PROTECTIVE LIFE CORP (Form: 10-Q, Received: 11/04/2013 15:46:37)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2013

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

For the transition period from to

Commission File Number 00 1-11339

PROTECTIVE LIFE CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE		95-2492236
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

2801 HIGHWAY 280 SOUTH

BIRMINGHAM, ALABAMA 35223

(Address of principal executive offices and zip code)

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

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

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

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

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

Large accelerated filer x		Accelerated Filer o

Non-accelerated filer o		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, $0.50 Par Value, outstanding as of October 29, 2013: 78,567,547

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PROTECTIVE LIFE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

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		Page
	PART I

Item 1.	Financial Statements (unaudited):
	Consolidated Condensed Statements of Income For The Three and Nine Months Ended September 30, 2013 and 2012	3
	Consolidated Condensed Statements of Comprehensive Income (Loss) For The Three and Nine Months Ended September 30, 2013 and 2012	4
	Consolidated Condensed Balance Sheets as of September 30, 2013 and December 31, 2012	5
	Consolidated Condensed Statement of Shareowners’ Equity For The Nine Months Ended September 30, 2013	7
	Consolidated Condensed Statements of Cash Flows For The Nine Months Ended September 30, 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	56
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	121
Item 4.	Controls and Procedures	121

	PART II

Item 1A.	Risk Factors and Cautionary Factors that may Affect Future Results	121
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	130
Item 6.	Exhibits	131
	Signature	132

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PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Unaudited)

	For The						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands, Except Per Share Amounts)
Revenues
Premiums and policy fees	$	657,218		$	684,939		$	2,140,396		$	2,092,673
Reinsurance ceded	(270,730		)	(321,059		)	(996,570		)	(970,290		)
Net of reinsurance ceded	386,488			363,880			1,143,826			1,122,383
Net investment income	454,275			467,944			1,378,129			1,386,287
Realized investment gains (losses):
Derivative financial instruments	41,326			(134,222		)	192,592			(212,399		)
All other investments	(19,508		)	122,555			(133,631		)	223,874
Other-than-temporary impairment losses	(6,635		)	(1,676		)	(9,764		)	(49,766		)
Portion recognized in other comprehensive income (before taxes)	(2,046		)	(6,880		)	(7,501		)	8,838
Net impairment losses recognized in earnings	(8,681		)	(8,556		)	(17,265		)	(40,928		)
Other income	98,794			81,190			278,213			273,930
Total revenues	952,694			892,791			2,841,864			2,753,147
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded: (three months: 2013 - $204,065; 2012 - $307,866; nine months: 2013 - $882,123; 2012 - $895,845)	624,577			629,945			1,764,323			1,788,096
Amortization of deferred policy acquisition costs and value of business acquired	22,446			14,011			149,631			138,035
Other operating expenses, net of reinsurance ceded: (three months: 2013 - $47,506; 2012 - $46,679; nine months: 2013 - $138,901; 2012 - $139,288)	163,550			157,849			511,149			477,764
Total benefits and expenses	810,573			801,805			2,425,103			2,403,895
Income before income tax	142,121			90,986			416,761			349,252
Income tax expense	49,060			30,506			142,210			113,596
Net income	93,061			60,480			274,551			235,656
Less: Net income (loss) attributable to noncontrolling interests	—			—			—			—
Net income available to PLC’s common shareowners (1)	$	93,061		$	60,480		$	274,551		$	235,656

Net income available to PLC’s common shareowners - basic	$	1.17		$	0.75		$	3.46		$	2.89
Net income available to PLC’s common shareowners - diluted	$	1.15		$	0.73		$	3.39		$	2.83
Cash dividends paid per share	$	0.20		$	0.18		$	0.58		$	0.52

Average shares outstanding - basic	79,492,274			80,662,745			79,346,771			81,541,462
Average shares outstanding - diluted	80,852,078			82,406,103			80,882,552			83,187,854

(1) Protective Life Corporation (“PLC”)

See Notes to Consolidated Condensed Financial Statements

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PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

	For The						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
Net income	$	93,061		$	60,480		$	274,551		$	235,656
Other comprehensive income (loss):
Change in net unrealized gains (losses) on investments, net of income tax: (three months: 2013 - $(145,224); 2012 - $205,978; nine months: 2013 - $(641,532); 2012 - $384,084)	(269,703		)	382,536			(1,191,416		)	713,305
Reclassification adjustment for investment amounts included in net income, net of income tax: (three months: 2013 - $(653); 2012 - $(4,931); nine months: 2013 - $(9,488); 2012 - $(6,266))	(1,212		)	(9,162		)	(17,621		)	(11,642		)
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: (three months: 2013 - $(1,543); 2012 - $12,808; nine months: 2013 - $1,383; 2012 - $15,770)	(2,865		)	23,784			2,570			29,284
Change in accumulated (loss) gain - derivatives, net of income tax: (three months: 2013 - $8; 2012 - $1,028; nine months: 2013 - $(55); 2012 - $1,424)	14			1,908			(103		)	2,645
Reclassification adjustment for derivative amounts included in net income, net of income tax: (three months: 2013 - $200; 2012 - $385; nine months: 2013 - $577; 2012 - $961)	372			716			1,072			1,785
Change in postretirement benefits liability adjustment, net of income tax: (three months: 2013 - $(922); 2012 - $(728); nine months: 2013 - $(2,766); 2012 - $(2,183))	(1,712		)	(1,352		)	(5,136		)	(4,055		)
Total other comprehensive income (loss)	$	(275,106	)	$	398,430		$	(1,210,634	)	$	731,322
Comprehensive income (loss)	(182,045		)	458,910			(936,083		)	966,978
Total comprehensive income attributable to noncontrolling interests	—			—			—			—
Total comprehensive income (loss) attributable to Protective Life Corporation	$	(182,045	)	$	458,910		$	(936,083	)	$	966,978

See Notes to Consolidated Condensed Financial Statements

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PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

	As of
	September 30, 2013		December 31, 2012
	(Dollars In Thousands)
Assets
Fixed maturities, at fair value (amortized cost: 2013 - $27,024,977; 2012 - $26,681,324)	$	28,323,215	$	29,787,959
Fixed maturities, at amortized cost (fair value: 2013 - $341,797; 2012 - $319,163)	350,000		300,000
Equity securities, at fair value (cost: 2013 - $485,580; 2012 - $409,376)	461,231		411,786
Mortgage loans (2013 and 2012 includes $675,805 and $765,520 related to securitizations)	4,794,924		4,950,201
Investment real estate, net of accumulated depreciation (2013 - $1,199; 2012 - $1,017)	18,750		19,816
Policy loans	856,333		865,391
Other long-term investments	482,367		361,837
Short-term investments	216,224		217,812
Total investments	35,503,044		36,914,802
Cash	354,449		368,801
Accrued investment income	364,233		357,368
Accounts and premiums receivable, net of allowance for uncollectible amounts (2013 - $4,353; 2012 - $4,290)	76,138		85,500
Reinsurance receivables	5,744,801		5,805,401
Deferred policy acquisition costs and value of business acquired	3,307,513		3,239,519
Goodwill	106,237		108,561
Property and equipment, net of accumulated depreciation (2013 - $110,999; 2012 - $105,789)	51,806		47,607
Other assets	343,015		262,052
Income tax receivable	23,970		30,827
Assets related to separate accounts
Variable annuity	11,921,925		9,601,417
Variable universal life	663,380		562,817
Total assets	$	58,460,511	$	57,384,672

See Notes to Consolidated Condensed Financial Statements

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PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(continued)

(Unaudited)

	As of
	September 30, 2013			December 31, 2012
	(Dollars In Thousands)
Liabilities
Future policy benefits and claims	$	22,029,491		$	21,626,386
Unearned premiums	1,512,909			1,396,026
Total policy liabilities and accruals	23,542,400			23,022,412
Stable value product account balances	2,531,262			2,510,559
Annuity account balances	10,431,938			10,658,463
Other policyholders’ funds	602,978			566,985
Other liabilities	1,177,807			1,434,604
Deferred income taxes	1,239,796			1,736,389
Non-recourse funding obligations	619,900			586,000
Repurchase program borrowings	100,000			150,000
Debt	1,450,000			1,400,000
Subordinated debt securities	540,593			540,593
Liabilities related to separate accounts
Variable annuity	11,921,925			9,601,417
Variable universal life	663,380			562,817
Total liabilities	54,821,979			52,770,239
Commitments and contingencies - Note 7
Shareowners’ equity
Preferred Stock; $1 par value, shares authorized: 4,000,000; Issued: None
Common Stock, $.50 par value, shares authorized: 2013 and 2012 - 160,000,000 shares issued: 2013 and 2012 - 88,776,960	$	44,388		$	44,388
Additional paid-in-capital	602,072			606,369
Treasury stock, at cost (2013 - 10,214,413; 2012 - 10,639,467)	(200,637		)	(209,840		)
Retained earnings	2,666,621			2,437,544
Accumulated other comprehensive income (loss):
Net unrealized gains (losses) on investments, net of income tax: (2013 - $327,636; 2012 - $978,656)	608,467			1,817,504
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 - $(764); 2012 - $(2,147))	(1,418		)	(3,988		)
Accumulated loss - derivatives, net of income tax: (2013 - $(1,361); 2012 - $(1,883))	(2,527		)	(3,496		)
Postretirement benefits liability adjustment, net of income tax: (2013 - $(42,234); 2012 - $(39,468))	(78,434		)	(73,298		)
Total Protective Life Corporation’s shareowners’ equity	3,638,532			4,615,183
Noncontrolling interest	—			(750		)
Total equity	3,638,532			4,614,433
Total liabilities and shareowners’ equity	$	58,460,511		$	57,384,672

See Notes to Consolidated Condensed Financial Statements

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PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF SHAREOWNERS’ EQUITY

(Unaudited)

															Total
															Protective
												Accumulated			Life
			Additional									Other			Corporation’s			Non
	Common		Paid-In-			Treasury			Retained			Comprehensive			shareowners’			controlling			Total
	Stock		Capital			Stock			Earnings			Income (Loss)			equity			Interest			Equity
	(Dollars In Thousands)
Balance, December 31, 2012	$	44,388	$	606,369		$	(209,840	)	$	2,437,544		$	1,736,722		$	4,615,183		$	(750	)	$	4,614,433
Net income for the nine months ended September 30, 2013									274,551						274,551			—			274,551
Other comprehensive income (loss)												(1,210,634		)	(1,210,634		)	—			(1,210,634		)
Comprehensive income (loss) for the nine months ended September 30, 2013															(936,083		)	—			(936,083		)
Cash dividends ($0.58 per share)									(45,474		)				(45,474		)	—			(45,474		)
Noncontrolling interests			(750		)										(750		)	750			—
Stock-based compensation			(3,547		)	9,203									5,656			—			5,656
Balance, September 30, 2013	$	44,388	$	602,072		$	(200,637	)	$	2,666,621		$	526,088		$	3,638,532		$	—		$	3,638,532

See Notes to Consolidated Condensed Financial Statements

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PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	For The Nine Months Ended September 30,
	2013			2012
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	274,551		$	235,656
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment losses (gains)	(41,696		)	29,453
Amortization of deferred policy acquisition costs and value of business acquired	149,631			138,035
Capitalization of deferred policy acquisition costs	(240,398		)	(217,319		)
Depreciation expense	6,731			6,741
Deferred income tax	154,457			(45,366		)
Accrued income tax	6,857			(4,735		)
Interest credited to universal life and investment products	532,396			731,934
Policy fees assessed on universal life and investment products	(659,058		)	(579,812		)
Change in reinsurance receivables	60,600			(108,509		)
Change in accrued investment income and other receivables	7,370			(6,734		)
Change in policy liabilities and other policyholders’ funds of traditional life and health products	261,691			219,900
Trading securities:
Maturities and principal reductions of investments	152,948			212,048
Sale of investments	220,711			365,809
Cost of investments acquired	(297,558		)	(528,753		)
Other net change in trading securities	(9,069		)	13,758
Change in other liabilities	(48,694		)	(49,200		)
Other income - gains on repurchase of non-recourse funding obligations	(3,359		)	(35,456		)
Other, net	(85,008		)	5,525
Net cash provided by operating activities	443,103			382,975
Cash flows from investing activities
Maturities and principal reductions of investments, available-for-sale	752,754			905,085
Sale of investments, available-for-sale	1,718,810			1,960,993
Cost of investments acquired, available-for-sale	(3,076,555		)	(3,084,807		)
Change in investments, held-to-maturity	(50,000		)	—
Mortgage loans:
New lendings	(392,883		)	(256,227		)
Repayments	543,297			499,524
Change in investment real estate, net	1,300			9,687
Change in policy loans, net	9,058			10,212
Change in other long-term investments, net	(169,668		)	(96,015		)
Change in short-term investments, net	(10,912		)	(39,118		)
Net unsettled security transactions	31,686			69,845
Purchase of property and equipment	(17,983		)	(5,474		)
Sales of property and equipment	86			—
Net cash used in investing activities	(661,010		)	(26,295		)
Cash flows from financing activities
Borrowings under line of credit arrangements and debt	430,000			492,500
Principal payments on line of credit arrangement and debt	(380,000		)	(596,650		)
Issuance (repayment) of non-recourse funding obligations	33,900			(110,800		)
Repurchase program borrowings	(50,000		)	280,000
Dividends to shareowners	(45,474		)	(42,027		)
Repurchase of common stock	—			(78,686		)
Investment product deposits and change in universal life deposits	2,413,676			2,641,899
Investment product withdrawals	(2,198,547		)	(3,002,824		)
Other financing activities, net	—			(1,378		)
Net cash provided by (used in) financing activities	203,555			(417,966		)
Change in cash	(14,352		)	(61,286		)
Cash at beginning of period	368,801			267,298
Cash at end of period	$	354,449		$	206,012

See Notes to Consolidated Condensed Financial Statements

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PROTECTIVE LIFE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Protective Life Corporation and subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three and nine month periods ended September 30, 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 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 shareowners’ equity.

Entities Included

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

During the first quarter of 2013, the Company sold its ownership interest in an immaterial limited partnership which previously resulted in the recognition of a non-controlling interest in income and equity of the Company.

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 nine months ended September 30, 2013 other than those discussed below.

Investment Products

The Company establishes liabilities for fixed indexed annuity (“FIA”) products. These products are deferred fixed annuities with a guaranteed minimum interest rate plus a contingent return based on equity market performance. The FIA product is considered a hybrid financial instrument under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”) Topic 815 — Derivatives and Hedging which allows the Company to make the election to value the liabilities of these FIA products at fair value. This election

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was made for the FIA products issued prior to 2010 as the policies were issued. These products are no longer being marketed. The changes in the fair value of the liability for these FIA products are recorded in Benefit and settlement expenses with the liability being recorded in Annuity account balances . For more information regarding the determination of fair value of annuity account balances please refer to Note 13, Fair Value of Financial Instruments . Premiums and policy fees for these FIA products consist of fees that have been assessed against the policy account balances for surrenders. Such fees are recognized when assessed and earned.

During 2013, the Company began marketing a new FIA product. These products are also deferred fixed annuities with a guaranteed minimum interest rate plus a contingent return based on equity market performance and are considered hybrid financial instruments under the FASB’s ASC Topic 815 — Derivatives and Hedging . The Company did not elect to value these FIA products at fair value, as a result the Company accounts for the provision that provides for a contingent return based on equity market performance as an embedded derivative. The embedded derivative is bifurcated from the host contract and recorded at fair value in Other liabilities . Changes in the fair value of the embedded derivative are recorded in Realized investment gains (losses) — Derivative financial instruments . For more information regarding the determination of fair value of the FIA embedded derivative refer to Note 13, Fair Value of Financial Instruments . The host contract is accounted for as a debt instrument in accordance with ASC Topic 944 — Financial Services — Insurance and is recorded in Annuity account balances with any discount to the minimum account value being accreted using the effective yield method. Benefits and settlement expenses include accreted interest and benefit claims incurred during the period.

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 International Financial Reporting Standards (“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

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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.

ASU No. 2013-10—Derivatives and Hedging—Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. This Update provides for the inclusion of the Fed Funds Effective Swap Rate as a U.S. benchmark interest rate for hedge accounting purposes, in addition to U.S. Treasury rates and LIBOR. The amendments in the Update also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for transactions entered into on or after July 17, 2013. The Company will consider this additional benchmark rate in its future transactions.

Accounting Pronouncements Not Yet Adopted

ASU No. 2013-11 — Income Taxes — Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The objective of this Update is to eliminate diversity in practice related to the presentation of certain unrecognized tax benefits. The Update provides that unrecognized tax benefits should be presented as a reduction of a deferred tax asset for a net operating loss or other tax credit carryforward when settlement in this manner is available under the tax law. The amendments are effective for annual periods beginning after December 15, 2013 and interim periods therein. The Update does not require new recurring disclosures, and is not expected to 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						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
Fixed maturities	$	10,546		$	22,889		$	42,007		$	58,929
Equity securities	—			(241		)	2,367			(93		)
Impairments on fixed maturity securities	(7,421		)	(8,556		)	(13,918		)	(40,928		)
Impairments on equity securities	(1,260		)	—			(3,347		)	—
Modco trading portfolio	(25,960		)	104,865			(167,982		)	179,027
Other investments	(4,094		)	(4,958		)	(10,023		)	(13,989		)
Total realized gains (losses) - investments	$	(28,189	)	$	113,999		$	(150,896	)	$	182,946

For the three and nine months ended September 30, 2013, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $11.7 million and $48.5 million and gross realized losses were $9.6 million and $20.8 million, including $8.5 million and $16.7 million of impairment losses, respectively.

For the three and nine months ended September 30, 2012, gross realized gains on investments available-for-sale (fixed maturities, equity securities, and short-term investments) were $23.6 million and $63.0 million and gross realized losses were $9.3 million and $44.8 million, including $8.4 million and $40.6 million of impairment losses, respectively.

For the three and nine months ended September 30, 2013, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $332.1 million and $1.1 billion, respectively. The gain realized on the sale of these securities was $11.7 million and $48.5 million, respectively. For the three and nine months ended September 30,

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2012, the Company sold securities in an unrealized gain position with a fair value (proceeds) of $424.6 million and $1.3 billion, respectively. The gain realized on the sale of these securities was $23.6 million and $63.0 million, respectively.

For the three and nine months ended September 30, 2013, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $7.0 million and $64.2 million, respectively. The losses realized on the sale of these securities were $1.1 million and $4.1 million, respectively.

For the three and nine months ended September 30, 2012, the Company sold securities in an unrealized loss position with a fair value (proceeds) of $14.3 million and $31.7 million, respectively. The losses realized on the sale of these securities were $0.9 million and $4.1 million, respectively.

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 September 30, 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	$	1,438,409	$	47,935	$	(22,317	)	$	1,464,027	$	(914	)
Commercial mortgage-backed securities	898,377		30,287		(17,057		)	911,607		—
Other asset-backed securities	928,367		15,532		(66,735		)	877,164		(66		)
U.S. government-related securities	1,204,908		38,525		(29,997		)	1,213,436		—
Other government-related securities	38,406		2,722		—			41,128		—
States, municipals, and political subdivisions	1,191,736		114,900		(6,259		)	1,300,377		—
Corporate bonds	18,541,995		1,539,996		(349,294		)	19,732,697		(1,308		)
	24,242,198		1,789,897		(491,659		)	25,540,436		(2,288		)
Equity securities	464,862		5,470		(29,819		)	440,513		106
Short-term investments	109,793		—		—			109,793		—
	$	24,816,853	$	1,795,367	$	(521,478	)	$	26,090,742	$	(2,182	)
2012
Fixed maturities:
Bonds
Residential mortgage-backed securities	$	1,766,440	$	92,265	$	(19,375	)	$	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	1,099,001		71,537		(595		)	1,169,943		—
Other government-related securities	93,565		7,258		(45		)	100,778		—
States, municipals, and political subdivisions	1,188,077		255,900		(264		)	1,443,713		—
Corporate bonds	17,705,440		2,725,057		(48,446		)	20,382,051		(5,487		)
	23,674,016		3,237,382		(130,747		)	26,780,651		(6,134		)
Equity securities	389,821		12,443		(10,033		)	392,231		—
Short-term investments	98,877		—		—			98,877		—
	$	24,162,714	$	3,249,825	$	(140,780	)	$	27,271,759	$	(6,134	)

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

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The amortized cost and fair value of the Company’s investments classified as held-to-maturity as of September 30, 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)
Fixed maturities:
Other	$	350,000	$	—	$	(8,203	)	$	341,797	$	—
	$	350,000	$	—	$	(8,203	)	$	341,797	$	—
2012
Fixed maturities:
Other	$	300,000	$	19,163	$	—		$	319,163	$	—
	$	300,000	$	19,163	$	—		$	319,163	$	—

As of September 30, 2013 and December 31, 2012, the Company had an additional $2.8 billion and $3.0 billion of fixed maturities, $20.7 million and $19.6 million of equity securities, and $106.4 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 September 30, 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	$	554,918	$	569,362	$	—	$	—
Due after one year through five years	3,234,475		3,515,816		—		—
Due after five years through ten years	7,559,566		7,882,075		—		—
Due after ten years	12,893,239		13,573,183		350,000		341,797
	$	24,242,198	$	25,540,436	$	350,000	$	341,797

During the three and nine months ended September 30, 2013, the Company recorded pre-tax other-than-temporary impairments of investments of $6.7 million and $9.8 million, of which $5.4 million and $6.4 million related to fixed maturities and $1.3 million and $3.4 million related to equity securities, respectively. Credit impairments recorded in earnings during the three and nine months ended September 30, 2013 were $8.7 million and $17.3 million, respectively. During the three and nine months ended September 30, 2013, $2.0 million and $7.5 million of non-credit losses previously recorded in other comprehensive income were recorded in earnings as credit losses, respectively. For the three and nine months ended September 30, 2013, there were no other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell.

During the three and nine months ended September 30, 2012, the Company recorded pre-tax other-than-temporary impairments of investments of $1.6 million and $49.7 million, respectively, all of which were related to fixed maturities. There were no impairments related to equity securities. During the three months ended September 30, 2012, the Company recorded credit impairments in earnings of $8.5 million, $7.0 million of which were non-credit losses previously recorded in other comprehensive income were recorded in earnings as credit losses. Additional non-credit losses during the three months ended September 30, 2012 were $0.1 million. Of the $49.7 million of impairments for the nine months ended September 30, 2012, $40.9 million was recorded in earnings and $8.8 million was recorded in other comprehensive income (loss). For the three and nine months ended September 30, 2012, there were $0.1 million of other-than-temporary impairments related to fixed maturities or equity securities that the Company intended to sell or expected to be required to sell.

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The following chart is a rollforward of available-for-sale credit losses on fixed maturities held by the Company for which a portion of other-than-temporary impairments were recognized in other comprehensive income (loss):

	For The					For The
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013			2012		2013			2012
	(Dollars In Thousands)
Beginning balance	$	51,832		$	101,470	$	122,121		$	69,719
Additions for newly impaired securities	1,663			—		3,278			19,473
Additions for previously impaired securities	4,840			6,923		7,894			19,201
Reductions for previously impaired securities due to a change in expected cash flows	(6,537		)	—		(74,007		)	—
Reductions for previously impaired securities that were sold in the current period	—			—		(7,488		)	—
Ending balance	$	51,798		$	108,393	$	51,798		$	108,393

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 September 30, 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	$	247,821	$	(13,668	)	$	67,680	$	(8,649	)	$	315,501	$	(22,317	)
Commercial mortgage-backed securities	379,783		(16,807		)	6,656		(250		)	386,439		(17,057		)
Other asset-backed securities	129,567		(6,567		)	532,205		(60,168		)	661,772		(66,735		)
U.S. government-related securities	601,537		(29,179		)	14,847		(818		)	616,384		(29,997		)
Other government-related securities	—		—			—		—			—		—
States, municipalities, and political subdivisions	81,281		(6,059		)	315		(200		)	81,596		(6,259		)
Corporate bonds	4,293,043		(322,093		)	190,041		(27,201		)	4,483,084		(349,294		)
Equities	255,007		(21,313		)	21,880		(8,506		)	276,887		(29,819		)
	$	5,988,039	$	(415,686	)	$	833,624	$	(105,792	)	$	6,821,663	$	(521,478	)

RMBS have a gross unrealized loss greater than twelve months of $8.6 million as of September 30, 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 $60.2 million as of September 30, 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 less than and greater than twelve months of $322.1 million and $27.2 million, respectively, as of September 30, 2013. These declines were primarily related to changes in interest rates during the period. The aggregate decline in market value of these securities was deemed temporary due to positive factors supporting the recoverability of the respective investments. Positive factors considered include credit ratings, the financial health of the issuer, the continued access of the issuer to capital markets, and other pertinent information.

The equities category has a gross unrealized loss greater than twelve months of $8.5 million as of September 30, 2013. The aggregate decline in market value of these securities was deemed temporary due to factors supporting the

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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 the securities.

	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	$	101,522	$	(9,605	)	$	166,000	$	(9,770	)	$	267,522	$	(19,375	)
Commercial mortgage-backed securities	50,601		(598		)	—		—			50,601		(598		)
Other asset-backed securities	479,223		(28,179		)	242,558		(33,245		)	721,781		(61,424		)
U.S. government-related securities	107,802		(595		)	—		—			107,802		(595		)
Other government-related securities	14,955		(45		)	—		—			14,955		(45		)
States, municipalities, and political subdivisions	11,526		(264		)	—		—			11,526		(264		)
Corporate bonds	777,552		(23,663		)	364,110		(24,783		)	1,141,662		(48,446		)
Equities	35,059		(5,150		)	21,954		(4,883		)	57,013		(10,033		)
	$	1,578,240	$	(68,099	)	$	794,622	$	(72,681	)	$	2,372,862	$	(140,780	)

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 FFELP. These unrealized losses have occurred within the Company’s 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 $4.9 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.

As of September 30, 2013, the Company had securities in its available-for-sale portfolio which were rated below investment grade of $1.5 billion and had an amortized cost of $1.5 billion. In addition, included in the Company’s trading portfolio, the Company held $330.0 million of securities which were rated below investment grade. Approximately $437.7 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					For The
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013			2012		2013			2012
	(Dollars In Thousands)
Fixed maturities	$	(156,636	)	$	437,087	$	(1,175,458	)	$	797,314
Equity securities	(12,791		)	4,531		(17,393		)	8,226

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 FASB ASC (excluding debt and equity securities held as trading, available for sale, or held to maturity). The Company reviews the characteristics of each of these applicable entities and compares those characteristics to applicable criteria to determine whether the entity is a Variable Interest Entity (“VIE”). If the entity is determined to be a VIE, the Company then performs a detailed review to determine whether the interest would be considered a variable interest under the guidance. The Company then performs a qualitative review of all variable interests with the entity and determines whether the Company is the primary beneficiary. ASC 810 provides that an entity is the primary beneficiary of a VIE if the entity has 1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and 2) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.

Based on this analysis, the Company had an interest in one wholly owned subsidiary, Red Mountain, LLC (“Red Mountain”), that was continued to be classified as a VIE as of September 30, 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, the holding company (“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 September 30, 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

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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.

Many 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, the Company 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 with these options called at their next call dates, approximately $66.4 million would become due for the remainder of 2013, $1.2 billion in 2014 through 2018, $575.0 million in 2019 through 2023, and $174.4 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 September 30, 2013 and December 31, 2012, approximately $714.5 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. During the three and nine month periods ended September 30, 2013, the Company recognized $3.7 million and $12.9 million of participating mortgage loan income, respectively.

As of September 30, 2013, approximately $16.4 million, or 0.05%, of invested assets consisted of nonperforming, restructured or mortgage loans that were foreclosed and were converted to real estate properties. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities. During the three months ended September 30, 2013, two mortgage loan transactions occurred that were accounted for as troubled debt restructurings under Topic 310 of the FASB ASC. For all mortgage loans, the impact of troubled debt restructurings is reflected in the Company’s investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the quarter involved the modification of payment terms pursuant to bankruptcy proceedings. However, the Company expects to collect all amounts due related to these loans as well as expenses incurred as a result of the restructurings, which resulted in no material change to the principal balance of these loans, which was $3.2 million as of September 30, 2013 and no associated reserve.

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 September 30, 2013, $10.7 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming or restructured. The Company foreclosed on two nonperforming loans during the nine months ended September 30, 2013.

As of September 30, 2013, $5.7 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the nine months ended September 30, 2013. The Company did not foreclose on any nonperforming loans during the nine months ended September 30, 2013.

As of September 30, 2013 and December 31, 2012, the Company had an allowance for mortgage loan credit losses of $8.0 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

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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
	September 30, 2013			December 31, 2012
	(Dollars In Thousands)
Beginning balance	$	2,875		$	6,475
Charge offs	(2,643		)	(9,840		)
Recoveries	(374		)	(628		)
Provision	8,112			6,868
Ending balance	$	7,970		$	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 September 30, 2013.

					Greater
	30-59 Days		60-89 Days		than 90 Days		Total
	Delinquent		Delinquent		Delinquent		Delinquent
	(Dollars In Thousands)
Commercial mortgage loans	$	20,531	$	—	$	9,318	$	29,849
Number of delinquent commercial mortgage loans	7		—		3		10

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 September 30, 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	$	2,243	$	3,021	$	—	$	2,243	$	42	$	32
With an allowance recorded	37,485		37,482		7,970		5,355		499		478
2012
Commercial mortgage loans:
With no related allowance recorded	$	14,619	$	16,942	$	—	$	2,088	$	53	$	100
With an allowance recorded	13,927		13,927		2,875		3,482		154		154

5. GOODWILL

During the nine months ended September 30, 2013, the Company decreased its goodwill balance by approximately $2.3 million. The decrease was due to adjustments in the Acquisitions segment related to tax benefits

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realized during 2013 on the portion of tax goodwill in excess of GAAP basis goodwill. As of September 30, 2013, the Company had an aggregate goodwill balance of $106.2 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 nine months ended September 30, 2013, no events occurred which indicate an impairment should be recorded or which would invalidate the previous results of the Company’s impairment assessment.

6. DEBT AND OTHER OBLIGATIONS

Debt and Subordinated Debt Securities

Debt and subordinated debt securities are summarized as follows:

	As of
	September 30, 2013		December 31, 2012
	(Dollars In Thousands)
Debt (year of issue):
Revolving Line of Credit	$	350,000	$	50,000
4.30% Senior Notes (2003), due 2013	—		250,000
4.875% Senior Notes (2004), due 2014	150,000		150,000
6.40% Senior Notes (2007), due 2018	150,000		150,000
7.375% Senior Notes (2009), due 2019	400,000		400,000
8.00% Senior Notes (2009), due 2024, callable 2014	100,000		100,000
8.45% Senior Notes (2009), due 2039	300,000		300,000
	$	1,450,000	$	1,400,000

Subordinated debt securities (year of issue):
6.125% Subordinated Debentures (2004), due 2034, callable 2009	$	103,093	$	103,093
6.25% Subordinated Debentures (2012), due 2042, callable 2017	287,500		287,500
6.00% Subordinated Debentures (2012), due 2042, callable 2017	150,000		150,000
	$	540,593	$	540,593

The Company has access to a Credit Facility that provides 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

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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 the Company’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 the Company’s Senior Debt. The Credit Facility also provides for a facility fee at a rate that varies with the ratings of the Company’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 September 30, 2013. There was an outstanding balance of $350.0 million at an interest rate of LIBOR plus 1.20% under the Credit Facility as of September 30, 2013.

During the three month period ended June 30, 2013, the Company’s 4.30% Senior notes issued in 2003 matured. The maturity resulted in the payment of $250.0 million of principal to the holders of the senior notes on June 3, 2013. The Company borrowed an additional $250.0 million from its Credit Facility to finance the final principal payment.

Non- Recourse Funding Obligations

Golden Gate II Captive Insurance Company

Golden Gate II Captive Insurance Company (“Golden Gate II”), a special purpose financial captive insurance company wholly owned by Protective Life Insurance Company (“PLICO”), had $575 million of outstanding non-recourse funding obligations as of September 30, 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 September 30, 2013, securities related to $269.9 million of the outstanding balance of the non-recourse funding obligations were held by external parties and securities related to $305.1 million of the non-recourse funding obligations were held by the Company and our affiliates. The Company has entered into certain support agreements with Golden Gate II obligating the Company to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate II. These support agreements provide that amounts would become payable by the Company to Golden Gate II if its annual general corporate expenses were higher than modeled amounts or if Golden Gate II’s investment income on certain investments or premium income was below certain actuarially determined amounts. As of September 30, 2013, no payments are expected to be required under these agreements.

Golden Gate V Vermont Captive Insurance Company

On October 10, 2012, Golden Gate V and Red Mountain, indirect 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 our direct wholly owned subsidiary PLICO and indirect wholly owned 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 PLICO. 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, PLICO 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 September 30, 2013, the principal balance of the Red Mountain note was $350 million. In connection with the transaction, the Company has entered into certain support agreements under which it guarantees or otherwise supports certain obligations of Golden Gate V or Red Mountain. Future scheduled capital contributions to prefund credit enhancement fees amount to approximately $144.3 million and will be paid in annual installments through 2031. The support agreements provide that amounts would become payable by the Company if Golden Gate V’s annual general corporate expenses were higher than modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, the Company has entered into separate agreements to indemnify Golden Gate V with respect to material adverse changes in non-guaranteed elements of insurance policies

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reinsured by Golden Gate V, and to guarantee payment of certain fee amounts in connection with the credit enhancement of the Red Mountain note. As of September 30, 2013, no payments are expected to be required under these agreements.

In connection with the transaction outlined above, Golden Gate V had a $350 million outstanding non-recourse funding obligation as of September 30, 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 September 30, 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 II Captive Insurance Company	$	269,900	2052	0.99	%
Golden Gate V Vermont Captive Insurance Company	350,000		2037	6.25	%
Total	$	619,900

During the nine months ended September 30, 2013, the Company repurchased $16.1 million of its outstanding non-recourse funding obligations, at a discount. These repurchases resulted in a $3.4 million pre-tax gain for the Company. During the nine months ended September 30, 2012, the Company repurchased $110.8 million of its outstanding non-recourse funding obligations, at a discount. These repurchases resulted in a $35.5 million pre-tax gain for the Company. These gains are recorded in other income in the consolidated statements of income.

Letters of Credit

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary of PLICO, 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 WCL. The Reimbursement Agreement was subsequently amended and restated effective November 21, 2011 (the “First Amended and Restated Reimbursement Agreement”), 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. On August 7, 2013, the Company entered into a Second Amended and Restated Reimbursement Agreement with UBS (the “Second Amended and Restated Reimbursement Agreement”), which amended and restated the First Amended and Restated Reimbursement Agreement. Under the Second and Amended and Restated Reimbursement Agreement a new LOC in an initial amount of $710 million was issued by UBS in replacement of the existing LOC issued under the First Amended and Restated Reimbursement Agreement. The term of the LOC was extended from April 1, 2022 to October 1, 2023, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $610 million to $720 million in 2015 if certain conditions are met. The LOC is held in trust for the benefit of WCL, and supports certain obligations of Golden Gate III to WCL under an indemnity reinsurance agreement originally effective April 1, 2010, as amended and restated on November 21, 2011, and as further amended and restated on August 7, 2013 to include an additional block of policies, and pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. The LOC balance was $710 million as of September 30, 2013. Subject to certain conditions, the amount of the LOC will be periodically increased up to a maximum of $720 million in 2015. The term of the LOC is expected to be approximately 13.5 years from the original issuance date. This transaction is “non-recourse” to WCL, PLICO, and the Company, meaning that none of these companies other than Golden Gate III are liable for reimbursement on a draw of the LOC. The Company has entered into certain support agreements with Golden Gate III obligating the Company to make capital contributions or provide support related to certain of Golden Gate III’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate III. Future scheduled capital contributions amount to approximately $149.8 million and will be paid in three installments with the last payment occurring in 2019, and these contributions may be subject to potential offset against dividend payments as permitted under the terms of the Second Amended and Restated Reimbursement Agreement. The support agreements provide that

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amounts would become payable by the Company to Golden Gate III if its annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate III. Pursuant to the terms of an amended and restated letter agreement with UBS, the Company has continued to guarantee the payment of fees to UBS as specified in the Second and Amended and Restated Agreement. As of September 30, 2013, no payments are expected to be required under these agreements.

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary of PLICO, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. The LOC balance has increased, in accordance with the terms of the Reimbursement Agreement, during each of the first three quarters of 2013 and was $690 million as of September 30, 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 from the original issuance date and with a maturity date of December 30, 2022. The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement, pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. This transaction is “non-recourse” to WCL, PLICO, and the Company, meaning that none of these companies other than Golden Gate IV are liable for reimbursement on a draw of the LOC. The Company has entered into certain support agreements with Golden Gate IV obligating the Company to make capital contributions or provide support related to certain of Golden Gate IV’s expenses and in certain circumstances, to collateralize certain of the Company’s obligations to Golden Gate IV. The support agreements provide that amounts would become payable by the Company to Golden Gate IV if its annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate IV. The Company has also entered into a separate agreement to guarantee the payments of LOC fees under the terms of the Reimbursement Agreement. As of September 30, 2013, no payments are expected to be required under these agreements.

Repurchase Program Borrowings

While the Company anticipates that the cash flows of its operating subsidiaries will be sufficient to meet its investment commitments and operating cash needs in a normal credit market environment, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Under this program, the Company may, from time to time, sell an investment security at a specific price and agree to repurchase that security at another specified price at a later date. 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. The agreements provided for net settlement in the event of default or on termination of the agreements. As of September 30, 2013, the fair value of securities pledged under the repurchase program was $109.6 million and the repurchase obligation of $100.0 million was included in the Company’s consolidated condensed balance sheets (at an average borrowing rate of 11 basis points). During the nine months ended September 30, 2013, the maximum balance outstanding at any one point in time related to these programs was $645.1 million. The average daily balance was $417.5 million (at an average borrowing rate of 11 basis points) during the nine months ended September 30, 2013. As of December 31, 2012, the Company 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.

7. COMMITMENTS AND CONTINGENCIES

The Company has entered into indemnity agreements with each of its current directors that provide, among other things and subject to certain limitations, a contractual right to indemnification to the fullest extent permissible under the law. The Company has agreements with certain of its officers providing up to $10 million in indemnification. These obligations are in addition to the customary obligation to indemnify officers and directors contained in the Company’s governance documents.

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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. Publicly held companies in general and the financial services and insurance industries in particular 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 $26.6 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 certain of the Company’s insurance subsidiaries, as well as certain other insurance companies for which the Company has co-insured blocks of life insurance and annuity policies, 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 issued by the Company’s subsidiaries 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 a separate block of life insurance policies that is co-insured by a subsidiary of 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

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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.

Certain of the Company’s subsidiaries have received notice that they 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 nine months ended September 30, 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 the Company’s average operating return on average equity (“ROE”) over a three-year period. If the Company’s ROE is below 10.0%, no award is earned. If the Company’s ROE is at or above 11.5%, the award maximum is earned. Awards are paid in shares of the Company’s common stock.

Restricted stock units are awarded to participants and include certain restrictions relating to vesting periods. The Company issued 163,850 restricted stock units for the nine months ended September 30, 2013. These awards had a total fair value at grant date of $5.4 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 September 30, 2013.

Stock appreciation right (“SARs”) have historically been granted to certain officers of the Company to provide long-term incentive compensation based solely on the performance of the Company’s common stock. The SARs are exercisable either five years after the date of grant 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 the Company) 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	18.02		(315,616	)
Balance at September 30, 2013	$	23.13	1,325,551

The Company will pay an amount in stock equal to the difference between the specified base price of the Company’s common stock and the market value at the exercise date for each SAR. There were no SARs issued for the nine months ended September 30, 2013.

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9. EMPLOYEE BENEFIT PLANS

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

	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
Service cost — benefits earned during the period	$	2,708		$	2,561		$	8,124		$	7,683
Interest cost on projected benefit obligation	2,553			2,604			7,659			7,812
Expected return on plan assets	(2,759		)	(2,673		)	(8,277		)	(8,019		)
Amortization of prior service cost/(credit)	(95		)	(95		)	(285		)	(285		)
Amortization of actuarial losses	2,729			2,175			8,187			6,525
Total benefit cost	$	5,136		$	4,572		$	15,408		$	13,716

During the nine months ended September 30, 2013, the Company contributed $2.0 million to its defined benefit pension plan for the 2012 plan year and $4.6 million for the 2013 plan year. During October of 2013, the Company contributed $2.3 million to the defined benefit pension plan for the 2013 plan year. The Company will continue to make contributions in future periods as necessary to at least satisfy minimum funding requirements. The Company 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 21 st 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 reduced the Company’s minimum required defined benefit plan contributions for the 2012 and 2013 plan year. Since the funding stabilization provisions of MAP-21 do not apply for Pension Benefit Guaranty Corporation (“PBGC”) reporting purposes, the Company may also make additional contributions in future periods to avoid certain PBGC reporting triggers.

In addition to pension benefits, the Company 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, the Company provides a prescription drug benefit. The cost of these plans for the nine months ended September 30, 2013, was immaterial to the Company’s financial statements .

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10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in the accumulated balances for each component of accumulated other comprehensive income (loss) (“AOCI”) as of September 30, 2013.

Changes in Accumulated Other Comprehensive Income (Loss) by Component

										Total
										Accumulated
	Unrealized			Accumulated			Minimum			Other
	Gains and Losses			Gain and Loss			Pension Liability			Comprehensive
	on Investments			Derivatives			Adjustment			Income (Loss)
	(Dollars In Thousands, Net of Tax)
Beginning Balance, December 31, 2012	$	1,813,516		$	(3,496	)	$	(73,298	)	$	1,736,722
Other comprehensive income (loss) before reclassifications	(1,191,416		)	(103		)	(5,136		)	(1,196,655		)
Other comprehensive income (loss) relating to other- than-temporary impaired investments for which a portion has been recognized in earnings	2,570			—			—			2,570
Amounts reclassified from accumulated other comprehensive income (loss) (1)	(17,621		)	1,072			—			(16,549		)
Net current-period other comprehensive income (loss)	(1,206,467		)	969			(5,136		)	(1,210,634		)
Ending Balance, September 30, 2013	$	607,049		$	(2,527	)	$	(78,434	)	$	526,088

(1) See Reclassification table below for details.

The following table summarizes the reclassifications amounts out of AOCI for the three and nine months ended September 30, 2013.

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

For The Three Months Ended September 30, 2013
Gains and losses on derivative instruments
Net settlement (expense)/benefit (1)	$	(572	)	Benefits and settlement expenses, net of reinsurance ceded
	(572		)	Total before tax
	200			Tax (expense) or benefit
	$	(372	)	Net of tax
Unrealized gains and losses on available-for-sale securities
Net investment gains/losses	$	10,546		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(8,681		)	Net impairment losses recognized in earnings
	1,865			Total before tax
	(653		)	Tax (expense) or benefit
	$	1,212		Net of tax

(1) See Note 14, Derivative Financial Instruments for additional information.

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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

For The Nine Months Ended September 30, 2013
Gains and losses on derivative instruments
Net settlement (expense)/benefit (1)	$	(1,649	)	Benefits and settlement expenses, net of reinsurance ceded
	(1,649		)	Total before tax
	577			Tax (expense) or benefit
	$	(1,072	)	Net of tax

Unrealized gains and losses on available-for-sale securities
Net investment gains/losses	$	44,374		Realized investment gains (losses): All other investments
Impairments recognized in earnings	(17,265		)	Net impairment losses recognized in earnings
	27,109			Total before tax
	(9,488		)	Tax (expense) or benefit
	$	17,621		Net of tax

(1) See Note 14, Derivative Financial Instruments for additional information.

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11. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income available to PLC’s common shareowners by the weighted-average number of common shares outstanding during the period, including shares issuable under various deferred compensation plans. Diluted earnings per share is computed by dividing net income available to PLC’s common shareowners by the weighted-average number of common shares and dilutive potential common shares outstanding during the period, assuming the shares were not anti-dilutive, including shares issuable under various stock-based compensation plans and stock purchase contracts.

A reconciliation of the numerators and denominators of the basic and diluted earnings per share is presented below:

	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2013		2012		2013		2012
	(Dollars In Thousands, Except Per Share Amounts)
Calculation of basic earnings per share:
Net income available to PLC’s common shareowners	$	93,061	$	60,480	$	274,551	$	235,656

Average shares issued and outstanding	78,521,996		79,725,407		78,396,347		80,632,108
Issuable under various deferred compensation plans	970,278		937,338		950,424		909,354
Weighted shares outstanding - basic	79,492,274		80,662,745		79,346,771		81,541,462

Per share:
Net income available to PLC’s common shareowners - basic	$	1.17	$	0.75	$	3.46	$	2.89

Calculation of diluted earnings per share:
Net income available to PLC’s common shareowners	$	93,061	$	60,480	$	274,551	$	235,656

Weighted shares outstanding - basic	79,492,274		80,662,745		79,346,771		81,541,462
Stock appreciation rights (“SARs”) (1)	409,964		464,504		433,174		460,104
Issuable under various other stock-based compensation plans	592,580		677,218		758,976		568,587
Restricted stock units	357,260		601,636		343,631		617,701
Weighted shares outstanding - diluted	80,852,078		82,406,103		80,882,552		83,187,854

Per share:
Net income available to PLC’s common shareowners - diluted	$	1.15	$	0.73	$	3.39	$	2.83

(1) Excludes 454,925 and 665,320 SARs as of September 30, 2013 and 2012, respectively, that are antidilutive. In the event the average market price exceeds the issue price of the SARs, such rights would be dilutive to the Company’s earnings per share and will be included in the Company’s calculation of the diluted average shares outstanding, for applicable periods.

12. INCOME TAXES

There have been no material changes to the balance of unrecognized tax benefits, where such benefits impacted earnings, for the nine months ended September 30, 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.

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The Company believes that it is possible that in the next 12 months approximately $17 million of these unrecognized tax benefits will be reduced due to the expected closure of the aforementioned Appeals process. In general, this closure would represent the Company’s possible successful negotiation of certain issues, coupled with its payment of the assessed taxes on the remaining issues.

The Company used its estimate of its annual 2013 and 2012 income in computing its effective income tax rates for the three and nine months ended September 30, 2013 and 2012. The effective tax rates for the three and nine months ended September 30, 2013 were 34.5% and 34.1%, respectively, and 33.5% and 32.5% for the three and nine months ended September 30, 2012, 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 September 30, 2013.

13. 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 September 30, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,463,989	$	38	$	1,464,027
Commercial mortgage-backed securities	—		911,607		—		911,607
Other asset-backed securities	—		328,393		548,771		877,164
U.S. government-related securities	1,063,584		149,852		—		1,213,436
State, municipalities, and political subdivisions	—		1,296,047		4,330		1,300,377
Other government-related securities	—		41,128		—		41,128
Corporate bonds	107		19,545,102		187,488		19,732,697
Total fixed maturity securities - available-for-sale	1,063,691		23,736,118		740,627		25,540,436

Fixed maturity securities - trading
Residential mortgage-backed securities	—		308,356		—		308,356
Commercial mortgage-backed securities	—		169,046		—		169,046
Other asset-backed securities	—		90,726		170,967		261,693
U.S. government-related securities	198,717		5,147		—		203,864
State, municipalities, and political subdivisions	—		262,036		—		262,036
Other government-related securities	—		57,525		—		57,525
Corporate bonds	—		1,515,167		5,092		1,520,259
Total fixed maturity securities - trading	198,717		2,408,003		176,059		2,782,779
Total fixed maturity securities	1,262,408		26,144,121		916,686		28,323,215
Equity securities	348,472		43,341		69,418		461,231
Other long-term investments (1)	58,567		54,600		153,563		266,730
Short-term investments	213,924		2,300		—		216,224
Total investments	1,883,371		26,244,362		1,139,667		29,267,400
Cash	354,449		—		—		354,449
Other assets	10,086		—		—		10,086
Assets related to separate accounts
Variable annuity	11,921,925		—		—		11,921,925
Variable universal life	663,380		—		—		663,380
Total assets measured at fair value on a recurring basis	$	14,833,211	$	26,244,362	$	1,139,667	$	42,217,240

Liabilities:
Annuity account balances (2)	$	—	$	—	$	110,590	$	110,590
Other liabilities (1)	11,304		136,398		286,530		434,232
Total liabilities measured at fair value on a recurring basis	$	11,304	$	136,398	$	397,120	$	544,822

(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		259,955		—		1,169,943
State, municipalities, and political subdivisions	—		1,439,378		4,335		1,443,713
Other government-related securities	—		80,767		20,011		100,778
Corporate bonds	207		20,213,952		167,892		20,382,051
Total fixed maturity securities - available-for-sale	910,195		25,082,071		788,385		26,780,651

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		27,714,025		859,035		29,787,959
Equity securities	307,252		35,116		69,418		411,786
Other long-term investments (1)	23,639		58,134		31,591		113,364
Short-term investments	215,320		2,492		—		217,812
Total investments	1,761,110		27,809,767		960,044		30,530,921
Cash	368,801		—		—		368,801
Other assets	8,239		—		—		8,239
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	$	12,302,384	$	27,809,767	$	960,044	$	41,072,195

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

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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 nine months ended September 30, 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 fixed maturities 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 September 30, 2013, the Company held $3.3 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 September 30, 2013, the Company held $719.8 million of Level 3 ABS, which included $548.8 million of other asset-backed securities classified as available-for-sale and $171.0 million of other asset-backed securities classified as trading. The securities classified as available-for-sale 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 September 30, 2013, the Company classified approximately $22.9 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 September 30, 2013, the Company classified approximately $196.9 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 September 30, 2013, the Company held approximately $112.8 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 14, 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 September 30, 2013, 96.1% 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 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 embedded derivatives are 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 14, Derivative Financial Instruments for more information related to each embedded derivatives gains and losses.

The fair value of the guaranteed minimum withdrawal benefits (“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 from the National Association of Insurance Commissioners 1994 Variable Annuity MGDB Mortality Table for company experience, with attained age factors varying from 49% - 80%. 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 fair value of the FIA embedded derivative is derived through the income method of valuation using a valuation model that projects future cash flows using current index values and volatility, the hedge budget used to price the product, and policyholder assumptions (both elective and non-elective). For policyholder behavior assumptions, expected lapse and withdrawal assumptions are used and updated for actual experience, as necessary. The Company assumes age-based mortality from the 1994 Variable Annuity MGDB mortality table modified for company experience, with attained age factors varying from 49% - 80%. The present value of the cash flows is determined using the discount rate curve, which is based upon LIBOR up to one year and constant maturity treasury rates plus a credit spread (to represent the Company’s non-performance risk) thereafter. Policyholder assumptions are reviewed on an annual basis. As a result of using significant unobservable inputs, the FIA embedded derivative is categorized as Level 3.

