PROTECTIVE LIFE CORP - FORM 8-K - EX-99.2

Attached files

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8-K - 8-K - PROTECTIVE LIFE CORP	a12-17710_18k.htm
EX-99.1 - EX-99.1 - PROTECTIVE LIFE CORP	a12-17710_1ex99d1.htm

Exhibit 99.2

Draft 8/7/2012

ACCOUNTING CHANGES

The financial data herein reflects, for all periods presented, the adoption and retrospective application of Accounting Standards Update 2010-26 (the “Update”), which addresses diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. This Update prescribes that certain incremental direct costs of successful initial or renewal contract acquisitions may be deferred. It defines incremental direct costs as those costs that result directly from and are essential to the contract transaction and would not have been incurred by the insurance entity had the contract transaction not occurred. This Update also clarifies the definition of the types of incurred costs that may be capitalized and the accounting and recognition treatment of advertising, research, and other administrative costs related to the acquisition of insurance contracts. This Update was effective for the Company on January 1, 2012.

The financial data herein also reflects, for all periods presented, a revision to the Company’s definition of operating income (loss) as it relates to embedded derivatives on our variable annuity contracts and related hedging activities, to better reflect the basis on which the performance of our business is internally assessed. This change did not impact its comparable GAAP measure income before income tax. See information related to certain non-GAAP disclosures for additional information.

Draft 8/7/2012

Quarterly Financial Highlights

(Dollars In Thousands)	2ND QTR		3RD QTR			4TH QTR			1ST QTR		2ND QTR			6 MOS
(Unaudited)	2011		2011			2011			2012		2012			2011		2012

Pre-tax Operating Income (Loss) (1)

Life Marketing	$	30,263	$	12,777		$	33,810		$	30,369	$	30,348		$	49,536	$	60,717
Acquisitions	39,429		44,028			41,545			39,099		43,615			71,820		82,714
Annuities	17,178		20,176			24,230			35,783		28,553			35,818		64,336
Stable Value Products	19,142		14,217			14,226			12,646		15,958			28,337		28,604
Asset Protection	5,685		6,164			6,706			4,966		6,479			12,537		11,445
Corporate & Other	3,977		(3,815		)	(4,416		)	27,880		(25,397		)	13,998		2,483
Total Pre-tax Operating Income	$	115,674	$	93,547		$	116,101		$	150,743	$	99,556		$	212,046	$	250,299

Balance Sheet Data

Total GAAP Assets	$	50,212,328	$	51,244,311		$	52,143,369		$	53,322,272	$	54,195,024
Total Protective Life Corporation’s Shareowners’ Equity	$	3,104,801	$	3,579,515		$	3,711,517		$	3,785,810	$	4,147,234
Total Protective Life Corporation’s Shareowners’ Equity (excluding accumulated other comprehensive income (loss)) (2)	$	2,635,730	$	2,673,447		$	2,726,073		$	2,784,007	$	2,828,898

Stock Data

Closing Price	$	23.13	$	15.63		$	22.56		$	29.62	$	29.41
Average Shares Outstanding
Basic	86,346,216		84,722,232			83,205,456			82,330,330		81,639,756			86,474,012		81,985,649
Diluted	87,653,731		86,004,571			84,464,572			83,921,135		83,243,703			87,736,449		83,583,025

(1) “Pre-tax Operating Income (Loss)” is a non-GAAP financial measure. “Income (loss) Before Income Tax” is a GAAP financial measure to which “Pre-tax Operating Income” may be compared.

See Page 6 for a reconciliation of “Pre-tax Operating Income” to “Income (loss) Before Income Tax”.

(2) “Total Protective Life Corporation’s Shareowners’ equity excluding accumulated other comprehensive income (loss)” is a non-GAAP financial measure. “Total Protective Life Corporation’s Shareowners’ equity” is a GAAP financial measure to which “Total Protective Life Corporation’s Shareowners’ equity excluding accumulated other comprehensive income (loss)” may be compared.

See Page 5 for a reconciliation of “Total Protective Life Corporation’s Shareowners’ equity excluding accumulated other comprehensive income (loss)” to “Total Protective Life Corporation’s Shareowners’ equity”.

Draft 8/7/2012

Financial Strength Ratings as of June 30, 2012

	A.M. Best	Fitch	Standard & Poor’s	Moody’s
Legal Entity

Insurance companies:
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-	—	—	—

Draft 8/7/2012

GAAP Consolidated Statements of Income

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012

REVENUES
Gross Premiums and Policy Fees	$	716,586		$	696,978		$	720,233		$	696,305		$	711,429		$	1,382,929		$	1,407,734
Reinsurance Ceded	(364,248		)	(326,967		)	(371,652		)	(304,558		)	(344,673		)	(696,056		)	(649,231		)
Net Premiums and Policy Fees	352,338			370,011			348,581			391,747			366,756			686,873			758,503
Net investment income	448,785			462,926			464,719			462,121			456,222			892,998			918,343
RIGL - Derivatives	(34,993		)	(97,816		)	(9,756		)	(29,909		)	(48,268		)	(47,679		)	(78,177		)
RIGL - All Other Investments	58,917			138,230			33,296			35,726			65,593			63,389			101,319

OTTI losses	(15,632		)	(6,259		)	(24,420		)	(34,420		)	(13,670		)	(31,653		)	(48,090		)
Portion recognized in OCI (before taxes)	6,145			(3,570		)	1,957			15,656			62			16,503			15,718
Net OTTI losses recognized in earnings	(9,487		)	(9,829		)	(22,463		)	(18,764		)	(13,608		)	(15,150		)	(32,372		)
Other income	87,224			75,859			72,520			111,260			81,480			159,433			192,740
Total Revenues	902,784			939,381			886,897			952,181			908,175			1,739,864			1,860,356

BENEFITS & EXPENSES
Benefits and settlement expenses	551,553			592,792			552,759			589,629			568,522			1,087,922			1,158,151
Amortization of deferred policy acquisition costs and value of business acquired	65,718			71,740			62,309			56,836			67,188			130,944			124,024
Other operating expenses	110,672			112,512			109,375			116,255			124,530			215,892			240,785
Interest expense - subsidiaries	7,108			7,168			7,081			6,109			6,098			13,774			12,207
Interest expense - holding company - other debt	23,493			23,482			23,335			23,372			23,298			46,977			46,670
Interest expense - holding company - subordinated debt	9,401			9,401			9,401			9,401			10,852			18,802			20,253
Total Benefits and Expenses	767,945			817,095			764,260			801,602			800,488			1,514,311			1,602,090

INCOME BEFORE INCOME TAX	134,839			122,286			122,637			150,579			107,687			225,553			258,266
Income tax expense	46,920			39,429			36,603			51,558			31,532			78,807			83,090
NET INCOME	87,919			82,857			86,034			99,021			76,155			146,746			175,176
Less: Net Income (loss) attributable to noncontrolling interests	296			—			—			—			—			245			—
NET INCOME AVAILABLE TO PLC’S COMMON SHAREOWNERS	$	87,623		$	82,857		$	86,034		$	99,021		$	76,155		$	146,501		$	175,176

PER SHARE DATA FOR QUARTER
Operating income-diluted (1)	$	0.86		$	0.74		$	0.97		$	1.18		$	0.85
RIGL - Derivatives net of gains related to corp debt, investments and annuities	(0.22		)	(0.69		)	(0.03		)	(0.18		)	(0.31		)
RIGL - All Other Investments	0.36			0.91			0.08			0.18			0.37
Net income available to PLC’s common shareowners-diluted	$	1.00		$	0.96		$	1.02		$	1.18		$	0.91
Average shares outstanding-diluted	87,653,731			86,004,571			84,464,572			83,921,135			83,243,703
Dividends paid	$	0.16		$	0.16		$	0.16		$	0.16		$	0.18
PER SHARE DATA FOR YTD
Operating income-diluted (1)	$	1.57		$	2.32		$	3.28		$	1.18		$	2.04
RIGL - Derivatives net of gains related to corp debt, investments and annuities	(0.28		)	(0.97		)	(1.00		)	(0.18		)	(0.49		)
RIGL - All Other Investments	0.38			1.28			1.37			0.18			0.55
Net income available to PLC’s common shareowners-diluted	$	1.67		$	2.63		$	3.65		$	1.18		$	2.10
Average shares outstanding-diluted	87,736,449			87,152,812			86,475,229			83,921,135			83,583,025
Dividends paid	$	0.30		$	0.46		$	0.62		$	0.16		$	0.34

(1) “Operating Income” is a non-GAAP financial measure. “Net income available to PLC’s common shareowners” is a GAAP financial measure to which “Operating Income” may be compared.

