Edgar Filing: PROTECTIVE LIFE CORP

plc_10q.htm



UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2007
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to _______
Commission File Number 001-11339
Protective Life Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)	95-2492236 (IRS Employer Identification No.)
2801 Highway 280 South Birmingham, Alabama 35223 (Address of principal executive offices and zip code)
(205) 268-1000 (Registrant's telephone number, including area code)
____________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer ý Accelerated Filer o Non-accelerated filer o Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
Number of shares of Common Stock, $0.50 par value, outstanding as of November 7, 2007: 70,148,063

PROTECTIVE LIFE CORPORATION Quarterly Report on Form 10-Q For Quarter Ended September 30, 2007 INDEX

Part I.	Financial Information:
Item 1.		Financial Statements (unaudited):
Consolidated Condensed Statements of Income for the
Three and Nine Months ended September 30, 2007 and 2006
Consolidated Condensed Balance Sheets as of September 30, 2007
and December 31, 2006
Consolidated Condensed Statements of Cash Flows for the
Nine Months ended September 30, 2007 and 2006
Notes to Consolidated Condensed Financial Statements

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

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Item 4.		Controls and Procedures

Part II.	Other Information:
Item 1A.		Risk Factors

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

Item 6.		Exhibits


Signature

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars In Thousands, Except Per Share Amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2007			2006			2007			2006
Revenues
Premiums and policy fees	$	676,500		$	637,457		$	2,024,682		$	1,651,362
Reinsurance ceded		(368,878	)		(371,688	)		(1,162,641	)		(960,127	)
Net of reinsurance ceded		307,622			265,769			862,041			691,235
Net investment income		428,792			410,746			1,254,910			1,010,545
Realized investment (losses) gains:
Derivative financial instructions		(37,467	)		(55,302	)		36,523			(46,764	)
All other investments		43,114			78,645			(10,201	)		98,461
Other income		51,874			62,355			183,118			164,490
Total revenues		793,935			762,213			2,326,391			1,917,967
Benefits and expenses
Benefits and settlement expenses, net of reinsurance ceded:
(three months: 2007 - $360,749; 2006 - $299,119
nine months: 2007 - $1,112,579; 2006 - $846,244)		504,905			488,948			1,431,639			1,174,493
Amortization of deferred policy acquisition costs and value
of businesses acquired		73,863			67,199			228,279			151,383
Other operating expenses, net of reinsurance ceded:
(three months: 2007 - $62,470; 2006 - $176,894
nine months: 2007 - $209,762; 2006 - $271,888)		107,750			118,168			324,287			290,850
Total benefits and expenses		686,518			674,315			1,984,205			1,616,726
Income before income tax		107,417			87,898			342,186			301,241
Income tax expense		34,425			30,597			113,506			104,862
Net income	$	72,992		$	57,301		$	228,680		$	196,379
Net income per share - basic	$	1.03		$	0.81		$	3.22		$	2.77
Net income per share - diluted	$	1.02		$	0.80		$	3.20		$	2.75
Cash dividends paid per share	$	0.225		$	0.215		$	0.665		$	0.625
Average share outstanding - basic		71,074,619			70,811,292			71,055,969			70,789,982
Average share outstanding - diluted		71,467,009			71,355,221			71,481,471			71,431,304

See Notes to Consolidated Condensed Financial Statements

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars In Thousands, Except Per Share Amounts)

(Unaudited)