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 statutory policy liabilities (net of policy loans) of $2.6 billion and the fair value of the trading securities of $2.9 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.

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Annuity account balances

The Company records certain of its FIA reserves 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 September 30, 2013, ranged from a one month rate of 0.36%, a 5 year rate of 2.44%, and a 30 year rate of 4.97%. 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.

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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
	September 30, 2013		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	548,771	Discounted cash flow	Liquidity premium	0.69% - 1.32% (0.80%)
				Paydown rate	8.37% - 17.50% (12.45%)
Corporate bonds	192,580		Discounted cash flow	Spread over treasury	0.32% - 6.75% (2.89%)
Embedded derivatives - GMWB (1)		95,058	Actuarial cash flow model	Mortality	49% to 80% of 1994 MGDB table
				Lapse	0% - 24%, depending on product/duration/funded status of guarantee
				Utilization	97% - 103%
				Nonperformance risk	0.19% - 1.31%
Liabilities:
Annuity account balances (2)	$	110,590	Actuarial cash flow model	Asset earned rate	5.37%
				Expenses	$88 - $102 per policy
				Withdrawal rate	2.20%
				Mortality	49% to 80% of 1994 MGDB table
				Lapse	2.2% - 33.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.19% - 1.31%
Embedded derivative - FIA	9,199		Actuarial cash flow model	Expenses	$83 - $97 per policy
				Withdrawal rate	1.1% - 4.5% depending on duration
					and tax qualification
				Mortality	49% to 80% of 1994 MGDB table
				Lapse	2.5% - 40.0%, depending on duration/surrender charge period
				Nonperformance risk	0.19% - 1.31%

(1) The fair value for the GMWB embedded derivative is presented as a net asset for the purposes of this chart. Excludes modified coinsurance arrangements.

(2) Represents account balance 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 September 30, 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 $171.6 million of financial instruments being classified as Level 3 as of September 30, 2013. Of the $171.6 million, $171.0 million are other asset backed securities and $0.6 million are equity securities.

In certain cases the Company has determined that book value materially approximates fair value. As of September 30, 2013, the Company held $73.2 million of financial instruments where book value approximates fair value. Of the $73.2 million, $68.8 million represents equity securities, which are predominantly FHLB stock, and $4.4 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 MGDB 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 MGDB 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 for the purposes of this chart. 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 $71.1 million of financial instruments being classified as Level 3 as of December 31, 2012. Of the $71.1 million, $70.5 million are other asset backed securities and $0.6 million are equity securities.

In certain cases the Company has determined that book value materially approximates fair value. As of December 31, 2012, the Company held $73.2 million of financial instruments where book value approximates fair value. Of the $73.2 million, $68.9 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 decreases when spreads increases.

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

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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 fair value of the FIA embedded derivative is predominantly impacted by observable inputs such as discount rates and equity returns. However, the fair value of the FIA embedded derivative is sensitive to non-performance risk. The value of the liability increases with decreases in the discount rate and non-performance risk and decreases with increases in the discount rate and non-performance risk. The value of the liability increases with increases in equity returns and the liability decreases with a decrease in equity returns.

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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 September 30, 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	$	14,062	$	—	$	1,310	$	—		$	—		$	—	$	(12	)	$	—	$	—	$	(15,333	)	$	11		$	38	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	576,396		—		52		—			(26,969		)	11,769		(12,085		)	—		—		—			(392		)	548,771		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals, and political subdivisions	4,330		—		—		—			—			—		—			—		—		—			—			4,330		—
Other government-related securities	20,000		—		1		—			—			—		(20,000		)	—		—		—			(1		)	—		—
Corporate bonds	194,895		—		1,662		—			(3,513		)	11,002		(13,558		)	—		—		(3,385		)	385			187,488		—
Total fixed maturity securities - available-for-sale	809,683		—		3,025		—			(30,482		)	22,771		(45,655		)	—		—		(18,718		)	3			740,627		—
Fixed maturity securities - trading
Residential mortgage-backed securities	1,582		—		—		(1		)	—			—		(72		)	—		—		(1,494		)	(15		)	—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	168,851		3,167		—		(1,080		)	—			16,394		(16,568		)	—		—		—			203			170,967		1,596
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals and political subdivisions	3,500		—		—		(123		)	—			—		—			—		—		(3,377		)	—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	5,092		—		—		(4		)	—			—		—			—		—		—			4			5,092		(4		)
Total fixed maturity securities - trading	179,025		3,167		—		(1,208		)	—			16,394		(16,640		)	—		—		(4,871		)	192			176,059		1,592
Total fixed maturity securities	988,708		3,167		3,025		(1,208		)	(30,482		)	39,165		(62,295		)	—		—		(23,589		)	195			916,686		1,592
Equity securities	69,418		—		—		—			—			—		—			—		—		—			—			69,418		—
Other long-term investments (1)	100,072		53,791		—		(300		)	—			—		—			—		—		—			—			153,563		53,491
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	1,158,198		56,958		3,025		(1,508		)	(30,482		)	39,165		(62,295		)	—		—		(23,589		)	195			1,139,667		55,083
Total assets measured at fair value on a recurring basis	$	1,158,198	$	56,958	$	3,025	$	(1,508	)	$	(30,482	)	$	39,165	$	(62,295	)	$	—	$	—	$	(23,589	)	$	195		$	1,139,667	$	55,083

Liabilities:
Annuity account balances (2)	$	114,614	$	—	$	—	$	(2,472	)	$	—		$	—	$	—		$	46	$	6,542	$	—		$	—		$	110,590	$	—
Other liabilities (1)	335,581		72,905		—		(23,854		)	—			—		—			—		—		—			—			286,530		49,051
Total liabilities measured at fair value on a recurring basis	$	450,195	$	72,905	$	—	$	(26,326	)	$	—		$	—	$	—		$	46	$	6,542	$	—		$	—		$	397,120	$	49,051

(1) Represents certain freestanding and embedded derivatives.

(2) Represents liabilities related to fixed indexed annuities.

For the three months ended September 30, 2013, $1.3 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 September 30, 2013.

For the three months ended September 30, 2013, there were $24.9 million of securities transferred out of Level 3. This amount was transferred to Level 2. These transfers resulted from securities that were priced using significant unobservable inputs in previous periods, but are now priced by independent pricing services or brokers, using no significant unobservable inputs as of September 30, 2013.

For the three months ended September 30, 2013, there were no transfers from Level 2 to Level 1.

For the three months ended September 30, 2013, there were no transfers from Level 1.

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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 September 30, 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	$	4	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	584,641		45		11,462		—			(1,157		)	—		(5,200		)	—		—		—			(153		)	589,638		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals, and political subdivisions	4,340		—		—		—			—			—		—			—		—		—			—			4,340		—
Other government-related securities	20,020		—		—		—			(11		)	—		—			—		—		—			(4		)	20,005		—
Corporate bonds	172,181		—		5,349		—			(221		)	—		(2,090		)	—		—		(26,802		)	122			148,539		—
Total fixed maturity securities - available-for-sale	781,186		45		16,811		—			(1,389		)	—		(7,290		)	—		—		(26,802		)	(35		)	762,526		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	65,059		2,972		—		(148		)	—			7,208		(1,442		)	—		—		—			413			74,062		2,823
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	114		1		—		—			—			—		—			—		—		—			—			115		2
Total fixed maturity securities - trading	65,173		2,973		—		(148		)	—			7,208		(1,442		)	—		—		—			413			74,177		2,825
Total fixed maturity securities	846,359		3,018		16,811		(148		)	(1,389		)	7,208		(8,732		)	—		—		(26,802		)	378			836,703		2,825
Equity securities	73,651		8		—		—			(147		)	—		(4,295		)	—		—		—			—			69,217		—
Other long-term investments (1)	18,415		2,719		—		(34		)	—			—		—			—		—		—			—			21,100		2,685
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	938,425		5,745		16,811		(182		)	(1,536		)	7,208		(13,027		)	—		—		(26,802		)	378			927,020		5,510
Total assets measured at fair value on a recurring basis	$	938,425	$	5,745	$	16,811	$	(182	)	$	(1,536	)	$	7,208	$	(13,027	)	$	—	$	—	$	(26,802	)	$	378		$	927,020	$	5,510

Liabilities:
Annuity account balances (2)	$	134,597	$	—	$	—	$	(5,766	)	$	—		$	—	$	—		$	217	$	6,011	$	—		$	—		$	134,569	$	—
Other liabilities (1)	516,587		11,016		—		(112,779		)	—			—		—			—		—		—			—			618,350		(101,763		)
Total liabilities measured at fair value on a recurring basis	$	651,184	$	11,016	$	—	$	(118,545	)	$	—		$	—	$	—		$	217	$	6,011	$	—		$	—		$	752,919	$	(101,763	)

(1) Represents certain freestanding and embedded derivatives.

(2) Represents liabilities related to fixed indexed annuities.

For the three months ended September 30, 2012, there were no securities transferred into Level 3.

For the three months ended September 30, 2012, $26.8 million of securities were transferred out of Level 3. This amount was transferred into Level 2. These transfers resulted from securities priced by independent pricing services or brokers as of September 30, 2012 that were previously priced internally using significant unobservable inputs where market observable inputs were not available.

For the three months ended September 30, 2012, there were no transfers from Level 2 to Level 1.

For the three months ended September 30, 2012, there were no transfers out of Level 1.

Table of Contents

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 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	$	—	$	1,310	$	—		$	(337	)	$	14,349	$	(12	)	$	—	$	—	$	(15,287	)	$	11		$	38	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	596,143		—		43,808		—			(54,517		)	24,931		(62,471		)	—		—		1,227			(350		)	548,771		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals, and political subdivisions	4,335		—		—		—			—			—		(5		)	—		—		—			—			4,330		—
Other government-related securities	20,011		—		2		—			(3		)	—		(20,000		)	—		—		—			(10		)	—		—
Corporate bonds	167,892		116		2,673		—			(13,559		)	29,277		(58,742		)	—		—		58,945			886			187,488		—
Total fixed maturity securities - available-for-sale	788,385		116		47,793		—			(68,416		)	68,557		(141,230		)	—		—		44,885			537			740,627		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		(1		)	—			1,582		(72		)	—		—		(1,494		)	(15		)	—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	70,535		7,964		—		(3,949		)	—			122,224		(29,344		)	—		—		2,210			1,327			170,967		4,814
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals and political subdivisions	—		—		—		(123		)	—			3,500		—			—		—		(3,377		)	—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	115		1		—		(27		)	—			—		(17		)	—		—		5,013			7			5,092		(4		)
Total fixed maturity securities - trading	70,650		7,965		—		(4,100		)	—			127,306		(29,433		)	—		—		2,352			1,319			176,059		4,810
Total fixed maturity securities	859,035		8,081		47,793		(4,100		)	(68,416		)	195,863		(170,663		)	—		—		47,237			1,856			916,686		4,810
Equity securities	69,418		—		—		—			—			—		—			—		—		—			—			69,418		—
Other long-term investments (1)	31,591		122,643		—		(671		)	—			—		—			—		—		—			—			153,563		121,972
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	960,044		130,724		47,793		(4,771		)	(68,416		)	195,863		(170,663		)	—		—		47,237			1,856			1,139,667		126,782
Total assets measured at fair value on a recurring basis	$	960,044	$	130,724	$	47,793	$	(4,771	)	$	(68,416	)	$	195,863	$	(170,663	)	$	—	$	—	$	47,237		$	1,856		$	1,139,667	$	126,782

Liabilities:
Annuity account balances (2)	$	129,468	$	—	$	—	$	(6,159	)	$	—		$	—	$	—		$	247	$	25,284	$	—		$	—		$	110,590	$	—
Other liabilities (1)	611,437		377,398		—		(52,491		)	—			—		—			—		—		—			—			286,530		324,907
Total liabilities measured at fair value on a recurring basis	$	740,905	$	377,398	$	—	$	(58,650	)	$	—		$	—	$	—		$	247	$	25,284	$	—		$	—		$	397,120	$	324,907

(1) Represents certain freestanding and embedded derivatives.

(2) Represents liabilities related to fixed indexed annuities.

For the nine months ended September 30, 2013, $72.1 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 September 30, 2013. All transfers are recognized as of the end of the period.

For the nine months ended September 30, 2013, there were $24.9 million of securities transferred out of Level 3. This amount was transferred to Level 2. These transfers resulted from securities that were priced using significant unobservable inputs in previous periods, but are now priced by independent pricing services or brokers, using no significant unobservable inputs as of September 30, 2013.

For the nine months ended September 30, 2013, there were no transfers from Level 2 to Level 1.

For the nine months ended September 30, 2013, there were no transfers out of Level 1.

Table of Contents

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the nine months ended September 30, 2012, for which the Company has used significant unobservable inputs (Level 3):


																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	7	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	614,813		339		15,981		—			(22,055		)	—		(19,050		)	—		—		—		(390		)	589,638		—
U.S. government-related securities	15,000		—		—		—			(1		)	—		(15,000		)	—		—		—		1			—		—
States, municipals, and political subdivisions	69		—		—		—			—			4,275		(4		)	—		—		—		—			4,340		—
Other government-related securities	—		—		18		—			(27		)	20,023		—			—		—		—		(9		)	20,005		—
Corporate bonds	119,601				7,198		—			(2,131		)	4		(4,185		)	—		—		27,810		242			148,539		—
Total fixed maturity securities - available-for-sale	749,490		339		23,197		—			(24,214		)	24,302		(38,242		)	—		—		27,810		(156		)	762,526		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		3,450		—		(905		)	—			48,255		(6,516		)	—		—		—		1,435			74,062		2,545
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		1		—		—			—			1		—			—		—		113		—			115		10
Total fixed maturity securities - trading	28,343		3,451		—		(905		)	—			48,256		(6,516		)	—		—		113		1,435			74,177		2,555
Total fixed maturity securities	777,833		3,790		23,197		(905		)	(24,214		)	72,558		(44,758		)	—		—		27,923		1,279			836,703		2,555
Equity securities	80,586		8		660		—			(1,096		)	4		(4,295		)	—		—		—		(6,650		)	69,217		—
Other long-term investments (1)	12,703		15,792		—		(7,395		)	—			—		—			—		—		—		—			21,100		8,397
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	871,122		19,590		23,857		(8,300		)	(25,310		)	72,562		(49,053		)	—		—		27,923		(5,371		)	927,020		10,952
Total assets measured at fair value on a recurring basis	$	871,122	$	19,590	$	23,857	$	(8,300	)	$	(25,310	)	$	72,562	$	(49,053	)	$	—	$	—	$	27,923	$	(5,371	)	$	927,020	$	10,952

Liabilities:
Annuity account balances (2)	$	136,462	$	—	$	—	$	(9,983	)	$	—		$	—	$	—		$	645	$	12,521	$	—	$	—		$	134,569	$	—
Other liabilities (1)	437,613		67,565		—		(248,302		)	—			—		—			—		—		—		—			618,350		(180,737		)
Total liabilities measured at fair value on a recurring basis	$	574,075	$	67,565	$	—	$	(258,285	)	$	—		$	—	$	—		$	645	$	12,521	$	—	$	—		$	752,919	$	(180,737	)

(1) Represents certain freestanding and embedded derivatives.

(2) Represents liabilities related to fixed indexed annuities.

For the nine months ended September 30, 2012, $54.7 million of securities were transferred into Level 3. This amount was transferred from Level 2. These transfers resulted from securities that were priced by independent pricing services or brokers in previous periods, using no significant unobservable inputs, but were priced internally using significant unobservable inputs where market observable inputs were no longer available as of September 30, 2012. All transfers are recognized as of the end of the period.

For the nine months ended September 30, 2012, $26.8 million of securities were out of Level 3. This amount was transferred into Level 2. These transfers resulted from securities priced by independent pricing services or brokers as of September 30, 2012 that were priced internally using significant unobservable inputs where market observable inputs were not available during previous periods.

For the nine months ended September 30, 2012, there were no transfers from Level 2 to Level 1.

For the nine months ended September 30, 2012, there were no transfers out of Level 1.

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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 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
		September 30, 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	$	4,794,924	$	5,287,854	$	4,950,201	$	5,725,382
Policy loans	3	856,333		856,333		865,391		865,391
Fixed maturities, held-to-maturity (1)	3	350,000		341,797		300,000		319,163

Liabilities:
Stable value product account balances	3	$	2,531,262	$	2,535,865	$	2,510,559	$	2,534,094
Annuity account balances	3	10,431,938		10,074,996		10,658,463		10,525,702

Debt:
Bank borrowings	3	$	350,000	$	350,000	$	50,000	$	50,000
Senior Notes	2	1,100,000		1,292,066		1,350,000		1,584,438
Subordinated debt securities	2	540,593		502,628		540,593		556,524
Non-recourse funding obligations (2)	3	619,900		517,180		586,000		481,056

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, $350 million, fair value of $325.1 million, as of September 30, 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

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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.

Debt

Bank borrowings

The Company believes the carrying value of its bank borrowings approximates fair value as the borrowings pay a floating interest rate plus a spread based on the rating of the Company’s senior debt which the Company believes approximates a market interest rate.

Non-recourse funding obligations

The Company estimates 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.

14. 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.

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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

Accounting for Derivative Instruments

The Company records its derivative financial instruments in the consolidated condensed balance sheet in “other long-term investments” and “other liabilities” in accordance with GAAP, which requires that all derivative instruments be recognized in the balance sheet at fair value. The 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 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 equal to the amounts that are paid on the agreements.

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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. No volatility future positions were held during the three and nine months ended September 30, 2013.

· The Company uses equity options and variance 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 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 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.

Other Derivatives

· The Company uses certain interest rate swaps to mitigate the price volatility of fixed maturities.

· The Company has purchased interest rate caps to mitigate its risk with respect to the Company’s LIBOR exposure and the potential impact of European financial market distress.

· The Company uses various swaps and other types of derivatives to manage risk related to other exposures.

· The Company recorded an embedded derivative associated with the FIA product as of September 30, 2013. The Company did not market this product during the three and nine months ended September 30, 2012.

· 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.

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

Realized investment gains (losses) - derivative financial instruments

	For The						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
Derivatives related to variable annuity and FIA contracts:
Interest rate futures - VA	$	(2,255	)	$	(3,371	)	$	(26,393	)	$	32,419
Equity futures - VA	(12,568		)	(17,324		)	(39,829		)	(42,643		)
Currency futures - VA	(6,531		)	(3,078		)	1,440			(2,298		)
Volatility futures - VA	—			—			—			(132		)
Variance swaps - VA	(1,347		)	(5,840		)	(9,566		)	(6,660		)
Equity options - VA	(29,094		)	(9,184		)	(65,631		)	(29,903		)
Interest rate swaptions - VA	1,725			(3,019		)	(738		)	2,293
Interest rate swaps - VA	(19,224		)	6,361			(125,502		)	10,187
Embedded derivative - GMWB	80,541			2,921			264,231			(32,369		)
Total derivatives related to variable annuity contracts	11,247			(32,534		)	(1,988		)	(69,106		)
Embedded derivative - Modco reinsurance treaties	30,074			(101,999		)	191,847			(139,972		)
Embedded derivative - FIA	(104		)	—			(145		)	—
Interest rate swaps	72			199			2,984			(680		)
Interest rate caps	—			(143		)	—			(2,658		)
Other derivatives	37			255			(106		)	17
Total realized gains (losses) - derivatives	$	41,326		$	(134,222	)	$	192,592		$	(212,399	)

Realized investment gains (losses) - all other investments

	For The					For The
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2013			2012		2013			2012
	(Dollars In Thousands)
Modco trading portfolio (1)	$	(25,960	)	$	104,865	$	(167,982	)	$	179,027

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

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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 September 30, 2013
Inflation	$	22		$	(572	)	$	(62	)
Total	$	22		$	(572	)	$	(62	)

For The Nine Months Ended September 30, 2013
Inflation	$	(157	)	$	(1,649	)	$	(253	)
Total	$	(157	)	$	(1,649	)	$	(253	)

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 September 30, 2012
Interest rate	$	(1	)	$	(549	)	$	—
Inflation	2,938			(552		)	221
Total	$	2,937		$	(1,101	)	$	221

For The Nine Months Ended September 30, 2012
Interest rate	$	(77	)	$	(2,261	)	$	—
Inflation	4,146			(485		)	(2		)
Total	$	4,069		$	(2,746	)	$	(2	)

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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 condensed financial statements for the periods presented below:

	As of September 30, 2013				As of December 31, 2012
	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
	(Dollars In Thousands)
Other long-term investments
Cash flow hedges:
Inflation	$	—	$	—	$	—	$	—
Derivatives not designated as hedging instruments:
Interest rate swaps	200,000		2,035		355,000		6,532
Variance swaps	—		—		500		406
Embedded derivative - Modco reinsurance treaties	45,314		802		30,244		1,330
Embedded derivative - GMWB	5,200,449		152,761		1,640,075		30,261
Interest rate futures	111,534		1,106		—		—
Equity futures	47,994		937		147,581		595
Currency futures	—		—		15,944		784
Interest rate caps	—		—		3,000,000		—
Equity options	1,467,720		80,754		573,493		61,833
Interest rate swaptions	625,000		27,978		400,000		11,370
Other	262		357		224		253
	$	7,698,273	$	266,730	$	6,163,061	$	113,364
Other liabilities
Cash flow hedges:
Inflation	$	182,965	$	3,806	$	182,965	$	5,027
Derivatives not designated as hedging instruments:
Interest rate swaps	1,500,000		132,592		400,000		10,025
Variance swaps	—		—		2,675		12,198
Embedded derivative - Modco reinsurance treaties	2,598,832		219,532		2,655,134		411,907
Embedded derivative - GMWB	3,117,089		57,799		5,253,961		199,530
Embedded derivative - FIA	104,951		9,199		—		—
Interest rate futures	175,681		531		893,476		13,970
Equity futures	94,457		1,484		152,364		3,316
Currency futures	126,389		3,350		131,979		1,901
Equity options	144,408		5,939		—		—
Other - FIA volatility futures	35		—		—		—
	$	8,044,807	$	434,232	$	9,672,554	$	657,874

Based on the expected cash flows of the underlying hedged items, the Company expects to reclassify $2.3 million out of accumulated other comprehensive income (loss) into earnings during the next twelve months.

From time to time, the Company is required to post and obligated to return collateral related to derivative transactions. As of September 30, 2013, the Company had posted cash and securities (at fair value) as collateral of approximately $81.0 million and $52.2 million, respectively. As of September 30, 2013, the Company received $6.0 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.

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15. 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 as of September 30, 2013:

					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	$	112,810	$	—	$	112,810	$	44,189	$	6,000	$	62,621
Embedded derivative - Modco reinsurance treaties	802		—		802		—		—		802
Embedded derivative - GMWB	152,761		—		152,761		—		—		152,761
Total derivatives, subject to a master netting arrangement or similar arrangement	266,373		—		266,373		44,189		6,000		216,184
Total derivatives, not subject to a master netting arrangement or similar arrangement	357		—		357		—		—		357
Total derivatives	266,730		—		266,730		44,189		6,000		216,541
Total Assets	$	266,730	$	—	$	266,730	$	44,189	$	6,000	$	216,541

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					Net Amounts
			Gross		of Liabilities		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	$	147,702	$	—	$	147,702	$	44,189	$	72,813	$	30,700
Embedded derivative - Modco reinsurance treaties	219,532		—		219,532		—		—		219,532
Embedded derivative - GMWB	57,799				57,799		—		—		57,799
Embedded derivative - FIA	9,199		—		9,199		—		—		9,199
Total derivatives, subject to a master netting arrangement or similar arrangement	434,232		—		434,232		44,189		72,813		317,230
Total derivatives, not subject to a master netting arrangement or similar arrangement	—		—		—		—		—		—
Total derivatives	434,232		—		434,232		44,189		72,813		317,230
Repurchase agreements (1)	100,000		—		100,000		—		—		100,000
Total Liabilities	$	534,232	$	—	$	534,232	$	44,189	$	72,813	$	417,230

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

The tables below present the derivative instruments by assets and liabilities for the Company as of December 31, 2012:

					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	$	81,520	$	—	$	81,520	$	21,565	$	11,280	$	48,675
Embedded derivative - Modco reinsurance treaties	1,330		—		1,330		—		—		1,330
Embedded derivative - GMWB	30,261		—		30,261		—		—		30,261
Total derivatives, subject to a master netting arrangement or similar arrangement	113,111		—		113,111		21,565		11,280		80,266
Total derivatives, not subject to a master netting arrangement or similar arrangement	253		—		253		—		—		253
Total derivatives	113,364		—		113,364		21,565		11,280		80,519
Total Assets	$	113,364	$	—	$	113,364	$	21,565	$	11,280	$	80,519

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					Net Amounts
			Gross		of Liabilities		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	$	46,437	$	—	$	46,437	$	21,565	$	20,373	$	4,499
Embedded derivative - Modco reinsurance treaties	411,907		—		411,907		—		—		411,907
Embedded derivative - GMWB	199,530				199,530		—		—		199,530
Embedded derivative - FIA	—		—		—		—		—		—
Total derivatives, subject to a master netting arrangement or similar arrangement	657,874		—		657,874		21,565		20,373		615,936
Total derivatives, not subject to a master netting arrangement or similar arrangement	—		—		—		—		—		—
Total derivatives	657,874		—		657,874		21,565		20,373		615,936
Repurchase agreements (1)	150,000		—		150,000		—		—		150,000
Total Liabilities	$	807,874	$	—	$	807,874	$	21,565	$	20,373	$	765,936

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

16. 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 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.

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· The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles, watercraft, and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

· The Corporate and Other segment primarily consists of net investment income not assigned to the segments above (including the impact of carrying liquidity), expenses not attributable to the segments above (including interest on certain corporate debt). 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 available to PLC’s common shareowners and assets. Segment operating income (loss) is income before income tax, excluding realized gains and losses on investments and derivatives net of the amortization related to deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), and benefits and settlement expenses. Operating earnings exclude changes in the GMWB embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and 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 or nine months ended September 30, 2013 and 2012.

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

	For The						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
Revenues
Life Marketing	$	377,416		$	341,035		$	1,092,063		$	1,023,668
Acquisitions	240,067			251,550			752,247			812,355
Annuities	196,305			141,015			547,259			462,031
Stable Value Products	25,208			26,933			91,596			95,949
Asset Protection	71,495			72,492			210,879			216,163
Corporate and Other	42,203			59,766			147,820			142,981
Total revenues	$	952,694		$	892,791		$	2,841,864		$	2,753,147
Segment Operating Income (Loss)
Life Marketing	$	29,218		$	28,673		$	77,598		$	89,390
Acquisitions	29,429			46,155			93,241			128,869
Annuities	50,866			9,408			130,646			73,744
Stable Value Products	19,206			13,050			59,514			41,654
Asset Protection	6,827			4,150			20,292			15,595
Corporate and Other	(14,251		)	(6,614		)	(35,066		)	(4,131		)
Total segment operating income	121,295			94,822			346,225			345,121
Realized investment (losses) gains - investments (1)	(36,282		)	120,745			(165,349		)	191,294
Realized investment (losses) gains - derivatives	57,108			(124,581		)	235,885			(187,163		)
Income tax expense	(49,060		)	(30,506		)	(142,210		)	(113,596		)
Net income available to PLC’s common shareowners	$	93,061		$	60,480		$	274,551		$	235,656

Investment gains (losses) (2)	$	(28,189	)	$	113,999		$	(150,896	)	$	182,946
Less: amortization related to DAC/VOBA and benefits and settlement expenses	8,093			(6,746		)	14,453			(8,348		)
Realized investment gains (losses) - investments	$	(36,282	)	$	120,745		$	(165,349	)	$	191,294

Derivative gains (losses) (3)	$	41,326		$	(134,222	)	$	192,592		$	(212,399	)
Less: VA GMWB economic cost	(15,782		)	(9,641		)	(43,293		)	(25,236		)
Realized investment gains (losses) - derivatives	$	57,108		$	(124,581	)	$	235,885		$	(187,163	)

(1) Includes credit related other-than-temporary impairments of $8.7 million and $17.3 million for the three and nine months ended September 30, 2013, respectively, as compared to $8.5 million and $40.9 million for the three and nine months ended September 30, 2012, respectively.

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

(3) Includes realized gains (losses) on derivatives before the VA GMWB economic cost.

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	Operating Segment Assets
	As of September 30, 2013
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,913,198	$	11,196,503	$	19,331,934	$	2,530,150
Deferred policy acquisition costs and value of business acquired	2,030,605		597,284		623,634		1,112
Goodwill	10,192		33,292		—		—
Total assets	$	14,953,995	$	11,827,079	$	19,955,568	$	2,531,262

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	842,165	$	8,215,533	$	17,278	$	55,046,761
Deferred policy acquisition costs and value of business acquired	54,171		707		—		3,307,513
Goodwill	62,670		83		—		106,237
Total assets	$	959,006	$	8,216,323	$	17,278	$	58,460,511

	Operating Segment Assets
	As of December 31, 2012
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,171,405	$	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	10,192		35,615		—		—
Total assets	$	14,183,305	$	12,027,911	$	18,140,672	$	2,510,559

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	789,916	$	9,584,411	$	19,662	$	54,036,592
Deferred policy acquisition costs and value of business acquired	64,416		1,066		—		3,239,519
Goodwill	62,671		83		—		108,561
Total assets	$	917,003	$	9,585,560	$	19,662	$	57,384,672

17. SUBSEQUENT EVENTS

The Company has evaluated the effects of events subsequent to September 30, 2013, and through the date we filed our consolidated condensed financial statements with the United States Securities and Exchange Commission. All accounting and disclosure requirements related to subsequent events are included in our consolidated condensed financial statements.

On October 1, 2013, PLICO completed the acquisition contemplated by the master agreement (the “Master Agreement”) previously reported in our Current Report on Form 8-K dated April 11, 2013. Pursuant to that Master Agreement with AXA Financial, Inc. (“AXA”) and AXA Equitable Financial Services, LLC (“AEFS”), PLICO acquired the stock of MONY Life Insurance Company (“MONY”) from AEFS and entered into a reinsurance agreement pursuant to which it is reinsuring 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 was $686 million, and will be subject to a customary post-closing adjustment. The ceding commission for the reinsurance of the MLOA Business was $370 million.

At the closing of the transaction, PLICO entered into an administrative services agreement with MLOA, which governs the ongoing administration of the MLOA Business by PLICO, and a transaction services agreement with AXA Equitable Life Insurance Company (“AXA Equitable”), pursuant to which AXA Equitable and its affiliates will make available to PLICO and its affiliates, for a limited period of time, certain services required for the operation of the business following the closing.

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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 shareowners’ equity.

FORWARD-LOOKING STATEMENTS — CAUTIONARY LANGUAGE

This report reviews our financial condition and results of operations including our liquidity and capital resources. Historical information is presented and discussed, and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate, or imply future results, performance, or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and we cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. For more information about the risks, uncertainties, and other factors that could affect our future results, please 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 holding company headquartered in Birmingham, Alabama, with subsidiaries that provide financial services through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company (“PLICO”) is our largest operating subsidiary. Unless the context otherwise requires, the “Company,” “we,” “us,” or “our” refers to the consolidated group of Protective Life Corporation 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 primarily through networks of independent insurance agents and brokers, stockbrokers, and independent marketing organizations.

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· Acquisitions - We focus on acquiring, converting, and servicing policies 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 (“VA”) 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 United States Securities and Exchange Commission (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, watercraft, and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

· 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 (including interest on certain corporate debt). 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.

EXECUTIVE SUMMARY

Net income available to PLC’s common shareowners for the nine months ended September 30, 2013 was $274.6 million or $3.39 per average diluted share. After-tax operating income was $228.7 or $2.82 per average diluted share.

We have reported strong financial results during the first nine months of 2013. Notwithstanding the headwinds created by the low interest rate environment, an unsettled regulatory environment and intense competition across all retail product lines, we have continued to stay on track to meet our sales, capital and earnings goals.

Also, on October 1, 2013, we closed the acquisition of MONY Life Insurance Company and entered into a reinsurance agreement to reinsure certain business from MONY Life Insurance Company of America. We expect these transactions to positively impact our future results.

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

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, could adversely affect our operations and results;

· a disruption affecting the electronic systems of the Company or those on whom the Company relies could adversely affect our business, financial condition and results of operations;

· confidential information maintained in our systems could be compromised or misappropriated, damaging our business and reputation and adversely affecting 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 recent acquisition;

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· we are dependent on the performance of others;

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

· our strategies for mitigating risks arising from our day-to-day operations may prove ineffective resulting in a material adverse effect on our results of operations and financial condition;

Financial environment

· interest rate fluctuations 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;

· we operate as a holding company and depend on the ability of our subsidiaries to transfer funds to us to meet our obligations and pay dividends;

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;

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Competition

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

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

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

For more information about the risks, uncertainties, and other factors that could affect our future results, please see Part 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 available to PLC’s common shareowners and assets. Segment operating income (loss) is income before income tax, excluding realized gains and losses on investments and derivatives net of the amortization related to deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), and benefits and settlement expenses. 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 VA product, actual GMWB incurred claims and 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. During the three month period ended September 30, 2013, we began allocating realized gains and losses to certain of our segments to better reflect the economics of the investments supporting those segments. This change had no impact to segment operating income. 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 available to PLC’s common shareowners. 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, benefit utilization, 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 available to PLC’s common shareowners:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
Segment Operating Income (Loss)
Life Marketing	$	29,218		$	28,673		1.9	%	$	77,598		$	89,390		(13.2	)%
Acquisitions	29,429			46,155			(36.2	)	93,241			128,869			(27.6	)
Annuities	50,866			9,408			n/m		130,646			73,744			77.2
Stable Value Products	19,206			13,050			47.2		59,514			41,654			42.9
Asset Protection	6,827			4,150			64.5		20,292			15,595			30.1
Corporate and Other	(14,251		)	(6,614		)	n/m		(35,066		)	(4,131		)	n/m
Total segment operating income	121,295			94,822			27.9		346,225			345,121			0.3
Realized investment gains (losses) - investments (1)	(36,282		)	120,745					(165,349		)	191,294
Realized investment gains (losses) - derivatives	57,108			(124,581		)			235,885			(187,163		)
Income tax expense	(49,060		)	(30,506		)			(142,210		)	(113,596		)
Net income available to PLC’s common shareowners	$	93,061		$	60,480		53.9		$	274,551		$	235,656		16.5

Investment gains (losses) (2)	$	(28,189	)	$	113,999				$	(150,896	)	$	182,946
Less: amortization related to DAC/VOBA and benefits and settlement expenses	8,093			(6,746		)			14,453			(8,348		)
Realized investment gains (losses) - investments	$	(36,282	)	$	120,745				$	(165,349	)	$	191,294

Derivative gains (losses) (3)	$	41,326		$	(134,222	)			$	192,592		$	(212,399	)
Less: VA GMWB economic cost	(15,782		)	(9,641		)			(43,293		)	(25,236		)
Realized investment gains (losses) - derivatives	$	57,108		$	(124,581	)			$	235,885		$	(187,163	)

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

(3) Includes realized gains (losses) on derivatives before the VA GMWB economic cost.

For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Net income available to PLC’s common shareowners for the three months ended September 30, 2013, included a $26.5 million, or 27.9%, increase in segment operating income. The increase consisted of a $0.5 million increase in the Life Marketing segment, a $41.5 million increase in the Annuities segment, a $6.2 million increase in the Stable Value Products segment, and a $2.7 million increase in the Asset Protection segment. These increases were partially offset by a $16.7 million decrease in the Acquisitions segment and a $7.6 million decrease in the Corporate and Other segment.

We experienced net realized gains of $13.1 million for the three months ended September 30, 2013, as compared to net realized losses of $20.2 million for the three months ended September 30, 2012. The gains realized for the three months ended September 30, 2013, were primarily related to $10.5 million of gains related to investment securities sale activity, $4.1 million of gains related to the net activity of the modified coinsurance portfolio, $11.2 million of gains on derivatives related to variable annuity contracts, and a $0.1 million gain on interest rate caps and swaps. Partially offsetting these gains were $8.7 million of other-than-temporary impairment credit-related losses and $4.2 million of losses related to other investment and derivative activity.

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· Life Marketing segment operating income was $29.2 million for the three months ended September 30, 2013, representing an increase of $0.5 million, or 1.9%, from the three months ended September 30, 2012. The increase was primarily due to favorable prospective unlocking, higher investment income due to growth and higher other income due to the segment’s non-insurance operation. The segment recorded a favorable $2.4 million of prospective unlocking for the three months ended September 30, 2013, as compared to an unfavorable $5.5 million for the three months ended September 30, 2012. These items were partially offset by less favorable traditional and universal life mortality and an increase in non-deferred expenses resulting from slightly higher sales.

· Acquisitions segment operating income was $29.4 million for the three months ended September 30, 2013, a decrease of $16.7 million, or 36.2%, as compared to the three months ended September 30, 2012. This variance is largely attributable to unfavorable prospective unlocking of $4.2 million during the third quarter of 2013, compared to favorable prospective unlocking of $4.5 million in 2012. The remainder of the variance was caused primarily by less favorable mortality, lower spread income and the expected runoff of business.

· Annuities segment operating income was $50.9 million for the three months ended September 30, 2013, as compared to $9.4 million for the three months ended September 30, 2012, an increase of $41.5 million. This variance included a favorable change of $29.6 million in unlocking and higher net policy fees and other income of $15.6 million in the VA line associated with the growth in account balances. The segment recorded a favorable $4.9 million of unlocking for the three months ended September 30, 2013, as compared to unfavorable unlocking of $24.7 million for the three months ended September 30, 2012. This was offset by an unfavorable change in net investment income resulting from a decrease in fixed annuity account balances.

· Stable Value Products segment operating income was $19.2 million and increased $6.2 million, or 47.2%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase in operating earnings resulted from an increase in participating mortgage income and higher operating spreads offset by a decline in average account values. Participating mortgage income for the three months ended September 30, 2013 was $2.4 million compared to $0.1 million for the three months ended September 30, 2012. The adjusted operating spread, which excludes participating income, increased by 69 basis points for the three months ended September 30, 2013 over the prior year, due primarily to a decline in credited interest.

· Asset Protection segment operating income was $6.8 million, representing an increase of $2.7 million, or 64.5%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Credit insurance earnings increased $1.6 million, primarily resulting from lower losses. Service contract earnings increased $1.0 million, primarily due to higher volume and lower general and administrative expenses. Earnings from the GAP product was consistent with the prior year.

· Corporate and Other segment operating loss was $14.3 million for the three months ended September 30, 2013, as compared to an operating loss of $6.6 million for the three months ended September 30, 2012. The decrease resulted from a decline of $7.5 million in core net investment income partially offset by favorable operating expenses as compared to the three months ended September 30, 2012. The decrease in core net investment income was primarily driven by a $4.9 million unfavorable variance related to income on called securities. The decrease in other operating expenses was primarily related to a $4.0 million deferred issue cost write-off recorded during the third quarter of 2012.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Net income available to PLC’s common shareowners for the nine months ended September 30, 2013, included a $1.1 million, or 0.3%, increase in segment operating income. The increase consisted of a $56.9 million increase in the Annuities segment, a $17.9 million increase in the Stable Value Products segment, and a $4.7 million increase in the Asset Protection segment. These increases were partially offset by an $11.8 million decrease in the Life Marketing segment, a $35.6 million decrease in the Acquisitions segment, and a $30.9 million decrease in the Corporate and Other segment.

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We experienced net realized gains of $41.7 million for the nine months ended September 30, 2013, as compared to net realized losses of $29.5 million for the nine months ended September 30, 2012. The gains realized for the nine months ended September 30, 2013, were primarily related to $44.4 million of gains related to investment securities sale activity, $23.9 million of gains related to the net activity of the modified coinsurance portfolio, and a $3.0 million gain on interest rate caps and swaps. Partially offsetting these gains were $17.3 million for other-than-temporary impairment credit-related losses, net losses of $2.0 million on derivatives related to variable annuity contracts, and $10.3 million of losses related to other investment and derivative activity.

· Life Marketing segment operating income was $77.6 million for the nine months ended September 30, 2013, representing a decrease of $11.8 million, or 13.2%, from the nine months ended September 30, 2012. The decrease was primarily due to less favorable traditional and universal life mortality, a $4.2 million reinsurance accrual established in the second quarter of 2013, and an increase in non-deferred expenses resulting from higher sales. This decrease was partially offset by higher investment income due to an increase in reserves and favorable prospective unlocking. The segment recorded a favorable $2.4 million of prospective unlocking for the nine months ended September 30, 2013, as compared to an unfavorable $5.5 million for the nine months ended September 30, 2012.

· Acquisitions segment operating income was $93.2 million for the nine months ended September 30, 2013, a decrease of $35.6 million, or 27.6%, as compared to the nine months ended September 30, 2012. This variance is primarily attributable to an unfavorable mortality variance, unfavorable change in prospective unlocking, lower spread income, and the expected runoff of business.

· Annuities segment operating income was $130.6 million for the nine months ended September 30, 2013, as compared to $73.7 million for the nine months ended September 30, 2012, an increase of $56.9 million, or 77.2%. This variance included a favorable change of $35.4 million in unlocking and $42.0 million of higher net policy fees and other income in the VA line associated with the growth in account balances. This was offset by an unfavorable change in net investment income resulting from a decrease in fixed annuity account balances.

· Stable Value Products segment operating income was $59.5 million and increased $17.9 million, or 42.9%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase in operating earnings resulted from an increase in participating mortgage income and higher operating spreads offset by a decline in average account values. Participating mortgage income for the nine months ended September 30, 2013 was $9.5 million compared to $2.6 million for the nine months ended September 30, 2012. The adjusted operating spread, which excludes participating income, increased by 71 basis points for the nine months ended September 30, 2013 over the prior year, due primarily to a decline in credited interest.

· Asset Protection segment operating income was $20.3 million, representing an increase of $4.7 million, or 30.1%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. Credit insurance earnings increased $3.9 million primarily due to $2.6 million in litigation costs incurred in 2012 and lower losses and expenses in 2013. Service contract earnings increased $0.6 million primarily due to higher volume and lower general and administrative expenses. Earnings from the GAP product line increased $0.2 million primarily resulting from lower expenses somewhat offset by higher losses.

· Corporate and Other segment operating loss was $35.1 million for the nine months ended September 30, 2013, as compared to an operating loss of $4.1 million for the nine months ended September 30, 2012. The decrease was the result of a $32.1 million unfavorable variance related to gains on the repurchase of non-recourse funding obligations. For the nine months ended September 30, 2013, $3.4 million of pre-tax gains were generated from the repurchase on non-recourse funding obligations as compared to $35.5 million of pre-tax gains for the nine months ended September 30, 2012. In addition, the decrease was driven by higher operating expenses which were partially offset by an $11.2 million deferred issue cost write-off recorded during the nine months ended September 30, 2012.

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Life Marketing

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	356,809		$	379,207		(5.9	)%	$	1,217,852		$	1,164,969		4.5	%
Reinsurance ceded	(145,075		)	(190,099		)	23.7		(607,917		)	(592,657		)	(2.6	)
Net premiums and policy fees	211,734			189,108			12.0		609,935			572,312			6.6
Net investment income	129,935			123,647			5.1		387,237			363,956			6.4
Other income	32,144			28,280			13.7		91,288			87,400			4.4
Total operating revenues	373,813			341,035			9.6		1,088,460			1,023,668			6.3
Realized gains (losses) - investments	3,603			—					3,603			—
Total revenues	377,416			341,035					1,092,063			1,023,668
BENEFITS AND EXPENSES
Benefits and settlement expenses	330,156			305,281			8.1		866,995			811,369			6.9
Amortization of deferred policy acquisition costs	(24,284		)	(26,464		)	8.2		16,804			15,584			7.8
Other operating expenses	38,723			33,545			15.4		127,063			107,325			18.4
Operating benefits and expenses	344,595			312,362					1,010,862			934,278
Amortization related to benefits and settlement expenses	483			—					483			—
Amortization of DAC related to realized gains (losses) - investments	819			—					819			—
Total benefits and expenses	345,897			312,362			10.7		1,012,164			934,278			8.3
INCOME BEFORE INCOME TAX	31,519			28,673			9.9		79,899			89,390			(10.6	)
Less: realized gains (losses)	3,603			—					3,603			—
Less: amortization related to benefits and settlement expenses	(483		)	—					(483		)	—
Less: related amortization of DAC	(819		)	—					(819		)	—
OPERATING INCOME	$	29,218		$	28,673		1.9		$	77,598		$	89,390		(13.2	)

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

	For The						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013		2012		Change		2013		2012		Change
	(Dollars In Thousands)						(Dollars In Thousands)
Sales By Product
Traditional	$	390	$	326	19.6	%	$	1,091	$	920	18.6	%
Universal life	32,261		30,779		4.8		123,437		75,883		62.7
BOLI	—		33		n/m		—		2,754		n/m
	$	32,651	$	31,138	4.9		$	124,528	$	79,557	56.5
Sales By Distribution Channel
Independent agents	$	23,395	$	18,373	27.3		$	86,040	$	47,131	82.6
Stockbrokers / banks	8,608		12,315		(30.1	)	36,831		28,482		29.3
BOLI / other	648		450		44.0		1,657		3,944		(58.0	)
	$	32,651	$	31,138	4.9		$	124,528	$	79,557	56.5
Average Life Insurance In-force (1)
Traditional	$	423,831,748	$	449,416,242	(5.7	)	$	430,538,542	$	455,635,914	(5.5	)
Universal life	109,933,560		79,452,404		38.4		100,813,147		76,678,629		31.5
	$	533,765,308	$	528,868,646	0.9		$	531,351,689	$	532,314,543	(0.2	)
Average Account Values
Universal life	$	7,003,612	$	6,466,699	8.3		$	6,865,081	$	6,398,672	7.3
Variable universal life	468,595		388,002		20.8		440,238		379,947		15.9
	$	7,472,207	$	6,854,701	9.0		$	7,305,319	$	6,778,619	7.8

(1) Amounts are not adjusted for reinsurance ceded.

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Operating expenses detail

Other operating expenses for the segment were as follows:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
Insurance companies:
First year commissions	$	39,168		$	32,834		19.3	%	$	135,332		$	80,049		69.1	%
Renewal commissions	8,238			8,128			1.4		25,426			25,783			(1.4	)
First year ceding allowances	(939		)	(1,084		)	13.4		(3,035		)	(3,107		)	2.3
Renewal ceding allowances	(40,322		)	(39,102		)	(3.1	)	(120,393		)	(117,474		)	(2.5	)
General & administrative	41,005			33,606			22.0		130,001			104,265			24.7
Taxes, licenses, and fees	8,153			8,536			(4.5	)	28,666			25,626			11.9
Other operating expenses incurred	55,303			42,918			28.9		195,997			115,142			70.2
Less: commissions, allowances & expenses capitalized	(46,636		)	(36,447		)	28.0		(156,364		)	(90,834		)	72.1
Other insurance company operating expenses	8,667			6,471			33.9		39,633			24,308			63.0
Marketing companies:
Commissions	22,298			19,425			14.8		64,610			60,197			7.3
Other operating expenses	7,758			7,649			1.4		22,820			22,820			—
Other marketing company operating expenses	30,056			27,074			11.0		87,430			83,017			5.3
Other operating expenses	$	38,723		$	33,545		15.4		$	127,063		$	107,325		18.4

For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Segment operating income

Operating income was $29.2 million for the three months ended September 30, 2013, representing an increase of $0.5 million, or 1.9%, from the three months ended September 30, 2012. The increase was primarily due to favorable prospective unlocking, higher investment income due to growth and higher other income due to the segment’s non-insurance operation. The segment recorded a favorable $2.4 million of prospective unlocking for the three months ended September 30, 2013, as compared to an unfavorable $5.5 million for the three months ended September 30, 2012. These items were partially offset by less favorable traditional and universal life mortality and an increase in non-deferred expenses resulting from slightly higher sales.

Operating revenues

Total operating revenues for the three months ended September 30, 2013, increased $32.8 million, or 9.6%, as compared to the three months ended September 30, 2012. This increase was driven by higher net premiums and policy fees due to lower reinsurance ceded resulting from non-recurring activity on a block of term business reaching the end of its post level premium period, investment income due to increases in net in force reserves, and other income due to higher revenue in the segment’s non-insurance operations.

Net premiums and policy fees

Net premiums and policy fees increased by $22.6 million, or 12.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to an increase in premiums and policy fees associated with decreases in the ceded reinsurance on traditional life premiums resulting from non-recurring activity on a block of term business reaching the end of its post level premium period, partially offset by increased sales in universal life business.

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Net investment income

Net investment income in the segment increased $6.3 million, or 5.1%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Of the increase in net investment income, $4.3 million was attributable to a net increase in universal life reserves. Additionally, traditional life investment income increased $1.7 million.

Other income

Other income increased $3.9 million, or 13.7%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to higher revenue in the segment’s non-insurance operations and favorable fluctuations in variable universal life marketing allowances.

Benefits and settlement expenses

Benefits and settlement expenses increased by $24.9 million, or 8.1%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to growth in retained universal life insurance in-force, an increase in reserves resulting from new sales, higher credited interest on universal life products resulting from increases in account values, and less favorable mortality in the traditional and universal life blocks. In the third quarter of 2013, UL and BOLI unlocking increased policy benefits and settlement expenses $41.2 million as compared to an increase of $54.4 million in the third quarter of 2012. Unlocking in 2013 was largely driven by assumption changes to reinsurance, lapses, yield, and credited interest. Lapses, yield, and credited interest mainly contributed to the unlocking in 2012.

Amortization of DAC

DAC amortization increased $2.2 million, or 8.2%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to less favorable unlocking and the impact of fluctuations in reinsurance premiums, which were offset in the associated reserves within benefits and settlement expenses. In the third quarter of 2012, UL and BOLI unlocking decreased amortization by $49.5 million, largely driven by assumption changes to lapses, yield, and credited interest on fund value. In the third quarter of 2013, UL and BOLI unlocking decreased amortization $40.3 million, which is offset by the $41.2 million increase in policy benefits and settlement expenses.

Other operating expenses

Other operating expenses increased $5.2 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. This increase reflects higher new business acquisition costs associated with slightly higher sales, higher marketing company expenses of $3.0 million, higher general administrative expenses, and a $0.7 million increase in interest expense associated with reserve financing costs.