Draft 8/7/2012

GAAP Consolidated Balance Sheets

(Dollars In Thousands)	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR
(Unaudited)	2011		2011		2011		2012		2012
ASSETS

Fixed maturities	$	26,133,625	$	27,855,004	$	27,983,446	$	28,189,744	$	28,850,496
Equity securities	349,738		327,802		335,232		360,527		350,503
Mortgage loans	5,349,851		5,377,977		5,353,481		5,314,496		5,203,999
Investment real estate	23,737		27,495		29,899		31,527		20,582
Policy loans	881,757		880,203		879,819		877,850		870,775
Other long-term investments	297,825		284,550		257,714		324,001		333,358
Long-term investments	33,036,533		34,753,031		34,839,591		35,098,145		35,629,713
Short-term investments	134,698		80,387		101,489		110,194		89,495
Total investments	33,171,231		34,833,418		34,941,080		35,208,339		35,719,208
Cash	419,210		332,487		267,298		175,353		219,877
Accrued investment income	345,906		363,548		350,580		362,837		354,282
Accounts and premiums receivable	68,559		60,008		84,754		90,372		111,362
Reinsurance receivable	5,730,025		5,645,080		5,645,471		5,674,662		5,716,333
Deferred policy acquisition costs and value of business acquired	3,252,931		3,221,007		3,248,041		3,234,596		3,208,319
Goodwill	113,209		112,434		111,659		110,884		110,110
Property and equipment, net	43,142		45,997		48,578		48,596		48,307
Other assets	180,602		201,516		150,549		163,360		164,354
Current/Deferred income tax	39,936		11,142		50,783		—		62,316
Assets related to separate accounts
Variable annuity	6,291,158		5,947,391		6,741,959		7,698,456		7,949,926
Variable universal life	556,419		470,283		502,617		554,817		530,630

TOTAL ASSETS	$	50,212,328	$	51,244,311	$	52,143,369	$	53,322,272	$	54,195,024

Draft 8/7/2012

GAAP Consolidated Balance Sheets - Continued

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR
(Unaudited)	2011			2011			2011			2012			2012

LIABILITIES
Policy liabilities and accruals
Future policy benefits and claims	$	20,619,144		$	20,665,267		$	20,867,989		$	20,981,983		$	21,165,796
Unearned premiums	1,225,066			1,244,457			1,258,785			1,283,441			1,301,537
Stable value product deposits	2,565,235			2,827,862			2,769,510			2,772,378			2,676,312
Annuity deposits	10,899,995			10,975,016			10,946,848			10,856,119			10,774,666
Other policyholders’ funds	589,879			575,056			546,516			537,909			539,364
Repurchase program borrowings	—			157,103			—			221,569			200,000
Other liabilities	964,392			1,196,554			1,065,451			1,055,568			1,157,689
Mortgage loan backed certificates	42,862			32,471			19,755			8,834			—
Deferred income taxes	896,221			1,139,532			1,260,629			1,241,670			1,430,027
Income tax payable	—			—			—			22,725			—
Non-recourse funding obligations	438,300			414,800			407,800			297,000			297,000
Debt	1,494,852			1,495,000			1,520,000			1,480,000			1,510,000
Subordinated debt securities	524,743			524,743			524,743			524,743			515,593
Liabilities related to separate accounts
Variable annuity	6,291,158			5,947,391			6,741,959			7,698,456			7,949,926
Variable universal life	556,419			470,283			502,617			554,817			530,630
TOTAL LIABILITIES	47,108,266			47,665,535			48,432,602			49,537,212			50,048,540

SHAREOWNERS’ EQUITY
Common stock	44,388			44,388			44,388			44,388			44,388
Additional paid-in-capital	592,451			594,084			598,106			593,930			603,045
Treasury stock	(50,326		)	(83,549		)	(107,740		)	(131,578		)	(157,412		)
Retained earnings	2,049,217			2,118,524			2,191,319			2,277,267			2,338,877
Accumulated other comprehensive income (loss)	469,071			906,068			985,444			1,001,803			1,318,336
TOTAL PROTECTIVE LIFE CORPORATION’S SHAREOWNERS’ EQUITY	3,104,801			3,579,515			3,711,517			3,785,810			4,147,234
Noncontrolling interest	(739		)	(739		)	(750		)	(750		)	(750		)
TOTAL EQUITY	3,104,062			3,578,776			3,710,767			3,785,060			4,146,484
TOTAL LIABILITIES AND SHAREOWNERS’ EQUITY	$	50,212,328		$	51,244,311		$	52,143,369		$	53,322,272		$	54,195,024

PROTECTIVE LIFE CORPORATION’S SHAREOWNERS’ EQUITY PER SHARE
Total Protective Life Corporation’s Shareowners’ Equity	$	36.68		$	43.22		$	45.45		$	46.74		$	51.81
Less: Accumulated other comprehensive income (loss)	5.54			10.94			12.07			12.37			16.47
Excluding accumulated other comprehensive income (loss) (1)	$	31.14		$	32.28		$	33.38		$	34.37		$	35.34

Total Protective Life Corporation’s Shareowners’ Equity	$	3,104,801		$	3,579,515		$	3,711,517		$	3,785,810		$	4,147,234
Less: Accumulated other comprehensive income (loss)	469,071			906,068			985,444			1,001,803			1,318,336
Total Protective Life Corporation’s Shareowners’ Equity (excluding accumulated other comprehensive income (loss)) (1)	$	2,635,730		$	2,673,447		$	2,726,073		$	2,784,007		$	2,828,898

Common shares outstanding	84,650,243			82,812,088			81,669,195			80,998,430			80,046,258
Treasury Stock shares	4,126,717			5,964,872			7,107,765			7,778,530			8,730,702

(1) “Total Protective Life Corporation’s Shareowners’ equity excluding accumulated other comprehensive income (loss)” is a non-GAAP financial measure. “Total Protective Life Corporation’s Shareowners’ equity” is a GAAP financial measure to which “Total Protective Life Corporation’s Shareowners’ equity excluding accumulated other comprehensive income (loss)” may be compared.

Draft 8/7/2012

Calculation of Operating Earnings Per Share

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012

CALCULATION OF NET INCOME PER SHARE

Net income available to PLC’s common shareowners	$	87,623		$	82,857		$	86,034		$	99,021		$	76,155		$	146,501		$	175,176

Average shares outstanding-basic	86,346,216			84,722,232			83,205,456			82,330,330			81,639,756			86,474,012			81,985,649
Average shares outstanding-diluted	87,653,731			86,004,571			84,464,572			83,921,135			83,243,703			87,736,449			83,583,025

Net income available to PLC’s common shareowners per share-basic	$	1.01		$	0.98		$	1.03		$	1.20		$	0.93		$	1.69		$	2.14
Net income available to PLC’s common shareowners per share-diluted	$	1.00		$	0.96		$	1.02		$	1.18		$	0.91		$	1.67		$	2.10

Income from continuing operations	$	87,623		$	82,857		$	86,034		$	99,021		$	76,155		$	146,501		$	175,176
EPS (basic)	$	1.01		$	0.98		$	1.03		$	1.20		$	0.93		$	1.69		$	2.14
EPS (diluted)	$	1.00		$	0.96		$	1.02		$	1.18		$	0.91		$	1.67		$	2.10

CALCULATION OF REALIZED INVESTMENT GAINS (LOSSES) PER SHARE

RIGL - Derivatives	$	(34,993	)	$	(97,816	)	$	(9,756	)	$	(29,909	)	$	(48,268	)	$	(47,679	)	$	(78,177	)
VA GMWB economic cost	5,153			5,902			6,481			7,240			8,355			9,498			15,595
RIGL - All Other Investments	49,430			128,401			10,833			16,962			51,985			48,239			68,947
Related amortization of DAC & VOBA	(721		)	(7,748		)	(1,022		)	5,543			(3,941		)	3,204			1,602
	18,869			28,739			6,536			(164		)	8,131			13,262			7,967
Tax effect	(6,604		)	(10,059		)	(2,288		)	58			(2,845		)	(4,642		)	(2,787		)
	$	12,265		$	18,680		$	4,248		$	(106	)	$	5,286		$	8,620		$	5,180

RIGL - Derivatives per share-diluted	$	(0.22	)	$	(0.69	)	$	(0.03	)	$	(0.18	)	$	(0.31	)	$	(0.28	)	$	(0.49	)
RIGL - All Other Investments per share-diluted	$	0.36		$	0.91		$	0.08		$	0.18		$	0.37		$	0.38		$	0.55

