 related to securitizations)	4,834,342		4,948,625
Investment real estate, net of accumulated depreciation (2013 - $805; 2012 - $771)	6,484		6,517
Policy loans	862,202		865,391
Other long-term investments	361,599		378,821
Short-term investments	160,301		216,787
Total investments	36,963,794		36,859,834
Cash	171,443		269,582
Accrued investment income	358,936		350,804
Accounts and premiums receivable, net of allowance for uncollectible amounts (2013 - $4,248; 2012 - $4,191)	89,478		67,891
Reinsurance receivables	5,714,531		5,682,841
Deferred policy acquisition costs and value of business acquired	3,252,030		3,225,356
Goodwill	82,998		83,773
Property and equipment, net of accumulated depreciation (2013 - $105,331; 2012 - $103,625)	48,459		47,391
Other assets	353,806		343,925
Income tax receivable	—		61,952
Assets related to separate accounts
Variable annuity	10,670,833		9,601,417
Variable universal life	605,622		562,817
Total assets	$	58,311,930	$	57,157,583

See Notes to Consolidated Condensed Financial Statements

5

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED BALANCE SHEETS

(continued)

(Unaudited)

	As of
	March 31, 2013			December 31, 2012
	(Dollars In Thousands)
Liabilities
Future policy benefits and claims	$	21,792,993		$	21,626,065
Unearned premiums	1,382,545			1,352,872
Total policy liabilities and accruals	23,175,538			22,978,937
Stable value product account balances	2,544,609			2,510,559
Annuity account balances	10,524,393			10,658,463
Other policyholders’ funds	569,533			566,985
Other liabilities	1,183,859			1,210,579
Income tax payable	12,288			—
Deferred income taxes	1,736,926			1,783,713
Non-recourse funding obligations	1,456,900			1,446,900
Repurchase program borrowings	300,000			150,000
Liabilities related to separate accounts
Variable annuity	10,670,833			9,601,417
Variable universal life	605,622			562,817
Total liabilities	52,780,501			51,470,370
Commitments and contingencies - Note 7
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: 2013 and 2012 - 5,000,000	5,000			5,000
Additional paid-in-capital	1,363,258			1,363,258
Retained earnings	2,487,796			2,507,829
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2013 - $900,217; 2012 - $979,251)	1,671,831			1,818,608
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2013 - $2,072; 2012 - $(2,147))	3,849			(3,988		)
Accumulated loss - derivatives, net of income tax: (2013 - $(166); 2012 - $(1,883))	(307		)	(3,496		)
Total shareowner’s equity	5,531,429			5,687,213
Total liabilities and shareowner’s equity	$	58,311,930		$	57,157,583

See Notes to Consolidated Condensed Financial Statements

6

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNER’S EQUITY

(Unaudited)

										Accumulated
					Additional					Other			Total
	Preferred		Common		Paid-In-		Retained			Comprehensive			Shareowner’s
	Stock		Stock		Capital		Earnings			Income (Loss)			Equity
	(Dollars In Thousands)
Balance, December 31, 2012	$	2	$	5,000	$	1,363,258	$	2,507,829		$	1,811,124		$	5,687,213
Net income for the three months ended March 31, 2013							73,878						73,878
Other comprehensive income (loss)										(135,751		)	(135,751		)
Comprehensive income (loss) for the three months ended March 31, 2013													(61,873		)
Dividends to the parent company							(93,911		)				(93,911		)
Balance, March 31, 2013	$	2	$	5,000	$	1,363,258	$	2,487,796		$	1,675,373		$	5,531,429

See Notes to Consolidated Condensed Financial Statements

7

PROTECTIVE LIFE INSURANCE COMPANY

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	73,878		$	95,856
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment losses (gains)	5,223			13,022
Amortization of deferred policy acquisition costs and value of business acquired	50,039			53,687
Capitalization of deferred policy acquisition costs	(65,118		)	(62,313		)
Depreciation expense	2,156			2,196
Deferred income tax	33,172			(33,731		)
Accrued income tax	74,240			78,547
Interest credited to universal life and investment products	223,468			243,608
Policy fees assessed on universal life and investment products	(222,969		)	(188,790		)
Change in reinsurance receivables	(31,690		)	(27,335		)
Change in accrued investment income and other receivables	(12,984		)	(10,808		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	33,474			(12,116		)
Trading securities:
Maturities and principal reductions of investments	54,121			98,457
Sale of investments	40,031			273,030
Cost of investments acquired	(65,419		)	(371,030		)
Other net change in trading securities	(11,225		)	17,623
Change in other liabilities	(117,231		)	(162,020		)
Other income - gains on repurchase of non-recourse funding obligations	(1,250		)	(29,344		)
Other, net	(19,205		)	40,731
Net cash provided by operating activities	42,711			19,270
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	229,316			314,710
Sale of investments, available-for-sale	677,202			715,302
Cost of investments acquired, available-for-sale	(1,434,760		)	(1,202,034		)
Change in investments, held-to-maturity	(15,000		)	—
Mortgage loans:
New lendings	(42,919		)	(79,726		)
Repayments	156,924			117,107
Change in investment real estate, net	33			40
Change in policy loans, net	3,189			1,969
Change in other long-term investments, net	(43,117		)	(85,604		)
Change in short-term investments, net	61,068			(30,329		)
Net unsettled security transactions	48,198			93,942
Purchase of property and equipment	(6,140		)	(1,799		)
Net cash used in investing activities	(366,006		)	(156,422		)
Cash flows from financing activities
Issuance (repayment) of non-recourse funding obligations	10,000			(91,700		)
Repurchase program borrowings	150,000			221,569
Dividends paid to the parent company	—			(90,000		)
Investment product deposits and change in universal life deposits	798,912			894,572
Investment product withdrawals	(733,756		)	(895,493		)
Other financing activities, net	—			(3,686		)
Net cash provided by financing activities	225,156			35,262
Change in cash	(98,139		)	(101,890		)
Cash at beginning of period	269,582			169,775
Cash at end of period	$	171,443		$	67,885

See Notes to Consolidated Condensed Financial Statements

8

PROTECTIVE LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1.BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The year-end consolidated condensed financial data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”).

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

Reclassifications 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.

Entities Included

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

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. There were no significant changes to the Company’s accounting policies during the three months ended March 31, 2013.

Accounting Pronouncements Recently 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

9

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 lending transactions. Both Updates were effective January 1, 2013. Neither Update had 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. This Update was effective January 1, 2013. This Update did not have an impact on the Company’s results of operations or financial position.

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 GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The Company has added the Accumulated Other Comprehensive Income footnote to disclose the required information beginning in the first quarter of 2013.  This Update was effective January 1, 2013. This Update did not have an impact on the Company’s results of operations or financial position.

3.INVESTMENT OPERATIONS

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Fixed maturities	$	12,298		$	19,678
Equity securities	1			—
Impairments on fixed maturity securities	(3,587		)	(18,572		)
Impairments on equity securities	(997		)	(24		)
Modco trading portfolio	(15,328		)	18,099
Other investments	(1,217		)	(2,294		)
Total realized gains (losses) - investments	$	(8,830	)	$	16,887

For the three months ended March 31, 2013, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $12.9 million and gross realized losses were $4.9 million, including $4.4 million of impairment losses. For the three months ended March 31, 2012, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $22.8 million and gross realized losses were $21.7 million, including $18.5 million of impairment losses.

10

For the three months ended March 31, 2013, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $387.9 million. The gain realized on the sale of these securities was $12.9 million. For the three months ended March 31, 2012, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $495.1 million. The gain realized on the sale of these securities was $22.8 million.

For the three months ended March 31, 2013, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $4.0 million. The loss realized on the sale of these securities was $0.6 million.

For the three months ended March 31, 2012, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $17.2 million. The loss realized on the sale of these securities was $3.1 million.

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 March 31, 2013 and December 31, 2012, are as follows:

			Gross		Gross					Total OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains		Losses			Value		in OCI(1)
	(Dollars In Thousands)
2013
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,665,681	$	89,005	$	(36,776	)	$	1,717,910	$	6,353
Commercial mortgage-backed securities	853,334		64,906		(2,085		)	916,155		—
Other asset-backed securities	1,013,575		17,325		(84,339		)	946,561		(189		)
U.S. government-related securities	1,142,772		66,003		(1,723		)	1,207,052		—
Other government-related securities	82,172		6,323		(18		)	88,477		—
States, municipals, and political subdivisions	1,179,314		254,476		(269		)	1,433,521		—
Corporate bonds	18,291,777		2,542,320		(64,212		)	20,769,885		—
	24,228,625		3,040,358		(189,422		)	27,079,561		6,164
Equity securities	345,963		14,440		(6,723		)	353,680		(243		)
Short-term investments	49,691		—		—			49,691		—
	$	24,624,279	$	3,054,798	$	(196,145	)	$	27,482,932	$	5,921
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	)

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

11

The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of March 31, 2013 and December 31, 2012, are as follows:

			Gross		Gross				Total OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in OCI
	(Dollars In Thousands)
2013
Fixed maturities:
Other	$	315,000	$	19,579	$	—	$	334,579	$	—
	$	315,000	$	19,579	$	—	$	334,579	$	—
2012
Fixed maturities:
Other	$	300,000	$	19,163	$	—	$	319,163	$	—
	$	300,000	$	19,163	$	—	$	319,163	$	—

As of March 31, 2013 and December 31, 2012, the Company had an additional $3.0 billion and $3.0 billion of fixed maturities, $22.4 million and $19.6 million of equity securities, and $110.6 million and $118.9 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 March 31, 2013, 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	$	462,439	$	469,358	$	—	$	—
Due after one year through five years	4,474,623		4,930,066		—		—
Due after five years through ten years	6,601,844		7,235,764		—		—
Due after ten years	12,689,719		14,444,373		315,000		334,579
	$	24,228,625	$	27,079,561	$	315,000	$	334,579

During the three months ended March 31, 2013, the Company recorded pre-tax other-than-temporary impairments of investments of $1.3 million, of which $0.3 million related to debt securities and $1.0 million related to equity securities. Credit impairments recorded in earnings during the period were $4.6 million. During the period, $3.3 million of non-credit losses previously recorded in other comprehensive income were recorded in earnings as credit losses. For the three months ended March 31, 2013, 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 three months ended March 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $34.1 million. Of the $34.1 million of impairments for the three months ended March 31, 2012, $18.6 million was recorded in earnings and $15.5 million was recorded in other comprehensive income (loss). For the three months ended March 31, 2012, there was $34.1 million of pre-tax other-than-temporary impairments related to debt securities and an immaterial amount of impairments related to equity securities. During the three months ended March 31, 2012, there were no other-than-temporary impairments related to debt securities that the Company intended to sell or expected to be required to sell.

12

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 Three Months Ended March 31,
	2013		2012
	(Dollars In Thousands)
Beginning balance	$	121,237	$	69,476
Additions for newly impaired securities	997		15,688
Additions for previously impaired securities	1,486		2,778
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	—		—
Other	—		—
Ending balance	$	123,720	$	87,942

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 March 31, 2013:

	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	$	127,940	$	(23,734	)	$	99,519	$	(13,042	)	$	227,459	$	(36,776	)
Commercial mortgage-backed securities	112,880		(2,085		)	—		—			112,880		(2,085		)
Other asset-backed securities	74,375		(9,968		)	602,783		(74,371		)	677,158		(84,339		)
U.S. government-related securities	206,309		(1,723		)	—		—			206,309		(1,723		)
Other government-related securities	20,003		(2		)	3,617		(16		)	23,620		(18		)
States, municipalities, and political subdivisions	11,521		(269		)	—		—			11,521		(269		)
Corporate bonds	1,387,338		(44,151		)	284,166		(20,061		)	1,671,504		(64,212		)
Equities	55,317		(243		)	28,992		(6,480		)	84,309		(6,723		)
	$	1,995,683	$	(82,175	)	$	1,019,077	$	(113,970	)	$	3,014,760	$	(196,145	)

RMBS have a gross unrealized loss greater than twelve months of $13.0 million as of March 31, 2013. 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 $74.4 million as of March 31, 2013. 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 $20.1 million as of March 31, 2013. 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 $6.5 million as of March 31, 2013. 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.

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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, 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 had 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 represented securities where credit concerns were 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 had 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 had gross unrealized losses greater than twelve months of $24.8 million as of December 31, 2012. 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 had a gross unrealized loss greater than twelve months of $4.8 million as of December 31, 2012. 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 March 31, 2013, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.6 billion and had an amortized cost of $1.6 billion. In addition, included in the Company’s trading portfolio, the Company held $367.5 million of securities which were rated below investment grade. Approximately $420.7 million of the below investment grade securities were not publicly traded.

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Fixed maturities	$	(167,526	)	$	19,462
Equity securities	3,789			5,106

Variable Interest Entities

The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or “Codification”) (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 March 31, 2013. 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 6, 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, PLC has guaranteed the VIE’s payment obligation for the credit enhancement fee to the unrelated third party provider.

4.MORTGAGE LOANS

Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of March 31, 2013, the Company’s mortgage loan holdings were approximately $4.8 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.

15

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 $143.0 million would become due for the remainder of 2013, $1.3 billion in 2014 through 2018, $588.2 million in 2019 through 2023, and $178.3 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 March 31, 2013 and December 31, 2012, approximately $736.9 million and $817.3 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 March 31, 2013, approximately $19.7 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. 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 March 31, 2013, $12.7 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming. The Company did not foreclose on any nonperforming loans during the three months ended March 31, 2013.

As of March 31, 2013, $6.9 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the three months ended March 31, 2013. The Company did not foreclose on any nonperforming loans during the three months ended March 31, 2013.

As of March 31, 2013 and December 31, 2012, the Company had an allowance for mortgage loan credit losses of $4.0 million and $2.9 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.

16

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
	March 31, 2013		December 31, 2012
	(Dollars In Thousands)
Beginning balance	$	2,875	$	4,975
Charge offs	—		(8,340		)
Recoveries	—		(628		)
Provision	1,170		6,868
Ending balance	$	4,045	$	2,875

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 March 31, 2013.

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	16,221	$	1,774	$	17,898	$	35,893
Number of delinquent commercial mortgage loans	5		1		6		12

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 March 31, 2013 and December 31, 2012:

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)
2013
Commercial mortgage loans:
With no related allowance recorded	$	14,792	$	16,194	$	—	$	2,465	$	176	$	87
With an allowance recorded	13,927		13,927		4,045		3,482		154		154
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

5.GOODWILL

During the three months ended March 31, 2013, the Company decreased its goodwill balance by approximately $0.8 million. The decrease was due to adjustments in the Acquisitions segment related to tax benefits realized during 2013 on the portion of tax goodwill in excess of GAAP basis goodwill. As of March 31, 2013, the Company had an aggregate goodwill balance of $83.0 million.

17

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.  During the three months ended March 31, 2013, no events occurred which indicate an impairment was required or which would invalidate the previous results of the Company’s impairment assessment.

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.

6.DEBT AND OTHER OBLIGATIONS

The Company has access to a Credit Facility that provides the Company and PLC 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 Credit Facility be increased up to a maximum principal amount of $1.0 billion. Balances outstanding under the 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 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 Credit Facility, whether used or unused. The maturity date on the Credit Facility is July 17, 2017. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of March 31, 2013. The Company did not have an outstanding balance under the Credit Facility as of March 31, 2013. PLC had an outstanding balance of $40.0 million at an interest rate of LIBOR plus 1.20% under the Credit Facility as of March 31, 2013.

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 March 31, 2013. 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%.

18

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 March 31, 2013. 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 of March 31, 2013, securities related to $281.0 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 $233.1 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 Coast 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 March 31, 2013, the principal balance of the Red Mountain note was $315 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 $315 million outstanding non-recourse funding obligation as of March 31, 2013. 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 March 31, 2013, 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	7.79	%
Golden Gate II Captive Insurance Company	341,900		2052	1.14
Golden Gate V Vermont Captive Insurance Company	315,000		2037	6.25
Total	$	1,456,900

19

During the three months ended March 31, 2013, the Company repurchased $5.0 million of its outstanding non-recourse funding obligations, at a discount. These repurchases resulted in a $1.3 million pre-tax gain for the Company. During the three months ended March 31, 2012, the Company repurchased $91.7 million of its outstanding non-recourse funding obligations, at a discount, which resulted in a $29.3 million gain. These gains are recorded in other income in the consolidated condensed statements of income.

7.COMMITMENTS AND CONTINGENCIES

Under insurance guaranty fund laws, in most states insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. 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 the prior year, 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. 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 were 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

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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.

8.STOCK-BASED COMPENSATION

During the three months ended March 31, 2013, 298,500 performance shares with an estimated fair value of $9.3 million were awarded. The criteria for payment of the 2013 performance awards is based primarily 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 11.5%, the award maximum is earned. Awards are paid in shares of PLC’s common stock.

Restricted stock units are awarded to participants and include certain restrictions relating to vesting periods. PLC issued 141,000 restricted stock units for the three months ended March 31, 2013. These awards had a total fair value at grant date of $4.4 million. Approximately half of these restricted stock units vest in 2016, and the remainder vest in 2017. These awards have been recorded as equity-classified awards for the period ended March 31, 2013.

Stock appreciation rights (“SARs”) of PLC have historically 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, 2012	$	22.15	1,641,167
SARs granted	—		—
SARs exercised / forfeited	22.83		69,899
Balance at March 31, 2013	$	22.12	1,571,268

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There were no SARs issued for the three months ended March 31, 2013. PLC will pay an amount in stock equal to the difference between the specified base price of PLC’s common stock and the market value at the exercise date for each SAR.

9.EMPLOYEE BENEFIT PLANS

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	2,708		$	2,561
Interest cost on projected benefit obligation	2,553			2,604
Expected return on plan assets	(2,759		)	(2,673		)
Amortization of prior service cost/(credit)	(95		)	(95		)
Amortization of actuarial losses	2,729			2,175
Total benefit cost	$	5,136		$	4,572

During the three months ended March 31, 2013, PLC did not make any contributions to its defined benefit pension plan. During April of 2013, PLC contributed $2.3 million to the defined benefit pension plan for the 2013 plan year. PLC will continue to make contributions in future periods as necessary to at least satisfy minimum funding requirements. PLC may also make additional contributions in future periods to maintain an adjusted funding target attainment percentage (“AFTAP”) of at least 80%.

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 year. 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.

In addition to pension benefits, PLC provides life insurance benefits to eligible retirees and limited healthcare benefits to eligible retirees who are not yet eligible for Medicare. For a closed group of retirees over age 65, PLC provides a prescription drug benefit. The cost of these plans for the three months ended March 31, 2013, was immaterial to the Company’s financial statements.

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10.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) (“AOCI”) and the reclassifications amounts out of AOCI for the period ended March 31, 2013.

Changes in Accumulated Other Comprehensive Income (Loss) by Component
							Total
							Accumulated
	Unrealized			Accumulated			Other
	Gains and Losses			Gain and Loss			Comprehensive
	on Investments			Derivatives			Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance	$	1,814,620		$	(3,496	)	$	1,811,124
Other comprehensive income (loss) before reclassifications	(141,762		)	2,866			(138,896		)
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	7,837			—			7,837
Amounts reclassified from accumulated other comprehensive income(1)	(5,015		)	323			(4,692		)
Net current-period other comprehensive income (loss)	(138,940		)	3,189			(135,751		)
Ending Balance	$	1,675,680		$	(307	)	$	1,675,373

(1) See Reclassification table below for details.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
	Amount
	Reclassified
	from Accumulated
	Other Comprehensive			Affected Line Item in the
	Income (Loss)			Consolidated Condensed Statements of Income
	(Dollars In Thousands)
Accumulated Other Comprehensive Income  (Loss) Components
Gains and losses on derivative instruments
Net settlement (expense)/benefit	$	(497	)	Benefits and settlement expenses, net of reinsurance ceded
	(497		)	Total before tax
	174			Tax (expense) or benefit
	$	(323	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains/(losses)	$	12,299		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(4,584		)	Net impairment losses recognized in earnings
	7,715			Total before tax
	(2,700		)	Tax (expense) or benefit
	$	5,015		Net of tax

11.INCOME TAXES

There have been no material changes to the balance of unrecognized income tax benefits which impacted earnings for the three months ended March 31, 2013.

In the IRS audit that concluded during the prior year, 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. If the IRS prevails at Appeals,

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and the Company does not litigate these issues, then an acceleration of tax payments will occur. However, if these payments were to occur, they would not materially impact the Company or its effective tax rate.

The Company does not expect to have any material adjustments, within the next twelve months, to its balance of unrecognized income tax benefits.  This viewpoint could change, however, if the Company receives an earlier than expected Appeals settlement on the aforementioned issues.

The Company used its estimate of its annual 2013 and 2012 income in computing its effective income tax rates for the three months ended March 31, 2013 and 2012. The effective tax rates for the three months ended March 31, 2013 and 2012 were 32.7% and 32.0%, respectively.

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.

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 all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of March 31, 2013.

12.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.

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 March 31, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,717,906	$	4	$	1,717,910
Commercial mortgage-backed securities	—		916,155		—		916,155
Other asset-backed securities	—		385,893		560,668		946,561
U.S. government-related securities	988,675		218,377		—		1,207,052
State, municipalities, and political subdivisions	—		1,429,246		4,275		1,433,521
Other government-related securities	—		68,474		20,003		88,477
Corporate bonds	206		20,645,124		124,555		20,769,885
Total fixed maturity securities - available-for-sale	988,881		25,381,175		709,505		27,079,561
Fixed maturity securities - trading
Residential mortgage-backed securities	—		354,522		—		354,522
Commercial mortgage-backed securities	—		176,986		—		176,986
Other asset-backed securities	—		91,039		71,383		162,422
U.S. government-related securities	295,008		1,728		—		296,736
State, municipalities, and political subdivisions	—		283,842		—		283,842
Other government-related securities	—		63,728		—		63,728
Corporate bonds	—		1,624,840		5,112		1,629,952
Total fixed maturity securities - trading	295,008		2,596,685		76,495		2,968,188
Total fixed maturity securities	1,283,889		27,977,860		786,000		30,047,749
Equity securities	273,488		37,102		65,527		376,117
Other long-term investments (1)	39,960		42,518		70,404		152,882
Short-term investments	156,825		3,476		—		160,301
Total investments	1,754,162		28,060,956		921,931		30,737,049
Cash	171,443		—		—		171,443
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	10,670,833		—		—		10,670,833
Variable universal life	605,622		—		—		605,622
Total assets measured at fair value on a recurring basis	$	13,202,060	$	28,060,956	$	921,931	$	42,184,947
Liabilities:
Annuity account balances(2)	$	—	$	—	$	123,681	$	123,681
Other liabilities (1)	2,380		47,367		539,814		589,561
Total liabilities measured at fair value on a recurring basis	$	2,380	$	47,367	$	663,495	$	713,242

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to fixed 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, 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 fixed 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

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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 three months ended March 31, 2013.

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 March 31, 2013, the Company held $3.6 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

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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 March 31, 2013, the Company held $632.1 million of Level 3 ABS, which included $71.4 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 March 31, 2013, the Company classified approximately $24.3 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 March 31, 2013, the Company classified approximately $153.9 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 March 31, 2013, the Company held approximately $102.6 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 13, 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 March 31, 2013, 79.9% 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.

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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 13, Derivative Financial Instruments for more information related to GMWB embedded derivative gains and losses. The fair value of the GMWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using 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 $2.7 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, a yearly renewable term (“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 March 31, 2013 was $13.3 million and is included in “Other long-term investments”. For information regarding realized gains on these derivatives please refer to Note 13, 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 March 31, 2013 was $11.1 million. The assessment of required payments from PLC under the Interest Support Agreement occurs annually.

29

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 March 31, 2013 was $1.7 million.

The portfolio maintenance agreements provide that PLC will make payments to Golden Gate V and WCL 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 March 31, 2013, was approximately $0.5 million.

Annuity account balances

The Company records certain of its fixed indexed annuities (“FIA”) at fair value. The fair value is considered a Level 3 valuation. The FIA 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 fixed indexed annuities is based on an upward sloping rate curve which is updated each quarter. The discount rates for March 31, 2013, ranged from a one month rate of 0.33%, a 5 year rate of 1.91%, and a 30 year rate of 4.28%. 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.

30

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
	March 31, 2013		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	560,668	Discounted cash flow	Liquidity premium	1.00% - 1.69% (1.14%)
				Paydown rate	10.08% - 14.64% (12.47%)
Other government-related securities	20,003		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	129,667		Discounted cash flow	Spread over treasury	0.97% - 7.75% (2.67%)
Liabilities:
Embedded derivatives - GMWB(1)	$	88,739	Actuarial cash flow model	Mortality	57% of 1994 GMDB table
				Lapse	0% - 24%, depending on product/duration/funded status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.13% - 1.29%
Annuity account balances(2)	123,681		Actuarial cash flow model	Asset earned rate	5.81%
				Expenses	$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	0.13% - 1.29%

(1)	The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.
(2)	Represents liabilities related to fixed 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 Company has considered all reasonably available quantitative inputs as of March 31, 2013, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $71.4 million of financial instruments, all asset backed securities, being classified as Level 3 as of March 31, 2013.

In certain cases the Company has determined that book value materially approximates fair value. As of March 31, 2013, 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.

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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	0.72% - 1.68% (1.29%)
				Paydown rate	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	57% of 1994 GMDB table
				Lapse	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	5.81%
				Expenses	$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 fixed 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 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.

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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 FIA account balance liability is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA 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.

33

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended March 31, 2013, 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	$	4	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	596,143		—		12		—			(27,548		)	—		(9,009		)	—		—		1,227		(157		)	560,668		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—		—			4,275		—
Other government-related securities	20,011		—		—		—			(3		)	—		—			—		—		—		(5		)	20,003		—
Corporate bonds	167,892		—		930		—			(2,364		)	—		(42,071		)	—		—		—		168			124,555		—
Total fixed maturity securities - available-for-sale	788,325		—		942		—			(29,915		)	—		(51,080		)	—		—		1,227		6			709,505		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	70,535		3,408		—		(259		)	—			—		(2,823		)	—		—		—		522			71,383		3,255
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	115		1		—		—			—			—		(17		)	—		—		5,013		—			5,112		29
Total fixed maturity securities - trading	70,650		3,409		—		(259		)	—			—		(2,840		)	—		—		5,013		522			76,495		3,284
Total fixed maturity securities	858,975		3,409		942		(259		)	(29,915		)	—		(53,920		)	—		—		6,240		528			786,000		3,284
Equity securities	65,527		—		—		—			—			—		—			—		—		—		—			65,527		—
Other long-term investments(1)	48,655		25,618		—		(3,869		)	—			—		—			—		—		—		—			70,404		21,749
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	973,157		29,027		942		(4,128		)	(29,915		)	—		(53,920		)	—		—		6,240		528			921,931		25,033
Total assets measured at fair value on a recurring basis	$	973,157	$	29,027	$	942	$	(4,128	)	$	(29,915	)	$	—	$	(53,920	)	$	—	$	—	$	6,240	$	528		$	921,931	$	25,033
Liabilities:
Annuity account balances(2)	$	129,468	$	—	$	—	$	(2,000	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	123,681	$	—
Other liabilities(1)	611,437		84,546		—		(12,923		)	—			—		—			—		—		—		—			539,814		71,623
Total liabilities measured at fair value on a recurring basis	$	740,905	$	84,546	$	—	$	(14,923	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	663,495	$	71,623

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

For the three months ended March 31, 2013, $6.2 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 March 31, 2013.

For the three months ended March 31, 2013, there were no transfers out of Level 3.

For the three months ended March 31, 2013, there were no transfers from Level 2 to Level 1.

For the three months ended March 31, 2013, 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 three months ended March 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		294		493		—			(13,929		)	—		(13,850		)	—		—		—		(208		)	587,613		—
U.S. government-related securities	15,000		—		—		—			(1		)	—		(15,000		)	—		—		—		1			—		—
States, municipals, and political subdivisions	—		—		—		—			—			4,275		—			—		—		—		—			4,275		—
Other government-related securities	—		—		—		—			(16		)	20,023		—			—		—		—		(1		)	20,006		—
Corporate bonds	119,565		—		183		—			(1,227		)	4		(139		)	—		—		19,554		—			137,940		—
Total fixed maturity securities - available-for-sale	749,385		294		676		—			(15,173		)	24,302		(28,992		)	—		—		19,554		(208		)	749,838		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		446		—		(169		)	—			27,705		(1,808		)	—		—		—		444			54,961		277
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		—		—		—			—			1		—			—		—		—		—			1		—
Total fixed maturity securities - trading	28,343		446		—		(169		)	—			27,706		(1,808		)	—		—		—		444			54,962		277
Total fixed maturity securities	777,728		740		676		(169		)	(15,173		)	52,008		(30,800		)	—		—		19,554		236			804,800		277
Equity securities	70,080		—		636		—			(1		)	4		—			—		—		—		—			70,719		—
Other long-term investments(1)	19,103		13,073		—		—			—			—		—			—		—		—		—			32,176		13,073
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		13,813		1,312		(169		)	(15,174		)	52,012		(30,800		)	—		—		19,554		236			907,695		13,350
Total assets measured at fair value on a recurring basis	$	866,911	$	13,813	$	1,312	$	(169	)	$	(15,174	)	$	52,012	$	(30,800	)	$	—	$	—	$	19,554	$	236		$	907,695	$	13,350
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	(3,074	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	137,238	$	—
Other liabilities(1)	437,613		56,496		—		(8,695		)	—			—		—			—		—		—		—			389,812		47,801
Total liabilities measured at fair value on a recurring basis	$	574,075	$	56,496	$	—	$	(11,769	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	527,050	$	47,801

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

For the three months ended March 31, 2012, $19.6 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 March 31, 2012. All transfers are recognized as of the end of the period.

For the three months ended March 31, 2012, there were no transfers out of Level 3.

For the three months ended March 31, 2012, there were no transfers from Level 2 to Level 1.

For the three months ended March 31, 2012, there were no transfers out of Level 1.

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

35

beginning of the period. Such activity primarily relates to purchases and sales of fixed maturity securities and issuances and settlements of fixed 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 fixed 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
		March 31, 2013				December 31, 2012
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,834,342	$	5,558,696	$	4,948,625	$	5,723,579
Policy loans	3	862,202		862,202		865,391		865,391
Fixed maturities, held-to-maturity(1)	3	315,000		334,579		300,000		319,163
Liabilities:
Stable value product account balances	3	$	2,544,609	$	2,572,367	$	2,510,559	$	2,534,094
Annuity account balances	3	10,524,393		10,142,020		10,658,463		10,525,702
Debt:
Non-recourse funding obligations(2)	3	$	1,456,900	$	1,495,469	$	1,446,900	$	1,357,290

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 $315 million, fair value of $359.6 million, as of March 31, 2013, and $300 million, fair value of $297.6 million, as of December 31, 2012,  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.