Sales

Sales for the segment increased $1.5 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to more competitive product positioning.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Segment operating income

Operating income was $77.6 million for the nine months ended September 30, 2013, representing a decrease of $11.8 million, or 13.2%, from the nine months ended September 30, 2012. The decrease was primarily due to less favorable traditional and universal life mortality, a $4.2 million reinsurance accrual established in the second quarter of 2013, and an increase in non-deferred expenses resulting from higher sales. This decrease was partially offset by higher investment income due to an increase in reserves and favorable prospective unlocking. The segment recorded a

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favorable $2.4 million of prospective unlocking for the nine months ended September 30, 2013, as compared to an unfavorable $5.5 million for the nine months ended September 30, 2012.

Operating revenues

Total operating revenues for the nine months ended September 30, 2013, increased $64.8 million, or 6.3%, as compared to the nine months ended September 30, 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 $37.6 million, or 6.6%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, due to an increase in premiums and policy fees associated with increased sales of universal life business, partially offset by decreases in traditional life premiums.

Net investment income

Net investment income in the segment increased $23.3 million, or 6.4%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. Of the increase in net investment income, $15.0 million was the result of a net increase in universal life reserves. Additionally, traditional life investment income increased $7.4 million.

Other income

Other income increased $3.9 million, or 4.4%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to higher revenue in the segment’s non-insurance operations, slightly offset by unfavorable fluctuations in variable universal life marketing allowances.

Benefits and settlement expenses

Benefits and settlement expenses increased by $55.6 million, or 6.9%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, due to growth in retained universal life insurance in-force, higher credited interest on universal life products, and less favorable mortality in the traditional and universal life block. For the nine months ended September 30, 2013, UL and BOLI unlocking increased policy benefits and settlement expenses $42.8 million as compared to an increase of $74.0 million for the nine months ended September 30, 2012. Unlocking in 2013 was largely driven by assumption changes to reinsurance, lapses, yield, and credited interest. Lapses, yield, and credited interest mainly contributed to the unlocking in 2012.

Amortization of DAC

DAC amortization increased $1.2 million, or 7.8%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to differing impacts of unlocking. In 2013, UL and BOLI unlocking decreased amortization $42.6 million, as compared to a decrease of $46.6 million in 2012.

Other operating expenses

Other operating expenses increased $19.7 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. This increase reflects higher new business acquisition costs associated with higher sales, higher marketing company expenses of $4.4 million, higher general administrative expenses, and a $3.5 million increase in interest expense associated with reserve financing costs.

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Sales

Sales for the segment increased $45.0 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. UL sales increased $47.6 million due to more competitive product positioning. BOLI sales decreased by $2.8 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 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 Life Marketing segment line items as shown in the following table:

Life Marketing Segment

Line Item Impact of Reinsurance

	For The						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(145,075	)	$	(190,099	)	$	(607,917	)	$	(592,657	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(121,278		)	(186,086		)	(596,141		)	(593,679		)
Amortization of deferred policy acquisition costs	(9,279		)	1,886			(33,717		)	(26,130		)
Other operating expenses (1)	(35,227		)	(33,191		)	(101,592		)	(98,754		)
Total benefits and expenses	(165,784		)	(217,391		)	(731,450		)	(718,563		)

NET IMPACT OF REINSURANCE (2)	$	20,709		$	27,292		$	123,533		$	125,906

Allowances received	$	(41,261	)	$	(40,186	)	$	(120,427	)	$	(120,580	)
Less: Amount deferred	6,034			6,995			18,835			21,826
Allowances recognized (ceded other operating expenses) (1)	$	(35,227	)	$	(33,191	)	$	(101,592	)	$	(98,754	)

(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, unlocking of balances, and variations from term business during the post-level premium period.

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For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

The lower ceded premiums for 2013 as compared to 2012 were caused primarily by lower ceded traditional life premiums of $51.7 million slightly offset by higher universal life premiums and policy fees of $7.1 million. Ceded traditional premiums for the three months ended September 30, 2013, decreased from the three months ended September 30, 2012, as a large number of policies reached their post level premium period in the second quarter of 2013 and subsequently lapsed in the third quarter of 2013. This was offset by increases in ceded premium reserves included in the benefits and settlement expenses line.

Ceded benefits and settlement expenses were lower for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to decreases in ceded reserves partially offset by higher ceded claims. Traditional ceded benefits decreased $39.1 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to an decrease in ceded reserves largely due to a large number of policies that reached their post level period in the second quarter of 2013 and subsequently lapsed in the third quarter of 2013, slightly offset by an increase in ceded death benefits. Universal life ceded benefits decreased $25.6 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to lower ceded claims and a decrease in ceded reserves. Ceded universal life claims were $4.7 million lower for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

Ceded amortization of deferred policy acquisitions costs increased for the three months ended September 30, 2013, as compared to the three months ended September 30, 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 life block, reflecting runoff of business and increased in the universal life block reflecting the allowance pattern on older business and changes in the mix of business.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

The higher ceded premiums for 2013 as compared to 2012 were caused primarily by higher universal life premiums and policy fees of $31.9 million, partially offset by lower traditional life premiums of $15.4 million.

Ceded benefits and settlement expenses were higher for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, due to higher ceded claims, largely offset by decreases in ceded reserves. Traditional ceded benefits decreased $7.2 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, due to a decrease in ceded reserves, partially offset by an increase in ceded death benefits. Universal life ceded benefits increased $9.2 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, due to an increase in ceded reserves primarily due to new business and higher ceded claims, partially offset by a decrease in ceded reserves. Ceded universal life claims were $19.6 million higher for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.

Ceded amortization of deferred policy acquisitions costs increased for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 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 increased 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								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	194,379		$	207,305		(6.2	)%	$	611,299		$	635,135		(3.8	)%
Reinsurance ceded	(92,970		)	(99,496		)	6.6		(292,229		)	(282,441		)	(3.5	)
Net premiums and policy fees	101,409			107,809			(5.9	)	319,070			352,694			(9.5	)
Net investment income	133,695			136,466			(2.0	)	403,050			413,279			(2.5	)
Other income	1,004			1,397			(28.1	)	3,033			5,216			(41.9	)
Total operating revenues	236,108			245,672			(3.9	)	725,153			771,189			(6.0	)
Realized gains (losses) - investments	(24,992		)	107,500					(163,726		)	180,150
Realized gains (losses) - derivatives	28,951			(101,622		)			190,820			(138,984		)
Total revenues	240,067			251,550					752,247			812,355
BENEFITS AND EXPENSES
Benefits and settlement expenses	173,423			169,441			2.4		530,773			544,102			(2.4	)
Amortization of value of business acquired	18,030			17,707			1.8		54,904			58,614			(6.3	)
Other operating expenses	15,226			12,369			23.1		46,235			39,604			16.7
Operating benefits and expenses	206,679			199,517			3.6		631,912			642,320			(1.6	)
Amortization related to benefits and settlement expenses	104			—					104			—
Amortization of VOBA related to realized gains (losses) - investments	398			109					1,514			284
Total benefits and expenses	207,181			199,626			3.8		633,530			642,604			(1.4	)
INCOME BEFORE INCOME TAX	32,886			51,924			(36.7	)	118,717			169,751			(30.1	)
Less: realized gains (losses)	3,959			5,878					27,094			41,166
Less: amortization related to benefits and settlement expenses	(104		)	—					(104		)	—
Less: related amortization of VOBA	(398		)	(109		)			(1,514		)	(284		)
OPERATING INCOME	$	29,429		$	46,155		(36.2	)	$	93,241		$	128,869		(27.6	)

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The following table summarizes key data for the Acquisitions segment:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
Average Life Insurance In-Force (1)
Traditional	$	166,134,343		$	178,243,697		(6.8	)%	$	169,083,110		$	181,097,908		(6.6	)%
Universal life	27,475,762			29,742,721			(7.6	)	28,050,853			30,701,371			(8.6	)
	$	193,610,105		$	207,986,418		(6.9	)	$	197,133,963		$	211,799,279		(6.9	)
Average Account Values
Universal life	$	3,318,872		$	3,394,323		(2.2	)	$	3,338,832		$	3,432,776		(2.7	)
Fixed annuity (2)	3,018,382			3,170,656			(4.8	)	3,048,919			3,207,014			(4.9	)
Variable annuity	577,578			586,294			(1.5	)	576,569			601,130			(4.1	)
	$	6,914,832		$	7,151,273		(3.3	)	$	6,964,320		$	7,240,920		(3.8	)
Interest Spread - UL & Fixed Annuities
Net investment income yield (3)	5.73		%	5.92		%			5.70		%	5.88		%
Interest credited to policyholders	4.02			4.20					3.99			4.18
Interest spread	1.71		%	1.72		%			1.71		%	1.70		%

(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 September 30, 2013 as compared to The Three Months Ended September 30, 2012

Segment operating income

Operating income was $29.4 million for the three months ended September 30, 2013, a decrease of $16.7 million, or 36.2%, as compared to the three months ended September 30, 2012. This variance is largely attributable to unfavorable prospective unlocking of $4.2 million during the third quarter of 2013, compared to favorable prospective unlocking of $4.5 million in 2012. The remainder of the variance was caused primarily by less favorable mortality, lower spread income and the expected runoff of business.

Operating revenues

Net premiums and policy fees decreased $6.4 million, or 5.9%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to the expected runoff of business. Net investment income decreased $2.8 million, or 2.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, due to the expected runoff of business, implementation of a reserve financing, and lower yields.

Total benefits and expenses

Total benefits and expenses increased $7.6 million, or 3.8%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase was due to increases in operating expenses and an increase in prospective unlocking partly offset by the expected runoff of the blocks.

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For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Segment operating income

Operating income was $93.2 million for the nine months ended September 30, 2013, a decrease of $35.6 million, or 27.6%, as compared to the nine months ended September 30, 2012. This variance is primarily attributable to an unfavorable mortality variance, unfavorable change in prospective unlocking, lower spread income, and the expected runoff of business.

Operating revenues

Net premiums and policy fees decreased $33.6 million, or 9.5%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to the impact of a reinsurance recapture on 2012 results, additional reinsurance in 2013, and the expected runoff of business. Net investment income decreased $10.2 million, or 2.5%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, due to the expected runoff of business, implementation of a reserve financing, and lower yields.

Total benefits and expenses

Total benefits and expenses decreased $9.1 million, or 1.4%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The decrease was due to the impact of a reinsurance recapture on 2012 results, additional reinsurance in 2013, and the expected runoff of the in-force business, partially offset by higher mortality, interest and an unfavorable change in the impact of prospective unlocking.

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						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(92,970	)	$	(99,496	)	$	(292,229	)	$	(282,441	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(65,336		)	(88,443		)	(238,789		)	(234,846		)
Amortization of deferred policy acquisition costs	(2,718		)	1,993			(7,307		)	(8,510		)
Other operating expenses	(12,014		)	(13,486		)	(36,460		)	(40,511		)
Total benefits and expenses	(80,068		)	(99,936		)	(282,556		)	(283,867		)

NET IMPACT OF REINSURANCE (1)	$	(12,902	)	$	440		$	(9,673	)	$	1,426

(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 less favorable by $13.3 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to changes in estimates on a block of universal life insurance, lower ceded claims, and implementation of a new reinsurance treaty in 2013.

The net impact of reinsurance is less favorable by $11.1 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to changes in estimates on a block of universal life insurance, lower ceded claims, the implementation of a new reinsurance treaty in 2013, and a recapture in 2012.

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Annuities

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	34,870		$	24,870		40.2	%	$	96,387		$	70,050		37.6	%
Reinsurance ceded	—			(5		)	n/m		—			(25		)	n/m
Net premiums and policy fees	34,870			24,865			40.2		96,387			70,025			37.6
Net investment income	116,699			123,933			(5.8	)	352,045			374,077			(5.9	)
Realized gains (losses) - derivatives	(15,782		)	(9,641		)	(63.7	)	(43,293		)	(25,236		)	(71.6	)
Other income	33,295			22,276			49.5		90,690			59,174			53.3
Total operating revenues	169,082			161,433			4.7		495,829			478,040			3.7
Realized gains (losses) - investments	236			2,475					10,227			27,861
Realized gains (losses) - derivatives, net of economic cost	26,987			(22,893		)			41,203			(43,870		)
Total revenues	196,305			141,015			39.2		547,259			462,031			18.4
BENEFITS AND EXPENSES
Benefits and settlement expenses	80,963			107,253			(24.5	)	243,804			286,107			(14.8	)
Amortization of deferred policy acquisition costs and value of business acquired	11,246			19,022			(40.9	)	37,663			44,077			(14.6	)
Other operating expenses	26,007			25,750			1.0		83,716			74,112			13.0
Operating benefits and expenses	118,216			152,025			(22.2	)	365,183			404,296			(9.7	)
Amortization related to benefits and settlement expenses	(2,276		)	(1,124		)			(3,132		)	(268		)
Amortization of DAC related to realized gains (losses) - investments	8,565			(5,731		)			14,665			(8,364		)
Total benefits and expenses	124,505			145,170			(14.2	)	376,716			395,664			(4.8	)
INCOME (LOSS) BEFORE INCOME TAX	71,800			(4,155		)	n/m		170,543			66,367			n/m
Less: realized gains (losses) - investments	236			2,475					10,227			27,861
Less: realized gains (losses) - derivatives, net of economic cost	26,987			(22,893		)			41,203			(43,870		)
Less: amortization related to benefits and settlement expenses	2,276			1,124					3,132			268
Less: related amortization of DAC	(8,565		)	5,731					(14,665		)	8,364
OPERATING INCOME	$	50,866		$	9,408		n/m		$	130,646		$	73,744		77.2

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The following table summarizes key data for the Annuities segment:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
Sales
Fixed annuity	$	180,714		$	152,168		18.8	%	$	434,165		$	461,045		(5.8	)%
Variable annuity	357,484			761,011			(53.0	)	1,656,066			2,001,757			(17.3	)
	$	538,198		$	913,179		(41.1	)	$	2,090,231		$	2,462,802		(15.1	)
Average Account Values
Fixed annuity (1)	$	8,214,702		$	8,534,232		(3.7	)	$	8,251,504		$	8,580,245		(3.8	)
Variable annuity	10,989,161			7,809,542			40.7		10,354,702			7,193,618			43.9
	$	19,203,863		$	16,343,774		17.5		$	18,606,206		$	15,773,863		18.0
Interest Spread - Fixed Annuities (2)
Net investment income yield	5.50		%	5.76		%			5.51		%	5.75		%
Interest credited to policyholders	3.50			3.82					3.54			3.89
Interest spread	2.00		%	1.94		%			1.97		%	1.86		%

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

(2) Interest spread on average general account values.

	For The									For The
	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2013			2012			Change			2013			2012			Change
	(Dollars In Thousands)									(Dollars In Thousands)
Derivatives related to variable annuity and FIA contracts:
Interest rate futures - VA	$	(2,255	)	$	(3,371	)	$	1,116		$	(26,393	)	$	32,419		$	(58,812	)
Equity futures - VA	(12,568		)	(17,324		)	4,756			(39,829		)	(42,643		)	2,814
Currency futures - VA	(6,531		)	(3,078		)	(3,453		)	1,440			(2,298		)	3,738
Volatility futures - VA	—			—			—			—			(132		)	132
Variance swaps - VA	(1,347		)	(5,840		)	4,493			(9,566		)	(6,660		)	(2,906		)
Equity options - VA	(29,094		)	(9,184		)	(19,910		)	(65,631		)	(29,903		)	(35,728		)
Interest rate swaptions - VA	1,725			(3,019		)	4,744			(738		)	2,293			(3,031		)
Interest rate swaps - VA	(19,224		)	6,361			(25,585		)	(125,502		)	10,187			(135,689		)
Embedded derivative - GMWB (1)	80,541			2,921			77,620			264,231			(32,369		)	296,600
Total derivatives related to variable annuity contracts	$	11,247		$	(32,534	)	$	43,781		$	(1,988	)	$	(69,106	)	$	67,118
Economic cost - VA GMWB (2)	15,782			9,641			6,141			43,293			25,236			18,057
Derivative - FIA	(42		)	—			(42		)	(102		)	—			(102		)
Realized gains (losses) - derivatives, net of economic cost	$	26,987		$	(22,893	)	$	49,880		$	41,203		$	(43,870	)	$	85,073

(1) Includes impact of nonperformance risk of $(10.5) million and $(3.1) million for the three and nine months ended September 30, 2013 and $(29.8) million and $(44.6) million for the three and nine months ended September 30, 3012, 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.).

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	As of
	September 30, 2013			December 31, 2012		Change
	(Dollars In Thousands)
GMDB - Net amount at risk (1)	$	96,868		$	129,309	(25.1	)%
GMDB Reserves	17,102			19,316		(11.5	)
GMWB and GMAB Reserves	(94,962		)	169,269		n/m
Account value subject to GMWB rider	9,029,440			7,165,375		26.0
GMWB Benefit Base	8,312,176			6,888,471		20.7
GMAB Benefit Base	5,362			5,565		(3.6	)
S&P 500® Index	1,682			1,426		18.0

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

For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Segment operating income

Segment operating income was $50.9 million for the three months ended September 30, 2013, as compared to $9.4 million for the three months ended September 30, 2012, an increase of $41.5 million. This variance included a favorable change of $29.6 million in unlocking and higher net policy fees and other income of $15.6 million in the VA line associated with the growth in account balances. The segment recorded a favorable $4.9 million of unlocking for the three months ended September 30, 2013, as compared to unfavorable unlocking of $24.7 million for the three months ended September 30, 2012. This was offset by an unfavorable change in net investment income resulting from a decrease in fixed annuity account balances.

Operating revenues

Segment operating revenues increased $7.6 million, or 4.7%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to increases in net policy fees and other income from the VA line of business. Those increases were offset by lower investment income. Average fixed account balances decreased 3.7% while average variable account balances grew 40.7% for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

Benefits and settlement expenses

Benefits and settlement expenses decreased $26.3 million, or 24.5%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. This decrease was primarily the result of lower credited interest, lower realized losses in the fixed market value adjusted (“MVA”) annuities line, lower unearned premium reserve amortization, and a $13.0 million favorable change in unlocking.

Amortization of DAC

The decrease in DAC amortization for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, was primarily due to a favorable change in unlocking. DAC unlocking for the three months ended September 30, 2013 was $5.8 million favorable as compared to $10.8 million unfavorable unlocking for the three months ended September 30, 2012.

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Other operating expenses

Other operating expenses increased $0.3 million, or 1.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase is due to higher commissions that are partially offset by reduced acquisition expenses attributable to lower sales.

Sales

Total sales decreased $375.0 million, or 41.1%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Sales of variable annuities decreased $403.5 million, or 53.0% for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Sales of fixed annuities increased by $28.5 million, or 18.8% for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, driven by an increase in fixed indexed annuities (“FIA”) sales that partially offset a decrease in single premium deferred annuity sales.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Segment operating income

Segment operating income was $130.6 million for the nine months ended September 30, 2013, as compared to $73.7 million for the nine months ended September 30, 2012, an increase of $56.9 million, or 77.2%. This variance included a favorable change of $35.4 million in unlocking and $42.0 million of higher net policy fees and other income in the VA line associated with the growth in account balances. This was offset by an unfavorable change in net investment income resulting from a decrease in fixed annuity account balances.

Operating revenues

Segment operating revenues increased $17.8 million, or 3.7%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to increases in policy fees and other income from the VA line of business. Those increases were offset by lower investment income. Average fixed account balances decreased 3.8% while average variable account balances grew 43.9% for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.

Benefits and settlement expenses

Benefits and settlement expenses decreased $42.3 million, or 14.8%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. This decrease was primarily the result of lower credited interest, lower realized losses in the MVA annuities line, lower unearned premium reserve amortization, and a $13.0 million favorable change in unlocking. These favorable changes were partially offset by a $10.9 million unfavorable change in the SPIA mortality variance.

Amortization of DAC

The decrease in DAC amortization for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, was primarily due to a favorable change in unlocking partially offset by the growth in the business. DAC unlocking for the nine months ended September 30, 2013, was $9.9 million favorable as compared to $12.5 million unfavorable unlocking for the nine months ended September 30, 2013.

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Other operating expenses

Other operating expenses increased $9.6 million, or 13.0%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase is due to a guaranty fund allocation of $3.3 million recorded in the second quarter of 2013 and higher commissions and maintenance expenses related to growth of the block of business.

Sales

Total sales decreased $372.6 million, or 15.1%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. Sales of variable annuities decreased $345.7 million, or 17.3% for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. Sales of fixed annuities decreased by $26.9 million, or 5.8% for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, driven by a decrease in single premium deferred annuity sales that was partially offset by an increase in FIA sales.

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Stable Value Products

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
REVENUES
Net investment income	$	29,478		$	29,851		(1.2	)%	$	93,203		$	97,209		(4.1	)%
Other income	—			—			n/m		—			1			n/m
Total operating revenues	29,478			29,851			(1.2	)	93,203			97,210			(4.1	)
Realized gains (losses)	(4,270		)	(2,918		)	(46.3	)	(1,607		)	(1,261		)	(27.4	)
Total revenues	25,208			26,933			(6.4	)	91,596			95,949			(4.5	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	9,639			16,002			(39.8	)	31,925			53,180			(40.0	)
Amortization of deferred policy acquisition costs	110			410			(73.2	)	287			836			(65.7	)
Other operating expenses	523			389			34.4		1,477			1,540			(4.1	)
Total benefits and expenses	10,272			16,801			(38.9	)	33,689			55,556			(39.4	)
INCOME BEFORE INCOME TAX	14,936			10,132			47.4		57,907			40,393			43.4
Less: realized gains (losses)	(4,270		)	(2,918		)			(1,607		)	(1,261		)
OPERATING INCOME	$	19,206		$	13,050		47.2		$	59,514		$	41,654		42.9

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

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
Sales
GIC	$	80,200		$	101,954		(21.3	)%	$	397,504		$	127,954		n/m	%
GFA - Direct Institutional	—			45,000			n/m		—			221,500			n/m
	$	80,200		$	146,954		(45.4	)	$	397,504		$	349,454		13.8

Average Account Values	$	2,503,294		$	2,591,485		(3.4	)%	$	2,529,382		$	2,703,958		(6.5	)%
Ending Account Values	$	2,531,262		$	2,328,237		8.7	%	$	2,531,262		$	2,328,237		8.7	%

Operating Spread
Net investment income yield	4.71		%	4.61		%			4.91		%	4.79		%
Interest credited	1.54			2.47					1.68			2.62
Operating expenses	0.10			0.13					0.09			0.12
Operating spread	3.07		%	2.01		%			3.14		%	2.05		%

Adjusted operating spread (1)	2.69		%	2.00		%			2.64		%	1.93		%

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

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For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Segment operating income

Operating income was $19.2 million and increased $6.2 million, or 47.2%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase in operating earnings resulted from an increase in participating mortgage income and higher operating spreads offset by a decline in average account values. Participating mortgage income for the three months ended September 30, 2013 was $2.4 million compared to $0.1 million for the three months ended September 30, 2012. The adjusted operating spread, which excludes participating income, increased by 69 basis points for the three months ended September 30, 2013 over the prior year, due primarily to a decline in credited interest.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Segment operating income

Operating income was $59.5 million and increased $17.9 million, or 42.9%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase in operating earnings resulted from an increase in participating mortgage income and higher operating spreads offset by a decline in average account values. Participating mortgage income for the nine months ended September 30, 2013 was $9.5 million compared to $2.6 million for the nine months ended September 30, 2012. The adjusted operating spread, which excludes participating income, increased by 71 basis points for the nine months ended September 30, 2013 over the prior year, due primarily to a decline in credited interest.

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Asset Protection

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	66,604		$	68,729		(3.1	)%	$	200,993		$	207,548		(3.2	)%
Reinsurance ceded	(32,681		)	(31,456		)	(3.9	)	(96,416		)	(95,143		)	(1.3	)
Net premiums and policy fees	33,923			37,273			(9.0	)	104,577			112,405			(7.0	)
Net investment income	5,804			5,972			(2.8	)	17,440			18,397			(5.2	)
Other income	31,768			29,247			8.6		88,862			85,361			4.1
Total operating revenues	71,495			72,492			(1.4	)	210,879			216,163			(2.4	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	26,384			27,492			(4.0	)	77,006			76,787			0.3
Amortization of deferred policy acquisition costs	7,402			8,705			(15.0	)	22,471			26,211			(14.3	)
Other operating expenses	30,882			32,145			(3.9	)	91,110			97,570			(6.6	)
Total benefits and expenses	64,668			68,342			(5.4	)	190,587			200,568			(5.0	)
INCOME BEFORE INCOME TAX	6,827			4,150			64.5		20,292			15,595			30.1
Less: noncontrolling interests	—			—			n/m		—			—			n/m
OPERATING INCOME	$	6,827		$	4,150		64.5		$	20,292		$	15,595		30.1

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

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
Sales
Credit insurance	$	9,105		$	9,558		(4.7	)%	$	26,291		$	28,426		(7.5	)%
Service contracts	102,796			92,890			10.7		283,984			269,812			5.3
GAP	18,140			14,868			22.0		50,359			48,226			4.4
	$	130,041		$	117,316		10.8		$	360,634		$	346,464		4.1
Loss Ratios (1)
Credit insurance	20.7		%	56.4		%			34.8		%	38.0		%
Service contracts	99.0			96.7					92.0			91.6
GAP	46.0			25.2					41.7			26.2

(1) Incurred claims as a percentage of earned premiums

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For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Segment operating income

Operating income was $6.8 million, representing an increase of $2.7 million, or 64.5%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Credit insurance earnings increased $1.6 million, primarily resulting from lower losses. Service contract earnings increased $1.0 million, primarily due to higher volume and lower general and administrative expenses. Earnings from the GAP product was consistent with the prior year.

Net premiums and policy fees

Net premiums and policy fees decreased $3.4 million, or 9.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. GAP premiums decreased $1.4 million primarily due to higher ceded premiums and a change in the mix of GAP business. Service contract premiums decreased $1.5 million, primarily due to higher ceded premiums. Credit insurance premiums decreased $0.5 million, due to lower sales in prior years and the related impact on earned premiums.

Other income

Other income increased $2.5 million, or 8.6%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012 due primarily to higher volume.

Benefits and settlement expenses

Benefits and settlement expenses decreased $1.1 million, or 4.0%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Credit insurance claims decreased $1.6 million due to lower loss ratios. Service contract claims decreased $0.9 million. The decreases were partially offset by an increase in GAP claims of $1.4 million due to higher loss ratios.

Amortization of DAC and Other operating expenses

Amortization of DAC was $1.3 million, or 15.0%, lower for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to lower earned premiums in the GAP product line. Other operating expenses decreased $1.3 million, or 3.9%, for the three months ended September 30, 2013, primarily related to expense reductions.

Sales

Total segment sales increased $12.7 million, or 10.8%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. Service contract sales increased $9.9 million while sales in the GAP product line increased $3.3 million. Credit insurance sales decreased $0.5 million. The growth in overall sales was partly related to strong auto sales in the third quarter.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Segment operating income

Operating income was $20.3 million, representing an increase of $4.7 million, or 30.1%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. Credit insurance earnings increased $3.9 million primarily due to $2.6 million in litigation costs incurred in 2012 and lower losses and expenses in 2013. Service contract earnings increased $0.6 million primarily due to higher volume and lower general and administrative expenses. Earnings from the GAP product line increased $0.2 million primarily resulting from lower expenses somewhat offset by higher losses.

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Net premiums and policy fees

Net premiums and policy fees decreased $7.8 million, or 7.0%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. GAP premiums decreased $3.7 million primarily due to higher ceded premiums and a change in the mix of GAP business. Service contract premiums decreased $2.1 million primarily due to higher ceded premiums. Credit insurance premiums decreased $2.0 million primarily the result of lower sales in prior years and the related impact on earned premiums.

Other income

Other income increased $3.5 million, or 4.1%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012 due primarily to higher volume.

Benefits and settlement expenses

Benefits and settlement expenses increased $0.2 million, or 0.3%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. GAP claims increased $3.0 million due to higher loss ratios. Service contract claims decreased $1.7 million. Credit insurance claims decreased $1.1 million, primarily due to lower loss ratios.

Amortization of DAC and Other operating expenses

Amortization of DAC was $3.7 million, or 14.3%, lower for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to lower earned premiums in the GAP product line. Other operating expenses decreased $6.5 million, or 6.6%, for the nine months ended September 30, 2013, primarily related to an expense reductions and a $2.0 million legal settlement accrual in the first quarter of 2012.

Sales

Total segment sales increased $14.2 million, or 4.1%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. Service contract sales increased $14.2 million. Sales in the GAP product line increased $2.1 million. Credit insurance sales decreased $2.1 million primarily due to an increase in refunds as a result of the 2012 legal settlement. The growth in overall sales was partly related to higher auto sales in 2013.

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 (“PARCs”). These arrangements are coinsurance contracts ceding the business on a first dollar quota share basis at 100% to limit our exposure and allow the PARCs 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						For The
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
REVENUES
Reinsurance ceded	$	(32,681	)	$	(31,456	)	$	(96,416	)	$	(95,143	)
BENEFITS AND EXPENSES
Benefits and settlement expenses	(14,993		)	(14,357		)	(42,894		)	(43,270		)
Amortization of deferred policy acquisition costs	(1,770		)	(1,791		)	(5,192		)	(5,773		)
Other operating expenses	(1,530		)	(1,594		)	(4,494		)	(4,438		)
Total benefits and expenses	(18,293		)	(17,742		)	(52,580		)	(53,481		)

NET IMPACT OF REINSURANCE (1)	$	(14,388	)	$	(13,714	)	$	(43,836	)	$	(41,662	)

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

For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Reinsurance premiums ceded increased $1.2 million, or 3.9%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase was primarily due to an increase in ceded GAP and service contract premiums, somewhat offset by a decline in ceded dealer credit insurance premiums due to lower sales in prior years and the related impact on earned premiums.

Benefits and settlement expenses ceded increased $0.6 million, or 4.4%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The increase was primarily due to higher ceded losses in the service contract and GAP lines, somewhat offset by lower ceded losses in the dealer credit line.

Amortization of DAC ceded remained unchanged at $1.8 million for the three months ended September 30, 2013 and the three months ended September 30, 2012. Other operating remained consistent for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012.

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 generally will increase the assuming companies’ profitability on business we cede. The net investment income impact to us and the assuming companies has not been quantified as it is not reflected in our consolidated financial statements.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Reinsurance premiums ceded increased $1.3 million, or 1.3%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The increase was primarily due to an increase in ceded GAP and service contract premiums, somewhat offset by a decline in ceded dealer credit insurance premiums due to lower sales in prior years and the related impact on earned premiums.

Benefits and settlement expenses ceded decreased $0.4 million, or 0.9%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012. The decrease was primarily due to lower ceded losses in the dealer credit line, somewhat offset by increases in the GAP line.

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Amortization of DAC ceded decreased $0.6 million, or 10.1%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily as the result of decreases in ceded activity in the dealer credit and service contract product lines. Other operating expenses remained consistent for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012.

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Corporate and Other

Segment results of operations

Segment results were as follows:

	For The								For The
	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2013			2012			Change		2013			2012			Change
	(Dollars In Thousands)								(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	4,556		$	4,828		(5.6	)%	$	13,865		$	14,971		(7.4	)%
Reinsurance ceded	(4		)	(3		)	(33.3	)	(8		)	(24		)	66.7
Net premiums and policy fees	4,552			4,825			(5.7	)	13,857			14,947			(7.3	)
Net investment income	38,664			48,075			(19.6	)	125,154			119,369			4.8
Other income	583			(10		)	n/m		4,340			36,778			(88.2	)
Total operating revenues	43,799			52,890			(17.2	)	143,351			171,094			(16.2	)
Realized gains (losses) - investments	(2,829		)	7,163					354			(23,807		)
Realized gains (losses) - derivatives	1,233			(287		)			4,115			(4,306		)
Total revenues	42,203			59,766			(29.4	)	147,820			142,981			3.4
BENEFITS AND EXPENSES
Benefits and settlement expenses	5,701			5,600			1.8		16,365			16,819			(2.7	)
Amortization of deferred policy acquisition costs	160			253			(36.8	)	504			793			(36.4	)
Other operating expenses	52,189			53,651			(2.7	)	161,548			157,613			2.5
Total benefits and expenses	58,050			59,504			(2.4	)	178,417			175,225			1.8
INCOME (LOSS) BEFORE INCOME TAX	(15,847		)	262			n/m		(30,597		)	(32,244		)	5.1
Less: realized gains (losses) - investments	(2,829		)	7,163					354			(23,807		)
Less: realized gains (losses) - derivatives	1,233			(287		)			4,115			(4,306		)
OPERATING INCOME (LOSS)	$	(14,251	)	$	(6,614	)	n/m		$	(35,066	)	$	(4,131	)	n/m

For The Three Months Ended September 30, 2013 as compared to The Three Months Ended September 30, 2012

Segment operating income (loss)

Corporate and Other segment operating loss was $14.3 million for the three months ended September 30, 2013, as compared to an operating loss of $6.6 million for the three months ended September 30, 2012. The decrease resulted from a decline of $7.5 million in core net investment income partially offset by favorable operating expenses as compared to the three months ended September 30, 2012. The decrease in core net investment income was primarily driven by a $4.9 million unfavorable variance related to income on called securities. The decrease in other operating expenses was primarily related to a $4.0 million deferred issue cost write-off recorded during the third quarter of 2012.

Operating revenues

Net investment income for the segment decreased $9.4 million, or 19.6%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012. The decrease in net investment income was primarily due to a $4.9 million unfavorable variance related to income on called securities, a $2.1 million decrease related to a portfolio of securities designated for trading, and lower core investment income as compared to the three months ended September 30, 2012. Partially offsetting these decreases was a $4.5 million increase in interest income associated with a reserve financing transaction which is entirely offset by the increase in interest expense as referred to below. Net premiums and policy fees decreased $0.3 million, or 5.7%, for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012 and other income increased $0.6 million.

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Total benefits and expenses

Total benefits and expenses decreased $1.5 million for the three months ended September 30, 2013, as compared to the three months ended September 30, 2012, primarily due to a $4.0 million deferred issue cost write-off recorded during the three months ended September 30, 2012 and a $2.6 million decrease in core interest expense for the third quarter of 2013 as compared to the third quarter of 2012. These variances were partially offset by a $4.5 million increase in interest expense associated with a reserve financing transaction for the three months ended September 30, 2013, which is entirely offset by the increase in interest income as referred to above.

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 2012

Segment operating income (loss)

Corporate and Other segment operating loss was $35.1 million for the nine months ended September 30, 2013, as compared to an operating loss of $4.1 million for the nine months ended September 30, 2012. The decrease was the result of a $32.1 million unfavorable variance related to gains on the repurchase of non-recourse funding obligations. For the nine months ended September 30, 2013, $3.4 million of pre-tax gains were generated from the repurchase on non-recourse funding obligations as compared to $35.5 million of pre-tax gains for the nine months ended September 30, 2012. In addition, the decrease was driven by higher operating expenses which were partially offset by an $11.2 million deferred issue cost write-off recorded during the nine months ended September 30, 2012.

Operating revenues

Net investment income for the segment increased $5.8 million, or 4.8%, for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, and net premiums and policy fees decreased $1.1 million, or 7.3%. The increase in net investment income included a $3.0 million favorable variance related to mortgage loan prepayment fee income. In addition, the segment experienced a $12.0 million increase in interest income associated with a reserve financing transaction which is entirely offset by the increase in interest expense as referred to below. Partially offsetting these increases was a $3.0 million decrease related to a portfolio of securities designated for trading as compared to the nine months ended September 30, 2012 and lower core net investment income as a result of holding more cash. Other income decreased $32.4 million for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012, primarily due to a $32.1 million unfavorable variance related to gains generated on the repurchase of non-recourse funding obligations.

Total benefits and expenses

Total benefits and expenses increased $3.2 million for the nine months ended September 30, 2013, as compared to the nine months ended September 30, 2012, primarily due to a $12.0 million increase in interest expense associated with a reserve financing transaction which is entirely offset by the increase in interest income as referred to above and $4.9 million of acquisition related expenses recorded during the nine months ended September 30, 2013, partially offset by an $11.2 million deferred issue cost write-off recorded during the second quarter of 2012.

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CONSOLIDATED INVESTMENTS

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

Portfolio Description

As of September 30, 2013, our investment portfolio was approximately $35.5 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
	September 30, 2013				December 31, 2012
	(Dollars In Thousands)
Publicly issued bonds (amortized cost: 2013 - $21,244,574; 2012 - $21,244,173)	$	22,313,752	62.9	%	$	23,823,244	64.5	%
Privately issued bonds (amortized cost: 2013 - $6,130,403; 2012 - $5,737,151)	6,359,463		17.9		6,264,715		17.0
Fixed maturities	28,673,215		80.8		30,087,959		81.5
Equity securities (cost: 2013 - $485,580; 2012 - $409,376)	461,231		1.3		411,786		1.1
Mortgage loans	4,794,924		13.5		4,950,201		13.4
Investment real estate	18,750		0.1		19,816		0.1
Policy loans	856,333		2.4		865,391		2.3
Other long-term investments	482,367		1.4		361,837		1.0
Short-term investments	216,224		0.5		217,812		0.6
Total investments	$	35,503,044	100.0	%	$	36,914,802	100.0	%

Included in the preceding table are $2.8 billion and $3.0 billion of fixed maturities and $106.4 million and $118.9 million of short-term investments classified as trading securities as of September 30, 2013 and December 31, 2012, respectively. The trading portfolio includes invested assets of $2.8 billion and $3.0 billion as of September 30, 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 $350.0 million and $300.0 million of securities classified as held-to-maturity as of September 30, 2013 and December 31, 2012, respectively.

Fixed Maturity Investments

As of September 30, 2013, our fixed maturity investment holdings were approximately $28.7 billion. The approximate percentage distribution of our fixed maturity investments by quality rating is as follows:

	As of
Rating	September 30, 2013		December 31, 2012
AAA	14.4	%	14.6	%
AA	6.9		7.2
A	30.3		30.8
BBB	41.0		39.7
Below investment grade	6.2		6.7
Not rated	1.2		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 if such ratings are available.

We do not have material exposure to financial guarantee insurance companies with respect to our investment portfolio. As of September 30, 2013, based upon amortized cost, $35.3 million of our securities were guaranteed either directly or indirectly by third parties out of a total of $27.2 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 shareowners’ 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	September 30, 2013		December 31, 2012
	(Dollars In Millions)
Corporate bonds	$	21,253.0	$	22,054.4
Residential mortgage-backed securities	1,772.4		2,197.1
Commercial mortgage-backed securities	1,080.6		1,040.9
Other asset-backed securities	1,138.9		1,133.0
U.S. government-related securities	1,417.3		1,475.8
Other government-related securities	98.6		164.2
States, municipals, and political subdivisions	1,562.4		1,722.6
Other	350.0		300.0
Total fixed income portfolio	$	28,673.2	$	30,088.0

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 $25.5 billion, or 89.1%, of our fixed maturities as “available-for-sale” as of September 30, 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 $350.0 million, or 1.2% of our fixed maturities as “held-to-maturity” as of September 30, 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 $2.8 billion, or 9.7%, of our fixed maturities and $106.4 million of short-term investments as of September 30, 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	September 30, 2013		December 31, 2012
	(Dollars In Thousands)
AAA	$	430,916	$	559,374
AA	265,465		239,834
A	836,202		801,562
BBB	920,165		1,038,873
Below investment grade	320,246		353,089
Total Modco trading fixed maturities	$	2,772,994	$	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 September 30, 2013, were approximately $4.0 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 September 30, 2013, our RMBS portfolio was approximately $1.8 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 September 30, 2013.

	Percentage of
	Residential
	Mortgage- Backed
Type	Securities
Sequential	24.3	%
PAC	44.1
Pass Through	6.0
Other	25.6
	100.0	%

	Percentage of
	Residential
	Mortgage-Backed
Rating	Securities
AAA	58.5	%
AA	—
A	1.2
BBB	0.7
Below investment grade	39.6
	100.0	%

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Alt-A Collateralized Holdings

As of September 30, 2013, we held securities with a fair value of $397.3 million, or 1.1% 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 September 30, 2013, these securities had a fair value of $129.4 million and an unrealized gain of $20.1 million .

The following table includes the percentage of our collateral classified as Alt-A, grouped by rating category, as of September 30, 2013:

	Percentage of
	Alt-A
Rating	Securities
BBB	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 September 30, 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)
BBB	$	0.8	$	—	$	—	$	—	$	—	$	0.8
Below investment grade	396.5		—		—		—		—		396.5
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	397.3	$	—	$	—	$	—	$	—	$	397.3

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012		2013		Total
	(Dollars In Millions)
BBB	$	—	$	—	$	—	$	—	$	—	$	—
Below investment grade	22.4		—		—		—		—		22.4
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	22.4	$	—	$	—	$	—	$	—	$	22.4

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Sub-prime Collateralized Holdings

As of September 30, 2013, we held securities with a total fair value of $2.1 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 September 30, 2013, we had RMBS collateralized by prime mortgage loans (including agency mortgages) with a total fair value of $1.4 billion, or 3.9%, 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 September 30, 2013 :

	Percentage of
	Prime
Rating	Securities
AAA	75.6	%
AA	—
A	1.6
BBB	0.8
Below investment grade	22.0
	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 September 30, 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	$	345.3	$	299.7	$	321.0	$	5.3	$	66.2	$	1,037.5
AA	0.3		—		—		—		—		0.3
A	21.9		—		—		—		—		21.9
BBB	11.2		—		—		—		—		11.2
Below investment grade	302.1		—		—		—		—		302.1
Total mortgage-backed securities collateralized by prime mortgage loans	$	680.8	$	299.7	$	321.0	$	5.3	$	66.2	$	1,373.0

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011		2012			2013			Total
	(Dollars In Millions)
AAA	$	21.5	$	10.9	$	7.6	$	(0.3	)	$	(1.4	)	$	38.3
AA	—		—		—		—			—			—
A	0.6		—		—		—			—			0.6
BBB	0.6		—		—		—			—			0.6
Below investment grade	7.2		—		—		—			—			7.2
Total mortgage-backed securities collateralized by prime mortgage loans	$	29.9	$	10.9	$	7.6	$	(0.3	)	$	(1.4	)	$	46.7

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Commercial mortgage-backed securities - Our CMBS portfolio consists of commercial mortgage-backed securities issued in securitization transactions. As of September 30, 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 September 30, 2013:

	Percentage of
	Commercial
	Mortgage-Backed
Rating	Securities
AAA	70.4	%
AA	13.0
A	15.0
BBB	1.6
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our CMBS as of September 30, 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	$	61.2	$	81.2	$	212.9	$	296.0	$	109.6	$	760.9
AA	—		33.3		37.7		40.9		28.5		140.4
A	43.0		33.6		53.1		13.4		18.9		162.0
BBB	17.3		—		—		—		—		17.3
Total commercial mortgage- backed securities	$	121.5	$	148.1	$	303.7	$	350.3	$	157.0	$	1,080.6

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior		2010		2011			2012			2013			Total
	(Dollars In Millions)
AAA	$	1.5	$	6.5	$	15.7		$	(7.5	)	$	(5.0	)	$	11.2
AA	—		2.1		2.6			(3.1		)	(1.6		)	—
A	1.2		1.2		(0.4		)	(1.0		)	(1.5		)	(0.5		)
BBB	0.5		—		—			—			—			0.5
Total commercial mortgage- backed securities	$	3.2	$	9.8	$	17.9		$	(11.6	)	$	(8.1	)	$	11.2

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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 September 30, 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 September 30, 2013:

	Percentage of
	Other Asset- Backed
Rating	Securities
AAA	48.6	%
AA	18.7
A	20.5
BBB	0.5
Below investment grade	11.7
	100.0	%

The following tables categorize the estimated fair value and unrealized gain/(loss) of our asset-backed securities as of September 30, 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	$	485.9	$	7.0	$	25.6	$	33.0	$	2.3	$	553.8
AA	149.7		—		—		63.8		—		213.5
A	54.9		—		71.9		96.7		9.9		233.4
BBB	5.6		—		—		—		—		5.6
Below investment grade	132.6		—		—		—		—		132.6
Total other asset-backed securities	$	828.7	$	7.0	$	97.5	$	193.5	$	12.2	$	1,138.9

	Estimated Unrealized Gain (Loss) of Security by Year of Security Origination
	2009 and
Rating	Prior			2010		2011		2012			2013			Total
	(Dollars In Millions)
AAA	$	(37.6	)	$	—	$	1.0	$	(0.4	)	$	(0.1	)	$	(37.1	)
AA	(14.2		)	—		—		—			—			(14.2		)
A	6.4			—		5.2		0.1			(0.1		)	11.6
BBB	0.1			—		—		—			—			0.1
Below investment grade	8.7			—		—		—			—			8.7
Total other asset-backed securities	$	(36.6	)	$	—	$	6.2	$	(0.3	)	$	(0.2	)	$	(30.9	)

We obtained ratings of our fixed maturities from Moody’s Investors Service, Inc. (“Moody’s”), Standard & Poor’s Corporation (“S&P”), and/or Fitch Ratings (“Fitch”). If a fixed maturity is not rated by Moody’s, S&P, or Fitch, we use ratings from the National Association of Insurance Commissioners (“NAIC”), or we rate the fixed maturity based upon a comparison of the unrated issue to rated issues of the same issuer or rated issues of other issuers with similar risk characteristics. As of September 30, 2013, 98.8% of our fixed maturities were rated by Moody’s, S&P, Fitch, and/or the NAIC.

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

	As of		% Fair		As of		% Fair
	September 30, 2013		Value		December 31, 2012		Value
	(Dollars In Thousands)
Banking	$	2,203,411	7.7	%	$	2,316,051	7.7	%
Other finance	449,107		1.6		346,563		1.2
Electric	3,446,603		12.0		3,782,966		12.6
Natural gas	2,068,128		7.2		2,203,779		7.3
Insurance	2,435,511		8.5		2,541,614		8.4
Energy	1,614,205		5.6		1,821,451		6.1
Communications	1,250,419		4.4		1,260,773		4.2
Basic industrial	1,281,518		4.5		1,293,037		4.3
Consumer noncyclical	1,784,768		6.2		1,738,686		5.8
Consumer cyclical	895,826		3.1		942,465		3.1
Finance companies	228,859		0.8		246,114		0.8
Capital goods	1,010,006		3.5		1,066,972		3.5
Transportation	730,015		2.5		670,477		2.2
Other industrial	258,920		0.9		236,002		0.8
Brokerage	595,631		2.1		588,307		2.0
Technology	807,152		2.8		845,282		2.8
Real estate	120,611		0.4		119,020		0.4
Other utility	72,265		0.3		34,779		0.1
Commercial mortgage-backed securities	1,080,653		3.8		1,040,896		3.5
Other asset-backed securities	1,138,857		4.0		1,132,943		3.8
Residential mortgage-backed non-agency securities	786,813		2.7		987,035		3.3
Residential mortgage-backed agency securities	985,571		3.4		1,210,098		4.0
U.S. government-related securities	1,417,300		4.9		1,475,816		4.9
Other government-related securities	98,653		0.3		164,222		0.5
State, municipals, and political divisions	1,562,413		5.4		1,722,611		5.7
Other	350,000		1.4		300,000		1.0
Total	$	28,673,215	100.0	%	$	30,087,959	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 September 30, 2013, our fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $28.7 billion, which was 5.5% above amortized cost of $27.2 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.

Mortgage Loans

We invest a portion of our investment portfolio in commercial mortgage loans. As of September 30, 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

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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 September 30, 2013 and December 31, 2012, our allowance for mortgage loan credit losses was $8.0 million and $2.9 million, respectively. While our mortgage loans do not have quoted market values, as of September 30, 2013, we estimated the fair value of our mortgage loans to be $5.3 billion (using discounted cash flows from the next call date), which was approximately 9.8% 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 September 30, 2013 and December 31, 2012, approximately $714.5 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. During the three and nine month periods ended September 30, 2013, we recognized $3.7 million and $12.9 million of participating mortgage loan income, respectively.

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 with these options at their next call dates, approximately $66.4 million will become due in the remainder of 2013, $1.2 billion in 2014 through 2018, $575.0 million in 2019 through 2023, and $174.4 million thereafter.

As of September 30, 2013, approximately $16.4 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. During the three months ended September 30, 2013, two mortgage loan transactions occurred that were accounted for as troubled debt restructurings under Topic 310 of the Financial Accounting Standards Board (“FASB”) ASC. For all mortgage loans, the impact of troubled debt restructurings is reflected in our investment balance and in the allowance for mortgage loan credit losses. Transactions accounted for as troubled debt restructurings during the quarter involved the modification of payment terms pursuant to bankruptcy proceedings. However, we expect to collect all amounts due related to these loans as well as expenses incurred as a result of the restructurings, which resulted in no material change to the principal balance of these loans, which was $3.2 million as of September 30, 2013 and no associated reserve.

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 September 30, 2013, $10.7 million of mortgage loans not subject to a pooling and servicing agreement were nonperforming or restructured. We foreclosed on two nonperforming loans during the nine months ended September 30, 2013.

As of September 30, 2013, $5.7 million of loans subject to a pooling and servicing agreement were nonperforming. None of these nonperforming loans have been restructured during the nine months ended September 30, 2013. We did not foreclose on any nonperforming loans during the nine months ended September 30, 2013.