OPERATING INCOME PER SHARE (1)

Net income available to PLC’s common shareowners per share-diluted	$	1.00		$	0.96		$	1.02		$	1.18		$	0.91		$	1.67		$	2.10
Less: RIGL - Derivatives per share-diluted	(0.22		)	(0.69		)	(0.03		)	(0.18		)	(0.31		)	(0.28		)	(0.49		)
Less: RIGL - All Other Investments per share-diluted	0.36			0.91			0.08			0.18			0.37			0.38			0.55
Operating income per share-diluted	$	0.86		$	0.74		$	0.97		$	1.18		$	0.85		$	1.57		$	2.04

NET OPERATING INCOME (1)

Net income available to PLC’s common shareowners	$	87,623		$	82,857		$	86,034		$	99,021		$	76,155		$	146,501		$	175,176
Less: RIGL - Derivatives net of tax	(19,396		)	(59,744		)	(2,129		)	(14,735		)	(25,943		)	(24,818		)	(40,678		)
Less: RIGL - All Other Investments net of tax and amortization	31,661			78,424			6,377			14,629			31,229			33,438			45,858
Net operating income	$	75,358		$	64,177		$	81,786		$	99,127		$	70,869		$	137,881		$	169,996

PRE-TAX OPERATING INCOME (2)

Income before income tax and discontinued operations	$	134,839		$	122,286		$	122,637		$	150,579		$	107,687		$	225,553		$	258,266
Less: RIGL - Derivatives	(34,993		)	(97,816		)	(9,756		)	(29,909		)	(48,268		)	(47,679		)	(78,177		)
Less: VA GMWB economic cost	5,153			5,902			6,481			7,240			8,355			9,498			15,595
Less: RIGL - All Other Investments	49,430			128,401			10,833			16,962			51,985			48,239			68,947
Less: Related amortization of DAC & VOBA	(721		)	(7,748		)	(1,022		)	5,543			(3,941		)	3,204			1,602
Less: Minority Interest	296			—			—			—			—			245			—
Pre-tax operating income	$	115,674		$	93,547		$	116,101		$	150,743		$	99,556		$	212,046		$	250,299

(1) “Net Operating Income” and “Operating Income Per Share” are non-GAAP financial measures. “Net Income available to PLC’s common shareowners” and “Net Income available to PLC’s common shareowners Per Share” are GAAP financial measures to which “Net Operating Income” and “Operating Income Per Share” may be compared.

(2) “Pre-tax Operating Income” is a non-GAAP financial measure. “Income Before Income Tax” is a GAAP financial measure to which “Pre-tax Operating Income” may be compared.

Draft 8/7/2012

Invested Asset Summary

(Dollars In Millions)	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR
(Unaudited)	2011		2011		2011		2012		2012

Total Portfolio

Fixed Maturities	$	26,133.6	$	27,855.0	$	27,983.5	$	28,189.7	$	28,850.5	81	%
Mortgage Loans	5,349.9		5,378.0		5,353.5		5,314.5		5,204.0		15	%
Investment Real Estate	23.7		27.5		29.9		31.5		20.6		0	%
Equity Securities	349.7		327.8		335.2		360.5		350.5		1	%
Policy Loans	881.8		880.2		879.8		877.9		870.8		2	%
Short-Term Investments	134.7		80.4		101.5		110.2		89.5		0	%
Other Long-Term Investments	297.8		284.5		257.7		324.0		333.3		1	%
Total Invested Assets	$	33,171.2	$	34,833.4	$	34,941.1	$	35,208.3	$	35,719.2	100	%

Draft 8/7/2012

Invested Asset Summary - Fixed Income

(Dollars In Millions)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR
(Unaudited)	2011			2011			2011			2012			2012

Fixed Income

Corporate Bonds	$	18,741.8		$	19,856.5		$	20,148.4		$	20,321.8		$	20,903.8		72	%
Residential Mortgage-Backed Securities	2,702.2			2,827.2			2,656.1			2,664.5			2,501.3			9	%
Commercial Mortgage-Backed Securities	452.6			640.3			741.8			785.1			938.0			3	%
Other Asset-Backed Securities	1,029.1			953.7			971.0			996.8			1,056.3			4	%
U.S. Government-related Securities	1,577.2			1,813.4			1,771.5			1,645.1			1,629.2			6	%
Other Government-related Securities	232.5			192.0			137.9			180.0			166.3			0	%
States, Municipals and Political Subdivisions	1,398.2			1,571.9			1,556.8			1,596.4			1,655.6			6	%
Total Fixed Income Portfolio	$	26,133.6		$	27,855.0		$	27,983.5		$	28,189.7		$	28,850.5		100	%

Fixed Income - Quality

AAA	17.3		%	17.6		%	16.5		%	16.2		%	16.2		%
AA	6.8		%	7.9		%	8.0		%	8.0		%	7.1		%
A	25.2		%	26.7		%	27.5		%	28.7		%	30.3		%
BBB	42.5		%	40.4		%	41.0		%	39.5		%	39.2		%
Below investment grade	8.2		%	7.4		%	7.0		%	7.6		%	7.2		%
	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

Note: Prior period ratings and investment classifications have been restated to be consistent with current quarter presentation.

Draft 8/7/2012

Fixed Maturities by NAIC Rating

STAT Carry Value % of Total

	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR
(Unaudited)	2011		2011		2011		2012		2012

NAIC Rating
1	55.32	%	57.10	%	56.07	%	55.97	%	56.44	%
2	40.33	%	38.61	%	38.92	%	38.64	%	38.58	%
3	2.31	%	2.28	%	2.80	%	3.47	%	3.21	%
4	1.01	%	1.11	%	1.31	%	0.76	%	0.76	%
5	0.87	%	0.75	%	0.73	%	0.96	%	0.94	%
6	0.16	%	0.15	%	0.17	%	0.20	%	0.07	%

	100.00	%	100.00	%	100.00	%	100.00	%	100.00	%

Below investment grade (using NAIC 3-6)	4.35	%	4.29	%	5.01	%	5.39	%	4.98	%

Note: NAIC Ratings reflect statutory carrying values

Draft 8/7/2012

Invested Asset Summary - Mortgages

(Dollars In Millions)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR
(Unaudited)	2011			2011			2011			2012			2012

Mortgage Loans - Type

Retail	64.4		%	65.4		%	65.7		%	65.7		%	66.4		%
Apartments	11.4		%	11.0		%	11.3		%	11.6		%	10.7		%
Office Buildings	14.1		%	13.7		%	13.4		%	13.2		%	13.6		%
Warehouses	8.0		%	7.7		%	7.6		%	7.4		%	7.3		%
Miscellaneous	2.1		%	2.2		%	2.0		%	2.1		%	2.0		%
	100.0		%	100.0		%	100.0		%	100.0		%	100.0		%

Delinquent Loans & Foreclosed Properties

60 Days Past Due	$	10.3		$	6.9		$	2.4		$	5.3		$	30.1	(1)
90 Days Past Due	15.7			16.2			12.5			5.6			11.3
Renegotiated Loans (2)	16.1			16.1			16.1			—			—
Foreclosed Real Estate	1.7			5.5			10.4			2.7			2.7
	$	43.8		$	44.7		$	41.4		$	13.6		$	44.1

% of Commercial Mortgage Loan Portfolio	0.8		%	0.8		%	0.8		%	0.3		%	0.8		%

(1) Includes $7.0 million of nonperforming loans subject to a pooling and servicing agreement for 2Q12.

(2) Loans restructured under the terms of a pooling and servicing agreement.

Draft 8/7/2012

Invested Asset Summary - Trading Portfolios

(Dollars In Millions)	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR
(Unaudited)	2011		2011		2011		2012		2012

Trading Portfolio Composition (excl. Modco Trading Portfolio)

Rating
AAA	$	3.0	$	2.6	$	2.2	$	1.7	$	1.3
AA	—		—		—		—		—
A	—		—		—		—		—
BBB	6.0		—		—		—		—
Below investment grade	20.7		23.8		21.0		19.1		17.2
Total	$	29.7	$	26.4	$	23.2	$	20.8	$	18.5

Modco Trading Portfolio

Rating
AAA	$	768.0	$	871.5	$	845.5	$	607.9	$	605.9
AA	316.5		325.2		267.4		259.6		245.5
A	693.1		654.5		702.9		742.3		799.1
BBB	869.4		888.8		909.3		1,007.5		1,037.7
Below investment grade	210.1		231.9		211.7		338.8		316.9
Short-term investments	102.2		67.6		85.8		63.6		43.4
Total	$	2,959.3	$	3,039.5	$	3,022.6	$	3,019.7	$	3,048.5

Note: Prior period ratings have been restated to be consistent with current quarter presentation.