	September 30,			December 31,
	2007			2006
Assets
Investments:
Fixed maturities, at fair market value (amortized cost: 2007 - $22,362,479; 2006 - $21,194,871)	$	22,278,777		$	21,367,263
Equity securities, at fair market value (cost: 2007 - $69,960; 2006 - $121,823)		73,237			128,695
Mortgage loans		4,193,776			3,880,028
Investment real estate, net of accumulated depreciation (2007 - $260; 2006 - $5,483)		9,735			38,918
Policy loans		816,958			839,502
Other long-term investments		183,667			310,225
Short-term investments		1,105,393			1,381,073
Total investments		28,661,543			27,945,704
Cash		175,420			69,516
Accrued investment income		277,696			284,529
Accounts and premiums receivable, net of allowance for uncollectible amounts
$(2007-3,336;2006-$4,140)		234,351			194,447
Reinsurance receivables		4,956,979			4,618,122
Deferred policy acquisition costs and value of businesses acquired		3,393,961			3,198,735
Goodwill		118,032			100,479
Property and equipment, net of accumulated depreciation (2007 - $108,257; 2006 - $109,718)		42,510			43,796
Other assets		162,930			165,656
Income tax receivable		128,143			116,318
Assets related to separate accounts
Variable annuity		2,955,534			2,750,129
Variable universal life		354,070			307,863
Total assets	$	41,461,169		$	39,795,294
Liabilities
Policy liabilities and accruals	$	17,029,708		$	16,059,930
Stable value product account balances		4,988,787			5,513,464
Annuity account balances		8,882,935			8,958,089
Other policyholders' funds		353,301			328,664
Securities sold under repurchase agreement		144,200			16,949
Other liabilities		1,324,921			1,323,375
Deferred income taxes		439,495			374,486
Non-recourse funding obligations		1,175,000			425,000
Liabilities related to variable interest entities		400,000			420,395
Long-term debt		482,852			479,132
Subordinated debt securities		524,743			524,743
Liabilities related to separate accounts
Variable annuity		2,955,534			2,750,129
Variable universal life		354,070			307,863
		39,055,546			37,482,219
Commitments and contingent liabilities - Note 3
Share-owners' equity
Preferred Stock; $1 par value, shares authorized: 4,000,000; Issued: None
Common Stock, $.50 par value, shares authorized: 2007 and 2006 - 160,000,000
shares issued: 2007 and 2006 - 73,251,960		36,626			36,626
Additional paid-in capital		443,912			438,485
Treasury stock, at cost (2007 - 3,104,034 shares; 2006 - 3,287,312 shares)		(11,140	)		(11,796	)
Unallocated stock in Employee Stock Ownership Plan
(2007 - 259,139 shares; 2006 - 366,243 shares)		(852	)		(1,231	)
Retained earnings		2,022,788			1,838,560
Accumulated other comprehensive income (loss):
Net unrealized (losses) gains on investments, net of income tax:
$ (2007-$(28,241);2006-$22,109)		(48,842	)		41,405
Accumulated gain (loss) - hedging, net of income tax: (2007 - $(8,377); 2006 - $(3,179))		(15,096	)		(5,954	)
Postretirement benefits liability adjustment, net of income tax: (2007 - $(11,724); 2006 - $(12,292))		(21,773	)		(23,020	)
Total share-owners' equity		2,405,623			2,313,075
	$	41,461,169		$	39,795,294

See Notes to Consolidated Condensed Financial Statements

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars In Thousands)

(Unaudited)

	Nine Months Ended
	September 30
	2007			2006
Cash flows from operating activities
Net income	$	228,680		$	196,379
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) / losses		(26,322	)		(51,697	)
Amortization of deferred policy acquisition costs and value of business acquired		228,279			151,383
Capitalization of deferred policy acquisition costs		(348,730	)		(270,310	)
Depreciation expense		5,832			9,943
Deferred income tax		130,010			(32,152	)
Accrued income tax		(11,638	)		155,127
Interest credited to universal life and investment products		753,170			631,131
Policy fees assessed on universal life and investment products		(423,823	)		(342,255	)
Change in reinsurance receivables		(338,857	)		(396,811	)
Change in accrued investment income and other receivables		(33,071	)		(11,320	)
Change in policy liabilities and other policyholders'		200,778			555,208
Trading securities:
Maturities and principal reductions of investments		316,189			104,558
Sale of investments		1,605,326			2,487,491
Cost of investments acquired		(2,019,909	)		(2,181,807	)
Other net change in trading securities		212,076			(153,812	)
Change in other liabilities		173,298			84,737
Other, net		(60,041	)		495
Net cash provided by operating activities		591,247			936,288
Cash flows from investing activities
Investments available for sale:
Maturities and principal reductions of investments
Fixed maturities		1,007,775			876,495
Equity securities		0			0
Sale of investments
Fixed maturities		1,682,413			3,868,845
Equity securities		61,547			3,627
Cost of investments acquired
Fixed maturities		(3,690,327	)		(4,314,116	)
Equity securities		(1,752	)		(3,343	)
Mortgage loans:
New borrowings		(684,495	)		(722,318	)
Repayments		367,475			357,627
Change in investment real estate, net		36,041			42,258
Change in policy loans, net		22,544			3,616
Change in other long-term investments, net		(1,537	)		11,787
Change in short-term investments, net		38,933			(293,606	)
Purchase of property and equipment		(12,555	)		(4,682	)
Sales of property and equipment		4,094			(567,180	)
Net cash used in investing activities		(1,169,844	)		(740,990	)
Cash flows from financing activities
Borrowings under line of credit arrangements and long-term debt		142,000			141,600
Issuance of capital securities		0			200,000
Principal payments on line of credit arrangement and long-term debt		(138,280	)		(153,000	)
Net proceeds from securities sold under repurchase agreements		127,251			0
Payments on liabilities related to variable interest entities		(20,395	)		(12,337	)
Issuance of non-recourse funding obligations		750,000			125,000
Dividends to share owners		(46,598	)		(43,679	)
Investments product deposits and change in universal life deposits		2,739,113			1,808,908
Investment product withdrawals		(2,773,473	)		(2,231,996	)
Excess tax benefits on stock based compensation		1,653			2,865
Other financing activities, net		(96,770	)		(77,044	)
Net cash provided by (used in) financing activities		684,501			(239,683	)
Change in cash		105,904			(44,385	)
Cash at beginning of period		69,516			83,670
Cash at end of period	$	175,420		$	39,285