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

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

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 September 30, 2013:

			Percent of
Rating	Fair Value		Fair Value
	(Dollars In Thousands)
AAA	$	3,695,446	14.5	%
AA	1,702,111		6.7
A	7,846,142		30.7
BBB	10,842,864		42.5
Investment grade	24,086,563		94.4
BB	763,303		3.0
B	137,432		0.5
CCC or lower	553,138		2.1
Below investment grade	1,453,873		5.6
Total	$	25,540,436	100.0	%

Not included in the table above are $2.5 billion of investment grade and $330.0 million of below investment grade fixed maturities classified as trading securities and $350.0 million of 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 September 30, 2013. The following table summarizes our ten largest maturity exposures to an individual creditor group as of September 30, 2013:

	Fair Value of
	Funded		Unfunded		Total
Creditor	Securities		Exposures		Fair Value
	(Dollars In Millions)
Duke Energy Corp	$	185.5	$	—	$	185.5
Comcast Corp.	176.2		—		176.2
General Electric	160.3		—		160.3
Nextera Energy Inc.	158.8		—		158.8
Berkshire Hathaway Inc.	157.1		—		157.1
Exelon Corp	150.2		—		150.2
JP Morgan Chase and Company	133.0		11.3		144.3
Verizon Communications Inc.	140.3		—		140.3
Rio Tinto	138.2		—		138.2
Wells Fargo & Co.	135.1		—		135.1

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

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

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

Securities in an unrealized loss position are reviewed at least quarterly to determine if an other-than-temporary impairment is present based on certain quantitative and qualitative factors. We consider a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) an assessment of our intent to sell the security (including a more likely than not assessment of whether we will be required to sell the security) before recovering the security’s amortized cost, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairments. Although no set formula is used in this process, the investment performance, collateral position, and continued viability of the issuer are significant measures considered, along with an analysis regarding our expectations for recovery of the security’s entire amortized cost basis through the receipt of future cash flows. Based on our analysis, for the three and nine months ended September 30, 2013, we concluded that approximately $8.7 million and $17.3 million, respectively, 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, $2.0 million and $7.5 million of non-credit losses previously recorded in other comprehensive income were recorded in earnings as credit losses for the three and nine months ended September 30, 2013, respectively. 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.

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The chart shown below includes our non-sovereign fair value exposures in these countries as of September 30, 2013. As September 30, 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	$	404.8	$	470.1	$	874.9
Switzerland	127.4		203.6		331.0
France	69.6		84.9		154.5
Sweden	114.1		4.7		118.8
Netherlands	120.3		82.5		202.8
Spain	36.2		104.7		140.9
Belgium	—		94.3		94.3
Germany	54.4		76.6		131.0
Ireland	5.7		93.9		99.6
Luxembourg	—		58.4		58.4
Italy	—		51.7		51.7
Norway	—		38.8		38.8
Total securities	932.5		1,364.2		2,296.7
Derivatives:
Germany	10.8		—		10.8
Switzerland	11.7		—		11.7
Total derivatives	22.5		—		22.5
Total securities	$	955.0	$	1,364.2	$	2,319.2

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Realized Gains and Losses

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

	For The									For The
	Three Months Ended									Nine Months Ended
	September 30,									September 30,
	2013			2012			Change			2013			2012			Change
	(Dollars In Thousands)
Fixed maturity gains - sales	$	11,666		$	23,552		$	(11,886	)	$	46,110		$	62,823		$	(16,713	)
Fixed maturity losses - sales	(1,120		)	(663		)	(457		)	(4,103		)	(3,894		)	(209		)
Equity gains - sales	—			8			(8		)	2,367			156			2,211
Equity losses - sales	—			(249		)	249			—			(249		)	249
Impairments on fixed maturity securities	(7,421		)	(8,556		)	1,135			(13,918		)	(40,928		)	27,010
Impairments on equity securities	(1,260		)	—			(1,260		)	(3,347		)	—			(3,347		)
Modco trading portfolio	(25,960		)	104,865			(130,825		)	(167,982		)	179,027			(347,009		)
Other	(4,094		)	(4,958		)	864			(10,023		)	(13,989		)	3,966
Total realized gains (losses) - investments	$	(28,189	)	$	113,999		$	(142,188	)	$	(150,896	)	$	182,946		$	(333,842	)

Derivatives related to variable annuity and FIA contracts:
Interest rate futures - VA	$	(2,255	)	$	(3,371	)	$	1,116		$	(26,393	)	$	32,419		$	(58,812	)
Equity futures - VA	(12,568		)	(17,324		)	4,756			(39,829		)	(42,643		)	2,814
Currency futures - VA	(6,531		)	(3,078		)	(3,453		)	1,440			(2,298		)	3,738
Volatility futures - VA	—			—			—			—			(132		)	132
Variance swaps - VA	(1,347		)	(5,840		)	4,493			(9,566		)	(6,660		)	(2,906		)
Equity options - VA	(29,094		)	(9,184		)	(19,910		)	(65,631		)	(29,903		)	(35,728		)
Interest rate swaptions - VA	1,725			(3,019		)	4,744			(738		)	2,293			(3,031		)
Interest rate swaps - VA	(19,224		)	6,361			(25,585		)	(125,502		)	10,187			(135,689		)
Embedded derivative - GMWB	80,541			2,921			77,620			264,231			(32,369		)	296,600
Total derivatives related to variable annuity contracts	11,247			(32,534		)	43,781			(1,988		)	(69,106		)	67,118
Embedded derivative - Modco reinsurance treaties	30,074			(101,999		)	132,073			191,847			(139,972		)	331,819
Embedded derivative - FIA	(104		)	—			(104		)	(145		)	—			(145		)
Interest rate swaps	72			199			(127		)	2,984			(680		)	3,664
Interest rate caps	—			(143		)	143			—			(2,658		)	2,658
Other derivatives	37			255			(218		)	(106		)	17			(123		)
Total realized gains (losses) - derivatives	$	41,326		$	(134,222	)	$	175,548		$	192,592		$	(212,399	)	$	404,991

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 and nine months ended September 30, 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 September 30, 2013, we had posted cash and securities (at fair value) as collateral of approximately $81.0 million and $52.2 million, respectively. As of September 30, 2013, we received $6.0 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 and nine months ended September 30, 2013, we recognized pre-tax other-than-temporary impairments of $8.7 million and $17.3 million, respectively, due to credit-related factors, resulting in a charge to earnings. During the three and nine months ended September 30, 2013, $2.0 million and $7.5 million of non-credit losses previously recorded in other comprehensive income were recorded in earnings as credit losses, respectively . These non-credit losses were caused by recognizing, in the current quarter, credit losses in earnings that had previously

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been recognized as non-credit losses in other comprehensive income. For the three and nine months ended September 30, 2012, we recognized pre-tax other-than-temporary impairments of $8.5 million and $40.9 million, respectively. These other-than-temporary impairments resulted from our analysis of circumstances and our belief that credit events, loss severity, changes in credit enhancement, and/or other adverse conditions of the respective issuers have caused, or will lead to, a deficiency in the contractual cash flows related to these investments. These other-than-temporary impairments, net of Modco recoveries, are presented in the chart below:

	For The				For The
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
	(Dollars In Millions)
Alt-A MBS	$	1.5	$	2.0	$	4.5	$	6.7
Other MBS	1.6		5.1		5.1		15.0
Corporate bonds	4.3		1.4		4.3		19.2
Equities	1.3		—		3.4		—
Total	$	8.7	$	8.5	$	17.3	$	40.9

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 nine months ended September 30, 2013, we sold securities in an unrealized loss position with a fair value of $64.2 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	$	21,812	34.0	%	$	(434	)	10.6	%
>90 days but <= 180 days	26,862		41.8		(647		)	15.8
>180 days but <= 270 days	22		—		(2		)	—
>270 days but <= 1 year	32		—		(8		)	0.2
>1 year	15,502		24.2		(3,012		)	73.4
Total	$	64,230	100.0	%	$	(4,103	)	100.0	%

For the three and nine months ended September 30, 2013, we sold securities in an unrealized loss position with a fair value (proceeds) of $7.0 million and $64.2 million, respectively. The loss realized on the sale of these securities was $1.1 million and $4.1 million, respectively.

For the three and nine months ended September 30, 2013, we sold securities in an unrealized gain position with a fair value of $332.1 million and $1.1 billion, respectively. The gain realized on the sale of these securities was $11.7 million and $48.5 million, respectively.

The $4.1 million of other realized losses recognized for the three months ended September 30, 2013, consists of an increase in the mortgage loan reserves of $0.9 million, mortgage loans losses of $3.0 million, real estate losses of $0.3 million, and a gain on a partnership of $0.1 million. The $10.0 million of other realized losses recognized for the nine months ended September 30, 2013, consists of an increase in the mortgage loan reserves of $5.1 million, mortgage loan losses of $5.3 million, real estate gains of $0.3 million, and a gain of a partnership of $0.1 million.

For the three and nine months ended September 30, 2013, net losses of $26.0 million and $168.0 million, respectively, primarily related to changes in fair value on our Modco trading portfolios were included in realized gains and losses. Of this amount, approximately $5.3 million and $27.3 million, respectively, of gains were realized through the sale of certain securities, which will be reimbursed to our reinsurance partners over time through the reinsurance settlement process for this block of business. The Modco embedded derivative associated with the trading portfolios

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had realized pre-tax gains of $30.1 million and $191.9 million, respectively, during the three and nine months ended September 30, 2013. These gains were primarily the result of an 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 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 $12.6 million and $39.8 million, interest rate futures resulted in pre-tax losses of $2.3 million and $26.4 million, currency futures resulted in net pre-tax losses of $6.5 million and net pre-tax gains of $1.4 million, and volatility futures resulted in no pre-tax gains or losses for the three and nine months ended September 30, 2013, respectively. No volatility future positions were held during the three and nine months ended September 30, 2013.

We also use equity options and variance 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 $29.1 million and $65.6 million and the variance swaps resulted in a net pre-tax loss of $1.3 million and a net pre-tax loss of $9.6 million, respectively, for three and nine months ended September 30, 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 $19.2 million and $125.5 million and interest rate swaptions resulted in a net pre-tax gain of $1.7 million and a net pre-tax loss of $0.7 million, respectively, for the three and nine months ended September 30, 2013.

The GMWB rider embedded derivative on variable deferred annuities, with the GMWB rider, had net realized gains of $80.5 million and $264.2 million for the three and nine months ended September 30, 2013, respectively .

We use certain interest rate swaps to mitigate the price volatility of fixed maturities. These positions resulted insignificant pre-tax gains for the three months ended September 30, 2013 and $3.0 million net pre-tax gains for the nine months ended September 30, 2013. The pre-tax gains were primarily the result of $0.8 million in unrealized losses and $2.5 million in unrealized gains and $0.9 million and $0.5 million in realized gains due to terminations and interest settlements, during the three and nine months ended September 30, 2013, respectively.

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. No caps positions were held for the three and nine months ended September 30, 2013.

We also use various swaps and other types of derivatives to mitigate risk related to other exposures. These contracts generated insignificant net pre-tax gains and net pre-tax losses of $0.1 million for the three and nine months ended September 30, 2013, respectively .

We recognized pre-tax losses of $0.1 million and $0.1 million for the three and nine months ended September 30, 2013 related to the embedded derivative on the FIA product.

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 September 30, 2013. 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

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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 $1.3 billion, prior to tax and DAC offsets, as of September 30, 2013, and an overall net unrealized gain of $3.1 billion as of December 31, 2012.

For fixed maturity and equity securities held that are in an unrealized loss position as of September 30, 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	$	3,735,817	54.8	%	$	3,923,938	53.4	%	$	(188,121	)	36.1	%
>90 days but <= 180 days	1,910,899		28.0		2,093,300		28.5		(182,401		)	35.0
>180 days but <= 270 days	218,056		3.2		245,295		3.3		(27,239		)	5.2
>270 days but <= 1 year	123,265		1.8		141,191		1.9		(17,926		)	3.4
>1 year but <= 2 years	458,549		6.7		512,152		7.0		(53,603		)	10.3
>2 years but <= 3 years	42,039		0.6		48,304		0.7		(6,265		)	1.2
>3 years but <= 4 years	12,223		0.2		16,010		0.2		(3,787		)	0.7
>4 years but <= 5 years	5,031		0.1		6,088		0.1		(1,057		)	0.2
>5 years	315,784		4.6		356,863		4.9		(41,079		)	7.9
Total	$	6,821,663	100.0	%	$	7,343,141	100.0	%	$	(521,478	)	100.0	%

The majority of the unrealized loss as of September 30, 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. 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 September 30, 2013, the Barclays Investment Grade Index was priced at 137.0 bps versus a 10 year average of 164.1 bps. Similarly, the Barclays High Yield Index was priced at 495.8 bps versus a 10 year average of 603.3 bps. As of September 30, 2013, the five, ten, and thirty-year U.S. Treasury obligations were trading at levels of 1.382%, 2.611%, and 3.686%, as compared to 10 year averages of 2.739%, 3.531%, and 4.251%, respectively.

As of September 30, 2013, 84.1% 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

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

As of September 30, 2013, there were estimated gross unrealized losses of $15.9 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 September 30, 2013, were primarily the result of continued widening spreads, representing marketplace uncertainty arising from higher defaults in Alt-A residential mortgage loans and rating agency downgrades of securities collateralized by Alt-A residential mortgage loans .

We have no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held as of September 30, 2013, is presented in the following table:

	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
Banking	$	589,458	8.6	%	$	640,120	8.7	%	$	(50,662	)	9.7	%
Other finance	149,251		2.2		159,837		2.2		(10,586		)	2.0
Electric	486,974		7.1		519,448		7.1		(32,474		)	6.2
Natural gas	247,203		3.6		279,237		3.8		(32,034		)	6.1
Insurance	409,457		6.0		434,767		5.9		(25,310		)	4.9
Energy	143,305		2.1		155,609		2.1		(12,304		)	2.4
Communications	323,644		4.7		361,527		4.9		(37,883		)	7.3
Basic industrial	355,005		5.2		385,839		5.3		(30,834		)	5.9
Consumer noncyclical	637,882		9.4		696,666		9.5		(58,784		)	11.3
Consumer cyclical	288,247		4.2		314,808		4.3		(26,561		)	5.1
Finance companies	42,195		0.6		43,806		0.6		(1,611		)	0.3
Capital goods	274,144		4.0		285,741		3.9		(11,597		)	2.2
Transportation	134,874		2.0		145,721		2.0		(10,847		)	2.1
Other industrial	99,929		1.5		106,074		1.4		(6,145		)	1.2
Brokerage	109,544		1.6		114,734		1.6		(5,190		)	1.0
Technology	394,970		5.8		419,106		5.7		(24,136		)	4.6
Real estate	606		—		619		—		(13		)	—
Other utility	22,757		0.3		24,899		0.3		(2,142		)	0.4
Commercial mortgage-backed securities	386,439		5.7		403,496		5.5		(17,057		)	3.3
Other asset-backed securities	661,772		9.7		728,507		9.9		(66,735		)	12.8
Residential mortgage-backed non-agency securities	240,939		3.5		260,380		3.5		(19,441		)	3.7
Residential mortgage-backed agency securities	74,562		1.1		77,438		1.1		(2,876		)	0.6
U.S. government-related securities	666,910		9.8		696,907		9.5		(29,997		)	5.8
Other government-related securities	—		—		—		—		—			—
States, municipals, and political divisions	81,596		1.3		87,855		1.2		(6,259		)	1.1
Total	$	6,821,663	100.0	%	$	7,343,141	100.0	%	$	(521,478	)	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
	September 30, 2013		December 31, 2012

Banking	9.7	%	10.2	%
Other finance	2.0		0.5
Electric	6.2		6.6
Natural gas	6.1		4.1
Insurance	4.9		7.3
Energy	2.4		0.3
Communications	7.3		0.4
Basic industrial	5.9		3.2
Consumer noncyclical	11.3		2.7
Consumer cyclical	5.1		0.8
Finance companies	0.3		1.7
Capital goods	2.2		2.0
Transportation	2.1		—
Other industrial	1.2		0.2
Brokerage	1.0		0.4
Technology	4.6		1.0
Real estate	—		—
Other utility	0.4		—
Commercial mortgage-backed securities	3.3		0.4
Other asset-backed securities	12.8		43.9
Residential mortgage-backed non-agency securities	3.7		13.7
Residential mortgage-backed agency securities	0.6		—
U.S. government-related securities	5.8		0.4
Other government-related securities	—		—
States, municipals, and political divisions	1.1		0.2
Total	100.0	%	100.0	%

The range of maturity dates for securities in an unrealized loss position as of September 30, 2013, varies, with 2.2% maturing in less than 5 years, 34.1% maturing between 5 and 10 years, and 63.7% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position as of September 30, 2013:

S&P or Equivalent	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
Designation	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
AAA/AA/A	$	3,506,043	51.4	%	$	3,745,069	51.0	%	$	(239,026	)	45.8	%
BBB	2,563,364		37.6		2,763,004		37.6		(199,640		)	38.3
Investment grade	6,069,407		89.0		6,508,073		88.6		(438,666		)	84.1
BB	308,075		4.5		346,896		4.7		(38,821		)	7.4
B	98,151		1.4		110,350		1.6		(12,199		)	2.4
CCC or lower	346,030		5.1		377,822		5.1		(31,792		)	6.1
Below investment grade	752,256		11.0		835,068		11.4		(82,812		)	15.9
Total	$	6,821,663	100.0	%	$	7,343,141	100.0	%	$	(521,478	)	100.0	%

As of September 30, 2013, we held a total of 588 positions that were in an unrealized loss position. Included in that amount were 117 positions of below investment grade securities with a fair value of $752.3 million that were in an unrealized loss position. Total unrealized losses related to below investment grade securities were $82.8 million, of

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which $39.1 million had been in an unrealized loss position for more than twelve months. Below investment grade securities in an unrealized loss position were 2.1% of invested assets.

As of September 30, 2013, securities in an unrealized loss position that were rated as below investment grade represented 11.0% of the total fair value and 15.9% of the total unrealized loss. After a review of each security and its expected cash flows, we believe the decline in market value to be temporary. We have the ability and intent to hold these securities to maturity. As of September 30, 2013, total unrealized losses for all securities in an unrealized loss position for more than twelve months were $105.8 million. A widening of credit spreads is estimated to account for unrealized losses of $216.3 million, with changes in treasury rates offsetting this loss by an estimated $110.5 million.

The majority of our RMBS holdings as of September 30, 2013, were super senior or senior bonds in the capital structure. Our total non-agency portfolio has a weighted-average life of 4.31 years. The following table categorizes the weighted-average life for our non-agency portfolio, by category of material holdings, as of September 30, 2013:

		Weighted-Average
Non-agency portfolio		Life

Prime		3.62
Alt-A		5.02

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 September 30, 2013:

	Fair		% Fair		Amortized		% Amortized		Unrealized			% Unrealized
	Value		Value		Cost		Cost		Loss			Loss
	(Dollars In Thousands)
<= 90 days	$	449,122	59.7	%	$	482,912	57.8	%	$	(33,790	)	40.8	%
>90 days but <= 180 days	50,192		6.7		58,600		7.0		(8,408		)	10.2
>180 days but <= 270 days	14,481		1.9		15,917		1.9		(1,436		)	1.7
>270 days but <= 1 year	334		—		377		—		(43		)	0.1
>1 year but <= 2 years	66,928		8.9		77,573		9.3		(10,645		)	12.9
>2 years but <= 3 years	903		0.1		1,009		0.1		(106		)	0.1
>3 years but <= 4 years	19,128		2.5		22,793		2.7		(3,665		)	4.4
>4 years but <= 5 years	5,005		0.7		6,019		0.7		(1,014		)	1.2
>5 years	146,163		19.5		169,868		20.5		(23,705		)	28.6
Total	$	752,256	100.0	%	$	835,068	100.0	%	$	(82,812	)	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 subsidiaries. Primary sources of cash from the operating subsidiaries are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash for the operating subsidiaries 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 the cash flows of our operating subsidiaries will be sufficient to meet our investment commitments and operating cash needs in a normal credit market environment, we recognize that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, we have established repurchase agreement programs for certain of our insurance subsidiaries to provide liquidity when needed. We expect that the rate received on our investments will equal or exceed our borrowing rate. 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. The agreements provide for net settlement in the event of default or on termination of the agreements. As of September 30, 2013, the fair value of securities pledged under the repurchase program was $109.6 million and the repurchase obligation of $100.0 million was included in our consolidated condensed balance sheets (at an average borrowing rate of 11 basis points). During the nine months ended September 30, 2013, the maximum balance outstanding at any one point in time related to these programs was $645.1 million. The average daily balance was $417.5 million (at an average borrowing rate of 11 basis points) during the nine months ended September 30, 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 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 our senior unsecured long-term debt (“Senior Debt”), or (ii) the sum of (A) a rate equal to the highest of (x) the Administrative Agent’s prime rate, (y) 0.50% above the Federal Funds rate, or (z) the one-month LIBOR plus 1.00% and (B) a spread based on the ratings of our Senior Debt. The Credit Facility also provides for a facility fee at a rate, currently 0.175%, that varies with the ratings of our Senior Debt and that is calculated on the aggregate amount of commitments under the 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 September 30, 2013. There was an outstanding balance of $350.0 million at an interest rate of LIBOR plus 1.20% under the Credit Facility as of September 30, 2013.

Sources and Use of Cash

Our primary sources of funding are dividends from our operating subsidiaries; revenues from investments, data processing, legal, and management services rendered to subsidiaries; investment income; and external financing. These sources of cash support our general corporate needs including our common stock dividends and debt service. The states in which our insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries’ ability to pay us dividends. These restrictions are based in part on the prior year’s statutory income and/or surplus. Generally, these restrictions pose no short-term liquidity concerns. We plan to retain portions of the earnings of our insurance subsidiaries in those companies primarily to support their future growth.

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

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total assets or 100% of mortgage-related assets of Protective Life Insurance Company, our largest insurance subsidiary, 2) ownership of appropriate capital and activity stock to support continued membership in the FHLB and current and future advances, and 3) the availability of adequate eligible mortgage or treasury/agency collateral to back current and future advances.

We held $64.6 million of FHLB common stock as of September 30, 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 September 30, 2013, we had $821.8 million of funding agreement-related advances and accrued interest outstanding under the FHLB program.

As of September 30, 2013, we reported approximately $597.3 million (fair value) of Auction Rate Securities (“ARS”) in non-Modco portfolios. As of September 30, 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 September 30, 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 $54.6 million and $44.0 million was recorded as of September 30, 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 of our regulated insurance subsidiaries primarily relate to the liabilities associated with their various insurance and investment products, operating expenses, and income taxes. Liabilities arising from insurance and investment products include the payment of policyholder benefits, as well as cash payments in connection with policy surrenders and withdrawals, policy loans, and obligations to redeem funding agreements.

Our insurance subsidiaries 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, our insurance subsidiaries 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. As of September 30, 2013, our total cash and invested assets were $35.9 billion. The life insurance subsidiaries were committed as of September 30, 2013, to fund mortgage loans in the amount of $288.9 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. Our insurance subsidiaries held approximately $444.9 million in cash and

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short-term investments as of September 30, 2013, and we held $61.1 million in cash available for general corporate purposes .

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

	For The
	Nine Months Ended
	September 30,
	2013			2012
	(Dollars In Thousands)

Net cash provided by operating activities	$	443,103		$	382,975
Net cash used in investing activities	(661,010		)	(26,295		)
Net cash provided by (used in) financing activities	203,555			(417,966		)
Total	$	(14,352	)	$	(61,286	)

For The Nine Months Ended September 30, 2013 as compared to The Nine Months Ended September 30, 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 $215.1 million inflows of investment product and universal life net activity, as compared to $360.9 million of outflows in the prior year. We had outflows of $50.0 million from repurchase program borrowings as compared to inflows of $280.0 million for the nine months ended September 30, 2012. Net activity related to credit facility and debt obligations resulted in inflows of $50.0 million for the nine months ended September 30, 2013, as compared to net outflows of $104.2 million for the nine months ended September 30, 2012. Net issuances of non-recourse funding obligations equaled $33.9 million during the nine months ended September 30, 2013, as compared to repurchases of $110.8 million during the nine months ended September 30, 2012 . In addition, we did not repurchase any common stock for the nine months ended September 30, 2013, as compared to repurchases of $78.7 million for the nine months ended September 30, 2012.

Capital Resources

To give us flexibility in connection with future acquisitions and other funding needs, we have 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 of PLICO, had three series of Surplus Notes with a total outstanding balance of $800 million as of September 30, 2013. We hold the entire outstanding balance of Surplus Notes. The Series A1 Surplus Notes have a balance of $400 million and accrue interest at 7.375%, the Series A2 Surplus Notes have a balance of $100 million and accrue interest at 8%, and the Series A3 Surplus Notes have a balance of $300 million and accrue interest at 8.45%.

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Golden Gate II Captive Insurance Company (“Golden Gate II”), a special purpose financial captive insurance company wholly owned by PLICO, had $575.0 million of outstanding non-recourse funding obligations as of September 30, 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 September 30, 2013, securities related to $269.9 million of the outstanding balance of the non-recourse funding obligations were held by external parties and securities related to $305.1 million of the non-recourse funding obligations were held by the Company and our affiliates. 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 a 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 special purpose trusts, as holders of the non-recourse funding obligations, cannot require repayment from us or any of our subsidiaries, other than Golden Gate II, the direct issuer of the non-recourse funding obligations, although we have agreed to indemnify Golden Gate II for certain costs and obligations (which obligations do not include payment of principal and interest on the surplus notes). In addition, we have entered into certain support agreements with Golden Gate II obligating us to make capital contributions or provide support related to certain of Golden Gate II’s expenses and in certain circumstances, to collateralize certain of our obligations to Golden Gate II. These support agreements provide that amounts would become payable by the Company to Golden Gate II if its annual general corporate expenses were higher than modeled amounts or if Golden Gate II’s investment income on certain investments or premium income was below certain actuarially determined amounts. As of September 30, 2013, no payments are expected to be required under these agreements.

Golden Gate III Vermont Captive Insurance Company (“Golden Gate III”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary of PLICO, 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 (the “First Amended and Restated Reimbursement Agreement”), 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. On August 7, 2013, we entered into a Second Amended and Restated Reimbursement Agreement with UBS (the “Second Amended and Restated Reimbursement Agreement”), which amended and restated the First Amended and Restated Reimbursement Agreement. Under the Second and Amended and Restated Reimbursement Agreement a new LOC in an initial amount of $710 million was issued by UBS in replacement of the existing LOC issued under the First Amended and Restated Reimbursement Agreement. The term of the LOC was extended from April 1, 2022 to October 1, 2023, subject to certain conditions being satisfied including scheduled capital contributions being made to Golden Gate III by one of its affiliates. The maximum stated amount of the LOC was increased from $610 million to $720 million in 2015 if certain conditions are met. The LOC is held in trust for the benefit of WCL, and supports certain obligations of Golden Gate III to WCL under an indemnity reinsurance agreement originally effective April 1, 2010, as amended and restated on November 21, 2011, and as further amended and restated on August 7, 2013 to include an additional block of policies, and pursuant to which WCL cedes liabilities relating to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. The LOC balance was $710 million as of September 30, 2013. Subject to certain conditions, the amount of the LOC will be periodically increased up to a maximum of $720 million in 2015. The term of the LOC is expected to be approximately 13.5 years from the original issuance date. This transaction is “non-recourse” to WCL, PLICO, and the Company, meaning that none of these companies other than Golden Gate III are liable for reimbursement on a draw of the LOC. 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. Future scheduled capital contributions amount to approximately $149.8 million and will be paid in three installments with the last payment occurring in 2019, and these contributions may be subject to potential offset against dividend payments as permitted under the terms of the Second Amended and Restated Reimbursement Agreement. The support agreements provide that amounts would become payable by us to Golden Gate III if its annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate III. Pursuant to the terms of an

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amended and restated letter agreement with UBS, we have continued to guarantee the payment of fees to UBS as specified in the Second and Amended and Restated Agreement. As of September 30, 2013, no payments are expected to be required under these agreements.

Golden Gate IV Vermont Captive Insurance Company (“Golden Gate IV”), a Vermont special purpose financial captive insurance company and wholly owned subsidiary of PLICO, is party to a Reimbursement Agreement with UBS AG, Stamford Branch, as issuing lender. Under the Reimbursement Agreement, dated December 10, 2010, UBS issued an LOC in the initial amount of $270 million to a trust for the benefit of WCL. The LOC balance has increased, in accordance with the terms of the Reimbursement Agreement, during each of the first three quarters of 2013 and was $690 million as of September 30, 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 from the original issuance date and with a maturity date of December 30, 2022. The LOC was issued to support certain obligations of Golden Gate IV to WCL under an indemnity reinsurance agreement, pursuant to which WCL cedes liabilities related to the policies of WCL and retrocedes liabilities relating to the policies of PLICO. This transaction is “non-recourse” to WCL, PLICO, and the Company, meaning that none of these companies other than Golden Gate IV are liable for reimbursement on a draw of the LOC. 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. The support agreements provide that amounts would become payable by us to Golden Gate IV if its annual general corporate expenses were higher than modeled amounts or if specified catastrophic losses occur during defined time periods with respect to the policies reinsured by Golden Gate IV. We have also entered into a separate agreement to guarantee the payments of LOC fees under the terms of the Reimbursement Agreement. As of September 30, 2013, no payments are expected to be required under these agreements.

On October 10, 2012, Golden Gate V Vermont Captive Insurance Company (“Golden Gate V”) and Red Mountain, LLC (“Red Mountain”), indirect 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 our direct wholly owned subsidiary PLICO and indirect wholly owned 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 PLICO. 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, PLICO 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 September 30, 2013, the principal balance of the Red Mountain note was $350 million. In connection with the transaction, we have entered into certain support agreements under which we guarantee or otherwise support certain obligations of Golden Gate V or Red Mountain. Future scheduled capital contributions to prefund credit enhancement fees amount to approximately $144.3 million and will be paid in annual installments through 2031. The support agreements provide that amounts would become payable by us if Golden Gate V’s annual general corporate expenses were higher than modeled amounts or in the event write-downs due to other-than-temporary impairments on assets held in certain accounts exceed defined threshold levels. Additionally, we have entered into separate agreements to indemnify Golden Gate V with respect to material adverse changes in non-guaranteed elements of insurance policies reinsured by Golden Gate V, and to guarantee payment of certain fee amounts in connection with the credit enhancement of the Red Mountain note. As of September 30, 2013, no payments are expected to be required under these agreements.

A life insurance company’s statutory capital is computed according to rules prescribed by the NAIC, as modified by state law. Generally speaking, other states in which a company does business defer to the interpretation of the domiciliary state with respect to NAIC rules, unless inconsistent with the other state’s regulations. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view, for example, requiring immediate expensing of policy acquisition costs. The NAIC’s risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of our insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or our equity contributions. In general,

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dividends up to specified levels are considered ordinary and may be paid thirty days after written notice to the insurance commissioner of the state of domicile unless such commissioner objects to the dividend prior to the expiration of such period. Dividends in larger amounts are considered extraordinary and are subject to affirmative prior approval by such commissioner. The maximum amount that would qualify as an ordinary dividend to us from our insurance subsidiaries in 2013 is estimated to be $469.3 million.

State insurance regulators and the NAIC have adopted risk-based capital (“RBC”) requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. A company’s risk-based statutory surplus is calculated by applying factors and performing calculations relating to various asset, premium, claim, expense, and reserve items. Regulators can then measure the adequacy of a company’s statutory surplus by comparing it to the RBC. We manage our capital consumption by using the ratio of our total adjusted capital, as defined by the insurance regulators, to our company action level RBC (known as the RBC ratio), also as defined by insurance regulators.

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, we established an indirect wholly owned insurance subsidiary, Shades Creek Captive Insurance Company (“Shades Creek”), to which PLICO has reinsured GMWB and GMDB riders related to its 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, we entered into an intercompany capital support agreement with Shades Creek. The agreement provides through a guarantee that we 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 September 30, 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 the Company.

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We cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. However, notwithstanding the transfer of related assets, we remain liable with respect to ceded insurance should any reinsurer fail to meet the obligations that it assumed. We evaluate the financial condition of our reinsurers and monitor the associated concentration of credit risk. For the three and nine months ended September 30, 2013, we ceded premiums to unaffiliated third party reinsurers amounting to $270.7 million and $996.6 million, respectively. In addition, we had receivables from unaffiliated reinsurers amounting to $5.7 billion as of September 30, 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 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 September 30, 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 the financial strength ratings 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.

Rating organizations also publish credit ratings for the issuers of debt securities, including the Company. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important in the debt issuer’s overall ability to access credit markets and other types of liquidity. Ratings are not recommendations to buy our securities or products. A downgrade or other negative action by a ratings organization with respect to our credit rating could limit our access to capital markets, increase the cost of issuing debt, and a downgrade of sufficient magnitude, combined with other negative factors, could require us to post collateral.

LIABILITIES

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

As of September 30, 2013, we had policy liabilities and accruals of approximately $23.5 billion. Our interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.52%.

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.

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Examples of fixed obligations include our obligations to pay principal and interest on fixed-rate borrowings. Examples of obligations that will vary include obligations to pay interest on variable-rate borrowings and insurance liabilities that depend on future interest rates, market performance, or surrender provisions. Many of our obligations are linked to cash-generating contracts. In addition, our operations involve significant expenditures that are not based upon contractual obligations. These include expenditures for income taxes and payroll.

As of September 30, 2013, we carried a $77.8 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
			Less than						More than
	Total		1 year		1-3 years		3-5 years		5 years
	(Dollars In Thousands)
Debt (1)	$	2,454,234	$	84,614	$	305,211	$	651,940	$	1,412,469
Non-recourse funding obligations (2)	2,242,231		26,271		65,539		80,972		2,069,449
Subordinated debt securities (3)	1,443,592		33,283		66,566		66,566		1,277,177
Stable value products (4)	2,616,831		532,720		1,356,679		649,593		77,839
Operating leases (5)	19,526		5,987		8,681		2,730		2,128
Home office lease (6)	75,245		75,245		—		—		—
Mortgage loan and investment commitments	297,157		297,157		—		—		—
Repurchase program borrowings (7)	100,000		100,000		—		—		—
Policyholder obligations (8)	33,974,338		1,303,984		2,535,676		2,297,362		27,837,316
Total (9)	$	43,223,154	$	2,459,261	$	4,338,352	$	3,749,163	$	32,676,378

(1)	Debt includes all principal amounts owed on note agreements and expected interest payments due over the term of the notes.
(2)	Non-recourse funding obligations include all undiscounted principal amounts owed and expected future interest payments due over the term of the notes. Of the total undiscounted cash flows, $1.9 billion relates to the Golden Gate V transaction. These cash out flows are matched and predominantly offset by the cash in flows Golden Gate V receives from notes issued by a nonconsolidated variable interest entity. The remaining amounts are associated with the Golden Gate II notes outstanding and held by third parties.
(3)	Subordinated debt securities includes all principal amounts and interest payments due over the term of the obligations.
(4)	Anticipated stable value products cash flows including interest.
(5)	Includes all lease payments required under operating lease agreements.
(6)	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.
(7)	Represents secured borrowings as part of our repurchase program as well as related interest.
(8)	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 do not incorporate an expectation of future sales. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. Separate account obligations are excluded from the chart as variable separate account obligations are legally insulated from general account obligations and 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 assets.
(9)	Excluded from this table are certain pension obligations.

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

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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 13, 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 September 30, 2013, $986.1 million of available-for-sale and trading account assets, excluding other long-term investments, were classified as Level 3 fair value assets.

The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality, and other deal specific factors, where appropriate. The fair values of derivative assets and liabilities traded in the over-the-counter market are determined using quantitative models that require the use of multiple market inputs including interest rates, prices, and indices to generate continuous yield or pricing curves and volatility factors. 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 September 30, 2013, the Level 3 fair values of derivative assets and liabilities determined by these quantitative models were $153.6 million and $286.5 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 September 30, 2013, the Level 3 fair value of these liabilities was $110.6 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 $1.1 billion, or 2.7%, of total assets (measured at fair value on a recurring basis) classified as Level 3 assets, $719.8 million were ABS. Of this amount, $575.8 million were student loan related ABS and $144.0 million were non-student loan related ABS. The years of issuance of the ABS are as follows:

Year of Issuance	Amount
	(In Millions)
2002	$	276.3
2003	110.9
2004	113.1
2006	13.1
2007	101.8
2012	104.6
Total	$	719.8

The ABS was rated as follows: $462.6 million were AAA rated, $162.8 million were AA rated, $88.0 million were A rated, $5.4 million were BBB rated, and $1.0 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.

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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 14, Derivative Financial Instruments for additional information on our financial instruments.

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

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

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

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

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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 .

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 September 30, 2013, we had outstanding mortgage loan commitments of $288.9 million at an average rate of 4.9%.

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 have a minimum guaranteed 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 September 30, 2013
				1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total
	(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	38		$	998		$	1,964		$	3,000
>3% - 4%	2,872			2,037			207			5,116
>4% - 5%	1,672			102			—			1,774
>5% - 6%	220			4			—			224
Subtotal	4,802			3,141			2,171			10,114

Fixed Annuities
1%	$	542		$	344		$	653		$	1,539
>1% - 2%	548			157			543			1,248
>2% - 3%	1,548			530			281			2,359
>3% - 4%	308			—			—			308
>4% - 5%	233			—			—			233
Subtotal	3,179			1,031			1,477			5,687
Total	$	7,981		$	4,172		$	3,648		$	15,801

Percentage of Total	51		%	26		%	23		%	100		%

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

Credited Rate Summary
As of December 31, 2012
				1-50 bps			More than
Minimum Guaranteed Interest Rate	At			above			50 bps
Account Value	MGIR			MGIR			above MGIR			Total
	(Dollars In Millions)
Universal Life Insurance
>2% - 3%	$	36		$	1		$	911		$	948
>3% - 4%	1,402			649			1,137			3,188
>4% - 5%	2,058			3,069			385			5,512
>5% - 6%	223			—			—			223
Subtotal	3,719			3,719			2,433			9,871

Fixed Annuities
1%	$	275		$	104		$	477		$	856
>1% - 2%	570			459			489			1,518
>2% - 3%	1,544			353			892			2,789
>3% - 4%	347			—			—			347
>4% - 5%	240			—			—			240
Subtotal	2,976			916			1,858			5,750
Total	$	6,695		$	4,635		$	4,291		$	15,621

Percentage of Total	43		%	30		%	27		%	100		%

Certain deferred fixed annuity products have been reclassified between ranges as of December 31, 2012 to make the year-end period comparable to the current quarter. The reclassifications did not change the prior year total, only the classification within the ranges.

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.

IMPACT OF INFLATION

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

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

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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 , “Executive Summary” and “Liquidity and Capital Resources”, and Part II, Item 1A, Risk Factors of this Report for market risk disclosures in light of the current 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 nine months ended September 30, 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.

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 .

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

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

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

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

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

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

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.

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

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

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

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

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

The Company is subject to government regulation in each of the states in which it conducts business. In many instances, the regulatory models emanate from the National Association of Insurance Commissioners (“NAIC”). Such 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. In August, the Financial Stability Board (“FSB”) released a report encouraging the U.S. to move toward a federal regulatory system for insurance. The International Association of Insurance Supervisors (“IAIS”) also announced an intention to develop a global capital standard for insurers. These are only a few examples of international developments impacting the global

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insurance market. At this time, FSB reports, IAIS Insurance Core Principles, and other international work products are not directly binding on the U.S. or any U.S. insurer. However, there is increasing pressure to conform to international standards due to the globalization of the business of insurance and the recent financial crisis. Any international reports or mandates that directly impact, or indirectly influence, the nature of U.S. regulation or industry operations could impact the Company.

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

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

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 product designs, including some of those offered by the Company’s subsidiaries before January 1, 2013, unprofitable to the Company if issued after 2012 unless prices are increased. The Company has developed and introduced a new ULSG product for sales in 2013. The Company cannot predict future regulatory actions that could negatively impact the Company’s ability to market its new product. Such regulatory reactions could include, for example, withdrawal of state approvals of the new product or adoption of further changes to AG38 or other adverse action including retroactive regulatory action that could negatively impact the Company’s new 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 currently 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. However, 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, which was recently adopted

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by the NAIC Financial Condition (“E”) Committee and Executive Committee/Plenary. The Financial Condition Committee also adopted an “interim solution for captives” in the form of a new charge for the Financial Analysis Working Group (“FAWG”). FAWG will now be reviewing captive transactions submitted by the states, in a peer review and comment process, while the remaining recommendations in the White Paper are divided among the NAIC Reinsurance (“E”) Task Force and the Principles Based Reserving Implementation (“EX”) Task Force. 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 materially adversely affects the Company’s use or materially 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. If the Company were required to discontinue its use of captives for intercompany reinsurance transactions on a retroactive basis, adverse impacts would include early termination fees payable with respect to certain structures, diminished capital position and higher cost of capital. Additionally, finding alternative means to support policy liabilities efficiently is an unknown factor that would be dependent, in part, on future market conditions and the Company’s ability to obtain required regulatory approvals. On a prospective basis, discontinuation of the use of captives could impact the types, amounts and pricing of products offered by the Company’s insurance subsidiaries.

Recently, new laws and regulations have been adopted that require life insurers to search for unreported deaths. 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. Life insurance industry associations and regulatory associations are also considering these matters.

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 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

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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 . Additionally, the California Controller has recently sued two insurance carriers for alleged failure to comply with audit requests from an appointed third party auditor. The Company cannot predict whether California might pursue a similar action against the Company and further cannot predict whether other jurisdictions might pursue similar actions. The Company does not believe however that any such action would have a material impact on the Company’s financial results from operations.

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

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

At the federal level, bills are routinely introduced in both chambers of the United States Congress (“Congress”) that could affect life insurers. In the past, Congress has considered legislation that would impact insurance companies in numerous ways, such as providing for an optional federal charter or a federal presence for insurance, preempting state law in certain respects regarding the regulation of reinsurance, increasing federal oversight in areas such as consumer protection and other matters. The Company cannot predict whether or in what form legislation will be 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

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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 a systemically important financial institution (“SIFI”). A non-bank financial company, such as the Company, that is designated as a SIFI 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, and other ways the Company currently cannot anticipate, 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 FSOC has made its initial SIFI designations, and the Company was not designated. However, the Company could be considered and designated at any time. Because the process is in its initial stages, the Company is, at this time, unable to predict the impact on an entity that is supervised as a SIFI by the Federal Reserve Board. The Company is not able to predict whether the capital requirements or other requirements imposed on SIFIs may impact the requirements applicable to the Company even if it is not designated as a SIFI. The uncertainty about regulatory requirements could influence the Company’s product line or other business decisions with respect to some product lines . There is a similarly uncertain international designation process. The Financial Stability Board, appointed by the G-20 Summit, recently designated nine insurers as “G-SII’s,” or globally systemic insurance institutions. As with SIFI’s, it is unclear at this time what additional capital and other requirements may be required, or what the overall impact on industry will be. The insurers designated to date represent organizations larger than the Company, but the possibility remains that the Company could be designated.

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. CFPB has issued a rule to bring under its supervisory authority certain nonbanks whose activities it determines pose risks to consumers. It is unclear at this time which products will be covered by this rule. Certain of the Company’s subsidiaries sell products that may be regulated by the CFPB. Additionally, the CFPB is exploring the possibility of helping Americans manage their retirement savings and is considering the extent of its authority in that area. The Company is unable, at this time, to predict the impact of these activities on the Company.

In addition, Dodd-Frank includes a new framework of regulation of over-the-counter (“OTC”) derivatives markets which requires clearing of certain types of transactions which have been or are currently traded OTC by the Company. The types of transactions to be cleared are expected to increase in the future. The new framework could potentially impose additional costs, including increased 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 continue to reduce its liquidity and require an increase in its holdings of cash and government securities with lower yields causing a reduction in income. The Company uses derivative financial instruments to mitigate a wide range of risks in connection with its businesses, including those arising from its variable annuity products with guaranteed benefit features. The derivative clearing requirements of Dodd-Frank could continue to 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.

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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.

In addition, the SEC is reviewing the standard of conduct applicable to brokers, dealers, and investment advisers when those entities provide personalized investment advice about securities to retail customers. FINRA too has issued a report addressing how its member firms might identify and address conflicts of interest including conflicts related to the introduction of new products and services and the compensation of the member firms’ associated persons. These regulatory initiatives could have an impact on the manner in which broker-dealers and investment advisers distribute the Company’s products and could have an impact on its 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.

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

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

Under the Internal Revenue Code of 1986, as amended (the “Code”), income taxes payable by policyholders on investment earnings is deferred during the accumulation period of most life insurance and annuity products. This favorable tax treatment provides some of the Company’s products with a competitive advantage over products offered by non-insurance companies. To the extent that the Code is revised to either reduce the tax-deferred status of life insurance and annuity products or establish the tax-deferred status of new or competing products, then all life insurance companies (including the Company’s subsidiaries) would be adversely affected with respect to their ability to sell such products. Furthermore, depending upon grandfathering provisions, such changes could cause increased surrenders of existing life insurance and annuity products. For example, new legislation that further restricts the deductibility of interest on funds borrowed to purchase corporate-owned life insurance products could result in increased surrenders of these products.

The Company is subject to the federal corporate income tax. It currently benefits from certain tax provisions, such as the dividends-received deduction, the deferral of certain types of economic income from derivatives and securities, and the deduction for future policy benefits and claims. The Administration and Congress have separately made proposals that either materially change or eliminate these benefits. Most of the foregoing proposals would cause the Company to pay higher current taxes, offset by a reduction in its deferred taxes. However, the proposal regarding the dividends-received deduction would cause the Company’s net income and earnings per share to decrease. Whether these proposals will be enacted, and if so, whether they will be enacted as described above, is uncertain.

The Company’s mid-2005 transition from relying on reinsurance for newly-written traditional life products to reinsuring some of these products’ reserves into its captive insurance companies resulted in a net reduction in its current taxes, offset by an increase in its deferred taxes. The resulting benefit of reduced current taxes is attributed to the applicable life products and is an important component of the profitability of these products. The profitability and competitive position of these products is dependent on the continuation of current tax law and the ability to generate taxable income.

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

A disruption affecting the electronic systems of the Company or those on whom the Company relies could adversely affect the Company’s business, financial condition and results of operations.

In conducting its business, the Company relies extensively on various electronic systems, including computer systems, data processing and administrative systems, and communication systems. The Company’s business partners, counter parties, service providers and distributors also rely on such systems, as do securities exchanges and financial markets that are important to the Company’s ability to conduct its business. These systems could be disrupted, damaged or destroyed by intentional or unintentional acts or events such as cyber-attacks, viruses, sabotage, fire, flooding, human error, system failures, and failures of power or water supply. They may also be disrupted, damaged or destroyed by natural events such as storms, floods or earthquakes. While the Company and others on whom it depends try to identify threats and implement measures to protect their systems, such protective measures may not be sufficient. Disruption, damage or destruction of any of these systems could cause the Company or others on whom the Company relies to be unable to conduct business for an extended period of time, which could materially adversely impact the Company’s business and its financial condition and results of operations.

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Confidential information maintained in the Company’s systems could be compromised or misappropriated, damaging the Company’s business and reputation and adversely affecting its financial condition and results of operations.

In the course of conducting its business, the Company retains confidential information, including information about its customers and proprietary business information. The Company maintains physical, administrative, and technical safeguards to protect the information. The Company retains confidential information in various electronic systems, including computer systems, data processing and administrative systems, and communication systems. The Company relies on commercial technologies to maintain the security of those systems and to maintain the security of its transmission of such information to other parties, including its business partners, counter parties and service providers. An intentional or unintentional breach or compromise of the Company’s security measures could result in the disclosure, misappropriation, misuse, alteration or destruction of the confidential information retained by the Company, which could damage the Company’s business and reputation, and adversely affect its financial condition and results of operations by, among other things, causing harm to the Company’s customers, deterring customers and others from doing business with the Company, subjecting the Company to significant civil and criminal liability, and requiring the Company to incur significant legal and other expenses.

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

On October 1, 2013, Protective Life Insurance Company, a wholly owned subsidiary of the Company, completed the acquisition of MONY Life Insurance Company and reinsured certain business of MONY Life Insurance Company of America (collectively, the “MONY acquisition”). Integration of the MONY acquisition may be more expensive, more difficult, or take longer than expected; the actual financial results of the MONY acquisition 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 MONY acquisition 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 (“FHFA”) 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 Federal Home Loan Bank (“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 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. The FHFA has 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.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended September 30, 2013, the Company issued no securities in transactions which were not registered under the Securities Act of 1933, as amended (the “Act”).

Purchases of Equity Securities by the Issuer

During the nine months ended September 30, 2013, the Company did not repurchase any of its common stock.

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Item 6. Exhibits

Item
Number		Document
*2(b)		Master Agreement by and among AXA Equitable Financial Services, LLC, AXA Financial, Inc. and Protective Life Insurance Company, dated as of April 10, 2013, filed as exhibit 2(b) to the Company’s Quarterly Report on Form 10-Q filed August 2, 2013.
*3(b)		2013 Amended and Restated Bylaws of the Company, as adopted February 25, 2013, filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed February 27, 2013. (No. 001-11339)
*10(h)		Stock Plan for Non-Employee Directors of the Company, filed as Exhibit 10(h) to the Company’s Quarterly Report on Form 10-Q filed August 2, 2013.
**10(p)		Second Amended and Restated Reimbursement Agreement dated as of August 7, 2013 between Golden Gate III Vermont Captive Insurance Company and USB AG, Stamford Branch, filed herewith.
10(q)		Amended and Restated Guarantee Agreement dated as of August 7, 2013 between the Company and UBS AG, Stamford Branch, filed herewith.
31(a)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
31(b)		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.
32(a)		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
32(b)		Certification Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.
101		Financial statements from the quarterly report on Form 10-Q of Protective Life Corporation for the quarter ended September 30, 2013, filed on November 4, 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 Statement of Shareowners’ Equity, (v) the Consolidated Condensed Statements of Cash Flows, and (iv) the Notes to Consolidated Condensed Financial Statements.