Draft 8/7/2012

Invested Asset Summary - MBS - Alt-A

Mortgage-backed Securities Collateralized by Alt-A Mortgage Loans as of June 30, 2012:

(Dollars In Millions)	2008 and
(Unaudited)	Prior			2009		2010		2011		2012		Total

Estimated Fair Value of Security by Year of Security Origination

Rating
A	$	1.1		$	—	$	—	$	—	$	—	$	1.1
BBB	6.1			—		—		—		—		6.1
Below investment grade	412.5			—		—		—		—		412.5
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	419.7		$	—	$	—	$	—	$	—	$	419.7

Estimated Unrealized Gain (Loss) of Security by Year of Security Origination

Rating
A	$	—		$	—	$	—	$	—	$	—	$	—
BBB	0.8			—		—		—		—		0.8
Below investment grade	(37.8		)	—		—		—		—		(37.8		)
Total mortgage-backed securities collateralized by Alt-A mortgage loans	$	(37.0	)	$	—	$	—	$	—	$	—	$	(37.0	)

Draft 8/7/2012

Invested Asset Summary - MBS - Prime

Mortgage-backed Securities Collateralized by Prime Loans as of June 30, 2012:

(Dollars In Millions)	2008 and
(Unaudited)	Prior			2009		2010		2011		2012		Total

Estimated Fair Value of Security by Year of Security Origination

Rating
AAA	$	597.1		$	86.3	$	397.3	$	369.3	$	—	$	1,450.0
AA	7.5			—		—		—		—		7.5
A	38.0			—		—		—		—		38.0
BBB	30.9			—		—		—		—		30.9
Below investment grade	554.8			—		—		—		—		554.8
Total mortgage-backed securities collateralized by prime loans	$	1,228.3		$	86.3	$	397.3	$	369.3	$	—	$	2,081.2

Includes $1.4 million of agency mortgage backed securities.

Estimated Unrealized Gain (Loss) of Security by Year of Security Origination

Rating
AAA	$	37.9		$	9.5	$	24.0	$	25.3	$	—	$	96.7
AA	0.2			—		—		—		—		0.2
A	1.0			—		—		—		—		1.0
BBB	0.9			—		—		—		—		0.9
Below investment grade	(11.9		)	—		—		—		—		(11.9		)
Total mortgage-backed securities collateralized by prime loans	$	28.1		$	9.5	$	24.0	$	25.3	$	—	$	86.9

Draft 8/7/2012

Invested Asset Summary - CMBS

Commercial Mortgage-backed Securities as of June 30, 2012:

(Dollars In Millions)	2008 and
(Unaudited)	Prior		2009		2010		2011		2012			Total

Estimated Fair Value of Security by Year of Security Origination

Rating
AAA	$	185.6	$	—	$	83.7	$	235.5	$	154.8		$	659.6
AA	5.3		—		32.1		43.3		10.2			90.9
A	47.4		5.7		35.4		84.2		14.8			187.5
Total commercial mortgage-backed securities	$	238.3	$	5.7	$	151.2	$	363.0	$	179.8		$	938.0

Estimated Unrealized Gain (Loss) of Security by Year of Security Origination

Rating
AAA	$	4.2	$	—	$	7.9	$	20.0	$	(0.1	)	$	32.0
AA	0.1		—		0.9		2.2		0.1			3.3
A	1.5		0.2		2.7		2.3		0.4			7.1
Total commercial mortgage-backed securities	$	5.8	$	0.2	$	11.5	$	24.5	$	0.4		$	42.4

Draft 8/7/2012

Invested Asset Summary - ABS(1)

Other Asset-backed Securities(1) as of June 30, 2012:

(Dollars In Millions)	2008 and
(Unaudited)	Prior			2009		2010		2011		2012		Total
Estimated Fair Value of Security by Year of Security Origination

Rating
AAA	$	562.7		$	2.1	$	32.1	$	27.0	$	10.1	$	634.0
AA	166.3			—		—		—		—		166.3
A	33.5			—		—		74.4		53.2		161.1
BBB	3.1			—		—		—		—		3.1
Below investment grade	91.8			—		—		—		—		91.8
Total other asset-backed securities	$	857.4		$	2.1	$	32.1	$	101.4	$	63.3	$	1,056.3

Estimated Unrealized Gain (Loss) of Security by Year of Security Origination

Rating
AAA	$	(35.5	)	$	—	$	0.1	$	0.4	$	0.1	$	(34.9	)
AA	(17.6		)	—		—		—		—		(17.6		)
A	(0.6		)	—		—		3.9		0.2		3.5
BBB	—			—		—		—		—		—
Below investment grade	(35.8		)	—		—		—		—		(35.8		)
Total other asset-backed securities	$	(89.5	)	$	—	$	0.1	$	4.3	$	0.3	$	(84.8	)

(1) Excludes Residential and Commercial mortgage-backed securities

Draft 8/7/2012

Life Marketing Quarterly Trends

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012
REVENUES
Gross Premiums and Policy Fees	$	406,566		$	383,293		$	408,057		$	388,117		$	397,645		$	800,231		$	785,762
Reinsurance Ceded	(219,292		)	(191,498		)	(237,886		)	(192,755		)	(209,803		)	(417,378		)	(402,558		)
Net Premiums and Policy Fees	187,274			191,795			170,171			195,362			187,842			382,853			383,204
Net investment income	110,230			112,396			116,922			119,026			121,283			216,857			240,309
Other income	28,923			27,048			26,205			29,154			29,966			57,054			59,120
Total Revenues	326,427			331,239			313,298			343,542			339,091			656,764			682,633

BENEFITS & EXPENSES
Benefits and settlement expenses	236,439			269,996			226,501			254,579			251,509			481,601			506,088
Amortization of deferred policy acquisition costs and value of business acquired	22,047			15,214			22,218			22,594			19,454			50,029			42,048
Other operating expenses	37,678			33,252			30,769			36,000			37,780			75,598			73,780
Total Benefits and Expenses	296,164			318,462			279,488			313,173			308,743			607,228			621,916

INCOME BEFORE INCOME TAX	$	30,263		$	12,777		$	33,810		$	30,369		$	30,348		$	49,536		$	60,717

Life Marketing Key Data

(Dollars In Thousands)	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR		6 MOS
(Unaudited)	2011		2011		2011		2012		2012		2011		2012
SALES BY PRODUCT
Traditional	$	1,305	$	516	$	162	$	287	$	307	$	3,168	$	594
Universal life	32,988		25,670		23,344		20,962		24,142		68,933		45,104
Bank-owned life insurance	3,460		1,520		1,722		1,345		1,376		8,121		2,721
Total	$	37,753	$	27,706	$	25,228	$	22,594	$	25,825	$	80,222	$	48,419

SALES BY DISTRIBUTION
Independent agents	$	25,690	$	19,185	$	15,280	$	13,940	$	14,818	$	54,933	$	28,758
Stockbrokers/banks	8,427		6,907		8,000		6,976		9,191		16,770		16,167
BOLI/other	3,636		1,614		1,948		1,678		1,816		8,519		3,494
Total	$	37,753	$	27,706	$	25,228	$	22,594	$	25,825	$	80,222	$	48,419

Draft 8/7/2012

Acquisitions Quarterly Trends

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012
REVENUES
Gross Premiums and Policy Fees	$	215,533		$	219,970		$	218,502		$	212,158		$	215,672		$	396,027		$	427,830
Reinsurance Ceded	(112,681		)	(103,667		)	(101,534		)	(80,301		)	(102,644		)	(214,475		)	(182,945		)
Net Premiums and Policy Fees	102,852			116,303			116,968			131,857			113,028			181,552			244,885
Net investment income	132,710			140,352			138,261			138,121			138,692			250,648			276,813
RIGL - Derivatives	(28,858		)	(109,437		)	(3,116		)	10,640			(48,002		)	(21,378		)	(37,362		)
RIGL - All Other Investments	34,676			124,416			13,289			17,312			55,338			29,402			72,650
Other income	1,391			1,432			1,459			1,579			2,240			2,670			3,819
Total Revenues	242,771			273,066			266,861			299,509			261,296			442,894			560,805

