UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission file number 0-23637

Global Preferred Holdings, Inc.

6455 EAST JOHNS CROSSING, SUITE 402
DULUTH, GEORGIA 30097
(770) 248-3311

     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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

     As of November 9, 2004, there were 4,141,684 shares of common stock outstanding.

TABLE OF CONTENTS

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GLOBAL PREFERRED HOLDINGS, INC.

Consolidated Balance Sheets
(Unaudited)

See accompanying condensed notes to consolidated financial statements.

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GLOBAL PREFERRED HOLDINGS, INC.

Consolidated Statements of Income
(Unaudited)

See accompanying condensed notes to consolidated financial statements.

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GLOBAL PREFERRED HOLDINGS, INC.
Consolidated Statements of Cash Flows
(Unaudited)

See accompanying condensed notes to consolidated financial statements.

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GLOBAL PREFERRED HOLDINGS, INC.
Condensed Notes to Consolidated Financial Statements

September 30, 2004
(Unaudited)

1. Basis of Presentation

     The accompanying unaudited consolidated financial statements of Global Preferred Holdings, Inc. (“Global Preferred”) 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 for Form 10-Q. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The unaudited financial statements should be read in conjunction with Global Preferred’s audited financial statements included in Global Preferred’s 2003 Annual Report on Form 10-K, as amended and filed with the Securities and Exchange Commission.

2. Deferred Taxes

     Global Preferred uses the asset and liability method to record deferred income taxes. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using an effective federal income tax rate of 34%. Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, specifically excludes recognition of the “small life insurance company deduction” available under Section 806 of the Internal Revenue Code for qualifying life insurance companies. This special deduction can reduce the effective federal income tax rate from 34% to less than 20% depending upon the amount of taxable income. Consequently, the effective tax rate on Global Preferred’s earnings may ultimately prove to be less than the deferred income tax liabilities and related expenses determined under SFAS No. 109 at September 30, 2004.

3. Comprehensive Income

     SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose financial statements. The primary component of accumulated other comprehensive income or loss as shown under the equity section of the consolidated balance sheet is the unrealized gain or loss on available-for-sale fixed maturity securities. Total comprehensive income for the three months ended September 30, 2004 was $1,420,266 compared to $540,312 for the three months ended September 30, 2003. Total comprehensive income for the nine months ended September 30, 2004 was $3,185,691 compared to $1,442,993 for the nine months ended September 30, 2003.

4. Earnings Per Share

     Basic earnings per share is computed based on the weighted-average number of common shares outstanding during the period, in accordance with SFAS No. 128, Earnings Per Share. Diluted earnings per share is computed based on the total weighted-average number of common and common equivalent shares outstanding during the period. The dilutive effect of the 289,752 stock options outstanding on September 30, 2004, which was computed using the treasury stock method, was not significant to Global Preferred’s financial statements for the three and nine-month periods ended September 30, 2004. For further discussion, refer to Note 15 to the consolidated financial statements in Global Preferred’s Annual Report on Form 10-K, for the year ended December 31, 2003, as amended.

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5. Stock Options

     Global Preferred’s employee stock incentive plan and directors stock option plan (the “stock option plans”) are accounted for under the intrinsic value recognition and measurement principles of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The application of APB No. 25 did not result in significant compensation expense for the three and nine-month periods ended September 30, 2003 and 2004. The following table illustrates the effect on net income and earnings per share if Global Preferred had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to the stock option plans as of the dates reported.

     For purposes of this pro-forma disclosure, the estimated fair value of the options is assumed to be amortized as a stock-based compensation expense over the options’ vesting periods.

6. Accounting Pronouncements

     In January 2003, Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, Consolidation of Variable Interest Entities, as revised by Interpretation 46R, issued in December 2003. The issuance of Interpretation No. 46 did not have a material impact on Global Preferred’s financial statements.

     In July 2003, the Accounting Standards Executive Committee issued Statement of Position (SOP) 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. The provisions of this SOP are effective for financial statements for fiscal years beginning after December 15, 2003 and require, among other things, that liabilities be established for guaranteed minimum death benefits for certain variable annuity policies. The guaranteed minimum death benefit liability is established with the change in the liability included in gross profits used to determine the amortization of the deferred acquisition costs. This change may result in an increase in the liability for future policy benefits and an offsetting increase in deferred acquisition costs. The implementation of this provision did not have a material impact on Global Preferred’s financial statements.

     In November 2003, FASB ratified the consensus of the Emerging Issues Task Force (EITF) on the disclosure portion of Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. While certain provisions are pending further discussion by the Task Force, EITF 03-1 requires certain disclosures with regard to investments in an unrealized loss position, which are not considered other-than-temporarily impaired. These disclosures are intended to provide information regarding the conclusion that the impairments are not other-than-temporary. The implementation of this provision did not have a material impact on Global Preferred’s financial statements.

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7. Segment Reporting

     Global Preferred defines reportable segments based on the nature of its reinsurance agreements and the accounting treatment used for the various reinsurance agreements. Based on this definition, two reportable segments have been identified: non-universal life-type agreements and universal life-type agreements (as each is referenced in SFAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments, paragraphs 44 and 45). Global Preferred reinsures certain variable universal life insurance policies on a renewable term basis, which are reported below as Non-Universal Life-Type Agreements and, as such, these revenues are classified as premium revenue. Renewable term reinsurance involves the reinsurance of mortality risk whereby premiums are not directly related to the premium rates on the original plan of insurance. Global Preferred’s renewable term agreements are accounted for under SFAS No. 60, Accounting and Reporting by Insurance Enterprises. Global Preferred reinsures variable annuity contracts and certain other variable universal life insurance policies on a coinsurance and modified coinsurance basis, which are reported below as Universal Life-Type Agreements and, as such, these revenues are classified as reinsured policy revenues. Coinsurance involves the reinsurance of mortality and investment risks on the same basis as that of the underlying policies. The ceding life companies and Global Preferred share in these risks on a pro rata basis. Global Preferred’s existing coinsurance and modified coinsurance agreements are accounted for under SFAS No. 97.

     Items not directly related to the business segments and unallocated corporate items (i.e., other income, interest expense on corporate debt and unallocated operating expenses) are shown separately, consistent with Global Preferred’s internal measurement process. Segment assets reported include those assets directly attributable to the reinsurance agreements such as reinsurance balances receivable, deferred acquisition costs, policy loans, prepaid expenses, invested assets and cash. Cash and invested assets are allocated to the agreements based upon statutory reserves, the letters of credit posted in support of the statutory reserves held, statutory receivables and allocated surplus, which is consistent with Global Preferred’s current internal measurement process.