See Notes to Consolidated Condensed Financial Statements

PROTECTIVE LIFE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated condensed financial statements of Protective Life Corporation and subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three and nine month periods ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006.

Accounting Pronouncements Recently Adopted

Statement of Position 05-1. Effective January 1, 2007, the Company adopted the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AcSEC”) Statement of Position (“SOP”) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“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. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. Contract modifications that result in a substantially unchanged contract will be accounted for as a continuation of the replaced contract. Contract modifications that result in a substantially changed contract should be accounted for as an extinguishment of the replaced contract, and any unamortized deferred policy acquisition costs (“DAC”), unearned revenue and deferred sales charges must be written off. The Company recorded no cumulative effect adjustment related to this adoption and does not expect it to have a material impact on its ongoing financial position or results of operations.

SFAS No. 155 - Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140. Effective January 1, 2007, the Company adopted SFAS No. 155, Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140. SFAS 155 (1) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (2) clarifies which interest only (IO) strips and principal only (PO) strips are not subject to the requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, (3) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (4) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and (5) amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (as amended), to eliminate the prohibition on a qualifying special purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. The adoption of SFAS 155 resulted in a positive cumulative effect adjustment to opening retained earnings of approximately $2.0 million ($1.3 million net of taxes), related to the Company’s equity indexed annuity product line.

FASB Interpretation No. 48. Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of an income tax position taken or expected to be taken in an income tax return and provides guidance on disclosure. Additionally, this interpretation requires, in order for the Company to recognize a benefit in its financial statements from a given tax return position, that there must be a greater than 50 percent chance of success with the relevant taxing authority with regard to that tax return position. In making this analysis, the Company must assume that the taxing authority is fully informed of all of the facts regarding this issue. Furthermore, new disclosures regarding the effect of the accounting for uncertain tax positions on the financial statements will be required.

As a result of the implementation of FIN 48, the Company recognized a $0.9 million decrease in the liability for unrecognized income tax benefits, which was accounted for as an increase to the January 1, 2007 retained earnings balance. The Company’s liability for all unrecognized income tax benefits as of January 1, 2007 was $23.9 million. If recognized, approximately $3.2 million would be recorded as a component of income tax expense. Using information available as of September 30, 2007, the Company believes it is reasonably possible that in the next 12 months, none of the unrecognized tax benefits will be recognized due to the expiration of the relevant statute of limitations.

Any accrued interest and penalties related to unrecognized tax benefits have been included in income tax expense. The Company had approximately $5.9 million of accrued interest associated with unrecognized tax benefits as of January 1, 2007.

There has been no significant change to the Company’s unrecognized income tax benefits position as of September 30, 2007. During the quarter ended September 30, 2007, the Company released approximately $3.3 million of previously unrecognized tax benefits (including accrued interest), an amount which is immaterial to the Company's financial statements, as a result of the closing of the statute of limitations for the 2003 tax year. The Company’s 2004 through 2006 income tax returns remain open to examination by the Internal Revenue Service and major state income taxing jurisdictions.