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Fixed maturities, held-to-maturity

The Company estimates the fair value of its fixed maturity, held-to-maturity securities 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.

13.          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

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Other Derivatives

Certain of the Company’s subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, a YRT premium support agreement, 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.

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 its 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 $23.2 million and $25.1 million and interest rate futures resulted in net pre-tax losses of $16.5 million and $33.4 million for the three months ended March 31, 2013 and 2012, respectively. Currency futures resulted in a net pre-tax gain of $8.1 million and a net pre-tax loss of $1.0 million for the three months ended March 31, 2013 and 2012, respectively. Volatility futures resulted in no pre-tax gains or losses for the three months ended March 31, 2013 and pre-tax losses of $0.5 million for the three months ended March 31, 2012.  No volatility future positions were held during the three months ended March 31, 2013.

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·The Company uses equity options and volatility swaps to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within its 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 $28.4 million and $23.9 million and the volatility swaps resulted in net pre-tax losses of $10.4 million and $1.9 million for the three months ended March 31, 2013 and 2012, 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 losses of $16.6 million and $2.1 million for the three months ended March 31, 2013 and 2012, respectively. The interest rate swaptions resulted in net pre-tax losses of $4.1 million and $3.5 million for the three months ended March 31, 2013 and 2012, respectively.

·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 gains of $80.4 million and $50.2 million for the three months ended March 31, 2013 and 2012, 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 gains of $1.0 million and $2.0 million on interest rate swaps for the three months ended March 31, 2013 and 2012, respectively.

·The Company purchased interest rate caps during 2011 to mitigate its risk with respect to the Company’s LIBOR exposure and the potential impact of European financial market distress. These caps resulted in insignificant losses for the three months ended March 31, 2013 and pre-tax losses of $2.2 million for the three months ended March 31, 2012.

·Certain of the Company’s subsidiaries have an interest support agreement, YRT premium support agreement, and two portfolio maintenance agreements with PLC. The Company recognized pre-tax losses of $3.9 million for the three months ended March 31, 2013 and no gain or loss for the three months ended March 31, 2012, related to the interest support agreement. The Company recognized a pre-tax gain of $0.1 million and no gains or losses for the three months ended March 31, 2013 and 2012, respectively, related to the YRT premium support agreement.  The Company entered into two separate portfolio maintenance agreements in October 2012.  The Company recognized no pre-tax gains or losses for the three months ended March 31, 2013 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 gains of $0.4 million and $0.7 million for the three months ended March 31, 2013 and 2012, 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 gains of $16.8 million and $10.7 million for the three months ended March 31, 2013 and 2012, 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
	March 31, 2013				December 31, 2012
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	135,531	$	251	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	300,000		5,368		355,000		6,532
Volatility swaps	400		20		500		406
Derivatives with PLC(1)	1,432,876		13,287		1,404,750		17,064
Embedded derivative - Modco reinsurance treaties	30,561		1,321		30,244		1,330
Embedded derivative - GMWB	2,615,909		55,796		1,640,075		30,261
Interest rate futures	473,257		3,201		—		—
Equity futures	55,441		1,040		147,581		595
Currency futures	31,948		531		15,944		784
Interest rate caps	3,000,000		—		3,000,000		—
Equity options	840,276		64,559		573,493		61,833
Interest rate swaptions	400,000		7,268		400,000		11,370
Other	224		240		224		253
	$	9,316,423	$	152,882	$	7,567,811	$	130,428
Other liabilities
Cash flow hedges:
Inflation	$	47,434	$	65	$	182,965	$	5,027
Derivatives not designated as hedging instruments:
Interest rate swaps	1,105,000		25,057		400,000		10,025
Volatility swaps	4,075		22,245		2,675		12,198
Embedded derivative - Modco reinsurance treaties	2,636,425		395,123		2,655,134		411,907
Embedded derivative - GMWB	4,746,591		144,691		5,253,961		199,530
Interest rate futures	—		—		893,476		13,970
Equity futures	106,724		1,126		152,364		3,316
Currency futures	101,339		1,254		131,979		1,901
	$	8,747,588	$	589,561	$	9,672,554	$	657,874

(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

				Amount and Location of
	Amount of Gains (Losses)			Gains (Losses)
	Deferred in			Reclassified from			Amount and Location of
	Accumulated Other			Accumulated Other			(Losses) Recognized in
	Comprehensive Income			Comprehensive Income			Income (Loss) on
	(Loss) on Derivatives			(Loss) into Income (Loss)			Derivatives
	(Effective Portion)			(Effective Portion)			(Ineffective Portion)
				Benefits and settlement			Realized investment
				expenses			gains (losses)
	(Dollars In Thousands)
For The Three Months Ended March 31, 2013
Interest rate	$	—		$	—		$	—
Inflation	4,409			(497		)	368
Total	$	4,409		$	(497	)	$	368
For The Three Months Ended March 31, 2012
Interest rate	$	(73	)	$	(854	)	$	—
Inflation	8,277			180			646
Total	$	8,204		$	(674	)	$	646

Based on the expected cash flows of the underlying hedged items, the Company expects to reclassify $0.6 million out of accumulated other comprehensive income (loss) into earnings during the next twelve months.

Realized investment gains (losses) - derivative financial instruments

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	(16,484	)	$	(33,406	)
Equity futures - VA	(23,225		)	(25,099		)
Currency futures - VA	8,083			(984		)
Volatility futures - VA	—			(475		)
Volatility swaps - VA	(10,433		)	(1,884		)
Equity options - VA	(28,406		)	(23,872		)
Interest rate swaptions - VA	(4,102		)	(3,519		)
Interest rate swaps - VA	(16,556		)	(2,128		)
Embedded derivative - GMWB	80,375			50,167
Total derivatives related to variable annuity contracts	(10,748		)	(41,200		)
Embedded derivative - Modco reinsurance treaties	16,775			10,706
Interest rate swaps	1,003			2,037
Interest rate caps	—			(2,164		)
Derivatives with PLC(1)	(3,778		)	—
Other derivatives	355			712
Total realized gains (losses) - derivatives	$	3,607		$	(29,909	)

(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 March 31, 2013, the Company had posted cash and securities (at fair value) as collateral of approximately $20.1 million and $54.6 million, respectively. As of March 31, 2013, the Company received $2.5 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 Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Modco trading portfolio(1)	$	(15,328	)	$	18,099

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

14.          OFFSETTING OF ASSETS AND LIABILITIES

Certain of the Company’s derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached. Additionally, certain of the Company’s repurchase agreements provide for net settlement on termination of the agreement. Refer to Note 6, Debt and Other Obligations for details of the Company’s repurchase agreement programs.

The tables below present the derivative instruments by assets and liabilities for the Company.

					Net Amounts
			Gross		of Assets		Gross Amounts Not Offset
			Amounts		Presented in		in the Statement of
	Gross		Offset in the		the		Financial Position
	Amounts of		Statement of		Statement of				Cash
	Recognized		Financial		Financial		Financial		Collateral
	Assets		Position		Position		Instruments		Received		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative Assets
Derivatives:
Free-Standing derivatives	$	82,238	$	—	$	82,238	$	31,046	$	2,500	$	48,692
Embedded derivative - Modco reinsurance treaties	1,321		—		1,321		—		—		1,321
Embedded derivative - GMWB	55,796		—		55,796		—		—		55,796
Total derivatives, subject to a master netting arrangement or similar arrangement	139,355		—		139,355		31,046		2,500		105,809
Total derivatives, not subject to a master netting arrangement or similar arrangement	13,527		—		13,527		—		—		13,527
Total derivatives	152,882		—		152,882		31,046		2,500		119,336
Total Assets	$	152,882	$	—	$	152,882	$	31,046	$	2,500	$	119,336

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					Net Amounts
			Gross		of Assets		Gross Amounts Not Offset
			Amounts		Presented in		in the Statement of
	Gross		Offset in the		the		Financial Position
	Amounts of		Statement of		Statement of				Cash
	Recognized		Financial		Financial		Financial		Collateral
	Liabilities		Position		Position		Instruments		Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative Liabilities
Derivatives:
Free-Standing derivatives	$	49,747	$	—	$	49,747	$	31,046	$	9,648	$	9,053
Embedded derivative - Modco reinsurance treaties	395,123		—		395,123		—		—		395,123
Embedded derivative - GMWB	144,691		—		144,691		—		—		144,691
Total derivatives, subject to a master netting arrangement or similar arrangement	589,561		—		589,561		31,046		9,648		548,867
Total derivatives, not subject to a master netting arrangement or similar arrangement	—		—		—		—		—		—
Total derivatives	589,561		—		589,561		31,046		9,648		548,867
Repurchase agreements(1)	300,000		—		300,000		—		—		300,000
Total Liabilities	$	889,561	$	—	$	889,561	$	31,046	$	9,648	$	848,867

(1) Borrowings under repurchase agreements are for a term less than 90 days.

15.          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, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the 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 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.

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·The Corporate and Other segment primarily consists of net investment income not assigned to the segments above (including the impact of carrying liquidity), 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 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 deferred acquisition costs (“DAC”) and value of business acquired (“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 variable annuity (“VA”) product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

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.

There were no significant intersegment transactions during the three months ended March 31, 2013, and 2012.

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The following tables summarize financial information for the Company’s segments:

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Revenues
Life Marketing	$	338,679		$	315,506
Acquisitions	250,487			299,509
Annuities	164,353			139,062
Stable Value Products	31,920			34,656
Asset Protection	71,311			72,644
Corporate and Other	28,833			40,378
Total revenues	$	885,583		$	901,755
Segment Operating Income (Loss)
Life Marketing	$	23,477		$	29,997
Acquisitions	34,377			39,099
Annuities	42,869			35,459
Stable Value Products	17,844			12,646
Asset Protection	4,470			2,840
Corporate and Other	(19,896		)	21,266
Total segment operating income	103,141			141,307
Realized investment (losses) gains - investments (1)	(9,857		)	22,430
Realized investment (losses) gains - derivatives	16,530			(22,669		)
Income tax expense	(35,936		)	(45,212		)
Net Income	$	73,878		$	95,856
(2)Investment gains (losses)	$	(8,830	)	$	16,887
Less: related amortization of DAC/VOBA	1,027			(5,543		)
Realized investment gains (losses) in investments	$	(9,857	)	$	22,430
(3)Derivative gains (losses)	$	3,607		$	(29,909	)
Less: VA GMWB economic cost	(12,923		)	(7,240		)
Realized investment gains (losses) - derivatives	$	16,530		$	(22,669	)

(1) Includes credit related other-than-temporary impairments of $4.6 million and $18.6 million for the three months ended March 31, 2013, and 2012, 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.

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	Operating Segment Assets
	As of March 31, 2013
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,426,547	$	11,302,319	$	18,498,392	$	2,543,291
Deferred policy acquisition costs and value of business acquired	2,045,332		632,595		522,122		1,318
Goodwill	—		34,840		—		—
Total assets	$	14,471,879	$	11,969,754	$	19,020,514	$	2,544,609

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	750,098	$	9,437,968	$	18,287	$	54,976,902
Deferred policy acquisition costs and value of business acquired	49,688		975		—		3,252,030
Goodwill	48,158		—		—		82,998
Total assets	$	847,944	$	9,438,943	$	18,287	$	58,311,930

	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

16.          SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to March 31, 2013, 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.

On April 10, 2013, the Company entered into a Master Agreement (the “Master Agreement”) with AXA Financial, Inc. (“AXA”) and AXA Equitable Financial Services, LLC. Pursuant to the Master Agreement, the Company has agreed to acquire the stock of MONY Life Insurance Company (“MONY”) from AXA and to enter into a reinsurance agreement (the “Reinsurance Agreement”) pursuant to which it will reinsure on a 100% indemnity reinsurance basis certain business (the “MLOA Business”) of MONY Life Insurance Company of America (“MLOA”). The aggregate purchase price for MONY is expected to be approximately $693 million, subject to a monthly reduction of $2.5 million for each month that elapses between July 1, 2013 and the closing date of the acquisition. The purchase price includes approximately $303 million of adjusted statutory capital and surplus and approximately $60 million of deferred tax assets, and will be subject to a customary post-closing adjustment. The ceding commission for the reinsurance of the MLOA Business is expected to be approximately $373 million, subject to a monthly reduction of $1 million for each month that elapses between July 1, 2013 and the closing date of the acquisition, and will be subject to a customary post-closing adjustment. The entry into the Reinsurance Agreement will occur at, and is conditioned on the concurrent consummation of, the closing of the acquisition of the shares of MONY.

The transaction, which is expected to close in the second half of 2013, is subject to receipt of insurance regulatory approvals and satisfaction of other customary closing conditions. Prior to the closing, AXA will cause MONY to transfer its subsidiaries, MLOA, U.S. Financial Life Insurance Company, MONY International Holdings, LLC and

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MONY Financial Services, Inc., none of which are being sold to the Company as part of the acquisition, to another subsidiary of AXA, and to effect certain other pre-closing restructuring transactions.

On March 22, 2013, the Company declared a dividend to its parent, PLC, in the amount of the total shareowner’s equity of Shades Creek Captive Insurance Company (“Shades Creek”), then a wholly owned subsidiary of the Company.  Commensurate with this declaration, the Company recorded a dividend payable in the amount of $93.9 million, reported as a non-cash financing transaction in the consolidated condensed cash flow statements, which is equal to the book value of the Company’s investment in Shades Creek’s Equity.  The effective date of the dividend was April 1, 2013.  Accordingly, as of April 1, 2013, Shades Creek became a direct wholly owned insurance subsidiary of PLC.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2012, included in our Annual Report on Form 10-K.

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

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

FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE

This report reviews our financial condition and results of operations including our liquidity and capital resources. Historical information is presented and discussed, and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. For more information about the risks, uncertainties, and other factors that could affect our future results, please refer to Part I, Item II, Risks and Uncertainties and Part II, Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results, of this report, as well as Part I, Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

OVERVIEW

Our business

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

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

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

·Life Marketing - We market universal life (“UL”), variable universal life, bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) products on a national basis

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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. Additionally, we have contracts outstanding pursuant to a funding agreement-backed notes program registered with the SEC which offered notes to both institutional and retail investors.

·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.

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 may not be able to achieve the expected results from our recently announced acquisition;

·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;

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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;

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.

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

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 condensed financial statements. For a complete listing of our critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2012.

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 deferred acquisition costs (“DAC”) and value of business acquired (“VOBA”). Operating earnings exclude changes in the guaranteed minimum withdrawal benefits (“GMWB”) embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the variable annuity (“VA”) product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

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 Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Segment Operating Income (Loss)
Life Marketing	$	23,477		$	29,997		(21.7	)%
Acquisitions	34,377			39,099			(12.1	)
Annuities	42,869			35,459			20.9
Stable Value Products	17,844			12,646			41.1
Asset Protection	4,470			2,840			57.4
Corporate and Other	(19,896		)	21,266			n/m
Total segment operating income	103,141			141,307			(27.0	)
Realized investment gains (losses) - investments(1)	(9,857		)	22,430
Realized investment gains (losses) - derivatives	16,530			(22,669		)
Income tax expense	(35,936		)	(45,212		)
Net Income	$	73,878		$	95,856		(22.9	)
Investment gains (losses)(2)	$	(8,830	)	$	16,887
Less: related amortization of DAC/VOBA	1,027			(5,543		)
Realized investment gains (losses) - investments	$	(9,857	)	$	22,430
Derivative gains (losses) (3)	$	3,607		$	(29,909	)
Less: VA GMWB economic cost	(12,923		)	(7,240		)
Realized investment gains (losses) - derivatives	$	16,530		$	(22,669	)

(1)Includes credit related other-than-temporary impairments of $4.6 million and $18.6 million for the three months ended March 31, 2013 and 2012, 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 Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Net income for the three months ended March 31, 2013, included a $38.2 million, or 27.0%, decrease in segment operating income. The decrease consisted of a $6.5 million decrease in the Life Marketing segment, a $4.7 million decrease in the Acquisitions segment, and a $41.2 million decrease in the Corporate and Other segment.  These decreases were partially offset by a $7.4 million increase in the Annuities segment, a $5.2 million increase in the Stable Value Products segment, and a $1.6 million increase in the Asset Protection segment.

We experienced net realized losses of $5.2 million for the three months ended March 31, 2013, as compared to net realized losses of $13.0 million for the three months ended March 31, 2012. The losses realized for the three months ended March 31, 2013, were primarily related to $4.6 million for other-than-temporary impairment credit-related losses, net losses of $10.7 million of derivatives related to variable annuity contracts, and a $4.6 million loss related to other investment and derivative activity.  Partially offsetting these losses were $12.3 million of gains related to investment securities sale activity, $1.0 million of gains on interest rate caps and swaps,  and $1.4 million of gains related to the net activity of the modified coinsurance portfolio.

·Life Marketing segment operating income was $23.5 million for the three months ended March 31, 2013, representing a decrease of $6.5 million, or 21.7%, from the three months ended March 31, 2012. The decrease was primarily due to higher operating expenses resulting from higher sales. This decrease was partially offset by higher investment income, a favorable change in unlocking, and more favorable universal life claims.

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·Acquisitions segment operating income was $34.4 million for the three months ended March 31, 2013, a decrease of $4.7 million, or 12.1%, as compared to the three months ended March 31, 2012, primarily due to lower spread income and the expected runoff of business.

·Annuities segment operating income was $42.9 million for the three months ended March 31, 2013, as compared to $35.5 million for the three months ended March 31, 2012, an increase of $7.4 million, or 20.9%. This variance included an increase in spreads of $2.6 million and an increase in VA earnings of $8.5 million that was driven by higher policy fees and other income. Partially offsetting these favorable changes were increases in non-deferred expenses and DAC amortization.

·Stable Value Products segment operating income was $17.8 million and increased $5.2 million, or 41.1%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The increase in operating earnings resulted from higher operating spreads and lower expenses offset by a decline in average account values. The operating spread increased 99 basis points to 281 basis points for the three months ended March 31, 2013, as compared to an operating spread of 182 basis points for the three months ended March 31, 2012. The adjusted operating spread, which excludes participating income, increased by 75 basis points for the three months ended March 31, 2013 over the prior year.

·Asset Protection segment operating income was $4.5 million, representing an increase of $1.6 million, or 57.4%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The increase in income was due to a $2.0 million legal settlement accrual in the first quarter of 2012, partly offset by a $0.7 million decrease in investment income due to lower yields. Credit insurance earnings increased $2.1 million primarily due to the previously mentioned $2.0 million in litigation costs incurred in the first quarter of 2012. Service contract earnings increased $0.2 million, or 12.6%, primarily related to lower expenses. Earnings from the GAP product line decreased $0.7 million, or 18.8 %, primarily due to higher loss ratios.

·Corporate and Other segment operating loss was $19.9 million for the three months ended March 31, 2013, as compared to an operating income of $21.3 million for the three months ended March 31, 2012. The decrease was the result of a $28.0 million unfavorable variance related to gains on the repurchase of non-recourse funding obligations. For the three months ended March 31, 2013, $1.3 million of pre-tax gains were generated from the repurchase of non-recourse funding obligations as compared to $29.3 million of pre-tax gains for the three months ended March 31, 2012. In addition, the decrease was the result of an increase in other operating expenses as compared to the three months ended March 31, 2012, primarily due to guaranty fund assessments, acquisition related expenses, and fluctuations in non-acquisition related legal fees.

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Life Marketing

Segment results of operations

Segment results were as follows:

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	418,705		$	388,117		7.9	%
Reinsurance ceded	(207,662		)	(192,755		)	(7.7	)
Net premiums and policy fees	211,043			195,362			8.0
Net investment income	127,159			119,006			6.9
Other income	477			1,138			(58.1	)
Total operating revenues	338,679			315,506			7.3
BENEFITS AND EXPENSES
Benefits and settlement expenses	280,766			254,579			10.3
Amortization of deferred policy acquisition costs	14,022			22,594			(37.9	)
Other operating expenses	20,414			8,336			n/m
Total benefits and expenses	315,202			285,509			10.4
INCOME BEFORE INCOME TAX	23,477			29,997			(21.7	)
OPERATING INCOME	$	23,477		$	29,997		(21.7	)

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

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Sales By Product
Traditional	$	292		$	287		1.7	%
Universal life	46,995			20,962			n/m
BOLI	—			1,345			n/m
	$	47,287		$	22,594		n/m
Sales By Distribution Channel
Independent agents	$	31,537		$	13,940		n/m
Stockbrokers / banks	15,303			6,976			n/m
BOLI / other	447			1,678			(73.4	)
	$	47,287		$	22,594		n/m
Average Life Insurance In-force(1)
Traditional	$	437,245,336		$	461,855,587		(5.3	)
Universal life	91,692,734			73,904,855			24.1
	$	528,938,070		$	535,760,442		(1.3	)
Average Account Values
Universal life	$	6,726,549		$	6,330,645		6.3
Variable universal life	411,880			371,893			10.8
	$	7,138,429		$	6,702,538		6.5
Traditional Life Mortality Experience(2)	92		%	90		%

(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 Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
First year commissions	$	51,967		$	22,140		n/m	%
Renewal commissions	8,615			9,004			(4.3	)
First year ceding allowances	(935		)	(1,128		)	17.1
Renewal ceding allowances	(37,609		)	(39,037		)	3.7
General & administrative	44,747			34,286			30.5
Taxes, licenses, and fees	10,947			8,359			31.0
Other operating expenses incurred	77,732			33,624			n/m
Less: commissions, allowances & expenses capitalized	(57,318		)	(25,288		)	n/m
Other operating expenses	$	20,414		$	8,336		n/m

For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Segment operating income

Operating income was $23.5 million for the three months ended March 31, 2013, representing a decrease of $6.5 million, or 21.7%, from the three months ended March 31, 2012. The decrease was primarily due to higher operating expenses resulting from higher sales. This decrease was partially offset by higher investment income, a favorable change in unlocking, and more favorable universal life claims.

Operating revenues

Total revenues for the three months ended March 31, 2013, increased $23.2 million, or 7.3%, as compared to the three months ended March 31, 2012. This increase was driven by higher premiums and policy fees due to increased sales along with higher investment income due to increases in net in force reserves.

Net premiums and policy fees

Net premiums and policy fees increased by $15.7 million, or 8.0%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to an increase in premiums and policy fees associated with increased sales in universal life business, partially offset by decreases in traditional life premiums.

Net investment income

Net investment income in the segment increased $8.2 million, or 6.9%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Of the increase in net investment income, $5.2 million was the result of a net increase in universal life reserves. Traditional life investment income increased $2.9 million due to lower funding costs and higher reserves.

Other income

Other income decreased $0.7 million, or 58.1%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to fees on variable universal life funds.

Benefits and settlement expenses

Benefits and settlement expenses increased by $26.2 million, or 10.3%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to growth in retained universal life insurance

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in-force, an increase in reserves resulting from new sales and changes in universal life interest rate assumptions, higher credited interest on universal life products resulting from increases in account values, and higher claims from the continued maturing of the traditional life block. In 2013, universal life and BOLI unlocking was largely driven by investment yield and credited interest on fund value. The impact of these changes increased benefits and settlement expenses $1.9 million. In 2012, universal life and BOLI unlocking increased benefit expenses $6.9 million.

Amortization of DAC

DAC amortization decreased $8.6 million, or 37.9%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to differing impacts of unlocking. In 2013, universal life and BOLI unlocking decreased amortization $3.9 million, as compared to an increase of $2.0 million in 2012.

Other operating expenses

Other operating expenses increased $12.1 million for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. This increase reflects higher new business acquisition costs associated with higher sales, a reduction in reinsurance allowances, higher general administrative expenses, and a $1.4 million increase in interest expense associated with reserve financing costs.

Sales

Sales for the segment increased $24.7 million for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Traditional life sales increased slightly by 1.7%. Universal life sales increased $26.0 million due to the increased focus on sales and more competitive product positioning. BOLI sales decreased by $1.3 million due to less favorable product positioning.

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.

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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 Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(207,662	)	$	(192,755	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(208,126		)	(205,765		)
Amortization of deferred policy acquisition costs	(7,446		)	(11,941		)
Other operating expenses (1)	(29,191		)	(32,659		)
Total benefits and expenses	(244,763		)	(250,365		)
NET IMPACT OF REINSURANCE (2)	$	37,101		$	57,610
Allowances received	$	(35,544	)	$	(40,165	)
Less: Amount deferred	6,353			7,506
Allowances recognized
(ceded other operating expenses) (1)	$	(29,191	)	$	(32,659	)

(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%.

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.

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For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

The higher ceded premiums for 2013 as compared to 2012 was caused primarily by higher ceded traditional life premiums of $6.5 million and higher universal life premiums of $8.6 million.  Ceded traditional premiums for the three months ended March 31, 2013, increased from the three months ended March 31, 2012, as a number of policies reached their post level premium period. This was offset by increases in ceded premium reserves included in the benefits and settlement expenses line.

Ceded benefits and settlement expenses were higher for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to higher increases in ceded reserves, largely offset by lower ceded claims. Traditional ceded benefits decreased $4.2 million for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to a decrease in ceded death benefits largely offset by an increase in ceded reserves. Universal life ceded benefits increased $6.5 million for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to an increase in ceded reserves primarily due to new business, partly offset by lower ceded claims. Ceded universal life claims were $4.6 million lower for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.

Ceded amortization of deferred policy acquisitions costs decreased for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to the differences in unlocking between the two periods.

Ceded other operating expenses reflect the impact of reinsurance allowances on net income. Allowances decreased in the traditional line reflecting runoff of business and in the universal life line reflecting the allowance pattern on older business and changes in the mix of business.

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Acquisitions

Segment results of operations

Segment results were as follows:

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	208,726		$	212,158		(1.6	)%
Reinsurance ceded	(96,605		)	(80,301		)	(20.3	)
Net premiums and policy fees	112,121			131,857			(15.0	)
Net investment income	134,669			138,121			(2.5	)
Other income	1,014			1,579			(35.8	)
Total operating revenues	247,804			271,557			(8.7	)
Realized gains (losses) - investments	(14,043		)	17,312
Realized gains (losses) - derivatives	16,726			10,640
Total revenues	250,487			299,509
BENEFITS AND EXPENSES
Benefits and settlement expenses	179,449			194,173			(7.6	)
Amortization of value of business acquired	18,213			23,175			(21.4	)
Other operating expenses	15,765			15,110			4.3
Operating benefits and expenses	213,427			232,458			(8.2	)
Amortization of VOBA related to realized gains (losses) - investments	173			(33		)
Total benefits and expenses	213,600			232,425			(8.1	)
INCOME BEFORE INCOME TAX	36,887			67,084			(45.0	)
Less: realized gains (losses)	2,683			27,952
Less: related amortization of VOBA	(173		)	33
OPERATING INCOME	$	34,377		$	39,099		(12.1	)

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The following table summarizes key data for the Acquisitions segment:

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Average Life Insurance In-Force(1)
Traditional	$	172,010,502		$	183,952,120		(6.5	)%
Universal life	28,668,022			31,660,021			(9.5	)
	$	200,678,524		$	215,612,141		(6.9	)
Average Account Values
Universal life	$	3,357,805		$	3,471,229		(3.3	)
Fixed annuity(2)	3,082,334			3,243,372			(5.0	)
Variable annuity	576,020			615,966			(6.5	)
	$	7,016,159		$	7,330,567		(4.3	)
Interest Spread - UL & Fixed Annuities
Net investment income yield(3)	5.67		%	5.84		%
Interest credited to policyholders	3.93			3.94
Interest spread	1.74		%	1.90		%

(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 Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Segment operating income

Operating income was $34.4 million for the three months ended March 31, 2013, a decrease of $4.7 million, or 12.1%, as compared to the three months ended March 31, 2012, primarily due to lower spread income and the expected runoff of business.

Operating revenues

Net premiums and policy fees decreased $19.7 million, or 15.0%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to the impact of a reinsurance recapture on 2012 results and the expected runoff of business. Net investment income decreased $3.5 million, or 2.5%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, due to the expected runoff of business and lower yields.

Total benefits and expenses

Total benefits and expenses decreased $18.8 million, or 8.1%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The decrease was due to the impact of a reinsurance recapture on 2012 results and 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 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

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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 Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(96,605	)	$	(80,301	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(85,379		)	(58,001		)
Amortization of deferred policy acquisition costs	(2,364		)	(3,402		)
Other operating expenses	(11,738		)	(14,206		)
Total benefits and expenses	(99,481		)	(75,609		)
NET IMPACT OF REINSURANCE (1)	$	2,876		$	(4,692	)

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

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 is more favorable by $7.6 million for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to higher ceded death claims.  In the three months ended March 31, 2012, ceded revenues were reduced by $17.2 million and ceded benefits and expenses were reduced by $15.6 million due to a reinsurance recapture.

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Annuities

Segment results of operations

Segment results were as follows:

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	28,552		$	21,928		30.2	%
Reinsurance ceded	—			(13		)	n/m
Net premiums and policy fees	28,552			21,915			30.3
Net investment income	118,556			125,984			(5.9	)
Realized gains (losses) - derivatives	(12,923		)	(7,240		)	(78.5	)
Other income	26,220			17,350			51.1
Total operating revenues	160,405			158,009			1.5
Realized gains (losses) - investments	1,773			15,013
Realized gains (losses) - derivatives, net of economic cost	2,175			(33,960		)
Total revenues	164,353			139,062			18.2
BENEFITS AND EXPENSES
Benefits and settlement expenses	80,671			90,290			(10.7	)
Amortization of deferred policy acquisition costs and value of business acquired	10,654			9,002			18.4
Other operating expenses	26,211			23,258			12.7
Operating benefits and expenses	117,536			122,550			(4.1	)
Amortization related to benefits and settlement expenses	(601		)	1,619
Amortization of DAC related to realized gains (losses) - investments	1,455			(7,129		)
Total benefits and expenses	118,390			117,040			1.2
INCOME BEFORE INCOME TAX	45,963			22,022			n/m
Less: realized gains (losses) - investments	1,773			15,013
Less: realized gains (losses) - derivatives, net of economic cost	2,175			(33,960		)
Less: amortization related to benefits and settlement expenses	601			(1,619		)
Less: related amortization of DAC	(1,455		)	7,129
OPERATING INCOME	$	42,869		$	35,459		20.9

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The following table summarizes key data for the Annuities segment:

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Sales
Fixed annuity	$	115,353		$	152,826		(24.5	)%
Variable annuity	579,698			567,408			2.2
	$	695,051		$	720,234		(3.5	)
Average Account Values
Fixed annuity(1)	$	8,398,457		$	8,631,269		(2.7	)
Variable annuity	9,600,722			6,632,077			44.8
	$	17,999,179		$	15,263,346		17.9
Interest Spread - Fixed Annuities(2)
Net investment income yield	5.54		%	5.78		%
Interest credited to policyholders	3.55			3.97
Interest spread	1.99		%	1.81		%

(1)	Includes general account balances held within variable annuity products.
(2)	Interest spread on average general account values.