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     During each of the three month periods ended September 30, 2003 and 2004, the percentage of total premiums and reinsured policy revenues that related to business issued by Western Reserve Life Assurance Co. of Ohio (“Western Reserve”) was 92%. The percentage of total premiums and reinsured policy revenues that related to business issued by Western Reserve for the nine month periods ended September 30, 2003 and 2004 was 92%. The percentages of total underwriting profit that related to business issued by Western Reserve for the three month periods ended September 30, 2003 and 2004 were 96% and 97%, respectively. The percentages of total underwriting profit that related to business issued by Western Reserve for the nine month periods ended September 30, 2003 and 2004 were 94% and 96%, respectively.

8. Investments

     As of September 30, 2004, none of Global Preferred’s investments were deemed to be other-than-temporarily impaired. The following table shows the fair value and unrealized loss summarized by investment category for investments in an unrealized loss position as of September 30, 2004. None of these investments have been in an unrealized loss position for 12 months or more. Of the thirteen investments in an unrealized loss position, the largest unrealized loss by dollar amount and percentage was $13,014 and 2.7%, respectively.

     All of the unrealized losses on investments were caused by increases in market interest rates. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investment. Because Global Preferred has the ability and intent to hold these investments until a recovery of fair value, which may be at maturity, Global Preferred does not consider these investments to be other-than-temporarily impaired at September 30, 2004.

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9. Reclassification

     Global Preferred has reclassified the presentation of certain 2003 information to conform to the 2004 presentation.

10. Employment Agreements

     Global Preferred has written employment agreements with its executive officers. These agreements govern employee conduct and Global Preferred’s obligation to compensate such key employees. The agreements expire on either December 31, 2004 or December 31, 2006 and are renewable by agreement of the parties for additional one-year periods.

11. Commitments and Contingencies

     Under its reinsurance agreements, Global Preferred is required to provide security through letters of credit for the benefit of the ceding life companies with which it has agreements. Global Preferred has three letters of credit totaling $5.85 million, which are issued by its custodian, Comerica Bank, for the benefit of the ceding life companies.

     Liabilities for future policy benefits under modified coinsurance agreements equal reinsured policy account balances on the underlying life insurance and annuity policies. With regard to the separate account benefits reinsured on a modified coinsurance basis, liabilities are recorded as an offset to related assets as the intentions and rights under the agreements with the ceding life companies meet the appropriate conditions governing rights of setoff. Separate account benefits and related assets reinsured on a modified coinsurance basis total $265.1 million as of September 30, 2004.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of Global Preferred Holdings, Inc. as of September 30, 2004 compared with December 31, 2003, and its results of operations for the three and nine months ended September 30, 2004, compared with the three and nine months ended September 30, 2003. This discussion should be read in conjunction with the consolidated financial statements and accompanying condensed notes included elsewhere in this report and with the MD&A and Global Preferred’s consolidated financial statements and notes thereto included in Global Preferred’s 2003 Annual Report on Form 10-K, as amended.

Overview

     Global Preferred Holdings, Inc. was incorporated in Delaware in 1995 as a holding company and owns all of the outstanding capital stock of Global Preferred Re Limited, Global Preferred Solutions, Inc., Global Preferred Resources, Inc. and Preferred Advantage Insurance Services, Inc. (“Preferred Advantage”). Global Preferred Re Limited (“Global Preferred Re”) is a Bermuda company registered as a long-term insurer under the Bermuda Insurance Act 1978 and was formed during 1995. Global Preferred Solutions, Global Preferred Resources and Preferred Advantage were formed during 2003. References in this report to “Global Preferred,” “we,” “us,” “our” and “our company” refer to Global Preferred Holdings, Inc. and its subsidiaries unless the context otherwise requires or is expressly stated.

     Global Preferred, through its subsidiaries, provides profit sharing solutions for independent marketing organizations or “IMOs” in the life insurance and annuity industry. An IMO is an organization of independent agents that contracts with one or more insurance companies to distribute and market securities and insurance products. These organizations include: insurance agencies, insurance brokers, broker-dealers, banks, savings and loans and any other group or institution that markets life insurance and annuities. Our profit sharing solutions include:

•		A reinsurance development program for IMOs utilizing proprietary strategies that permits the members of the IMO to share in the economics of the business reinsured, thus aligning the long-term interests of the life insurance companies with the interests of the marketing organizations;
•		Life insurance management and actuarial advisory services to IMOs and life insurers to aid clients in their assessment of the strategic and structural benefits of establishing a profit sharing program through their distributor-insurer relationships, such as producer-owned reinsurance;
•		A management support structure to leverage our core competencies and provide economies of scale to IMOs and insurance companies who already have formed, or are considering forming, a producer-owned reinsurance enterprise; and
•		A managing general agency structure that facilitates product distribution relationships between IMOs and life insurers.

     Both the IMOs and insurers benefit from mutually rewarding relationships based on aligned interests, a dedication to improving the quality of business written, and a focus on managing insurance and distribution risk for long-term economic rewards. Through these collaborative relationships:

•		IMOs can share in the profits of the business they sell, enhance their recruiting and retention programs, increase their role in product development and better assess the quality of business they write;
•		Insurance companies can benefit from secure, stable growth in distribution, increased attention to the quality of business written, lower marketing costs due to continuity in distribution and renewed focus on long-term goals; and
•		Global Preferred can share in the economic benefits derived from fee income for managing the reinsurance risk and administering the reinsurance structure, and also from our participation in a portion of the reinsurance of the products sold by the IMOs.

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     Our core business consists of providing reinsurance on business that has resulted from a relationship with the independent agents of an IMO member of the AEGON Group. Although our reinsurance business is directed to us through these independent agent relationships, the life insurance and annuity policies that we currently reinsure are underwritten and issued by various ceding life companies. In the insurance industry, the term “ceding” refers to the use of reinsurance to transfer from one insurance company to another some or all of the risks associated with one or more insurance policies. We often refer to a life insurance company that reinsures life insurance and annuity policies through us as a “ceding life company.” The ceding life companies who issue the policies we currently reinsure are:

•		Western Reserve Life Assurance Co. of Ohio, a subsidiary of AEGON USA, Inc. (“Western Reserve”);
•		American Skandia Life Assurance Corporation, a subsidiary of Prudential Financial, Inc. (“American Skandia”);
•		Pacific Life Insurance Company (“Pacific Life”); and
•		Federal Kemper Life Assurance Company, a subsidiary of J.P. Morgan Chase & Co. (“Kemper”).