BENEFITS & EXPENSES
Benefits and settlement expenses	164,906			176,850			178,056			194,173			180,488			307,387			374,661
Amortization of deferred policy acquisition costs and value of business acquired	18,053			20,807			19,578			23,142			17,940			34,656			41,082
Other operating expenses	14,735			16,767			17,149			15,110			12,125			21,876			27,235
Total Benefits and Expenses	197,694			214,424			214,783			232,425			210,553			363,919			442,978

INCOME BEFORE INCOME TAX	45,077			58,642			52,078			67,084			50,743			78,975			117,827

Adjustments to Reconcile to Operating Income:
Less: RIGL - Derivatives	(28,858		)	(109,437		)	(3,116		)	10,640			(48,002		)	(21,378		)	(37,362		)
Less: RIGL - All Other Investments	34,676			124,416			13,289			17,312			55,338			29,402			72,650
Less: Related amortization of deferred policy acquisition costs and value of business acquired	(170		)	(365		)	360			33			(208		)	(869		)	(175		)

PRE-TAX OPERATING INCOME	$	39,429		$	44,028		$	41,545		$	39,099		$	43,615		$	71,820		$	82,714

Draft 8/7/2012

Annuities Quarterly Trends

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012
REVENUES
Gross Premiums and Policy Fees	$	16,709		$	17,670		$	19,083		$	21,928		$	23,252		$	31,632		$	45,180
Reinsurance Ceded	(17		)	(16		)	(12		)	(13		)	(7		)	(38		)	(20		)
Net Premiums and Policy Fees	16,692			17,654			19,071			21,915			23,245			31,594			45,160
Net investment income	128,202			127,095			127,577			125,985			124,159			252,558			250,144
RIGL - Derivatives	(2,196		)	23,435			(5,579		)	(41,200		)	4,628			(23,679		)	(36,572		)
RIGL - All Other Investments	(2,215		)	501			10,176			15,013			10,373			(1,216		)	25,386
Other income	13,119			14,516			16,167			17,711			19,187			24,477			36,898
Total Revenues	153,602			183,201			167,412			139,424			181,592			283,734			321,016

BENEFITS & EXPENSES
Benefits and settlement expenses	99,856			93,438			101,247			91,909			87,801			196,103			179,710
Amortization of deferred policy acquisition costs and value of business acquired	15,053			25,664			9,984			1,873			20,549			21,553			22,422
Other operating expenses	21,324			21,468			22,255			23,296			25,066			41,584			48,362
Total Benefits and Expenses	136,233			140,570			133,486			117,078			133,416			259,240			250,494

INCOME BEFORE INCOME TAX	17,369			42,631			33,926			22,346			48,176			24,494			70,522

Adjustments to Reconcile to Operating Income:
Less: RIGL - Derivatives, net of economic cost	2,957			29,337			902			(33,960		)	12,983			(14,181		)	(20,977		)
Less: RIGL - All Other Investments	(2,215		)	501			10,176			15,013			10,373			(1,216		)	25,386
Less: Amortization related to benefit and settlement expenses	(105		)	2,195			405			(1,619		)	763			(1,508		)	(856		)
Less: Related amortization of DAC	(446		)	(9,578		)	(1,787		)	7,129			(4,496		)	5,581			2,633

PRE-TAX OPERATING INCOME	$	17,178		$	20,176		$	24,230		$	35,783		$	28,553		$	35,818		$	64,336

Annuities Key Data

	2ND QTR		3RD QTR			4TH QTR		1ST QTR		2ND QTR		6 MOS
	2011		2011			2011		2012		2012		2011		2012
SALES
Variable Annuity	$	669,021	$	573,166		$	498,617	$	567,408	$	673,338	$	1,276,816	$	1,240,746
Immediate Annuity	14,200		18,160			14,696		14,068		15,939		33,394		30,007
Single Premium Deferred Annuity	212,323		255,715			173,420		138,314		138,044		459,265		276,358
Market Value Adjusted Annuity	18,989		12,671			2,595		155		1,965		61,939		2,120
Equity Indexed Annuity	291		79			179		289		103		469		392
Total	$	914,824	$	859,791		$	689,507	$	720,234	$	829,389	$	1,831,883	$	1,549,623

PRE-TAX OPERATING INCOME
Variable Annuity	$	5,094	$	(10,223	)	$	13,242	$	17,343	$	8,044	$	11,087	$	25,387
Fixed Annuity	12,084		30,399			10,988		18,440		20,509		24,731		38,949
Total	$	17,178	$	20,176		$	24,230	$	35,783	$	28,553	$	35,818	$	64,336

DEPOSIT BALANCE
VA Fixed Annuity	$	541,252	$	533,211		$	510,567	$	515,613	$	563,315
VA Separate Account Annuity	5,579,541		5,367,490			6,140,365		7,050,549		7,358,411
Sub-total	6,120,793		5,900,701			6,650,932		7,566,162		7,921,726
Fixed Annuity	8,035,741		8,125,616			8,152,841		8,069,304		7,958,916
Total	$	14,156,534	$	14,026,317		$	14,803,773	$	15,635,466	$	15,880,642

Draft 8/7/2012

Stable Value Products Quarterly Trends

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR		2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012		2012			2011		2012
REVENUES
Net investment income	$	39,376		$	35,173		$	34,497		$	32,402	$	34,956		$	75,480	$	67,358
RIGL - Derivatives	(617		)	(485		)	98			646		(870		)	28		(224		)
RIGL - All Other Investments	7,661			10,471			(774		)	1,607		274			15,628		1,881
Other income	1			(1		)	—			1		—			—		1
Total Revenues	46,421			45,158			33,821			34,656		34,360			91,136		69,016

BENEFITS & EXPENSES
Benefits and settlement expenses	19,381			19,641			19,444			18,957		18,221			42,171		37,178
Amortization of deferred policy acquisition costs and value of business acquired	286			502			221			196		230			3,833		426
Other operating expenses	568			812			606			604		547			1,139		1,151
Total Benefits and Expenses	20,235			20,955			20,271			19,757		18,998			47,143		38,755

INCOME BEFORE INCOME TAX	26,186			24,203			13,550			14,899		15,362			43,993		30,261

Adjustments to Reconcile to Operating Income:
Less: RIGL-Derivatives	(617		)	(485		)	98			646		(870		)	28		(224		)
Less: RIGL-All Other Investments	7,661			10,471			(774		)	1,607		274			15,628		1,881

PRE-TAX OPERATING INCOME	$	19,142		$	14,217		$	14,226		$	12,646	$	15,958		$	28,337	$	28,604

Stable Value Products Key Data

	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
	2011			2011			2011			2012			2012			2011		2012
SALES
GIC	$	161,137		$	230,000		$	32,900		$	26,000		$	—		$	235,795	$	26,000
GFA - Direct Institutional	100,000			200,000			—			150,000			26,500			100,000		176,500
Total	$	261,137		$	430,000		$	32,900		$	176,000		$	26,500		$	335,795	$	202,500

DEPOSIT BALANCE
Quarter End Balance	$	2,565,235		$	2,827,862		$	2,769,510		$	2,772,378		$	2,676,312
Average Daily Balance	$	2,450,620		$	2,710,571		$	2,827,891		$	2,784,389		$	2,765,761

OPERATING SPREAD	3.12		%	2.10		%	2.01		%	1.82		%	2.33		%

ADJUSTED OPERATING SPREAD (1)	1.97		%	1.92		%	2.00		%	1.80		%	1.98		%

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

Draft 8/7/2012

Asset Protection Quarterly Trends

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012
REVENUES
Gross Premiums and Policy Fees	$	72,333		$	70,646		$	69,621		$	68,936		$	69,883		$	143,939		$	138,819
Reinsurance Ceded	(32,253		)	(31,782		)	(32,215		)	(31,473		)	(32,214		)	(64,066		)	(63,687		)
Net Premiums and Policy Fees	40,080			38,864			37,406			37,463			37,669			79,873			75,132
Net investment income	6,788			6,675			6,054			6,542			5,883			13,772			12,425
Other income	22,909			25,750			24,842			26,601			29,513			44,035			56,114
Total Revenues	69,777			71,289			68,302			70,606			73,065			137,680			143,671

BENEFITS & EXPENSES
Benefits and settlement expenses	25,147			26,529			23,968			24,048			25,247			49,013			49,295
Amortization of deferred policy acquisition costs and value of business acquired	9,927			9,227			8,690			8,677			8,829			20,163			17,506
Other operating expenses	28,722			29,369			28,938			32,915			32,510			55,722			65,425
Total Benefits and Expenses	63,796			65,125			61,596			65,640			66,586			124,898			132,226