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	(16,484	)	$	(33,406	)	$	16,922
Equity futures - VA	(23,225		)	(25,099		)	1,874
Currency futures - VA	8,083			(984		)	9,067
Volatility futures - VA	—			(475		)	475
Volatility swaps - VA	(10,433		)	(1,884		)	(8,549		)
Equity options - VA	(28,406		)	(23,872		)	(4,534		)
Interest rate swaptions - VA	(4,102		)	(3,519		)	(583		)
Interest rate swaps - VA	(16,556		)	(2,128		)	(14,428		)
Embedded derivative - GMWB(1)	80,375			50,167			30,208
Total derivatives related to variable annuity contracts	$	(10,748	)	$	(41,200	)	$	30,452
Economic cost(2)	12,923			7,240			5,683
Realized gains (losses) - derivatives, net of economic cost	$	2,175		$	(33,960	)	$	36,135

(1)	Includes impact of nonperformance risk of $(5.4) million and $(41.9) million for the three months ended March 31, 2013 and 2012, respectively.
(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
	March 31, 2013		December 31, 2012		Change
	(Dollars In Thousands)
GMDB - Net amount at risk(1)	$	105,313	$	129,309	(18.6	)%
GMDB Reserves	17,263		19,316		(10.6	)
GMWB and GMAB Reserves(1)	88,895		169,269		(47.5	)
Account value subject to GMWB rider	8,001,578		7,165,375		11.7
GMWB Benefit Base	7,357,043		6,888,471		6.8
S&P 500® Index	1,569		1,426		10.0

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

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For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Segment operating income

Segment operating income was $42.9 million for the three months ended March 31, 2013, as compared to $35.5 million for the three months ended March 31, 2012, an increase of $7.4 million, or 20.9%. This variance included an increase in spreads of $2.6 million and an increase in VA earnings of $8.5 million that was driven by higher policy fees and other income. Partially offsetting these favorable changes were increases in non-deferred expenses and DAC amortization.

Operating revenues

Segment operating revenues increased $2.4 million, or 1.5%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to increases in policy fees and other income from the VA line of business. Those increases were offset by increased economic cost in the VA line of business and lower investment income. Average fixed account balances decreased 2.7% and average variable account balances grew 44.8% for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.

Benefits and settlement expenses

Benefits and settlement expenses decreased $9.6 million, or 10.7%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. This decrease was primarily the result of lower credited interest, lower realized losses in the fixed market value adjusted (“MVA”) annuities line, and a $1.5 million favorable change in fixed indexed annuities (“FIA”) fair value adjustments. These favorable changes were partially offset by a $4.5 million unfavorable change in the single premium immediate annuity (“SPIA”) mortality variance.

Amortization of DAC

The increase in DAC amortization for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, was primarily due to growth in the VA line of business.

Other operating expenses

Other operating expenses increased $3.0 million, or 12.7%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The increase is due to higher commissions and maintenance expenses driven by growth of the business.

Sales

Total sales decreased $25.2 million, or 3.5%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Sales of variable annuities increased $12.3 million, or 2.2% for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Sales of fixed annuities decreased by $37.5 million, or 24.5% for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, driven by a decrease in single premium deferred annuity sales.

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Stable Value Products

Segment results of operations

Segment results were as follows:

	For The Three Months Ended March 31,
	2013		2012		Change
	(Dollars In Thousands)
REVENUES
Net investment income	$	30,074	$	32,402	(7.2	)%
Other income	—		1		n/m
Total operating revenues	30,074		32,403		(7.2	)
Realized gains (losses)	1,846		2,253		(18.1	)
Total revenues	31,920		34,656		(7.9	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	11,603		18,957		(38.8	)
Amortization of deferred policy acquisition costs	81		196		(58.7	)
Other operating expenses	546		604		(9.6	)
Total benefits and expenses	12,230		19,757		(38.1	)
INCOME BEFORE INCOME TAX	19,690		14,899		32.2
Less: realized gains (losses)	1,846		2,253
OPERATING INCOME	$	17,844	$	12,646	41.1

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

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Sales
GIC	$	112,020		$	26,000		n/m	%
GFA - Direct Institutional	—			150,000			n/m
	$	112,020		$	176,000		(36.4	)
Average Account Values	$	2,543,906		$	2,784,389		(8.6	)%
Ending Account Values	$	2,544,609		$	2,772,378		(8.2	)%
Operating Spread
Net investment income yield	4.73		%	4.65		%
Interest credited	1.82			2.71
Operating expenses	0.10			0.12
Operating spread	2.81		%	1.82		%
Adjusted operating spread(1)	2.55		%	1.80		%

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

For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Segment operating income

Operating income was $17.8 million and increased $5.2 million, or 41.1%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The increase in operating earnings resulted from higher operating spreads and lower expenses offset by a decline in average account values. The operating spread increased 99 basis points to 281 basis points for the three months ended March 31, 2013, as compared to an operating

65

spread of 182 basis points for the three months ended March 31, 2012. The adjusted operating spread, which excludes participating income, increased by 75 basis points for the three months ended March 31, 2013 over the prior year.

Sales

Total sales were $112.0 million for the three months ended March 31, 2013.

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Asset Protection

Segment results of operations

Segment results were as follows:

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	62,539		$	65,029		(3.8	)%
Reinsurance ceded	(21,573		)	(23,210		)	7.1
Net premiums and policy fees	40,966			41,819			(2.0	)
Net investment income	4,815			5,259			(8.4	)
Other income	25,530			25,566			(0.1	)
Total operating revenues	71,311			72,644			(1.8	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	23,754			21,428			10.9
Amortization of deferred policy acquisition costs	5,262			5,528			(4.8	)
Other operating expenses	37,825			42,848			(11.7	)
Total benefits and expenses	66,841			69,804			(4.2	)
INCOME BEFORE INCOME TAX	4,470			2,840			57.4
OPERATING INCOME	$	4,470		$	2,840		57.4

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

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Sales
Credit insurance	$	7,333		$	8,799		(16.7	)%
Service contracts	76,270			77,065			(1.0	)
GAP	14,766			18,295			(19.3	)
	$	98,369		$	104,159		(5.6	)
Loss Ratios(1)
Credit insurance	38.4		%	28.5		%
Service contracts	59.8			55.5
GAP	58.1			44.0

(1)Incurred claims as a percentage of earned premiums

For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Segment operating income

Operating income was $4.5 million, representing an increase of $1.6 million, or 57.4%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The increase in income was due to a $2.0 million legal settlement accrual in the first quarter of 2012, partly offset by a $0.7 million decrease in investment income due to lower yields. Credit insurance earnings increased $2.1 million primarily due to the previously mentioned $2.0 million in litigation costs incurred in the first quarter of 2012. Service contract earnings increased $0.2 million, or 12.6%, primarily related to lower expenses. Earnings from the GAP product line decreased $0.7 million, or 18.8%, primarily due to higher loss ratios.

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Net premiums and policy fees

Net premiums and policy fees decreased $0.9 million, or 2.0%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Credit insurance premiums decreased $1.5 million, or 33.2%. The decrease was primarily the result of decreasing sales in prior years and the related impact on earned premiums. GAP net premiums increased $0.6 million, or 12.1%.

Other income

Other income remained consistent for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012.

Benefits and settlement expenses

Benefits and settlement expenses increased $2.3 million, or 10.9%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Service contract claims increased $1.4 million, or 7.7% and GAP claims increased $1.0 million, or 48.6%, both resulting from higher loss ratios. Credit insurance claims decreased $0.1 million, or 10.1%.

Amortization of DAC and Other operating expenses

Amortization of DAC was $0.3 million, or 4.8%, lower for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to lower earned premiums in the credit and GAP product lines. Other operating expenses decreased $5.0 million, or 11.7%, for the three months ended March 31, 2013, primarily due to a $2.0 million legal settlement accrual and higher expenses related to new initiatives in the first quarter of 2012 and lower volume in 2013, partly offset by $0.6 million in severance costs in the first quarter of 2013.

Sales

Total segment sales decreased $5.8 million, or 5.6%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. Sales in the GAP product line decreased $3.5 million, or 19.3% primarily due to lower sales through one large distribution partner and a change in mix of GAP business. Credit insurance sales decreased $1.5 million, or 16.7%, primarily due to an increase in refunds as a result of the 2012 legal settlement. Service contract sales decreased $0.8 million, or 1.0%.

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, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

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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 Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(21,573	)	$	(23,210	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(12,928		)	(15,548		)
Amortization of deferred policy acquisition costs	(3,793		)	(5,162		)
Other operating expenses	(2,068		)	(2,445		)
Total benefits and expenses	(18,789		)	(23,155		)
NET IMPACT OF REINSURANCE (1)	$	(2,784	)	$	(55	)

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

For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Reinsurance premiums ceded decreased $1.6 million, or 7.1%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The decrease was primarily due to a decline in ceded dealer credit insurance premiums due to lower sales in prior years and a change in mix of business in the GAP line

Benefits and settlement expenses ceded decreased $2.6 million, or 16.9%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012. The decrease was primarily due to lower losses in the service contract and dealer credit lines.

Amortization of DAC ceded decreased $1.4 million, or 26.5%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily as the result of decreases in ceded activity in the dealer credit and GAP product lines. Other operating expenses ceded decreased $0.4 million, or 15.4%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily as a result of decreases in the GAP line.

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 Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	4,678		$	5,166		(9.4	)%
Reinsurance ceded	—			(16		)	n/m
Net premiums and policy fees	4,678			5,150			(9.2	)
Net investment income	23,739			22,760			4.3
Other income	1,193			29,508			(96.0	)
Total operating revenues	29,610			57,418			(48.4	)
Realized gains (losses) - investments	1,962			(17,045		)
Realized gains (losses) - derivatives	(2,739		)	5
Total revenues	28,833			40,378			(28.6	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	5,334			5,963			(10.5	)
Amortization of deferred policy acquisition costs	179			354			(49.4	)
Other operating expenses	43,993			29,835			47.5
Total benefits and expenses	49,506			36,152			36.9
INCOME (LOSS) BEFORE INCOME TAX	(20,673		)	4,226			n/m
Less: realized gains (losses) - investments	1,962			(17,045		)
Less: realized gains (losses) - derivatives	(2,739		)	5
OPERATING INCOME (LOSS)	$	(19,896	)	$	21,266		n/m

For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

Segment operating income (loss)

Corporate and Other segment operating loss was $19.9 million for the three months ended March 31, 2013, as compared to operating income of $21.3 million for the three months ended March 31, 2012. The decrease was the result of a $28.0 million unfavorable variance related to gains on the repurchase of non-recourse funding obligations. For the three months ended March 31, 2013, $1.3 million of pre-tax gains were generated from the repurchase of non-recourse funding obligations as compared to $29.3 million of pre-tax gains for the three months ended March 31, 2012. In addition, the decrease was the result of an increase in other operating expenses as compared to the three months ended March 31, 2012, primarily due to guaranty fund assessments, acquisition related expenses, and fluctuations in non-acquisition related legal fees.

Operating revenues

Net investment income for the segment increased $1.0 million, or 4.3%, for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, and net premiums and policy fees decreased $0.5 million, or 9.2%. Other income decreased $28.3 million for the three months ended March 31, 2013 as compared to the three months ended March 31, 2012, primarily due to a $28.0 million unfavorable variance related to gains generated on the repurchase of non-recourse funding obligations.

Total benefits and expenses

Total benefits and expenses increased $13.4 million for the three months ended March 31, 2013, as compared to the three months ended March 31, 2012, primarily due to an increase in other operating expenses.  The increase in operating expenses is the result of guaranty fund assessments, acquisition related expenses, and fluctuations in non-acquisition related legal fees.

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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 March 31, 2013, our investment portfolio was approximately $37.0 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
	March 31, 2013				December 31, 2012
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2013 - $21,559,521; 2012 - $21,228,463)	$	23,905,513	64.7	%	$	23,808,542	64.6	%
Privately issued bonds (amortized cost: 2013 - $5,952,292; 2012 - $5,732,847)	6,457,236		17.5		6,261,436		17.0
Fixed maturities	30,362,749		82.1		30,069,978		81.6
Equity securities (cost: 2013 - $406,661; 2012 - $371,827)	376,117		1.0		373,715		1.0
Mortgage loans	4,834,342		13.1		4,948,625		13.4
Investment real estate	6,484		—		6,517		—
Policy loans	862,202		2.3		865,391		2.3
Other long-term investments	361,599		1.0		378,821		1.0
Short-term investments	160,301		0.4		216,787		0.7
Total investments	$	36,963,794	100.0	%	$	36,859,834	100.0	%

Included in the preceding table are $3.0 billion and $3.0 billion of fixed maturities and $110.6 million and $118.9 million of short-term investments classified as trading securities as of March 31, 2013 and December 31, 2012, respectively. The trading portfolio includes invested assets of $3.0 billion and $3.0 billion as of March 31, 2013 and December 31, 2012, 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 $315.0 million and $300.0 million of securities classified as held-to-maturity as of March 31, 2013 and December 31, 2012, respectively.

Fixed Maturity Investments

As of March 31, 2013, our fixed maturity investment holdings were approximately $30.4 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:

	As of
Rating	March 31, 2013		December 31, 2012
AAA	14.4	%	14.7	%
AA	7.0		7.2
A	31.5		30.8
BBB	39.6		39.7
Below investment grade	6.5		6.6
Not rated	1.0		1.0
	100.0	%	100.0	%

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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 March 31, 2013, based upon amortized cost, $39.8 million of our securities were guaranteed either directly or indirectly by third parties out of a total of $27.1 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
Type	March 31, 2013		December 31, 2012
	(Dollars In Millions)
Corporate bonds	$	22,399.8	$	22,037.9
Residential mortgage-backed securities	2,072.4		2,197.1
Commercial mortgage-backed securities	1,093.1		1,040.9
Other asset-backed securities	1,109.0		1,133.0
U.S. government-related securities	1,503.8		1,474.3
Other government-related securities	152.2		164.2
States, municipals, and political subdivisions	1,717.4		1,722.6
Other	315.0		300.0
Total fixed income portfolio	$	30,362.7	$	30,070.0

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 $27.1 billion, or 89.2%, of our fixed maturities as “available-for-sale” as of March 31, 2013. These securities are carried at fair value on our consolidated condensed balance sheets.

Fixed maturities that we have both the positive intent and ability to hold to maturity are classified as “held-to-maturity”. We classified $315.0 million, or 1.0% of our fixed maturities as “held-to-maturity” as of March 31, 2013. These securities are carried at amortized cost on our consolidated condensed balance sheets.

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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 9.8%, of our fixed maturities and $110.6 million of short-term investments as of March 31, 2013. 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
Rating	March 31, 2013		December 31, 2012
	(Dollars In Thousands)
AAA	$	546,682	$	559,374
AA	233,231		239,834
A	828,145		801,562
BBB	992,504		1,038,873
Below investment grade	354,715		353,089
Total Modco trading fixed maturities	$	2,955,277	$	2,992,732

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 March 31, 2013, were approximately $4.3 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 March 31, 2013, our RMBS portfolio was approximately $2.1 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 March 31, 2013.

	Percentage of
	Residential
	Mortgage- Backed
Type	Securities
Sequential	22.9	%
PAC	43.6
Pass Through	7.2
Other	26.3
	100.0	%

	Percentage of
	Residential
	Mortgage-Backed
Rating	Securities
AAA	55.3	%
AA	0.4
A	2.3
BBB	0.7
Below investment grade	41.3
	100.0	%

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Alt-A Collateralized Holdings

As of March 31, 2013, we held securities with a fair value of $442.8 million, or 1.2% of invested assets, supported by collateral classified as Alt-A. As of December 31, 2012, we held securities with a fair value of $443.6 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 March 31, 2013, these securities had a fair value of $143.8 million and an unrealized gain of $26.9 million.

The following table includes the percentage of our collateral classified as Alt-A, grouped by rating category, as of March 31, 2013:

	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 March 31, 2013:

Alt-A Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012		2013		Total
	(Dollars In Millions)
A	$	0.8	$	—	$	—	$	—	$	—	$	0.8
Below investment grade	442.0		—		—		—		—		442.0
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	442.8	$	—	$	—	$	—	$	—	$	442.8

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012		2013		Total
	(Dollars In Millions)
A	$	—	$	—	$	—	$	—	$	—	$	—
Below investment grade	30.1		—		—		—		—		30.1
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	30.1	$	—	$	—	$	—	$	—	$	30.1

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Sub-prime Collateralized Holdings

As of March 31, 2013, we held securities with a total fair value of $2.6 million that were supported by collateral classified as sub-prime. As of December 31, 2012, we held securities with a fair value of $2.7 million that were supported by collateral classified as sub-prime.

Prime Collateralized Holdings

As of March 31, 2013, we had RMBS collateralized by prime mortgage loans (including agency mortgages) with a total fair value of $1.6 billion, or 4.4%, of total invested assets. As of December 31, 2012, we held securities with a fair value of $1.8 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 March 31, 2013:

	Percentage of
	Prime
Rating	Securities
AAA	70.4	%
AA	0.5
A	2.9
BBB	0.9
Below investment grade	25.3
	100.0	%

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 March 31, 2013:

Prime Collateralized Holdings

	Estimated Fair Value of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012		2013		Total
	(Dollars In Millions)
AAA	$	437.7	$	337.4	$	344.9	$	4.0	$	21.9	$	1,145.9
AA	7.4		—		—		—		—		7.4
A	43.3		—		3.7		—		—		47.0
BBB	14.2		—		—		—		—		14.2
Below investment grade	412.5		—		—		—		—		412.5
Total mortgage-backed securities collateralized by prime mortgage loans	$	915.1	$	337.4	$	348.6	$	4.0	$	21.9	$	1,627.0

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior			2010		2011		2012		2013			Total
	(Dollars In Millions)
AAA	$	30.5		$	22.5	$	24.2	$	0.1	$	(0.2	)	$	77.1
AA	—			—		—		—		—			—
A	2.5			—		—		—		—			2.5
BBB	0.9			—		—		—		—			0.9
Below investment grade	(3.7		)	—		—		—		—			(3.7		)
Total mortgage-backed securities collateralized by prime mortgage loans	$	30.2		$	22.5	$	24.2	$	0.1	$	(0.2	)	$	76.8

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Commercial mortgage-backed securities - Our CMBS portfolio consists of commercial mortgage-backed securities issued in securitization transactions. As of March 31, 2013, the CMBS holdings were approximately $1.1 billion. As of December 31, 2012, the CMBS holdings were approximately $1.0 billion.

The following table includes the percentages of our CMBS holdings, grouped by rating category, as of March 31, 2013:

	Percentage of
	Commercial
	Mortgage-Backed
Rating	Securities
AAA	67.1	%
AA	12.6
A	18.7
BBB	1.6
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our CMBS as of March 31, 2013:

Commercial Mortgage-Backed Securities

	Estimated Fair Value of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012		2013		Total
	(Dollars In Millions)
AAA	$	93.9	$	84.5	$	230.7	$	280.3	$	44.3	$	733.7
AA	—		34.1		39.3		43.6		20.3		137.3
A	47.7		35.3		87.7		15.0		18.7		204.4
BBB	17.7		—		—		—		—		17.7
Total commercial mortgage-backed securities	$	159.3	$	153.9	$	357.7	$	338.9	$	83.3	$	1,093.1

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012			2013			Total
	(Dollars In Millions)
AAA	$	3.0	$	9.6	$	28.9	$	10.6		$	(0.4	)	$	51.7
AA	—		2.8		4.2		(0.4		)	0.1			6.7
A	2.9		2.7		4.2		0.7			0.1			10.6
BBB	0.8		—		—		—			—			0.8
Total commercial mortgage-backed securities	$	6.7	$	15.1	$	37.3	$	10.9		$	(0.2	)	$	69.8

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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 March 31, 2013, these holdings were approximately $1.1 billion. As of December 31, 2012, these holdings were approximately $1.1 billion.

The following table includes the percentages of our other asset-backed holdings, grouped by rating category, as of March 31, 2013:

	Percentage of
	Other Asset- Backed
Rating	Securities
AAA	55.5	%
AA	15.4
A	16.8
BBB	0.2
Below investment grade	12.1
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our asset-backed securities as of March 31, 2013:

Other Asset-Backed Securities

	Estimated Fair Value of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012		2013		Total
	(Dollars In Millions)
AAA	$	520.1	$	32.1	$	27.6	$	36.0	$	—	$	615.8
AA	163.9		—		—		6.7		—		170.6
A	35.0		—		75.9		67.3		8.0		186.2
BBB	2.3		—		—		—		—		2.3
Below investment grade	134.1		—		—		—		—		134.1
Total other asset-backed securities	$	855.4	$	32.1	$	103.5	$	110.0	$	8.0	$	1,109.0

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior			2010		2011		2012		2013		Total
	(Dollars In Millions)
AAA	$	(52.7	)	$	0.1	$	2.0	$	1.8	$	—	$	(48.8	)
AA	(14.7		)	—		—		0.3		—		(14.4		)
A	5.0			—		7.7		1.3		—		14.0
BBB	—			—		—		—		—		—
Below investment grade	9.5			—		—		—		—		9.5
Total other asset-backed securities	$	(52.9	)	$	0.1	$	9.7	$	3.4	$	—	$	(39.7	)

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We obtained ratings of our fixed maturities from Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”), and/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 March 31, 2013, over 99.0% of our fixed maturities were rated by Moody’s, S&P, Fitch, and/or the NAIC.

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

	As of		% Fair		As of		% Fair
	March 31, 2013		Value		December 31, 2012		Value
	(Dollars In Thousands)
Banking	$	2,381,613	7.8	%	$	2,314,924	7.7	%
Other finance	415,100		1.4		346,029		1.2
Electric	3,749,769		12.3		3,782,241		12.6
Natural gas	2,216,785		7.3		2,199,265		7.3
Insurance	2,563,878		8.4		2,539,394		8.4
Energy	1,754,364		5.8		1,820,275		6.1
Communications	1,253,656		4.1		1,260,773		4.2
Basic industrial	1,307,996		4.3		1,293,037		4.3
Consumer noncyclical	1,904,964		6.3		1,738,686		5.8
Consumer cyclical	983,832		3.2		941,057		3.1
Finance companies	247,752		0.8		244,107		0.8
Capital goods	1,070,974		3.5		1,065,864		3.5
Transportation	683,802		2.3		670,477		2.2
Other industrial	257,143		0.8		235,642		0.8
Brokerage	605,936		2.0		588,307		2.0
Technology	845,185		2.8		844,036		2.8
Real estate	115,353		0.4		119,021		0.4
Other utility	41,735		0.1		34,779		0.1
Commercial mortgage-backed securities	1,093,141		3.6		1,040,896		3.5
Other asset-backed securities	1,108,983		3.7		1,132,943		3.8
Residential mortgage-backed non-agency securities	920,185		3.0		987,035		3.3
Residential mortgage-backed agency securities	1,152,247		3.8		1,210,098		4.0
U.S. government-related securities	1,503,788		5.0		1,474,319		4.9
Other government-related securities	152,205		0.5		164,222		0.5
State, municipals, and political divisions	1,717,363		5.8		1,722,551		5.7
Other	315,000		1.0		300,000		1.0
Total	$	30,362,749	100.0	%	$	30,069,978	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 March 31, 2013, our fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $30.4 billion, which was 12.2% above amortized cost of $27.1 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 March 31, 2013, our mortgage loan holdings were approximately $4.8 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 March 31, 2013 and December 31, 2012, our allowance for mortgage loan credit losses was $4.0 million and $2.9 million, respectively. While our mortgage loans do not have quoted market values, as of March 31, 2013, we estimated the fair value of our mortgage loans to be $5.6 billion (using discounted cash flows from the next call date), which was approximately 13% 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 March 31, 2013 and December 31, 2012, approximately $736.9 million and $817.3 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 $143.0 million will become due for the remainder of 2013, $1.3 billion in 2014 through 2018, $588.2 million in 2019 through 2023, and $178.3 million thereafter.

As of March 31, 2013, approximately $19.7 million, or 0.05%, 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. 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 March 31, 2013, $12.7 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the three months ended March 31, 2013. We did not foreclose on any nonperforming loans during the three months ended March 31, 2013.

As of March 31, 2013, $6.9 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the three months ended March 31, 2013. We did not foreclose on any nonperforming loans during the three months ended March 31, 2013.

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

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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.

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 March 31, 2013:

			Percent of
Rating	Fair Value		Fair Value
	(Dollars In Thousands)
AAA	$	3,836,309	14.2	%
AA	1,885,505		7.0
A	8,749,155		32.3
BBB	11,039,598		40.8
Investment grade	25,510,567		94.3
BB	805,525		3.0
B	93,389		0.3
CCC or lower	670,080		2.4
Below investment grade	1,568,994		5.7
Total	$	27,079,561	100.0	%

Not included in the table above are $2.6 billion of investment grade and $367.5 million of below investment grade fixed maturities classified as trading securities and $315.0 million of not rated fixed maturities classified as held-to-maturity.

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 March 31, 2013. The following table includes securities held in our Modco portfolio and summarizes our ten largest maturity exposures to an individual creditor group as of March 31, 2013:

	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 and Company	144.2		14.0		158.2
Rio Tinto	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

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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 three months ended March 31, 2013, we concluded that approximately $4.6 million of investment securities in an unrealized loss position was other-than-temporarily impaired, due to credit-related factors, resulting in a charge to earnings. Additionally, we recognized a $3.3 million reduction of non-credit losses in other comprehensive income for the securities where an other-than-temporary impairment was recorded for the three months ended March 31, 2013. These non-credit losses were 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.

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The chart shown below includes our non-sovereign fair value exposures in these countries as of March 31, 2013. As March 31, 2013, 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	$	386.2	$	407.6	$	793.8
Switzerland	120.9		199.0		319.9
France	69.9		99.1		169.0
Sweden	143.2		4.9		148.1
Netherlands	163.4		88.8		252.2
Spain	38.6		97.9		136.5
Belgium	—		87.4		87.4
Germany	27.7		58.5		86.2
Ireland	6.1		84.5		90.6
Luxembourg	—		57.0		57.0
Italy	—		48.2		48.2
Norway	—		13.9		13.9
Total securities	956.0		1,246.8		2,202.8
Derivatives:
Germany	16.5		—		16.5
Switzerland	2.4		—		2.4
Total derivatives	18.9		—		18.9
Total securities	$	974.9	$	1,246.8	$	2,221.7

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Realized Gains and Losses

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

	For The Three Months Ended March 31,
	2013			2012			Change
	(Dollars In Thousands)
Fixed maturity gains - sales	$	12,854		$	22,815		(9,961	)
Fixed maturity losses - sales	(556		)	(3,137		)	2,581
Equity gains - sales	1			—			1
Impairments on fixed maturity securities	(3,587		)	(18,572		)	14,985
Impairments on equity securities	(997		)	(24		)	(973	)
Modco trading portfolio	(15,328		)	18,099			(33,427	)
Other	(1,217		)	(2,294		)	1,077
Total realized gains (losses) - investments	$	(8,830	)	$	16,887		(25,717	)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	(16,484	)	$	(33,406	)	16,922
Equity futures - VA	(23,225		)	(25,099		)	1,874
Currency futures - VA	8,083			(984		)	9,067
Volatility futures - VA	—			(475		)	475
Volatility swaps - VA	(10,433		)	(1,884		)	(8,549	)
Equity options - VA	(28,406		)	(23,872		)	(4,534	)
Interest rate swaptions - VA	(4,102		)	(3,519		)	(583	)
Interest rate swaps - VA	(16,556		)	(2,128		)	(14,428	)
Embedded derivative - GMWB	80,375			50,167			30,208
Total derivatives related to variable annuity contracts	(10,748		)	(41,200		)	30,452
Embedded derivative - Modco reinsurance treaties	16,775			10,706			6,069
Interest rate swaps	1,003			2,037			(1,034	)
Interest rate caps	—			(2,164		)	2,164
Derivatives with PLC(1)	(3,778		)	—			(3,778	)
Other derivatives	355			712			(357	)
Total realized gains (losses) - derivatives	$	3,607		$	(29,909	)	33,516

(1)These derivatives include the interest support, a yearly renewable term (“YRT”) premium support, and portfolio maintenance agreements between certain of our subsidiaries 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 three months ended March 31, 2013, 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 March 31, 2013, we had posted cash and securities (at fair value) as collateral of approximately $20.1 million and $54.6 million, respectively. As of March 31, 2013, we received $2.5 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.

Realized losses are comprised of both write-downs of other-than-temporary impairments and actual sales of investments. For the three months ended March 31, 2013, we recognized pre-tax other-than-temporary impairments of $4.6 million due to credit-related factors, resulting in a charge to earnings. Additionally, we recognized $3.3 million of non-credit gains in other comprehensive income for the securities where an other-than-temporary impairment was recorded. These non-credit gains were caused by recognizing, in the current quarter, credit losses in earnings that had previously been recognized as non-credit losses in other comprehensive income. For the three months ended March 31, 2012, we recognized pre-tax other-than-temporary impairments of $18.6 million. These other-than-temporary

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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 Three Months Ended March 31,
	2013		2012
	(Dollars In Millions)
Alt-A MBS	$	1.6	$	1.9
Other MBS	2.0		4.9
Corporate bonds	—		11.8
Equities	1.0		—
Total	$	4.6	$	18.6

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 three months ended March 31, 2013, we sold securities in an unrealized loss position with a fair value of $4.0 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	$	2,998	75.1	%	$	(31	)	5.7	%
>90 days but <= 180 days	—		—		—			—
>180 days but <= 270 days	—		—		—			—
>270 days but <= 1 year	13		0.3		(4		)	0.8
>1 year	983		24.6		(521		)	93.5
Total	$	3,994	100.0	%	$	(556	)	100.0	%

For the three months ended March 31, 2013, we sold securities in an unrealized loss position with a fair value (proceeds) of $4.0 million. The loss realized on the sale of these securities was $0.6 million. The $0.6 million loss recognized on available-for-sale securities for the three months ended March 31, 2013, includes a $0.4 million loss on the sale of Countrywide.