     Under a reinsurance agreement, like the ones we have entered into with the above insurance companies, the economic consequences of certain insurance risks are transferred from the ceding life company to the reinsurer. Depending upon the type of reinsurance agreement, these risks may include mortality, persistency, investment and expense. Key considerations in evaluating the risks include:

•		industry experience;
•		the ceding life company’s pricing and assumptions;
•		the type of product;
•		the ceding life company’s underwriting practices and procedures;
•		the type of distribution system;
•		the ceding life company’s recent experience; and
•		the market for the product.

     The ceding life companies retain responsibility for the payment of all claims, surrender values, commissions, and expenses involved in issuing and maintaining the policies we reinsure. In addition, the ceding life companies administer the reinsurance contracts and, on a monthly and quarterly basis, provide us with information regarding premiums, reserves and benefits and the amounts we owe to the ceding life company for claims and settlement expenses on the policies we reinsure.

Recent Development

     On July 28, 2004, Global Preferred issued a press release announcing that it was in discussions with Western Reserve which may lead to the acquisition of Global Preferred’s interest in Global Preferred Re Limited, the Bermuda-based life reinsurance company owned by Global Preferred. As proposed, following the sale of Global Preferred Re, Global Preferred would liquidate its remaining assets and distribute to its stockholders all of the consideration received from Western Reserve and any other assets of Global Preferred remaining after provision for liabilities. Any proposed transaction would be subject to a number of contingencies, including negotiation and execution of a definitive agreement, completion of due diligence, the approval of the requisite boards of directors and all necessary regulatory, stockholder, and third-party approvals. The structure of the transaction is subject to change based on regulatory, tax, accounting and/or other considerations. We are in continued discussions with Western Reserve with respect to a possible transaction and a definitive agreement. There is no assurance that a definitive agreement with respect to the proposed transaction will be reached or that the proposed (or any) transaction will be consummated.

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Types of Reinsurance

     We currently write three types of reinsurance on a quota share basis: renewable term, coinsurance and modified coinsurance.

     Renewable Term. Renewable term, also referred to as risk premium reinsurance, which includes monthly renewable term and yearly renewable term, is a plan of reinsurance in which the premium rates are not directly related to the premium rates on the original plan of insurance. Under renewable term reinsurance, the ceding life company reinsures a portion of the mortality risk with us. The amount reinsured in any one period is not based on the face amount of the policy, but rather on the portion of the net amount of risk we reinsure. The net amount of risk is typically defined as the difference between the death benefit and the cash value of a policy. The ceding life company establishes the policy reserves, which are reduced for the mortality risk reinsured with us, and pays all policy benefits, commissions and expenses involved in issuing and maintaining the business. Correspondingly, we establish reserves specific to the mortality risk reinsured.

     Under renewable term reinsurance, we may also be subject to the effects of persistency risk. Persistency risk is the risk that a policyholder either stops paying premiums, which would cause the policy to lapse, or chooses to surrender the policy for the cash surrender value. The effect of persistency risk on us is that possible future revenue will be reduced, potentially reducing profits.

     Coinsurance. Under a coinsurance arrangement, the insured risks are ceded to us on essentially the same basis as underwritten by the ceding life company. The ceded risks include mortality, persistency, investment, and expense. We share the risks pro rata with the ceding life company. We receive a proportionate share of gross premiums from the ceding life company and provide contractual expense allowances to the ceding life company to pay for the expenses associated with the reinsured policies. Expenses include commissions and costs associated with underwriting, marketing, policy issue, and maintenance. We also pay our proportionate share of death benefits and other policy benefits to the ceding life company. The reserves on the ceded portion of the policy are held by us and are our obligations. Correspondingly, we invest the assets related to the reserves and receive investment income from those assets.

     Modified Coinsurance. Modified coinsurance is similar to coinsurance except the ceding life company does not transfer the reserves or the invested assets related to the reserves. Modified coinsurance is used primarily for products that develop cash values and allows the ceding life company to retain the associated assets for investment purposes.

Critical Accounting Policies and Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions regarding uncertainties that affect certain amounts in the consolidated financial statements and related footnotes. Accounts that we deem to be sensitive to changes in estimates include deferred acquisition costs and future policy benefits. In all instances, actual results could differ from estimates. Information included elsewhere herein, including “Fair Value Disclosure – Investments”, and in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K, for the year ended December 31, 2003, as amended, includes a summary of the critical accounting policies used in the preparation of our consolidated financial statements.

Income Statement Impact

     Reinsurance Revenues. For renewable term reinsurance, we record as “premiums” the amount of reinsurance premiums we receive over the payment periods of the reinsured policies. For policies reinsured on a coinsurance or modified coinsurance basis, we record as “reinsured policy revenues” our proportionate share of the gross revenues received by the ceding life company over the payment periods of the reinsured policies. These revenues represent the policy mortality and expense charges, asset-based fees and deferred sales charges that have been assessed against the reinsured policy account balances.

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     Reinsurance Expenses. Regardless of the type of reinsurance, our related expenses may include: (1) benefits, claims and settlement expenses, which represent our share of the payments made under the reinsured policies during the period, the change in claims in course of settlement, and the change in claims incurred but not reported; (2) expense allowances paid to the ceding life company for expenses associated with the reinsured policies, including commissions and costs associated with underwriting, marketing, policy issue and maintenance; and (3) amortization of deferred acquisition costs, which are discussed in more detail below.

     Net Income. Our profitability, in part, depends on the volume of policies reinsured and experience of the reinsured policies. Factors that affect the experience of the business include reinsured policy persistency, death claims, and investment performance of the separate account balances. While death claims are reasonably predictable over a period of years, claims become less predictable over shorter periods, and are subject to fluctuation from quarter to quarter and year to year. Similarly, separate account investment returns, upon which a significant portion of our revenues depend, may have relatively stable returns over a period of years but can be volatile over shorter periods. A considerable amount of separate account balances is invested in equities; therefore, a prolonged deterioration in the equity markets will result in a decrease in our current and future income.

Balance Sheet Impact

     Deferred Acquisition Costs. We capitalize and defer costs that vary with and are primarily related to the acquisition of the reinsured policies. These expenses are deferred to the extent that such costs are deemed recoverable from future policy revenues and are recorded as deferred acquisition costs on the balance sheet. Such costs include reinsurance expense allowances paid to ceding life companies, and may include other underwriting costs such as actuarial, legal and accounting fees.