INCOME BEFORE INCOME TAX	5,981			6,164			6,706			4,966			6,479			12,782			11,445
Less: noncontrolling interests	296			—			—			—			—			245			—
OPERATING INCOME	$	5,685		$	6,164		$	6,706		$	4,966		$	6,479		$	12,537		$	11,445

Asset Protection Key Data

	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR		6 MOS
	2011		2011		2011		2012		2012		2011		2012
SALES
Credit insurance	$	9,650	$	8,970	$	8,381	$	8,802	$	10,066	$	18,416	$	18,868
Service contracts	79,142		83,109		80,544		82,800		94,122		143,320		176,922
Other products	20,116		18,532		17,016		18,295		15,063		37,360		33,358
Total	$	108,908	$	110,611	$	105,941	$	109,897	$	119,251	$	199,096	$	229,148

Draft 8/7/2012

Corporate & Other Quarterly Trends

(Dollars In Thousands)	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012
REVENUES
Gross Premiums and Policy Fees	$	5,445		$	5,399		$	4,970		$	5,166		$	4,977		$	11,100		$	10,143
Reinsurance Ceded	(5		)	(4		)	(5		)	(16		)	(5		)	(99		)	(21		)
Net Premiums and Policy Fees	5,440			5,395			4,965			5,150			4,972			11,001			10,122
Net investment income	31,479			41,235			41,408			40,045			31,249			83,683			71,294
RIGL - Derivatives	(3,322		)	(11,329		)	(1,159		)	5			(4,024		)	(2,650		)	(4,019		)
RIGL - All Other Investments	9,308			(6,987		)	(11,858		)	(16,970		)	(14,000		)	4,425			(30,970		)
Other income	20,881			7,114			3,847			36,214			574			31,197			36,788
Total Revenues	63,786			35,428			37,203			64,444			18,771			127,656			83,215

BENEFITS & EXPENSES
Benefits and settlement expenses	5,824			6,338			3,543			5,963			5,256			11,647			11,219
Amortization of deferred policy acquisition costs and value of business acquired	352			326			1,618			354			186			710			540
Other operating expenses	47,647			50,895			49,475			47,212			56,750			99,526			103,962
Total Benefits and Expenses	53,823			57,559			54,636			53,529			62,192			111,883			115,721

INCOME (LOSS) BEFORE INCOME TAX	9,963			(22,131		)	(17,433		)	10,915			(43,421		)	15,773			(32,506		)

Adjustments to Reconcile to Operating Income:
Less: RIGL-Derivatives	(3,322		)	(11,329		)	(1,159		)	5			(4,024		)	(2,650		)	(4,019		)
Less: RIGL-All Other Investments	9,308			(6,987		)	(11,858		)	(16,970		)	(14,000		)	4,425			(30,970		)
Less: noncontrolling interests	—			—			—			—			—			—			—

PRE-TAX OPERATING INCOME (LOSS)	$	3,977		$	(3,815	)	$	(4,416	)	$	27,880		$	(25,397	)	$	13,998		$	2,483

Draft 8/7/2012

INFORMATION RELATED TO CERTAIN NON-GAAP DISCLOSURES

The following pages contain information related to certain non-GAAP disclosures (consolidated and segment operating income (loss), operating income per diluted share, shareowners’ equity per share excluding accumulated other comprehensive income (loss), operating income return on average equity, and net income return on average equity).

All income per share results are presented on a diluted basis, unless otherwise noted.

CONSOLIDATED AND SEGMENT OPERATING INCOME (LOSS) AND OPERATING INCOME PER DILUTED SHARE

Consolidated and segment operating income (loss) and operating income per diluted share (hereinafter collectively referred to as “consolidated and segment operating income”) are defined as income before income tax, excluding net realized investment gains and losses (excluding periodic settlements of derivatives associated with debt and certain investments) net of the related amortization of deferred acquisition costs (“DAC”) and value of business acquired (“VOBA”). Operating earnings exclude changes in the guaranteed minimum withdrawal benefits (“GMWB”) embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

In the first quarter of 2012, management revised the definition of operating income (loss) as it relates to certain features of our variable annuity contracts and related hedging activities, to better reflect the basis on which the performance of its business is internally assessed. Under the revised definition, the following items will be excluded from operating income:

· Changes in GMWB embedded derivatives related to this rider feature of certain variable annuity products (excluding the portion attributed to economic costs). Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.). These features are considered embedded derivatives under ASC 815.

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

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

Management believes that consolidated and segment operating income (loss) provides relevant and useful information to investors, as it represents the basis on which the performance of the Company’s business is internally assessed. Although the items excluded from consolidated and segment operating income may be significant components in understanding and assessing the Company’s overall financial performance, management believes that consolidated and segment operating income enhances an investor’s understanding of the Company’s results of operations by highlighting the income (loss) generally attributable to the normal, recurring operations of the Company’s business.

SHAREOWNERS’ EQUITY PER SHARE EXCLUDING ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

As prescribed by GAAP, certain investments are recorded at their market values with the resulting unrealized gains (losses) affected by a related adjustment to DAC and VOBA, net of income tax, reported as a component of shareowners’ equity. The market values of fixed maturities increase or decrease as interest rates change. The Company believes that an insurance company’s shareowners’ equity per share may be difficult to analyze without disclosing the effects of recording accumulated other comprehensive income (loss), including unrealized gains (losses) on investments. Therefore, the Company reports the non-GAAP measure shareowners’ equity per share excluding accumulated other comprehensive income (loss), including unrealized gains (losses) on investments. This non-GAAP measure may be reconciled to the GAAP measure, shareowners’ equity per share by including accumulated other comprehensive income (loss), including unrealized gains (losses) on investments.

OPERATING INCOME RETURN ON AVERAGE EQUITY

Operating income return on average equity is a measure used by management to evaluate the Company’s performance. It is calculated by dividing operating income (as defined above) for a rolling twelve month period by the average ending balance of shareowners’ equity excluding accumulated other comprehensive income (loss) for the five most recent quarters.

NET INCOME RETURN ON AVERAGE EQUITY

Net income return on average equity is a measure used by management to evaluate the Company’s performance. It is calculated by dividing net income for a rolling twelve month period by the average ending balance of shareowners’ equity excluding accumulated other comprehensive income (loss) for the five most recent quarters.

Draft 8/7/2012

Reconciliation of Segment Operating Income (Loss) to Net Income available to PLC’s common shareowners

(Dollars In Thousands)	2ND QTR			2ND QTR			6 MOS
(Unaudited)	2011			2012			2011			2012

Life Marketing	$	30,263		$	30,348		$	49,536		$	60,717
Acquisitions	39,429			43,615			71,820			82,714
Annuities	17,178			28,553			35,818			64,336
Stable Value Products	19,142			15,958			28,337			28,604
Asset Protection	5,685			6,479			12,537			11,445
Corporate & Other	3,977			(25,397		)	13,998			2,483
Total Pre-tax operating income	115,674			99,556			212,046			250,299

Realized Investment Gains (Losses) - Investments	48,709			48,044			51,443			70,549
Realized Investment Gains (Losses) - Derivatives	(29,840		)	(39,913		)	(38,181		)	(62,582		)
Income Tax Expense	(46,920		)	(31,532		)	(78,807		)	(83,090		)

Net income available to PLC’s common shareowners	$	87,623		$	76,155		$	146,501		$	175,176

Draft 8/7/2012

Reconciliation of Operating Income per Diluted Share to Net Income Available to PLC’s Common Shareowners per Diluted Share

	2ND QTR			3RD QTR			4TH QTR			1ST QTR			2ND QTR			6 MOS
(Unaudited)	2011			2011			2011			2012			2012			2011			2012

OPERATING INCOME PER SHARE

Operating income per share-diluted	$	0.86		$	0.74		$	0.97		$	1.18		$	0.85		$	1.57		$	2.04
RIGL - Derivatives per share-diluted	(0.22		)	(0.69		)	(0.03		)	(0.18		)	(0.31		)	(0.28		)	(0.49		)
RIGL - All Other Investments-diluted	0.36			0.91			0.08			0.18			0.37			0.38			0.55
Net income available to PLC’s common shareowners per share-diluted	$	1.00		$	0.96		$	1.02		$	1.18		$	0.91		$	1.67		$	2.10

Draft 8/7/2012

Reconciliation of Total Protective Life Corporation’s Shareowners’ Equity per Share to Total Protective Life Corporation’s Shareowners’ Equity (Excl. AOCI) per share