Accounting Pronouncements Not Yet Adopted

SFAS No. 157 - Fair Value Measurements. In September 2006, FASB issued SFAS No. 157, Fair Value Measurements. This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 is effective for the Company on January 1, 2008. The Company is currently evaluating the impact, if any, that SFAS 157 will have on its consolidated results of operations and financial position.

SFAS No. 159 - The Fair Value Option for Financial Assets and Financial Liabilities. In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115. This standard permits entities to choose to measure eligible financial assets and financial liabilities at fair value. SFAS 159 is effective for the Company beginning January 1, 2008. The Company has not yet made a decision as to whether or not it will elect the fair value option for any financial assets or financial liabilities. As a result, the Company does not know what impact, if any, that SFAS 159 will have on its consolidated results of operations and financial position.

Statement of Position 07-1. In September 2007, the AcSEC issued SOP 07-1, Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies. SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide (“AAG”), Audits of Investment Companies. In addition, for such entities, SOP 07-1 provides guidance concerning whether specialized industry accounting principles as set forth in the AAG should be applied by a parent company in consolidation or by an equity method investor in an investment company. The effective date of SOP 07-1 is not clear at this point as the FASB decided to issue a proposed FASB Staff Position that would indefinitely defer the effective date. The Company is currently evaluating the impact, if any, that SOP 07-1 would have on its consolidated results of operations and financial position.

Reclassifications

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or share-owners' equity. Included in these reclassifications is a change in the Consolidated Condensed Statement of Cash Flows to remove the effects of policy fees assessed on universal life and investment products from financing activities. While this had no effect on total cash flow, for the nine months ended September 30, 2006, net cash provided by operating activities was decreased and net cash provided by financing activities was increased by $342.3 million.

2.	NON-RECOURSE FUNDING OBLIGATIONS

Non-Recourse Funding Obligations

In July 2007, Golden Gate II Captive Insurance Company (“Golden Gate II”), a special purpose financial captive insurance company wholly owned by Protective Life Insurance Company (“Protective Life”), itself a wholly owned and consolidated subsidiary of the Company, issued $575 million in aggregate principal amount of floating rate surplus notes due July 15, 2052 (the “Notes”). Golden Gate II has received regulatory approval to issue additional series of its floating rate surplus notes up to an aggregate of $675 million principal amount of surplus notes (including the Notes). The Notes are direct financial obligations of Golden Gate II and were issued to fund statutory reserves required by the Valuation of Life Insurance Policies Model Regulation (“Regulation XXX”), as clarified by Actuarial Guideline 38 (commonly known as “AXXX”).

Golden Gate II has reinsured from Protective Life certain universal life insurance policies with secondary guarantees on a combination coinsurance and modified coinsurance basis. The Notes were sold for deposit into certain Delaware trusts (the “Trusts”) that issued money market securities and term securities that reset relating to money market securities after a specified period (the “Securities”). The holders of Notes cannot require repayment from the Company, Protective Life or any of their affiliates, other than Golden Gate II, the direct issuer of the Notes. The Company has agreed, under certain circumstances, to make certain liquidity advances to the Trusts not in excess of specified amounts of assets held in a reinsurance trust of which Protective Life is the beneficiary and Golden Gate II is the grantor in the event that the Trusts do not have sufficient funds available to fully redeem the Securities at the stated maturity date. The Company’s obligation to make any such liquidity advance is subject to it having a first priority security interest in the residual interest in such reinsurance trust and in the Notes.

Golden Gate II will pay interest on the principal amount of the Notes on a monthly basis, subject to regulatory approval. Any payment principal of, including by redemption, or interest on the Notes may only be made with the prior approval of the Director of Insurance of the State of South Carolina in accordance with the terms of Golden Gate II’s licensing order and in accordance with applicable law. The holders of the Notes have no rights to accelerate payment of principal on the Notes under any circumstances, including without limitation, for nonpayment or breach of any covenant. Golden Gate II reserves the right to repay the Notes at any time, subject to the terms of the Notes and prior regulatory approval.