     Deferred acquisition costs are amortized over the lives of the underlying policies, in conformity with the terms of the reinsurance agreement. Under the renewable term agreements, deferred acquisition costs are amortized in proportion to the premium revenue related to the mortality risk reinsured. Such premium revenue is estimated using the same assumptions used for computing liabilities for future policy benefits. Such assumptions include estimates of expected investment yields, mortality, persistency and expenses applicable at the time the policies are reinsured. Original assumptions on renewable term business continue to be used in subsequent accounting periods to determine changes in the deferred acquisition costs unless a premium deficiency exists. Under the renewable term agreements, the amortization is in proportion to the ratio of premiums collected during the then current period to total anticipated premiums and is adjusted to reflect actual persistency of the insurance in force.

     Under the coinsurance and modified coinsurance agreements, the amortization of the deferred acquisition costs is in proportion to the ratio of gross profits recognized during the then current period to total actual and future expected gross profits. During each accounting period, assumptions used in calculating the amortization of deferred acquisition costs reflect actual experience for the then current accounting period. We also review, on a periodic basis, our evolving experience concerning our assumptions with regard to mortality, persistency, investment yields, and expenses in determining our estimate of anticipated future expected gross profits. This periodic review is commonly referred to as “unlocking.” Our normal period of observation is from October 1 of the previous calendar year through September 30 of the current calendar year. If we believe variances from expected assumptions are permanent, we will change the assumptions we use with regard to future experience. Upon adoption of any change in assumptions used with regard to future experience, amortization of the deferred acquisition costs will be recalculated and reflected during the then current accounting period.

     A material component of variable life and annuity product revenues is derived from the asset-based fees that have been assessed against the policy account balances, of which a considerable portion is invested in the equity markets. The volatility of equity market returns over the short-term can be significant without materially impacting long-term equity market returns. Historical equity market performance shows equity market volatility is much higher over short-term horizons as compared to long-term horizons. The short-term volatility of the policy account balance would result in a proportional adjustment to all future expected gross profits if no other adjustments were made to account for the differences between long-term and short-term volatility. We utilize a “credibility approach” to account for the differences between long-term and short-term volatility. Under this approach, the estimates of future expected gross profits are adjusted to recognize the effects short-term volatility and market yields have upon long-term yield expectations. We review our approach annually to determine if additional adjustments to amortization are necessary as

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a result of prolonged and/or severe negative or positive equity market performance. In such instances, the equity market performance must be sufficiently high or low to justify a belief that the effect of current market conditions on future expected gross profits should be more permanently reflected.

     In addition, certain variable annuity policies we reinsure include a death benefit typically equal to a return of premium or the highest level the policy account balances had accumulated over certain prescribed periods under the annuity policy. Upon the death of an annuity policyholder, we will incur a claim expense equal to the excess, if any, of the amount guaranteed under this provision over the then current policy account balance. The claim expense, as a percentage of the death benefit, tends to increase when equity markets decline and decrease when equity markets increase. The claim expense depends, in part, on the number and amount of death claims incurred. To account for the expense associated with these guaranteed minimum death benefits, we utilize an explicit method consistent with Statement of Position (SOP) 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts. Under this method, we may establish a guaranteed minimum death benefit liability if expected future claims expenses are not proportionate to future expected gross profits. Future expected gross profits are reduced to account for future expected claims expenses and adjusted for anticipated changes in the liability. The short-term volatility of the policy account balance will result in significant volatility in the expected claims expense and in the liability balance if no recognition is made to acknowledge differences between long-term yields and short-term volatility. Using a credibility approach, our explicit method recognizes the effect of long-term versus short-term volatility when accounting for guaranteed minimum death benefits. The implementation of SOP 03-1 did not have a material impact on our financial statements.

     Future Policy Benefits. Liabilities for future benefits on life insurance and annuity policies are established in an amount we estimate is adequate to meet the estimated future obligations on the policies in effect. Policy reserves are included in “future policy benefits” on the consolidated balance sheet.

     Liabilities for future policy benefits under the renewable term agreements include provisions for expected future claims. The liability is estimated using assumptions such as estimates of expected investment yields, mortality, persistency and expenses applicable at the time the reinsurance contracts are executed.

     Liabilities for future policy benefits under coinsurance and modified coinsurance agreements equal reinsured policy account balances on the underlying life insurance and annuity policies. With regard to the separate account benefits reinsured on a modified coinsurance basis, we record the liabilities as an offset to related assets as our intentions and rights under the agreements with the ceding life companies meet the appropriate conditions governing rights of setoff. The nature of separate account benefits under variable life insurance or variable annuity policies do not permit us to reinsure those benefits on a coinsurance basis. We currently reinsure the fixed account portion of life insurance and annuity policies only on a coinsurance basis and, accordingly, the liabilities for that portion of the reinsurance are recorded as future policy benefits.

     Liabilities for future policy benefits under our reinsurance agreements may include provisions for claims that have been incurred but have not yet been paid. A portion of these claims represent claims reported to us that are in the course of settlement. The remainder of this liability represents claims that may have been incurred but not yet reported to us.

     Liabilities for future policy benefits reflected in the consolidated financial statements are based on information provided to us by the ceding life companies. Reserves established by us with respect to individual risks or classes of business may not be the same as those established by ceding life companies due to differing risks and assumptions regarding mortality, persistency, investment, and expenses.

Fair Value Disclosure

     Investments. We classify all fixed maturity securities and equity securities, with readily determinable fair values, as “available for sale.” Such securities are reported at fair value. Fixed maturity securities available for sale are so classified based upon the possibility that such securities could be sold prior to maturity if that action enables us to execute our investment philosophy and appropriately match investment results to operating and liquidity needs. Equity securities available for sale are so classified because we do not intend to actively trade such securities. Unrealized gains and losses on marketable equity securities and fixed maturity securities available for sale, less applicable deferred

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income taxes, are reported as a separate component of “accumulated other comprehensive income” within stockholders’ equity. Investment income is recognized as it accrues or becomes legally due. Other equity investments, classified as trading securities, are bought and held principally for the purpose of selling them in the near term. Unrealized gains and losses on trading securities are reported as a separate revenue component on the income statement.

     Realized gains or losses on sales of investments are included in income, as are write-downs of securities where declines in value are deemed to be other-than-temporary. In determining whether a decline in market value on our fixed income securities is other-than-temporary, we consider the cause of the impairment, the length of impairment, the amount of impairment as a percentage of the fair value of the security and other relevant information about the issuer or security. Although we utilize an independent investment manager to invest and manage our assets in accordance with our investment guidelines, we have the ability and intent to hold these securities until a forecasted recovery of fair value is at least equal to the amortized cost or until maturity. The cost of investment securities sold is determined based upon the specific identification method.