For the three months ended March 31, 2013, we sold securities in an unrealized gain position with a fair value of $387.9 million. The gain realized on the sale of these securities was $12.9 million.

The $1.2 million of other realized losses recognized for the three months ended March 31, 2013, consists of the increase in the mortgage loan reserves.

For the three months ended March 31, 2013, net losses of $15.3 million primarily related to changes in fair value on our Modco trading portfolios were included in realized gains and losses. Of this amount, approximately $2.3 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 gains of $16.8 million during the three months ended March 31, 2013. These gains were primarily the result of credit spreads modestly tightening and a modest increase 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

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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 $23.2 million, interest rate futures resulted in pre-tax losses of $16.5 million, currency futures resulted in net pre-tax gains of $8.1 million, and volatility futures resulted in no pre-tax gains or losses for the three months ended March 31, 2013, respectively. No volatility future positions were held during the three months ended March 31, 2013.

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 $28.4 million and the volatility swaps resulted in a net pre-tax loss of $10.4 million, respectively, for three months ended March 31, 2013.

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 losses of $16.6 million and interest rate swaptions resulted in a net pre-tax loss of $4.1 million for three months ended March 31, 2013.

The GMWB rider embedded derivative on variable deferred annuities, with the GMWB rider, had net realized gains of $80.4 million for the three months ended March 31, 2013.

We use certain interest rate swaps to mitigate the price volatility of fixed maturities. These positions resulted in net pre-tax gains of $1.0 million for the three months ended March 31, 2013. The pre-tax gains were primarily the result of $1.0 million in unrealized gains during the three months ended March 31, 2013.

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 insignificant pre-tax losses for the three months ended March 31, 2013.

Certain of our subsidiaries have 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 loss of $3.9 million related to the interest support agreement and a pre-tax gain of $0.1 million related to the YRT premium support agreement for the three months ended March 31, 2013, respectively. We entered into two separate portfolio maintenance agreements in October 2012.  We recognized no pre-tax gains or losses for the three months ended March 31, 2013 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 gains of $0.4 million for the three months ended March 31, 2013.

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 March 31, 2013, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. Management considers a number of factors in determining if an unrealized loss is other-than-temporary, including the expected cash to be collected and the intent, likelihood, and/or ability to hold the security until recovery. Consistent with our long-standing practice, we do not utilize a “bright line test” to determine other-than-temporary impairments. On a quarterly basis, we perform an analysis on every security with an unrealized loss to determine if an other-than-temporary impairment has occurred. This analysis includes reviewing several metrics including collateral, expected cash flows, ratings, and liquidity. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain/(loss) position of the portfolio. We had an overall net unrealized gain of $2.9 billion, prior to tax and DAC offsets, as of March 31, 2013, and an overall net unrealized gain of $3.1 billion as of December 31, 2012.

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For fixed maturity and equity securities held that are in an unrealized loss position as of March 31, 2013, 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	$	1,696,005	56.3	%	$	1,760,016	54.8	%	$	(64,011	)	32.6	%
>90 days but <= 180 days	216,371		7.2		225,428		7.0		(9,057		)	4.6
>180 days but <= 270 days	74,760		2.5		83,582		2.6		(8,822		)	4.5
>270 days but <= 1 year	8,547		0.3		8,833		0.3		(286		)	0.1
>1 year but <= 2 years	565,232		18.7		629,825		19.6		(64,593		)	32.9
>2 years but <= 3 years	48,678		1.6		51,423		1.6		(2,745		)	1.4
>3 years but <= 4 years	5,130		0.2		6,417		0.2		(1,287		)	0.7
>4 years but <= 5 years	19,323		0.6		20,955		0.7		(1,632		)	0.8
>5 years	380,714		12.6		424,426		13.2		(43,712		)	22.4
Total	$	3,014,760	100.0	%	$	3,210,905	100.0	%	$	(196,145	)	100.0	%

The majority of the unrealized loss as of March 31, 2013 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, 2012. 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 March 31, 2013, the Barclays Investment Grade Index was priced at 129.7 bps versus a 10 year average of 156.9 bps. Similarly, the Barclays High Yield Index was priced at 456.7 bps versus a 10 year average of 568.2 bps. As of March 31, 2013, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 0.765%, 1.850%, and 3.103%, as compared to 10 year averages of 2.820%, 3.610%, and 4.323%, respectively.

As of March 31, 2013, 63.1% 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 lead us to dispose of those certain holdings and recognize the effects of any such market movements in our financial statements.

As of March 31, 2013, there were estimated gross unrealized losses of $14.3 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 March 31, 2013, were primarily the result of continued widening spreads,

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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 March 31, 2013, is presented in the following table:

	Fair		% Fair		Amortized		% Amortized		Unrealized			%  Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
Banking	$	272,551	9.0	%	$	285,307	8.9	%	$	(12,756	)	6.5	%
Other finance	19,176		0.6		19,738		0.6		(562		)	0.3
Electric	162,204		5.4		170,034		5.3		(7,830		)	4.0
Natural gas	137,126		4.5		144,803		4.5		(7,677		)	3.9
Insurance	92,596		3.1		99,907		3.1		(7,311		)	3.7
Energy	79,397		2.6		82,634		2.6		(3,237		)	1.7
Communications	67,242		2.2		70,869		2.2		(3,627		)	1.8
Basic industrial	190,340		6.3		196,617		6.1		(6,277		)	3.2
Consumer noncyclical	290,332		9.6		300,054		9.3		(9,722		)	5.0
Consumer cyclical	144,553		4.8		148,547		4.6		(3,994		)	2.0
Finance companies	33,145		1.1		33,984		1.1		(839		)	0.4
Capital goods	63,997		2.1		66,508		2.1		(2,511		)	1.3
Transportation	20,054		0.7		20,131		0.6		(77		)	—
Other industrial	34,828		1.2		35,733		1.1		(905		)	0.5
Brokerage	9,825		0.3		9,985		0.3		(160		)	0.1
Technology	87,314		2.9		90,739		2.8		(3,425		)	1.7
Real estate	606		—		631		—		(25		)	—
Other utility	—		—		—		—		—			—
Commercial mortgage-backed securities	112,880		3.7		114,965		3.6		(2,085		)	1.1
Other asset-backed securities	677,158		22.5		761,497		23.7		(84,339		)	43.0
Residential mortgage-backed non-agency securities	202,338		6.7		238,611		7.4		(36,273		)	18.5
Residential mortgage-backed agency securities	25,121		0.8		25,624		0.8		(503		)	0.3
U.S. government-related securities	256,836		8.5		258,559		8.1		(1,723		)	0.9
Other government-related securities	23,620		0.8		23,638		0.7		(18		)	—
States, municipals, and political divisions	11,521		0.6		11,790		0.5		(269		)	0.1
Total	$	3,014,760	100.0	%	$	3,210,905	100.0	%	$	(196,145	)	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
	March 31, 2013		December 31, 2012
Banking	6.5	%	10.2	%
Other finance	0.3		0.5
Electric	4.0		6.6
Natural gas	3.9		4.1
Insurance	3.7		7.3
Energy	1.7		0.3
Communications	1.8		0.4
Basic industrial	3.2		3.2
Consumer noncyclical	5.0		2.7
Consumer cyclical	2.0		0.9
Finance companies	0.4		1.7
Capital goods	1.3		2.0
Transportation	—		—
Other industrial	0.5		0.2
Brokerage	0.1		0.4
Technology	1.7		1.0
Real estate	—		—
Other utility	—		—
Commercial mortgage-backed securities	1.1		0.4
Other asset-backed securities	43.0		43.8
Residential mortgage-backed non-agency securities	18.5		13.7
Residential mortgage-backed agency securities	0.3		—
U.S. government-related securities	0.9		0.4
Other government-related securities	—		—
States, municipals, and political divisions	0.1		0.2
Total	100.0	%	100.0	%

The range of maturity dates for securities in an unrealized loss position as of March 31, 2013, varies, with 6.6% maturing in less than 5 years, 24.2% maturing between 5 and 10 years, and 69.2% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of March 31, 2013:

S&P or Equivalent	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	1,706,864	56.6	%	$	1,808,584	56.3	%	$	(101,720	)	51.9	%
BBB	734,526		24.4		756,437		23.6		(21,911		)	11.2
Investment grade	2,441,390		81.0		2,565,021		79.9		(123,631		)	63.1
BB	176,934		5.9		189,814		5.9		(12,880		)	6.6
B	10,305		0.3		11,340		0.4		(1,035		)	0.5
CCC or lower	386,131		12.8		444,730		13.8		(58,599		)	29.8
Below investment grade	573,370		19.0		645,884		20.1		(72,514		)	36.9
Total	$	3,014,760	100.0	%	$	3,210,905	100.0	%	$	(196,145	)	100.0	%

As of March 31, 2013, we held a total of 329 positions that were in an unrealized loss position. Included in that amount were 121 positions of below investment grade securities with a fair value of $573.4 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $72.5 million, of

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which $39.7 million had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 1.6% of invested assets.

As of March 31, 2013, securities in an unrealized loss position that were rated as below investment grade represented 19.0% of the total fair value and 36.9% 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 March 31, 2013, total unrealized losses for all securities in an unrealized loss position for more than twelve months were $114.0 million. A widening of credit spreads is estimated to account for unrealized losses of $380.1 million, with changes in treasury rates offsetting this loss by an estimated $266.1 million.

The majority of our RMBS holdings as of March 31, 2013, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 3.45 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of March 31, 2013:

Non-agency portfolio	Weighted-Average Life
Prime	2.50
Alt-A	4.88

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 March 31, 2013:

	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
<= 90 days	$	204,681	35.7	%	$	232,628	36.0	%	$	(27,947	)	38.5	%
>90 days but <= 180 days	1,266		0.2		1,282		0.2		(16		)	—
>180 days but <= 270 days	12,500		2.2		17,386		2.7		(4,886		)	6.7
>270 days but <= 1 year	7		—		13		—		(6		)	—
>1 year but <= 2 years	112,604		19.6		126,308		19.6		(13,704		)	18.9
>2 years but <= 3 years	18,017		3.1		18,814		2.9		(797		)	1.1
>3 years but <= 4 years	5,130		0.9		6,417		1.0		(1,287		)	1.8
>4 years but <= 5 years	19,295		3.4		20,884		3.2		(1,589		)	2.2
>5 years	199,870		34.9		222,152		34.4		(22,282		)	30.8
Total	$	573,370	100.0	%	$	645,884	100.0	%	$	(72,514	)	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.

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

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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. These borrowings are for a term less than ninety days. 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 March 31, 2013, the fair value of securities pledged under the repurchase program was $337.7 million and the repurchase obligation of $300.0 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 12 basis points). During the three months ended March 31, 2013, the maximum balance outstanding at any one point in time related to these programs was $472.3 million. The average daily balance was $372.7 million (at an average borrowing rate of 14 basis points) during the three months ended March 31, 2013. As of December 31, 2012, we had a $150.0 million outstanding balance related to such borrowings. 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.

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

We and PLC have access to a Credit Facility that provides 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 Credit Facility be increased up to a maximum principal amount of $1.0 billion. Balances outstanding under the 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 Credit Facility also provides for a facility fee at a rate, currently 0.175%, that varies with the ratings of PLC’s Senior Debt and that is calculated on the aggregate amount of commitments under the Credit Facility, whether used or unused. The maturity date on the Credit Facility is July 17, 2017. We were not aware of any non-compliance with the financial debt covenants of the Credit Facility as of March 31, 2013. We did not have an outstanding balance under the Credit Facility as of March 31, 2013. PLC had an outstanding balance of $40.0 million at an interest rate of LIBOR plus 1.20% under the Credit Facility as of March 31, 2013.

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.

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We held $64.6 million of FHLB common stock as of March 31, 2013, 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 March 31, 2013, we had $922.2 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

As of March 31, 2013, we reported approximately $607.7 million (fair value) of Auction Rate Securities (“ARS”) in non-Modco portfolios. As of March 31, 2013, 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 March 31, 2013, 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 $72.0 million and $44.0 million was recorded as of March 31, 2013 and December 31, 2012, 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.

The 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.

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 March 31, 2013, to fund mortgage loans in the amount of $257.6 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 March 31, 2013, we held cash and short-term investments of $331.7 million.

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Net cash provided by operating activities	$	42,711		$	19,270
Net cash used in investing activities	(366,006		)	(156,422		)
Net cash provided by financing activities	225,156			35,262
Total	$	(98,139	)	$	(101,890	)

For The Three Months Ended March 31, 2013 as compared to The Three Months Ended March 31, 2012

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 provided by financing activities - Changes in cash from financing activities included $150.0 million inflows from repurchase program borrowings as compared to $221.6 million for the three months ended March 31, 2012 and $65.2 million inflows of investment product and universal life net activity, as compared to $0.9 million of outflows in the prior year. Net issuances of non-recourse funding obligations equaled $10.0 million during the three months ended March 31, 2013, as compared to repurchases of $91.7 million during the three months ended March 31, 2012.

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, we have access to the Credit Facility previously mentioned.

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 March 31, 2013. 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”), a wholly owned special purpose financial captive insurance company, had $575.0 million of non-recourse funding obligations outstanding as of March 31, 2013. 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 of March 31, 2013, securities related to $281.0 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 $233.1 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

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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 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 March 31, 2013. 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 March 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, during the first quarter of 2013 and was $655 million as of March 31, 2013. 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”), a wholly owned subsidiary, 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 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 March 31, 2013, the principal balance of the Red Mountain note was $315 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

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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.

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.

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. 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.

In an effort to mitigate the equity market risks discussed above relative to our RBC ratio, in the fourth quarter of 2012, PLC established an indirect wholly owned insurance subsidiary, Shades Creek Captive Insurance Company (“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.

During 2012, PLC entered into an intercompany capital support agreement with Shades Creek. 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 March 31, 2013, 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. As of April 1, 2013, Shades Creek became a direct wholly owned insurance subsidiary of PLC.

On April 10, 2013, we entered into an agreement with AXA Financial, Inc. (“AXA”) and AXA Equitable Financial Services, LLC to acquire the stock of MONY Life Insurance Company (“MONY”) from AXA and to enter into a reinsurance agreement (the “Reinsurance Agreement”) which will reinsure certain business of MONY Life Insurance Company of America (“MLOA”). The aggregate purchase price for MONY and the reinsured business is expected to be approximately $1.06 billion. The purchase price includes approximately $303 million of adjusted statutory capital and surplus and approximately $60 million of deferred tax assets. The estimated initial capital investment is expected to be approximately $1.09 billion which includes certain RBC and tax impacts related to the transaction.

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

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and monitor the associated concentration of credit risk. For the three months ended March 31, 2013, we ceded premiums to unaffiliated third party reinsurers amounting to $325.8 million. In addition, we had receivables from unaffiliated reinsurers amounting to $5.7 billion as of March 31, 2013. We review reinsurance receivable amounts for collectability and establish bad debt reserves if deemed appropriate.

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 March 31, 2013:

			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.

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 March 31, 2013, we had policy liabilities and accruals of approximately $23.2 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.54%.

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.

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As of March 31, 2013, we carried a $76.2 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.

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

			Payments due by period
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(Dollars In Thousands)
Non-recourse funding obligations(1)	$	4,708,687	$	88,273	$	189,542	$	205,691	$	4,225,181
Stable value products(2)	2,623,261		415,182		1,530,043		610,854		67,182
Operating leases(3)	18,602		5,758		9,395		3,142		307
Home office lease(4)	75,578		75,578		—		—		—
Mortgage loan and investment commitments	266,002		266,002		—		—		—
Repurchase program borrowings(5)	300,003		300,003		—		—		—
Policyholder obligations(6)	29,759,833		2,759,673		3,808,821		3,057,050		20,134,289
Total	$	37,751,966	$	3,910,469	$	5,537,801	$	3,876,737	$	24,426,959

(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. Additionally, $2.3 billion of the total undiscounted cash flows are obligations to PLC. 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.

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 12, Fair Value of Financial Instruments.

Available-for-sale securities and trading account securities are recorded at fair value, which is primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. Liquidity is a significant factor in the determination of the fair value for these securities. Market price quotes may not be readily available for some positions or for some positions within a market sector where trading activity has slowed significantly or ceased. These situations are generally triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial position, changes in credit ratings, and cash flows on the investments. As of March 31, 2013, $851.5 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

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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 March 31, 2013, the Level 3 fair values of derivative assets and liabilities determined by these quantitative models were $70.4 million and $539.8 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 March 31, 2013, the Level 3 fair value of these liabilities was $123.7 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.

Of our $921.9 million, or 2.2% of total assets (measured at fair value on a recurring basis) classified as Level 3 assets, $632.1 million were ABS. Of this amount, $585.6 million were student loan related ABS and $46.5 million were non-student loan related ABS. The years of issuance of the ABS are as follows:

Year of Issuance	Amount
	(In Millions)
2002	$	267.8
2003	106.4
2004	111.6
2005	5.4
2006	21.8
2007	112.4
2012	6.7
Total	$	632.1

The ABS was rated as follows: $486.1 million were AAA rated, $117.4 million were AA rated, $26.9 million were A rated, $0.1 million were BBB rated, and $1.6 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 13, Derivative Financial Instruments for additional information on our financial instruments.

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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. 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

Certain of our subsidiaries have 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.

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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 March 31, 2013, we had outstanding mortgage loan commitments of $257.6 million at an average rate of 4.87%.

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.

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 March 31, 2013

Minimum Guaranteed Interest Rate Account Value	At MGIR			1-50 bps above MGIR			More than 50 bps above MGIR			Total
	(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	36		$	4		$	1,015		$	1,055
>3% - 4%	1,387			651			1,155			3,193
>4% - 5%	2,048			3,077			388			5,513
>5% - 6%	223			—			—			223
Subtotal	3,694			3,732			2,558			9,984
Fixed Annuities
1%	$	—		$	—		$	949		$	949
>1% - 2%	189			—			1,304			1,493
>2% - 3%	1,146			5			1,597			2,748
>3% - 4%	331			—			—			331
>4% - 5%	234			—			—			234
Subtotal	1,900			5			3,850			5,755
Total	$	5,594		$	3,737		$	6,408		$	15,739
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.

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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.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

Item 3.Quantitative and Qualitative Disclosures about Market Risk

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

Item 4.Controls and Procedures

(a)Disclosure controls and procedures

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

(b)Changes in internal control over financial reporting

There have been no changes in the Company’s internal control over financial reporting during the three months ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.

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PART II

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

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and known trends and uncertainties. In addition to other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect the Company’s business, financial condition, or future results of operations.

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 fixed indexed annuity and 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.

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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 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’s 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’s 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

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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.

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’s subsidiaries 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. That subgroup issued a Captives and Special Purpose Vehicles White Paper Discussion Draft for comment, which is expected to be released soon in final form.  Also, the Federal Advisory Committee on Insurance (“FACI”) took up the issue of captives at a recent meeting, and a task force was created.  Any regulatory action 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 does 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 on 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

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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.

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.

Certain of the Company’s subsidiaries as well as certain other insurance companies from whom the Company has coinsured 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’s subsidiaries Protective Life Insurance Company and 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

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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 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

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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, 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’s 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 law 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.

107

The Company may not be able to achieve the expected results from its recently announced acquisition.

On April 10, 2013, the Company entered into a master agreement with AXA Financial, Inc. and AXA Equitable Financial Services, LLC for the acquisition of MONY Life Insurance Company and a reinsurance agreement for certain business of MONY Life Insurance Company of America.  The Company may not be able to complete the transactions due to, among other things, the inability of the parties to satisfy the various closing conditions, including the receipt of required regulatory approvals.  In addition, if the transaction is completed, integration of the acquisition may be more expensive, more difficult, or take longer than expected; the financing structure of the transactions may be different than originally contemplated; the actual financial results of the transaction could differ materially from the Company’s expectations and may be impacted by items not taken into account in its forecasts and calculations; and the Company’s expectations regarding its ability to successfully integrate and transition the acquired operations and satisfy its legal and compliance obligations in relation to the transactions may prove to be incorrect.

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 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 state regulatory framework and of FHLB creditor status in the event of insurer insolvency.  Most recently, the FHFA issued a report entitled “FHFA Can Enhance Its Oversight of FHLBank Advances to Insurance Companies by Improving Communication with State Insurance Regulators and Industry Groups,” which proposes the FHFA coordinate with state regulators to obtain confidential supervisory information about insurers and interact with NAIC working groups to receive “early warning” information about failing members, so the FHFA can participate in the rehabilitation and perhaps increase FHLB creditor status.  Any standards or events that result in stricter regulation of, or reduced incidence of, FHLB-insurer lending could have a material adverse effect on the Company.

108

Item 6.Exhibits

Item Number	Document
12	Consolidated Earnings Ratio
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 quarterly report on Form 10-Q of Protective Life Insurance Company for the quarter ended March 31, 2013, filed on May 15, 2013, formatted in XBRL: (i) the Consolidated Condensed Statements of Income, (ii) the Consolidated Condensed Statements of Comprehensive Income (Loss), (iii) the Consolidated Condensed Balance Sheets, (iv) the Consolidated Condensed Statements of Shareowner’s Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (iv) the Notes to Consolidated Condensed Financial Statements.

* Incorporated by Reference

109

SIGNATURE

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
Date:     May 15, 2013	By:	/s/ Steven G. Walker
		Steven G. Walker
		Senior Vice President, Controller
		and Chief Accounting Officer

110

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 Three Months Ended March 31,		For The Year Ended December 31,
	2013	2012	2012	2011	2010	2009	2008 (3)
Ratio of Consolidated Earnings to Fixed Charges (1)	1.4	1.5	1.4	1.4	1.3	1.4	0.9
Ratio of Consolidated Earnings (Losses) to Fixed Charges
Before Interest Credited on Investment Products (2)	5.0	7.2	5.8	6.1	5.5	10.4	(1.1	)

(1)The Company calculates the ratio of “Consolidated Earnings to Fixed Charges” by dividing the sum of income (loss) from continuing operations before income tax (BT), interest expense (which includes an estimate of the interest component of operating lease expense) (I) and interest credited on investment products (IP) by the sum of interest expense (I) and interest credited on investment products (IP).   The formula for this ratio is: (BT+I+IP)(I+IP).  The Company continues to sell investment products that credit interest to the contract holder.  Investment products include products such as guaranteed investment contracts, annuities, and variable universal life interest credited insurance policies.  The inclusion of interest credited on investment products results in a negative impact on the ratio of earnings to fixed charges because the effect of increases in interest credited to contract holders more than offsets the effect of the increase in earnings.

(2)The Company calculates the ratio of “Consolidated Earnings (Losses) to Fixed Charges Before Interest Credited on Investment Products” by dividing the sum of income (loss) from continuing operations before income tax (BT) and interest expense (I) by interest expense (I).  The formula for this calculation, therefore, would be: (BT+I)/I.

(3)For the year ended December 31, 2008, additional income required to achieve a 1:1 ratio coverage was $154.6 million.

Computation of Consolidated Earnings Ratios

	For The Three Months Ended March 31,				For The Year Ended December 31,
	2013		2012		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	$	109,814	$	141,068	$	459,579	$	475,275	$	333,176	$	390,441	$	(154,570	)
Add Interest Expense (2)	27,612		22,643		95,759		93,797		73,841		41,411		72,154
Add Interest Credited on Investment Products	223,468		243,608		962,678		993,574		972,806		993,245		1,043,676
Earnings before Interest, Interest Credited on Investment Products and Taxes	$	360,894	$	407,319	$	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		1.5		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	$	109,814	$	141,068	$	459,579	$	475,275	$	333,176	$	390,441	$	(154,570	)
Add Interest Expense (2)	27,612		22,643		95,759		93,797		73,841		41,411		72,154
Earnings (Losses) before Interest and Taxes	$	137,426	$	163,711	$	555,338	$	569,072	$	407,017	$	431,852	$	(82,416	)
Earnings (Losses) before Interest and Taxes Divided by Interest Expense	5.0		7.2		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-31.(A)

Exhibit 31(a)

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John D. Johns, certify that:

1.I have reviewed the Quarterly Report on Form 10-Q for the period ended March 31, 2013, 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:  May 15, 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 Quarterly Report on Form 10-Q for the period ended March 31, 2013, 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:  May 15, 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 Quarterly Report of Protective Life Insurance Company (the “Company”) on Form 10-Q for the period ended March 31, 2013, 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

May 15, 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 Quarterly Report of Protective Life Insurance Company (the “Company”) on Form 10-Q for the period ended March 31, 2013, 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

May 15, 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 (Details 3) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INVESTMENT OPERATIONS
Other-than-temporary impairments of investments recorded	$ 1,340,000	$ 34,099,000
Other-than-temporary impairments of investments recorded in earnings	4,584,000	18,596,000
Non-credit gains recorded in other comprehensive income (loss)	(3,244,000)	15,503,000
Debt securities
INVESTMENT OPERATIONS
Other-than-temporary impairments of investments recorded	300,000	34,100,000
Other-than-temporary impairments of investments recorded in earnings	4,600,000	18,600,000
Non-credit gains recorded in other comprehensive income (loss)	3,300,000	15,500,000
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
Credit losses on debt securities
Beginning balance	121,237,000	69,476,000
Additions for newly impaired securities	997,000	15,688,000
Additions for previously impaired securities	1,486,000	2,778,000
Ending balance	123,720,000	87,942,000
Equity securities
INVESTMENT OPERATIONS
Other-than-temporary impairments of investments recorded	1,000,000	34,100,000
Other-than-temporary impairments related to debt or equity securities that the entity intended to sell or expected to be required to sell	$ 0

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 2) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
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	79.90%
Policy liabilities (net of policy loans)	2,700,000,000
Fair value of the trading securities	3,100,000,000
Other long-term investments	152,882,000	130,428,000
Annuity account balances
Fixed indexed annuities, discount rate for one month (as a percent)	0.33%
Fixed indexed annuities, discount rate for five years (as a percent)	1.91%
Fixed indexed annuities, discount rate for thirty years (as a percent)	4.28%
Interest support, YRT premium support and portfolio maintenance agreement
Determination of fair values
Other long-term investments	13,300,000
Golden Gate II Captive Insurance Company (Golden Gate II) | Interest Support Agreement
Determination of fair values
Other long-term investments	11,100,000
Golden Gate II Captive Insurance Company (Golden Gate II) | YRT premium support agreement
Determination of fair values
Other long-term investments	1,700,000
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	71,400,000
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	3,600,000,000
Asset-Backed Securities | Level 3
Determination of fair values
Carrying amount	632,100,000
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	24,300,000,000
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	153,900,000
Equity securities | Level 2 and Level 3
Determination of fair values
Carrying amount	102,600,000
FHLB stock	64,600,000
Equity securities | Level 3
Determination of fair values
FHLB stock	65,500,000	65,500,000
Embedded derivative - GMWB
Determination of fair values
Mortality (as a percent)	57.00%

XML

STOCK-BASED COMPENSATION (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 item
Performance awards
Stock-based compensation
Number of awards earned	0
PLC | SARs
Stock-based compensation
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)	22.15
SARs exercised / forfeited (in dollars per share)	22.83
Balance at the end of the period (in dollars per share)	22.12
No. of SARs
Balance at the beginning of the period (in shares)	1,641,167
SARs exercised / forfeited (in shares)	69,899
Balance at the end of the period (in shares)	1,571,268
SARs issued (in shares)	0
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 | Restricted stock units
Stock-based compensation
Performance shares award issued	141,000
Estimated fair value of performance shares issued	4.4
Vesting percentage	50.00%
PLC | Performance awards
Stock-based compensation
Performance shares award issued	298,500
Estimated fair value of performance shares issued	9.3
Period over which ROE is calculated	3 years
Minimum percentage of the company's ROE to earn awards under 2013 performance awards	10.00%
Minimum percentage of Company's ROE to earn maximum awards under 2012 performance awards	11.50%

XML

FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 3) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Unobservable Input
Fixed maturities, held-to-maturity	315,000,000	300,000,000
Level 3
Unobservable Input
Financial instruments with book value approximating to fair value	69,800,000	69,800,000
Level 3 | Equity securities
Unobservable Input
FHLB stock	65,500,000	65,500,000
Level 3 | Other fixed maturity securities
Unobservable Input
Fixed maturities, held-to-maturity	4,300,000	4,300,000
Level 3 | Embedded derivatives - GMWB
Valuation of Level 3 Financial Instruments
Fair Value of Liabilities	88,739,000	169,041,000
Level 3 | Embedded derivatives - GMWB | Actuarial cash flow model | Low end of range
Unobservable Input
Lapse (as a percent)	0.00%	0.00%
Utilization (as a percent)	93.00%	93.00%
Nonperformance risk (as a percent)	0.13%	0.09%
Level 3 | Embedded derivatives - GMWB | Actuarial cash flow model | High end of range
Unobservable Input
Lapse (as a percent)	24.00%	24.00%
Utilization (as a percent)	100.00%	100.00%
Nonperformance risk (as a percent)	1.29%	1.34%
Level 3 | Embedded derivatives - GMWB | Actuarial cash flow model | Weighted Average
Unobservable Input
Mortality (as a percent)	57.00%	57.00%
Level 3 | Annuity account balances
Valuation of Level 3 Financial Instruments
Fair Value of Liabilities	123,681,000	129,468,000
Level 3 | Annuity account balances | Actuarial cash flow model | Low end of range
Unobservable Input
Lapse (as a percent)	2.20%	2.20%
Nonperformance risk (as a percent)	0.13%	0.09%
Expenses per policy	88,000	88,000
Return on assets (as a percent)	1.50%	1.50%
Level 3 | Annuity account balances | Actuarial cash flow model | High end of range
Unobservable Input
Lapse (as a percent)	45.00%	45.00%
Nonperformance risk (as a percent)	1.29%	1.34%
Expenses per policy	108,000	108,000
Return on assets (as a percent)	1.85%	1.85%
Level 3 | Annuity account balances | Actuarial cash flow model | Weighted Average
Unobservable Input
Mortality (as a percent)	57.00%	57.00%
Asset earned rate (as a percent)	5.81%	5.81%
Withdrawal rate (as a percent)	2.20%	2.20%
Level 3 | Other asset-backed securities
Valuation of Level 3 Financial Instruments
Fair Value of Assets	560,668,000	596,143,000
Unobservable Input
Financial instruments that are valued using broker quotes	71,400,000	70,500,000
Level 3 | Other asset-backed securities | Discounted cash flow | Low end of range
Unobservable Input
Liquidity premium (as a percent)	1.00%	0.72%
Paydown rate (as a percent)	10.08%	8.51%
Level 3 | Other asset-backed securities | Discounted cash flow | High end of range
Unobservable Input
Liquidity premium (as a percent)	1.69%	1.68%
Paydown rate (as a percent)	14.64%	18.10%
Level 3 | Other asset-backed securities | Discounted cash flow | Weighted Average
Unobservable Input
Liquidity premium (as a percent)	1.14%	1.29%
Paydown rate (as a percent)	12.47%	11.40%
Level 3 | Other government-related securities
Valuation of Level 3 Financial Instruments
Fair Value of Assets	20,003,000	20,011,000
Level 3 | Other government-related securities | Discounted cash flow | Weighted Average
Unobservable Input
Spread over treasury (as a percent)	0.30%	0.30%
Level 3 | Corporate bonds
Valuation of Level 3 Financial Instruments
Fair Value of Assets	129,667,000	168,007,000
Level 3 | Corporate bonds | Discounted cash flow | Low end of range
Unobservable Input
Spread over treasury (as a percent)	0.97%	0.92%
Level 3 | Corporate bonds | Discounted cash flow | High end of range
Unobservable Input
Spread over treasury (as a percent)	7.75%	7.75%
Level 3 | Corporate bonds | Discounted cash flow | Weighted Average
Unobservable Input
Spread over treasury (as a percent)	2.67%	3.34%