	2ND QTR		3RD QTR		4TH QTR		1ST QTR		2ND QTR
(Unaudited)	2011		2011		2011		2012		2012

PROTECTIVE LIFE CORPORATION’S SHAREOWNERS’ EQUITY PER SHARE
Total Protective Life Corporation’s Shareowners’ Equity	$	36.68	$	43.22	$	45.45	$	46.74	$	51.81
Less: Accumulated other comprehensive income (loss)	5.54		10.94		12.07		12.37		16.47
Excluding accumulated other comprehensive income (loss)	$	31.14	$	32.28	$	33.38	$	34.37	$	35.34

Draft 8/7/2012

Calculation of Operating Income Return on Average Equity Rolling Twelve Months Ended June 30, 2012

(Dollars In Thousands)	Three Months												Twelve Months
(Unaudited)	9/30/2011			12/31/2011			3/31/2012			6/30/2012			6/30/2012
NUMERATOR:
Net income available to PLC’s common shareowners	$	82,857		$	86,034		$	99,021		$	76,155		$	344,067
Less:
Realized investment gains (losses), net of income tax
Investments	83,460			7,041			11,025			33,790			135,316
Derivatives	(59,744		)	(2,129		)	(14,734		)	(25,943		)	(102,550		)
Related amortization of DAC and VOBA, net of income tax	(5,036		)	(664		)	3,603			(2,561		)	(4,658		)
Add back:
Derivative gains related to Corp. debt and investments, net of income tax	—			—			—			—			—
Operating Income	$	64,177		$	81,786		$	99,127		$	70,869		$	315,959

					Total
					Protective Life
					Corporation’s
	Total				Shareowners’
	Protective Life		Accumulated		Equity Excluding
	Corporation’s		Other		Accumulated Other
	Shareowners’		Comprehensive		Comprehensive
	Equity		Income (Loss)		Income (Loss)
DENOMINATOR:
June 30, 2011	$	3,104,801	$	469,071	$	2,635,730
September 30, 2011	3,579,515		906,068		2,673,447
December 31, 2011	3,711,517		985,444		2,726,073
March 31, 2012	3,785,810		1,001,803		2,784,007
June 30, 2012	4,147,234		1,318,336		2,828,898
Total					$	13,648,155

Average					$	2,729,631

Operating Income Return on Average Equity					11.6		%

Draft 8/7/2012

Calculation of Operating Income Return on Average Equity Rolling Twelve Months Ended June 30, 2011

(Dollars In Thousands)	Three Months												Twelve Months
(Unaudited)	9/30/2010			12/31/2010			3/31/2011			6/30/2011			6/30/2011
NUMERATOR:
Net income available to PLC’s common shareowners	$	55,762		$	81,383		$	58,878		$	87,623		$	283,646
Less:
Realized investment gains (losses), net of income tax
Investments	67,062			(50,214		)	(774		)	32,129			48,203
Derivatives	(59,324		)	66,541			(5,422		)	(19,396		)	(17,601		)
Related amortization of DAC and VOBA, net of income tax	(760		)	723			2,551			(468		)	2,046
Add back:
Derivative gains related to Corp. debt and investments, net of income tax	27			27			—			—			54
Operating Income	$	48,811		$	64,360		$	62,523		$	75,358		$	251,052

					Total
					Protective Life
					Corporation’s
	Total				Shareowners’
	Protective Life		Accumulated		Equity Excluding
	Corporation’s		Other		Accumulated Other
	Shareowners’		Comprehensive		Comprehensive
	Equity		Income (Loss)		Income (Loss)
DENOMINATOR:
June 30, 2010	$	2,605,378	$	189,818	$	2,415,560
September 30, 2010	3,086,756		624,562		2,462,194
December 31, 2010	2,841,188		307,850		2,533,338
March 31, 2011	2,919,665		334,944		2,584,721
June 30, 2011	3,104,801		469,071		2,635,730
Total					$	12,631,543

Average					$	2,526,309

Operating Income Return on Average Equity					9.9		%

Draft 8/7/2012

Calculation of Net Income Available to PLC’s common shareowners Return on Average Equity Rolling Twelve Months Ended June 30, 2012

(Dollars In Thousands)	Three Months								Twelve Months
(Unaudited)	9/30/2011		12/31/2011		3/31/2012		6/30/2012		6/30/2012
NUMERATOR:
Net income available to PLC’s common shareowners	$	82,857	$	86,034	$	99,021	$	76,155	$	344,067

					Total
					Protective Life
					Corporation’s
	Total				Shareowners’
	Protective Life		Accumulated		Equity Excluding
	Corporation’s		Other		Accumulated Other
	Shareowners’		Comprehensive		Comprehensive
	Equity		Income (Loss)		Income (Loss)
DENOMINATOR:
June 30, 2011	$	3,104,801	$	469,071	$	2,635,730
September 30, 2011	3,579,515		906,068		2,673,447
December 31, 2011	3,711,517		985,444		2,726,073
March 31, 2012	3,785,810		1,001,803		2,784,007
June 30, 2012	4,147,234		1,318,336		2,828,898
Total					$	13,648,155

Average					$	2,729,631

Net income available to PLC’s common shareowners Return on Average Equity					12.6		%

Draft 8/7/2012

Calculation of Net Income available to PLC’s common shareowners Return on Average Equity Rolling Twelve Months Ended June 30, 2011

(Dollars In Thousands)	Three Months								Twelve Months
(Unaudited)	9/30/2010		12/31/2010		3/31/2011		6/30/2011		6/30/2011
NUMERATOR:
Net income available to PLC’s common shareowners	$	55,762	$	81,383	$	58,878	$	87,623	$	283,646

					Total
					Protective Life
					Corporation’s
	Total				Shareowners’
	Protective Life		Accumulated		Equity Excluding
	Corporation’s		Other		Accumulated Other
	Shareowners’		Comprehensive		Comprehensive
	Equity		Income (Loss)		Income (Loss)
DENOMINATOR:
June 30, 2010	$	2,605,378	$	189,818	$	2,415,560
September 30, 2010	3,086,756		624,562		2,462,194
December 31, 2010	2,841,188		307,850		2,533,338
March 31, 2011	2,919,665		334,944		2,584,721
June 30, 2011	3,104,801		469,071		2,635,730
Total					$	12,631,543

Average					$	2,526,309

Net income available to PLC’s common shareowners Return on Average Equity					11.2		%

Draft 8/7/2012

Summary of Impact of DAC Accounting & Operating Definition Change

(Dollars In Thousands)	1ST QTR			2ND QTR			3RD QTR			4TH QTR			12 MOS
(Unaudited)	2011			2011			2011			2011			2011

GAAP Consolidated Statement of Income Data:

Pre-tax Operating Income (Loss) (1)
Life Marketing as originally reported	$	26,239		$	33,704		$	20,321		$	36,010		$	116,274
DAC change	(6,966		)	(3,441		)	(7,544		)	(2,200		)	(20,151		)
Life Marketing as adjusted	19,273			30,263			12,777			33,810			96,123

Asset Protection as originally reported	6,542			5,530			6,019			6,571			24,662
DAC change	310			155			145			135			745
Asset Protection as adjusted	6,852			5,685			6,164			6,706			25,407

Annuities as originally reported	13,085			24,375			43,784			29,482			110,726
DAC change	(4,935		)	(5,237		)	(4,179		)	(4,451		)	(18,802		)
VA change to operating income	10,490			(1,960		)	(19,429		)	(801		)	(11,700		)
Annuities as adjusted	18,640			17,178			20,176			24,230			80,224

Stable Value Products	9,195			19,142			14,217			14,226			56,780
Acquisitions	32,391			39,429			44,028			41,545			157,393
Corporate & Other	10,021			3,977			(3,815		)	(4,416		)	5,767

Total Pre-tax Operating Income as originally reported	97,473			126,157			124,554			123,418			471,602
DAC change	(11,591		)	(8,523		)	(11,578		)	(6,516		)	(38,208		)
VA change to operating income	10,490			(1,960		)	(19,429		)	(801		)	(11,700		)
Total Pre-tax Operating Income as adjusted	96,372			115,674			93,547			116,101			421,694

Income before income tax as originally reported	104,095			143,273			131,203			128,581			507,152
DAC change	(13,381		)	(8,434		)	(8,917		)	(5,944		)	(36,676		)
Income before income tax as adjusted	90,714			134,839			122,286			122,637			470,476

Net Income Available to PLC’s Common Shareowners as originally reported	67,517			93,068			88,614			89,871			339,070
DAC change	(8,639		)	(5,445		)	(5,757		)	(3,837		)	(23,678		)
Net Income Available to PLC’s Common Shareowners as adjusted	58,878			87,623			82,857			86,034			315,392

Per Share Data (Diluted):
Operating Earnings per Share as originally reported (1)	$	0.72		$	0.94		$	0.98		$	1.02		$	3.65
DAC change	(0.09		)	(0.06		)	(0.09		)	(0.05		)	(0.28		)
VA change to operating income	0.08			(0.02		)	(0.15		)	—			(0.09		)
Operating Earnings per Share as adjusted	$	0.71		$	0.86		$	0.74		$	0.97		$	3.28

Net Income Available to PLC’s Common Shareowners as originally reported	$	0.77		$	1.06		$	1.03		$	1.06		$	3.92
DAC change	(0.10		)	(0.06		)	(0.07		)	(0.04		)	(0.27		)
Net Income Available to PLC’s Common Shareowners as adjusted	$	0.67		$	1.00		$	0.96		$	1.02		$	3.65

(1) “Operating income” is a non-GAAP financial measure. “Net income available to PLC’s common shareowners” is a GAAP financial measure to which “Operating Income” may be compared.