     Other Financial Assets and Liabilities. The carrying value of cash and cash equivalents, reinsurance receivables and payables, short-term debt, accrued expenses and accounts payable approximate their fair values due to the short-term nature of these accounts. The carrying value of future policy benefits approximates its fair value as credited interest approximates current market rates.

Reinsurance Relationships

Current Reinsurance Business

     We currently provide reinsurance for variable universal life and variable annuity policies issued by four large life insurance companies. Our reinsurance agreements with these ceding life companies provide for our assumption of a portion of defined risks associated with specified products sold by certain independent agents with which we have a relationship. Reinsurance under these agreements is automatic, meaning we are required to accept the business ceded to us so long as the ceding life companies satisfy the terms of the reinsurance agreements.

     The following table indicates, by ceding life company, the types of policies we are currently reinsuring and the type of reinsurance applicable to each.

     We have four separate reinsurance agreements with Western Reserve that cover variable universal life insurance and variable annuity policies issued by Western Reserve on or after January 1, 1992, which are sold by the agents of World Financial Group, Inc., an indirect subsidiary of AEGON USA, Inc., and its predecessor. These agreements were entered into on July 1, 1996, January 1, 1998, April 1, 1998, and October 1, 1999, respectively. The agreement with American Skandia began on January 1, 1997 and covers policies on an American Skandia variable annuity product issued between January 1, 1997 and December 31, 2002 sold by those same agents. The Kemper agreement was effective September 1, 1996 and covers all policies on a Kemper variable universal life product issued between September 1, 1996 and March 31, 2001 sold by those agents. Our agreement with Pacific Life was effective January 1, 2001 and covers policies on individual variable universal life products issued on or after January 1, 2001, sold by those agents.

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     We believe that the terms of our reinsurance arrangements are favorable for our industry and that we were able to obtain these terms in part because of our relationships with the agents that sell the policies we reinsure. Our right to reinsure new business under our reinsurance agreements generally extends for an initial term of 3 to 5 years, with automatic renewals and one-year notices of termination following the initial term. Termination of our right to reinsure new business does not, however, affect our right to continue to reinsure the policies reinsured at the time of termination. Under our agreements, we have the right to continue to reinsure a policy for as long as it remains in effect or until the ceding life company otherwise recaptures it. A ceding life company may have the right to recapture a reinsured policy only upon certain defaults or after a period of 10 years or longer, depending on the terms of the relevant reinsurance agreement.

First Right Agreement

     In July 2001, we entered into a First Right Agreement with Western Reserve that provides us a first right to reinsure certain new products issued by Western Reserve or its U.S. affiliates that are sold by agents associated with World Financial Group. Pursuant to this agreement, we possess the following contractual rights to:

•		Commence reinsurance of Freedom Elite Builder variable universal life insurance policies and riders issued from January 1, 2002 through December 31, 2002 up to 20% on a coinsurance and modified coinsurance basis;
•		Commence reinsurance of any single life variable universal life insurance policies and riders issued from January 1, 2003 through March 31, 2006 up to 20% on a coinsurance and modified coinsurance basis. This contractual right is subject to certain premium production requirements;
•		Prospectively reinsure all new single life variable universal life insurance policies up to 20% on a monthly renewable term basis at 105% of premium rates otherwise available from certain commercial reinsurers. This right extends through March 31, 2006 and is subject to certain premium production requirements; and
•		Commence or increase reinsurance on certain variable annuity policies issued from January 1, 2003 through December 31, 2005 up to 40% on a coinsurance and modified coinsurance basis, subject to certain premium production requirements.

     These rights automatically extend for one-year renewal periods unless either party gives notice of termination 180 days prior to the expiration of the applicable initial or renewal term. Certain of these rights would have expired at December 31, 2003 and thereafter, but have been indefinitely extended to a date 90 days following receipt of written notice by either party. For the coinsurance and modified coinsurance of variable universal life and variable annuity products, rights under the First Right Agreement are subject to minimum sales volume thresholds. Western Reserve has indicated to us that total premium production requirements were not met for the reinsurance of variable universal life policies issued in 2003 and 2004 and for variable annuity policies issued in 2004.

     Global Preferred’s decision to reinsure these products is based on a number of relevant factors, including the attractiveness of the reinsurance rates prescribed by the agreement, the volume of business and our available capital. So far, we have chosen not to commence reinsurance of this business because (a) deferral of the election will maximize our return on such business reinsured, (b) continued increases in our capital may result in opportunities of securing additional financing at a favorable cost, and (c) deferral allows us to maintain flexibility to invest in new business initiatives for diversification and future growth.

Directed Reinsurance Agreement

     Global Preferred entered into a Directed Reinsurance Agreement with World Financial Group in July 2001 that extends through June 8, 2008, which requires World Financial Group to use its commercially reasonable best efforts to help us attain the opportunity to reinsure all insurance products sold by its agents for insurance companies with which it has selling agreements other than Western Reserve and Western Reserve’s affiliates.

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Reinsurance of New Business with Other Insurance Companies

     We seek to enter into reinsurance agreements with other insurance companies from time to time and such decisions will be based on a number of relevant factors, including the proposed type of reinsurance, the attractiveness of the reinsurance rates prescribed by the agreement, the volume of business, our relationship with the insurance company and/or the IMO, and our available capital capacity. We also seek to enter into agreements with other IMOs similar to our directed reinsurance agreement with World Financial Group.

Our Current Reinsurance Agreements

     The life insurance and annuity policies that we have reinsured to date are underwritten and issued by Western Reserve, American Skandia, Kemper, and Pacific Life. The following table indicates the percentage of our reinsurance revenues derived from our ceding life companies:

     The following table indicates, by ceding life company: (1) the names and types of insurance products we currently reinsure; (2) the type of reinsurance agreement applicable to each; (3) policy issue dates reinsured under each agreement; and (4) the commencement date of the reinsurance.

     Under our reinsurance agreements with the ceding life companies, we currently reinsure variable life insurance and variable annuity policies on either a renewable term basis or a coinsurance and modified coinsurance basis. The policies we reinsure on a renewable term basis represented 57% of our reinsurance revenues for the quarter ended September 30, 2004. The policies we reinsure on a coinsurance and modified coinsurance basis represented 43% of our reinsurance revenues for the same period. Of the 43%, 60% relates to variable life insurance policies and 40% relates to variable annuity policies.