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DEBT AND OTHER OBLIGATIONS (Details) (USD $)	3 Months Ended	12 Months Ended		3 Months Ended					3 Months Ended							0 Months Ended			3 Months Ended
	Mar. 31, 2013 item	Dec. 31, 2012	Mar. 31, 2013 Credit facility	Mar. 31, 2013 2012 Credit Facility Administrative agent's prime rate	Mar. 31, 2013 2012 Credit Facility Federal funds rate	Mar. 31, 2013 2012 Credit Facility LIBOR One-Month Rate	Mar. 31, 2013 Golden Gate Captive Insurance Company (Golden Gate)	Mar. 31, 2013 Golden Gate Captive Insurance Company (Golden Gate) Surplus Notes item	Mar. 31, 2013 Golden Gate Captive Insurance Company (Golden Gate) Series A1 Surplus Notes	Mar. 31, 2013 Golden Gate Captive Insurance Company (Golden Gate) Series A2 Surplus Notes	Mar. 31, 2013 Golden Gate Captive Insurance Company (Golden Gate) Series A3 Surplus Notes	Mar. 31, 2013 Golden Gate II Captive Insurance Company (Golden Gate II)	Mar. 31, 2013 Golden Gate II Captive Insurance Company (Golden Gate II) Non Recourse funding obligations accruing interest at a rate of LIBOR plus 30 basis points	Mar. 31, 2013 Golden Gate II Captive Insurance Company (Golden Gate II) Non Recourse funding obligations accruing interest at a rate of LIBOR plus 200 basis points	Mar. 31, 2013 PLC 2012 Credit Facility	Oct. 10, 2012 Golden Gate V and Red Mountain	Oct. 10, 2012 Red Mountain	Mar. 31, 2013 Red Mountain	Mar. 31, 2013 Golden Gate V
DEBT AND OTHER OBLIGATIONS
Line of credit, maximum borrowing capacity			$ 750,000,000
Line of credit, current borrowing capacity			1,000,000,000
Line of credit, amount outstanding															40,000,000
Base of floating rate interest payments				Administrative Agent's prime rate	Federal Funds rate	one-month LIBOR							LIBOR	LIBOR	LIBOR
Interest rate added to the base rate (as a percent)					0.50%	1.00%							0.30%	2.00%	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												281,000,000
Non-recourse funding obligations held by nonconsolidated affiliates												60,900,000
Non-recourse funding obligations held by consolidated subsidiaries of the Company												233,100,000
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																		315,000,000
Maximum principal amount of non-recourse funding obligation																			945,000,000
Non-recourse funding obligations	1,456,900,000	1,446,900,000					800,000,000					341,900,000							315,000,000
Year-to-date weighted-average interest rate of non-recourse funding obligations (as a percent)							7.79%					1.14%							6.25%
Repurchase of outstanding non-recourse funding obligations	5,000,000	91,700,000
Pre-tax gain on repurchase of debt	$ 1,300,000	$ 29,300,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2013

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 March 31, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,717,906	$	4	$	1,717,910
Commercial mortgage-backed securities	—		916,155		—		916,155
Other asset-backed securities	—		385,893		560,668		946,561
U.S. government-related securities	988,675		218,377		—		1,207,052
State, municipalities, and political subdivisions	—		1,429,246		4,275		1,433,521
Other government-related securities	—		68,474		20,003		88,477
Corporate bonds	206		20,645,124		124,555		20,769,885
Total fixed maturity securities - available-for-sale	988,881		25,381,175		709,505		27,079,561
Fixed maturity securities - trading
Residential mortgage-backed securities	—		354,522		—		354,522
Commercial mortgage-backed securities	—		176,986		—		176,986
Other asset-backed securities	—		91,039		71,383		162,422
U.S. government-related securities	295,008		1,728		—		296,736
State, municipalities, and political subdivisions	—		283,842		—		283,842
Other government-related securities	—		63,728		—		63,728
Corporate bonds	—		1,624,840		5,112		1,629,952
Total fixed maturity securities - trading	295,008		2,596,685		76,495		2,968,188
Total fixed maturity securities	1,283,889		27,977,860		786,000		30,047,749
Equity securities	273,488		37,102		65,527		376,117
Other long-term investments (1)	39,960		42,518		70,404		152,882
Short-term investments	156,825		3,476		—		160,301
Total investments	1,754,162		28,060,956		921,931		30,737,049
Cash	171,443		—		—		171,443
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	10,670,833		—		—		10,670,833
Variable universal life	605,622		—		—		605,622
Total assets measured at fair value on a recurring basis	$	13,202,060	$	28,060,956	$	921,931	$	42,184,947
Liabilities:
Annuity account balances(2)	$	—	$	—	$	123,681	$	123,681
Other liabilities (1)	2,380		47,367		539,814		589,561
Total liabilities measured at fair value on a recurring basis	$	2,380	$	47,367	$	663,495	$	713,242

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to fixed 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, 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 fixed 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
	March 31, 2013		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	560,668	Discounted cash flow	Liquidity premium	1.00% - 1.69% (1.14%)
				Paydown rate	10.08% - 14.64% (12.47%)
Other government-related securities	20,003		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	129,667		Discounted cash flow	Spread over treasury	0.97% - 7.75% (2.67%)
Liabilities:
Embedded derivatives - GMWB(1)	$	88,739	Actuarial cash flow model	Mortality	57% of 1994 GMDB table
				Lapse	0% - 24%, depending on product/duration/funded status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.13% - 1.29%
Annuity account balances(2)	123,681		Actuarial cash flow model	Asset earned rate	5.81%
				Expenses	$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	0.13% - 1.29%

(1)	The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.
(2)	Represents liabilities related to fixed indexed annuities.

	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	0.72% - 1.68% (1.29%)
				Paydown rate	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	57% of 1994 GMDB table
				Lapse	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	5.81%
				Expenses	$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 fixed 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 three months ended March 31, 2013, 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	$	4	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	596,143		—		12		—			(27,548		)	—		(9,009		)	—		—		1,227		(157		)	560,668		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—		—			4,275		—
Other government-related securities	20,011		—		—		—			(3		)	—		—			—		—		—		(5		)	20,003		—
Corporate bonds	167,892		—		930		—			(2,364		)	—		(42,071		)	—		—		—		168			124,555		—
Total fixed maturity securities - available-for-sale	788,325		—		942		—			(29,915		)	—		(51,080		)	—		—		1,227		6			709,505		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	70,535		3,408		—		(259		)	—			—		(2,823		)	—		—		—		522			71,383		3,255
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	115		1		—		—			—			—		(17		)	—		—		5,013		—			5,112		29
Total fixed maturity securities - trading	70,650		3,409		—		(259		)	—			—		(2,840		)	—		—		5,013		522			76,495		3,284
Total fixed maturity securities	858,975		3,409		942		(259		)	(29,915		)	—		(53,920		)	—		—		6,240		528			786,000		3,284
Equity securities	65,527		—		—		—			—			—		—			—		—		—		—			65,527		—
Other long-term investments(1)	48,655		25,618		—		(3,869		)	—			—		—			—		—		—		—			70,404		21,749
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	973,157		29,027		942		(4,128		)	(29,915		)	—		(53,920		)	—		—		6,240		528			921,931		25,033
Total assets measured at fair value on a recurring basis	$	973,157	$	29,027	$	942	$	(4,128	)	$	(29,915	)	$	—	$	(53,920	)	$	—	$	—	$	6,240	$	528		$	921,931	$	25,033
Liabilities:
Annuity account balances(2)	$	129,468	$	—	$	—	$	(2,000	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	123,681	$	—
Other liabilities(1)	611,437		84,546		—		(12,923		)	—			—		—			—		—		—		—			539,814		71,623
Total liabilities measured at fair value on a recurring basis	$	740,905	$	84,546	$	—	$	(14,923	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	663,495	$	71,623

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended March 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		294		493		—			(13,929		)	—		(13,850		)	—		—		—		(208		)	587,613		—
U.S. government-related securities	15,000		—		—		—			(1		)	—		(15,000		)	—		—		—		1			—		—
States, municipals, and political subdivisions	—		—		—		—			—			4,275		—			—		—		—		—			4,275		—
Other government-related securities	—		—		—		—			(16		)	20,023		—			—		—		—		(1		)	20,006		—
Corporate bonds	119,565		—		183		—			(1,227		)	4		(139		)	—		—		19,554		—			137,940		—
Total fixed maturity securities - available-for-sale	749,385		294		676		—			(15,173		)	24,302		(28,992		)	—		—		19,554		(208		)	749,838		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		446		—		(169		)	—			27,705		(1,808		)	—		—		—		444			54,961		277
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		—		—		—			—			1		—			—		—		—		—			1		—
Total fixed maturity securities - trading	28,343		446		—		(169		)	—			27,706		(1,808		)	—		—		—		444			54,962		277
Total fixed maturity securities	777,728		740		676		(169		)	(15,173		)	52,008		(30,800		)	—		—		19,554		236			804,800		277
Equity securities	70,080		—		636		—			(1		)	4		—			—		—		—		—			70,719		—
Other long-term investments(1)	19,103		13,073		—		—			—			—		—			—		—		—		—			32,176		13,073
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		13,813		1,312		(169		)	(15,174		)	52,012		(30,800		)	—		—		19,554		236			907,695		13,350
Total assets measured at fair value on a recurring basis	$	866,911	$	13,813	$	1,312	$	(169	)	$	(15,174	)	$	52,012	$	(30,800	)	$	—	$	—	$	19,554	$	236		$	907,695	$	13,350
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	(3,074	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	137,238	$	—
Other liabilities(1)	437,613		56,496		—		(8,695		)	—			—		—			—		—		—		—			389,812		47,801
Total liabilities measured at fair value on a recurring basis	$	574,075	$	56,496	$	—	$	(11,769	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	527,050	$	47,801

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

Schedule of the carrying amounts and estimated fair value of the Company's financial instruments

		As of
		March 31, 2013				December 31, 2012
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,834,342	$	5,558,696	$	4,948,625	$	5,723,579
Policy loans	3	862,202		862,202		865,391		865,391
Fixed maturities, held-to-maturity(1)	3	315,000		334,579		300,000		319,163
Liabilities:
Stable value product account balances	3	$	2,544,609	$	2,572,367	$	2,510,559	$	2,534,094
Annuity account balances	3	10,524,393		10,142,020		10,658,463		10,525,702
Debt:
Non-recourse funding obligations(2)	3	$	1,456,900	$	1,495,469	$	1,446,900	$	1,357,290

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 $315 million, fair value of $359.6 million, as of March 31, 2013, and $300 million, fair value of $297.6 million, as of December 31, 2012,  relates to non-recourse funding obligations issued by Golden Gate V.

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 5) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets:
Mortgage loans on real estate	$ 4,834,342	$ 4,948,625
Policy loans	862,202	865,391
Fixed maturities, held-to-maturity	315,000	300,000
Liabilities:
Stable value product account balances	2,544,609	2,510,559
Annuity account balances	10,524,393	10,658,463
Debt
Non-recourse funding obligations	1,456,900	1,446,900
Golden Gate V
Debt
Non-recourse funding obligations	315,000
Carrying Amounts
Assets:
Mortgage loans on real estate	4,834,342	4,948,625
Policy loans	862,202	865,391
Fixed maturities, held-to-maturity	315,000	300,000
Liabilities:
Stable value product account balances	2,544,609	2,510,559
Annuity account balances	10,524,393	10,658,463
Debt
Non-recourse funding obligations	1,456,900	1,446,900
Carrying Amounts | Golden Gate V
Debt
Non-recourse funding obligations	315,000	300,000
Fair Values | Golden Gate V
Debt
Non-recourse funding obligations	359,600	297,600
Fair Values | Level 3
Assets:
Mortgage loans on real estate	5,558,696	5,723,579
Policy loans	862,202	865,391
Fixed maturities, held-to-maturity	334,579	319,163
Liabilities:
Stable value product account balances	2,572,367	2,534,094
Annuity account balances	10,142,020	10,525,702
Debt
Non-recourse funding obligations	$ 1,495,469	$ 1,357,290

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2013

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

16.          SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to March 31, 2013, 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.

On April 10, 2013, the Company entered into a Master Agreement (the “Master Agreement”) with AXA Financial, Inc. (“AXA”) and AXA Equitable Financial Services, LLC. Pursuant to the Master Agreement, the Company has agreed to acquire the stock of MONY Life Insurance Company (“MONY”) from AXA and to enter into a reinsurance agreement (the “Reinsurance Agreement”) pursuant to which it will reinsure on a 100% indemnity reinsurance basis certain business (the “MLOA Business”) of MONY Life Insurance Company of America (“MLOA”). The aggregate purchase price for MONY is expected to be approximately $693 million, subject to a monthly reduction of $2.5 million for each month that elapses between July 1, 2013 and the closing date of the acquisition. The purchase price includes approximately $303 million of adjusted statutory capital and surplus and approximately $60 million of deferred tax assets, and will be subject to a customary post-closing adjustment. The ceding commission for the reinsurance of the MLOA Business is expected to be approximately $373 million, subject to a monthly reduction of $1 million for each month that elapses between July 1, 2013 and the closing date of the acquisition, and will be subject to a customary post-closing adjustment. The entry into the Reinsurance Agreement will occur at, and is conditioned on the concurrent consummation of, the closing of the acquisition of the shares of MONY.

The transaction, which is expected to close in the second half of 2013, is subject to receipt of insurance regulatory approvals and satisfaction of other customary closing conditions. Prior to the closing, AXA will cause MONY to transfer its subsidiaries, MLOA, U.S. Financial Life Insurance Company, MONY International Holdings, LLC and MONY Financial Services, Inc., none of which are being sold to the Company as part of the acquisition, to another subsidiary of AXA, and to effect certain other pre-closing restructuring transactions.

On March 22, 2013, the Company declared a dividend to its parent, PLC, in the amount of the total shareowner’s equity of Shades Creek Captive Insurance Company (“Shades Creek”), then a wholly owned subsidiary of the Company.  Commensurate with this declaration, the Company recorded a dividend payable in the amount of $93.9 million, reported as a non-cash financing transaction in the consolidated condensed cash flow statements, which is equal to the book value of the Company’s investment in Shades Creek’s Equity.  The effective date of the dividend was April 1, 2013.  Accordingly, as of April 1, 2013, Shades Creek became a direct wholly owned insurance subsidiary of PLC.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Changes in Accumulated Other Comprehensive Income (Loss) by Component
Beginning Balance	$ 1,811,124
Other comprehensive income (loss) before reclassifications	(138,896)
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	7,837	2,917
Amounts reclassified from accumulated other comprehensive income	(4,692)
Net current-period other comprehensive income (loss)	(135,751)
Ending Balance	1,675,373
Unrealized Gains and Losses on Investments
Changes in Accumulated Other Comprehensive Income (Loss) by Component
Beginning Balance	1,814,620
Other comprehensive income (loss) before reclassifications	(141,762)
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	7,837
Amounts reclassified from accumulated other comprehensive income	(5,015)
Net current-period other comprehensive income (loss)	(138,940)
Ending Balance	1,675,680
Accumulated Gain and Loss Derivatives
Changes in Accumulated Other Comprehensive Income (Loss) by Component
Beginning Balance	(3,496)
Other comprehensive income (loss) before reclassifications	2,866
Amounts reclassified from accumulated other comprehensive income	323
Net current-period other comprehensive income (loss)	3,189
Ending Balance	$ (307)

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MORTGAGE LOANS (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013 item	Dec. 31, 2012
Mortgage loans
Mortgage loan holdings	$ 4,834,342,000	$ 4,948,625,000
Amount that would become due in 2013, if loans are called at their next call dates	143,000,000
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	588,200,000
Amount that would become due after 2023, if loans are called at their next call dates	178,300,000
Allowance for loan and credit losses	4,000,000	2,900,000
Change in the allowance for credit losses
Ending balance	4,000,000	2,900,000
Commercial mortgage loans
Mortgage loans
Mortgage loan holdings	4,800,000,000
Allowance for loan and credit losses	4,045,000	2,875,000
Mortgage loans having participation feature	736,900,000	817,300,000
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	19,700,000
Number of loan categories	2
Nonperforming loans not subject to a pooling and servicing agreement	12,700,000
Number of nonperforming loans not 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	2,875,000	4,975,000
Charge offs		(8,340,000)
Recoveries		(628,000)
Provision	1,170,000	6,868,000
Ending balance	$ 4,045,000	$ 2,875,000
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%

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INVESTMENT OPERATIONS (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Net realized investment gains (losses) for all other investments
Fixed maturities	$ 12,298,000	$ 19,678,000
Equity securities	1,000
Impairments on fixed maturity securities	(3,587,000)	(18,572,000)
Impairments on equity securities	(997,000)	(24,000)
Modco trading portfolio	(15,328,000)	18,099,000
Other investments	(1,217,000)	(2,294,000)
Total realized gains (losses) - investments	(8,830,000)	16,887,000
Gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments)	12,900,000	22,800,000
Gross realized losses	4,900,000	21,700,000
Impairment losses on investments available-for-sale	4,400,000	18,500,000
Fair value (proceeds) of securities in an unrealized gain position sold	387,900,000	495,100,000
Gain realized on the sale of securities in an unrealized gain position	12,900,000	22,800,000
Fair value (proceeds) of securities sold in an unrealized loss position	4,000,000	17,200,000
Loss realized on the sale of securities in an unrealized loss position	$ 600,000	$ 3,100,000

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INCOME TAXES (Details)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
INCOME TAXES
Effective income tax rates (as a percent)	32.70%	32.00%

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OFFSETTING OF ASSETS AND LIABILITIES (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Total derivatives, subject to a master netting arrangement or similar arrangement
Gross Amounts of Recognized Assets	$ 139,355,000
Net Amounts of Assets Presented in the Statement of Financial Position	139,355,000
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046,000
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Received	2,500,000
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	105,809,000
Total derivatives, not subject to a master netting arrangement or similar arrangement
Gross Amounts of Recognized Assets	13,527,000
Net Amounts of Assets Presented in the Statement of Financial Position	13,527,000
Total derivatives, not subject to a master netting arrangement or similar arrangement, Net Amount	13,527,000
Total derivatives
Gross Amounts of Recognized Assets	152,882,000	130,428,000
Net Amounts of Assets Presented in the Statement of Financial Position	152,882,000
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046,000
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Received	2,500,000
Total derivatives, Net Amount	119,336,000
Total Assets
Gross Amounts of Recognized Assets	152,882,000
Net Amounts of Assets Presented in the Statement of Financial Position	152,882,000
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046,000
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Received	2,500,000
Total derivatives, Net Amount	119,336,000
Free-Standing derivatives
Total derivatives, subject to a master netting arrangement or similar arrangement
Net Amounts of Assets Presented in the Statement of Financial Position	82,238,000
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046,000
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Received	2,500,000
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	48,692,000
Total derivatives
Gross Amounts of Recognized Assets	82,238,000
Embedded derivative - Modco reinsurance treaties
Total derivatives, subject to a master netting arrangement or similar arrangement
Net Amounts of Assets Presented in the Statement of Financial Position	1,321,000
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	1,321,000
Total derivatives
Gross Amounts of Recognized Assets	1,321,000
Embedded derivative - GMWB
Total derivatives, subject to a master netting arrangement or similar arrangement
Net Amounts of Assets Presented in the Statement of Financial Position	55,796,000
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	55,796,000
Total derivatives
Gross Amounts of Recognized Assets	$ 55,796,000

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COMMITMENTS AND CONTINGENCIES (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 item
Commitment and contingency
Estimated income tax payment if IRS prevails on every issue identified in audit	$ 24.3
Number of auditors from whom notice has been received	2
Number of blocks of life insurance policies	1
Targeted multi-state examination | Minimum
Commitment and contingency
Administrative and/or examination fees	0
Targeted multi-state examination | Maximum
Commitment and contingency
Administrative and/or examination fees	$ 3.5

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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from operating activities
Net income	$ 73,878	$ 95,856
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment losses (gains)	5,223	13,022
Amortization of deferred policy acquisition costs and value of business acquired	50,039	53,687
Capitalization of deferred policy acquisition costs	(65,118)	(62,313)
Depreciation expense	2,156	2,196
Deferred income tax	33,172	(33,731)
Accrued income tax	74,240	78,547
Interest credited to universal life and investment products	223,468	243,608
Policy fees assessed on universal life and investment products	(222,969)	(188,790)
Change in reinsurance receivables	(31,690)	(27,335)
Change in accrued investment income and other receivables	(12,984)	(10,808)
Change in policy liabilities and other policyholders' funds of traditional life and health products	33,474	(12,116)
Trading securities:
Maturities and principal reductions of investments	54,121	98,457
Sale of investments	40,031	273,030
Cost of investments acquired	(65,419)	(371,030)
Other net change in trading securities	(11,225)	17,623
Change in other liabilities	(117,231)	(162,020)
Other income - gains on repurchase of non-recourse funding obligations	(1,250)	(29,344)
Other, net	(19,205)	40,731
Net cash provided by operating activities	42,711	19,270
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	229,316	314,710
Sale of investments, available-for-sale	677,202	715,302
Cost of investments acquired, available-for-sale	(1,434,760)	(1,202,034)
Change in investments, held-to-maturity	(15,000)
Mortgage loans:
New lendings	(42,919)	(79,726)
Repayments	156,924	117,107
Change in investment real estate, net	33	40
Change in policy loans, net	3,189	1,969
Change in other long-term investments, net	(43,117)	(85,604)
Change in short-term investments, net	61,068	(30,329)
Net unsettled security transactions	48,198	93,942
Purchase of property and equipment	(6,140)	(1,799)
Net cash used in investing activities	(366,006)	(156,422)
Cash flows from financing activities
Issuance (repayment) of non-recourse funding obligations	10,000	(91,700)
Repurchase program borrowings	150,000	221,569
Dividends paid to the parent company		(90,000)
Investment product deposits and change in universal life deposits	798,912	894,572
Investment product withdrawals	(733,756)	(895,493)
Other financing activities, net		(3,686)
Net cash provided by financing activities	225,156	35,262
Change in cash	(98,139)	(101,890)
Cash at beginning of period	269,582	169,775
Cash at end of period	$ 171,443	$ 67,885

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OFFSETTING OF ASSETS AND LIABILITIES (Details 2) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Total derivatives, subject to a master netting arrangement or similar arrangement
Gross Amounts of Recognized Liabilities	$ 589,561	$ 657,874
Net Amounts of Assets Presented in the Statement of Financial Position	589,561
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Paid	9,648
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	548,867
Total derivatives
Gross Amounts of Recognized Liabilities	589,561
Net Amounts of Assets Presented in the Statement of Financial Position	589,561
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Paid	9,648
Total derivatives, Net Amount	548,867
Repurchase agreements
Gross Amounts of Recognized Liabilities	300,000
Net Amounts of Assets Presented in the Statement of Financial Position	300,000
Net Amount	300,000
Total Liabilities
Gross Amounts of Recognized Assets	889,561
Net Amounts of Assets Presented in the Statement of Financial Position	889,561
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Paid	9,648
Net Amount	848,867
Free-Standing derivatives
Total derivatives, subject to a master netting arrangement or similar arrangement
Gross Amounts of Recognized Liabilities	49,747
Net Amounts of Assets Presented in the Statement of Financial Position	49,747
Gross Amounts Not Offset in the Statement of Financial Position, Financial Instruments	31,046
Gross Amounts Not Offset in the Statement of Financial Position, Cash Collateral Paid	9,648
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	9,053
Embedded derivative - Modco reinsurance treaties
Total derivatives, subject to a master netting arrangement or similar arrangement
Gross Amounts of Recognized Liabilities	395,123
Net Amounts of Assets Presented in the Statement of Financial Position	395,123
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	395,123
Embedded derivative - GMWB
Total derivatives, subject to a master netting arrangement or similar arrangement
Gross Amounts of Recognized Liabilities	144,691
Net Amounts of Assets Presented in the Statement of Financial Position	144,691
Total derivatives, subject to a master netting arrangement or similar arrangement, Net Amount	$ 144,691

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MORTGAGE LOANS (Details 2) (Commercial mortgage loans, USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013 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	$ 16,221
60-89 Days Delinquent	1,774
Greater than 90 Days Delinquent	17,898
Total Delinquent	$ 35,893
Number of loans, 30-59 Days Delinquent	5
Number of loans, 60-89 Days Delinquent	1
Number of loans, Greater than 90 Days Delinquent	6
Number of loans, Total Delinquent	12

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DEBT AND OTHER OBLIGATIONS (Tables)

3 Months Ended

Mar. 31, 2013

DEBT AND OTHER OBLIGATIONS

Non-recourse funding obligations outstanding

				Year-to-Date
			Maturity	Weighted-Avg
Issuer	Balance		Year	Interest Rate
	(Dollars In Thousands)
Golden Gate Captive Insurance Company	$	800,000	2037	7.79	%
Golden Gate II Captive Insurance Company	341,900		2052	1.14
Golden Gate V Vermont Captive Insurance Company	315,000		2037	6.25
Total	$	1,456,900

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MORTGAGE LOANS (Tables)

3 Months Ended

Mar. 31, 2013

MORTGAGE LOANS

Schedule of changes in the allowance for mortgage loan credit losses

	As of
	March 31, 2013		December 31, 2012
	(Dollars In Thousands)
Beginning balance	$	2,875	$	4,975
Charge offs	—		(8,340		)
Recoveries	—		(628		)
Provision	1,170		6,868
Ending balance	$	4,045	$	2,875

Schedule of an analysis of the delinquent loans

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	16,221	$	1,774	$	17,898	$	35,893
Number of delinquent commercial mortgage loans	5		1		6		12

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)
2013
Commercial mortgage loans:
With no related allowance recorded	$	14,792	$	16,194	$	—	$	2,465	$	176	$	87
With an allowance recorded	13,927		13,927		4,045		3,482		154		154
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