*		Incorporated by Reference
†		Management contract or compensatory plan or arrangement
**		Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment. The non-public information has been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

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SIGNATURE

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

	PROTECTIVE LIFE CORPORATION


Date: November 4, 2013	By:	/s/ Steven G. Walker
		Steven G. Walker
		Senior Vice President, Controller and Chief Accounting Officer

132

Exhibit 10.(p)

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

SECOND AMENDED AND RESTATED

REIMBURSEMENT AGREEMENT

dated as of

August 7, 2013

between

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY,

as Borrower,

and

UBS AG, STAMFORD BRANCH,

as Issuing Lender

TABLE OF CONTENTS

		Page
Article I

DEFINITIONS

Section 1.01.	Defined Terms	1
Section 1.02.	Terms Generally	18
Section 1.03.	Accounting Terms	18

Article II

LETTER OF CREDIT FACILITY

Section 2.01.	Letter of Credit Facility	19
Section 2.02.	Termination of the Letter of Credit	24
Section 2.03.	Fees	25
Section 2.04.	Yield Protection	25
Section 2.05.	Taxes	27
Section 2.06.	Payments	30
Section 2.07.	Evidence of Indebtedness	30

Article III

REGULATORY ACCOUNT; SURPLUS ACCOUNT; REINSURANCE TRUST ACCOUNT; PRIORITY OF PAYMENTS

Section 3.01.	Regulatory Account and Administrative Account	31
Section 3.02.	Surplus Account of the Borrower	31
Section 3.03.	Reinsurance Trust Account	32
Section 3.04.	Procedures for Depositing Cash and Crediting Securities to Surplus Account	32
Section 3.05.	Priority of Payments	32

Article IV

REPRESENTATIONS AND WARRANTIES

Section 4.01.	Borrower Representations and Warranties	35

Article V

CONDITIONS

Section 5.01.	Closing Conditions	38

Section 5.02.	Conditions to Increase the LOC Amount	40

Article VI

BORROWER COVENANTS

Section 6.01.	Borrower Covenants	41

Article VII

COLLATERAL AND SECURITY

Section 7.01.	Obligations Secured Hereby	50
Section 7.02.	Collateral	50
Section 7.03.	Perfection of Security Interest in Collateral	51
Section 7.04.	Continuing Security Interest, Termination	52
Section 7.05.	Protection of Collateral	52
Section 7.06.	Performance of Obligations	52
Section 7.07.	Power of Attorney	53
Section 7.08.	No Pledge of Collateral to Others	53
Section 7.09.	No Change in Borrower Name, Structure or Office	53
Section 7.10.	Release of Collateral	53
Section 7.11.	Notice of Exclusive Control	54

Article VIII

EVENTS OF DEFAULT

Section 8.01.	Events of Default	54

Article IX

MISCELLANEOUS

Section 9.01.	Notices	57
Section 9.02.	Waivers; Amendments	58
Section 9.03.	Survival of Representations and Warranties	58
Section 9.04.	Indemnity	58
Section 9.05.	Successors and Assigns; Participations and Assignments	59
Section 9.06.	Counterparts; Integration; Effectiveness	60
Section 9.07.	Governing Law; Jurisdiction	60
Section 9.08.	Right of Setoff	61
Section 9.09.	Collateral Assignment of Rights	61
Section 9.10.	Expenses	61
Section 9.11.	Further Assurances	62
Section 9.12.	Headings	62

Section 9.13.	Confidentiality	62
Section 9.14.	Special Dividend	63
Section 9.15.	Severability	63
Section 9.16.	WAIVER OF JURY TRIAL	63
Section 9.17.	USA Patriot Act	63
Section 9.18.	Usury Savings Clause	63
Section 9.19.	Third Party Beneficiary	64
Section 9.20.	Consent to Amendments	64

iii

SCHEDULES:

SCHEDULE 1	Borrower Reporting Documents
SCHEDULE 2	Dividend Formula
SCHEDULE 3	Scheduled LOC Amount
SCHEDULE 4	Restricted List
SCHEDULE 5	Financial and Actuarial Projections and Modeling Information

EXHIBITS:

EXHIBIT A	Draw Certification Notice
EXHIBIT B	Investment Guidelines
EXHIBIT C	Reinsurance Agreement
EXHIBIT D	Form of Letter of Credit
EXHIBIT E	Form of Assignment and Acceptance
EXHIBIT F	Form of Officer’s Certificate pursuant to Section 2.01(b)
EXHIBIT G	Form of Officer’s Certificate pursuant to Section 2.01(c)
EXHIBIT H	PLICO Reinsurance Agreement

This SECOND AMENDED AND RESTATED REIMBURSEMENT AGREEMENT (this “ Agreement ”), dated as of August 7, 2013 (the “ Amendment Closing Date ”), by and between Golden Gate III Vermont Captive Insurance Company, a special purpose financial captive insurance company incorporated under the laws of the State of Vermont (the “ Borrower ”) and UBS AG, Stamford Branch, as the issuing lender (the “ Issuing Lender ”) amends and restates in its entirety, the Amended and Restated Reimbursement Agreement, dated as of April 23, 2010 and amended and restated as of February 14, 2011 and as of November 21, 2011 (the “ Prior Closing Date ”), between the Borrower and the Issuing Lender (the “ Original Agreement ”).

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

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

WHEREAS, pursuant to the Original Agreement, the Borrower requested that the Issuing Lender establish a Letter of Credit for the benefit of the Reinsurance Trustee;

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

WHEREAS, the Borrower and the Issuing Lender have agreed to amend and restate the Original Agreement to make certain modifications as set forth herein; provided , that all matters occurring under or in connection with the Agreement prior to the Amendment Closing Date shall be determined in accordance with the provisions of the Original Agreement.

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

ARTICLE I

DEFINITIONS

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

“ Acceleration Notice ” means a written notice from the Issuing Lender to the Reinsurance Trustee, as beneficiary of the Letter of Credit, with a copy to the Borrower, in the form of Schedule C to the Letter of Credit.

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

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

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

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

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

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

“ Amendment Closing Date ” has the meaning assigned to it in the preamble.

“ Amendment Effective Date ” means July 1, 2013.

“ Anti-Terrorism Laws ” shall mean any applicable law, rule, regulation, executive order, decree, ordinance, rule or regulation related to terrorism financing or money laundering including the USA Patriot Act, The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and Executive Order 13224 (effective September 24, 2001).

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

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

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

“ Assumed IBNR Amount ” means $240,998.

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

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

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

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

“ Calculation Date ” means six (6) months from the Amendment Effective Date.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“ Early Termination Fee ” has the meaning assigned to it in the Fee Letter.

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

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

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

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

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

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

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

“ Excluded Taxes ” means, with respect to the Issuing Lender and any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) income, franchise or similar taxes, in each case, imposed on (or measured by) its net income by the United States of America, or by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of a jurisdiction (or any political subdivision thereof) that imposes taxes on the basis of management or control or other concept or principle of residence, the jurisdiction (or any political subdivision thereof) in which such recipient is so resident, (b) Taxes imposed by reason of such Person having a former or present connection with or being engaged in business in the jurisdiction (or any political subdivision thereof) imposing such Taxes, other than a connection or business arising or deemed to arise as a result of the execution and delivery of this Agreement or the performance of any action provided for or enforcement of any rights hereunder, (c) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which the Borrower is located, (d) any withholding tax that is attributable to the Issuing Lender’s failure to comply with Section 2.05(e) and (e) any U.S. federal withholding Taxes imposed by Section 1471 through 1474 of the Code and any regulations or official interpretations thereof.

“ Existing Letter of Credit ” means Letter of Credit No. WALI-A04759-1MON issued by the Issuing Lender to the Reinsurance Trustee for the account of the Borrower pursuant to the Original Agreement on the Prior Closing Date, as amended thereafter.

“ Facility Maturity Date ” means October 1, 2023, unless accelerated to an earlier date in accordance with Section 2.01(c) .

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

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

“ Fee Letter ” means that certain Amended and Restated Fee Letter, dated as of the Amendment Closing Date, by and between the Borrower and the Issuing Lender.

“ Fees ” means, collectively, any Utilization Fee and Early Termination Fee.

“ Fifth Remainder Contribution ” means, in the event that the Fifth Required Additional Contribution is less than the sum of (i) the Fifth Scheduled Additional Contribution and (ii) the Fourth Remainder Contribution, the absolute value of the difference between such

Fifth Required Additional Contribution and such sum of (a) the Fifth Scheduled Additional Contribution and (b) the Fourth Remainder Contribution.

“ Fifth Required Additional Contribution ” means the additional equity contribution, if any, contributed on or prior to the Fifth Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of:

(a) the sum of (i) the Fifth Scheduled Additional Contribution and (ii) the Fourth Remainder Contribution, if any, and

(b) the applicable Reduced Contribution.

“ Fifth Required Additional Contribution Date ” means December 31, 2019.

“ Fifth Scheduled Additional Contribution ” means the excess (if any) of (a) $[****] over (b) the Dividend Amount, if any, for the Dividend Year ending on [****].

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

“ First Required Additional Contribution ” means the additional equity contribution, if any, contributed at least forty (40) calendar days prior to the First Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of (i) the First Scheduled Additional Contribution and (ii) the applicable Reduced Contribution.

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

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

“ Fitch ” means Fitch Ratings.

“ Fourth Remainder Contribution ” means, in the event that the Fourth Required Additional Contribution is less than the sum of (i) the Fourth Scheduled Additional Contribution and (ii) the Third Remainder Contribution, the absolute value of the difference between such Fourth Required Additional Contribution and such sum of (a) the Fourth Scheduled Additional Contribution and (b) the Third Remainder Contribution.

“ Fourth Required Additional Contribution ” means the additional equity contribution, if any, contributed on or prior to the Fourth Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of:

(a) the sum of (i) the Fourth Scheduled Additional Contribution and (ii) the Third Remainder Contribution, if any, and

(b) the applicable Reduced Contribution.

“ Fourth Required Additional Contribution Date ” means December 31, 2017.

“ Fourth Scheduled Additional Contribution ” means the excess (if any) of (a) $[****] over (b) the Dividend Amount, if any, for the Dividend Year ending on [****].

“ Funding Costs ” means all losses, costs and expenses incurred by the Issuing Lender as a result of the Borrower’s failure to pay any LOC Reimbursement Obligation on or prior to the LOC Reimbursement Date, but only to the extent such losses, costs or expenses relate to the funding of the related LOC Disbursement. For the avoidance of doubt, “Funding Costs” does not include LOC Disbursements.

“ Funds Withheld Account ” means a funds withheld account established and maintained in accordance with the Reinsurance Agreement.

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

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

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

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

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

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

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

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

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

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

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

“ Indemnified Taxes ” means Taxes other than Excluded Taxes.

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

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

“ Initial LOC Amount ” means $710,000,000.

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

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

“ Investment Management Agreement ” means that certain investment services agreement, originally dated as of April 23, 2010 and amended and restated as of the Amendment Closing Date, between PLC and the Borrower.

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

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

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

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

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

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

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

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

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

“ Base Rate ” means, for any day, a rate per annum that is equal to the corporate base rate of interest established generally for its customers by the Issuing Lender from time to time; each change in the Base Rate shall be effective on the date such change is effective. The

corporate base rate is not necessarily the lowest rate charged by the Issuing Lender to its customers.

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

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

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

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

“ Licensing Order ” means the Amended and Restated Licensing Order issued by the Vermont Department to the Borrower dated July 26, 2013.

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

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

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

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

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

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

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

“ Material Adverse Effect ” means a material adverse effect on (i) the business, operations, assets, property or financial condition of the Borrower, (ii) the Reinsured Policies (iii) the ability of the Issuing Lender to enforce its rights and remedies under this Agreement and the other Transaction Documents, (iv) the ability of the Borrower to perform any of its obligations under this Agreement or any other Transaction Documents to which it is a party or

(v) the binding nature, validity or enforceability of this Agreement or any other Transaction Document other than the PLC Service Agreements.

“ Maximum Lawful Amount ” has the meaning assigned to it in Section 9.18 .

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

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

“ NAIC ” means the National Association of Insurance Commissioners.

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

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

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

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

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

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

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

“ Original Block ” has the meaning assigned to it in the Reinsurance Agreement.

“ Original Block Independent Actuary ” means Milliman Inc.’s Chicago office.

“ Original Block Initial Funds Withheld Amount ” has the meaning assigned to it in the Reinsurance Agreement.

“ Original Closing Date ” means April 23, 2010.

“ Other Letter of Credit Transaction ” means one or more letter of credit transactions arranged by the Issuing Lender whether before or after the Original Closing Date with an insurance company or reinsurer for the primary purpose of financing statutory reserves

established in connection with life insurance policies that exceed the economic reserves required in connection with such life insurance policies.

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

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

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

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

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

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

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

“ PLC Guarantee ” means that certain letter agreement, originally dated as of April 23, 2010 and as amended and restated as of the Amendment Closing Date, between PLC and the Issuing Lender.

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

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

“ PLICO Reinsurance Agreement ” means that certain indemnity reinsurance agreement effective as of July 1, 2013, by and between the Ceding Company and PLICO, attached hereto as Exhibit H .

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

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

“ Prior Closing Date ” has the meaning assigned to it in the preamble.

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

“ Projected ETI Costs ” has the meaning referred to in Exhibit B of Appendix I to Schedule 2.

“ RBC Reference Date ” means (a) December 31, 2009 or (b) any later date otherwise agreed to by the Borrower and the Issuing Lender.

“ Reduced Contribution ” means, at any date of determination, the excess, if any, of the Borrower’s Company Action Level Risk Based Capital over the Borrower’s Modified Total Adjusted Capital, each, determined as of the end of the most recent calendar quarter, or, if no such excess exists, the Reduced Contribution shall be zero.

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

“ Reinsurance Agreement ” means that certain indemnity reinsurance agreement, originally effective as of April 1, 2010, as amended as of February 14, 2011, as amended and restated effective as of July 1, 2011, as amended and restated effective as of October 1, 2011 and as amended and restated as of the Amendment Closing Date effective as of the Amendment Effective Date by and between the Borrower and the Ceding Company attached hereto as Exhibit C .

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

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

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

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

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

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

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

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

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

“ Restricted List ” means the list set forth on Schedule 4 (as such Schedule 4 may be amended, modified or supplemented by the Borrower from time to time, and at any time, by written notice to the Issuing Lender).

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

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

“ Scheduled LOC Adjustment Amount ” means, with respect to any date, the amount set forth in the “Scheduled LOC Adjustment Amount” column of Schedule 3 in the row corresponding to such date.

“ Scheduled LOC Adjustment Date ” means each date on which the Scheduled LOC Adjustment Amount set forth in Schedule 3 is greater than zero.

“ Scheduled LOC Amount ” means, with respect to any date, the amount set forth in the “Scheduled LOC Amount” column of Schedule 3 in the row corresponding to such date.

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

“ Second Remainder Contribution ” means, in the event that the Second Required Additional Contribution is less than the sum of (i) the Second Scheduled Additional Contribution and (ii) the First Remainder Contribution, the absolute value of the difference between such Second Required Additional Contribution and such sum of (a) the Second Scheduled Additional Contribution and (b) the First Remainder Contribution.

“ Second Required Additional Contribution ” means the additional equity contribution, if any, contributed at least forty (40) calendar days prior to the Second Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of:

(a) the sum of (i) the Second Scheduled Additional Contribution and (ii) the First Remainder Contribution, if any, and

(b) the applicable Reduced Contribution.

“ Second Required Additional Contribution Date ” means April 1, 2013.

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

“ Secured Obligations ” has the meaning assigned to it in Section 7.01 .

“ Securities Account ” has the meaning assigned to it in Section 8-501 of the UCC.

“ Securities Account Control Agreement ” means that certain securities account control agreement, originally dated as of April 23, 2010 and amended as of the Prior Closing Date, by and among the Borrower, the Issuing Lender and the Securities Intermediary.

“ Securities Intermediary ” means The Bank of New York Mellon acting as securities intermediary (as defined in Section 8-102(a)(14) of the UCC) with respect to the Surplus Account.

“ Six-Month IBNR Amount ” means the aggregate amount of any Covered Benefits (as defined in the Reinsurance Agreement) in respect of the UILIC Block incurred but not reported to the Ceding Company prior to the Amendment Effective Date and paid by the Ceding Company prior to the Calculation Date.

“ Solvent ” means that (i) the assets of the Borrower are greater than the total amount of liabilities, including contingent liabilities, of the Borrower determined in accordance with SAP as of the Original Closing Date; (ii) the Borrower does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature; and (iii) the Borrower is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which the Borrower’s property, as applicable, would constitute unreasonably insufficient capital.

“ Special Dividend ” has the meaning assigned to it in Section 9.14 .

“ Special Payment ” has the meaning assigned to it in Section 9.14 .

“ Special Tax Allocation Agreement ” means the Special Tax Allocation Agreement, dated as of April 23, 2010, by and between the Borrower and PLC.

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

“ Stop Loss Reinsurance Agreement ” means that certain Stop Loss Indemnity Reinsurance Agreement, originally dated as of April 23, 2010 and amended and restated as of the Amendment Closing Date and effective as of the Amendment Effective Date, by and between the Ceding Company and PLICO.

“ Subsidiary ” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.

“ Surplus Account ” has the meaning assigned to it in Section 3.02(a) .

“ Surplus Notes ” has the meaning assigned to it in Section 6.01(bb) .

“ Taxes ” means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority including penalties, interest and additions to tax imposed with respect thereto.

“ Tax Sharing Agreement ” means that certain Amendment and Clarification of the Tax Allocation Agreement dated January 1, 1988, effective as of January 1, 1988, by and between PLC and its Subsidiaries.

“ Third Party Expenses ” means expenses relating to (i) services provided by Affiliates of the Borrower, including administrative services, investment management services, data processing services, legal services and any other amounts incurred under any of the Affiliated Services Agreements and (ii) third party services including accounting services, actuarial services, legal services, management of the Borrower, custodial or trustee services and wages for, and reimbursable expenses of any, outside director of the Borrower, pursuant to the Reinsurance Agreement, and any other amounts incurred under any Third Party Service Agreement.

“ Third Party Service Agreements ” means (i) the Captive Management Agreement, dated as of April 23, 2010, between the Borrower and Marsh Management Services, Inc., (ii) the Reinsurance Trust Agreement and (iii) the Custody Agreement, dated as of April 23, 2010, between the Borrower and The Bank of New York Mellon.

“ Third Remainder Contribution ” means, in the event that the Third Required Additional Contribution is less than the sum of (i) the Third Scheduled Additional Contribution

and (ii) the Second Remainder Contribution, the absolute value of the difference between such Third Required Additional Contribution and such sum of (a) the Third Scheduled Additional Contribution and (b) the Second Remainder Contribution.

“ Third Required Additional Contribution ” means the additional equity contribution, if any, contributed at least forty (40) calendar days prior to the Third Required Additional Contribution Date, from an Affiliate of the Borrower and deposited in the Surplus Account, in an amount equal to the lesser of:

(a) the sum of (i) the Third Scheduled Additional Contribution and (ii) the Second Remainder Contribution, if any, and

(b) the applicable Reduced Contribution.

“ Third Required Additional Contribution Date ” means April 1, 2014.

“ Third Scheduled Additional Contribution ” means the sum of (a) and (b), where

(a) equals $[****], and

(b) equals (i) 0 if (A) the Six-Month IBNR Amount does not exceed the Upper True-Up Threshold or (B) that the Ceding Company has satisfied its obligations under Section 6.4 of the Reinsurance Agreement or (ii) if (A) the Six-Month IBNR Amount exceeds the Upper True-Up Threshold and (B) Ceding Company has not satisfied its obligations under Section 6.4 of the Reinsurance Agreement, the difference, expressed as a positive number, between the Six-Month IBNR Amount and the Assumed IBNR Amount.

“ Total Adjusted Capital ” has the meaning assigned to it in Section 8301(15) of Title 8 of the Vermont Statutes Annotated in effect as of the RBC Reference Date.

“ Transaction Documents ” means collectively, this Agreement (including the Investment Guidelines), the Fee Letter, the Letter of Credit, the Reinsurance Agreement, the Reinsurance Trust Agreement, the PLICO Reinsurance Agreement, the Ceding Company Letter Agreement, the Affiliated Services Agreements, the Third Party Service Agreements, the PLC Guarantee, the Stop Loss Reinsurance Agreement, the Catastrophic Loss Capital Support Agreement, originally dated as of April 23, 2010 as amended and restated as of the Prior Closing Date, by and between PLC and the Borrower, the Investment Management Agreement, the Tax Sharing Agreement, Special Tax Allocation Agreement, the Securities Account Control Agreement, the Transaction Expense Support Agreement, and the Constituent Documents of the Borrower, as the same may be amended, modified or supplemented from time to time.

“ Transaction Expense Support Agreement ” means that certain transaction expense support agreement dated as of April 23, 2010 between the Borrower and PLC.

“ Transactions ” means the execution, delivery and performance by the parties to this Agreement and the other Transaction Documents of the Transaction Documents and all certificates and other documents contemplated in connection therewith.

“ UCC ” means the Uniform Commercial Code as in effect in the State of New York.

“ UILIC Block ” has the meaning assigned to it in the Reinsurance Agreement.

“ UILIC Block Independent Actuary ” means Towers Watson Pennsylvania Inc.

“ Upper True-Up Threshold ” means the sum of the Assumed IBNR Amount and $[****].

“ USA Patriot Act ” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56).

“ Utilization Fee ” has the meaning assigned to it in the Fee Letter.

“ Vermont Commissioner ” means the commissioner of the Vermont Department.

“ Vermont Department ” means the department of banking, insurance, securities and health care administration in the State of Vermont.

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

Section 1.02. Terms Generally . The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (i) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (ii) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iii) the word “from” in connection with a time period means “from and including” and the word “until” means “to but not including”, (iv) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v) all references to agreements, documents, guidelines or instruments, laws, rules, regulations or orders shall be to the same as amended, modified or supplemented from time to time, and at any time, except as otherwise provided herein.

Section 1.03. Accounting Terms. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with SAP, as in effect from time to time, with respect to entities that prepare SAP financial statements.

ARTICLE II

LETTER OF CREDIT FACILITY

Section 2.01. Letter of Credit Facility .

(a) Letter of Credit . Subject to the return of the Existing Letter of Credit by the Reinsurance Trustee to the Issuing Lender for cancellation on or prior to the Amendment Closing Date, the Issuing Lender agrees, on the terms and conditions hereinafter set forth and subject to the prior satisfaction (or waiver by the Issuing Lender) of the Closing Conditions, to issue and deliver to the Reinsurance Trustee on the Amendment Closing Date an irrevocable and non-transferable standby letter of credit hereunder, in the form of Exhibit D (the “ Letter of Credit ”), at the request of the Borrower as applicant therefor, for the benefit of the Reinsurance Trustee as beneficiary thereof, and for deposit in the Reinsurance Trust Account, with a face amount equal to the Initial LOC Amount.

(i) The obligation of the Issuing Lender (A) to issue the Letter of Credit, (B) not to exercise its right to prevent the increase of the LOC Amount pursuant to Section 2.01(b)(i) and (C) not to exercise its right to accelerate the Facility Maturity Date to an earlier date pursuant to Section 2.01(c) , on and subject to the terms and conditions hereof is herein called the “ LOC Commitment .”

(ii) Unless previously terminated in accordance with Section 2.02 , the LOC Commitment shall terminate on the Facility Maturity Date, as it may be accelerated to an earlier date from time to time in accordance with Section 2.01(c) . The Letter of Credit shall be denominated in Dollars.

(b) Letter of Credit Adjustments .

(i) If at least ten (10) Business Days prior to each of the Scheduled LOC Adjustment Dates occurring on or prior to December 15, 2015, the Borrower shall deliver to the Issuing Lender an officer’s certificate of the Borrower in the form attached hereto as Exhibit F , dated as of such date and stating that the Increase Conditions set forth in Sections 5.02(a) , (b) and (c) (other than those that have been waived in writing by the Issuing Lender) have been fully satisfied as of such date, then the LOC Amount shall be automatically increased by an amount equal to the applicable Scheduled LOC Adjustment Amount (each, a “ Scheduled LOC Increase ”), effective as of the applicable Scheduled LOC Adjustment Date. If the Issuing Lender has not received the officer’s certificate of the Borrower described in the immediately preceding sentence and the Issuing Lender has delivered a Non-Increase Notice, then the LOC Amount shall not be increased above the then-current LOC Amount. The Issuing Lender agrees not to issue any such Non-Increase Notice with respect to a Scheduled LOC Increase if it has received the officer’s certificate of the Borrower described in the first sentence of this Section 2.01(b)(i) . Notwithstanding anything in this Agreement to the contrary, the only consequence of the failure of the Borrower to deliver an

officer’s certificate pursuant to this Section 2.01(b)(i) , shall be the Issuing Lender’s right to issue a Non-Increase Notice as provided in this Section 2.01(b)(i) . For the avoidance of doubt, any such failure of the Borrower to deliver an officer’s certificate pursuant to this Section 2.01(b)(i) shall not constitute a Default or an Event of Default.

(ii) If on any of the Scheduled LOC Adjustment Dates occurring on or after March 15, 2017, the then-current LOC Amount is greater than the then-applicable Scheduled LOC Amount, then the LOC Amount shall be automatically decreased (effective as of the applicable Scheduled LOC Adjustment Date) to the then-applicable Scheduled LOC Amount.

(c) Facility Maturity Date . The Issuing Lender shall have the right to accelerate the Facility Maturity Date to an earlier date in accordance with the following terms and conditions:

(i) If at least forty (40) calendar days prior to the First Required Additional Contribution Date, the Borrower shall deliver to the Issuing Lender an officer’s certificate of Borrower in the form attached hereto as Exhibit G , dated as of such date, (A) stating that the First Required Additional Contribution has been made and setting forth the date on which such contribution was received by the Borrower and (B) stating that no event that constitutes an Event of Default pursuant to Sections 8.01(l) or (m) has occurred and is continuing as of such date, then the Facility Maturity Date shall remain the same date as in effect immediately prior to such fortieth (40th) calendar date prior to the First Required Additional Contribution Date. If the Issuing Lender has not received the officer’s certificate of the Borrower described in the immediately preceding sentence and the Issuing Lender has delivered an Acceleration Notice before March 1, 2012, then the Facility Maturity Date shall be accelerated to April 1, 2013 effective on the First Required Additional Contribution Date and shall remain effective until the Letter of Credit is terminated pursuant to the terms of this Agreement. The Issuing Lender agrees not to issue any such Acceleration Notice if it has received the officer’s certificate of the Borrower described in the first sentence of this Section 2.01(c)(i) .

(ii) If the Facility Maturity Date has not been accelerated pursuant to Section 2.01(c)(i) and if at least forty (40) calendar days prior to the Third Required Additional Contribution Date, the Borrower shall deliver to the Issuing Lender an officer’s certificate of Borrower in the form attached hereto as Exhibit G , dated as of such date, (A) stating that the Second Required Additional Contribution has been made at least forty (40) calendar days prior to the Second Required Additional Contribution Date and setting forth the date on which such contribution was received by the Borrower and stating that the Third Required Additional Contribution has been made and setting forth the date on which such contribution was received by the Borrower and (B) stating that no event that constitutes an Event of Default pursuant to Sections 8.01(l) or (m) has occurred and is continuing as of such date, then the Facility Maturity Date shall remain the

same date as in effect immediately prior to such fortieth (40th) calendar date prior to the Third Required Additional Contribution Date. If the Issuing Lender has not received the officer’s certificate of the Borrower described in the immediately preceding sentence and the Issuing Lender has delivered an Acceleration Notice before March 1, 2014, then the Facility Maturity Date shall be accelerated to April 1, 2015 effective on the Third Required Additional Contribution Date and shall remain effective until the Letter of Credit is terminated pursuant to the terms of this Agreement. The Issuing Lender agrees not to issue any such Acceleration Notice if it has received the officer’s certificate of the Borrower described in the first sentence of this Section 2.01(c)(ii) .

(iii) If the Facility Maturity Date has not been accelerated pursuant to Section 2.01(c)(i) or (ii) and if on or prior to the Fourth Required Additional Contribution Date, the Borrower shall deliver to the Issuing Lender an officer’s certificate of Borrower in the form attached hereto as Exhibit G , dated as of such date, (A) stating that the Fourth Required Additional Contribution has been made and setting forth the date on which such contribution was received by the Borrower and (B) stating that no event that constitutes an Event of Default pursuant to Sections 8.01(l) or (m) has occurred and is continuing as of such date, then the Facility Maturity Date shall remain the same date as in effect immediately prior to the Fourth Required Additional Contribution Date. If the Issuing Lender has not received the officer’s certificate of the Borrower described in the immediately preceding sentence and the Issuing Lender has delivered an Acceleration Notice before January 10, 2018, then the Facility Maturity Date shall be accelerated to April 1, 2018 effective on January 10, 2018 and shall remain effective until the Letter of Credit is terminated pursuant to the terms of this Agreement. The Issuing Lender agrees not to issue any such Acceleration Notice if it has received the officer’s certificate of the Borrower described in the first sentence of this Section 2.01(c)(iii) .

(iv) If the Facility Maturity Date has not been accelerated pursuant to Section 2.01(c)(i) , (ii) or (iii) and if on or prior to the Fifth Required Additional Contribution Date, the Borrower shall deliver to the Issuing Lender an officer’s certificate of Borrower in the form attached hereto as Exhibit G , dated as of such date, (A) stating that the Fifth Required Additional Contribution has been made and setting forth the date on which such contribution was received by the Borrower and (B) stating that no event that constitutes an Event of Default pursuant to Sections 8.01(l) or (m) has occurred and is continuing as of such date, then the Facility Maturity Date shall remain the same date as in effect immediately prior to the Fifth Required Additional Contribution Date. If the Issuing Lender has not received the officer’s certificate of the Borrower described in the immediately preceding sentence and the Issuing Lender has delivered an Acceleration Notice before January 10, 2020, then the Facility Maturity Date shall be accelerated to April 1, 2020 effective on January 10, 2020 and shall remain effective until the Letter of Credit is terminated pursuant to the terms of this Agreement. The Issuing Lender agrees not to issue any such Acceleration Notice

if it has received the officer’s certificate of the Borrower described in the first sentence of this Section 2.01(c)(iv) .

(v) Notwithstanding anything in this Agreement to the contrary, the only consequence of the failure of the Borrower to deliver an officer’s certificate pursuant to Section 2.01(c)(i) , (ii) , (iii) or (iv) shall be the Issuing Lender’s right to issue an Acceleration Notice and accelerate the Facility Maturity Date to the applicable date set forth in Section 2.01(c)(i) , (ii) , (iii) or (iv) and any such failure of the Borrower to deliver an officer’s certificate pursuant to this Section 2.01(c) shall not constitute a Default or an Event of Default.

(d) Optional LOC Reductions . The Borrower shall, subject to the prior written consent of the Ceding Company and the Reinsurance Trustee, have the right at any time to reduce, upon fifteen (15) calendar days prior written notice to the Issuing Lender, the LOC Amount (an “ Optional LOC Reduction ”). Upon (A) the Issuing Lender’s receipt of such notice and expiration of such fifteen (15) calendar day notice period and (B) the Borrower’s payment to the Issuing Lender of any applicable Early Termination Fee, then an Optional LOC Reduction shall immediately become effective (it being understood that any such reduction shall not become effective until the Reinsurance Trustee has countersigned such amendment). In connection with any Optional LOC Reduction, the Issuing Lender shall immediately amend the Letter of Credit to reduce the LOC Amount to the corresponding amount requested by the Borrower and consented to by the Reinsurance Trustee, (the “ Optional LOC Reduction Amount ”) and the Borrower shall request that the Reinsurance Trustee countersign such amendment. Any Optional LOC Reduction shall remain effective until the LOC Amount is further amended in accordance with the terms hereof or the Letter of Credit is terminated pursuant to the terms of this Agreement.

(e) Termination of LOC Commitment . The LOC Commitment of the Issuing Lender shall terminate upon any termination in full of the Letter of Credit in accordance with Section 2.02(a) .

(f) Reimbursement of LOC Disbursements; Funding Costs .

(i) If the Issuing Lender shall make any LOC Disbursements in respect of the Letter of Credit, the Borrower unconditionally agrees to reimburse the Issuing Lender for the full amount of such LOC Disbursements (each, an “ LOC Reimbursement Obligation ”), on the Business Day immediately following each date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments and the Payment Restrictions (each such date, an “ LOC Reimbursement Date ”). The Borrower agrees to pay to the Issuing Lender all Funding Costs on the LOC Reimbursement Date.

(ii) To the extent that any LOC Reimbursement Obligation is owing at such time as the Borrower’s Total Adjusted Capital is less than [****] percent ([****]%) of its Company Action Level Risk Based Capital, the Borrower shall use its best efforts to obtain an Approval from the Vermont Commissioner for the payment by the Borrower of such LOC Reimbursement Obligation as promptly as

practicable following the applicable LOC Disbursement. In the event any such Approval has not been obtained for such payment on or prior to the date on which such amount is first due, the Borrower shall continue to use its best efforts to obtain such Approval as promptly as practicable thereafter; provided , that the Borrower shall not be required to amend the Transaction Documents in order to obtain such Approval.

(g) Obligations Absolute . Notwithstanding anything herein to the contrary, the Issuing Lender’s obligation to make payment of any draw on the Letter of Credit in strict compliance with its terms will not be subject to any conditions or qualifications not expressly included and set forth in the Letter of Credit, including any action or failure to act or to make any payment by any Lender Counterparty. Subject to the Priority of Payments and the Payment Restrictions, the LOC Reimbursement Obligation of the Borrower shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of:

(i) any lack of validity or enforceability of the Letter of Credit or this Agreement, or any term or provision therein;

(ii) any amendment or waiver of or any consent to departure from all or any of the provisions of the Letter of Credit or this Agreement;

(iii) the existence of any claim, setoff, defense or other right that the Borrower or any other Person may at any time have against the Issuing Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or transaction;

(iv) any draft or other document presented under the Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect;

(v) payment by the Issuing Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and

(vi) any other act or omission to act or delay of any kind of the Issuing Lender or any other Person to perform any obligation under the Letter of Credit, or any release of any such obligation, or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.01 , constitute a legal or equitable discharge of the obligations of the Borrower hereunder.

Without limiting the rights of the Reinsurance Trustee, as directed by the Borrower, to draw upon the Letter of Credit, neither the Issuing Lender, nor any of its Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of the Letter of Credit or any payment or failure to make any payment thereunder, including any of the circumstances specified in Section 2.01(g)(i) through (vi) , as well as any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or

other communication under or relating to the Letter of Credit (including any Draw Certification Notice or any other document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Lender; provided , that the foregoing shall not be construed to excuse the Issuing Lender or any of its Related Parties from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Lender’s failure to exercise the agreed standard of care (as set forth below) in determining whether drafts and other documents presented under the Letter of Credit comply with the terms hereof. The parties hereto expressly agree that the Issuing Lender shall have exercised the agreed standard of care in the absence of gross negligence or willful misconduct on the part of the Issuing Lender.

(h) LOC Disbursement Procedures; Draw Certification Notice . The Issuing Lender shall, promptly upon its receipt of a Draw Certification Notice, examine the Draw Certification Notice purporting to represent a demand for payment under the Letter of Credit. The Issuing Lender shall promptly notify the Borrower by telephone or electronic mail (confirmed by overnight courier service) whether the Issuing Lender has made or will make an LOC Disbursement thereunder (without, for the avoidance of doubt, relieving the Issuing Lender of any obligation to make an LOC Disbursement); provided , that any failure to give or delay in giving such notice shall not relieve the Borrower of its LOC Reimbursement Obligations, if applicable. Without limiting any other provisions of this Agreement, the parties agree that, with respect to any Draw Certification Notice presented in respect of the Letter of Credit, the Issuing Lender may, in its sole discretion, (i) either make payment upon such Draw Certification Notice without responsibility for further investigation, regardless of any notice or information to the contrary, or (ii) refuse to make payment upon such Draw Certification Notice if such document is not in strict compliance with the terms of the Letter of Credit. For the avoidance of doubt, delivery of a sight draft and a Draw Certification Notice strictly adhering to the requirements of the Letter of Credit shall be the sole condition to a draw under such Letter of Credit.

(i) Interest . Subject to the Priority of Payments, the Borrower unconditionally agrees to pay to the Issuing Lender interest on the amount of each LOC Disbursement, for the period from and including the date of such LOC Disbursement to but excluding the date of payment in full, at the Drawn Rate. Subject to the Priority of Payments, interest accrued in respect of any LOC Disbursement shall be payable on the relevant LOC Reimbursement Date, and thereafter on demand from time to time by the Issuing Lender and upon payment of any LOC Reimbursement Obligation.

Section 2.02. Termination of the Letter of Credit .

(a) Termination of the Letter of Credit . The Letter of Credit shall terminate on the earliest to occur of (i) the election of the Borrower to terminate the Letter of Credit in accordance with Section 2.02(b) , (ii) the drawing of one hundred percent (100%) of the Letter of Credit and (iii) its stated expiry date.

(b) The Reinsurance Trustee, at the direction of the Borrower, may, subject to the prior written consent of the Ceding Company at any time, by giving at least three (3) Business Days’ prior signed written notice to the Issuing Lender, terminate the Letter of Credit.

(c) Each notice delivered by the Borrower in accordance with this Section 2.02 shall be irrevocable. Any termination of the Letter of Credit shall be permanent.

Section 2.03. Fees .

(a) The Borrower shall pay any and all Fees due and payable under the Fee Letter to the Issuing Lender in the manner contemplated therein; provided , that such Fees shall be treated for all purposes as if paid under and pursuant to this Agreement.

(b) The Borrower agrees to pay all amounts owed in connection with the issuance and maintenance of the Letter of Credit required to be made hereunder to the Issuing Lender.

(c) All Fees shall be paid on the dates due, in immediately available funds, to the Issuing Lender. Fees paid shall not be refundable under any circumstances.

Section 2.04. Yield Protection .

(a) Increased Costs . In the event that by reason of any change after the Amendment Closing Date in applicable law, rule or regulation of any Swiss Governmental Authority with authority over Swiss banks or any U.S. Governmental Authority with authority over non-U.S. banks with U.S. banking business (each, an “ Applicable Governmental Authority ”) or in the interpretation thereof by any Applicable Governmental Authority charged with the administration, application or interpretation thereof, or by reason of the adoption or enactment, as of and following the Amendment Closing Date, of any requirement, request or directive (whether or not having the force of law) of any such Applicable Governmental Authority with respect to this Agreement that shall impose, modify or deem applicable any reserve, special deposit assessment or insurance fee or similar requirement against assets of, deposits with or for the account of, or credit extended by UBS AG, Stamford Branch, in its capacity as Issuing Lender, or shall subject UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons to any tax, levy, impost, charge, fee, duty, deduction or withholding of any kind whatsoever with respect to the Letter of Credit, this Agreement or any other Transaction Document, or change the basis of taxation of UBS AG, Stamford Branch, in its capacity as Issuing Lender, with respect to any amounts payable under this Agreement (in either case, except for Indemnified Taxes or Other Taxes indemnifiable under Section 2.05 and the imposition of, or any change in the rate of, any Excluded Tax payable by the Issuing Lender); and if any of the above-mentioned measures, events or circumstances shall result in an increase in the cost to UBS AG, Stamford Branch, in its capacity as Issuing Lender, of making, issuing, maintaining, amending or funding the Letter of Credit, or taking any other action with respect to the Letter of Credit contemplated under this Agreement, or a reduction in the amount of principal or interest or Utilization Fees received or receivable by UBS AG, Stamford Branch, in its capacity as Issuing Lender, in respect thereof, the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing Lender, an amount equal to such additional cost, reduction,

other loss or damage or foregone interest or other amount; provided , that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall only exercise its rights under this Section 2.04(a) if it exercises such rights under all other similar transactions to which it is a party.

(b) Capital Requirements . In the event that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall have determined, after the Amendment Closing Date, a change in, or any introduction or adoption of, any applicable law, rule or regulation of an Applicable Governmental Authority regarding capital adequacy, capital maintenance, solvency, reserves, weighting, foreign claims of deposits or other similar matters (hereafter “ Capital Adequacy ”) or any change in the interpretation or administration thereof by any Applicable Governmental Authority, charged with the interpretation or administration thereof, or any request or directive regarding Capital Adequacy (whether or not having the force of law) of any Applicable Governmental Authority, has or would have the effect of reducing the rate of return on capital of UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons as a consequence of the obligations of UBS AG, Stamford Branch, in its capacity as Issuing Lender, under or with respect to this Agreement or the Letter of Credit to a level below that which UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons could have achieved but for such introduction, adoption, change, request or directive (taking into consideration the policies of UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons with respect to Capital Adequacy) (in any case other than with respect to such a change or proposed change regarding Taxes, the consequences of which are addressed in Section 2.04(a) , the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing Lender, such additional amount or amounts as will compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, or its Controlling Persons for such reduction; provided , however , that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall only exercise its rights under Section 2.04(b) if it exercises such rights under all other similar transactions to which it is a party.

(c) Requests for Compensation . UBS AG, Stamford Branch, in its capacity as Issuing Lender, will promptly notify the Borrower of any event of which it has actual knowledge entitling UBS AG, Stamford Branch, in its capacity as Issuing Lender, to compensation and the amount of such compensation as set forth in this Section 2.04 and the Borrower shall compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, within thirty (30) calendar days of such demand being made by UBS AG, Stamford Branch in its capacity as Issuing Lender; provided , that the Borrower shall be responsible for compliance herewith and the payment of increased costs or other amounts under this Section 2.04 only to the extent that any change in law, rule, regulation, interpretation or administration giving rise thereto occurs after the Amendment Closing Date. UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall furnish to the Borrower a certificate setting forth the basis, amount and calculation of each request by such party for compensation under this Section 2.04 . Failure or delay on the part of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to demand compensation pursuant to this Section 2.04 shall not constitute a waiver of the right of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to demand such compensation; provided , that the Borrower shall not be required to compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, pursuant to this Section 2.04 for any increased costs incurred or reductions suffered or other loss, damage, forgone interest or amount suffered more than ninety (90) calendar days prior to the date that UBS AG, Stamford Branch, in its capacity as Issuing Lender, notifies the Borrower of

the change in law, rule, regulation, interpretation or administration giving rise to such increased costs or reductions or other loss, damage, forgone interest or amount suffered and of the intention of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to claim compensation thereof (except that, if the change in law rule, regulation, interpretation or administration giving rise to such increased costs or reductions is retroactive, then the ninety (90) calendar day period referred to above shall be extended to include the period of retroactive effect thereof).

(d) UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall use reasonable efforts (consistent with its internal policy applied on a non-discriminatory basis and legal and regulatory restrictions) to designate a different existing office that is an Eligible Bank for purposes of this Agreement or to take other appropriate actions if such designations or actions, as the case may be, will avoid the need for or relieve, the amount of, any increased costs of, any amounts payable or otherwise payable under this Section 2.04 and will not, in the reasonable opinion of UBS AG, Stamford Branch, in its capacity as Issuing Lender, be otherwise disadvantageous to UBS AG, Stamford Branch, in its capacity as Issuing Lender. Reasonable costs and expenses of such mitigation shall be at the expense of Borrower; provided , that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall not incur any such costs and expenses without the prior written approval of the Borrower; provided , further , that, in the absence of such approval, the UBS AG, Stamford Branch, in its capacity as Issuing Lender, will have no obligations under this Section 2.04(d) .

(e) If, in connection with an Other Letter of Credit Transaction, UBS AG, Stamford Branch, in its capacity as Issuing Lender, agrees to increased cost or capital requirements provisions (the “ Enhanced Yield Protection Provisions ”) that are more favorable to the Borrower in such Other Letter of Credit Transaction than the provisions set forth in Sections 2.04(a) or (b) , UBS AG, Stamford Branch, in its capacity as Issuing Lender, will promptly notify the Borrower in writing of such Enhanced Yield Protection Provisions (including a copy of such provisions in such notice) and, at the Borrower’s request, will use its commercially reasonable efforts to amend this Agreement to include such Enhanced Yield Protection Provisions.

Section 2.05. Taxes .

(a) Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any Indemnified Taxes; provided , that if the Borrower shall be required to deduct any Indemnified Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.05 ) UBS AG, Stamford Branch, in its capacity as Issuing Lender, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) The Borrower shall indemnify UBS AG, Stamford Branch, in its capacity as Issuing Lender, within twenty (20) calendar days after written demand therefor, for the full

amount of any Indemnified Taxes or Other Taxes paid by UBS AG, Stamford Branch, in its capacity as Issuing Lender, on or with respect to any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.05 ) and any penalties, interest, additions to tax and reasonable expenses arising therefrom or with respect thereto whether or not correctly or legally imposed; provided , that the Borrower shall not be obligated to make a payment pursuant to this Section 2.05 in respect of penalties, interest and additions to Tax attributable to any Indemnified Taxes or Other Taxes (and, for the avoidance of doubt, reasonable expenses arising therefrom or with respect thereto), if (i) such penalties, interest and additions to Tax are attributable to the failure of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to pay amounts paid to UBS AG, Stamford Branch, in its capacity as Issuing Lender, by the Borrower (for Indemnified Taxes or Other Taxes) to the relevant Governmental Authority within thirty (30) calendar days after receipt of such payment from the Borrower or (ii) such penalties, interest and additions to Tax are attributable to the gross negligence or willful misconduct of UBS AG, Stamford Branch, in its capacity as Issuing Lender. Within ten (10) Business Days after UBS AG, Stamford Branch, in its capacity as Issuing Lender, learns of the imposition of Indemnified Taxes or Other Taxes, UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall give notice to the Borrower of the payment or obligation to pay by UBS AG, Stamford Branch, in its capacity as Issuing Lender, of such Indemnified Taxes or Other Taxes, and of the assertion by any Governmental Authority that such Indemnified Taxes or Other Taxes are due and payable, but the failure to give such notice shall not affect the Borrower’s obligations hereunder to reimburse UBS AG, Stamford Branch, in its capacity as Issuing Lender, for such Indemnified Taxes or Other Taxes, except that the Borrower shall not be liable for penalties, interest and other liabilities accrued or incurred after such ten (10) Business Day period until such time as it receives the notice contemplated above, after which time it shall be liable for penalties, interest and other liabilities accrued or incurred prior to or during such ten (10) Business Day period and accrued or incurred after such receipt. A certificate as to the amount of such payment or liability delivered to the Borrower by UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall be conclusive absent manifest error. If so directed by the Borrower, the Issuing Lender shall cooperate in any contest of Indemnified Taxes (or Other Taxes) and any penalties, interest and other liabilities arising with respect thereto in accordance with the reasonable discretion of the Borrower and, at the Borrower’s expense, if (i) the Borrower furnishes to such party an opinion of reputable tax counsel, which counsel shall be acceptable to such party, to the effect that such Indemnified Taxes, Other Taxes or other liabilities were wrongfully or illegally imposed and (ii) such party determines in its good faith judgment that it would not be disadvantaged or prejudiced in any manner as a result of such cooperation; provided , that the Borrower shall indemnify the Issuing Lender for such Indemnified Taxes (or Other Taxes) in accordance with this Section 2.05(c) without regard to the pendency of any such contest. This Section 2.05(c) shall not be construed to require UBS AG, Stamford Branch, in its capacity as Issuing Lender, to disclose to the Borrower its Tax return information or other information it reasonably considers proprietary or confidential.

(d) As soon as reasonably practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Authority, and in any event within thirty (30) days of such payment being made, the Borrower shall deliver to UBS AG, Stamford Branch, in its capacity as Issuing Lender, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other

evidence of such payment reasonably satisfactory to UBS AG, Stamford Branch, in its capacity as Issuing Lender.

(e) UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall provide the Borrower with two (2) accurate, complete and signed originals of U.S. Internal Revenue Service Form W-8ECI, W-8BEN, W8-IMY or any applicable successor forms, along with necessary supporting documentation, certifications and attachments, if any, indicating that UBS AG, Stamford Branch, in its capacity as Issuing Lender, is, on the date of delivery thereof, entitled to receive payments of interest hereunder free from withholding of United States Federal tax. To the extent permitted or required by applicable law, from time to time thereafter, UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall deliver renewals or additional copies of such forms (or successor forms) on or before the date that such forms expire or become obsolete or upon the written request of the Borrower; additionally, UBS AG, Stamford Branch, in its capacity as Issuing Lender, agrees to deliver to the Borrower additional copies of such forms (or successor forms) after the occurrence of any event (including a change in its applicable lending office) requiring a change in its most recent forms delivered to the Borrower. If UBS AG Stamford Branch, in its capacity as Issuing Lender, is a “U.S. branch” of a non-U.S. person and delivers an Internal Revenue Service Form W-8IMY for purposes of this subsection, the Issuing Lender must certify in that form that it is a “U.S. branch” and that the payments the Issuing Lender receives for the account of others are not effectively connected with the conduct of the Issuing Lender’s trade or business in the United States and that it is using such form as evidence of its agreement with the Borrower to be treated as a U.S. person with respect to such payments (and the Borrower and the Issuing Lender agree to so treat the Issuing Lender as a U.S. person with respect to such payments), with the intended effect that the Borrower can make payments to the Issuing Lender without deduction or withholding of any Taxes imposed by the United States.

(f) If UBS AG, Stamford Branch, in its capacity as Issuing Lender, determines, in its good faith judgment, that it has actually received or realized any refund of Tax or any reduction of its Tax liabilities or otherwise recovered any amount that is attributable to any deduction or withholding or payment of Indemnified Taxes or Other Taxes with respect to which the Borrower has paid any additional amount pursuant to this Section 2.05 , UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall reimburse the Borrower within sixty (60) calendar days in an amount equal to the net benefit, after Tax, and net of all reasonable out-of-pocket expenses incurred by UBS AG, Stamford Branch, in its capacity as Issuing Lender, in connection with such refund, reduction or recovery; provided , that nothing in this Section 2.05(f) shall require UBS AG, Stamford Branch, in its capacity as Issuing Lender, to make available its Tax returns (or any other information relating to its Taxes which it deems to be confidential).

(g) UBS AG, Stamford Branch may withhold any Taxes required to be deducted and withheld from any payment hereunder with respect to which the Borrower is not required to pay additional amounts under this Section 2.05 .

(h) The agreements of the Borrowers in this Section 2.05 shall survive the payment of all amounts payable hereunder and the termination of this Agreement in accordance with its terms.

Section 2.06. Payments .

(a) Payments Generally .

(i) Unless otherwise specified herein, the Borrower shall be obligated to make each payment required to be made by it hereunder prior to 3:00 p.m., New York time, on the date when due and in immediately available funds, without set off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Issuing Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon and for determining whether an Event of Default has occurred. All such payments shall be made by wire transfer to the Issuing Lender to the accounts specified by the Issuing Lender in a written notice to the Borrower at least five (5) Business Days prior to payment. The Issuing Lender shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a calendar day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension.

(ii) If at any time insufficient funds are received by and available to the Issuing Lender to pay fully all amounts of principal, unreimbursed LOC Disbursements, interest and fees then due hereunder, such funds shall be applied in accordance with the Priority of Payments and, solely with respect to the unreimbursed LOC Reimbursement Obligations, the Payment Restrictions.

(iii) Except as otherwise provided herein, all interest payable hereunder shall be computed on the basis of (i) if based on the Federal Funds Effective Rate, a year of three hundred sixty (360) days and the actual number of days elapsed, (ii) if based on the Prime Rate, a year of 365/366 days and the actual number of days elapsed and (iii) if based on LIBOR, a year of three hundred sixty (360) calendar days and the actual number of calendar days elapsed.

(b) Late Payments . All amounts due and payable to the Issuing Lender in connection with this Agreement but not paid as of the due date therefor (without regard to grace periods) (other than LOC Reimbursement Obligations not paid when due, which shall accrue interest at the Drawn Rate) shall accrue interest at a rate equal to LIBOR plus [****] ([****]) basis points per annum, computed from and including the date payment was due to (but not including) the date of payment in full.