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Results of Operations

Three Months and Nine Months Ended September 30, 2004 Compared to Three Months and Nine Months Ended September 30, 2003

     The following table sets forth certain operating data as a percentage of total revenue for the periods indicated:

Revenues

     Premiums. Premiums decreased $46,000, or 1%, and $225,000, or 2%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. The majority of the premium decrease was due to the decreasing business in force under our renewable term agreements, which is partially offset by an increase in the average premium per policy. Policies in force are decreasing because the number of policy surrenders and lapses currently exceeds the number of new policies reinsured. Average premiums per policy increase as policyholders age.

     Reinsured Policy Revenues. Reinsured policy revenues decreased $10,000, or less than 1%, and $188,000, or 2%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. This decrease was primarily attributable to a decrease in deferred sales charge revenue due to lower overall surrender activity partially offset by an increase in asset-based fees due to an increase in policy account balances. Policy account balances increased primarily because of positive separate account fund yields and premiums and deposits, which were partially offset by policy surrender activity.

     Additionally for the quarter ended September 30, 2004, reinsured policy revenues reflect an increase of $130,000 of reinsurance fees which resulted from payments to us from Western Reserve to resolve certain settlement differences in the administration of our variable universal life coinsurance and modified coinsurance reinsurance agreements. These settlement adjustments also resulted in a decrease in benefits, claims and settlement expenses, a decrease in reinsurance expense allowances, net and an increase in amortization of deferred acquisition costs of $63,000, $73,000 and $178,000, respectively, for a total increase to income before income tax of $88,000 for the quarter ended September 30, 2004.

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     Net Investment Income. Net investment income increased $127,000, or 133%, and $344,000, or 129%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003, primarily due to the increased size of our fixed maturity and equity securities portfolio. The increase in our fixed maturity and equity securities portfolio resulted from the purchase of $16.8 million of fixed maturity and equity securities during 2003. Additionally, $6.3 million of fixed maturity securities were purchased during the nine months ended September 30, 2004. The purchases and sales activities by quarter are shown in the table below:

     Net Realized Loss on Investments. The sale of $2.5 million of fixed maturity and equity securities available for sale for the nine months ended September 30, 2004 resulted in a net realized loss on investments of $31,000. There were no sales of fixed maturity or equity securities for the nine months ended September 30, 2003, thus no gains or losses were realized.

     Net Unrealized Gain on Investments. For the nine months ended September 30, 2004, there was $541,000 of other equity investments classified as trading securities which represented an unrealized gain on investments of $41,439. There were no other equity investments classified as trading securities for the nine months ended September 30, 2003, thus no unrealized gains or losses were recognized in income.

Benefits and Expenses

     Benefits, Claims and Settlement Expenses. Benefits, claims and settlement expenses decreased $446,000, or 20%, and $1.7 million, or 25%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. The decrease was primarily associated with a lower incidence of life insurance death claims in the first nine months of 2004 compared to the incidence of death claims in the same period in 2003. The declining aggregate face value of insurance, partially offset by the increasing age of the policies reinsured, also contributed to a decline in claims experience. The aggregate face value of insurance underlying the policies we reinsured at September 30, 2004 was $7.2 billion compared to $7.8 billion at September 30, 2003.

     Change in Future Policy Benefits. Change in future policy benefits decreased $168,000, or 54%, and $303,000, or 37%, for the quarter and nine months ended September 30, 2004, respectively, compared to the same periods in 2003. The decrease resulted from the aging of the policies and the decrease in business in force reinsured on a monthly renewable term basis.

     Reinsurance Expense Allowances, Net. Net reinsurance expense allowances decreased $207,000, or 10%, and $397,000, or 6%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. These amounts reflect the decrease in business in force due to policy lapse and surrender activity partially offset by an increase in average policy account balances because of equity market performance.

     Amortization of Deferred Acquisition Costs. Amortization of deferred acquisition costs increased $83,000, or 5%, and $331,000, or 8%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. Excluding the effect of the resolution of the settlement differences described above, amortization for the quarter ended September 30, 2004 decreased primarily because of improved policy persistency. This was partially offset by higher gross profits due to higher policy revenues, lower death claims, lower reinsurance expense allowances and higher asset-based fees associated with the coinsurance and modified coinsurance business. For the nine months ended September 30, 2004, excluding the settlement differences, the increase in amortization primarily resulted from higher gross profits due to higher policy revenues, lower death claims, and lower reinsurance expense allowances associated with the variable universal life coinsurance and modified coinsurance business and

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higher asset-based fees associated with the coinsurance and modified coinsurance business. This was partially offset by improved policy persistency and a refinement in the method of calculating the cost of guaranteed minimum death benefits on variable annuity business to be consistent with the methodology implemented under SOP 03-1. (For further discussion regarding SOP 03-1, refer to “Critical Accounting Policies and Estimates – Balance Sheet Impact – Deferred Acquisition Costs” above.)

     Under current assumptions, and all else being equal, we do not expect that there would be increased amortization in 2004 from “unlocking” due to lower than expected equity market performance unless separate account fund yields result in losses of 20% or more for 2004.

     Operating Expenses. Operating expenses increased $27,000, or 4%, and decreased $224,000, or 9%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. These expenses include salaries and benefits, professional fees for legal, actuarial and accounting expenses and other operating expenses. For the quarter ended September 30, 2004, the increase was primarily attributable to increases in legal fees, directors’ fees and consulting fees associated with the discussions with Western Reserve regarding a possible transaction. The majority of the decrease for the nine months ended September 30, 2004 was attributable to decreases in directors and officers’ insurance premiums, consulting fees, recruiting expenses, taxes and licenses and legal fees.

     Interest Expense. Interest expense decreased $65,000, or 68%, and $64,000, or 23%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. The decrease was due to the repayment of the $5 million promissory note plus outstanding interest on July 29, 2004 due to Money Services, Inc., a subsidiary of AEGON USA, Inc.

     Income Taxes. Due to higher levels of income before income taxes, income taxes increased $127,000, or 54%, and $530,000, or 76%, for the quarter and the nine months ended September 30, 2004, respectively, compared to the same periods in 2003. Income before income taxes is comprised of income subject to tax that is recognized and due in the current period and income subject to tax that is recognized during the current period but is due in future periods. The “small life insurance company deduction” available under Section 806 of the Internal Revenue Code for qualifying life insurance companies can reduce the effective federal income tax rate from 34% to less than 20% depending upon the amount of current taxable income. Based upon the amount of taxable income we expect in 2004, we have estimated our effective tax rate to be 28% for 2004. This reflects a benefit from the small life insurance company deduction. Our effective tax rate was 34% and 28% for the nine months ended September 30, 2003 and 2004, respectively. For the nine months ended September 30, 2003, we had no current taxable income, however we were subject to the alternative minimum tax.