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details 4) (USD $)	3 Months Ended													3 Months Ended								3 Months Ended									3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013 Total investments	Mar. 31, 2012 Total investments	Mar. 31, 2013 Total fixed maturity securities	Mar. 31, 2012 Total fixed maturity securities	Mar. 31, 2013 Total fixed maturity securities Available-for-sale securities	Mar. 31, 2012 Total fixed maturity securities Available-for-sale securities	Mar. 31, 2013 Total fixed maturity securities Trading Securities	Mar. 31, 2012 Total fixed maturity securities Trading Securities	Mar. 31, 2012 Residential mortgage-backed securities Available-for-sale securities	Mar. 31, 2013 Residential mortgage-backed securities Available-for-sale securities	Dec. 31, 2012 Residential mortgage-backed securities Available-for-sale securities	Mar. 31, 2013 Other asset-backed securities Available-for-sale securities	Mar. 31, 2012 Other asset-backed securities Available-for-sale securities	Mar. 31, 2013 Other asset-backed securities Trading Securities	Mar. 31, 2012 Other asset-backed securities Trading Securities	Mar. 31, 2012 U.S. government-related securities Available-for-sale securities	Mar. 31, 2012 States, municipals, and political subdivisions Available-for-sale securities	Mar. 31, 2013 States, municipals, and political subdivisions Available-for-sale securities	Dec. 31, 2012 States, municipals, and political subdivisions Available-for-sale securities	Mar. 31, 2013 Other government-related securities Available-for-sale securities	Mar. 31, 2012 Other government-related securities Available-for-sale securities	Mar. 31, 2013 Corporate bonds Available-for-sale securities	Mar. 31, 2012 Corporate bonds Available-for-sale securities	Mar. 31, 2013 Corporate bonds Trading Securities	Mar. 31, 2012 Corporate bonds Trading Securities	Mar. 31, 2012 Equity securities	Mar. 31, 2013 Equity securities	Dec. 31, 2012 Equity securities	Mar. 31, 2013 Other long-term investments	Mar. 31, 2012 Other long-term investments	Mar. 31, 2013 Annuity account balances	Mar. 31, 2012 Annuity account balances	Mar. 31, 2013 Other liabilities	Mar. 31, 2012 Other liabilities
Assets:
Beginning Balance	$ 973,157,000	$ 866,911,000	$ 973,157,000	$ 866,911,000	$ 858,975,000	$ 777,728,000	$ 788,325,000	$ 749,385,000	$ 70,650,000	$ 28,343,000	$ 7,000	$ 4,000	$ 4,000	$ 596,143,000	$ 614,813,000	$ 70,535,000	$ 28,343,000	$ 15,000,000		$ 4,275,000	$ 4,275,000	$ 20,011,000		$ 167,892,000	$ 119,565,000	$ 115,000		$ 70,080,000	$ 65,527,000	$ 65,527,000	$ 48,655,000	$ 19,103,000
Total Realized and Unrealized Gains Included in Earnings	29,027,000	13,813,000	29,027,000	13,813,000	3,409,000	740,000		294,000	3,409,000	446,000					294,000	3,408,000	446,000									1,000					25,618,000	13,073,000
Total Realized and Unrealized Gains Included in Other Comprehensive Income	942,000	1,312,000	942,000	1,312,000	942,000	676,000	942,000	676,000						12,000	493,000									930,000	183,000			636,000
Total Realized and Unrealized Losses Included in Earnings	(4,128,000)	(169,000)	(4,128,000)	(169,000)	(259,000)	(169,000)			(259,000)	(169,000)						(259,000)	(169,000)														(3,869,000)
Total Realized and Unrealized Losses Included in Other Comprehensive Income	(29,915,000)	(15,174,000)	(29,915,000)	(15,174,000)	(29,915,000)	(15,173,000)	(29,915,000)	(15,173,000)						(27,548,000)	(13,929,000)			(1,000)				(3,000)	(16,000)	(2,364,000)	(1,227,000)			(1,000)
Purchases		52,012,000		52,012,000		52,008,000		24,302,000		27,706,000							27,705,000		4,275,000				20,023,000		4,000		1,000	4,000
Sales	(53,920,000)	(30,800,000)	(53,920,000)	(30,800,000)	(53,920,000)	(30,800,000)	(51,080,000)	(28,992,000)	(2,840,000)	(1,808,000)	(3,000)			(9,009,000)	(13,850,000)	(2,823,000)	(1,808,000)	(15,000,000)						(42,071,000)	(139,000)	(17,000)
Transfers in and/or out of Level 3	6,240,000	19,554,000	6,240,000	19,554,000	6,240,000	19,554,000	1,227,000	19,554,000	5,013,000					1,227,000											19,554,000	5,013,000
Other	528,000	236,000	528,000	236,000	528,000	236,000	6,000	(208,000)	522,000	444,000				(157,000)	(208,000)	522,000	444,000	1,000				(5,000)	(1,000)	168,000
Ending Balance	921,931,000	907,695,000	921,931,000	907,695,000	786,000,000	804,800,000	709,505,000	749,838,000	76,495,000	54,962,000	4,000	4,000	4,000	560,668,000	587,613,000	71,383,000	54,961,000		4,275,000	4,275,000	4,275,000	20,003,000	20,006,000	124,555,000	137,940,000	5,112,000	1,000	70,719,000	65,527,000	65,527,000	70,404,000	32,176,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	25,033,000	13,350,000	25,033,000	13,350,000	3,284,000	277,000			3,284,000	277,000						3,255,000	277,000									29,000					21,749,000	13,073,000
Liabilities:
Beginning Balance	740,905,000	574,075,000																															129,468,000	136,462,000	611,437,000	437,613,000
Total Realized and Unrealized Gains Included in Earnings	84,546,000	56,496,000																																	84,546,000	56,496,000
Total Realized and Unrealized Losses Included in Earnings	(14,923,000)	(11,769,000)																															(2,000,000)	(3,074,000)	(12,923,000)	(8,695,000)
Issuances	136,000	325,000																															136,000	325,000
Settlements	7,923,000	2,623,000																															7,923,000	2,623,000
Ending Balance	663,495,000	527,050,000																															123,681,000	137,238,000	539,814,000	389,812,000
Total Gains (losses) included in Earnings related to Instruments still held at the Reporting Date	71,623,000	47,801,000																																	71,623,000	47,801,000
Transfers
Securities transferred into Level 3	6,200,000	19,600,000
Securities transferred out of Level 3	0	0
Securities transferred from Level 2 to Level 1	0	0
Securities transferred from Level 1 to Level 2	0
Securities transferred out of Level 1		$ 0

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MORTGAGE LOANS (Details 3) (Commercial mortgage loans, USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Commercial mortgage loans
With no related allowance recorded
Recorded Investment	$ 14,792	$ 13,044
Unpaid Principal Balance	16,194	14,419
Average Recorded Investment	2,465	2,609
Interest Income Recognized	176	53
Cash Basis Interest Income	87	69
With an allowance recorded
Recorded Investment	13,927	13,927
Unpaid Principal Balance	13,927	13,927
Related Allowance	4,045	2,875
Average Recorded Investment	3,482	3,482
Interest Income Recognized	154	154
Cash Basis Interest Income	$ 154	$ 154

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STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION

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, 2012	$	22.15	1,641,167
SARs granted	—		—
SARs exercised / forfeited	22.83		69,899
Balance at March 31, 2013	$	22.12	1,571,268

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EMPLOYEE BENEFIT PLANS (Tables)

3 Months Ended

Mar. 31, 2013

EMPLOYEE BENEFIT PLANS

Components of the net periodic benefit cost of PLC's defined benefit pension plan and unfunded excess benefit plan

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	2,708		$	2,561
Interest cost on projected benefit obligation	2,553			2,604
Expected return on plan assets	(2,759		)	(2,673		)
Amortization of prior service cost/(credit)	(95		)	(95		)
Amortization of actuarial losses	2,729			2,175
Total benefit cost	$	5,136		$	4,572

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CONSOLIDATED CONDENSED 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
Balance at Dec. 31, 2012	$ 5,687,213	$ 2	$ 5,000	$ 1,363,258	$ 2,507,829	$ 1,811,124
Increase (decrease) in shareowner's equity
Net income for the period	73,878				73,878		73,878
Other comprehensive income (loss)	(135,751)					(135,751)	(135,751)
Total comprehensive income (loss)	(61,873)						(61,873)
Dividends to the parent company	(93,911)				(93,911)
Balance at Mar. 31, 2013	$ 5,531,429	$ 2	$ 5,000	$ 1,363,258	$ 2,487,796	$ 1,675,373

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Summary of changes in the accumulated balances for each component of accumulated other comprehensive income (loss)

Changes in Accumulated Other Comprehensive Income (Loss) by Component
							Total
							Accumulated
	Unrealized			Accumulated			Other
	Gains and Losses			Gain and Loss			Comprehensive
	on Investments			Derivatives			Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance	$	1,814,620		$	(3,496	)	$	1,811,124
Other comprehensive income (loss) before reclassifications	(141,762		)	2,866			(138,896		)
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	7,837			—			7,837
Amounts reclassified from accumulated other comprehensive income(1)	(5,015		)	323			(4,692		)
Net current-period other comprehensive income (loss)	(138,940		)	3,189			(135,751		)
Ending Balance	$	1,675,680		$	(307	)	$	1,675,373

(1) See Reclassification table below for details.

Schedule of reclassifications amounts out of AOCI

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
	Amount
	Reclassified
	from Accumulated
	Other Comprehensive			Affected Line Item in the
	Income (Loss)			Consolidated Condensed Statements of Income
	(Dollars In Thousands)
Accumulated Other Comprehensive Income  (Loss) Components
Gains and losses on derivative instruments
Net settlement (expense)/benefit	$	(497	)	Benefits and settlement expenses, net of reinsurance ceded
	(497		)	Total before tax
	174			Tax (expense) or benefit
	$	(323	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains/(losses)	$	12,299		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(4,584		)	Net impairment losses recognized in earnings
	7,715			Total before tax
	(2,700		)	Tax (expense) or benefit
	$	5,015		Net of tax

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INVESTMENT OPERATIONS (Details 4) (USD $)				3 Months Ended							3 Months Ended	12 Months Ended									3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 Below investment grade	Mar. 31, 2013 Fixed maturities	Mar. 31, 2012 Fixed maturities	Dec. 31, 2012 Fixed maturities	Mar. 31, 2013 Residential mortgage-backed securities	Dec. 31, 2012 Residential mortgage-backed securities	Mar. 31, 2013 Commercial mortgage-backed securities	Dec. 31, 2012 Commercial mortgage-backed securities	Mar. 31, 2013 Other asset-backed securities	Dec. 31, 2012 Other asset-backed securities	Mar. 31, 2013 U.S. government-related securities	Dec. 31, 2012 U.S. government-related securities	Mar. 31, 2013 Other government-related securities	Dec. 31, 2012 Other government-related securities	Mar. 31, 2013 States, municipals, and political subdivisions	Dec. 31, 2012 States, municipals, and political subdivisions	Mar. 31, 2013 Corporate bonds	Dec. 31, 2012 Corporate bonds	Mar. 31, 2013 Equity securities	Mar. 31, 2012 Equity securities	Dec. 31, 2012 Equity securities
Fair Value
Less Than 12 Months	$ 1,995,683,000	$ 1,574,080,000					$ 127,940,000	$ 100,412,000	$ 112,880,000	$ 50,506,000	$ 74,375,000	$ 479,223,000	$ 206,309,000	$ 106,806,000	$ 20,003,000	$ 14,955,000	$ 11,521,000	$ 11,526,000	$ 1,387,338,000	$ 775,593,000	$ 55,317,000		$ 35,059,000
12 Months or More	1,019,077,000	793,440,000					99,519,000	166,000,000			602,783,000	242,558,000			3,617,000				284,166,000	363,128,000	28,992,000		21,754,000
Total	3,014,760,000	2,367,520,000					227,459,000	266,412,000	112,880,000	50,506,000	677,158,000	721,781,000	206,309,000	106,806,000	23,620,000	14,955,000	11,521,000	11,526,000	1,671,504,000	1,138,721,000	84,309,000		56,813,000
Unrealized Loss
Less Than 12 Months	(82,175,000)	(68,035,000)					(23,734,000)	(9,578,000)	(2,085,000)	(598,000)	(9,968,000)	(28,179,000)	(1,723,000)	(591,000)	(2,000)	(45,000)	(269,000)	(264,000)	(44,151,000)	(23,630,000)	(243,000)		(5,150,000)
12 Months or More	(113,970,000)	(72,622,000)					(13,042,000)	(9,769,000)			(74,371,000)	(33,245,000)			(16,000)				(20,061,000)	(24,765,000)	(6,480,000)		(4,843,000)
Total	(196,145,000)	(140,657,000)					(36,776,000)	(19,347,000)	(2,085,000)	(598,000)	(84,339,000)	(61,424,000)	(1,723,000)	(591,000)	(18,000)	(45,000)	(269,000)	(264,000)	(64,212,000)	(48,395,000)	(6,723,000)		(9,993,000)
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	27,482,932,000	27,214,682,000	1,600,000,000	27,079,561,000		26,762,670,000	1,717,910,000	1,839,330,000	916,155,000	869,823,000	946,561,000	975,013,000	1,207,052,000	1,168,446,000	88,477,000	100,778,000	1,433,521,000	1,443,653,000	20,769,885,000	20,365,627,000	353,680,000		354,160,000
Available-for-sale securities, amortized cost	24,624,279,000	24,104,126,000	1,600,000,000	24,228,625,000		23,654,002,000	1,665,681,000	1,766,260,000	853,334,000	797,844,000	1,013,575,000	1,023,649,000	1,142,772,000	1,097,501,000	82,172,000	93,565,000	1,179,314,000	1,188,019,000	18,291,777,000	17,687,164,000	345,963,000		352,272,000
Securities in trading portfolio			367,500,000	3,000,000,000		3,000,000,000															22,400,000		19,600,000
Securities not publicly traded			420,700,000
Change in unrealized gains (losses), net of income tax				$ (167,526,000)	$ 19,462,000																$ 3,789,000	$ 5,106,000

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets:
Available-for-sale securities	$ 27,482,932	$ 27,214,682
Trading securities	3,100,000
Total fixed maturity securities	30,047,749	29,769,978
Equity securities	376,117	373,715
Other long-term investments	152,882	130,428
Short-term investments	160,301	216,787
Assets related to separate accounts
Variable annuity	10,670,833	9,601,417
Variable universal life	605,622	562,817
Liabilities:
Other liabilities	589,561	657,874
Fixed maturities
Assets:
Available-for-sale securities	27,079,561	26,762,670
Residential mortgage-backed securities
Assets:
Available-for-sale securities	1,717,910	1,839,330
Commercial mortgage-backed securities
Assets:
Available-for-sale securities	916,155	869,823
Other asset-backed securities
Assets:
Available-for-sale securities	946,561	975,013
U.S. government-related securities
Assets:
Available-for-sale securities	1,207,052	1,168,446
States, municipals, and political subdivisions
Assets:
Available-for-sale securities	1,433,521	1,443,653
Other government-related securities
Assets:
Available-for-sale securities	88,477	100,778
Corporate bonds
Assets:
Available-for-sale securities	20,769,885	20,365,627
Measured at fair value on a recurring basis | Level 1
Assets:
Total fixed maturity securities	1,283,889	1,214,899
Equity securities	273,488	273,072
Other long-term investments	39,960	23,639
Short-term investments	156,825	214,295
Total investments	1,754,162	1,725,905
Cash	171,443	269,582
Assets related to separate accounts
Variable annuity	10,670,833	9,601,417
Variable universal life	605,622	562,817
Total assets	13,202,060	12,159,721
Liabilities:
Other liabilities	2,380	19,187
Total liabilities	2,380	19,187
Measured at fair value on a recurring basis | Level 1 | Fixed maturities
Assets:
Available-for-sale securities	988,881	910,195
Trading securities	295,008	304,704
Measured at fair value on a recurring basis | Level 1 | U.S. government-related securities
Assets:
Available-for-sale securities	988,675	909,988
Trading securities	295,008	304,704
Measured at fair value on a recurring basis | Level 1 | Corporate bonds
Assets:
Available-for-sale securities	206	207
Measured at fair value on a recurring basis | Level 2
Assets:
Total fixed maturity securities	27,977,860	27,696,104
Equity securities	37,102	35,116
Other long-term investments	42,518	58,134
Short-term investments	3,476	2,492
Total investments	28,060,956	27,791,846
Assets related to separate accounts
Total assets	28,060,956	27,791,846
Liabilities:
Other liabilities	47,367	27,250
Total liabilities	47,367	27,250
Measured at fair value on a recurring basis | Level 2 | Fixed maturities
Assets:
Available-for-sale securities	25,381,175	25,064,150
Trading securities	2,596,685	2,631,954
Measured at fair value on a recurring basis | Level 2 | Residential mortgage-backed securities
Assets:
Available-for-sale securities	1,717,906	1,839,326
Trading securities	354,522	357,803
Measured at fair value on a recurring basis | Level 2 | Commercial mortgage-backed securities
Assets:
Available-for-sale securities	916,155	869,823
Trading securities	176,986	171,073
Measured at fair value on a recurring basis | Level 2 | Other asset-backed securities
Assets:
Available-for-sale securities	385,893	378,870
Trading securities	91,039	87,395
Measured at fair value on a recurring basis | Level 2 | U.S. government-related securities
Assets:
Available-for-sale securities	218,377	258,458
Trading securities	1,728	1,169
Measured at fair value on a recurring basis | Level 2 | States, municipals, and political subdivisions
Assets:
Available-for-sale securities	1,429,246	1,439,378
Trading securities	283,842	278,898
Measured at fair value on a recurring basis | Level 2 | Other government-related securities
Assets:
Available-for-sale securities	68,474	80,767
Trading securities	63,728	63,444
Measured at fair value on a recurring basis | Level 2 | Corporate bonds
Assets:
Available-for-sale securities	20,645,124	20,197,528
Trading securities	1,624,840	1,672,172
Measured at fair value on a recurring basis | Level 3
Assets:
Total fixed maturity securities	786,000	858,975
Equity securities	65,527	65,527
Other long-term investments	70,404	48,655
Total investments	921,931	973,157
Assets related to separate accounts
Total assets	921,931	973,157
Liabilities:
Annuity account balances	123,681	129,468
Other liabilities	539,814	611,437
Total liabilities	663,495	740,905
Measured at fair value on a recurring basis | Level 3 | Fixed maturities
Assets:
Available-for-sale securities	709,505	788,325
Trading securities	76,495	70,650
Measured at fair value on a recurring basis | Level 3 | Residential mortgage-backed securities
Assets:
Available-for-sale securities	4	4
Measured at fair value on a recurring basis | Level 3 | Other asset-backed securities
Assets:
Available-for-sale securities	560,668	596,143
Trading securities	71,383	70,535
Measured at fair value on a recurring basis | Level 3 | States, municipals, and political subdivisions
Assets:
Available-for-sale securities	4,275	4,275
Measured at fair value on a recurring basis | Level 3 | Other government-related securities
Assets:
Available-for-sale securities	20,003	20,011
Measured at fair value on a recurring basis | Level 3 | Corporate bonds
Assets:
Available-for-sale securities	124,555	167,892
Trading securities	5,112	115
Measured at fair value on a recurring basis | Total
Assets:
Total fixed maturity securities	30,047,749	29,769,978
Equity securities	376,117	373,715
Other long-term investments	152,882	130,428
Short-term investments	160,301	216,787
Total investments	30,737,049	30,490,908
Cash	171,443	269,582
Assets related to separate accounts
Variable annuity	10,670,833	9,601,417
Variable universal life	605,622	562,817
Total assets	42,184,947	40,924,724
Liabilities:
Annuity account balances	123,681	129,468
Other liabilities	589,561	657,874
Total liabilities	713,242	787,342
Measured at fair value on a recurring basis | Total | Fixed maturities
Assets:
Available-for-sale securities	27,079,561	26,762,670
Trading securities	2,968,188	3,007,308
Measured at fair value on a recurring basis | Total | Residential mortgage-backed securities
Assets:
Available-for-sale securities	1,717,910	1,839,330
Trading securities	354,522	357,803
Measured at fair value on a recurring basis | Total | Commercial mortgage-backed securities
Assets:
Available-for-sale securities	916,155	869,823
Trading securities	176,986	171,073
Measured at fair value on a recurring basis | Total | Other asset-backed securities
Assets:
Available-for-sale securities	946,561	975,013
Trading securities	162,422	157,930
Measured at fair value on a recurring basis | Total | U.S. government-related securities
Assets:
Available-for-sale securities	1,207,052	1,168,446
Trading securities	296,736	305,873
Measured at fair value on a recurring basis | Total | States, municipals, and political subdivisions
Assets:
Available-for-sale securities	1,433,521	1,443,653
Trading securities	283,842	278,898
Measured at fair value on a recurring basis | Total | Other government-related securities
Assets:
Available-for-sale securities	88,477	100,778
Trading securities	63,728	63,444
Measured at fair value on a recurring basis | Total | Corporate bonds
Assets:
Available-for-sale securities	20,769,885	20,365,627
Trading securities	$ 1,629,952	$ 1,672,287

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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenues
Premiums and policy fees	$ 723,200	$ 692,398
Reinsurance ceded	(325,840)	(296,295)
Net of reinsurance ceded	397,360	396,103
Net investment income	439,012	443,532
Realized investment gains (losses):
Derivative financial instruments	3,607	(29,909)
All other investments	(4,246)	35,483
Other-than-temporary impairment losses	(1,340)	(34,099)
Portion recognized in other comprehensive income (before taxes)	(3,244)	15,503
Net impairment losses recognized in earnings	(4,584)	(18,596)
Other income	54,434	75,142
Total revenues	885,583	901,755
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (2013 - $306,578; 2012 - $282,776)	580,976	587,009
Amortization of deferred policy acquisition costs and value of business acquired	50,039	53,687
Other operating expenses, net of reinsurance ceded: (2013 - $41,746; 2012 - $47,751)	144,754	119,991
Total benefits and expenses	775,769	760,687
Income before income tax	109,814	141,068
Income tax expense	35,936	45,212
Net income	$ 73,878	$ 95,856

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GOODWILL (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
GOODWILL
Decrease in goodwill balance	$ 800,000
Aggregate goodwill balance	82,998,000	83,773,000
Goodwill impairment		$ 0

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CONSOLIDATED CONDENSED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Assets
Fixed maturities, at fair value (amortized cost: 2013 - $27,196,813; 2012 - $26,661,310)	$ 30,047,749	$ 29,769,978
Fixed maturities, at amortized cost (fair value: 2013 - $334,579; 2012 - $319,163)	315,000	300,000
Equity securities, at fair value (cost: 2013 - $406,661; 2012 - $371,827)	376,117	373,715
Mortgage loans (2013 and 2012 includes: $728,671 and $765,520 related to securitizations)	4,834,342	4,948,625
Investment real estate, net of accumulated depreciation (2013 - $805; 2012 - $771)	6,484	6,517
Policy loans	862,202	865,391
Other long-term investments	361,599	378,821
Short-term investments	160,301	216,787
Total investments	36,963,794	36,859,834
Cash	171,443	269,582
Accrued investment income	358,936	350,804
Accounts and premiums receivable, net of allowance for uncollectible amounts (2013 - $4,248; 2012 - $4,191)	89,478	67,891
Reinsurance receivables	5,714,531	5,682,841
Deferred policy acquisition costs and value of business acquired	3,252,030	3,225,356
Goodwill	82,998	83,773
Property and equipment, net of accumulated depreciation (2013 - $105,331; 2012 - $103,625)	48,459	47,391
Other assets	353,806	343,925
Income tax receivable		61,952
Assets related to separate accounts
Variable annuity	10,670,833	9,601,417
Variable universal life	605,622	562,817
Total assets	58,311,930	57,157,583
Liabilities
Future policy benefits and claims	21,792,993	21,626,065
Unearned premiums	1,382,545	1,352,872
Total policy liabilities and accruals	23,175,538	22,978,937
Stable value product account balances	2,544,609	2,510,559
Annuity account balances	10,524,393	10,658,463
Other policyholders' funds	569,533	566,985
Other liabilities	1,183,859	1,210,579
Income tax payable	12,288
Deferred income taxes	1,736,926	1,783,713
Non-recourse funding obligations	1,456,900	1,446,900
Repurchase program borrowings	300,000	150,000
Liabilities related to separate accounts
Variable annuity	10,670,833	9,601,417
Variable universal life	605,622	562,817
Total liabilities	52,780,501	51,470,370
Commitments and contingencies - Note 7
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: 2013 and 2012 - 5,000,000	5,000	5,000
Additional paid-in-capital	1,363,258	1,363,258
Retained earnings	2,487,796	2,507,829
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2013 - $900,217; 2012 - $979,251)	1,671,831	1,818,608
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, net of income tax: (2013 - $2,072; 2012 - $(2,147))	3,849	(3,988)
Accumulated loss - derivatives, net of income tax: (2013 - $(166); 2012 - $(1,883))	(307)	(3,496)
Total shareowner's equity	5,531,429	5,687,213
Total liabilities and shareowner's equity	$ 58,311,930	$ 57,157,583

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DERIVATIVE FINANCIAL INSTRUMENTS (Details 2) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Cash posted as collateral related to derivative transactions	$ 20,100,000
Cash posted as collateral related to derivative transactions	9,648,000
Securities posted as collateral related to derivative transactions	54,600,000
Cash received as collateral related to derivative transactions	2,500,000
Cash flow hedges
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Amount of Gains (Losses) Deferred in Accumulated Other Comprehensive Income (Loss) on Derivatives (Effective Portion)	4,409,000	8,204,000
Amount of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss) (Effective Portion)	(497,000)	(674,000)
Amount and Location of (Losses) Recognized in Income (Loss) on Derivatives (Ineffective Portion)	368,000	646,000
Expected reclassification out of accumulated other comprehensive income (loss) into earnings during the next twelve months	600,000
Cash flow hedges | Interest rate
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Amount of Gains (Losses) Deferred in Accumulated Other Comprehensive Income (Loss) on Derivatives (Effective Portion)		(73,000)
Amount of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss) (Effective Portion)		(854,000)
Cash flow hedges | Inflation
Gain (Loss) on Derivatives in Cash Flow Hedging Relationship
Amount of Gains (Losses) Deferred in Accumulated Other Comprehensive Income (Loss) on Derivatives (Effective Portion)	4,409,000	8,277,000
Amount of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss) (Effective Portion)	(497,000)	180,000
Amount and Location of (Losses) Recognized in Income (Loss) on Derivatives (Ineffective Portion)	$ 368,000	$ 646,000

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OFFSETTING OF ASSETS AND LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2013

OFFSETTING OF ASSETS AND LIABILITIES

Schedule of derivative assets

					Net Amounts
			Gross		of Assets		Gross Amounts Not Offset
			Amounts		Presented in		in the Statement of
	Gross		Offset in the		the		Financial Position
	Amounts of		Statement of		Statement of				Cash
	Recognized		Financial		Financial		Financial		Collateral
	Assets		Position		Position		Instruments		Received		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative Assets
Derivatives:
Free-Standing derivatives	$	82,238	$	—	$	82,238	$	31,046	$	2,500	$	48,692
Embedded derivative - Modco reinsurance treaties	1,321		—		1,321		—		—		1,321
Embedded derivative - GMWB	55,796		—		55,796		—		—		55,796
Total derivatives, subject to a master netting arrangement or similar arrangement	139,355		—		139,355		31,046		2,500		105,809
Total derivatives, not subject to a master netting arrangement or similar arrangement	13,527		—		13,527		—		—		13,527
Total derivatives	152,882		—		152,882		31,046		2,500		119,336
Total Assets	$	152,882	$	—	$	152,882	$	31,046	$	2,500	$	119,336

Schedule of derivative liabilities

					Net Amounts
			Gross		of Assets		Gross Amounts Not Offset
			Amounts		Presented in		in the Statement of
	Gross		Offset in the		the		Financial Position
	Amounts of		Statement of		Statement of				Cash
	Recognized		Financial		Financial		Financial		Collateral
	Liabilities		Position		Position		Instruments		Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative Liabilities
Derivatives:
Free-Standing derivatives	$	49,747	$	—	$	49,747	$	31,046	$	9,648	$	9,053
Embedded derivative - Modco reinsurance treaties	395,123		—		395,123		—		—		395,123
Embedded derivative - GMWB	144,691		—		144,691		—		—		144,691
Total derivatives, subject to a master netting arrangement or similar arrangement	589,561		—		589,561		31,046		9,648		548,867
Total derivatives, not subject to a master netting arrangement or similar arrangement	—		—		—		—		—		—
Total derivatives	589,561		—		589,561		31,046		9,648		548,867
Repurchase agreements(1)	300,000		—		300,000		—		—		300,000
Total Liabilities	$	889,561	$	—	$	889,561	$	31,046	$	9,648	$	848,867

(1) Borrowings under repurchase agreements are for a term less than 90 days.

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DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2013

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

13.          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

Other Derivatives

Certain of the Company’s subsidiaries have derivatives with PLC. These derivatives consist of an interest support agreement, a YRT premium support agreement, 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.

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 its 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 $23.2 million and $25.1 million and interest rate futures resulted in net pre-tax losses of $16.5 million and $33.4 million for the three months ended March 31, 2013 and 2012, respectively. Currency futures resulted in a net pre-tax gain of $8.1 million and a net pre-tax loss of $1.0 million for the three months ended March 31, 2013 and 2012, respectively. Volatility futures resulted in no pre-tax gains or losses for the three months ended March 31, 2013 and pre-tax losses of $0.5 million for the three months ended March 31, 2012.  No volatility future positions were held during the three months ended March 31, 2013.

· The Company uses equity options and volatility swaps to mitigate the risk related to certain guaranteed minimum benefits, including GMWB, within its 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 $28.4 million and $23.9 million and the volatility swaps resulted in net pre-tax losses of $10.4 million and $1.9 million for the three months ended March 31, 2013 and 2012, 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 losses of $16.6 million and $2.1 million for the three months ended March 31, 2013 and 2012, respectively. The interest rate swaptions resulted in net pre-tax losses of $4.1 million and $3.5 million for the three months ended March 31, 2013 and 2012, respectively.

· 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 gains of $80.4 million and $50.2 million for the three months ended March 31, 2013 and 2012, 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 gains of $1.0 million and $2.0 million on interest rate swaps for the three months ended March 31, 2013 and 2012, respectively.

· The Company purchased interest rate caps during 2011 to mitigate its risk with respect to the Company’s LIBOR exposure and the potential impact of European financial market distress. These caps resulted in insignificant losses for the three months ended March 31, 2013 and pre-tax losses of $2.2 million for the three months ended March 31, 2012.

· Certain of the Company’s subsidiaries have an interest support agreement, YRT premium support agreement, and two portfolio maintenance agreements with PLC. The Company recognized pre-tax losses of $3.9 million for the three months ended March 31, 2013 and no gain or loss for the three months ended March 31, 2012, related to the interest support agreement. The Company recognized a pre-tax gain of $0.1 million and no gains or losses for the three months ended March 31, 2013 and 2012, respectively, related to the YRT premium support agreement.  The Company entered into two separate portfolio maintenance agreements in October 2012.  The Company recognized no pre-tax gains or losses for the three months ended March 31, 2013 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 gains of $0.4 million and $0.7 million for the three months ended March 31, 2013 and 2012, 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 gains of $16.8 million and $10.7 million for the three months ended March 31, 2013 and 2012, 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
	March 31, 2013				December 31, 2012
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	135,531	$	251	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	300,000		5,368		355,000		6,532
Volatility swaps	400		20		500		406
Derivatives with PLC(1)	1,432,876		13,287		1,404,750		17,064
Embedded derivative - Modco reinsurance treaties	30,561		1,321		30,244		1,330
Embedded derivative - GMWB	2,615,909		55,796		1,640,075		30,261
Interest rate futures	473,257		3,201		—		—
Equity futures	55,441		1,040		147,581		595
Currency futures	31,948		531		15,944		784
Interest rate caps	3,000,000		—		3,000,000		—
Equity options	840,276		64,559		573,493		61,833
Interest rate swaptions	400,000		7,268		400,000		11,370
Other	224		240		224		253
	$	9,316,423	$	152,882	$	7,567,811	$	130,428
Other liabilities
Cash flow hedges:
Inflation	$	47,434	$	65	$	182,965	$	5,027
Derivatives not designated as hedging instruments:
Interest rate swaps	1,105,000		25,057		400,000		10,025
Volatility swaps	4,075		22,245		2,675		12,198
Embedded derivative - Modco reinsurance treaties	2,636,425		395,123		2,655,134		411,907
Embedded derivative - GMWB	4,746,591		144,691		5,253,961		199,530
Interest rate futures	—		—		893,476		13,970
Equity futures	106,724		1,126		152,364		3,316
Currency futures	101,339		1,254		131,979		1,901
	$	8,747,588	$	589,561	$	9,672,554	$	657,874

(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

				Amount and Location of
	Amount of Gains (Losses)			Gains (Losses)
	Deferred in			Reclassified from			Amount and Location of
	Accumulated Other			Accumulated Other			(Losses) Recognized in
	Comprehensive Income			Comprehensive Income			Income (Loss) on
	(Loss) on Derivatives			(Loss) into Income (Loss)			Derivatives
	(Effective Portion)			(Effective Portion)			(Ineffective Portion)
				Benefits and settlement			Realized investment
				expenses			gains (losses)
	(Dollars In Thousands)
For The Three Months Ended March 31, 2013
Interest rate	$	—		$	—		$	—
Inflation	4,409			(497		)	368
Total	$	4,409		$	(497	)	$	368
For The Three Months Ended March 31, 2012
Interest rate	$	(73	)	$	(854	)	$	—
Inflation	8,277			180			646
Total	$	8,204		$	(674	)	$	646

Based on the expected cash flows of the underlying hedged items, the Company expects to reclassify $0.6 million out of accumulated other comprehensive income (loss) into earnings during the next twelve months.