Including the Golden Gate II notes mentioned above, the Company (including wholly owned and consolidated subsidiaries) has issued a total of $750 million of non–recourse funding obligations during the first nine months of 2007, bringing the total amount outstanding to $1.175 billion as of September 30, 2007. The following table shows the non-recourse funding obligations outstanding as of September 30, 2007, listed by issuer.

				Year to Date
				Weighted Avg
Issuer	Balance		Maturity Year	Interest Rate
	(Dollars in Thousands)
Golden Gate Captive Insurance Company	$	600,000	2037		6.90	%
Golden Gate II Captive Insurance Company		575,000	2052		6.00	%
Total	$	1,175,000

3.	COMMITMENTS AND CONTINGENT LIABILITIES

The Company is contingently liable to obtain a $20 million letter of credit under indemnity agreements with its directors. Such agreements provide insurance protection in excess of the directors’ liability insurance in force at the time up to $20 million. Should certain events occur constituting a change in control of the Company, the Company must obtain the letter of credit upon which directors may draw for defense or settlement of any claim relating to performance of their duties as directors. The Company has similar agreements with certain of its officers providing up to $10 million in indemnification that are not secured by the obligation to obtain a letter of credit.

Under insurance guaranty fund laws, in most states insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.

A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business, is involved in such litigation and in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

4.	STOCK-BASED COMPENSATION

Performance shares awarded during the first nine months of 2007 and 2006, and their estimated fair value at grant date are as follows:

Year	Performance	Estimated	Year	Performance	Estimated
Awarded	Shares	Fair Value	Awarded	Shares	Fair Value
(Dollars in Thousands, Except Share Amounts)
2007	64,700	$2,800	2006	135,280	$6,500

The criteria for payment of 2007 performance awards is based primarily upon a comparison of the Company’s average return on average equity over a four-year period (earlier upon the death, disability, or retirement of the executive, or in certain circumstances, upon a change in control of the Company) to that of a comparison group of publicly held life and multi-line insurance companies. If the Company’s results are below the median of the comparison group (40^th percentile for 2007 awards), no portion of the award is earned. If the Company’s results are at or above the 90^th percentile, the award maximum is earned. Awards are paid in shares of Company Common Stock.

During 2007, stock appreciation rights (“SARs”) were granted to certain officers of the Company to provide long-term incentive compensation based solely on the performance of the Company’s Common Stock. The SARs are exercisable in four equal annual installments beginning one year after the date of grant (earlier upon the death, disability, or retirement of the officer, or in certain circumstances, upon a change in control of the Company) and expire after ten years or upon termination of employment. The SARs activity as well as weighted average base price for the first nine months of 2007 is as follows:

	Weighted-Average		Number of
	Base Price		SARs
Balance at December 31, 2006	$	29.33	1,155,946
SARs granted		43.50	224,400
SARs exercised		(24.96)	(116,142)
Balance at September 30, 2007	$	32.25	1,264,204

The SARs issued in 2007 had estimated fair values at grant date of $2.5 million. The fair value of the 2007 SARs was estimated using a Black-Scholes option pricing model. The assumptions used in the pricing model varied depending on the vesting period of the awards. Assumptions used in the model for the 2007 SARs were as follows: expected volatility ranged from 16.2% to 31.0%, the risk-free interest rate ranged from 4.2% to 4.6%, a dividend rate of 1.9%, a zero forfeiture rate, and the expected exercise date ranged from 2012 to 2015. The Company will pay an amount in stock equal to the difference between the specified base price of the Company’s Common Stock and the market value at the exercise date for each SAR.

Additionally during 2007, the Company issued 30,250 restricted stock units at a fair value of $43.46 per unit. These awards, with a total fair value of $1.3 million, vest over a four year period.

5.	DEFINED BENEFIT PENSION PLAN AND UNFUNDED EXCESS BENEFITS PLAN

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

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2007			2006			2007			2006
	(Dollars in Thousands)

Service cost - Benefits earned during the period	$	2,016		$	2,407		$	6,657		$	6,709
Interest cost on projected benefit obligations		2,169			1,713			7,163			6,371
Expected return on plan assets		(2,405	)		(1,847	)		(7,943	)		(7,619	)
Amortization of prior service cost		46			35			152			153
Amortization of actuarial losses		699			719			2,309			2,765
Net periodic benefit cost	$	2,525		$	3,027		$	8,338		$	8,379

The Company previously disclosed in its financial statements for the year ended December 31, 2006, that it expected that no funding would be required in 2007. The Company has not yet determined the amount, if any, that it will contribute to its defined benefit pension plan during 2007. As of September 30, 2007, no contributions have been made to the defined benefit pension plan.