     In accordance with Statements of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes, we have $1.5 million of net operating loss carry-forwards, which begin to expire in 2018. These net operating loss carry-forwards at a 34% effective tax rate are included as an offset to the deferred tax liability. It is our belief that it is more likely than not that the deferred tax assets will be realized as an offset against future taxable income, however, if we do not have sufficient taxable income in the future to utilize this asset, a write-off may result, thereby reducing our net income.

Liquidity and Capital Resources

     To grow our life and annuity business, we use cash to pay for the initial marketing and underwriting expenses of the policies we reinsure. These same policies thereafter provide cash to us from premiums, policy charges and policy fees over their lifetime. We also use cash to pay for policy claims, policy benefits and operating expenses which include: salaries and benefits, and professional fees for management, legal, investment, custodial, accounting, tax and consulting services. In addition to operating cash flows, cash is provided by and used in investing and financing activities we undertake to increase our capital position and through activities associated with our invested assets.

     Our primary sources of liquidity were $20.5 million in fixed maturity securities available for sale, $9.7 million in consolidated cash and cash equivalents, and $541,000 of equity securities at September 30, 2004. The effective duration of our fixed maturity portfolio is 3.1 years with 100% of the fixed maturity securities having an effective maturity of less than 10 years. Our fixed maturity portfolio represents 64% of our total invested assets, and has an

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average Moody’s quality rating of Aa2. We have gross unrealized losses of $40,000 and gross unrealized gains of $279,000 on our fixed maturity securities available for sale as of September 30, 2004. We have determined that none of our fixed maturity securities are other-than-temporarily impaired.

     Our capital structure currently consists only of equity. On July 29, 2004, Global Preferred repaid $5 million plus outstanding interest of $187,500 for a five-year convertible term note due to Money Services. The principal and interest were paid out of available cash and cash equivalents. Interest was paid on the note at a rate of 7.5% per annum, on the 29th of each succeeding January and July from July 30, 1999 through and including July 29, 2004.

     Operating Cash Flows. Under the renewable term reinsurance agreements, premiums typically vary in proportion with the expected mortality claims reinsured. Our cash inflows under the renewable term agreements are premiums for the mortality risk reinsured. Our cash outflows are reinsurance expense allowances and death benefit claims. The reinsurance expense allowances represent our share of acquisition and maintenance expenses incurred by the ceding life company that are attributable to the risks reinsured by us.

     Under the coinsurance and modified coinsurance agreements, since we are reinsuring risks on essentially the same basis as that of the original policy, reinsurance premiums are materially greater than premiums received on the renewable term reinsurance. During the first year in which a policy is reinsured on a coinsurance basis, we are required to reimburse the ceding life company for our share of acquisition costs, including first year commissions and issuance expenses. Thereafter, we reimburse the ceding life company for our share of renewal commissions and maintenance expenses. Further, under modified coinsurance, the ceding life company does not transfer to us the reserves or the invested assets related to the reserves in support of reinsured policy benefits (e.g., cash values). Accordingly, because of the type of reinsurance and the basis reinsured, the net first year cash outlays could be as much as, or more than, that year’s premiums paid for variable universal life insurance, and as much as 10% of variable annuity premiums. After the first policy year, our cash outlays for reinsurance expense allowances are significantly lower.

     Net cash flows provided by operating activities were $8.4 million and $6.6 million for the nine months ended September 30, 2003 and 2004, respectively. Changes in cash provided by operating activities primarily relate to: amounts of reinsurance premiums and policy revenues received; claims, reinsurance expense allowances and operating expenses paid; and changes in working capital. Cash flows were provided by operating activities in 2003 and 2004 because we utilized less cash to acquire new reinsurance business than was provided by in force business. The decrease in cash flows provided by operating activities was primarily the result of income tax payments made and lower reinsurance settlements received for the nine months ended September 30, 2004 as compared to the same period in 2003.

     Investment Cash Flows. We generally receive premiums in advance of paying related benefits and claims. In addition, some policies we reinsure require that we credit interest on funds that are deposited with us. We invest these assets in securities that will provide a return and cash flow stream that are consistent with these benefits. Investment cash flows are the result of buying, selling and holding these securities in addition to activities relating to buying and selling fixed assets.

     Net cash flows used in investing activities were $6.5 million and $3.5 million for the nine months ended September 30, 2003 and 2004, respectively. The cash flows used in investing activities in 2004 primarily related to the purchase of $6.3 million of available-for-sale securities offset by the sale, maturity and principal payments from $2.9 million of available-for-sale securities. The cash flows used in investing activities in 2003 were the result of the purchase of $7.6 million of available-for-sale securities offset by the maturities and principal payments from available for sale securities of $1.2 million. We have incurred no significant capital expenditures during 2004.

     Financing Cash Flows. Financing cash flows relate primarily to activities associated with our capital position. Net cash flows used in financing activities were zero and $5.0 million during the nine months ended September 30, 2003 and 2004, respectively. Cash flows used in financing activities in 2004 related to the principal payment due to Money Services on July 29, 2004 for the five-year term note.

     The amount, timing, receipt and use of cash flows and cost of additional capital, if applicable, may determine the extent we choose to take advantage of the rights we have under our existing agreements to reinsure additional business or to enter into new reinsurance transactions.

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     Restrictions. Global Preferred Holdings, Inc. is a holding company with no direct operations, and whose principal assets are the capital stock of Global Preferred Re and $5.2 million of cash and invested assets, as of September 30, 2004. Global Preferred Holdings, Inc. relies primarily on funds retained at the holding company level, management service fees from its subsidiaries and potential dividends from Global Preferred Re to meet ongoing cash requirements. The ability of Global Preferred Re to pay dividends to Global Preferred Holdings, Inc. is subject to, among other things, regulatory restrictions under the insurance laws of Bermuda. As of September 30, 2004, Global Preferred Re had total statutory capital and surplus of $26.2 million, which included up to $10.9 million available to distribute in dividends without seeking regulatory approval. During the nine months ended September 30, 2004, Global Preferred Re paid no dividends to Global Preferred Holdings, Inc.

     Under our reinsurance agreements, we are required to provide security through a letter of credit for the benefit of the ceding life companies. We have three letters of credit issued by Comerica Bank, our custodian, for the benefit of Western Reserve, Pacific Life and Kemper, in the amounts of $5.5 million, $50,000 and $300,000, respectively. We assess our letter of credit needs in support of each reinsurance agreement. If determined to be necessary, we will undertake to develop facilities for future letters of credit and trust arrangements in support of additional reinsurance agreements.