Realized investment gains (losses) - derivative financial instruments

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	(16,484	)	$	(33,406	)
Equity futures - VA	(23,225		)	(25,099		)
Currency futures - VA	8,083			(984		)
Volatility futures - VA	—			(475		)
Volatility swaps - VA	(10,433		)	(1,884		)
Equity options - VA	(28,406		)	(23,872		)
Interest rate swaptions - VA	(4,102		)	(3,519		)
Interest rate swaps - VA	(16,556		)	(2,128		)
Embedded derivative - GMWB	80,375			50,167
Total derivatives related to variable annuity contracts	(10,748		)	(41,200		)
Embedded derivative - Modco reinsurance treaties	16,775			10,706
Interest rate swaps	1,003			2,037
Interest rate caps	—			(2,164		)
Derivatives with PLC(1)	(3,778		)	—
Other derivatives	355			712
Total realized gains (losses) - derivatives	$	3,607		$	(29,909	)

(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 March 31, 2013, the Company had posted cash and securities (at fair value) as collateral of approximately $20.1 million and $54.6 million, respectively. As of March 31, 2013, the Company received $2.5 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 Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Modco trading portfolio(1)	$	(15,328	)	$	18,099

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

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OPERATING SEGMENTS (Tables)

3 Months Ended

Mar. 31, 2013

OPERATING SEGMENTS

Summary of financial information for the Company's segments

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Revenues
Life Marketing	$	338,679		$	315,506
Acquisitions	250,487			299,509
Annuities	164,353			139,062
Stable Value Products	31,920			34,656
Asset Protection	71,311			72,644
Corporate and Other	28,833			40,378
Total revenues	$	885,583		$	901,755
Segment Operating Income (Loss)
Life Marketing	$	23,477		$	29,997
Acquisitions	34,377			39,099
Annuities	42,869			35,459
Stable Value Products	17,844			12,646
Asset Protection	4,470			2,840
Corporate and Other	(19,896		)	21,266
Total segment operating income	103,141			141,307
Realized investment (losses) gains - investments (1)	(9,857		)	22,430
Realized investment (losses) gains - derivatives	16,530			(22,669		)
Income tax expense	(35,936		)	(45,212		)
Net Income	$	73,878		$	95,856
(2)Investment gains (losses)	$	(8,830	)	$	16,887
Less: related amortization of DAC/VOBA	1,027			(5,543		)
Realized investment gains (losses) in investments	$	(9,857	)	$	22,430
(3)Derivative gains (losses)	$	3,607		$	(29,909	)
Less: VA GMWB economic cost	(12,923		)	(7,240		)
Realized investment gains (losses) - derivatives	$	16,530		$	(22,669	)

(1) Includes credit related other-than-temporary impairments of $4.6 million and $18.6 million for the three months ended March 31, 2013, and 2012, 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.

	Operating Segment Assets
	As of March 31, 2013
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,426,547	$	11,302,319	$	18,498,392	$	2,543,291
Deferred policy acquisition costs and value of business acquired	2,045,332		632,595		522,122		1,318
Goodwill	—		34,840		—		—
Total assets	$	14,471,879	$	11,969,754	$	19,020,514	$	2,544,609

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	750,098	$	9,437,968	$	18,287	$	54,976,902
Deferred policy acquisition costs and value of business acquired	49,688		975		—		3,252,030
Goodwill	48,158		—		—		82,998
Total assets	$	847,944	$	9,438,943	$	18,287	$	58,311,930

	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

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OPERATING SEGMENTS

3 Months Ended

Mar. 31, 2013

OPERATING SEGMENTS

OPERATING SEGMENTS

15.          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, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the 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 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 assigned to the segments above (including the impact of carrying liquidity), 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 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 deferred acquisition costs (“DAC”) and value of business acquired (“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 variable annuity (“VA”) product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

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.

There were no significant intersegment transactions during the three months ended March 31, 2013, and 2012.

The following tables summarize financial information for the Company’s segments:

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Revenues
Life Marketing	$	338,679		$	315,506
Acquisitions	250,487			299,509
Annuities	164,353			139,062
Stable Value Products	31,920			34,656
Asset Protection	71,311			72,644
Corporate and Other	28,833			40,378
Total revenues	$	885,583		$	901,755
Segment Operating Income (Loss)
Life Marketing	$	23,477		$	29,997
Acquisitions	34,377			39,099
Annuities	42,869			35,459
Stable Value Products	17,844			12,646
Asset Protection	4,470			2,840
Corporate and Other	(19,896		)	21,266
Total segment operating income	103,141			141,307
Realized investment (losses) gains - investments (1)	(9,857		)	22,430
Realized investment (losses) gains - derivatives	16,530			(22,669		)
Income tax expense	(35,936		)	(45,212		)
Net Income	$	73,878		$	95,856
(2)Investment gains (losses)	$	(8,830	)	$	16,887
Less: related amortization of DAC/VOBA	1,027			(5,543		)
Realized investment gains (losses) in investments	$	(9,857	)	$	22,430
(3)Derivative gains (losses)	$	3,607		$	(29,909	)
Less: VA GMWB economic cost	(12,923		)	(7,240		)
Realized investment gains (losses) - derivatives	$	16,530		$	(22,669	)

(1) Includes credit related other-than-temporary impairments of $4.6 million and $18.6 million for the three months ended March 31, 2013, and 2012, 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.

	Operating Segment Assets
	As of March 31, 2013
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,426,547	$	11,302,319	$	18,498,392	$	2,543,291
Deferred policy acquisition costs and value of business acquired	2,045,332		632,595		522,122		1,318
Goodwill	—		34,840		—		—
Total assets	$	14,471,879	$	11,969,754	$	19,020,514	$	2,544,609

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	750,098	$	9,437,968	$	18,287	$	54,976,902
Deferred policy acquisition costs and value of business acquired	49,688		975		—		3,252,030
Goodwill	48,158		—		—		82,998
Total assets	$	847,944	$	9,438,943	$	18,287	$	58,311,930

	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

XML

CONSOLIDATED CONDENSED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
CONSOLIDATED CONDENSED BALANCE SHEETS
Fixed maturities, amortized cost	$ 27,196,813	$ 26,661,310
Fixed maturities, fair value	334,579	319,163
Equity securities, cost	406,661	371,827
Mortgage loans, securitizations	728,671	765,520
Investment real estate, accumulated depreciation	805	771
Accounts and premiums receivable, allowance for uncollectible amounts	4,248	4,191
Property and equipment, accumulated depreciation	105,331	103,625
Preferred Stock, par value (in dollars per share)	$ 1	$ 1
Preferred Stock, shares authorized (in shares)	2,000	2,000
Preferred Stock, Liquidation preference	2,000	2,000
Common Stock, par value (in dollars per share)	$ 1	$ 1
Common Stock, shares authorized (in shares)	5,000,000	5,000,000
Common Stock, shares issued (in shares)	5,000,000	5,000,000
Net unrealized gains (losses) on investments, income tax	900,217	979,251
Net unrealized (losses) gains relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, income tax	2,072	(2,147)
Accumulated loss - derivatives, income tax	$ (166)	$ (1,883)

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CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
Benefits and settlement expenses, reinsurance ceded	$ 306,578	$ 282,776
Other operating expenses, reinsurance ceded	$ 41,746	$ 47,751

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2013

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

8. STOCK-BASED COMPENSATION

During the three months ended March 31, 2013, 298,500 performance shares with an estimated fair value of $9.3 million were awarded. The criteria for payment of the 2013 performance awards is based primarily 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 11.5%, the award maximum is earned. Awards are paid in shares of PLC’s common stock.

Restricted stock units are awarded to participants and include certain restrictions relating to vesting periods. PLC issued 141,000 restricted stock units for the three months ended March 31, 2013. These awards had a total fair value at grant date of $4.4 million. Approximately half of these restricted stock units vest in 2016, and the remainder vest in 2017. These awards have been recorded as equity-classified awards for the period ended March 31, 2013.

Stock appreciation rights (“SARs”) of PLC have historically 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, 2012	$	22.15	1,641,167
SARs granted	—		—
SARs exercised / forfeited	22.83		69,899
Balance at March 31, 2013	$	22.12	1,571,268

There were no SARs issued for the three months ended March 31, 2013. PLC will pay an amount in stock equal to the difference between the specified base price of PLC’s common stock and the market value at the exercise date for each SAR.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 01, 2013
Document and Entity Information
Entity Registrant Name	PROTECTIVE LIFE INSURANCE CO
Entity Central Index Key	0000310826
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		5,000,000
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q1

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EMPLOYEE BENEFIT PLANS

3 Months Ended

Mar. 31, 2013

EMPLOYEE BENEFIT PLANS

EMPLOYEE BENEFIT PLANS

9. EMPLOYEE BENEFIT PLANS

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	2,708		$	2,561
Interest cost on projected benefit obligation	2,553			2,604
Expected return on plan assets	(2,759		)	(2,673		)
Amortization of prior service cost/(credit)	(95		)	(95		)
Amortization of actuarial losses	2,729			2,175
Total benefit cost	$	5,136		$	4,572

During the three months ended March 31, 2013, PLC did not make any contributions to its defined benefit pension plan. During April of 2013, PLC contributed $2.3 million to the defined benefit pension plan for the 2013 plan year. PLC will continue to make contributions in future periods as necessary to at least satisfy minimum funding requirements. PLC may also make additional contributions in future periods to maintain an adjusted funding target attainment percentage (“AFTAP”) of at least 80%.

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 year. 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.

In addition to pension benefits, PLC provides life insurance benefits to eligible retirees and limited healthcare benefits to eligible retirees who are not yet eligible for Medicare. For a closed group of retirees over age 65, PLC provides a prescription drug benefit. The cost of these plans for the three months ended March 31, 2013, was immaterial to the Company’s financial statements.

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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income	$ 73,878	$ 95,856
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (2013 - $(76,334); 2012 - $5,238)	(141,762)	9,728
Reclassification adjustment for investment amounts included in net income, net of income tax: (2013 - $(2,700); 2012 - $(379))	(5,015)	(703)
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: (2013 - $4,219; 2012 - $1,571)	7,837	2,917
Change in accumulated (loss) gain - derivatives, net of income tax: (2013 - $1,543; 2012 - $2,872)	2,866	5,333
Reclassification adjustment for derivative amounts included in net income, net of income tax: (2013 - $174; 2012 - $235)	323	438
Total other comprehensive income (loss)	(135,751)	17,713
Total comprehensive income (loss)	$ (61,873)	$ 113,569

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INVESTMENT OPERATIONS

3 Months Ended

Mar. 31, 2013

INVESTMENT OPERATIONS

INVESTMENT OPERATIONS

3. INVESTMENT OPERATIONS

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Fixed maturities	$	12,298		$	19,678
Equity securities	1			—
Impairments on fixed maturity securities	(3,587		)	(18,572		)
Impairments on equity securities	(997		)	(24		)
Modco trading portfolio	(15,328		)	18,099
Other investments	(1,217		)	(2,294		)
Total realized gains (losses) - investments	$	(8,830	)	$	16,887

For the three months ended March 31, 2013, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $12.9 million and gross realized losses were $4.9 million, including $4.4 million of impairment losses. For the three months ended March 31, 2012, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $22.8 million and gross realized losses were $21.7 million, including $18.5 million of impairment losses.

For the three months ended March 31, 2013, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $387.9 million. The gain realized on the sale of these securities was $12.9 million. For the three months ended March 31, 2012, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $495.1 million. The gain realized on the sale of these securities was $22.8 million.

For the three months ended March 31, 2013, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $4.0 million. The loss realized on the sale of these securities was $0.6 million.

For the three months ended March 31, 2012, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $17.2 million. The loss realized on the sale of these securities was $3.1 million.

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 March 31, 2013 and December 31, 2012, are as follows:

			Gross		Gross					Total OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains		Losses			Value		in OCI(1)
	(Dollars In Thousands)
2013
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,665,681	$	89,005	$	(36,776	)	$	1,717,910	$	6,353
Commercial mortgage-backed securities	853,334		64,906		(2,085		)	916,155		—
Other asset-backed securities	1,013,575		17,325		(84,339		)	946,561		(189		)
U.S. government-related securities	1,142,772		66,003		(1,723		)	1,207,052		—
Other government-related securities	82,172		6,323		(18		)	88,477		—
States, municipals, and political subdivisions	1,179,314		254,476		(269		)	1,433,521		—
Corporate bonds	18,291,777		2,542,320		(64,212		)	20,769,885		—
	24,228,625		3,040,358		(189,422		)	27,079,561		6,164
Equity securities	345,963		14,440		(6,723		)	353,680		(243		)
Short-term investments	49,691		—		—			49,691		—
	$	24,624,279	$	3,054,798	$	(196,145	)	$	27,482,932	$	5,921
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	)

(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 March 31, 2013 and December 31, 2012, are as follows:

			Gross		Gross				Total OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in OCI
	(Dollars In Thousands)
2013
Fixed maturities:
Other	$	315,000	$	19,579	$	—	$	334,579	$	—
	$	315,000	$	19,579	$	—	$	334,579	$	—
2012
Fixed maturities:
Other	$	300,000	$	19,163	$	—	$	319,163	$	—
	$	300,000	$	19,163	$	—	$	319,163	$	—

As of March 31, 2013 and December 31, 2012, the Company had an additional $3.0 billion and $3.0 billion of fixed maturities, $22.4 million and $19.6 million of equity securities, and $110.6 million and $118.9 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 March 31, 2013, 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	$	462,439	$	469,358	$	—	$	—
Due after one year through five years	4,474,623		4,930,066		—		—
Due after five years through ten years	6,601,844		7,235,764		—		—
Due after ten years	12,689,719		14,444,373		315,000		334,579
	$	24,228,625	$	27,079,561	$	315,000	$	334,579

During the three months ended March 31, 2013, the Company recorded pre-tax other-than-temporary impairments of investments of $1.3 million, of which $0.3 million related to debt securities and $1.0 million related to equity securities. Credit impairments recorded in earnings during the period were $4.6 million. During the period, $3.3 million of non-credit losses previously recorded in other comprehensive income were recorded in earnings as credit losses. For the three months ended March 31, 2013, 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 three months ended March 31, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $34.1 million. Of the $34.1 million of impairments for the three months ended March 31, 2012, $18.6 million was recorded in earnings and $15.5 million was recorded in other comprehensive income (loss). For the three months ended March 31, 2012, there was $34.1 million of pre-tax other-than-temporary impairments related to debt securities and an immaterial amount of impairments related to equity securities. During the three months ended March 31, 2012, there were no other-than-temporary impairments related to debt securities that the Company intended to sell or expected 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 Three Months Ended March 31,
	2013		2012
	(Dollars In Thousands)
Beginning balance	$	121,237	$	69,476
Additions for newly impaired securities	997		15,688
Additions for previously impaired securities	1,486		2,778
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	—		—
Other	—		—
Ending balance	$	123,720	$	87,942

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 March 31, 2013:

	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	$	127,940	$	(23,734	)	$	99,519	$	(13,042	)	$	227,459	$	(36,776	)
Commercial mortgage-backed securities	112,880		(2,085		)	—		—			112,880		(2,085		)
Other asset-backed securities	74,375		(9,968		)	602,783		(74,371		)	677,158		(84,339		)
U.S. government-related securities	206,309		(1,723		)	—		—			206,309		(1,723		)
Other government-related securities	20,003		(2		)	3,617		(16		)	23,620		(18		)
States, municipalities, and political subdivisions	11,521		(269		)	—		—			11,521		(269		)
Corporate bonds	1,387,338		(44,151		)	284,166		(20,061		)	1,671,504		(64,212		)
Equities	55,317		(243		)	28,992		(6,480		)	84,309		(6,723		)
	$	1,995,683	$	(82,175	)	$	1,019,077	$	(113,970	)	$	3,014,760	$	(196,145	)

RMBS have a gross unrealized loss greater than twelve months of $13.0 million as of March 31, 2013. 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 $74.4 million as of March 31, 2013. 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 $20.1 million as of March 31, 2013. 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 $6.5 million as of March 31, 2013. 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, 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 had 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 represented securities where credit concerns were 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 had 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 had gross unrealized losses greater than twelve months of $24.8 million as of December 31, 2012. 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 had a gross unrealized loss greater than twelve months of $4.8 million as of December 31, 2012. 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 March 31, 2013, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.6 billion and had an amortized cost of $1.6 billion. In addition, included in the Company’s trading portfolio, the Company held $367.5 million of securities which were rated below investment grade. Approximately $420.7 million 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 Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Fixed maturities	$	(167,526	)	$	19,462
Equity securities	3,789			5,106

Variable Interest Entities

The Company holds certain investments in entities in which its ownership interests could possibly be considered variable interests under Topic 810 of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC” or “Codification”) (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 March 31, 2013. 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 6, 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, PLC has guaranteed the VIE’s payment obligation for the credit enhancement fee to the unrelated third party provider.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Significant Accounting Policies

For a full description of significant accounting policies, see Note 2 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. There were no significant changes to the Company’s accounting policies during the three months ended March 31, 2013.

Accounting Pronouncements Recently 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 lending transactions. Both Updates were effective January 1, 2013. Neither Update had 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. This Update was effective January 1, 2013. This Update did not have an impact on the Company’s results of operations or financial position.

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 GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The Company has added the Accumulated Other Comprehensive Income footnote to disclose the required information beginning in the first quarter of 2013.  This Update was effective January 1, 2013. This Update did not have an impact on the Company’s results of operations or financial position.

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OFFSETTING OF ASSETS AND LIABILITIES

3 Months Ended

Mar. 31, 2013

OFFSETTING OF ASSETS AND LIABILITIES

OFFSETTING OF ASSETS AND LIABILITIES

14.          OFFSETTING OF ASSETS AND LIABILITIES

Certain of the Company’s derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached. Additionally, certain of the Company’s repurchase agreements provide for net settlement on termination of the agreement. Refer to Note 6, Debt and Other Obligations for details of the Company’s repurchase agreement programs.

The tables below present the derivative instruments by assets and liabilities for the Company.

					Net Amounts
			Gross		of Assets		Gross Amounts Not Offset
			Amounts		Presented in		in the Statement of
	Gross		Offset in the		the		Financial Position
	Amounts of		Statement of		Statement of				Cash
	Recognized		Financial		Financial		Financial		Collateral
	Assets		Position		Position		Instruments		Received		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative Assets
Derivatives:
Free-Standing derivatives	$	82,238	$	—	$	82,238	$	31,046	$	2,500	$	48,692
Embedded derivative - Modco reinsurance treaties	1,321		—		1,321		—		—		1,321
Embedded derivative - GMWB	55,796		—		55,796		—		—		55,796
Total derivatives, subject to a master netting arrangement or similar arrangement	139,355		—		139,355		31,046		2,500		105,809
Total derivatives, not subject to a master netting arrangement or similar arrangement	13,527		—		13,527		—		—		13,527
Total derivatives	152,882		—		152,882		31,046		2,500		119,336
Total Assets	$	152,882	$	—	$	152,882	$	31,046	$	2,500	$	119,336

					Net Amounts
			Gross		of Assets		Gross Amounts Not Offset
			Amounts		Presented in		in the Statement of
	Gross		Offset in the		the		Financial Position
	Amounts of		Statement of		Statement of				Cash
	Recognized		Financial		Financial		Financial		Collateral
	Liabilities		Position		Position		Instruments		Paid		Net Amount
	(Dollars In Thousands)
Offsetting of Derivative Liabilities
Derivatives:
Free-Standing derivatives	$	49,747	$	—	$	49,747	$	31,046	$	9,648	$	9,053
Embedded derivative - Modco reinsurance treaties	395,123		—		395,123		—		—		395,123
Embedded derivative - GMWB	144,691		—		144,691		—		—		144,691
Total derivatives, subject to a master netting arrangement or similar arrangement	589,561		—		589,561		31,046		9,648		548,867
Total derivatives, not subject to a master netting arrangement or similar arrangement	—		—		—		—		—		—
Total derivatives	589,561		—		589,561		31,046		9,648		548,867
Repurchase agreements(1)	300,000		—		300,000		—		—		300,000
Total Liabilities	$	889,561	$	—	$	889,561	$	31,046	$	9,648	$	848,867

(1) Borrowings under repurchase agreements are for a term less than 90 days.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

3 Months Ended

Mar. 31, 2013

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) (“AOCI”) and the reclassifications amounts out of AOCI for the period ended March 31, 2013.

Changes in Accumulated Other Comprehensive Income (Loss) by Component
							Total
							Accumulated
	Unrealized			Accumulated			Other
	Gains and Losses			Gain and Loss			Comprehensive
	on Investments			Derivatives			Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance	$	1,814,620		$	(3,496	)	$	1,811,124
Other comprehensive income (loss) before reclassifications	(141,762		)	2,866			(138,896		)
Other comprehensive income relating to other-than-temporary impaired investments for which a portion has been recognized in earnings	7,837			—			7,837
Amounts reclassified from accumulated other comprehensive income(1)	(5,015		)	323			(4,692		)
Net current-period other comprehensive income (loss)	(138,940		)	3,189			(135,751		)
Ending Balance	$	1,675,680		$	(307	)	$	1,675,373

(1) See Reclassification table below for details.

Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
	Amount
	Reclassified
	from Accumulated
	Other Comprehensive			Affected Line Item in the
	Income (Loss)			Consolidated Condensed Statements of Income
	(Dollars In Thousands)
Accumulated Other Comprehensive Income  (Loss) Components
Gains and losses on derivative instruments
Net settlement (expense)/benefit	$	(497	)	Benefits and settlement expenses, net of reinsurance ceded
	(497		)	Total before tax
	174			Tax (expense) or benefit
	$	(323	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains/(losses)	$	12,299		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(4,584		)	Net impairment losses recognized in earnings
	7,715			Total before tax
	(2,700		)	Tax (expense) or benefit
	$	5,015		Net of tax

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DEBT AND OTHER OBLIGATIONS

3 Months Ended

Mar. 31, 2013

DEBT AND OTHER OBLIGATIONS

DEBT AND OTHER OBLIGATIONS

6. DEBT AND OTHER OBLIGATIONS

The Company has access to a Credit Facility that provides the Company and PLC 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 Credit Facility be increased up to a maximum principal amount of $1.0 billion. Balances outstanding under the 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 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 Credit Facility, whether used or unused. The maturity date on the Credit Facility is July 17, 2017. The Company is not aware of any non-compliance with the financial debt covenants of the Credit Facility as of March 31, 2013. The Company did not have an outstanding balance under the Credit Facility as of March 31, 2013. PLC had an outstanding balance of $40.0 million at an interest rate of LIBOR plus 1.20% under the Credit Facility as of March 31, 2013.

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 March 31, 2013. 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 March 31, 2013. 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 of March 31, 2013, securities related to $281.0 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 $233.1 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 Coast 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 March 31, 2013, the principal balance of the Red Mountain note was $315 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 $315 million outstanding non-recourse funding obligation as of March 31, 2013. 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 March 31, 2013, 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	7.79	%
Golden Gate II Captive Insurance Company	341,900		2052	1.14
Golden Gate V Vermont Captive Insurance Company	315,000		2037	6.25
Total	$	1,456,900

During the three months ended March 31, 2013, the Company repurchased $5.0 million of its outstanding non-recourse funding obligations, at a discount. These repurchases resulted in a $1.3 million pre-tax gain for the Company. During the three months ended March 31, 2012, the Company repurchased $91.7 million of its outstanding non-recourse funding obligations, at a discount, which resulted in a $29.3 million gain. These gains are recorded in other income in the consolidated condensed statements of income.

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DERIVATIVE FINANCIAL INSTRUMENTS (Details 3) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Realized investment gains (losses) - all other investments
Modco trading portfolio	$ (15,328)	$ 18,099

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MORTGAGE LOANS

3 Months Ended

Mar. 31, 2013

MORTGAGE LOANS

MORTGAGE LOANS

4. MORTGAGE LOANS

Mortgage Loans

The Company invests a portion of its investment portfolio in commercial mortgage loans. As of March 31, 2013, the Company’s mortgage loan holdings were approximately $4.8 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.

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 $143.0 million would become due for the remainder of 2013, $1.3 billion in 2014 through 2018, $588.2 million in 2019 through 2023, and $178.3 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 March 31, 2013 and December 31, 2012, approximately $736.9 million and $817.3 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 March 31, 2013, approximately $19.7 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. 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 March 31, 2013, $12.7 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming. The Company did not foreclose on any nonperforming loans during the three months ended March 31, 2013.

As of March 31, 2013, $6.9 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the three months ended March 31, 2013. The Company did not foreclose on any nonperforming loans during the three months ended March 31, 2013.

As of March 31, 2013 and December 31, 2012, the Company had an allowance for mortgage loan credit losses of $4.0 million and $2.9 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
	March 31, 2013		December 31, 2012
	(Dollars In Thousands)
Beginning balance	$	2,875	$	4,975
Charge offs	—		(8,340		)
Recoveries	—		(628		)
Provision	1,170		6,868
Ending balance	$	4,045	$	2,875

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 March 31, 2013.

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	16,221	$	1,774	$	17,898	$	35,893
Number of delinquent commercial mortgage loans	5		1		6		12

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 March 31, 2013 and December 31, 2012:

			Unpaid				Average		Interest		Cash Basis
	Recorded		Principal		Related		Recorded		Income		Interest
	Investment		Balance		Allowance		Investment		Recognized		Income
	(Dollars In Thousands)
2013
Commercial mortgage loans:
With no related allowance recorded	$	14,792	$	16,194	$	—	$	2,465	$	176	$	87
With an allowance recorded	13,927		13,927		4,045		3,482		154		154
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

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GOODWILL

3 Months Ended

Mar. 31, 2013

GOODWILL

GOODWILL

5. GOODWILL

During the three months ended March 31, 2013, the Company decreased its goodwill balance by approximately $0.8 million. The decrease was due to adjustments in the Acquisitions segment related to tax benefits realized during 2013 on the portion of tax goodwill in excess of GAAP basis goodwill. As of March 31, 2013, the Company had an aggregate goodwill balance of $83.0 million.

Accounting for goodwill requires an estimate of the future profitability of the associated lines of business to assess the recoverability of the capitalized acquisition goodwill. The Company evaluates the carrying value of goodwill at the segment (or reporting unit) level at least annually and between annual evaluations if events occur or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but are not limited to: 1) a significant adverse change in legal factors or in business climate, 2) unanticipated competition, or 3) an adverse action or assessment by a regulator. When evaluating whether goodwill is impaired, the Company 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.  During the three months ended March 31, 2013, no events occurred which indicate an impairment was required or which would invalidate the previous results of the Company’s impairment assessment.