In addition to pension benefits, the Company provides limited healthcare benefits and life insurance benefits to eligible retirees who are not yet eligible for Medicare. The cost of these plans for the nine months ended September 30, 2007 and 2006 was immaterial to the Company’s financial position.

6.	EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period, including shares issuable under various deferred compensation plans. Diluted earnings per share is computed by dividing net income by the weighted-average number of common shares and dilutive potential common shares outstanding during the period, including shares issuable under various stock-based compensation plans and stock purchase contracts.

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

	Three Months Ended				Nine Months Ended
	September 30				September 30
	2007		2006		2007		2006
	(Dollars In Thousands, Except Per Share Amount)
Calculation of basic earnings per share:
Net income	$	72,992	$	57,301	$	228,680	$	196,379
Average share issued and outstanding		70,031,170		69,807,783		70,019,383		69,801,909
Issuable under various deferred compensation plans		1,043,449		1,003,509		1,036,586		988,073
Weighted shares outstanding - Basic		71,074,619		70,811,292		71,055,969		70,789,982
Basic earnings per share	$	1.03	$	0.81	$	3.22	$	2.77
Calculation of diluted earnings per share:
Net income	$	72,992	$	57,301	$	228,680	$	196,379
Weighted shares outstanding - Basic		71,074,619		70,811,292		71,055,969		70,789,982
Stock appreciation rights ("SARs")^(a)		215,107		267,182		243,930		291,044
Issuable under various other stock-back compensation plans		165,869		276,747		172,337		350,278
Restricted stock units		11,414		0		9,235		0
Weighted shares outstanding - Diluted		71,467,009		71,355,221		71,481,471		71,431,304
Diluted earnings per share	$	1.02	$	0.80	$	3.20	$	2.75

^(a) Excludes 358,820 and 144,100 SARs as of September 30, 2007 and 2006, respectively, that are antidilutive. In the event the average market price exceeds the issue price of the SARs, such rights would be dilutive to the Company's earnings per share and will be included in the Company's calculation of the diluted average shares outstanding.

7.	COMPREHENSIVE INCOME

The following table sets forth the Company's comprehensive income (loss) for the periods presented below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
	(Dollars In Thousands)						(Dollars In Thousands)
Net income	$	72,992		$	57,301		$	228,680		$	196,379
Change in net unrealized gains / (losses) on investments, net of income tax:
(three months: 2007 - $33,525; 2006 - $134,634
nine months: 2007 - $(46,191); 2006 - $(889))		61,916			252,245			(84,584	)		(1,666	)
Change in accumulated gain / (loss)-hedging, net of income tax:
(three months: 2007 - $(4,303); 2006 - $(7,844)
nine months: 2007 - $(5,251); 2006 - $(6,272))		(7,753	)		(14,696	)		(9,461	)		(11,745	)
Minimum pension liability adjustment, net of income tax:
(three months: 2007 - $672; 2006 - $0
nine months: 2007 - $672; 2006 - $(1,138))		1,247			0			1247			(2,132	)
Reclassification adjustment for hedging amounts included in
net income, net of tax:
(three months: 2007 - $278; 2006 - $0
nine months: 2007 - $177; 2006 - $0)		500			0			319			0
Reclassification adjustment for amounts included in net income,
net of income tax:
(three months: 2007 - $(1,347); 2006 - $(26,597)
nine months: 2007 - $(3,093); 2006 - $(27,384))		(2,489	)		(49,830	)		(5,663	)		(51,282	)
Comprehensive income	$	126,413		$	245,020		$	130,538		$	129,554

8.	OPERATING SEGMENTS

The Company operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows:

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

·	The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals.

·	The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through broker-dealers, but are also sold through financial institutions and independent agents and brokers.

The Stable Value Products segment sells guaranteed funding agreements to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts to 401(k) and other qualified retirement savings plans.