Contractual Obligations and Commitments

     The following table shows our contractual obligations and commitments, including our payments due by period payable after September 30, 2004. Further information is included elsewhere herein and in Note 10 to the Consolidated Financial Statements in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2003.

Forward-Looking Statements

     Certain statements made in this report are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to the “safe-harbor” provisions of that Act. Additionally, any written or oral statements made by us or on our behalf may include forward-looking statements that reflect our current views with respect to future events and financial performance. These statements may include, but are not limited to statements relating to reinsurance revenues, gross profits, cash flows, and net income in future periods. Such statements often include the words “believes,” “expects,” “assumes,” “predicts,” “continue,” “potential,” “should,” “could,” “can,” “may,” “will,” “proposes,” “anticipates,” “intends,” “plans,” “estimates,” “projects,” and variations or negations of such expressions or similar expressions. When we make forward-looking statements, we are basing them on our management’s beliefs and assumptions, using information currently available to us. Because such forward-looking statements involve risks, both known and unknown, and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including but not limited to:

•		Our discussions with Western Reserve regarding a possible proposed transaction for Global Preferred Re;
•		The amount, timing, receipt, and cost of additional capital to fund our exercise of the rights to increase our reinsurance business with Western Reserve;
•		A decrease in the level of demand for our reinsurance business, or increased competition in the industry;
•		Extent to which we are able to develop new reinsurance programs;
•		Adverse reinsurance experience, including death claims and surrenders;
•		Estimates of reserves;

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•		Assumptions used in accounting for deferred acquisition costs;
•		Negotiation of reinsurance agreements;
•		Our cash requirements;
•		Availability of capital on acceptable terms;
•		Our ability to compete successfully;
•		The passage of federal or state legislation subjecting our business to additional supervision or regulation, including additional tax regulation, in the United States or other jurisdictions in which we operate; and
•		Changes in economic conditions, including interest rate and equity market conditions, which could affect our investment portfolio and reinsured policy revenues.

     These forward-looking statements are subject to change and uncertainty that are beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect on our business. We cannot assure you that future developments will be in accordance with our expectations or that the effect of future developments will be those we anticipate. Actual results could differ materially from those we expect, depending upon the outcome of certain factors, including those described in the forward-looking statements. We caution readers not to place undue reliance on these forward-looking statements, which speak only as of their dates. We have described some important factors that could cause our actual results to differ materially from our expectations in “Factors That May Affect Future Results of Operations” included as Exhibit 99.1 in our 2003 Annual Report on Form 10-K, as amended. You should carefully review these risks and additional risks described in other documents we file from time to time with the Securities and Exchange Commission, including quarterly reports on the Form 10-Q. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We seek to earn a favorable risk-adjusted total return on our assets by engaging in an investment strategy that employs strategies to manage investment risk. We attempt to maintain adequate liquidity in our fixed income portfolio to fund operations and protect against unexpected events. We have diversified our portfolio to reduce volatility. We seek to manage our credit risk through industry and issuer diversification, and interest rate risk by monitoring the duration and structure of our investment portfolio relative to the duration and structure of our liability portfolio. We are exposed to potential loss from various market risks, primarily changes in interest rates and equity prices. Accordingly, earnings would be affected by these changes. We manage our market risk based on investment policies approved by our board of directors.

     We do not directly manage the allocation of our assets to strategies or underlying funds, nor do we control the manner in which they are invested by underlying fund managers. We utilize an independent investment manager to invest our assets in accordance with our investment guidelines. Conning Asset Management Inc., a subsidiary of Swiss Reinsurance Company, has been our investment manager since June 1998. Conning has discretionary authority to manage our non-cash investment portfolio. As a result, the performance of our aggregate investment portfolio depends largely on the ability of Conning to select and manage appropriate investments. However, we consistently and systematically monitor the strategies and funds in which we are invested, and we believe our overall risk is limited as a result of our selected strategy.

     Our cash and fixed income portfolio includes investments that are subject to changes in market values with changes in interest rates. The impact on our cash and fixed income investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in fair value of 2.1%, or approximately $634,000, on a portfolio valued at approximately $30.1 million at September 30, 2004. The impact on our cash and fixed income investment portfolio from an immediate 100 basis point decrease in market interest

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rates would have resulted in an estimated increase in fair value of 1.6%, or approximately $507,000. The foregoing reflects the use of an immediate time horizon. Credit spreads are assumed to remain constant in these hypothetical examples.

ITEM 4. CONTROLS AND PROCEDURES

     As of the most recent fiscal quarter end, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-14(c) of the Securities Exchange Act of 1934) under the supervision and with the participation of our chief executive officer and chief financial officer. Based on and as of the date of such evaluation, the aforementioned officers have concluded that our disclosure controls and procedures were effective, in all material aspects, to ensure that information required to be disclosed in the reports we file with the Securities and Exchange Commission is recorded, processed, summarized, and reported as and when required.

     There were no significant changes in our internal controls or other factors that could significantly affect these controls subsequent to the date our chief executive officer and chief financial officer carried out their evaluation. There were no significant deficiencies or material weaknesses identified in the evaluation and, therefore, no corrective actions were taken.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     We are currently not a party to any material legal proceedings.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     There were no changes in securities during the nine months ended September 30, 2004.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     There have been no defaults in the payment of principal or interest of any indebtedness of the issuer.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     (a) We held our Annual Meeting of Stockholders (the “Annual Meeting”) on July 15, 2004.

     (b) The following directors were elected to hold office for a term expiring at the 2005 Annual Meeting, or until their successors are elected and qualified, with the vote for each director being reflected below:

     The affirmative vote of the holders of a plurality of the outstanding shares of common stock represented at the Annual Meeting was required to elect each director.

ITEM 5. OTHER INFORMATION

     None.

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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

	31.1		Certification by Edward F. McKernan, Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification by Bradley E. Barks, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification by Edward F. McKernan, Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Certification by Bradley E. Barks, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

     A Current Report on Form 8-K was filed with the Securities and Exchange Commission on July 28, 2004 to disclose the press release announcing that Global Preferred was in discussions with Western Reserve which may lead to the acquisition of Global Preferred’s interest in Global Preferred Re Limited.

     A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 13, 2004 to disclose the earnings press release of the second quarter financial results.

     A Current Report on Form 8-K was filed with the Securities and Exchange Commission on September 21, 2004 to announce that Global Preferred Holding’s independent accounting firm, Deloitte & Touche LLP, had resigned effective following completion of its services related to the review of Global Preferred’s interim financial statements for the quarter and nine months ended September 30, 2004.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Duluth, State of Georgia on the 12th day of November, 2004.

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