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.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2013

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

7. COMMITMENTS AND CONTINGENCIES

Under insurance guaranty fund laws, in most states insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. 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 the prior year, 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. 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 were 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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SUBSEQUENT EVENTS (Details) (Subsequent events, USD $) In Millions, unless otherwise specified		3 Months Ended
	Apr. 01, 2013 Dividend declared	Mar. 31, 2013 MONY	Apr. 10, 2013 MONY
SUBSEQUENT EVENTS
Percentage of indemnity reinsurance			100.00%
Purchase price			$ 693
Monthly reduction in purchase price		2.5
Statutory capital and surplus			303
Deferred tax assets			60
Expected ceding commission on reinsurance		373
Reduction in ceding commission on reinsurance		1
Dividend payable	$ 93.9

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OPERATING SEGMENTS (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Summarized financial information for the company's segments
Intersegment transactions amount	$ 0	$ 0
Revenues	885,583	901,755
Segment Operating Income (Loss)	103,141	141,307
Realized investment (losses) gains - investments	(9,857)	22,430
Realized investment (losses) gains - derivatives	16,530	(22,669)
Income tax expense	(35,936)	(45,212)
Net income	73,878	95,856
Realized gain (losses) on investments
Investment gains (losses)	(8,830)	16,887
Less: related amortization of DAC/VOBA	1,027	(5,543)
Realized investment gains (losses) in investments	(9,857)	22,430
Realized gain (losses) on derivatives
Derivative gains (losses)	3,607	(29,909)
Less: VA GMWB economic cost	(12,923)	(7,240)
Realized investment gains (losses) - derivatives	16,530	(22,669)
Other-than-temporary impairments	4,584	18,596
Operating Segment Assets
Investments and other assets	54,976,902		53,848,454
Deferred policy acquisition costs and value of business acquired	3,252,030		3,225,356
Goodwill	82,998		83,773
Total assets	58,311,930		57,157,583
Life Marketing
Summarized financial information for the company's segments
Revenues	338,679	315,506
Segment Operating Income (Loss)	23,477	29,997
Operating Segment Assets
Investments and other assets	12,426,547		12,171,384
Deferred policy acquisition costs and value of business acquired	2,045,332		2,001,708
Total assets	14,471,879		14,173,092
Acquisitions
Summarized financial information for the company's segments
Revenues	250,487	299,509
Segment Operating Income (Loss)	34,377	39,099
Operating Segment Assets
Investments and other assets	11,302,319		11,312,550
Deferred policy acquisition costs and value of business acquired	632,595		679,746
Goodwill	34,840		35,615
Total assets	11,969,754		12,027,911
Annuities
Summarized financial information for the company's segments
Revenues	164,353	139,062
Segment Operating Income (Loss)	42,869	35,459
Operating Segment Assets
Investments and other assets	18,498,392		17,649,488
Deferred policy acquisition costs and value of business acquired	522,122		491,184
Total assets	19,020,514		18,140,672
Stable Value Products
Summarized financial information for the company's segments
Revenues	31,920	34,656
Segment Operating Income (Loss)	17,844	12,646
Operating Segment Assets
Investments and other assets	2,543,291		2,509,160
Deferred policy acquisition costs and value of business acquired	1,318		1,399
Total assets	2,544,609		2,510,559
Asset Protection
Summarized financial information for the company's segments
Revenues	71,311	72,644
Segment Operating Income (Loss)	4,470	2,840
Operating Segment Assets
Investments and other assets	750,098		740,153
Deferred policy acquisition costs and value of business acquired	49,688		50,253
Goodwill	48,158		48,158
Total assets	847,944		838,564
Corporate and Other
Summarized financial information for the company's segments
Revenues	28,833	40,378
Segment Operating Income (Loss)	(19,896)	21,266
Operating Segment Assets
Investments and other assets	9,437,968		9,446,057
Deferred policy acquisition costs and value of business acquired	975		1,066
Total assets	9,438,943		9,447,123
Adjustments
Operating Segment Assets
Investments and other assets	18,287		19,662
Total assets	$ 18,287		$ 19,662

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DERIVATIVE FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2013

DERIVATIVE FINANCIAL INSTRUMENTS

Notional amounts and fair values of derivative financial instruments

	As of
	March 31, 2013				December 31, 2012
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	135,531	$	251	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	300,000		5,368		355,000		6,532
Volatility swaps	400		20		500		406
Derivatives with PLC(1)	1,432,876		13,287		1,404,750		17,064
Embedded derivative - Modco reinsurance treaties	30,561		1,321		30,244		1,330
Embedded derivative - GMWB	2,615,909		55,796		1,640,075		30,261
Interest rate futures	473,257		3,201		—		—
Equity futures	55,441		1,040		147,581		595
Currency futures	31,948		531		15,944		784
Interest rate caps	3,000,000		—		3,000,000		—
Equity options	840,276		64,559		573,493		61,833
Interest rate swaptions	400,000		7,268		400,000		11,370
Other	224		240		224		253
	$	9,316,423	$	152,882	$	7,567,811	$	130,428
Other liabilities
Cash flow hedges:
Inflation	$	47,434	$	65	$	182,965	$	5,027
Derivatives not designated as hedging instruments:
Interest rate swaps	1,105,000		25,057		400,000		10,025
Volatility swaps	4,075		22,245		2,675		12,198
Embedded derivative - Modco reinsurance treaties	2,636,425		395,123		2,655,134		411,907
Embedded derivative - GMWB	4,746,591		144,691		5,253,961		199,530
Interest rate futures	—		—		893,476		13,970
Equity futures	106,724		1,126		152,364		3,316
Currency futures	101,339		1,254		131,979		1,901
	$	8,747,588	$	589,561	$	9,672,554	$	657,874

(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

Gain (Loss) on Derivatives in Cash Flow Relationship

				Amount and Location of
	Amount of Gains (Losses)			Gains (Losses)
	Deferred in			Reclassified from			Amount and Location of
	Accumulated Other			Accumulated Other			(Losses) Recognized in
	Comprehensive Income			Comprehensive Income			Income (Loss) on
	(Loss) on Derivatives			(Loss) into Income (Loss)			Derivatives
	(Effective Portion)			(Effective Portion)			(Ineffective Portion)
				Benefits and settlement			Realized investment
				expenses			gains (losses)
	(Dollars In Thousands)
For The Three Months Ended March 31, 2013
Interest rate	$	—		$	—		$	—
Inflation	4,409			(497		)	368
Total	$	4,409		$	(497	)	$	368
For The Three Months Ended March 31, 2012
Interest rate	$	(73	)	$	(854	)	$	—
Inflation	8,277			180			646
Total	$	8,204		$	(674	)	$	646

Schedule of realized investment gains (losses) - derivative financial instruments

Realized investment gains (losses) - derivative financial instruments

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Derivatives related to variable annuity contracts:
Interest rate futures - VA	$	(16,484	)	$	(33,406	)
Equity futures - VA	(23,225		)	(25,099		)
Currency futures - VA	8,083			(984		)
Volatility futures - VA	—			(475		)
Volatility swaps - VA	(10,433		)	(1,884		)
Equity options - VA	(28,406		)	(23,872		)
Interest rate swaptions - VA	(4,102		)	(3,519		)
Interest rate swaps - VA	(16,556		)	(2,128		)
Embedded derivative - GMWB	80,375			50,167
Total derivatives related to variable annuity contracts	(10,748		)	(41,200		)
Embedded derivative - Modco reinsurance treaties	16,775			10,706
Interest rate swaps	1,003			2,037
Interest rate caps	—			(2,164		)
Derivatives with PLC(1)	(3,778		)	—
Other derivatives	355			712
Total realized gains (losses) - derivatives	$	3,607		$	(29,909	)

(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

Realized investment gains (losses) - all other investments

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Modco trading portfolio(1)	$	(15,328	)	$	18,099

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

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Benefits and settlement expenses, net of reinsurance ceded	$ (580,976)	$ (587,009)
Realized investment gains (losses): All other investments	(4,246)	35,483
Net impairment losses recognized in earnings	(4,584)	(18,596)
Income before income tax	109,814	141,068
Tax (expense) or benefit	(35,936)	(45,212)
Gains and losses on derivative instruments | Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Benefits and settlement expenses, net of reinsurance ceded	(497)
Income before income tax	(497)
Tax (expense) or benefit	174
Net of tax	(323)
Unrealized gains and losses on available-for-sale securities | Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
Reclassifications Out of Accumulated Other Comprehensive Income (Loss)
Realized investment gains (losses): All other investments	12,299
Net impairment losses recognized in earnings	(4,584)
Income before income tax	7,715
Tax (expense) or benefit	(2,700)
Net of tax	$ 5,015

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FAIR VALUE OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2013

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

12. 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.

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 March 31, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,717,906	$	4	$	1,717,910
Commercial mortgage-backed securities	—		916,155		—		916,155
Other asset-backed securities	—		385,893		560,668		946,561
U.S. government-related securities	988,675		218,377		—		1,207,052
State, municipalities, and political subdivisions	—		1,429,246		4,275		1,433,521
Other government-related securities	—		68,474		20,003		88,477
Corporate bonds	206		20,645,124		124,555		20,769,885
Total fixed maturity securities - available-for-sale	988,881		25,381,175		709,505		27,079,561
Fixed maturity securities - trading
Residential mortgage-backed securities	—		354,522		—		354,522
Commercial mortgage-backed securities	—		176,986		—		176,986
Other asset-backed securities	—		91,039		71,383		162,422
U.S. government-related securities	295,008		1,728		—		296,736
State, municipalities, and political subdivisions	—		283,842		—		283,842
Other government-related securities	—		63,728		—		63,728
Corporate bonds	—		1,624,840		5,112		1,629,952
Total fixed maturity securities - trading	295,008		2,596,685		76,495		2,968,188
Total fixed maturity securities	1,283,889		27,977,860		786,000		30,047,749
Equity securities	273,488		37,102		65,527		376,117
Other long-term investments (1)	39,960		42,518		70,404		152,882
Short-term investments	156,825		3,476		—		160,301
Total investments	1,754,162		28,060,956		921,931		30,737,049
Cash	171,443		—		—		171,443
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	10,670,833		—		—		10,670,833
Variable universal life	605,622		—		—		605,622
Total assets measured at fair value on a recurring basis	$	13,202,060	$	28,060,956	$	921,931	$	42,184,947
Liabilities:
Annuity account balances(2)	$	—	$	—	$	123,681	$	123,681
Other liabilities (1)	2,380		47,367		539,814		589,561
Total liabilities measured at fair value on a recurring basis	$	2,380	$	47,367	$	663,495	$	713,242

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to fixed 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, 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 fixed 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 three months ended March 31, 2013.

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 March 31, 2013, the Company held $3.6 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 March 31, 2013, the Company held $632.1 million of Level 3 ABS, which included $71.4 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 March 31, 2013, the Company classified approximately $24.3 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 March 31, 2013, the Company classified approximately $153.9 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 March 31, 2013, the Company held approximately $102.6 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 13, 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 March 31, 2013, 79.9% 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 13, Derivative Financial Instruments for more information related to GMWB embedded derivative gains and losses. The fair value of the GMWB embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using 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 $2.7 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, a yearly renewable term (“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 March 31, 2013 was $13.3 million and is included in “Other long-term investments”. For information regarding realized gains on these derivatives please refer to Note 13, 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 March 31, 2013 was $11.1 million. The assessment of required payments from PLC under the Interest Support Agreement occurs annually.

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 March 31, 2013 was $1.7 million.

The portfolio maintenance agreements provide that PLC will make payments to Golden Gate V and WCL 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 March 31, 2013, was approximately $0.5 million.

Annuity account balances

The Company records certain of its fixed indexed annuities (“FIA”) at fair value. The fair value is considered a Level 3 valuation. The FIA 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 fixed indexed annuities is based on an upward sloping rate curve which is updated each quarter. The discount rates for March 31, 2013, ranged from a one month rate of 0.33%, a 5 year rate of 1.91%, and a 30 year rate of 4.28%. 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
	March 31, 2013		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	560,668	Discounted cash flow	Liquidity premium	1.00% - 1.69% (1.14%)
				Paydown rate	10.08% - 14.64% (12.47%)
Other government-related securities	20,003		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	129,667		Discounted cash flow	Spread over treasury	0.97% - 7.75% (2.67%)
Liabilities:
Embedded derivatives - GMWB(1)	$	88,739	Actuarial cash flow model	Mortality	57% of 1994 GMDB table
				Lapse	0% - 24%, depending on product/duration/funded status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.13% - 1.29%
Annuity account balances(2)	123,681		Actuarial cash flow model	Asset earned rate	5.81%
				Expenses	$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	0.13% - 1.29%

(1)	The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.
(2)	Represents liabilities related to fixed 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 Company has considered all reasonably available quantitative inputs as of March 31, 2013, but the valuation techniques and inputs used by some brokers in pricing certain financial instruments are not shared with the Company. This resulted in $71.4 million of financial instruments, all asset backed securities, being classified as Level 3 as of March 31, 2013.

In certain cases the Company has determined that book value materially approximates fair value. As of March 31, 2013, 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 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	0.72% - 1.68% (1.29%)
				Paydown rate	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	57% of 1994 GMDB table
				Lapse	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	5.81%
				Expenses	$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 fixed 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 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 FIA account balance liability is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA 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 three months ended March 31, 2013, 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	$	4	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	596,143		—		12		—			(27,548		)	—		(9,009		)	—		—		1,227		(157		)	560,668		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—		—			4,275		—
Other government-related securities	20,011		—		—		—			(3		)	—		—			—		—		—		(5		)	20,003		—
Corporate bonds	167,892		—		930		—			(2,364		)	—		(42,071		)	—		—		—		168			124,555		—
Total fixed maturity securities - available-for-sale	788,325		—		942		—			(29,915		)	—		(51,080		)	—		—		1,227		6			709,505		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	70,535		3,408		—		(259		)	—			—		(2,823		)	—		—		—		522			71,383		3,255
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	115		1		—		—			—			—		(17		)	—		—		5,013		—			5,112		29
Total fixed maturity securities - trading	70,650		3,409		—		(259		)	—			—		(2,840		)	—		—		5,013		522			76,495		3,284
Total fixed maturity securities	858,975		3,409		942		(259		)	(29,915		)	—		(53,920		)	—		—		6,240		528			786,000		3,284
Equity securities	65,527		—		—		—			—			—		—			—		—		—		—			65,527		—
Other long-term investments(1)	48,655		25,618		—		(3,869		)	—			—		—			—		—		—		—			70,404		21,749
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	973,157		29,027		942		(4,128		)	(29,915		)	—		(53,920		)	—		—		6,240		528			921,931		25,033
Total assets measured at fair value on a recurring basis	$	973,157	$	29,027	$	942	$	(4,128	)	$	(29,915	)	$	—	$	(53,920	)	$	—	$	—	$	6,240	$	528		$	921,931	$	25,033
Liabilities:
Annuity account balances(2)	$	129,468	$	—	$	—	$	(2,000	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	123,681	$	—
Other liabilities(1)	611,437		84,546		—		(12,923		)	—			—		—			—		—		—		—			539,814		71,623
Total liabilities measured at fair value on a recurring basis	$	740,905	$	84,546	$	—	$	(14,923	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	663,495	$	71,623

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

For the three months ended March 31, 2013, $6.2 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 March 31, 2013.

For the three months ended March 31, 2013, there were no transfers out of Level 3.

For the three months ended March 31, 2013, there were no transfers from Level 2 to Level 1.

For the three months ended March 31, 2013, 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 three months ended March 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		294		493		—			(13,929		)	—		(13,850		)	—		—		—		(208		)	587,613		—
U.S. government-related securities	15,000		—		—		—			(1		)	—		(15,000		)	—		—		—		1			—		—
States, municipals, and political subdivisions	—		—		—		—			—			4,275		—			—		—		—		—			4,275		—
Other government-related securities	—		—		—		—			(16		)	20,023		—			—		—		—		(1		)	20,006		—
Corporate bonds	119,565		—		183		—			(1,227		)	4		(139		)	—		—		19,554		—			137,940		—
Total fixed maturity securities - available-for-sale	749,385		294		676		—			(15,173		)	24,302		(28,992		)	—		—		19,554		(208		)	749,838		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		446		—		(169		)	—			27,705		(1,808		)	—		—		—		444			54,961		277
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		—		—		—			—			1		—			—		—		—		—			1		—
Total fixed maturity securities - trading	28,343		446		—		(169		)	—			27,706		(1,808		)	—		—		—		444			54,962		277
Total fixed maturity securities	777,728		740		676		(169		)	(15,173		)	52,008		(30,800		)	—		—		19,554		236			804,800		277
Equity securities	70,080		—		636		—			(1		)	4		—			—		—		—		—			70,719		—
Other long-term investments(1)	19,103		13,073		—		—			—			—		—			—		—		—		—			32,176		13,073
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		13,813		1,312		(169		)	(15,174		)	52,012		(30,800		)	—		—		19,554		236			907,695		13,350
Total assets measured at fair value on a recurring basis	$	866,911	$	13,813	$	1,312	$	(169	)	$	(15,174	)	$	52,012	$	(30,800	)	$	—	$	—	$	19,554	$	236		$	907,695	$	13,350
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	(3,074	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	137,238	$	—
Other liabilities(1)	437,613		56,496		—		(8,695		)	—			—		—			—		—		—		—			389,812		47,801
Total liabilities measured at fair value on a recurring basis	$	574,075	$	56,496	$	—	$	(11,769	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	527,050	$	47,801

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

For the three months ended March 31, 2012, $19.6 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 March 31, 2012. All transfers are recognized as of the end of the period.

For the three months ended March 31, 2012, there were no transfers out of Level 3.

For the three months ended March 31, 2012, there were no transfers from Level 2 to Level 1.

For the three months ended March 31, 2012, there were no transfers out of Level 1.

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 fixed 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 fixed 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
		March 31, 2013				December 31, 2012
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,834,342	$	5,558,696	$	4,948,625	$	5,723,579
Policy loans	3	862,202		862,202		865,391		865,391
Fixed maturities, held-to-maturity(1)	3	315,000		334,579		300,000		319,163
Liabilities:
Stable value product account balances	3	$	2,544,609	$	2,572,367	$	2,510,559	$	2,534,094
Annuity account balances	3	10,524,393		10,142,020		10,658,463		10,525,702
Debt:
Non-recourse funding obligations(2)	3	$	1,456,900	$	1,495,469	$	1,446,900	$	1,357,290

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 $315 million, fair value of $359.6 million, as of March 31, 2013, and $300 million, fair value of $297.6 million, as of December 31, 2012,  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 securities 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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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Pronouncements Recently Adopted

Accounting Pronouncements Recently 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 lending transactions. Both Updates were effective January 1, 2013. Neither Update had 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. This Update was effective January 1, 2013. This Update did not have an impact on the Company’s results of operations or financial position.

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 GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The Company has added the Accumulated Other Comprehensive Income footnote to disclose the required information beginning in the first quarter of 2013.  This Update was effective January 1, 2013. This Update did not have an impact on the Company’s results of operations or financial position.

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EMPLOYEE BENEFIT PLANS (Details) (PLC, USD $)	3 Months Ended		1 Months Ended	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Apr. 30, 2013 2012 plan year	Mar. 31, 2013 2012 plan year
EMPLOYEE BENEFIT PLANS
Service cost - benefits earned during the period	$ 2,708,000	$ 2,561,000
Interest cost on projected benefit obligation	2,553,000	2,604,000
Expected return on plan assets	(2,759,000)	(2,673,000)
Amortization of prior service cost/(credit)	(95,000)	(95,000)
Amortization of actuarial losses	2,729,000	2,175,000
Total benefit cost	5,136,000	4,572,000
Contribution made by the company to its defined benefit pension plan			$ 2,300,000
Adjusted funding target percentage to be maintained, minimum				80.00%
Age of eligibility for prescription drug benefit	65 years

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INVESTMENT OPERATIONS (Details 5) (Red Mountain, USD $)	3 Months Ended
	Mar. 31, 2013
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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CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Change in net unrealized gains (losses) on investments, income tax	$ (76,334)	$ 5,238
Reclassification adjustment for investment amounts included in net income, income tax	(2,700)	(379)
Change in net unrealized gains (losses) relating to other-than-temporary impaired investments for which a portion has been recognized in earnings, income tax	4,219	1,571
Change in accumulated (loss) gain - derivatives, income tax	1,543	2,872
Reclassification adjustment for derivative amounts included in net income, income tax	$ 174	$ 235

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2013

BASIS OF PRESENTATION

BASIS OF PRESENTATION

1. BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Protective Life Insurance Company (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three month period ended March 31, 2013, are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The year-end consolidated condensed financial data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The Company is a wholly owned subsidiary of Protective Life Corporation (“PLC”).

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

Reclassifications 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.

Entities Included

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

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DERIVATIVE FINANCIAL INSTRUMENTS (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	$ 3,607,000	$ (29,909,000)
Notional Amount, Other long-term investments	9,316,423,000		7,567,811,000
Fair Value, Other long-term investments	152,882,000		130,428,000
Notional Amount, Other liabilities	8,747,588,000		9,672,554,000
Fair Value, Other liabilities	589,561,000		657,874,000
PLC
Notional amount and fair value of the entity's derivative financial instruments
Number of portfolio maintenance agreements	2
Embedded derivative - Modco reinsurance treaties
Notional amount and fair value of the entity's derivative financial instruments
Fair Value, Other long-term investments	1,321,000
Fair Value, Other liabilities	395,123,000
Embedded derivative - GMWB
Notional amount and fair value of the entity's derivative financial instruments
Fair Value, Other long-term investments	55,796,000
Fair Value, Other liabilities	144,691,000
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	(10,748,000)	(41,200,000)
Realized investment gains (losses) - derivatives, gross	3,607,000	(29,909,000)
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	1,432,876,000		1,404,750,000
Fair Value, Other long-term investments	13,287,000		17,064,000
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	(16,484,000)	(33,406,000)
Notional Amount, Other long-term investments	473,257,000
Fair Value, Other long-term investments	3,201,000
Notional Amount, Other liabilities			893,476,000
Fair Value, Other liabilities			13,970,000
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	(23,225,000)	(25,099,000)
Notional Amount, Other long-term investments	55,441,000		147,581,000
Fair Value, Other long-term investments	1,040,000		595,000
Notional Amount, Other liabilities	106,724,000		152,364,000
Fair Value, Other liabilities	1,126,000		3,316,000
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	8,083,000	(984,000)
Notional Amount, Other long-term investments	31,948,000		15,944,000
Fair Value, Other long-term investments	531,000		784,000
Notional Amount, Other liabilities	101,339,000		131,979,000
Fair Value, Other liabilities	1,254,000		1,901,000
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		(475,000)
Positions held	0
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	(10,433,000)	(1,884,000)
Notional Amount, Other long-term investments	400,000		500,000
Fair Value, Other long-term investments	20,000		406,000
Notional Amount, Other liabilities	4,075,000		2,675,000
Fair Value, Other liabilities	22,245,000		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	(28,406,000)	(23,872,000)
Notional Amount, Other long-term investments	840,276,000		573,493,000
Fair Value, Other long-term investments	64,559,000		61,833,000
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	(4,102,000)	(3,519,000)
Notional Amount, Other long-term investments	400,000,000		400,000,000
Fair Value, Other long-term investments	7,268,000		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	(16,556,000)	(2,128,000)
Realized investment gains (losses) - derivatives, gross	1,003,000	2,037,000
Notional Amount, Other long-term investments	300,000,000		355,000,000
Fair Value, Other long-term investments	5,368,000		6,532,000
Notional Amount, Other liabilities	1,105,000,000		400,000,000
Fair Value, Other liabilities	25,057,000		10,025,000
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	16,775,000	10,706,000
Notional Amount, Other long-term investments	30,561,000		30,244,000
Fair Value, Other long-term investments	1,321,000		1,330,000
Notional Amount, Other liabilities	2,636,425,000		2,655,134,000
Fair Value, Other liabilities	395,123,000		411,907,000
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	80,375,000	50,167,000
Notional Amount, Other long-term investments	2,615,909,000		1,640,075,000
Fair Value, Other long-term investments	55,796,000		30,261,000
Notional Amount, Other liabilities	4,746,591,000		5,253,961,000
Fair Value, Other liabilities	144,691,000		199,530,000
Derivatives not designated as hedging instruments | Interest rate caps
Notional amount and fair value of the entity's derivative financial instruments
Pre-tax losses	2,200,000
Realized investment gains (losses) - derivatives, gross		(2,164,000)
Notional Amount, Other long-term investments	3,000,000,000		3,000,000,000
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	355,000	712,000
Notional Amount, Other long-term investments	224,000		224,000
Fair Value, Other long-term investments	240,000		253,000
Derivatives not designated as hedging instruments | YRT premium support agreement
Notional amount and fair value of the entity's derivative financial instruments
Realized investment gains (losses) - derivatives, gross	100,000	0
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	0
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	(3,778,000)
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	(3,900,000)	0
Cash flow hedges | Inflation
Notional amount and fair value of the entity's derivative financial instruments
Notional Amount, Other long-term investments	135,531,000
Fair Value, Other long-term investments	251,000
Notional Amount, Other liabilities	47,434,000		182,965,000
Fair Value, Other liabilities	$ 65,000		$ 5,027,000

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INVESTMENT OPERATIONS (Tables)

3 Months Ended

Mar. 31, 2013

INVESTMENT OPERATIONS

Summary of net realized investment gains (losses) for invested assets

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Fixed maturities	$	12,298		$	19,678
Equity securities	1			—
Impairments on fixed maturity securities	(3,587		)	(18,572		)
Impairments on equity securities	(997		)	(24		)
Modco trading portfolio	(15,328		)	18,099
Other investments	(1,217		)	(2,294		)
Total realized gains (losses) - investments	$	(8,830	)	$	16,887

Schedule of amortized cost and fair value of the Company's investments classified as available-for-sale

			Gross		Gross					Total OTTI
	Amortized		Unrealized		Unrealized			Fair		Recognized
	Cost		Gains		Losses			Value		in OCI(1)
	(Dollars In Thousands)
2013
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,665,681	$	89,005	$	(36,776	)	$	1,717,910	$	6,353
Commercial mortgage-backed securities	853,334		64,906		(2,085		)	916,155		—
Other asset-backed securities	1,013,575		17,325		(84,339		)	946,561		(189		)
U.S. government-related securities	1,142,772		66,003		(1,723		)	1,207,052		—
Other government-related securities	82,172		6,323		(18		)	88,477		—
States, municipals, and political subdivisions	1,179,314		254,476		(269		)	1,433,521		—
Corporate bonds	18,291,777		2,542,320		(64,212		)	20,769,885		—
	24,228,625		3,040,358		(189,422		)	27,079,561		6,164
Equity securities	345,963		14,440		(6,723		)	353,680		(243		)
Short-term investments	49,691		—		—			49,691		—
	$	24,624,279	$	3,054,798	$	(196,145	)	$	27,482,932	$	5,921
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	)

(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

			Gross		Gross				Total OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in OCI
	(Dollars In Thousands)
2013
Fixed maturities:
Other	$	315,000	$	19,579	$	—	$	334,579	$	—
	$	315,000	$	19,579	$	—	$	334,579	$	—
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

	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	$	462,439	$	469,358	$	—	$	—
Due after one year through five years	4,474,623		4,930,066		—		—
Due after five years through ten years	6,601,844		7,235,764		—		—
Due after ten years	12,689,719		14,444,373		315,000		334,579
	$	24,228,625	$	27,079,561	$	315,000	$	334,579

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 Three Months Ended March 31,
	2013		2012
	(Dollars In Thousands)
Beginning balance	$	121,237	$	69,476
Additions for newly impaired securities	997		15,688
Additions for previously impaired securities	1,486		2,778
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	—		—
Other	—		—
Ending balance	$	123,720	$	87,942

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 March 31, 2013:

	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	$	127,940	$	(23,734	)	$	99,519	$	(13,042	)	$	227,459	$	(36,776	)
Commercial mortgage-backed securities	112,880		(2,085		)	—		—			112,880		(2,085		)
Other asset-backed securities	74,375		(9,968		)	602,783		(74,371		)	677,158		(84,339		)
U.S. government-related securities	206,309		(1,723		)	—		—			206,309		(1,723		)
Other government-related securities	20,003		(2		)	3,617		(16		)	23,620		(18		)
States, municipalities, and political subdivisions	11,521		(269		)	—		—			11,521		(269		)
Corporate bonds	1,387,338		(44,151		)	284,166		(20,061		)	1,671,504		(64,212		)
Equities	55,317		(243		)	28,992		(6,480		)	84,309		(6,723		)
	$	1,995,683	$	(82,175	)	$	1,019,077	$	(113,970	)	$	3,014,760	$	(196,145	)

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	)

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

	For The Three Months Ended March 31,
	2013			2012
	(Dollars In Thousands)
Fixed maturities	$	(167,526	)	$	19,462
Equity securities	3,789			5,106

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INVESTMENT OPERATIONS (Details 2) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	$ 24,624,279,000	$ 24,104,126,000
Gross Unrealized Gains	3,054,798,000	3,251,213,000
Gross Unrealized Losses	(196,145,000)	(140,657,000)
Fair Value	27,482,932,000	27,214,682,000
Total OTTI Recognized in OCI	5,921,000	(6,135,000)
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Fair Value	334,579,000	319,163,000
Amortized Cost
Due in one year or less	462,439,000
Due after one year through five years	4,474,623,000
Due after five years through ten years	6,601,844,000
Due after ten years	12,689,719,000
Total	24,228,625,000
Fair Value
Due in one year or less	469,358,000
Due after one year through five years	4,930,066,000
Due after five years through ten years	7,235,764,000
Due after ten years	14,444,373,000
Total	27,079,561,000
Amortized Cost
Due after ten years	315,000,000
Total	315,000,000
Fair Value
Due after ten years	334,579,000
Total	334,579,000
Fixed maturities:
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	24,228,625,000	23,654,002,000
Gross Unrealized Gains	3,040,358,000	3,239,332,000
Gross Unrealized Losses	(189,422,000)	(130,664,000)
Fair Value	27,079,561,000	26,762,670,000
Total OTTI Recognized in OCI	6,164,000	(6,135,000)
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Amortized Cost	315,000,000	300,000,000
Gross Unrealized Gains	19,579,000	19,163,000
Fair Value	334,579,000	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	1,665,681,000	1,766,260,000
Gross Unrealized Gains	89,005,000	92,417,000
Gross Unrealized Losses	(36,776,000)	(19,347,000)
Fair Value	1,717,910,000	1,839,330,000
Total OTTI Recognized in OCI	6,353,000	(406,000)
Commercial mortgage-backed securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	853,334,000	797,844,000
Gross Unrealized Gains	64,906,000	72,577,000
Gross Unrealized Losses	(2,085,000)	(598,000)
Fair Value	916,155,000	869,823,000
Other asset-backed securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,013,575,000	1,023,649,000
Gross Unrealized Gains	17,325,000	12,788,000
Gross Unrealized Losses	(84,339,000)	(61,424,000)
Fair Value	946,561,000	975,013,000
Total OTTI Recognized in OCI	(189,000)	(241,000)
U.S. government-related securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,142,772,000	1,097,501,000
Gross Unrealized Gains	66,003,000	71,536,000
Gross Unrealized Losses	(1,723,000)	(591,000)
Fair Value	1,207,052,000	1,168,446,000
Other government-related securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	82,172,000	93,565,000
Gross Unrealized Gains	6,323,000	7,258,000
Gross Unrealized Losses	(18,000)	(45,000)
Fair Value	88,477,000	100,778,000
States, municipals, and political subdivisions
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	1,179,314,000	1,188,019,000
Gross Unrealized Gains	254,476,000	255,898,000
Gross Unrealized Losses	(269,000)	(264,000)
Fair Value	1,433,521,000	1,443,653,000
Corporate bonds
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	18,291,777,000	17,687,164,000
Gross Unrealized Gains	2,542,320,000	2,726,858,000
Gross Unrealized Losses	(64,212,000)	(48,395,000)
Fair Value	20,769,885,000	20,365,627,000
Total OTTI Recognized in OCI		(5,488,000)
Other
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Amortized Cost	315,000,000	300,000,000
Gross Unrealized Gains	19,579,000	19,163,000
Fair Value	334,579,000	319,163,000
Equity securities
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	345,963,000	352,272,000
Gross Unrealized Gains	14,440,000	11,881,000
Gross Unrealized Losses	(6,723,000)	(9,993,000)
Fair Value	353,680,000	354,160,000
Total OTTI Recognized in OCI	(243,000)
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Trading securities	22,400,000	19,600,000
Short-term investments
Amortized cost and fair value of the Company's investments classified as available-for-sale
Amortized Cost	49,691,000	97,852,000
Fair Value	49,691,000	97,852,000
Amortized cost and fair value of the Company's investments classified as held-to-maturity
Trading securities	$ 110,600,000	$ 118,900,000

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INCOME TAXES

3 Months Ended

Mar. 31, 2013

INCOME TAXES

INCOME TAXES

11. INCOME TAXES

There have been no material changes to the balance of unrecognized income tax benefits which impacted earnings for the three months ended March 31, 2013.

In the IRS audit that concluded during the prior year, 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. If the IRS prevails at Appeals, and the Company does not litigate these issues, then an acceleration of tax payments will occur. However, if these payments were to occur, they would not materially impact the Company or its effective tax rate.

The Company does not expect to have any material adjustments, within the next twelve months, to its balance of unrecognized income tax benefits.  This viewpoint could change, however, if the Company receives an earlier than expected Appeals settlement on the aforementioned issues.

The Company used its estimate of its annual 2013 and 2012 income in computing its effective income tax rates for the three months ended March 31, 2013 and 2012. The effective tax rates for the three months ended March 31, 2013 and 2012 were 32.7% and 32.0%, respectively.

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.

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 all of its material deferred tax assets. The Company did not record a valuation allowance against its material deferred tax assets as of March 31, 2013.