Section 2.07. Evidence of Indebtedness . The Issuing Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the Issuing Lender resulting from the Issuing Lender’s interest in the Letter of Credit, including the amounts of principal and interest payable and paid to the Issuing Lender from time to time hereunder in respect of unreimbursed LOC Reimbursement Obligations. The Issuing Lender shall maintain an account in which it shall record (i) the amount of each LOC

Disbursement made hereunder, (ii) the amount of any LOC Reimbursement Obligations and interest payable from the Borrower to the Issuing Lender hereunder and (iii) the amount of any sum received by the Issuing Lender. The entries made in the accounts maintained pursuant to this Section 2.07 shall be prima facie evidence of the existence and amounts of the obligations recorded therein absent manifest error; provided , that the failure of the Issuing Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to pay such amounts in accordance with the terms of this Agreement.

ARTICLE III

REGULATORY ACCOUNT; SURPLUS ACCOUNT; REINSURANCE TRUST ACCOUNT; PRIORITY OF PAYMENTS

Section 3.01. Regulatory Account and Administrative Account .

(a) The Borrower shall cause to be established and maintained as provided in Section 3.01(b) a segregated account (the “ Regulatory Account ”) in its own name, which shall at all times hold Cash or Cash Equivalents with a Market Value at least equal to $250,000. Except as required by applicable law, no amounts held in the Regulatory Account shall be (i) commingled with the assets of the Surplus Account or (ii) withdrawn prior to the Facility Maturity Date for any reason.

(b) On or prior to the Original Closing Date, the Regulatory Account was funded with Cash having an aggregate Market Value equal to $250,000. No additional contributions shall be made to the Regulatory Account other than in accordance with the Priority of Payments.

(c) Notwithstanding anything in this Agreement or any other Transaction Document to the contrary, the Borrower shall be permitted to establish, maintain and utilize a deposit account and a disbursement account (together, the “ Administrative Account ”) with Regions Bank, N.A., and its successor and assigns or, with the consent of the Issuing Lender, such consent not to be unreasonably withheld, an Eligible Bank designated by the Borrower, solely for purposes of making payments to, and receiving payments from, its Affiliates in connection with the PLC Service Agreements, Administrative Services Agreement and Investment Management Agreement; provided, that the ending daily account balance of the Administrative Account shall not, at the close of any three consecutive Business Days, exceed $1,000, and the Borrower shall promptly deposit any funds received from its Affiliates in the Administrative Account into the Surplus Account.

Section 3.02. Surplus Account of the Borrower .

(a) The Borrower shall cause to be established and maintained as provided in Section 3.02(b) a segregated account (the “ Surplus Account ”). No amounts held in the Surplus Account shall be commingled with the general assets of the Borrower or the assets held in the Regulatory Account. Except as provided in Section 3.01(c) , all funds and assets received by the Borrower pursuant to any Transaction Document or otherwise (including any distributions related to the grantor interest in the Reinsurance Trust Account) shall be deposited into and held

in the Surplus Account subject to disbursement in accordance with the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions. All funds held in the Surplus Account (including any products and proceeds of any such funds), including any investments or reinvestments of such proceeds, shall be retained in the Surplus Account subject to disbursement in accordance with the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions and invested and applied in accordance with the Investment Guidelines. The Borrower hereby agrees that any assets credited to or deposited in the Surplus Account may only be withdrawn or applied as provided in this Agreement.

(b) The parties agree that, for purposes of the UCC, New York law shall be the law of the jurisdiction of The Bank of New York Mellon in its capacity as Securities Intermediary, with respect to the Surplus Account, and that The Bank of New York Mellon has agreed in the Securities Account Control Agreement, in its capacity as Securities Intermediary, to treat all assets credited to the Surplus Account as “financial assets” within the meaning of Section 8-102(a)(9) of the UCC; provided , to the extent that the Surplus Account is not considered a Securities Account, such account shall be deemed to be a “Deposit Account” (as defined in Section 9-102(a)(29) of the UCC), and a security interest is hereby granted by the Borrower to the Issuing Lender and perfected under the UCC in the Surplus Account as a Deposit Account, which The Bank of New York Mellon shall maintain acting not as Securities Intermediary but as a “bank” (within the meaning of Section 9-102(a)(8) of the UCC).

(c) All deposits into the Surplus Account shall be made in accordance with the procedures set forth in Section 3.04 . On or prior to the Original Closing Date, the Surplus Account was initially funded with Cash or securities having an aggregate Market Value equal to $[****], after giving effect to the expenses set forth in Section 6.01(n)(i) and any rating agency fees, legal fees of the Borrower’s Vermont counsel and other formation costs of the Borrower incurred in connection with the Transactions as of the Original Closing Date. After the Original Closing Date, except as provided in Section 3.01(c) , all amounts received by the Borrower shall immediately be deposited into the Surplus Account.

(d) All withdrawals and releases of capital from the Surplus Account shall be made in accordance with the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions.

Section 3.03. Reinsurance Trust Account . The Reinsurance Trust Account shall be established by the Borrower, as grantor, subject to and in accordance with the terms of the Reinsurance Trust Agreement.

Section 3.04. Procedures for Depositing Cash and Crediting Securities to Surplus Account . The Borrower may, on any Business Day, transfer, deliver or deposit or cause to be transferred, delivered or deposited, as the case may be, Cash or securities to the Surplus Account.

Section 3.05. Priority of Payments . Except as otherwise provided for in Section 9.14 , the Borrower shall apply all funds held in the Surplus Account on any Business Day (except in the case of item Thirteenth ), without duplication, in the following order of priority (the “ Priority of Payments ”):

(a) First , for the payment of any Taxes or provisions for Taxes and other governmental charges due and payable by the Borrower as of such date;

(b) Second , to the extent the Market Value of the assets held in the Regulatory Account is less than $250,000, for the payment of Cash or Cash Equivalents in an amount equal to the excess of $250,000 over such Market Value;

(c) Third , to the extent amounts drawn under any Letter of Credit are in excess of the actual amounts required for Permitted Purposes (as such term is defined in the Reinsurance Agreement) or are subsequently determined pursuant to Section 7.3(c) of the Reinsurance Agreement not to be due under the Reinsurance Agreement, for the payment of that portion of the Borrower’s obligations due and payable by the Borrower as of such date consisting of (i) unpaid interest at the Drawn Rate on all LOC Reimbursement Obligations with respect to such amounts drawn, and (ii) after all such unpaid interest has been paid in full, unpaid principal of all LOC Reimbursement Obligations with respect to such amounts drawn;

(d) Fourth , for the payment of any amounts due and payable by the Borrower to the Ceding Company under, and subject to the terms of, the Reinsurance Agreement as of such date (including any deposits to the Reinsurance Trust Account required in accordance with the terms of the Reinsurance Agreement);

(e) Fifth , for the payment of any Third Party Expenses incurred directly by the Borrower that are due and payable on such date;

(f) Sixth , for the payment of Utilization Fees that are due and payable by the Borrower to the Issuing Lender as of such date;

(g) Seventh , to the extent not otherwise contemplated in item Third above, for the payment of that portion of the Borrower’s obligations that are due and payable as of such date under this Agreement consisting of unpaid principal of the LOC Reimbursement Obligations and interest at the Drawn Rate on all LOC Reimbursement Obligations; provided , that payment of such LOC Reimbursement Obligations shall only be made to the extent that (i) the Borrower’s Total Adjusted Capital will equal or exceed [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital after giving effect to such payment, or (ii) an Approval has been received in respect of all or a portion of such payment if the Borrower’s Total Adjusted Capital will not equal or exceed [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital after giving effect to such payment (the “ Payment Restrictions ”);

(h) Eighth , to the extent not otherwise contemplated in items Third , Sixth or Seventh , for payments due to the Issuing Lender from the Borrower upon the occurrence of an Event of Default, including, without limitation, the posting of collateral or acceleration of any outstanding amounts under the Letter of Credit, which payments shall be made to and held in the Cash Collateral Account, other than, for the avoidance of doubt, any LOC Reimbursement Obligations;

(i) Ninth , for the payment of any amounts due and payable by the Borrower as of such date under the Tax Sharing Agreement or the Special Tax Allocation Agreement;

(j) Tenth , to the extent not otherwise contemplated in items Third , Sixth , Seventh and Eighth above, for the payment of Fees, indemnities, expenses and other amounts payable to the Issuing Lender by the Borrower that are due and payable as of such date, other than, for the avoidance of doubt, any LOC Reimbursement Obligations;

(k) Eleventh , subject to an Approval, on any interest payment date specified in any Surplus Note of the Borrower, for the payment of any interest due and payable by the Borrower in respect of any such Surplus Note as of such date to the extent that, immediately following payment thereof, the Dividend Test shall be satisfied; provided , however , that no payment of interest may be made under this item Eleventh so long as (y) a Default or Event of Default has occurred and is continuing, or (z) any amounts due and payable by the Borrower to the Issuing Lender shall remain due and unpaid;

(l) Twelfth , subject to an Approval, on any interest payment date specified in any Surplus Note of the Borrower, for the payment of any principal, premium and any other amount due and payable by the Borrower in respect of any such Surplus Note as of such date to the extent that, immediately following payment thereof, the Dividend Test shall be satisfied; provided , however , that no payment of principal may be made under this item Twelfth so long as (x) a Default or Event of Default has occurred and is continuing, (y) any amounts due and payable by the Borrower to the Issuing Lender shall remain due and unpaid for more than five (5) Business Days after notice from the Issuing Lender or (z) the Letter of Credit shall remain outstanding; and

(m) Thirteenth , for the payment of any dividends declared on or subsequent to [****], subject to and in accordance with the Dividend Formula; provided , however , that no dividends will be payable under this item Thirteenth if on the date of declaration thereof (w) a Default or Event of Default has occurred and is continuing, (x) any amounts due and payable by the Borrower to the Issuing Lender shall remain due and unpaid, (y) any Dividend Catch-Up Contribution shall remain unpaid or (z) any amounts due and payable in excess of $[****] by PLC to the Borrower pursuant to any Transaction Document to which PLC is a party shall remain due and unpaid and such failure to pay shall have continued for thirty (30) calendar days; provided , further , that any dividend declared on or subsequent to [****] in accordance with this Agreement that satisfied the requirements of this item Thirteenth on its date of declaration if it had been paid on such date, shall be payable by the Borrower on any future date, notwithstanding the provisions of this item Thirteenth or any other provisions to the contrary herein.

If any amounts are due and payable under items First through Tenth of the Priority of Payments (other than and excluding amounts due and payable under item Eighth of the Priority of Payments), and insufficient funds are existing in the Surplus Account at such time, then funds held in the Cash Collateral Account (if any) shall be transferred to the Surplus Account to make such payments.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01. Borrower Representations and Warranties . The Borrower represents and warrants to the Issuing Lender, as of the date hereof, as follows:

(a) Organization; Powers . The Borrower is duly formed in accordance with its Constituent Documents, validly existing and in good standing under the laws of the State of Vermont, is duly licensed or authorized under the laws of the State of Vermont and has the corporate power and authority to carry on its business as contemplated in the Transaction Documents.

(b) Authorization; Enforceability . The Transaction Documents to which the Borrower is a party are within the corporate powers of the Borrower and have been duly authorized by all necessary corporate and, if required, stockholder action on the part of the Borrower. Each of the Transaction Documents to which the Borrower is a party has been duly executed and delivered by the Borrower and, assuming the due execution and delivery of such Transaction Documents by the other parties thereto, constitutes, or will constitute, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights generally, the rights of creditors of insurance companies and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.

(c) Approvals; No Conflicts . Except as would not reasonably be expected to result in a Material Adverse Effect, the Transaction Documents to which the Borrower is a party (i) are in full force and effect and do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any third party, except such as have been obtained or made, (ii) do not violate any applicable law or regulation or the Constituent Documents of the Borrower, or any order of any Governmental Authority applicable to the Borrower or the Reinsured Policies, (iii) do not violate or result in a default or other conflict under any material agreement or other instrument binding upon the Borrower or any of its assets, or give rise to a right thereunder to require any payment to be made by the Borrower and (iv) will not result in the creation or imposition of any Lien on any asset of the Borrower except for Permitted Liens or as expressly permitted under the terms of such Transaction Documents.

(d) Compliance with Laws and Agreements . The Borrower is in compliance in all material respects with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its properties, the Transaction Documents to which it is a party and, except as would not result in a Material Adverse Effect, all other agreements and other instruments binding upon it or its property.

(e) Taxes . The Borrower has timely filed or caused to be filed all material Tax returns and reports required to have been filed and has paid or caused to be paid all material Taxes required to have been paid by it.

(f) Accuracy of Information .

(i) The annual audited financial statement for the year ending December 31, 2010 and the unaudited quarterly financial statement for the calendar quarter ending June 30, 2011 of the Ceding Company provided to the Issuing Lender by the Borrower were prepared in all material respects in accordance with SAP and, to the extent consistent therewith, fairly present in all material respects the financial condition and result of operations of the Ceding Company as of the respective dates thereof and for the respective periods presented therein, as applicable. The factual information (not including any projections, estimates, modeling or other non-factual information) contained in the actuarial report dated December 3, 2009 prepared by the Original Block Independent Actuary with respect to the Original Block that the Borrower has furnished or caused to be furnished to the Issuing Lender in connection with its analysis and negotiation of the Transactions or the Transaction Documents, in each case as modified or supplemented by other information so furnished by the Borrower, is true and correct in all material respects as of the date of such report. To the best of the Borrower’s knowledge, the financial and actuarial projections and modeling contained therein or otherwise furnished to the Issuing Lender by or on behalf of the Borrower and listed on Schedule 5 were prepared in good faith based upon assumptions believed to be reasonable in the circumstances as of their respective dates or when prepared (it being understood that such projections and modeling are subject to significant uncertainties and contingencies, many of which are beyond the Ceding Company’s or the Borrower’s control, and that no assurances can be given that the projections or modeling will be realized). To the best of the Borrower’s knowledge, no report, certificate or information of a type not otherwise described in this Section 4.01(f)(i) and furnished in writing by or on behalf of the Ceding Company to the Issuing Lender in connection with its analysis and negotiation of this Agreement on or prior to the date hereof, when delivered or as of its respective date, in each case as modified or supplemented by other information furnished by or on behalf of the Ceding Company, contained any material misstatement of fact or omitted to state a material fact.

(ii) The annual audited financial statement for the year ending December 31, 2012 and the unaudited quarterly financial statement for the calendar quarter ending March 31, 2013 of the Ceding Company provided to the Issuing Lender by the Borrower were prepared in all material respects in accordance with SAP and, to the extent consistent therewith, fairly present in all material respects the financial condition and result of operations of the Ceding Company as of the respective dates thereof and for the respective periods presented therein, as applicable. To the best of the Borrower’s knowledge, the factual information (not including any projections, estimates, modeling or other non-factual information) contained in the actuarial report dated June 5, 2013 prepared by the UILIC Block Independent Actuary with respect to the UILIC Block that the Borrower has furnished or caused to be furnished to the Issuing Lender in connection with its analysis and negotiation of the Transactions or the Transaction Documents, in each case as modified or supplemented by other

information so furnished by the Borrower, is true and correct in all material respects as of the date of such report. To the best of the Borrower’s knowledge, the financial and actuarial projections and modeling contained therein or otherwise furnished to the Issuing Lender by or on behalf of the Borrower and listed on Schedule 5 were prepared in good faith based upon assumptions believed to be reasonable in the circumstances as of their respective dates or when prepared (it being understood that such projections and modeling are subject to significant uncertainties and contingencies, many of which are beyond the Ceding Company’s or the Borrower’s control, and that no assurances can be given that the projections or modeling will be realized). To the best of the Borrower’s knowledge, no report, certificate or information of a type not otherwise described in this Section 4.01(f)(ii) and furnished in writing by or on behalf of the Ceding Company to the Issuing Lender in connection with its analysis and negotiation of this Agreement on or prior to the date hereof, when delivered or as of its respective date, in each case as modified or supplemented by other information furnished by or on behalf of the Ceding Company, contained any material misstatement of fact or omitted to state a material fact.

(g) Representations and Warranties in Other Transaction Documents . Each of the representations and warranties made by the Borrower in the Transaction Documents to which it is a party, are true, complete and correct in all material respects as of the date given, subject to any qualifications and limitations contained therein; provided , that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.

(h) Good Title to Collateral; Absence of Liens . The Borrower is the owner of any Collateral pledged hereunder free and clear of all Liens other than Permitted Liens.

(i) Litigation Matters . There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened in writing against the Borrower or against the Ceding Company and affecting the Reinsured Policies (i) that seek to challenge the validity or enforceability of the Transaction Documents or the Transactions or (ii) that would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.

(j) No Material Adverse Effect . There has been no Material Adverse Effect since December 31, 2012.

(k) Investment Company . The Borrower is not required to register as an “investment company” or a company controlled by an “investment company” as defined in the Investment Company Act of 1940.

(l) Anti-Terrorism Laws .

(i) Each of the Borrower and, to the Borrower’s knowledge, each of the Borrower’s Affiliates and each of their respective officers or directors, is in compliance in all material respects with any Anti-Terrorism Law.

(ii) None of the Borrower and, to the Borrower’s knowledge, none of the Borrower’s Affiliates and none of their respective officers or directors who is acting or benefiting in any capacity in connection with the Letter of Credit, is an Embargoed Person.

(m) Debt Obligations . The Borrower does not have any outstanding Indebtedness in excess of $50,000, except as permitted under or contemplated by the Transaction Documents.

(n) Disclosure . The Borrower has disclosed in writing to the Issuing Lender all agreements and instruments to which it is subject, the breach or noncompliance with which could, individually or in the aggregate, be expected to result in a Material Adverse Effect.

(o) Subsidiaries . The Borrower has no Subsidiaries.

(p) Capitalization . The Borrower received, on or prior to the Original Closing Date, a capital contribution or contributions with an aggregate Market Value of not less than $[****] in the form of paid-in capital, $[****] of which was deposited into the Surplus Account, $[****] of which was deposited into the Reinsurance Trust Account and $250,000 of which was deposited into the Regulatory Account.

(q) Solvency . The Borrower is and shall be Solvent both before and immediately after giving effect to the Transactions taking place on the Amendment Closing Date.

(r) Statutory Filings . The Borrower has made all required filings under applicable insurance and reinsurance laws in each jurisdiction where such filings are required, except where the failure to so file would not reasonably be expected to have a Material Adverse Effect.

(s) Borrower Securities . All capital stock or other equity interests issued by the Borrower (other than any Surplus Notes issued subject to and in accordance with Section 6.01(bb) ) are owned by PLICO or any wholly-owned Affiliate of the ultimate Controlling party of the Borrower that is a regulated insurance company.

(t) Non-Consolidation . From the date of formation of the Borrower to the Original Closing Date, the Borrower has complied in all material respects with the non-consolidation covenants set forth in Section 6.01(l) .

ARTICLE V

CONDITIONS

Section 5.01. Closing Conditions . The obligation of the Issuing Lender to issue the Letter of Credit on the Amendment Closing Date is subject to the satisfaction or waiver in accordance with Section 9.02 of the following conditions precedent on or prior to the Amendment Closing Date (the “ Closing Conditions ”):

(a) Approvals . All material governmental and regulatory necessary in connection with the consummation of the Transactions shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any Governmental Authority that would reasonably be expected to have a Material Adverse Effect.

(b) Transaction Documents . The Borrower and the Ceding Company shall have executed (if applicable) and delivered the Transaction Documents, copies of which shall have been delivered to the Issuing Lender, and all conditions to the effectiveness of the Transaction Documents (other than this Agreement) shall have been satisfied.

(c) Representations and Warranties . The representations, warranties and covenants of the Borrower and the Ceding Company set forth herein are true, correct and complete in all material respects, as of the date hereof, unless such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date; provided , that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.

(d) Payment of Fees . The Borrower shall have paid any Fees due and owing to the Issuing Lender as of the Amendment Closing Date.

(e) Financial Strength Rating . The Borrower shall have a Counterparty Risk Rating of at least “A” by S&P (or an equivalent rating by Moody’s or Fitch). The Ceding Company shall have an Insurer Financial Strength Rating of at least “A” by S&P (or an equivalent rating by Moody’s or Fitch).

(f) Closing Documents and Certificates . The Issuing Lender shall have received certificates signed by Responsible Officers of the Borrower certifying that the Closing Conditions (other than those set forth in Sections 5.01(e) , (g) and (h) or those that may have been waived in writing by the Issuing Lender) have been fully satisfied as of the Amendment Closing Date.

(g) Legal Opinions and Memorandum . The Issuing Lender or its counsel shall have received the following favorable written opinions and memorandum (addressed to the Issuing Lender and dated as of the Amendment Closing Date):

(i) Opinion of Vermont counsel for the Borrower with respect to general corporate matters under Vermont law;

(ii) Opinion of counsel for the Borrower with respect to general corporate matters under Delaware law;

(iii) Opinion of outside counsel for the Borrower with respect to general corporate matters and the enforceability of the Transaction Documents under U.S. federal, New York, and Nebraska law; and

(iv) Opinion of counsel for the Borrower with respect to the enforceability, including in delinquency proceedings, of the off-set and recoupment provision in the Reinsurance Agreement under Nebraska law.

(h) Letter of Credit Request . The Issuing Lender shall have received a correct and complete request for the issuance of the Letter of Credit.

(i) No Default . No event that constitutes a Default or an Event of Default hereunder shall have occurred and be continuing.

(j) Funds Withheld Account . On the (i) Prior Closing Date, the Ceding Company shall have transferred assets received from the Borrower into the Funds Withheld Account with a Book Value (as defined in the Reinsurance Agreement) equal to or greater than the Original Block Initial Funds Withheld Amount and (ii) Amendment Closing Date, the Funds Withheld Balance shall be equal to or greater than $[****], and the Ceding Company shall have recorded on its books and records and its statutory financial statements a payable to the Borrower in an amount equal to or greater than $[****].

(k) Third Party Reinsurance . The reinsurance agreements relating to the Reinsured Policies set forth on Exhibit B to the Reinsurance Agreement shall be in full force and effect.

Section 5.02. Conditions to Increase the LOC Amount . The LOC Amount shall be automatically increased on any Scheduled LOC Adjustment Date pursuant to Section 2.01(b) and the Issuing Lender shall have no right to deliver a Non-Increase Notice, unless one of the following conditions precedent has not been satisfied (or waived by the Issuing Lender) or the Borrower has not delivered the officer’s certificate described in Section 2.01(b) on the applicable Scheduled LOC Adjustment Date (the “ Increase Conditions ”):

(a) Contributions . The First Required Additional Contribution shall have been paid by or on behalf of PLC to the Borrower at least forty (40) calendar days prior to the First Required Additional Contribution Date and, if applicable, the Second Required Additional Contribution and the Third Required Additional Contribution shall have been paid by or on behalf of PLC to the Borrower at least forty (40) calendar days prior to the Second Required Additional Contribution Date and the Third Required Additional Contribution Date, respectively.

(b) No Default . No event that constitutes a Default or an Event of Default hereunder shall have occurred and be continuing.

(c) Accuracy of Representations and Warranties . The representations and warranties of (i) the Borrower made pursuant to Sections 4.01(a) (Organization; Powers), 4.01(b) (Authorization; Enforceability), 4.01(c) (Approvals; No Conflicts), 4.01(f) (Accuracy of Information) (but solely with respect to the first sentence of each subsection thereof), 4.01(h) (Good Title to Collateral; Absence of Liens), 4.01(i) (Litigation Matters) (but only with respect to clause (i) thereof), 4.01(k) (Investment Company), 4.01(l) (Anti-Terrorism Laws), 4.01(r) (Statutory Filings) and 4.01(s) (Borrower Securities), shall, in each case, be true and correct in all material respects before giving effect to any increase of the LOC Amount as though made on the applicable Scheduled LOC Adjustment Date unless any such representations or warranties

are specifically made as of any earlier date, in which case they shall only be made as of such earlier date.

ARTICLE VI

BORROWER COVENANTS

Section 6.01. Borrower Covenants . The Borrower hereby agrees, so long as the LOC Commitment remains in effect, the Letter of Credit remains outstanding or any amount is owing to the Issuing Lender, as follows:

(a) Corporate Existence . The Borrower shall preserve and maintain its corporate existence and rights (both organizational and statutory) and maintain full corporate right, power, authority and governmental licenses, approvals and certificates, to perform its obligations hereunder and to own and operate its assets and to carry on its business except for such rights, powers, authority, licenses, approvals and certificates, the loss of which would not reasonably be expected to have a Material Adverse Effect.

(b) Compliance with Laws . Except as could not reasonably be expected to have a Material Adverse Effect, the Borrower will comply with all applicable laws, rules, regulations, and orders of any Governmental Authority applicable to it, its business or its property.

(c) Notices of Material Events . The Borrower shall furnish to the Issuing Lender written notice of the following events within the time frames specified below:

(i) the occurrence of any material breach under any Transaction Document to which it is a party within five (5) Business Days after the Borrower has knowledge of any such occurrence;

(ii) any material correspondence from, including all orders of, or to any Governmental Authority relating to this Agreement or the Transactions within twenty (20) Business Days after the actual receipt by the Borrower thereof, except to the extent prohibited by the terms of such correspondence or order;

(iii) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against the Borrower or against the Ceding Company affecting the Reinsured Policies that would be reasonably expected to result in a Material Adverse Effect with respect to the Borrower, within ten (10) Business Days after the Borrower has knowledge of any such filing or commencement; and

(iv) the occurrence of any Material Adverse Effect with respect to the Borrower or the Reinsured Policies within five (5) Business Days after the Borrower has knowledge of any such occurrence.

Each notice delivered under this Section 6.01(c) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth, in reasonable detail, the event

or development requiring such notice and any action taken or proposed to be taken with respect thereto; provided , however , that, to the extent prohibited by applicable laws, rules or regulations of any Governmental Authority, applicable privilege policies or as would jeopardize attorney-client or other applicable privilege, details regarding such breach, correspondence, actions, suits, proceedings, events or developments need not be furnished to the Issuing Lender by the Borrower.

(d) Financial Reports and Other Information . The Borrower will, to the extent permitted by applicable law, furnish to the Issuing Lender the various reporting documents listed in Schedule 1 attached hereto (the “ Borrower Reporting Documents ”). All financial statements delivered pursuant to this Section 6.01(d) shall be complete and correct copies thereof in all material respects and, if prepared by the Borrower, shall be prepared in all material respects in accordance with SAP.

(e) Books and Records; Inspection Rights. The Borrower shall keep proper books of records and accounts in which entries are made of dealings and transactions in relation to its business and activities. Such entries shall be true, correct and complete in all material respects. Subject to restrictions or limitations arising under applicable law and regulations, the Borrower shall permit one or more employees of the Issuing Lender and its representatives and advisors upon reasonable prior notice during the Borrower’s normal business hours and as does not unreasonably disrupt the business of the Borrower or its Affiliates to (i) inspect the books and records of the Borrower, (ii) discuss the affairs, finances and accounts of the Borrower with officers of the Borrower and (iii) discuss the affairs, finances and accounts of the Borrower with the Borrower’s independent accountants; provided , that the Issuing Lender shall not exercise such right more than once per calendar year unless an Event of Default shall have occurred and be continuing; provided , further , that the Borrower shall bear the expense of (a) one (1) such audit per calendar year by the Issuing Lender and (b) in the event an Event of Default shall have occurred and be continuing, all such audits conducted by the Issuing Lender; provided , further , that the foregoing shall not require the Borrower to disclose any information that it is prohibited from disclosing under applicable contractual confidentiality obligations to third parties, privacy or other applicable law, regulations or orders or that is subject to attorney-client privilege or attorney work product privilege; provided , further , that the Issuing Lender shall keep this and all such information provided under this Agreement confidential pursuant to Section 9.13 .

(f) Indebtedness . The Borrower shall not create, incur, assume, guarantee, acquire, or, contingently or otherwise, enter into or become responsible for payment of any Indebtedness or other obligations incurred or entered into in excess of $50,000 other than (i) pursuant to, as expressly permitted under, contemplated by or in connection with this Agreement, (ii) Indebtedness or other obligations incurred as permitted under or contemplated by the Transaction Documents or (iii) Surplus Notes.

(g) Conduct of Business . The Borrower shall not engage in any business (including but not limited to any transactions with Affiliates) other than the business contemplated by the Transaction Documents and its organizational documents or in connection with the financing of its obligations under the Reinsurance Agreement through the issuance of Surplus Notes.

(h) No Amendment, Modification or Waiver; Impairment of Rights . The Borrower shall obtain the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed):

(i) for any amendment to a Transaction Document (including any such amendment described in Section 6.01(h)(ii) ); provided , that the prior written consent of the Issuing Lender shall not be required for (x) any commutation, recapture or termination of the Reinsurance Agreement in accordance with its terms if the provisions thereof relating to such commutation, recapture or termination are complied with in all material respects and (y) any amendment to the definition of “RP Interest Rate” or “RP Discount Rate” in the Reinsurance Agreement that is required or requested by the domestic regulator of the Ceding Company so that such definition refers only to assets of the Borrower deposited in the Reinsurance Trust Account;

(ii) for any amendment, on or subsequent to the date of any Regulatory Event that results in a decrease in excess of [****] percent ([****]%) in the Statutory Reserves in excess of Economic Reserves for the Reinsured Policies, to the Reinsurance Agreement to appropriately modify the definition of “XXX Reserves” therein and to cause to be ceded to, and/or reinsured with, the Borrower, additional level premium term life business with an actuarial profile substantially similar to, or more favorable to the Borrower than, the Reinsured Policies (the “ Additional Business ”), and to make such other amendments, supplements and modifications to the Transaction Documents, and to make such filings with, and to obtain such approvals of, the Nebraska Director and any other jurisdiction in which the Ceding Company files its statutory financial statements, and to take such other actions as may be reasonably necessary in connection with the foregoing; provided , that (A) the aggregate amount of surplus held by the Borrower to support the Reinsured Policies and the Additional Business shall be proportionate to the amount of surplus held by the Borrower (assuming the satisfaction of all contributions contemplated in Section 2.01(c) ) to support the Reinsured Policies prior to such amendment and (B) the aggregate amount of Statutory Reserves in excess of Economic Reserves ceded to, and reinsured by, the Borrower shall not increase as a result of such amendment;

(iii) subject to Section 6.01(h)(vii) , before entering into any additional contracts or binding agreements other than the Transaction Documents or any required replacement thereof that would create material financial or other obligations of the Borrower other than Surplus Notes;

(iv) for any actions by the Borrower taken pursuant to any Transaction Document to which it is a party other than actions that are (x) ministerial or routine in nature, (y) in the ordinary course of business or (z) expressly provided for thereunder;

(v) prior to using its commercially reasonable efforts to provide statutory reserve credit for the reinsurance ceded under the Reinsurance

Agreement in all U.S. jurisdictions, other than the Ceding Company’s state of domicile, in which the Ceding Company is required to file its statutory statements pursuant to applicable statutory accounting principles and credit for reinsurance statutes and regulations of such jurisdictions, other than making or submitting any commercially reasonable applications for accreditation or approval, filing, notice, or submission to jurisdiction or service of process as a reinsurer with any Governmental Authority; provided , that it shall not be unreasonable for the Issuing Lender to withhold its consent if any such efforts of the Borrower would reasonably be expected to have an adverse impact on the economic, risk, or return expectations of the Issuing Lender or any of its Affiliates in any material respect. For the avoidance of doubt, nothing in this Section 6.01(h)(v) shall require the Issuing Lender to agree to any amendment hereof or of the Letter of Credit;

(vi) before any material term or condition in any Transaction Document to which it is a party is waived by the Borrower; and

(vii) for any other actions of the Borrower not contemplated or permitted by Sections 6.01(h)(i) through (vi) , other than actions that are contemplated by or consistent with the Transaction Documents or the Transactions, are ministerial or routine, are required by applicable law, regulation, rule, order or any Governmental Authority or as would not adversely affect the rights, remedies and position of the Issuing Lender with respect to the Transactions.

(i) Compliance with and Enforcement of Transaction Documents . The Borrower shall comply in all material respects with the terms and conditions of, and perform its obligations and exercise and fully enforce in all material respects its rights and remedies available under, each Transaction Document to which it is a party; provided , that if the Borrower fails to use reasonable best efforts to so enforce its rights in all material respects within seven (7) Business Days of notice from the Issuing Lender or upon the occurrence and continuation of an Event of Default, the Issuing Lender, may enforce, in the name of the Borrower, the rights of the Borrower under the Transaction Documents (other than this Agreement) pursuant and to the extent permitted by the collateral assignment of rights set forth in Section 9.09 .

(j) Dividends . Except with respect to any Special Dividend, the Borrower shall not declare or pay any dividends (i) other than in accordance with the terms of the Dividend Formula, (ii) during the period beginning on the Original Closing Date and ending [****], (iii) if any Default or Event of Default shall have occurred and be continuing and (iv) if any amounts in excess of $[****] due and payable by PLC to the Borrower pursuant to any Transaction Document to which PLC is a party shall remain due and unpaid for a period of thirty (30) calendar days.

(k) Non-Petition . To the extent permitted by applicable law, the Borrower shall not dissolve or liquidate, in whole or in part, or institute insolvency proceedings against itself, or file a petition seeking or consenting to reorganization or relief under any applicable law relating to bankruptcy or insolvency, on or prior to the date that is one (1) year and one (1)

calendar day (or, if longer, the preference period then in effect) after payment in full of all amounts payable in respect of its obligations to the Issuing Lender.

(l) Non-Consolidation .

(i) The Borrower shall not have employees. The Borrower may enter into service agreements with an Affiliate, such that the employees of such entity act on behalf of the Borrower; provided , however , that such employees shall at all times hold themselves out to third parties as representatives of the Borrower while performing duties under such service agreements.

(ii) Any Affiliates shall act as agents of the Borrower solely through express agencies; provided , however , that such Affiliate fully discloses to any third party the agency relationship with the Borrower; provided , further , that such Affiliate receives fair compensation or compensation consistent with regulatory requirements, as appropriate, from the Borrower for the services provided. The Borrower shall not act as an agent for any Affiliate.

(iii) The Borrower shall not nor shall it allow any Person to acquire any, merge into or consolidate with any Person or entity or, to the fullest extent permitted by law, dissolve, terminate or liquidate in whole or in part, transfer, lease or otherwise dispose of any of its assets other than in accordance with the Transaction Documents, or change its legal structure, fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its incorporation or to the fullest extent permitted by law, seek dissolution or winding up in whole, or in part.

(iv) The Borrower shall allocate all overhead expenses (other than expenses allocable to the Borrower’s use of office space made available by an Affiliate) for items shared between the Borrower and such Affiliate, on the basis of actual use to the extent practicable and, to the extent such allocation is not practicable, on a basis reasonably related to actual use.

(v) The Borrower shall ensure that all actions of the Borrower are duly authorized by its authorized officers, as appropriate.

(vi) The Borrower shall maintain its bank accounts, books and records separately from those of its Affiliates, and use the name “Golden Gate III Vermont Captive Insurance Company” in all correspondence, and use separate invoices and checks.

(vii) The Borrower shall maintain its own records, books, resolutions and agreements, and such books and records shall be adequate and sufficient to identify all of its assets.

(viii) The Borrower shall prepare financial statements for itself that are separate from the financial statements and accounting records of its Affiliates; provided , that the Borrower may permit such financial statements to be part of the

consolidated financial statements of another entity which acknowledges that the Borrower is a separate entity.

(ix) The Borrower shall not commingle funds or other assets of the Borrower with those of its Affiliates or any other Person and shall not maintain bank accounts or other depository accounts to which any of its Affiliates are an account party, into which any of its Affiliates makes deposits or from which any of its Affiliates have the authority to make withdrawals, except that any Affiliate of the Borrower may deposit funds and assets owed to the Borrower pursuant to the PLC Service Agreements, Administrative Services Agreement and Investment Management Agreement into, and any Affiliate of the Borrower may withdraw funds and assets owed to such Affiliate pursuant to the PLC Service Agreements, Administrative Services Agreement and Investment Management Agreement from, the Administrative Account.

(x) The Borrower shall hold its assets in its own name.

(xi) The Borrower shall maintain its assets in such a manner that it is not, or will not be, costly or difficult to segregate, identify or ascertain its assets from those of any other Person.

(xii) The Borrower shall not permit any of its Affiliates to pay any of the Borrower’s operating expenses, unless such operating expenses are paid by such Affiliate pursuant to a Transaction Document or an agreement between such Affiliate and the Borrower providing for the allocation of such expenses.

(xiii) The Borrower shall at all times act solely in its own name and through its duly authorized officers or agents in order for the Borrower to maintain an arm’s-length relationship its Affiliates. The Borrower shall not enter into any contract with an Affiliate except on terms that are fair and equitable.

(xiv) The Borrower shall conduct its business solely in its own name so as to not mislead third parties as to the identity of the Borrower with which such third parties are conducting business, and shall use all reasonable efforts to avoid the appearance that it is conducting business on behalf any Affiliate or that the assets of the Borrower are directly available to pay the creditors of any Affiliate.

(xv) The Borrower shall not consent to any of its Affiliates granting consensual material Liens on the Borrower’s property or assets. The Borrower shall maintain its assets in such a manner that it is not costly or difficult to segregate, identify or ascertain such assets.

(xvi) Subject to the Transaction Expense Support Agreement and the PLC Guarantee, the Borrower shall pay its own liabilities and expenses out of its own funds drawn on its own bank account.

(xvii) The Borrower shall not assume, guarantee, become obligated for, pay, hold itself out to be responsible for or pledge its assets in support of, the

Indebtedness or obligations of any Affiliate or controlling persons or any other Person and, except as permitted or required pursuant to the Transaction Documents and the transactions contemplated therein, shall not create, incur, assume, guarantee, acquire, or, contingently or otherwise, enter into or become responsible for payment of any Indebtedness or guarantees or consent to any of its Affiliates assuming, granting, becoming obligated for, paying or holding itself out to be responsible for the Indebtedness or obligations of the Borrower.

(xviii) The Borrower shall not acquire obligations or securities of any Affiliates. The Borrower shall not hold out its credit to any person as available to satisfy the obligation of any other Person or entity. The Borrower shall not pledge its assets for the benefit of any other entity or make any loans or advances to any Person or entity except as provided in the Transaction Documents.

(xix) The Borrower shall observe strictly all organizational and procedural formalities required by this Agreement, its articles of incorporation and its by-laws, and by applicable law.

(xx) The Borrower shall not hold itself out as or be considered as a department or division of (A) any shareholder, partner, principal, member or Affiliate of the Borrower, (B) any Affiliate of a shareholder, partner, principal, member or Affiliate of the Borrower or (C) any other Person or allow any Person to identify the Borrower as a department or division of that Person.

(xxi) The Borrower shall not conceal assets from any creditor, or enter into any transaction with the intent to hinder, delay or defraud creditors of the Borrower or the creditors of any other Person.

(xxii) As of the date hereof, the Borrower shall have adequate capital.

(xxiii) The Borrower shall have at least one Independent Director who is not on the board of directors of its sole shareholder of common stock and shall cause its board of directors to observe all other corporate formalities.

(xxiv) The Borrower shall use all reasonable efforts to cause its agents, service providers and other representatives to act at all times without contravention of the foregoing covenants.

(m) Taxes . The Borrower shall file any material Tax return that is required to be filed by it in any jurisdiction or pay any material Tax, assessment, charge or fee due and payable with respect to its properties and assets, other than those being contested in good faith in which case it shall take all reasonable steps to defend any action brought by a taxing authority with respect to such Tax, assessment, charge or fee.

(n) Expenses . The Borrower shall reimburse the Issuing Lender for all reasonable out-of-pocket expenses and other reasonable costs (including any legal fees and actuarial fees) incurred in connection with (i) the negotiation and preparation of the Transaction Documents on or prior to the Original Closing Date, but not to exceed $[****] in aggregate or

(ii) in connection with the negotiation and preparation of any amendment to this Agreement following the Amendment Closing Date, but not to exceed $[****] in aggregate per amendment, in the case of (i) or (ii), without the consent of the Borrower, such consent not to be unreasonably withheld or delayed, and (iii) any Event of Default. The Borrower shall reimburse the Issuing Lender for reasonable out-of-pocket expenses and other reasonable costs (including any legal fees and actuarial fees) incurred in connection with the negotiation and preparation of the amendments to the Transaction Documents entered into on the Amendment Closing Date, but not to exceed $[****] in aggregate.

(o) No Future Issuances of Securities . The Borrower shall not issue or sell any bonds, notes, debentures, or other debt securities of the Borrower, or any other securities of the Borrower, and shall not enter into any subscriptions, options, warrants, conversion or other rights, agreements, commitments, arrangements or understandings of any kind, contingently or otherwise, for the sale of any such securities or any securities convertible into or exchangeable for any such securities, except with respect to, in each case, Surplus Notes.

(p) Maintenance of Accounts . The Borrower shall at all times maintain (or in the case of the Reinsurance Trust Account, cause to be maintained) (i) the Regulatory Account in accordance with Section 3.01 , (ii) the Surplus Account in accordance with Section 3.02 and (iii) the Reinsurance Trust Account in accordance with the Reinsurance Trust Agreement.

(q) Investments in Regulatory Account . The Borrower shall not make or permit to be made any investments of assets held in the Regulatory Account other than in Cash and Cash Equivalents.

(r) Investments in Surplus Account and Reinsurance Trust Account . The Borrower shall not make or permit to be made any investments of assets (other than the Letter of Credit) held in the Surplus Account and Reinsurance Trust Account other than in accordance in all material respects with the Investment Guidelines and in compliance in all material respects with applicable law, including ensuring that the Investment Guidelines comply in all material respects with applicable insurance laws and regulations.

(s) No New Business . With respect to the Reinsured Policies, no new insurance or reinsurance treaties shall be reinsured by the Borrower after the Original Closing Date, other than the UILIC Block or as expressly permitted under the Reinsurance Agreement or Section 6.01(h)(ii) .

(t) Security Interest . The Borrower shall not grant a security interest in any of the Collateral and shall not otherwise create, incur, assume or permit any liens, mortgages, security interests, pledges, charges, or encumbrances of any kind on any of its property or assets owned on the date hereof or thereafter acquired, or any interest therein or the proceeds thereof, in each case other than Permitted Liens or as expressly permitted in this Agreement or any other Transaction Document. Subject to the Priority of Payments and its obligations under this Agreement and the other Transaction Documents, the Borrower shall not take any action, or fail to take any action, with respect to the Collateral other than the Transaction Documents or any rights thereunder, if such action or failure to take action would reasonably be expected to interfere with the enforcement of any rights hereunder material to the Issuing Lender.

(u) Change of Control . The Borrower shall at all times remain an Affiliate of the Ceding Company and a direct Subsidiary of PLICO; provided , that nothing herein or in any of the Transaction Documents shall prevent the Ceding Company or any other Affiliate of the Borrower from consolidating with or merging into any other Affiliate of PLC (other than the Borrower) or require any consent, waiver or approval of or by the Issuing Lender therefor. The Borrower shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and the Borrower shall not permit any Person to consolidate with or merge into the Borrower or convey, transfer or lease its properties and assets substantially as an entirety to the Borrower.

(v) Subsidiaries . The Borrower shall not have any Subsidiaries.

(w) Transaction Documents . The Borrower shall deliver to the Issuing Lender copies of any executed (or, if execution is inapplicable, otherwise finalized) Transaction Documents.

(x) Regulations T, U and X . No proceeds of the Letter of Credit will be used in violation of Regulation T, U or X of the Board of Governors of the Federal Reserve System, as in effect from time to time.

(y) Changes in Accounting Practices . Except for permitted practices provided for in the Licensing Order, the Borrower shall not seek approval from the Vermont Commissioner in any respect of, and shall not implement, any permitted practice under SAP as permitted by the State of Vermont without the prior written consent of the Issuing Lender, such consent not to be unreasonably withheld.

(z) Ratings . In the event that S&P ceases to issue a Counterparty Risk Rating for the Borrower for any reason other than at the request of the Borrower, the Borrower shall seek a substitute rating from Moody’s or Fitch. The Borrower shall obtain the written consent of the Issuing Lender prior to requesting that S&P cease to issue a Counterparty Risk Rating for the Borrower unless a substitute rating from Moody’s or Fitch has already been obtained.

(aa) Independent Director . The Borrower shall not replace or appoint any director that is to serve as an Independent Director unless (i) the Borrower provides the Issuing Lender with ten (10) Business Days prior written notice of such replacement or appointment, (ii) a Responsible Officer of the Borrower certifies that the designated Person satisfied the criteria set forth in the definition of “Independent Director” herein and (iii) the Issuing Lender acknowledges, in writing, that in its reasonable judgment the designated Person satisfies the criteria set forth in the definition of “Independent Director” herein or fails to respond to a request for such acknowledgement within ten (10) Business Days of such request.

(bb) Surplus Notes . During the term of this Agreement, the Borrower may from time to time issue surplus notes (“ Surplus Notes ”); provided , that any such Surplus Notes of the Borrower (i) shall be subordinate at all times in right of payment of principal, interest or premium and any other amounts with respect thereto to all fees, expenses, LOC Reimbursement Obligations and other amounts due in connection with this Agreement and the Letter of Credit as provided in and pursuant to the terms of the Priority of Payments, (ii) shall bear interest at a rate

not to exceed the then-applicable 5-year benchmark Treasury Rate plus [****] bps, (iii) shall not have a maturity date earlier than one year and one day following the later of (A) the Facility Maturity Date and (B) the date on which no obligations due hereunder are outstanding, (iv) shall be issued in a form reasonably acceptable to the Issuing Lender and (v) shall only be issued at times when the difference between the Statutory Reserves and the Economic Reserves is greater than the LOC Amount. Payments of principal, interest or premium in respect of any Surplus Notes of the Borrower shall only be made in accordance with, and subject to the restrictions set forth in, the Priority of Payments.

(cc) Termination of Letter of Credit . The Borrower shall, upon a termination of the Letter of Credit pursuant to Section 2.02 , within thirty (30) calendar days of the effective date of such termination, (i) deliver written notice of such termination to the Issuing Lender and (ii) return the Letter of Credit to the Issuing Lender for cancellation in full.

(dd) Contribution Notices . The Borrower shall promptly provide a written notice to the Issuing Lender upon any (i) receipt of the First Required Additional Contribution, (ii) receipt of the Second Required Additional Contribution and the Third Required Additional Contribution, (iii) receipt of the Fourth Required Additional Contribution and (iv) receipt of the Fifth Required Additional Contribution, and any such notice shall include the dates on which such contributions were received by the Borrower.

ARTICLE VII

COLLATERAL AND SECURITY

Section 7.01. Obligations Secured Hereby . This Article VII is made to secure and provide for payment of all amounts due by the Borrower to the Issuing Lender under this Agreement (such obligations and liabilities being in this Agreement called the “ Secured Obligations ”).

Section 7.02. Collateral .

(a) The Borrower, as security for the prompt payment and performance of the Secured Obligations when due, hereby assigns, conveys, transfers, delivers and sets over to the Issuing Lender, and grants to the Issuing Lender a Lien on and a security interest in all assets of the Borrower other than its books and records and its right, title and interest (now existing or hereafter acquired or arising) in, to and under the Regulatory Account and the Administrative Account, including the Borrower’s right, title and interest (now existing or hereafter acquired or arising) in, to and under the following (collectively, the “ Collateral ”):

(i) the Borrower’s interest, if any, in the Reinsurance Trust Account; provided , that such Lien and security interest is subject in all cases and in every respect to the rights of the Reinsurance Trustee in such interest;

(ii) the Surplus Account, and all Cash, securities, Instruments and other property held in the Surplus Account from time to time, and all certificates and Instruments, if any, from time to time representing the Surplus Account or any property therein. Notwithstanding the status of the Surplus Account and

financial assets as Collateral, the Surplus Account and such assets shall remain available to make payments in the priority and to the recipients identified pursuant to the Priority of Payments. In addition, the Issuing Lender agrees not to issue any Notice of Exclusive Control (as defined in the Securities Account Control Agreement) unless an Event of Default has occurred and is continuing. The Issuing Lender hereby authorizes any disposition of property from the Surplus Account free of any security interest if, and only to the extent that, such disposition is made, and the proceeds are applied, in accordance with the Priority of Payments;

(iii) all rights, if any, of the Borrower in (A) all Cash, securities, Instruments and other property held or deemed to be held in any express or constructive trust established pursuant to the terms of the Reinsurance Agreement from time to time, and (B) all certificates and Instruments, if any, from time to time representing any such express or constructive trust or any property therein; provided , that such Lien and security interest is subject in all cases and in every respect to the rights of the Ceding Company in such rights;

(iv) any and all of the following, whether now existing or hereafter arising and wheresoever the same may be located: all rights of the Borrower under the Transaction Documents, accounts (other than the Regulatory Account and the Reinsurance Trust Account), chattel paper, deposit accounts, documents, equipment, general intangibles, goods, instruments, inventory, investment property, letters of credit, letter-of-credit rights, payment intangibles, securities accounts and supporting obligations;

(v) all other property or rights delivered or assigned by the Borrower or on its behalf to the Issuing Lender from time to time under this Agreement or otherwise, to secure or guarantee payment of the Secured Obligations; and

(vi) to the extent not covered above, all products and proceeds of, and all dividends, collections, earnings, accruals, and other payments with respect to, any or all of the foregoing.

Section 7.03. Perfection of Security Interest in Collateral .

(a) Entitlement Holder . The Borrower agrees that it is the sole Entitlement Holder with respect to each Securities Account established hereunder, and the Issuing Lender will have control (as defined in Section 9-104 of the UCC) over any deposit account established hereunder.

(b) Further Assurances . The Borrower hereby authorizes the Issuing Lender to file all appropriate UCC filings, including financing or continuation statements, in any jurisdiction and with any filing offices as the Issuing Lender may determine, in its reasonable discretion, are necessary to perfect or otherwise perfect the security interest granted to the Issuing Lender herein. The Borrower shall promptly prepare, file or record, such additional notices, financing statements or other documents as the Issuing Lender may reasonably request

as necessary for the perfection of the security interests granted to the Issuing Lender hereunder, such instruments to be in form and substance reasonably satisfactory to the Issuing Lender.

Section 7.04. Continuing Security Interest, Termination .

(a) This Agreement shall create a continuing security interest in the Collateral in favor of the Issuing Lender and shall remain in full force and effect in accordance with its terms until all of the Secured Obligations are paid or satisfied in full.