Draft 8/7/2012

Summary of Impact of DAC Accounting Change

(Dollars In Thousands)	1ST QTR			2ND QTR			3RD QTR			4TH QTR
(Unaudited)	2011			2011			2011			2011

GAAP Consolidated Balance Sheet Data:

Total GAAP Assets as originally reported	$	48,295,466		$	50,987,849		$	52,023,403		$	52,932,085
DAC change	(771,013		)	(775,521		)	(779,092		)	(788,716		)
Total GAAP Assets as adjusted	$	47,524,453		$	50,212,328		$	51,244,311		$	52,143,369

Total PLC’s Shareowners’ Equity as originally reported	3,417,209			3,605,238			4,082,235			4,220,465
DAC change	(497,544		)	(500,437		)	(502,720		)	(508,948		)
Total PLC’s Shareowners’ Equity as adjusted	$	2,919,665		$	3,104,801		$	3,579,515		$	3,711,517

Total PLC’s Shareowners’ Equity Excluding AOCI as originally reported (1)	3,097,855			3,154,309			3,197,783			3,254,246
DAC change	(513,134		)	(518,579		)	(524,336		)	(528,173		)
Total PLC’s Shareowners’ Equity Excluding AOCI as adjusted (1)	$	2,584,721		$	2,635,730		$	2,673,447		$	2,726,073

Per Share Data (Common Shares Outstanding):

Total PLC’s Shareowners’ Equity as originally reported	39.87			42.59			49.30			51.68
DAC change	(5.80		)	(5.91		)	(6.08		)	(6.23		)
Total PLC’s Shareowners’ Equity as adjusted	$	34.07		$	36.68		$	43.22		$	45.45

Total PLC’s Shareowners’ Equity Excluding AOCI as originally reported (1)	36.15			37.26			38.61			39.85
DAC change	(5.99		)	(6.12		)	(6.33		)	(6.47		)
Total PLC’s Shareowners’ Equity Excluding AOCI as adjusted (1)	$	30.16		$	31.14		$	32.28		$	33.38

(1) “Total PLC’s Shareowners’ Equity excluding accumulated other comprehensive income (loss)” is a non-GAAP financial measure. “Total PLC Shareowners’ equity” is a GAAP financial measure to which “Total PLC’s Shareowners’ Equity excluding accumulated other comprehensive income (loss)” can be compared.

Draft 8/7/2012

Summary of Impact of DAC Accounting & Operating Definition Change

(Dollars In Thousands)
(Unaudited)	2007			2008			2009			2010

GAAP Consolidated Statement of Income Data:

Pre-tax Operating Income (Loss) (1)
Life Marketing as originally reported	$	189,186		$	188,535		$	137,826		$	147,470
DAC change	(48,411		)	(42,714		)	(30,018		)	(23,606		)
Life Marketing as adjusted	140,775			145,821			107,808			123,864

Asset Protection as originally reported	41,559			30,789			23,229			29,897
DAC change	244			1,729			3,019			1,594
Asset Protection as adjusted	41,803			32,518			26,248			31,491

Annuities as originally reported	23,051			18,707			56,642			53,901
DAC change	(18,201		)	(27,212		)	(15,997		)	(22,689		)
VA change to operating income	—			16,744			(18,591		)	20,951
Annuities as adjusted	4,850			8,239			22,054			52,163

Stable Value Products	50,231			89,811			61,963			39,207
Acquisitions	129,247			136,479			133,760			111,143
Corporate & Other	(3,416		)	(105,986		)	81,980			(25,053		)

Total Pre-tax Operating Income as originally reported	429,858			358,335			495,400			356,565
DAC change	(66,368		)	(68,197		)	(42,996		)	(44,701		)
VA change to operating income	—			16,744			(18,591		)	20,951
Total Pre-tax Operating Income as adjusted	363,490			306,882			433,813			332,815

Income before income tax as originally reported	436,088			(75,131		)	416,778			388,863
DAC change	(66,368		)	(68,197		)	(34,593		)	(54,091		)
Income before income tax as adjusted	369,720			(143,328		)	382,185			334,772

Net Income Available to PLC’s Common Shareowners	289,566			(41,855		)	271,488			260,241
DAC change	(42,837		)	(44,031		)	(22,351		)	(34,927		)
Net Income Available to PLC’s Common Shareowners	246,729			(85,886		)	249,137			225,314

Per Share Data (Diluted):
Operating Earnings per Share as originally reported (1)	$	3.99		$	3.37		$	3.97		$	2.73
DAC change	(0.60		)	(0.62		)	(0.34		)	(0.33		)
VA change to operating income	—			0.15			(0.15		)	0.15
Operating Earnings per Share as adjusted	$	3.39		$	2.90		$	3.48		$	2.55

Net Income Available to PLC’s Common Shareowners as originally reported	$	4.05		$	(0.59	)	$	3.34		$	2.97
DAC change	(0.60		)	(0.62		)	(0.27		)	(0.40		)
Net Income Available to PLC’s Common Shareowners as adjusted	$	3.45		$	(1.21	)	$	3.07		$	2.57

(1) “Operating income” is a non-GAAP financial measure. “Net income available to PLC’s common shareowners” is a GAAP financial measure to which “Operating Income” may be compared.

Draft 8/7/2012

Summary of Impact of DAC Accounting Change

(Dollars In Thousands)
(Unaudited)	2007			2008			2009			2010

GAAP Consolidated Balance Sheet Data:

Total GAAP Assets as originally reported	$	41,786,041		$	39,572,449		$	42,311,587		$	47,562,786
DAC change	(624,656		)	(729,089		)	(728,036		)	(759,163		)
Total GAAP Assets as adjusted	$	41,161,385		$	38,843,360		$	41,583,551		$	46,803,623

Total PLC’s Shareowners’ Equity as originally reported	2,456,761			761,095			2,478,821			3,331,087
DAC change	(403,135		)	(470,538		)	(469,892		)	(489,899		)
Total PLC’s Shareowners’ Equity as adjusted	$	2,053,626		$	290,557		$	2,008,929		$	2,841,188

Total PLC’s Shareowners’ Equity Excluding AOCI as originally reported (1)	2,537,290			2,428,151			2,799,990			3,037,833
DAC change	(403,186		)	(447,217		)	(469,568		)	(504,495		)
Total PLC’s Shareowners’ Equity Excluding AOCI as adjusted (1)	$	2,134,104		$	1,980,934		$	2,330,422		$	2,533,338

Per Share Data (Common Shares Outstanding):

Total PLC’s Shareowners’ Equity as originally reported	35.02			10.89			28.96			38.88
DAC change	(5.74		)	(6.73		)	(5.49		)	(5.71		)
Total PLC’s Shareowners’ Equity as adjusted	$	29.28		$	4.16		$	23.47		$	33.17

Total PLC’s Shareowners’ Equity Excluding AOCI as originally reported (1)	36.17			34.74			32.72			35.46
DAC change	(5.75		)	(6.40		)	(5.49		)	(5.89		)
Total PLC’s Shareowners’ Equity Excluding AOCI as adjusted (1)	$	30.42		$	28.34		$	27.23		$	29.57

PROTECTIVE LIFE CORP - FORM 8-K - EX-99.2 - August 7, 2012

Attached files

PROTECTIVE LIFE CORP Reports