(b) The security interest created by this Agreement shall not be considered satisfied by payment or satisfaction of any part of the Secured Obligations to the Issuing Lender hereby secured but shall be a continuing security interest and shall not be discharged, prejudiced or affected in any way by time being given to the Borrower or by any other indulgence or concession to the Borrower granted by the Issuing Lender, by the taking, holding, varying, non-enforcement or release by the Issuing Lender of any other security for all or any of the Secured Obligations, by any other thing done or omitted to be done by the Issuing Lender or any other Person or by any other dealing or thing including any variation of or amendment to any part of the Collateral and any circumstances whatsoever that but for this provision might operate to discharge any of the Secured Obligations or to exonerate or discharge the Borrower from its obligations hereunder or otherwise affect the security interest hereby created.

Section 7.05. Protection of Collateral .

(a) The Borrower shall take any action necessary to:

(i) maintain or preserve any and all Liens created by this Agreement on the Collateral (and the priorities thereof);

(ii) perfect or protect the validity of the pledge of Collateral and the Liens created by this Agreement;

(iii) enforce, if commercially reasonable, any rights with respect to the Collateral; and

(iv) preserve and defend, if commercially reasonable, title to the Collateral and the rights of the Issuing Lender in such Collateral against the claims of all Persons.

Section 7.06. Performance of Obligations .

(a) The Borrower may contract with other Persons to assist it in performing its duties under this Agreement, and any performance of such duties by a Person identified to the Issuing Lender in an officer’s certificate of the Borrower shall be deemed to be action taken by the Borrower.

(b) The Borrower shall perform and observe all its obligations and agreements contained in this Agreement, including, filing or causing to be filed all documents required to be

filed by the terms of this Agreement in accordance with, and within the time periods provided for, in this Agreement and therein.

Section 7.07. Power of Attorney . The Borrower hereby irrevocably appoints the Issuing Lender and any receiver, officer or agent thereof, with full power of substitution, as its true and lawful attorney-in fact with full power and authority, in each case, to the maximum extent permitted by law, in the name of the Borrower or the name of such attorney-in-fact, from time to time in the Issuing Lender’s reasonable discretion for the purpose of taking such action and executing such agreements, financing statements, continuation statements, instruments and other documents, in the name of the Borrower, as provided in this Agreement and as the Issuing Lender may reasonably deem necessary to perfect, promote and protect and enforce the security interest of the Issuing Lender in the Collateral. Notwithstanding the foregoing or anything else in this Agreement to the contrary, the Issuing Lender has no responsibility for the validity, perfection, priority or enforceability of any Lien or security interest and shall have no obligation to take any action to procure or maintain such validity, perfection, priority or enforceability. This power of attorney shall be irrevocable as one coupled with an interest prior to the payment in full of all the obligations secured hereby until all amounts due and payable hereunder have been finally and fully repaid and the Letter of Credit is terminated.

Section 7.08. No Pledge of Collateral to Others . The Borrower shall not (i) create, incur or suffer to exist, or agree to create, incur or suffer to exist, or consent to cause or permit in the future (upon the happening of a contingency or otherwise) the creation, incurrence or existence of any Lien on the Collateral except for (a) Liens the validity of which are being contested in good faith by appropriate proceedings, (b) Liens for Taxes that are not then due and payable or that can be paid thereafter without penalty, (c) Liens otherwise incurred in connection with borrowings permitted hereunder and made in the ordinary course of business in accordance with the Borrower’s stated investment objectives, policies and restrictions, (d) Liens in favor of the Issuing Lender and (e) other Permitted Liens or (ii) sign or file under the UCC of any jurisdiction any financing statement which names the Borrower as a debtor, or sign any security agreement authorizing any secured party thereunder to file such financing statement, except in each case any such Instrument solely securing the rights and preserving the Lien of the Issuing Lender.

Section 7.09. No Change in Borrower Name, Structure or Office . The Borrower will not change its name or jurisdictions of organization unless it has taken such action in advance of such change or removal, if any, or change its mailing addresses unless it has taken such action within fifteen (15) calendar days of such change, in each case as is necessary to cause the security interests of the Issuing Lender in the Collateral to continue to be perfected without interruption.

Section 7.10. Release of Collateral . Upon the payment in full of all Secured Obligations or upon the other circumstances specified in this Agreement, all of the Collateral shall be released from the Liens created hereby, the security interest created hereby and all rights of the Issuing Lender in such Collateral shall cease, and any remaining amounts or assets held in the Cash Collateral Account or Surplus Account shall be transferred to, or for the account of, the Borrower, and all rights to the Collateral shall revert to the Borrower or any other Person entitled thereto. At such time, the Issuing Lender will authorize the filing of appropriate termination

statements and other instruments and documents reasonably requested by the Borrower to terminate such security interests.

Section 7.11. Notice of Exclusive Control . The Issuing Lender shall not deliver a Notice of Exclusive Control (as defined in the Securities Account Control Agreement) under the Securities Account Control Agreement unless an Event of Default shall have occurred and be continuing.

ARTICLE VIII

EVENTS OF DEFAULT

Section 8.01. Events of Default . If any of the following events (“ Events of Default ”) shall occur:

(a) the Borrower shall fail to make any payment of an LOC Reimbursement Obligation (including any applicable interest thereon), immediately following the date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments and the Payment Restrictions, to the Issuing Lender under this Agreement or any other Transaction Document to which it is a party and such failure to make payment shall continue for two (2) Business Days; provided , that such failure shall not constitute an Event of Default (A) in the case of any unpaid LOC Reimbursement Obligations, such payment would cause the Borrower’s Total Adjusted Capital following such payment to be less than [****] percent ([****]%) of its Company Action Level Risk Based Capital and no Approval has been given by the Vermont Commissioner in respect of such payment, or (B) if and to the extent the Borrower fails to pay any such amounts when due at a time when the Market Value of the assets (if any) in the Surplus Account equals zero;

(b) the Borrower shall fail to pay when due any amount payable to the Issuing Lender under this Agreement, or if in excess of $[****], any other Transaction Documents to which it is a party (including the posting of collateral and any applicable interest payments) other than any LOC Reimbursement Obligation or any interest thereon, (i) with respect to the payment of any Fees that are due and payable, immediately following the date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments and, with respect to the payment of any Fees which are due and payable, such failure to make payment shall continue for two (2) Business Days after the date due or, (ii) with respect to any payment subject to this Section 8.01(b) other than the payment of any Fees which are due and payable, immediately following the date on which, and to the fullest extent that, funds become available in accordance with the Priority of Payments, and such failure to make payment shall continue for five (5) Business Days after written notice from the Issuing Lender; provided , that in the case of both (i) and (ii), such failure shall not constitute an Event of Default if and to the extent the Borrower fails to pay any such amounts when due at a time when the Market Value of the assets (if any) in the Surplus Account equals zero; provided , further , that in the case of (i), such failure shall not constitute an Event of Default if the failure to pay is a result of the illegality, unlawfulness or conflict with any applicable insurance law, rule or regulation of the Borrower paying any Fee (or portion thereof) hereunder and the amount the Borrower has failed to pay has been paid or satisfied by PLC under the PLC Guarantee when required thereunder;

(c) any representation or warranty made or deemed to be made by the Borrower or the Ceding Company in any Transaction Document to which it is a party shall prove to have been incorrect or untrue in any material respect when made or deemed to be made, as the case may be;

(d) a final non-appealable judgment or judgments for the payment of money in excess of, in the aggregate, $[****] in the case of the Borrower or $[****] in the case of the Ceding Company, to the extent not paid or covered by insurance, is rendered by one or more Governmental Authorities against the Borrower or the Ceding Company, as applicable, and that the same is not discharged, vacated, bonded or stayed within ninety (90) calendar days;

(e) except as otherwise set forth in Sections 8.01(a) or (b) , the Borrower shall fail to observe or perform, in any material respect, its obligations pursuant to Article VI , and such failure shall continue for thirty (30) calendar days after written notice from the Issuing Lender; provided , however , that such thirty (30) calendar day grace period will not apply, to the extent notice of such breach is required to be given under any section of Article VI , in the event that the Borrower has provided the Issuing Lender notice of such breach more than sixty (60) calendar days following the first day on which the Borrower has knowledge of such breach;

(f) the Ceding Company shall fail to observe or perform its obligations in any material respect pursuant to Sections 2(d) (Draw Certification Notice), 2(e) (Impermissible Draw) and 2(f) (Compliance) of the Ceding Company Letter Agreement, such failure shall continue for thirty (30) calendar days after written notice from the Issuing Lender;

(g) (i) any Transaction Document becomes illegal or it becomes unlawful for the Borrower or the Ceding Company to perform their respective obligations under this Agreement or any other Transaction Document in any material respect or (ii) the performance of the Borrower’s obligations under this Agreement or any other Transaction Document conflicts with any applicable insurance law, rule or regulation in any material respect, and, in each case, such obligations are not paid or satisfied by PLC under the PLC Guarantee when required thereunder;

(h) any transaction occurs, whether a merger, sale, asset sale or otherwise, as a result of which the Borrower fails to be an Affiliate of the Ceding Company or a direct Subsidiary of PLICO;

(i) the Borrower or the Ceding Company shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of any proceeding or petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or the Ceding Company or for a substantial part of any of their respective assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of authorizing or effecting any of the foregoing;

(j) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower or the Ceding Company, or their respective debts, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or the Ceding Company, and, in any such case, such proceeding or petition shall continue undismissed for thirty (30) calendar days;

(k) The Issuing Lender’s lien on any material portion of the Collateral shall cease to be, subject to the Permitted Liens, a valid first priority perfected security interest;

(l) PLC shall fail to pay (i) any amount in excess of $[****] payable to or explicitly required to be made on behalf of the Borrower under the Tax Sharing Agreement or the Special Tax Allocation Agreement within thirty (30) calendar days from the date on which such payment was due and payable; or

(m) the Tax Sharing Agreement or the Special Tax Allocation Agreement shall be amended, there shall be a termination of the Special Tax Allocation Agreement, or there shall be a termination of the rights of the Borrower with respect to PLC and the obligations of PLC with respect to the Borrower under the Tax Sharing Agreement, in each case without the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld) and such amendment or termination adversely affects, in any material respect, the rights, remedies or obligations of the Borrower under such agreement;

(n) PLC shall fail to pay any amount in excess of $[****] payable to the Borrower under the PLC Guarantee within three (3) Business Days from the date on which such payment was due;

then, upon the occurrence and during the continuance of any Event of Default (except in the case of item (iii) below which shall only apply with respect to an Event of Default described in either Section 8.01(a) or (b) ), subject to any applicable grace period, the Issuing Lender may declare that (i) all LOC Reimbursement Obligations and other amounts outstanding shall, at the option of the Issuing Lender, accelerate and become immediately due and payable by the Borrower from the available funds of the Borrower subject to the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions; (ii) the Borrower will be required to post cash collateral in an amount equal to the undrawn face amount of the Letter of Credit, such collateral to be paid as and when available with respect to the Borrower under item Eighth of the Priority of Payments and to be held in the Cash Collateral Account; (iii) the Issuing Lender may foreclose on the Collateral (but only, for the avoidance of doubt, with respect to an Event of Default described in either Section 8.01(a) or (b) ); (iv) the Issuing Lender may enforce in the name of the Borrower any rights of the Borrower under the Transaction Documents to the extent permitted under the collateral assignment of such rights set forth in Section 9.09 ; and (v) the Borrower shall cease to be allowed to declare or pay any dividends (other than any Special Dividend). Notwithstanding the foregoing, the occurrence and continuation of an Event of Default shall not impair or otherwise affect the Reinsurance Trustee’s right to draw on the Letter of Credit in accordance with its terms (it being understood that any assets of the Borrower pledged as collateral in accordance with clause (ii) and

foreclosed upon in accordance with clause (iii), of the immediately preceding sentence shall be deemed to have been used to satisfy amounts due and payable under the Reinsurance Agreement for purposes of satisfying the condition to drawing on the Letter of Credit described in the Draw Certification Notice).

So long as the Letter of Credit shall remain outstanding, the Issuing Lender shall hold the Cash Collateral Account, which account and all assets thereof shall be held separate and apart from all its other assets and accounts in the name of and subject to the control and dominion of the Issuing Lender, as cash collateral for the obligations of the Borrower owing to the Issuing Lender hereunder. Assets of the Cash Collateral Account shall be Cash or Cash Equivalents, except as otherwise agreed by the Borrower. Upon the termination of the Letter of Credit in full, and the payment in full of all secured obligations, the Issuing Lender shall release all funds and investments held in the Cash Collateral Account to or upon the account of the Borrower.

ARTICLE IX

MISCELLANEOUS

Section 9.01. Notices . Except as otherwise provided herein and in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing (including by electronic transmission) and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by electronic mail with PDF attachment and confirmed by overnight courier service, as follows:

Borrower:		Golden Gate III Vermont Captive Insurance Company
		c/o Marsh Management Services, Inc.
		100 Bank Street
		Burlington, VT 05402
		Fax: (802) 859-3550

		with a copy to:

		Protective Life Corporation
		2801 Highway 280 South
		Birmingham, AL 35223
		Attention: General Counsel
		Fax: (205) 268-3597

Ceding Company:		West Coast Life Insurance Company
		2801 Highway 280 South
		Birmingham, AL 35223
		Attention: General Counsel
		Fax: (205) 268-3597

Issuing Lender:		UBS AG, Stamford Branch
		677 Washington Boulevard
		Stamford, CT 06901
		Attention: Banking Products Services
		Fax: (203) 719-4176
		E-mail: DL-UBSAgency@ubs.com

		with a copies to

		UBS AG, Stamford Branch
		677 Washington Boulevard
		Stamford, CT 06901
		Attention: Structured Fixed Income
		Fax: (203) 719-2941

		and

		UBS AG, Stamford Branch
		677 Washington Boulevard
		Stamford, CT 06901
		Attention: Fixed Income Legal
		Fax: (203) 719-0680

Any party hereto may change its address (street or email) for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.

Section 9.02. Waivers; Amendments . Except as otherwise provided herein, neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by each of the Borrower and the Issuing Lender.

Section 9.03. Survival of Representations and Warranties . All representations and warranties contained herein shall survive the execution and delivery of this Agreement and issuance of the Letter of Credit. Such representations and warranties have been or may be relied upon by the Issuing Lender regardless of any investigation made at any time by or on behalf of the Issuing Lender.

Section 9.04. Indemnity . Irrespective of whether the LOC Commitment or the Letter of Credit is terminated, the Borrower agrees to indemnify jointly and severally the Issuing Lender and each Related Party of the Issuing Lender (each such Person being called an “ Indemnitee ”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the reasonable and documented fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee by any third party arising out of, or as a result of any actual claim, litigation,

investigation or proceeding relating to (i) the execution or delivery of this Agreement or the performance by the parties hereto of their respective obligations hereunder or (ii) the Letter of Credit or any LOC Disbursement regardless of whether any Indemnitee is a party thereto but excluding in each case any actual or threatened claim, litigation, investigation or proceeding solely among Indemnitees and/or Participants and/or Lender Counterparties; provided , that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence, bad faith or willful misconduct of any Indemnitee; provided , further , that such indemnity shall be subject to, and only payable in accordance with, the Priority of Payments and, solely with respect to LOC Reimbursement Obligations, the Payment Restrictions, including, without limitation, as may limit or restrict payment of any LOC Reimbursement Obligation or interest thereon. It is understood and agreed that, to the extent not precluded by a conflict of interest, each Indemnitee shall endeavor to work cooperatively with the Borrower with a view toward minimizing the legal and other expenses associated with any defense and any potential settlement or judgment. To the extent reasonably practicable and not disadvantageous to any Indemnitee and in the absence of any conflict of interest, a single counsel selected by the Borrower, and approved by the Indemnitee, may be used. Settlement of any claim or litigation involving any material indemnified amount will require the approvals of the Borrower (not to be unreasonably withheld) and the relevant Indemnitee (not to be unreasonably withheld or delayed).

Section 9.05. Successors and Assigns; Participations and Assignments .

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns (including, if applicable, any Affiliate of the Issuing Lender), except that (y) the Borrower may not assign or otherwise transfer any of its rights or obligations under this Agreement without the prior written consent of the Issuing Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (z) the Issuing Lender may not assign or otherwise transfer its rights or obligations under this Agreement except in accordance with this Section 9.05 .

(b) Any assignment under this Agreement by the Issuing Lender, any Assignee or any assignees thereof (each, an “ Assignee ”) to any Person that is not an Affiliate of the Issuing Lender may only be made (i) pursuant to an Assignment and Acceptance Agreement in the form of Exhibit E attached hereto, (ii) to a Person that, at the time of such assignment, is an Eligible Bank that is not on the Restricted List and (iii) with the prior written consent of the Borrower (which consent shall not be unreasonably withheld, delayed or conditioned), and any attempted assignment in violation of this Section 9.05(b) shall be void ab initio .

(c) Any assignment under this Agreement by the Issuing Lender to any Person that is an Affiliate of the Issuing Lender may only be made pursuant to an Assignment and Acceptance Agreement in the form of Exhibit E attached hereto and to a Person which, at the time of such assignment, (i) is an Eligible Bank that is not on the Restricted List and (ii) has a financial strength rating from S&P (or an equivalent rating by Moody’s or Fitch) which is equivalent to or higher than the financial strength rating of the assigning Issuing Lender from S&P (or an equivalent rating by Moody’s or Fitch), and any attempted assignment in violation of this Section 9.05(c) shall be void ab initio .

(d) Notwithstanding anything herein to the contrary, in no event shall the Issuing Lender be released from its obligations under the Letter of Credit prior to its termination, nor shall it cease to be a party hereto, nor shall it cease to retain at least [****] percent ([****]%) of all rights, obligations, assignments, participations, commitments and interests of the Issuing Lender under this Agreement.

(e) The Issuing Lender may, without the consent of the Borrower and subject to Section 9.05(d) , sell participations to one or more banks or other entities (a “ Participant ”) in not more than [****] percent ([****]%) of the Issuing Lender’s rights and obligations under this Agreement (including not more than [****] percent ([****]%) of the LOC Commitment); provided , that (i) the Issuing Lender’s obligations under this Agreement shall remain unchanged, (ii) the Issuing Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower shall continue to deal solely and directly with the Issuing Lender in connection with the Issuing Lender’s rights and obligations under this Agreement. Any agreement pursuant to which the Issuing Lender sells such a participation shall provide that the Issuing Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided , that such agreement may provide that the Issuing Lender will not, without the consent of the Required Participants, agree to (A) reduce the principal amount due with respect to any LOC Reimbursement Obligation or (B) reduce the Drawn Rate.

(f) The Issuing Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of the Issuing Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section 9.05 shall not apply to any such pledge or assignment of a security interest; provided , that no such pledge or assignment of a security interest shall release the Issuing Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for the Issuing Lender as a party hereto.

Section 9.06. Counterparts; Integration; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement constitutes the entire contract among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Subject to Section 5.01 , this Agreement shall become effective when it shall have been executed by the parties hereto and when the parties have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or electronic mail with PDF attachment shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 9.07. Governing Law; Jurisdiction .

(a) This Agreement shall be construed in accordance with and governed by the law of the State of New York.

(b) Each party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement against any other party or its properties in the courts of any jurisdiction.

Section 9.08. Right of Setoff . If any amount shall have become due and payable by the Borrower hereunder, whether due to maturity, acceleration or otherwise, the Issuing Lender is hereby authorized, at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Issuing Lender to or for the credit or the account of the Borrower under this Agreement (other than any amount payable under the Letter of Credit) against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by the Issuing Lender, irrespective of whether or not the Issuing Lender shall have made any demand under this Agreement. Without limiting or otherwise affecting the provisions of the Letter of Credit, the Issuing Lender shall have no right under any circumstances to set off or apply any amount payable under the Letter of Credit against any obligation of or amount payable by the Borrower, whether or not under this Agreement. The rights of the Issuing Lender under this Section 9.08 are in addition to any other rights and remedies which the Issuing Lender may have.

Section 9.09. Collateral Assignment of Rights . The Borrower hereby irrevocably collaterally assigns to the Issuing Lender (a) upon the occurrence and during the continuance of an Event of Default, the right to enforce in the name of the Borrower any right of the Borrower under the Transaction Documents (other than this Agreement) and (b) upon the failure of the Borrower to use its reasonable best efforts enforce its rights to compel performance of required contractual obligations or to pursue remedies available to it under the Transaction Documents to which it is a party (other than this Agreement), in each case within seven (7) Business Days following receipt of written notice from the Issuing Lender requesting such enforcement by the Borrower and identifying the specific breach of the Transaction Document (other than this Agreement), the right to enforce in the name of the Borrower and the right to compel performance of required contractual obligations or remedies available to the Borrower under the applicable Transaction Document (other than this Agreement) with respect to the identified breach, in connection with which the Issuing Lender may pursue in the name of the Borrower (or direct the Borrower to pursue) any such remedy.

Section 9.10. Expenses . Subject to Section 6.01(n) , each party shall pay its own expenses incurred in connection with the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the Transactions shall be consummated), including any fees, charges and disbursements of any

counsel in connection with the enforcement or protection of its rights under this Agreement, including its rights under this Section 9.10 .

Section 9.11. Further Assurances . The Borrower agrees at its own cost and expense, to do such further acts and things, and to execute and deliver such additional instruments (including, without limitation, notices and agreements), as the Issuing Lender may at any time reasonably request or as may be reasonably necessary at any time in order better to preserve, insure and confirm the rights, powers and remedies of the Issuing Lender hereunder.

Section 9.12. Headings . Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

Section 9.13. Confidentiality . Each party to this Agreement agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (i) to such party’s Affiliates’ directors, officers, employees and agents (so long as such Affiliate is not on the Restricted List), including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (ii) to the extent requested by any Governmental Authority or self-regulatory authority having or claiming jurisdiction over such party or its representatives, (iii) to the extent required by applicable laws or regulations (including securities laws and regulations) or by any subpoena or similar legal process, (iv) to any other party to this Agreement, (v) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (vi) by the Issuing Lender or a Participant to any Participant or counterparty to a hedge transaction reasonably related to the transactions contemplated hereby (a “ Hedge Counterparty ”), or to any prospective Participant or Hedge Counterparty, in each case that is not on the Restricted List, subject to an agreement containing confidentiality provisions that are either no less restrictive than those found in this Section 9.13 or that are satisfactory to the Borrower, in each case expressly inuring to the benefit of PLC and a copy of which is promptly provided thereto and to the Issuing Lender (each such agreement a “ Confidentiality Agreement ”), (vii) with the consent of the other parties to this Agreement, (viii) to the extent the Information relates to the tax treatment and any facts that may be relevant to the tax structure of the Transactions, (ix) to the extent such Information (a) becomes publicly available other than as a result of a breach of this Section 9.13 or (b) becomes available to such party or such party has no actual knowledge that the provision of such information is in violation of a confidentiality restriction or (x) to any Lender Counterparty not on the Restricted List, upon the consent of the Borrower (such consent not to be unreasonably withheld or delayed); provided , that such Lender Counterparty enters into a Confidentiality Agreement and further agrees such Information will not be used in a manner adverse to the Borrower. For the purposes of this Section 9.13 , “ Information ” means all information received in connection with this Agreement or the Transactions from another party to this Agreement, or such party’s representatives or Affiliates, relating to such party or Affiliate or such party’s or its Affiliate’s business, other than any such information that is available on a nonconfidential basis prior to disclosure by such party.

Section 9.14. Special Dividend . In the event the Ceding Company makes any payment to the Borrower in excess of that required to be paid under the express terms of the Reinsurance Agreement as a result of, or following, any requirement or request of the Ceding Company’s domestic insurance regulator, whether orally or in writing, therefor (a “ Special Payment ”), the Borrower shall, notwithstanding anything herein to the contrary and to the maximum extent permitted by law, be permitted to pay a dividend (a “ Special Dividend ”) in the amount of the proceeds of such payment.

Section 9.15. Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 9.16. WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).

Section 9.17. USA Patriot Act . The Issuing Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that (i) identifies the Borrower, (ii) includes the name and address of the Borrower and (iii) will allow the Issuing Lender to identify the Borrower in accordance with the USA Patriot Act.

Section 9.18. Usury Savings Clause . It is the intention of the parties that all charges under or in connection with this Agreement and the LOC Reimbursement Obligations, however denominated, and including (without limitation) all interest, commitment fees, late charges and loan charges, shall be limited to the maximum lawful interest rate, if any, that at any time and from time to time may be contracted for, charged, or received under the laws applicable to the Issuing Lender, which are presently in effect or, to the extent allowed by law, under such applicable laws which hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow (the “ Maximum Lawful Amount ”). Such charges hereunder shall be characterized and all provisions of this Agreement shall be construed as to uphold the validity of charges provided for therein to the fullest possible extent. Additionally, all charges hereunder shall be spread over the full permitted term of the LOC Reimbursement Obligations for the purpose of determining the effective rate thereof to the fullest possible extent, without regard to prepayment of or the right to prepay the LOC Reimbursement Obligations. If for any reason whatsoever, however, any charges paid or contracted to be paid in respect of the LOC Reimbursement Obligations shall exceed the Maximum Lawful Amount, then, without any specific action by the Issuing Lender or the Borrower, the obligation to pay such interest and/or other charges shall be reduced to the Maximum Lawful Amount in effect from time to time and any amounts collected by the Issuing Lender or the Borrower that exceed the Maximum Lawful Amount shall be applied to the reduction of the principal balance of the LOC Reimbursement Obligations and/or refunded to the Borrower so that at no time shall the interest or loan charges

paid or payable in respect of the LOC Reimbursement Obligations exceed the Maximum Lawful Amount. This provision shall control every other provision herein and in any and all other agreements and instruments now existing or hereafter arising between the Borrower and the Issuing Lender with respect to the LOC Reimbursement Obligations.

Section 9.19. Third Party Beneficiary . The Ceding Company shall be a third party beneficiary of Sections 2.01(d) , 2.02(b) and 2.02(c) .

Section 9.20. Consent to Amendments . Pursuant to Section 6.01(h)(i) hereof, the Issuing Lender hereby consents to (a) the amendment and restatement of the Reinsurance Agreement, dated as of the Amendment Closing Date and effective as of the Amendment Effective Date, (b) the amendment to the Reinsurance Trust Agreement, dated as of the Amendment Closing Date, (c) the amendment and restatement of the Investment Management Agreement, dated as of the Amendment Closing Date, (d) the amendment and restatement of the Ceding Company Letter Agreement, dated as of the Amendment Closing Date, (e) the amendment and restatement of the PLC Guarantee, dated as of the Amendment Closing Date, (f) the amendment and restatement of the Stop Loss Reinsurance Agreement, dated as of the Amendment Closing Date and effective as of the Amendment Effective Date, and (g) the amendment and restatement of the Fee Letter, dated as of the Amendment Closing Date.

[Remainder of page intentionally left blank. Signature page to follow.]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY,
as Borrower


By:	/s/ Richard J. Bielen
Name:				Richard J. Bielen
				President


UBS AG, STAMFORD BRANCH,
as Issuing Lender


By:	/s/ Lana Gifas
Name:				Lana Gifas
Title:		Director, Banking Products Services, US


By:	/s/ Joselin Fernandes
Name:				Joselin Fernandes
Title:			Associate Director, Banking Product Services, US

Signature Page to the Second Amended and Restated Reimbursement Agreement

SCHEDULE 1

BORROWER REPORTING DOCUMENTS

The Borrower Reporting Documents consist of:

(a) Not later than sixty (60) calendar days after the end of each fiscal year of the Borrower, a copy of the unaudited annual statutory financial statements prepared in accordance with SAP, and not later than June 1 of each calendar year for the Borrower’s preceding fiscal year, a copy of the audited financial statements prepared in accordance with SAP.

(b) Not later than April 10 after the end of each fiscal year of the Borrower, an annual cashflow testing report by the Borrower’s Appointed Actuary (as such may be appointed by the Borrower from time to time).

(c) Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, a report of actual to expected mortality claims and lapses by face amount and by policy count with respect to the Reinsured Policies.

(d) Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, the applicable reserve amounts (including XXX Reserves, Economic Reserves, Gross Premium Valuation Reserves and Claims Liability (each, as defined in the Reinsurance Agreement) of the Borrower as at the end of such quarter.

(e) Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, information regarding risks insured with respect to the Reinsured Policies in the same form as the seriatim policy detail outlined in Exhibit D of the Reinsurance Agreement.

(f) Not later than forty-five (45) calendar days after the end of each of the first three (3) quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet and income statement (without footnotes) of the Borrower as at the end of such quarter, in each case prepared in accordance with SAP.

(g) Not later than forty-five (45) calendar days after the end of each of the first three (3) quarterly periods of each fiscal year of the Borrower, and not later than sixty (60) calendar days after the end of each fiscal year of the Borrower, information regarding the following items: Total Adjusted Capital, Modified Total Adjusted Capital, deferred tax assets, asset valuation reserves, the Letter of Credit in excess of Facility Reserves, Company Action Level Risk Based Capital, Required Additional Contribution and Reduced Contribution.

(h) Not later than forty-five (45) calendar days after the end of each of the four (4) quarterly periods of each fiscal year of the Borrower, a settlement statement for the Reinsured Policies between the Ceding Company and the Borrower.

Schedule 1 - 1

(i) Not later than twenty-five (25) calendar days after the end of each of the twelve (12) monthly periods of each fiscal year of the Borrower, a listing of the Borrower’s asset portfolio holdings containing details including, without limitation, security name, book value, market value, ratings, weighted average life, modified duration, coupon, interest payment frequency, book yield, market yield and maturity date, to be supplemented by information contained in a final report to be provided not later than sixty (60) calendar days after the end of each of the first, second and third quarterly periods of each fiscal year of the Borrower, and not later than seventy-five (75) calendar days after the end of each of the fourth quarterly periods of each fiscal year of the Borrower.

(j) Not later than fifteen (15) calendar days after the end of each of the twelve (12) monthly periods of each fiscal year of the Borrower, a listing of the Borrower’s asset portfolio holdings containing details including CUSIP and par amount.

(k) Within five (5) Business Days of delivery of any report delivered to S&P, Moody’s or Fitch by the Borrower, a copy of such report, to the extent the information has not been previously provided to the Issuing Lender.

(l) Within five (5) Business Days of delivery or receipt, as applicable, of any material report or notice delivered to any other party or received from any other party under the Transaction Documents, a copy of such report.

(m) Within five (5) Business Days of receipt of any third party actuarial report, opinion or review of the Borrower, a copy of such report.

(n) Seven (7) Business Days prior notice of any proposed amendment to the Reinsurance Agreement.

(o) Within five (5) Business Days of submission or receipt of any material correspondence relating to the Borrower to or from the Nebraska Director or the Vermont Commissioner, a copy of such correspondence.

(p) Within five (5) Business Days of any material permitted accounting practice of the Borrower or other deviation from SAP that is proposed to be made applicable, a copy of such proposed deviation.

(q) Written notices for certain material events as identified in Section 6.01(c) within the specified time periods.

(r) Promptly after any internal underwriting audit of the Borrower related to the Reinsurance Agreement, notice of such audit.

(s) Not later than sixty (60) calendar days after the end of each of the first, second and third quarterly periods of each fiscal year of the Borrower, and not later than seventy-five (75) calendar days after the end of each of the fourth quarterly periods of each fiscal year of the Borrower, information regarding any payments made by the Borrower pursuant to the Priority of Payments, including amounts paid in accordance with each individual item of the Priority of Payments.

Schedule 1 - 2

(t) Not later than ninety (90) calendar days after September 30 of each fiscal year of the Borrower, information regarding any Dividend Amount payable by the Borrower, including details on Dividend Test and Dividend Threshold calculations.

(u) Not later than fifteen (15) calendar days after the end of each calendar month, bank statements evidencing amounts paid (or received) in accordance with Section 3.05 from (into) the Surplus Account.

Schedule 1 - 3

SCHEDULE 2

DIVIDEND FORMULA

No dividends can be declared or paid for any calendar year beginning prior to [****]. Thereafter, if the Dividend Test is satisfied, dividends, if any, in an amount not to exceed the Dividend Amount, shall be declared by the Borrower by December 31 (each such date, a “ Dividend Declaration Date ”) and paid by January 30 of the following year (i.e., the first Dividend Declaration Date would be in [****] and such dividend would be required to be paid by the Borrower by [****]); provided that (i) in no event shall a dividend be declared or paid with respect to the Dividend Year ending [****] until the Fourth Required Additional Contribution, if any, has been made and (ii) in no event shall a dividend be declared or paid with respect to the Dividend Year ending [****] until the Fifth Required Additional Contribution, if any, has been made.

The Dividend Amount for the Dividend Year ending [****] shall be calculated by the Borrower by [****].

The annual period for calculation of dividends in any given calendar year, commencing in [****], will start from October 1 of the prior calendar year and end on September 30 of that calendar year (each such period, a “ Dividend Year ”), with the first Dividend Year commencing [****] and ending [****]. The annual and cumulative actual to expected lapse and mortality study will be calculated on an “Experience Year” basis. For purposes of this Schedule 2, “ Experience Year ” shall mean the period from and including October 1 of a calendar year to and including September 30 of the next succeeding calendar year, with the first Experience Year commencing on [****] and ending on [****]. Unless otherwise specified, the Company Action Level Risk Based Capital and all other amounts will be calculated as of September 30 of that calendar year (which is immediately prior to the Dividend Declaration Date). [****].

If all of the following conditions are met, an annual dividend in an amount not to exceed the Dividend Amount may be declared and paid, subject to Section 6.01(j) and the Priority of Payments (such conditions, the “ Dividend Test ”):

[****]

“ Dividend Catch-Up Contribution ” means, in the event that the Fifth Remainder Contribution is greater than zero, and if the Borrower’s Modified Total Adjusted Capital is less than [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital, as of [****] or September 30 of each subsequent Experience Year, an amount equal to the lesser of (y) the excess, if any, of the Fifth Remainder Contribution over an amount equal to the sum of any prior Dividend Catch-Up Contributions and (z) the excess, if any, of [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital over the Borrower’s Modified Total Adjusted Capital, each as determined as of such September 30.

Schedule 2 - 1

The “ Dividend Threshold ” means (i), plus (ii), plus (iii), minus (iv), where:

[****]

“ Present Value ” means present value calculations assuming a discount rate equal to the lesser of (a) [****] percent ([****]%) per annum and (b) the weighted average of (x) the annualized realized net yield (net of defaults) of the assets of the Borrower (excluding the Letter of Credit and any amount recorded as a receivable by the Borrower in connection with the Funds Withheld Account) from the Original Closing Date and (y) the assets in the Funds Withheld Account from the Prior Closing Date, as determined in accordance with SAP.

“ Dividend Amount ” means, in any Dividend Year, the excess, if any, of the lesser of (i) and (ii) minus the Dividend Threshold, where:

i. Equals the aggregate book value of the Borrower’s assets (excluding the Letter of Credit and including, for the avoidance of doubt, any amounts recorded as a receivable by the Borrower in connection with the Funds Withheld Account), as determined in accordance with applicable statutory accounting principles, and

ii. Equals the aggregate market value of the Borrower’s assets (excluding the Letter of Credit and including, for the avoidance of doubt, any amounts recorded as a receivable by the Borrower in connection with the Funds Withheld Account),

provided , that, (a) if such calculation results in an amount that is zero or a negative number, then the Dividend Amount will be zero, and (b) if the annual actual to expected lapse rate (such expected lapse rate as reasonably determined by the Borrower in good faith consistent with the methodologies and processes set forth in Appendix I attached hereto) is less than [****] percent ([****]%) but greater than [****] percent ([****]%) in the relevant Experience Year, the Dividend Amount payable will be [****] percent ([****]%) of the amount calculated above.

The declaration and payment of a dividend shall be subject to the following additional limitations:

i. The Dividend Amount declared and paid in any Dividend Year shall not exceed the amount shown in Appendix II to this Schedule 2 for the applicable Dividend Year (“ Dollar Threshold ”); and

ii. Immediately following the payment of any dividend for any Dividend Year other than the Dividend Years ending [****] and [****], the Borrower shall maintain Modified Total Adjusted Capital at least equal to [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital, determined as of September 30 of the Dividend Year in respect of which such dividend is paid, taking into account the payment of such dividend as if paid on such September 30; and

iii. Immediately following the payment of any dividend for the Dividend Year ending [****] or the Dividend Year ending [****], the Borrower shall maintain Modified Total

Schedule 2 - 2

Adjusted Capital at least equal to [****] percent ([****]%) of the Borrower’s Company Action Level Risk Based Capital, determined as of September 30 of the Dividend Year in respect of which such dividend is paid, taking into account the payment of such dividend as if paid on such September 30; and

iv. The Dividend Amount shall be reduced by the amount by which the Nominal Expense Cap (as defined in the Transaction Expense Support Agreement) applicable as of September 30 for such Dividend Year exceeds the Base Nominal Expense Cap (as defined in the Transaction Expense Support Agreement) applicable as of September 30 for such Dividend Year, unless the Borrower elects to waive such excess amount for purposes of calculating the applicable Nominal Expense Cap; and

v. The Modified Total Adjusted Capital used for calculation of the Dividend Amount for the Dividend Year ending [****] shall be calculated as if a contribution of $[****] has been made to the Borrower during such Dividend Year; and

vi. The amount of dividends permitted to be declared and paid for the Dividend Year ending [****] shall be reduced to the extent the Dividend Amount for such Dividend Year will be applied to reduce the Fourth Scheduled Additional Contribution. If such calculation results in an amount that is zero or a negative number, then the amount of dividends permitted to be declared and paid for the Dividend Year ending [****] will be zero; and

vii. The Modified Total Adjusted Capital used for calculation of the Dividend Amount for the Dividend Year ending [****] shall be calculated shall be calculated as if a contribution of $[****] has been made to the Borrower during such Dividend Year; and

viii. The amount of dividends permitted to be declared and paid for the Dividend Year ending [****] shall be reduced to the extent the Dividend Amount for such Dividend Year will be applied to reduce the Fifth Scheduled Additional Contribution. If such calculation results in an amount that is zero or a negative number, then the amount of dividends permitted to be declared and paid for the Dividend Year ending [****] will be zero; and

ix. No Dividend Amount shall be declared or paid for any Dividend Year after the Dividend Year ending [****].

The Borrower shall provide the Issuing Lender with supporting information, in reasonable detail, relating to the calculation of the Dividend Amount.

The foregoing provisions of this Schedule 2 shall not apply to any Special Dividend.

Schedule 2 - 3

APPENDIX I TO THE DIVIDEND FORMULA

DESCRIPTION OF METHODOLOGIES AND PROCESSES FOR CALCULATING
EXPECTED COVERED BENEFITS AND EXPECTED LAPSE RATES

EXPERIENCE STUDY PROCESS

Overview

Golden Gate III (“GGIII”) Experience Studies reflecting mortality and lapse activity on the Reinsured Policies (as defined in the Indemnity Reinsurance Agreement) will be produced on both quarterly and annual bases to satisfy defined reporting obligations in the Indemnity Reinsurance Agreement and Reimbursement Agreement. The Experience Studies will also be used for purposes of determining any payments due between West Coast Life and Protective Life Insurance Company (“PLICO”) under the Aggregate Stop Loss Agreement as well as any dividend payments due from GGIII to PLICO. Actual/Expected calculations will be performed quarterly on a year-to-date basis and on a cumulative basis where required by the Transaction Documents.

· Experience Study exposure periods will be defined in two ways:

· Experience Year Basis: 10/1/XX — 9/30/XX

· Used for calculation of mortality and lapse A/E ratios for purposes of the Stop Loss and dividend payment calculations

· Any payment due from Protective Life Corporation (“PLC”) to GGIII under the Catastrophic Loss Support Agreement will also be determined on an Experience Year Basis

· For the initial year of the Transaction, the Experience Year Basis begins on the Effective Date and ends on 9/30/10

· The quarterly Experience Studies required under Schedule 1, Item (c) of the Reimbursement Agreement will be calculated on an Experience Year Basis

· Quarterly and Annual experience studies required under Exhibit D of the Reinsurance Agreement will be provided on an Experience Year Basis

· All studies will be on a YTD basis within an Experience Year

· Calendar Year Basis: 1/1/XX — 12/31/XX

· Used for calculation of quarterly and annual A/E calculations outlined in Exhibit E of the Reinsurance Agreement

· For the initial year of the Transaction, the Calendar Year Basis begins on the Effective Date and ends on 12/31/10

· All studies will be on a YTD basis within a calendar year

· All mortality and lapse studies are performed using PolySystems Measure to calculate the exposure and expected claim information.

· PolySystems Measure is an industry standard software package used to generate experience studies

Schedule 2 - 4

· Controlled environment that is auditable at a policy level

· Data sources that feed exposure and expected calculations

· Valuation files:

· Provided to Measure Team by the financial reporting valuation team on a quarterly basis.

· Contain all active and terminated policies for the reported quarter.

· Policy Detail History (“PDH”, which is a compilation of quarterly valuation files) files:

· Contain all history for policies that were in force or terminated since the Effective Date through current date for the policies reinsured to GGIII

· Created by taking the valuation files and appending them to previous quarter’s PDH files.

· Contain policy characteristics such as sex, risk, face amount, termination reason, termination date, issue date, issue age, etc.

· Serve as the input files for PolySystems Measure

· Controls to ensure accuracy

· Valuation files fall under SOX compliance.

· Compliance measures incorporated into quarterly SOX certification as part of PLC’s broader public reporting requirements

· PDH files are reconciled each quarter. The following items are reconciled to extracts from the administrative systems, including the death claim system.

· All terminations and termination dates (deaths, lapses, surrenders, conversions, maturities, expiries, & declined claims)

· Active policies

· Face amounts

· Issue age and issue dates

· Decrement totals (actual claims and lapses) from experience studies are tied back to decrements from the reconciliation.

· Definition of exposure

· Uniform Distribution of Deaths: Exposure starts from the Effective Date of the Transaction

· Actual inforce at the beginning of the respective time period is used as a starting point to capture experience that occurred during the period

· Exposure is calculated on a policy level basis within PolySystems Measure

· Exposure on policies that do not terminate during the period ends on the exposure end date

· For Mortality:

· Exposure on policies that terminate due to death during the period ends on the next policy anniversary after the incurred date.

· If date of death is unknown at the time of study, notify date is used until date of death is verified.

Schedule 2 - 5

· Exposure on policies that terminate for reasons other than death ends on the incurred date of the termination.

· Accounting method

· Exposure end date is defined as the date when the termination was incurred (i.e., death claim reported on 11/30/2010 with a date of death of 6/30/2010 would have an exposure end date of 6/30/2010).

· No Lag

· Approach used for:

· Stop Loss A/E calculations

· Dividend Test (mortality calculations)

· Reimbursement Agreement reporting, Schedule 1, Item (c)

· Reinsurance Agreement Exhibit E: Dividend Year Basis mortality studies

· Actuarial method

· Exposure end date is defined as the date when the termination was incurred (i.e. Death claim reported on 11/30/2010 with a date of death of 6/30/2010 would have an exposure end date of 6/30/2010)

· All studies using the Actuarial method will have a three month lag. This accounts for IBNR and lapse reinstatements.

· Approach used for:

· Reinsurance Agreement Exhibit E: Calendar Year Basis mortality studies

· For Lapse:

· Uses the Actuarial method outlined above

· Exposure on policies that terminate due to lapse during the period ends on the next policy anniversary after the incurred date.

· Exposure on policies that terminate for reasons other than lapse ends on the incurred date of the termination

· Lapses are based on premium mode periods. A policy has to complete one premium period to be included in the study. Exposure is based on completed modal periods (i.e., monthly premium mode policy will show up in a study after one month of exposure. An annual mode policy would show up after completing one year of exposure.)

· Approach used for:

· Dividend Test lapse calculations

· Reimbursement Agreement reporting, Schedule 1, Item (c)

· Reinsurance Agreement Exhibit E: Dividend Year and Calendar Year lapse studies

· Source of Actual Claims and IBNR

· Ledger:

· Actual deaths claims in the report come from the ledger.

· Totals are provided to the Measure Team by PLC’s Accounting Department

Schedule 2 - 6

· Totals are imported into Access database with Expected totals and reported in an Excel pivot table.

· IBNR:

· Will be included in the actual death claims

· Source will be the ledger

· IBNR estimation process:

· Annually, updated historical claims information is obtained from the claims system.

· Claims are reviewed, including date of death and date of notification, and that information is used to update a claims lag study which identifies the level of claims that were incurred but not reported as of historical valuation dates.

· The average IBNR claim amount is the basis for the updated IBNR reserve that is held, which is expressed as a percentage of net amount at risk (defined as the death benefit inforce less Statutory reserve)

· During the course of the year, IBNR reserves change in proportion to change in net amount at risk.

· The IBNR reserve percentage is reviewed annually, and adjusted if necessary, based on updated claims experience

· Annual report (Reinsurance Agreement Exhibit E) death claims will be provided by PolySystems. These deaths are reconciled back to the death claim administrative system.

· Calculation of Expected Mortality

· For the Original Block, expected mortality calculations use the same assumptions outlined in the Milliman Chicago actuarial report dated December 3, 2009 (“Milliman Report”), which are also attached within Exhibit A to this appendix; these rates vary by duration

· For the UILIC Block, irrespective of whether the policy is actively paying premium or has moved to the extended term insurance status, expected mortality calculations use the same assumptions outlined in the Towers Watson actuarial report dated June 5, 2013 (“Towers Report”), which are also attached within Exhibit A of this appendix.

· Quarterly adjustments to the inforce starting point are made to reflect actual mortality and lapse experience during the period.

· Source of Mortality Rate of Death (“Qx”): The Qx for the experience studies is coded in PolySystems to mirror the mortality assumptions used in the Milliman Report or the Towers Report, as applicable. The coding is maintained by the valuation team and is employed by the Measure Team when conducting experience studies.

· Qx factors increase on policy anniversary date; this methodology is consistently applied in both the Milliman and Towers Watson modeling, as applicable, and PolySystems coding

· Application to exposure:

· Calculated by PolySystems

Schedule 2 - 7

· Exposure is always based on face amount less YRT reinsurance, if any.

· In the case of policies that end in death, the exposure is defined to continue until the next policy anniversary.

· In the case of policies that end in lapse, the exposure ends on the effective date of the lapse.

· In the event of lapse and subsequent reinstatement, the exposure is considered to be continuous.

· Policies that do not terminate during the study get full exposure for the exposure period.

· Face Amount Exposure (“FAE”) is calculated on a policy duration basis; mathematically, FAE equals:

· (Direct Face Amount — YRT Ceded Face Amount, if any) * Policy Exposure

· Where, Policy Exposure = Number of Months in Exposure Period

· Months may be either integers or fractional amounts depending on policy issue date and anniversary date

· PolySystems Measure assumes 360 day calendar year

· PolySystems Measure translates the annual Qx (“aqx”) to a monthly Qx (“mqx”)

· mqx = aqx/12

· PolySystems Measure calculates exposure according to exposure begin and end date

· Formulaic Calculation of Expected Mortality

· Expected mortality is calculated at a policy level; policy level results are added together to create the aggregate expected mortality result

· Expected Mortality (Policy Level) = mqx * FAE

· Expected Mortality (Aggregate Level) =

· However, if the policy changes from duration “D” to duration “D+1” (i.e., passes an anniversary) during the Experience Year or Partial Experience Year, the Expected Mortality (Aggregate Level) =:

· Calculations are performed on an Experience Year-to-date basis (or Calendar Year-to-date basis, depending on the intended purpose) to account for policies in grace that ultimately lapsed and late reported deaths

· Reporting of total expected

· PolySystems Measure produces output files that contain policy level detail information which includes exposure, expected, claim count, and exposed count.

Schedule 2 - 8

· These output files are summed together in an Access database and linked to by an Excel pivot table.

· Calculation of Actual Mortality

· Tracked on an incurred basis using the Accounting method outlined above

· Actual Mortality = Paid Claims + D IBNR + D Pending Liability (includes Pended and Resisted claims)

· Pended claims include reported but not paid claims

· Calculated net of Existing YRT Reinsurance (as defined in the Indemnity Reinsurance Agreement)

· Calculation of Expected Lapse

· For the Original Block, expected lapse calculations use the same assumptions outlined in the Milliman Report and also attached within Exhibit B to this appendix; these rates vary by duration

· For the UILIC Block, expected lapse calculations use the same assumptions outlined in the Towers Report, which are also attached within Exhibit B to this appendix; these rates vary by duration

· Quarterly adjustments to the inforce starting point are made to reflect actual mortality and lapse experience during the period (i.e. grace policies that lapsed and late reported deaths)

· Source of Lapse Rates: The lapse rates for experience studies are coded in PolySystems to mirror the lapse assumptions used in the Milliman Report or the Towers Report, as applicable. The coding is maintained by the valuation team and employed by the Measure Team when conducting experience studies.

· Application to exposure:

· Calculated by PolySystems

· Exposure is calculated on a policy duration basis; the mathematical FAE calculation is identical to the one outlined above

· PolySystems Measure assumes 360 day calendar year

· PolySystems Measure translates annual lapse rates (L a ) provided in the Milliman Report to monthly lapse rates (L m )

· L m = L a /12

· PolySystems Measure calculates exposure according to exposure begin and end date

· Formulaic Calculation of Expected Lapse

· Expected lapse is calculated at a policy level; policy level results are added together to create the aggregate expected lapse result

· Expected Lapse (Policy Level) = L m * Exposure

· Expected Lapse (Aggregate Level) =

· However, if the policy changes from duration “D” to duration “D+1” (i.e., passes an anniversary) during the Experience Year or Partial Experience Year, the Expected Lapse (Aggregate Level) =:

Schedule 2 - 9

· Calculations are performed on an Experience Year-to-date basis (or Calendar Year-to-date basis, depending on the intended purpose)

· Reporting of total expected

· PolySystems Measure produces output files that contain policy level detail information which includes exposure, expected, lapse count, and exposed count.

· These output files are summed together in an Access database and linked to by an Excel pivot table.

· Three month lag is used to account for policies in grace that ultimately lapsed and late reported deaths

· Calculation of Actual Lapse

· Actual lapses will come from PolySystems

· All lapse decrements and lapse face amounts are verified against the administrative system

· Do not include any policies that are in the “Grace” period

· Shock lapses will be shown separately from level period lapses

· Three month lag is used to account for policies in grace that ultimately lapsed and late reported deaths

· For example, a lapse report using 9/30/11 inforce data will include actual lapse activity that occurred during the four quarters beginning 7/1/10 through 6/30/11

Schedule 2 - 10

APPENDIX I (continued)

Exhibit A

Mortality Assumptions

Original Block

On the Original Closing Date, each party received two (2) copies of a CD with identical contents detailing the mortality assumptions. Each CD contained three Microsoft Excel Files: [****]

On the Amendment Closing Date, each party received two (2) copies of a CD containing the three Microsoft Excel files, of which the first two are the same as listed above: [****]

[****]

Schedule 2 - 11

UILIC Block

On the Amendment Effective Date, each party will receive two (2) copies of a CD with identical contents detailing the mortality assumptions. Each CD contains three Microsoft Excel Files: [****]

[****]

Schedule 2 - 12

APPENDIX I (continued)

Exhibit B

Lapse Assumptions

Original Block

(a) Lapse rates expressed in percentage terms

(b) [****]

(d) [****]

(e) [****]

(f) Risk Classification Key:

SPF = Select Preferred

PF = Preferred

ST = Standard

NT = Non-Tobacco

TB = Tobacco

WCL -10

Face < $250K

Face >= $250K

Issue

Policy

SPF

Age

Year

[****]

Schedule 2 - 13

[****]

WCL -15

Face < $250K

Face >= $250K

Issue

Policy

SPF

Age

Year

[****]

Schedule 2 - 14

[****]

WCL-20

Face < $250K

Face >= $250K

Issue

Policy

SPF

Age

Year

[****]

Schedule 2 - 15

[****]

WCL-25 These rates are an average of the WCL 20- and 30-year rates.

Face < $250K

Face >= $250K

Issue

Policy

SPF

Age

Year

[****]

Schedule 2 - 16

[****]

WCL 30

Face < $250K

Face >= $250K

Issue

Policy

SPF

Age

Year

[****]

Schedule 2 - 17

[****]

[****] CONTENTS OF TABLES BELOW OMITTED

Schedule 2 - 18

Policy Month

Schedule 2 - 19

UILIC Block

(a) Lapse rates are as shown in the table below (rates expressed in percentage terms).

(b) [****]

(d) [****]

	Issue Age Band
Policy Year	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]
[]	[]	[]	[]	[]	[]

[****]

1. Policies remain on extended term insurance for the following length of time:

Issue Age of Policy		Length of ETI Period
[]		[]
[]		[]
[]		[]

2. During the extended term insurance period, lapse rates are [****]%.

3. The discount rate is [****]%.

Schedule 2 - 20

APPENDIX II TO THE DIVIDEND FORMULA

DOLLAR THRESHOLD

Dividend Year		Dollar Threshold
[]		[]
[]		[]
[]		[]
[]		[]
[]		[]
[]		[]
[]		[]
[]		[]

Schedule 2 - 21

SCHEDULE 3

SCHEDULED LOC AMOUNT

Scheduled LOC Adjustment Date	Scheduled LOC Amount		Scheduled LOC Adjustment Amount
Amendment Closing Date	$	710,000,000
December 15, 2013	715,000,000		5,000,000
March 15, 2014	715,000,000		—
June 15, 2014	715,000,000		—
September 15, 2014	715,000,000		—
December 15, 2014	715,000,000		—
March 15, 2015	715,000,000		—
June 15, 2015	715,000,000		—
September 15, 2015	715,000,000		—
December 15, 2015	720,000,000		5,000,000
March 15, 2016	720,000,000		—
June 15, 2016	720,000,000		—
September 15, 2016	720,000,000		—
December 15, 2016	720,000,000		—
March 15, 2017	715,000,000		(5,000,000	)
June 15, 2017	710,000,000		(5,000,000	)
September 15, 2017	685,000,000		(25,000,000	)
December 15, 2017	685,000,000		—
March 15, 2018	680,000,000		(5,000,000	)
June 15, 2018	680,000,000		—
September 15, 2018	675,000,000		(5,000,000	)
December 15, 2018	670,000,000		(5,000,000	)
March 15, 2019	665,000,000		(5,000,000	)
June 15, 2019	660,000,000		(5,000,000	)
September 15, 2019	630,000,000		(30,000,000	)
December 15, 2019	625,000,000		(5,000,000	)
March 15, 2020	615,000,000		(10,000,000	)
June 15, 2020	605,000,000		(10,000,000	)
September 15, 2020	595,000,000		(10,000,000	)
December 15, 2020	585,000,000		(10,000,000	)
March 15, 2021	570,000,000		(15,000,000	)
June 15, 2021	560,000,000		(10,000,000	)
September 15, 2021	545,000,000		(15,000,000	)
December 15, 2021	535,000,000		(10,000,000	)
March 15, 2022	520,000,000		(15,000,000	)
June 15, 2022	505,000,000		(15,000,000	)
September 15, 2022	490,000,000		(15,000,000	)
December 15, 2022	475,000,000		(15,000,000	)
March 15, 2023	465,000,000		(10,000,000	)

Schedule 3 - 1

Scheduled LOC Adjustment Date	Scheduled LOC Amount	Scheduled LOC Adjustment Amount
June 15, 2023	450,000,000	(15,000,000	)
September 15, 2023	435,000,000	(15,000,000	)

Schedule 3 - 2

SCHEDULE 4

RESTRICTED LIST

The restricted list includes each of the following companies and their affiliates.

[****]

Schedule 4 - 1

SCHEDULE 5

FINANCIAL AND ACTUARIAL PROJECTIONS AND MODELING INFORMATION

Original Block

The Actuarial Report, dated December 3, 2009, prepared by Milliman USA’s Chicago office with respect to the Reinsured Policies comprising the Original Block

Responses to Milliman NY Information Request 10/8/2009

1) Premium rate information for [****]

2) YRT premium and pool percentage information [****]

3) Mortality rate factor assumptions for WCL C1-C3 products

4) Seriatim in-force policy inventory information as of 12/31/2008

5) Historical Mortality and Lapse Studies covering Reinsured Policies

6) Post Level Term Lapse Studies

7) WCL pricing mortality comparison

8) PLC memo dated 10/14/2009 regarding underwriting

9) Third-Party Reinsurer audit reports produced during 2006 — 2009

10) External consultant underwriting audit reports 2006 — 2009

11) PLC memo dated 10/14/2009 [****]

12) PLC memo dated 10/13/2009 [****]

Responses to Milliman NY Information Request 10/15/2009

1) PLC memo dated 10/27/2009 [****]

2) PLC memo dated 10/16/2009 [****]

Response to Milliman NY Information Request 11/22/2009

1) PLC memo dated 11/23/2009 [****]

Responses to Milliman NY Information Request 11/24/2009

1) PLC memo dated 10/29/2009 [****]

2) PLC memo dated 11/24/2009 [****]

Information submitted to UBS via FTP

1) Information regarding economic reserve calculation methodology

2) Historical mortality and lapse studies using data as of March 31, 2009

3) Historical business mix reports covering the Original Block

4) Historical Financial Statements of GG, PLICO, and WCL for fiscal years 2006, 2007 and 2008

5) Seriatim inforce policy inventory information as of 12/31/2008 and 9/30/2009

6) Third-Party Reinsurer Audits of WCL

7) Spreadsheet titled “GG3 Inforce Business Mix 2009 12.xlsx” comparing December 31, 2009 inforce policy inventory to Milliman Report projections

Schedule 5 - 1

Information provided to [****] in association with [****] December 2009 underwriting audit

1) GG/WCL claims information

2) Seriatim in-force policy inventory information as of 9/30/2009

3) WCL underwriting guidelines

4) Third-Party Reinsurer Audits

5) External consultant underwriting audits

6) Retention and Binding Amounts for WCL C1-C3 policies

7) [****]

UILIC Block (Information provided in an email or via FTP related to items mentioned below will be provided on a CD on the Amendment Effective Date)

The Actuarial Report, dated June 5, 2013, prepared by Towers Watson with respect to the Reinsured Policies comprising the UILIC Block.

Responses to Milliman NY UILIC Block Information Request 4/25/2013

1) Seriatim in-force policy inventory as of 12/31/2012 and 3/31/2013

2) Static validation information produced by Towers Watson

3) Projection results (baseline and sensitivities) provided in an email dated 6/5/2013

4) Premium rates and actuarial/tax assumption files

5) UILIC Block policy form

6) Towers Watson assumption recommendation memorandum

7) Historical mortality and lapse experience information

8) Policy termination listing for 2010-2012

Responses to Milliman NY UILIC Block Information Request 4/29/2013

1) Information on marketing/distribution/demographics

2) Towers Watson memorandum [****]

3) Towers Watson memorandum containing analysis of 2010-2012 death claims

4) Towers Watson memorandum containing analysis of 2010-2012 lapses/expiries

5) Towers Watson memorandum and spreadsheet examples [****]

6) Towers Watson memorandum [****]

Responses to Milliman NY UILIC Block Information Request 5/1/2013

1) Towers Watson spreadsheet examples [****]

2) Towers Watson memorandum [****]

3) Expense allowance information used for Towers Watson modeling purposes

4) Economic reserve calculation methodology information

Responses to Milliman NY UILIC Block Information Request 5/6/2013

1) Confirmatory information on underlying actuarial table information

2) PLC memorandum [****]

3) Towers Watson memorandum and spreadsheet example [****]

4) Towers Watson memorandum and spreadsheet containing static validation of tax reserves and dynamic validation of premiums and death benefits

5) PLC memorandum containing confirmatory information on seriatim file field interpretation

6) Confirmatory information on the schedule of extended term insurance benefits as set forth in the policy form provided in connection with the 4/25/2013 request

Schedule 5 - 2

Responses to Milliman NY UILIC Block Information Request 5/14/2013

1) Towers Watson memorandum [****]

2) Towers Watson acquisition appraisal dated 4/20/2010

3) Confirmatory information regarding interpretation of the policy termination listing for 2010-2012 provided in connection with the 4/25/2013 request

Responses to Milliman NY UILIC Block Information Request 5/20/2013

1) Towers Watson memoranda [****]

2) Towers Watson memorandum [****]

Responses to Milliman NY UILIC Block Information Request 5/28/2013

1) Confirmatory information regarding interpretation of the policy termination listing for 2010-2012 provided in connection with the 4/25/2013 request

Responses to Milliman NY UILIC Block Information Request 5/29/2013

1) Confirmatory information regarding mortality assumptions

Responses to Milliman NY UILIC Block Information Request 6/3/2013

1) Confirmatory information regarding tax reserve calculation bases

[****]

Schedule 5 - 3

EXHIBIT A

DRAW CERTIFICATION NOTICE

FORM OF DRAW CERTIFICATION NOTICE

To: UBS AG, Stamford Branch

299 Park Avenue, 26 th Floor

New York, NY 10171

Attention: Letter of Credit Services

Re: Reimbursement Agreement, dated as of April 23, 2010, as amended, restated, modified or supplemented from time to time (the “ Reimbursement Agreemen t”), between Golden Gate III Vermont Captive Insurance Company, a special purpose financial captive insurance company incorporated under the laws of the State of Vermont (the “ Borrower ”) and UBS AG, Stamford Branch, as issuing lender (the “ Issuing Lender ”).

This Draw Certification Notice (this “ Notice” ) is delivered by the undersigned West Coast Life Insurance Company or any successor by operation of law thereof, including, without limitation, any liquidator, rehabilitator, receiver or conservator (the “ Ceding Company ”) under the Issuing Lender’s Letter of Credit No. [ · ], in connection with a draw requested by the Reinsurance Trustee, as beneficiary under the Letter of Credit (the “ Beneficiary ”). Unless otherwise defined herein, terms defined in the Reimbursement Agreement and used herein shall have the meanings given to them in the Reimbursement Agreement.

The Beneficiary is drawing $[ · ] under the Letter of Credit (the “ Requested Amount ”) in connection with this Notice.

The undersigned, by [Name], as [Title] 1 of the Ceding Company, hereby certifies to the Issuing Lender that as of the date hereof:

(i) The Requested Amount is required to be obtained by the Beneficiary for the payment of Covered Benefits or Claims Expenses (each as defined in the Reinsurance Agreement) now due and payable under the Reinsurance Agreement.

(ii) All assets in the Reinsurance Trust Account and any funds held in any account established pursuant to Section 6.9 or Section 7.3 of the Reinsurance Agreement have previously been used to satisfy amounts due and payable under the Reinsurance Agreement or released pursuant to the Reinsurance Agreement or Section 2 of the Reinsurance Trust Agreement.

1 Officer must be a Responsible Officer of the Ceding Company, i.e. the Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer, Assistant Treasurer or Controller.

Exhibit A - 1

(iii) No assets remain in the Surplus Account.

(iv) Since the date that is one calendar year prior to the date hereof, no assets with a Market Value in excess of $[****] have been transferred from the Surplus Account other than to the extent permitted to be transferred pursuant to the Priority of Payments, unless (A) despite such assets being transferred in the incorrect order of priority, such transfer would have been otherwise permitted pursuant to the Priority of Payments at the time of such transfer or at any subsequent time thereafter or (B) such impermissibly transferred assets have been returned to the Surplus Account or replaced in the Surplus Account with Eligible Assets having a Market Value equal to those that were impermissibly transferred on or prior to the date hereof.

(v) Since the Original Closing Date, the Borrower has existed and, as of the date hereof, exists, as a separate entity and has not been substantively consolidated with another entity.

(vi) As of the date hereof, the Reinsurance Agreement remains in full force and effect.

(vii) As of the date hereof, there is no continuing failure by PLC to pay any amount in excess of $[****] payable to or explicitly required to be paid on behalf of the Borrower under the Tax Sharing Agreement or the Special Tax Allocation Agreement within thirty (30) calendar days from the date on which such payment was due and payable.

(viii) Since the Original Closing Date, there has been no amendment of the Tax Sharing Agreement or the Special Tax Allocation Agreement and there has not been a termination of the Special Tax Allocation Agreement or a termination of the rights of the Borrower with respect to PLC and the obligations of PLC with respect to the Borrower under the Tax Sharing Agreement, in each case, without the prior written consent of the Issuing Lender (such consent not to be unreasonably withheld or delayed) if such amendment or termination adversely affects, in any material respect, the rights, remedies or obligations of the Borrower under such agreement.

Exhibit A - 2

IN WITNESS WHEREOF, the undersigned has executed and delivered this Notice as of the day of , .

West Coast Life Insurance Company,

as the Ceding Company

By:
Name:
Title:

Exhibit A - 3

EXHIBIT B

INVESTMENT GUIDELINES

All assets held in the Regulatory Account shall be invested solely in Cash or Cash Equivalents.

All assets (other than the Letter of Credit) held in the Surplus Account and the Reinsurance Trust Account shall be invested solely in Eligible Assets (as defined below).

“ Eligible Assets ” means, subject to the limitations set forth below and except as otherwise agreed between the Ceding Company and the Issuing Lender, [****] .

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

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

Eligible Assets will be subject to the following limitations:

	[]	[]
	[]	[]
[]	[]	[]
	[]	[]
[]	[]	[]

Where:

(i) “Maximum Sector Limit” means the maximum ratio (expressed as a percentage) of the book value of the relevant Eligible Asset to the book value of all Eligible Assets at the time of the relevant Eligible Asset purchase,

(ii) “Maximum Tenor Limit” means the relevant date occurring the stated number of years from the Amendment Closing Date, and

(iii) “United States Agency Debentures” means U.S. government agency debentures limited to senior U.S. dollar-denominated, nonmortgage-backed direct obligations of Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal Home Loan Bank (FHLB) and Federal Farm Credit Bank (FFCB) rated no lower than the highest rating assigned by Moody’s and S&P to U.S. Treasury securities.

Exhibit B - 1

In a given year, the weighted average modified duration of all assets will be subject to the following limits:

Year		Maximum Modified Duration
2013		[]
2014		[]
2015		[]
2016		[]
2017		[]
2018		[]
2019		[]
2020		[]
2021		[]
2022		[]
2023		[]

Exhibit B - 2

EXHIBIT C

REINSURANCE AGREEMENT

Exhibit C - 1

EXHIBIT D

FORM OF LETTER OF CREDIT

ISSUING LENDER:
UBS AG, STAMFORD BRANCH
299 PARK AVENUE, 26TH FLOOR		FOR INTERNAL IDENTIFICATION PURPOSES ONLY
NEW YORK, NY 10171		FOR INTERNAL IDENTIFICATION PURPOSES ONLY
ATTENTION: LETTER OF CREDIT SERVICES
		APPLICANT:
		Golden Gate III Vermont Captive Insurance Company
BENEFICIARY:
REINSURANCE TRUSTEE
THE BANK OF NEW YORK MELLON
101 BARCLAY STREET
MAILSTOP: 101-0850
NEW YORK, NEW YORK 10286
ATTENTION: INSURANCE TRUST & ESCROW GROUP

IRREVOCABLE LETTER OF CREDIT NO. [ · ]

DEAR SIR OR MADAM:

WE, UBS AG, STAMFORD BRANCH, HEREBY ESTABLISH THIS LETTER OF CREDIT (“LETTER OF CREDIT” OR “CREDIT”), AT THE REQUEST OF GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY (“ACCOUNT PARTY”), IN YOUR FAVOR AS BENEFICIARY, EFFECTIVE AT THE ISSUE DATE, FOR DRAWINGS UP TO THE SCHEDULED LOC AMOUNT (AS DEFINED BELOW). THIS LETTER OF CREDIT IS ISSUED BY UBS AG, STAMFORD BRANCH AND IS PRESENTABLE AND PAYABLE AT OUR OFFICE AT 299 PARK AVENUE, 26TH FLOOR, NEW YORK, NEW YORK 10171, ATTENTION LETTER OF CREDIT SERVICES AND EXPIRES AT OUR CLOSE OF BUSINESS ON THE EXPIRY DATE (AS DEFINED BELOW). THIS CREDIT CANNOT BE REDUCED OR REVOKED WITHOUT THE BENEFICIARY’S CONSENT, EXCEPT AN AUTOMATIC ADJUSTMENT IN ACCORDANCE WITH THE TERMS HEREOF. THE AMOUNT AVAILABLE FOR PAYMENT UNDER THIS LETTER OF CREDIT AT ANY TIME SHALL BE THE SCHEDULED LOC AMOUNT AT SUCH TIME MINUS THE SUM OF ALL PAYMENTS MADE HEREUNDER TO THE BENEFICIARY.

THE TERM “BENEFICIARY” INCLUDES ANY SUCCESSOR BY OPERATION OF LAW OF THE NAMED BENEFICIARY INCLUDING, WITHOUT LIMITATION, ANY LIQUIDATOR, REHABILITATOR, RECEIVER OR CONSERVATOR.

Exhibit D - 1

THE “SCHEDULED LOC AMOUNT” FOR ANY PERIOD SHALL BE THE SCHEDULED LOC AMOUNT SET FORTH IN THE ATTACHED ANNEX I FOR SUCH PERIOD; PROVIDED THAT IF WE, UBS AG, STAMFORD BRANCH, SEND TO THE BENEFICIARY A NON-INCREASE NOTICE AS HEREINAFTER PROVIDED, THE “SCHEDULED LOC AMOUNT” SHALL BE AND REMAIN THEREAFTER THE SCHEDULED LOC AMOUNT SET FORTH IN THE ATTACHED ANNEX I AS IN EFFECT DURING THE PERIOD IN WHICH THE NON-INCREASE NOTICE WAS SENT, REGARDLESS OF FURTHER INCREASES TO SCHEDULED LOC AMOUNTS SET FORTH IN THE ATTACHED ANNEX I; PROVIDED, HOWEVER, THAT THE BENEFICIARY ACKNOWLEDGES AND AGREES, AS OF THE DATE HEREOF, THAT THE SCHEDULED LOC AMOUNT SHALL AUTOMATICALLY DECREASE TO THE SCHEDULED LOC AMOUNT SET FORTH IN ANNEX I FOR SUCH PERIOD IF SUCH SCHEDULED LOC AMOUNT IS LESS THAN THE THEN-CURRENT SCHEDULED LOC AMOUNT.

WE, UBS AG, STAMFORD BRANCH, HAVE THE OPTION TO SEND TO THE BENEFICIARY A NON-INCREASE NOTICE, SUBSTANTIALLY IN THE FORM OF SCHEDULE A HERETO, WHICH SHALL HAVE THE EFFECT OF MAINTAINING THE THEN-CURRENT SCHEDULED LOC AMOUNT, SUBJECT TO THE FUTURE DECREASES AS DESCRIBED ABOVE. SUCH NOTICE SHALL BE DELIVERED TO AND RECEIVED BY THE BENEFICIARY AT LEAST FIVE (5) CALENDAR DAYS PRIOR TO THE END OF THE PERIOD FOR THE THEN-CURRENT SCHEDULED LOC AMOUNT.

WE HEREBY UNDERTAKE TO PROMPTLY HONOR YOUR SIGHT DRAFT(S) DRAWN ON US, INDICATING OUR LETTER OF CREDIT NO. [ · ], FOR ALL OR ANY PART OF THIS CREDIT UPON PRESENTATION OF (A) YOUR SIGHT DRAFT(S) DRAWN ON US AND (B) A DRAW CERTIFICATION NOTICE EXECUTED BY WEST COAST LIFE INSURANCE COMPANY IN THE FORM OF SCHEDULE B HERETO, WHICH MUST BE COMPLETED AS APPROPRIATE, DATED THE DATE OF SUCH SIGHT DRAFT, IN EACH CASE AT OUR OFFICE SPECIFIED IN THE FIRST PARAGRAPH HEREOF, OR BY FACSIMILE TO (212) 821-6707, ON OR BEFORE THE EXPIRY DATE HEREOF. IF THE APPLICABLE EXPIRY DATE IS NOT A BUSINESS DAY, DRAWING MAY BE MADE NOT LATER THAN THE NEXT IMMEDIATELY FOLLOWING BUSINESS DAY. ONLY THE BENEFICIARY MAY MAKE DRAWINGS UNDER THIS LETTER OF CREDIT AND ALL SIGHT DRAFTS MUST BE MARKED: “DRAWN UNDER UBS AG, STAMFORD BRANCH, LETTER OF CREDIT NO. [ · ]”. OTHER THAN YOUR SIGHT DRAFT(S) AND THE DRAW CERTIFICATION NOTICE(S) EXECUTED BY WEST COAST LIFE INSURANCE COMPANY, NO OTHER DOCUMENT(S) NEED BE PRESENTED BY THE BENEFICIARY.

EXCEPT AS EXPRESSLY STATED HEREIN, THIS UNDERTAKING IS NOT SUBJECT TO ANY AGREEMENT, REQUIREMENT OR QUALIFICATION. THE OBLIGATION OF UBS AG, STAMFORD BRANCH UNDER THIS LETTER OF CREDIT IS THE INDIVIDUAL OBLIGATION OF UBS AG, STAMFORD BRANCH, AND IS IN NO WAY CONTINGENT UPON REIMBURSEMENT WITH RESPECT THERETO OR UPON OUR ABILITY TO PERFECT A LIEN, SECURITY OR ANY OTHER REIMBURSEMENT.

Exhibit D - 2

THIS LETTER OF CREDIT SETS FORTH IN FULL THE TERMS OF OUR UNDERTAKING, AND THIS UNDERTAKING SHALL NOT IN ANY WAY BE MODIFIED, AMENDED, AMPLIFIED OR LIMITED BY REFERENCE TO ANY DOCUMENT, INSTRUMENT OR AGREEMENT REFERRED TO HEREIN OR IN WHICH THIS LETTER OF CREDIT IS REFERRED TO OR TO WHICH THIS LETTER OF CREDIT RELATES, AND ANY SUCH REFERENCE SHALL NOT BE DEEMED TO INCORPORATE HEREIN BY REFERENCE ANY DOCUMENT, INSTRUMENT OR AGREEMENT.

WE UNDERTAKE TO HONOR ANY SIGHT DRAFT(S) PRESENTED UNDER THIS LETTER OF CREDIT, PROVIDED SUCH DRAFT(S) AND ACCOMPANYING DRAW CERTIFICATION NOTICE(S) CONFORM TO THE TERMS AND CONDITIONS HEREOF.

THE “EXPIRY DATE” OF THIS LETTER OF CREDIT SHALL BE OCTOBER 1, 2023. OR SUCH EARLIER DATE TO WHICH THE EXPIRATION OF THIS LETTER OF CREDIT IS ACCELERATED PURSUANT TO THE FOLLOWING SENTENCE. WE, UBS AG, STAMFORD BRANCH, HAVE THE OPTION TO SEND TO THE BENEFICIARY AN ACCELERATION NOTICE, SUBSTANTIALLY IN THE FORM OF SCHEDULE C HERETO, WHICH ACCELERATES THE EXPIRY DATE OF THIS LETTER OF CREDIT TO (1) APRIL 1, 2015, IN THE CASE OF AN ACCELERATION NOTICE DELIVERED PRIOR TO MARCH 1, 2014, (2) APRIL 1, 2018, IN THE CASE OF AN ACCELERATION NOTICE DELIVERED PRIOR TO JANUARY 10, 2018 OR (3) APRIL 1, 2020, IN THE CASE OF AN ACCELERATION NOTICE DELIVERED PRIOR TO JANUARY 10, 2020. ALL SUCH ACCELERATION NOTICES SHALL BE DELIVERED BY REGISTERED MAIL, REPUTABLE COURIER OR HAND DELIVERY.

THIS LETTER OF CREDIT IS SUBJECT TO AND GOVERNED BY THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDIT (2007 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 600 (“UCP”) AS INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK; PROVIDED , HOWEVER , THAT NOTWITHSTANDING THE PROVISIONS OF ARTICLE 36 OF THE UCP, IF THIS LETTER OF CREDIT EXPIRES DURING AN INTERRUPTION OF BUSINESS (AS DESCRIBED IN ARTICLE 36 OF THE UCP), UBS AG, STAMFORD BRANCH AGREES TO EFFECT PAYMENT UNDER THIS LETTER OF CREDIT IF A DRAWING WHICH STRICTLY CONFORMS TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT IS MADE WITHIN THIRTY (30) CALENDAR DAYS AFTER THE RESUMPTION OF BUSINESS.

Exhibit D - 3

VERY TRULY YOURS,

UBS AG, STAMFORD BRANCH

By:
	Name:
	Title:


By:
	Name:
	Title:

Exhibit D - 4

ANNEX 1

Letter of Credit Number:

SCHEDULED LOC AMOUNT

Period Starting	Period Ending	Scheduled LOC Amount
Amendment Closing Date	December 14, 2013	710,000,000
December 15, 2013	March 14, 2014	715,000,000
March 15, 2014	June 14, 2014	715,000,000
June 15, 2014	September 14, 2014	715,000,000
September 15, 2014	December 14, 2014	715,000,000
December 15, 2014	March 14, 2015	715,000,000
March 15, 2015	June 14, 2015	715,000,000
June 15, 2015	September 14, 2015	715,000,000
September 15, 2015	December 14, 2015	715,000,000
December 15, 2015	March 14, 2016	720,000,000
March 15, 2016	June 14, 2016	720,000,000
June 15, 2016	September 14, 2016	720,000,000
September 15, 2016	December 14, 2016	720,000,000
December 15, 2016	March 14, 2017	720,000,000
March 15, 2017	June 14, 2017	715,000,000
June 15, 2017	September 14, 2017	710,000,000
September 15, 2017	December 14, 2017	685,000,000
December 15, 2017	March 14, 2018	685,000,000
March 15, 2018	June 14, 2018	680,000,000
June 15, 2018	September 14, 2018	680,000,000
September 15, 2018	December 14, 2018	675,000,000
December 15, 2018	March 14, 2019	670,000,000
March 15, 2019	June 14, 2019	665,000,000
June 15, 2019	September 14, 2019	660,000,000
September 15, 2019	December 14, 2019	630,000,000
December 15, 2019	March 14, 2020	625,000,000
March 15, 2020	June 14, 2020	615,000,000
June 15, 2020	September 14, 2020	605,000,000
September 15, 2020	December 14, 2020	595,000,000
December 15, 2020	March 14, 2021	585,000,000
March 15, 2021	June 14, 2021	570,000,000
June 15, 2021	September 14, 2021	560,000,000
September 15, 2021	December 14, 2021	545,000,000
December 15, 2021	March 14, 2022	535,000,000
March 15, 2022	June 14, 2022	520,000,000
June 15, 2022	September 14, 2022	505,000,000
September 15, 2022	December 14, 2022	490,000,000
December 15, 2022	March 14, 2023	475,000,000
March 15, 2023	June 14, 2023	465,000,000
June 15, 2023	September 14, 2023	450,000,000
September 15, 2023	October 1, 2023	435,000,000

Exhibit D - 5

SCHEDULE A

Letter of Credit Number:

FORM OF NON-INCREASE NOTICE

REINSURANCE TRUSTEE:

THE BANK OF NEW YORK MELLON

ATTENTION: INSURANCE TRUST & ESCROW GROUP

101 BARCLAY STREET

MAILSTOP: 101-0850

NEW YORK, NEW YORK 10286

NON-INCREASE NOTICE

THE UNDERSIGNED, UBS AG, STAMFORD BRANCH (THE “ BANK ”), BY AN AUTHORIZED REPRESENTATIVE THEREOF, HEREBY CERTIFIES TO YOU (THE “ BENEFICIARY ”) THAT THE BANK HAS NOT RECEIVED THE OFFICER’S CERTIFICATE OF GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY SUBSTANTIALLY IN THE FORM SET FORTH IN SCHEDULE D OF THAT CERTAIN IRREVOCABLE LETTER OF CREDIT NO. (THE “ LETTER OF CREDIT ”) ISSUED BY THE BANK IN FAVOR OF THE BENEFICIARY.

ACCORDINGLY, THE BANK HEREBY NOTIFIES THE BENEFICIARY WITH REFERENCE TO THE LETTER OF CREDIT, THAT THE SCHEDULED LOC AMOUNT (AS DEFINED IN THE LETTER OF CREDIT) SHALL REMAIN AT THE CURRENT SCHEDULED LOC AMOUNT OF USD , SUBJECT TO ANY FUTURE DECREASES IN THE LETTER OF CREDIT.

	VERY TRULY YOURS,

	UBS AG, STAMFORD BRANCH


	BY:
		NAME:
		TITLE:


	BY:
		NAME:
		TITLE:

Exhibit D - 6

SCHEDULE B

Letter of Credit Number:

FORM OF DRAW CERTIFICATION NOTICE

To: UBS AG, Stamford Branch

299 Park Avenue, 26 th Floor

New York, NY 10171

Attention: Letter of Credit Services

The Beneficiary is drawing $[ · ] under the Letter of Credit (the “ Requested Amount ”) in connection with this Notice.

The undersigned, by [Name], as [Title] 2 of the Ceding Company, hereby certifies to the Issuing Lender that as of the date hereof:

(iii) No assets remain in the Surplus Account.

2 Officer must be a Responsible Officer of the Ceding Company, i.e. the Chief Executive Officer, President, Chief Financial Officer, Chief Accounting Officer, Treasurer, Assistant Treasurer or Controller.

Exhibit D - 7

(iv) Since the date that is one calendar year prior to the date hereof, no assets with a Market Value in excess of $ [****] have been transferred from the Surplus Account other than to the extent permitted to be transferred pursuant to the Priority of Payments, unless (A) despite such assets being transferred in the incorrect order of priority, such transfer would have been otherwise permitted pursuant to the Priority of Payments at the time of such transfer or at any subsequent time thereafter or (B) such impermissibly transferred assets have been returned to the Surplus Account or replaced in the Surplus Account with Eligible Assets having a Market Value equal to those that were impermissibly transferred on or prior to the date hereof.

(v) Since the Original Closing Date, the Borrower has existed and, as of the date hereof, exists, as a separate entity and has not been substantively consolidated with another entity.

(vi) As of the date hereof, the Reinsurance Agreement remains in full force and effect.

(vii) As of the date hereof, there is no continuing failure by PLC to pay any amount in excess of $ [****] payable to or explicitly required to be paid on behalf of the Borrower under the Tax Sharing Agreement or the Special Tax Allocation Agreement within thirty (30) calendar days from the date on which such payment was due and payable.

Exhibit D - 8

IN WITNESS WHEREOF, the undersigned has executed and delivered this Notice as of the day of , .

West Coast Life Insurance Company,

as the Ceding Company

By:
Name:
Title:

Exhibit D - 9

SCHEDULE C

Letter of Credit Number:

FORM OF ACCELERATION NOTICE

[DATE]

THE BANK OF NEW YORK MELLON

101 BARCLAY STREET

MAILSTOP: 101-0850

NEW YORK, NEW YORK 10286

ATTENTION: INSURANCE TRUST & ESCROW GROUP

ACCELERATION NOTICE

THE UNDERSIGNED, UBS AG, STAMFORD BRANCH (THE “BANK”), BY AN AUTHORIZED REPRESENTATIVE THEREOF, HEREBY CERTIFIES TO YOU (THE “BENEFICIARY”) THAT THE BANK HAS NOT RECEIVED THE OFFICER’S CERTIFICATE OF GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY SUBSTANTIALLY IN THE FORM SET FORTH IN SCHEDULE E OF THAT CERTAIN IRREVOCABLE LETTER OF CREDIT NO. (THE “ LETTER OF CREDIT ”) ISSUED BY THE BANK IN FAVOR OF THE BENEFICIARY.

ACCORDINGLY, THE BANK HEREBY NOTIFIES THE BENEFICIARY WITH REFERENCE TO THE LETTER OF CREDIT, THAT THE EXPIRATION DATE OF THE LETTER OF CREDIT WILL BE ACCELERATED TO AN EXPIRY DATE OF [[APRIL 1, 2015] 3 /[APRIL 1, 2018] 4 /[APRIL 1, 2020] 5 ].

	UBS AG, STAMFORD BRANCH,
	as Issuing Lender


	By:

	Name:
	Title:


	By:
	Name:
	Title:

3 Select with respect to an Acceleration Notice delivered prior to March 1, 2014.

4 Select with respect to an Acceleration Notice delivered prior to January 10, 2018.

5 Select with respect to an Acceleration Notice delivered prior to January 10, 2020.

Exhibit D - 10

cc:

GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY

c/o Marsh Management Services, Inc.

100 Bank Street

Burlington, VT 05402

Fax: (802) 859-3550

Exhibit D - 11

SCHEDULE D

Letter of Credit Number:

FORM OF OFFICER’S CERTIFICATE OF THE BORROWER

UBS AG, STAMFORD BRANCH

299 PARK AVENUE, 26TH FLOOR

NEW YORK, NY 10171

ATTENTION: LETTER OF CREDIT SERVICES

OFFICER’S CERTIFICATE OF THE BORROWER

THE UNDERSIGNED, GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY, A SPECIAL PURPOSE FINANCIAL CAPTIVE INSURANCE COMPANY INCORPORATED UNDER THE LAWS OF THE STATE OF VERMONT (THE “ BORROWER ”), BY AN AUTHORIZED REPRESENTATIVE THEREOF, HEREBY CERTIFIES TO YOU (THE “ BANK ”) THAT, IN ACCORDANCE WITH SECTION 2.01(b) OF THE SECOND AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, DATED AS OF AUGUST 7, 2013, AS AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME (THE “ REIMBURSEMENT AGREEMENT ”), BETWEEN THE BORROWER AND THE BANK, AS OF THE DATE HEREOF, THE INCREASE CONDITIONS SET FORTH IN SECTIONS 5.02(a) , (b) AND (c) OF THE REIMBURSEMENT AGREEMENT (OTHER THAN THOSE THAT HAVE BEEN WAIVED IN WRITING BY THE BANK) HAVE BEEN FULLY SATISFIED.

	VERY TRULY YOURS,

	GOLDEN GATE III VERMONT CAPTIVE INSURANCE
	COMPANY


	BY:
	NAME:
	TITLE:

Exhibit D - 12

SCHEDULE E

Letter of Credit Number:

FORM OF OFFICER’S CERTIFICATE OF THE BORROWER

UBS AG, STAMFORD BRANCH

299 PARK AVENUE, 26TH FLOOR

NEW YORK, NY 10171

ATTENTION: LETTER OF CREDIT SERVICES

OFFICER’S CERTIFICATE OF THE BORROWER

THE UNDERSIGNED, GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY, A SPECIAL PURPOSE FINANCIAL CAPTIVE INSURANCE COMPANY INCORPORATED UNDER THE LAWS OF THE STATE OF VERMONT (THE “ BORROWER ”), BY AN AUTHORIZED REPRESENTATIVE THEREOF, HEREBY CERTIFIES TO YOU (THE “ BANK ”) THAT, IN ACCORDANCE WITH SECTION 2.01(c)[[(ii)]/[(iii)]/[(iv)]]) 6 OF THE SECOND AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, DATED AS OF AUGUST 7, 2013, AS AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME (THE “ REIMBURSEMENT AGREEMENT ”), BETWEEN THE BORROWER AND THE BANK:

(A) [THE [THIRD]/[FOURTH]/[FIFTH] 7 REQUIRED ADDITIONAL CONTRIBUTION HAS BEEN MADE AND WAS RECEIVED BY THE BORROWER ON [ · ] 8 ]; AND

(B) NO EVENT THAT CONSTITUTES AN EVENT OF DEFAULT PURSUANT TO SECTIONS 8.01(l) OR (m) OF THE REIMBURSEMENT AGREEMENT HAS OCCURRED AND IS CONTINUING AS OF THE DATE HEREOF.

	VERY TRULY YOURS,

	GOLDEN GATE III VERMONT CAPTIVE INSURANCE
	COMPANY

	BY:
	NAME:
	TITLE:

6 Select as applicable.

7 Select as applicable.

8 Insert date.

Exhibit D - 13

EXHIBIT E

FORM OF ASSIGNMENT AND ACCEPTANCE

Reference is made to the Reimbursement Agreement, dated as of April 23, 2010 and amended and restated as of August 7, 2013 (as the same has been and may be amended, restated, modified or supplemented from time to time, the “ Agreement ”), by and between Golden Gate III Vermont Captive Insurance Company (the “ Borrower ”) and UBS AG, Stamford Branch, (the “ Issuing Lender ”). Unless otherwise defined herein, terms defined in the Agreement and used herein shall have the meanings given to them in the Agreement.

The Assignor identified on Schedule l hereto (the “ Assignor ”) and the Assignee identified on Schedule l hereto (the “ Assignee ”) agree as follows:

1. The Assignor hereby irrevocably sells and assigns to the Assignee without recourse to the Assignor, and the Assignee hereby irrevocably purchases and assumes from the Assignor without recourse to the Assignor, as of the Effective Date (as defined below), the interest in and to the Assignor’s rights and obligations under the Agreement in a principal amount as set forth on Schedule 1 hereto (the “ Assigned Interest ”).

2. The Assignor (a) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Agreement or with respect to the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Agreement, any other Transaction Document or any other instrument or document furnished pursuant thereto, other than that the Assignor has not created any adverse claim upon the interest being assigned by it hereunder and that such interest is free and clear of any such adverse claim and (b) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower, any of its Affiliates or any other obligor or the performance or observance by the Borrower, any of its Affiliates or any other obligor of any of their respective obligations under the Agreement or any other Transaction Document or any other instrument or document furnished pursuant hereto or thereto.

3. The Assignee (a) represents and warrants that it is legally authorized to enter into this Assignment and Acceptance and (b) confirms that it has received a copy of the Agreement, together with copies of the financial statements delivered pursuant to Section 6.01(d) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (c) agrees that it will, independently and without reliance upon the Assignor or the Issuing Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Agreement, the other Transaction Documents or any other instrument or document furnished pursuant hereto or thereto; and (d) agrees that it will be bound by the provisions of the Agreement and will perform in accordance with its terms all the obligations which by the terms of the Agreement are required to be performed by it pursuant to Sections 9.05(b) or (c) , as applicable, of the Agreement.

4. The effective date of this Assignment and Acceptance shall be the Effective Date of Assignment described in Schedule 1 hereto (the “ Effective Date ”). Following the execution of

Exhibit E - 1

this Assignment and Acceptance, it will be delivered to the Issuing Lender for acceptance and recording by it pursuant to the Agreement, effective as of the Effective Date (which shall not, unless otherwise agreed to by the Issuing Lender, be earlier than five (5) Business Days after the date of such acceptance and recording by the Issuing Lender).

5. Upon such acceptance and recording, from and after the Effective Date, the Issuing Lender shall make all payments in respect of the Assigned Interest (including payments of fees and other amounts) to the Assignor for amounts which have accrued to the Effective Date and to the Assignee for amounts which have accrued subsequent to the Effective Date.

6. From and after the Effective Date, (a) the Assignee shall be a party to the Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of the Issuing Lender thereunder and under the other Transaction Documents and shall be bound by the provisions thereof and (b) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Agreement.

7. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the principles of conflicts of laws thereof (other than Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York).

IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Acceptance to be executed as of the date first above written by their respective duly authorized officers on Schedule 1 hereto.

Exhibit E - 2

Schedule 1
to Assignment and Acceptance with respect to
the Reimbursement Agreement,

dated as of April 23, 2010 and amended and restated as of August 7, 2013,
between Golden Gate III Vermont Captive Insurance Company (the “ Borrower ”),

and UBS AG, Stamford Branch, (the “ Issuing Lender ”)

Name of Assignor:

Name of Assignee:

Effective Date of Assignment:

Principal Amount of
Commitment Assigned			Commitment Percentage Assigned

$			%

[Name of Assignee]			[Name of Assignor]


By:			By:
Name:			Name:
Title:			Title:

Accepted for Recordation in the Register:			Required Consents (if any):

UBS AG, Stamford Branch, as			[ ]
Issuing Lender

By:			By:
Name:			Name:
Title:			Title:

By:			UBS AG, Stamford Branch, as
Name:			Issuing Lender
Title:
			By:
			Name:
			Title:

			By:
			Name:
			Title:

Exhibit E - 3

EXHIBIT F

FORM OF OFFICER’S CERTIFICATE OF THE BORROWER

UBS AG, STAMFORD BRANCH

677 WASHINGTON BOULEVARD

STAMFORD, CT 06901

OFFICER’S CERTIFICATE OF THE BORROWER

THE UNDERSIGNED, AN AUTHORIZED REPRESENTATIVE OF GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY, A SPECIAL PURPOSE FINANCIAL CAPTIVE INSURANCE COMPANY INCORPORATED UNDER THE LAWS OF THE STATE OF VERMONT, (THE “ BORROWER ”), HEREBY CERTIFIES TO YOU (THE “ BANK ”) THAT, IN ACCORDANCE WITH SECTION 2.01(b) OF THE SECOND AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, DATED AS OF AUGUST 7, 2013, AS AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME (THE “ REIMBURSEMENT AGREEMENT ”), BETWEEN THE BORROWER AND THE BANK, AS OF THE DATE HEREOF, THE INCREASE CONDITIONS SET FORTH IN SECTIONS 5.02(a) , (b) AND (c) OF THE REIMBURSEMENT AGREEMENT (OTHER THAN THOSE THAT HAVE BEEN WAIVED IN WRITING BY THE BANK) HAVE BEEN FULLY SATISFIED.

	VERY TRULY YOURS,

	GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY

	BY:
	NAME:
	TITLE:

Exhibit F - 1

EXHIBIT G

FORM OF OFFICER’S CERTIFICATE OF THE BORROWER

UBS AG, STAMFORD BRANCH

677 WASHINGTON BOULEVARD

STAMFORD, CT 06901

OFFICER’S CERTIFICATE OF THE BORROWER

THE UNDERSIGNED, AN AUTHORIZED REPRESENTATIVE OF GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY, A SPECIAL PURPOSE FINANCIAL CAPTIVE INSURANCE COMPANY INCORPORATED UNDER THE LAWS OF THE STATE OF VERMONT, (THE “ BORROWER ”), HEREBY CERTIFIES TO YOU (THE “ BANK ”) THAT, IN ACCORDANCE WITH SECTION 2.01(c)[(ii)]/[(iii)]/[(iv)]) 9 OF THE SECOND AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, DATED AS OF AUGUST 7, 2013, AS AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME (THE “ REIMBURSEMENT AGREEMENT ”), BETWEEN THE BORROWER AND THE BANK:

(A) [THE [[THIRD]/[FOURTH]/[FIFTH]] 10 REQUIRED ADDITIONAL CONTRIBUTION HAS BEEN MADE AND WAS RECEIVED BY THE BORROWER ON [ · ] 11 ]; AND

(B) NO EVENT THAT CONSTITUTES AN EVENT OF DEFAULT PURSUANT TO SECTIONS 8.01(l) OR (m) OF THE REIMBURSEMENT AGREEMENT HAS OCCURRED AND IS CONTINUING AS OF THE DATE HEREOF.

	VERY TRULY YOURS,

	GOLDEN GATE III VERMONT CAPTIVE INSURANCE COMPANY

	BY:
	NAME:
	TITLE:

9 Select as applicable.

10 Select as applicable.

11 Insert date.

Exhibit G - 1

EXHIBIT H

PLICO REINSURANCE AGREEMENT

Exhibit H - 1

Exhibit 10.(q)

Execution Version

Protective Life Corporation

2801 Highway 280 South

Birmingham, AL 35223

August 7, 2013

UBS AG, Stamford Branch

677 Washington Boulevard

Stamford, CT 06901

Attention: Structured Fixed Income

Second Amended and Restated Guarantee Agreement

Dear Sirs and Madams,

This letter agreement (this “ Guarantee ”) amends and restates in its entirety, as of August 7, 2013 (the “ Amendment Closing Date ”), the Amended and Restated Guarantee Agreement, dated as of April 23, 2010 (the “ Original Closing Date ”) and amended and restated as of November 21, 2011 (the “ Prior Closing Date ”), between Protective Life Corporation (the “ Company ”, “ we ” or “ us ”) and UBS AG, Stamford Branch (“ UBS ” or “ you ”) regarding the Fee Letter, originally dated as of the Prior Closing Date and as amended and restated as of the Prior Closing Date and as of the Amendment Closing Date, between Golden Gate III Vermont Captive Insurance Company (the “ Borrower ”) and UBS (as the same has been and may be amended, supplemented, modified or replaced from time to time, the “ Fee Letter ”). In connection with the Reimbursement Agreement, originally dated as of the Original Closing Date and as amended and restated as of February 14, 2011, as of the Prior Closing Date and as of the Amendment Closing Date, between Borrower and UBS (as the same has been and may be amended, supplemented, modified or replaced from time to time, the “ Reimbursement Agreement ”), we hereby agree and confirm that:

(a) we irrevocably and unconditionally guarantee to you performance by the Borrower of its payment obligations in respect of all Fees under and in accordance with the Reimbursement Agreement and the Fee Letter; and

(b) whenever the Borrower does not pay any Fee, or portion thereof, when due in accordance with the Reimbursement Agreement and the Fee Letter, we shall, within ten (10) Business Days from first written demand from you to us following such failure by the Borrower to pay when due, pay such Fee or portion thereof as if we were the principal obligor,

provided that, in each case above, any amount of a Fee irrevocably and finally paid by the Borrower to you prior to your receipt of any payment made by us under the terms of this Guarantee shall reduce the obligation of the Company under this Guarantee to pay you such Fee (or portion thereof) by an amount equal to such payment.

This Guarantee is a continuing guarantee, and will extend to any existing balance of Fees payable by the Borrower under the Reimbursement Agreement or the Fee Letter, regardless of any intermediate payment or discharge in whole or in part (including, for the avoidance of doubt, as a result of the occurrence and/or continuance of any bankruptcy, reorganization, dissolution, insolvency, liquidation or similar proceedings with respect to the Borrower) other than pursuant to the proviso in the paragraph above.

The obligations of the Company under this Guarantee shall terminate and the Company shall cease to have further liability under this Guarantee (save for any amount then due under this Guarantee) upon the final payment of all Fees by the Borrower pursuant to the Reimbursement Agreement and the Fee Letter. For the avoidance of doubt, this Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time any payment made by the Company under this Guarantee or by the Borrower in respect of Fees is rescinded or must otherwise be returned by UBS or any other person upon the insolvency, bankruptcy, or reorganization of the Borrower or the Company or otherwise, all as though such payment had not been made. You hereby agree to execute all releases, instruments of discharge and/or documents as may be reasonably necessary to effect or evidence the release of the Company from all liability under or in connection with this Guarantee following such termination and related request by us.

Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Reimbursement Agreement.

This Guarantee may be executed in one or more counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument. If any provision of this Guarantee, or the application thereof to any person or circumstance, is held invalid or unenforceable, the remainder of this Guarantee, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Guarantee are agreed to be severable. Nothing in this Guarantee, express or implied, is intended to confer upon any person not a party to this Guarantee any rights or remedies of any nature whatsoever under or by reason of this Guarantee.

This Guarantee shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. This Guarantee may not be amended, supplemented, waived or modified except by an instrument in writing signed on behalf of each of the parties hereto and with the consent of UBS and any amendment made without such consent shall be void ab initio ; provided that such consent of UBS is not unreasonably withheld or delayed.

This Guarantee constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings both written or oral, between the parties with respect to the subject matter hereof. This Guarantee may not be assigned by either party hereto without the written consent of the other party, and any such assignment without such consent shall be void and of no force and effect.

This Guarantee is not intended to be and is not, and nothing herein contained and nothing done by the Company pursuant to this Guarantee shall be deemed to constitute, a guarantee by

the Company of, any obligation of the Borrower other than its obligation to pay Fees pursuant to the Reimbursement Agreement and the Fee Letter.

Nothing contained in this Guarantee shall be construed as requiring us to make any loan, advance, capital contribution or other investment at the time otherwise required to be made under this Guarantee that is not then be permitted to be made because of any law or governmental rule or regulation applicable to us.

This Guarantee shall be construed in accordance with and governed by the law of the State of New York.

[ Remainder of Page Intentionally Left Blank ]

Please sign below to indicate your agreement and acceptance of the foregoing.

	Very truly yours,

	PROTECTIVE LIFE CORPORATION


	Name:
	Title:

Accepted, Agreed and Consented to:

UBS AG, STAMFORD BRANCH


Name:
Title:


Name:
Title:

Signature page to the Second Amended and Restated Guarantee Agreement

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 September 30, 2013, of Protective Life Corporation;

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: November 4, 2013

	/s/ John D. Johns
	Chairman of the Board,
	President and Chief Executive Officer

133

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 September 30, 2013, of Protective Life Corporation;

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: November 4, 2013

	/s/ Richard J. Bielen
	Vice Chairman and
	Chief Financial Officer

134

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 Corporation (the “Company”) on Form 10-Q for the period ended September 30, 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

November 4, 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.

135

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 Corporation (the “Company”) on Form 10-Q for the period ended September 30, 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

November 4, 2013

136