The Asset Protection segment primarily markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles, watercraft, and recreational vehicles. In addition, the segment markets a guaranteed asset protection product and an inventory protection product.

The Company has an additional segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on debt). This segment also includes earnings from several non-strategic lines of business (mostly cancer insurance, residual value insurance, surety insurance, and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

The Company uses the same accounting policies and procedures to measure segment operating income and assets as it uses to measure its consolidated net income and assets. Segment operating income is generally income before income tax excluding net realized investment gains and losses (net of the related amortization of DAC/value of businesses acquired (“VOBA”) and participating income from real estate ventures), and the cumulative effect of change in accounting principle. Periodic settlements of derivatives associated with corporate debt and certain investments and annuity products are included in realized gains and losses but are considered part of operating income because the derivatives are used to mitigate risk in items affecting consolidated and segment operating income. Segment operating income represents the basis on which the performance of the Company’s business is internally assessed by management. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC/VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.

There are no significant intersegment transactions.

The following table summarizes financial information for the Company’s segments.

	Three Months Ended						Nine Months Ended
	September 30						September 30
	2007			2006			2007			2006
	(Dollars In Thousands)						(Dollars In Thousands)
Revenues
Life Marketing	$	264,116		$	233,808		$	769,860		$	649,290
Acquisitions		221,430			249,547			680,582			451,503
Annuities		80,490			68,342			231,968			199,616
Stable Value Products		73,168			85,255			224,589			245,694
Asset Protection		87,463			81,035			249,704			216,487
Corporate and Other		67,268			44,226			169,688			155,377
Total revenues	$	793,935		$	762,213		$	2,326,391		$	1,917,967
Segment Operating Income (Loss)
Life Marketing	$	39,974		$	40,270		$	143,088		$	132,276
Acquisitions		30,375			32,060			93,438			70,924
Annuities		6,436			5,351			18,711			16,242
Stable Value Products		13,107			10,429			37,648			34,573
Asset Protection		9,905			(14,401	)		31,511			3,241
Corporate and Other		2,342			(3,929	)		2,819			14,582
Total segment operating income/(loss)		102,139			69,780			327,215			271,838
Realized investment gains (losses) - investments⁽¹⁾		43,070			72,266			(19,128	)		77,039
Realized investment gains (losses) - derivatives⁽²⁾		(37,792	)		(54,148	)		34,099			(47,636	)
Income tax expense		(34,425	)		(30,597	)		(113,506	)		(104,862	)
Net income	$	72,992		$	57,301		$	228,680		$	196,379

⁽¹⁾Realized investment gains (losses) - investments	$	43,114		$	78,645		$	(10,201	)	$	98,461
Less participating income from real estate ventures		0			0			6,857			13,494
Less related amortization of DAC		44			6,379			2,070			7,928
	$	43,070		$	72,266		$	(19,128	)	$	77,039

⁽²⁾ Realized investment gains (losses) - derivatives	$	(37,467	)	$	(55,302	)	$	36,523		$	(46,764	)
Less settlements on certain interest rate swaps		132			654			626			2,659
Less derivative gains/(losses) related to certain annuities		193			(1,808	)		1,798			(1,787	)
	$	(37,792	)	$	(54,148	)	$	34,099		$	(47,636	)

The following tables summarize asset information attributable to the Company’s segments. Asset adjustments incorporate the inclusion of assets related to discontinued operations. Certain reclassifications have been made in the previously reported amounts to make the prior period amounts comparable to those of the current period. Such reclassifications had no effect on previously reported net income or share-owners' equity.

	Operating Segment Assets
	September 30, 2007
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	9,567,972	$	11,276,189	$	7,661,019	$	4,978,761
Deferred policy acquisition costs and value of businesses acquired		2,040,219		989,974		212,934		16,947
Goodwill		10,192		45,408		0		0
Total assets	$	11,618,383	$	12,311,571	$	7,873,953	$	4,995,708

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	1,612,456	$	2,825,242	$	27,537	$	37,949,176
Deferred policy acquisition costs and value of businesses acquired		131,968		1,919		0		3,393,961
Goodwill		62,350		82		0		118,032
Total assets	$	1,806,774	$	2,827,243	$	27,537	$	41,461,169

	Operating Segment Assets
	December 31, 2006
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	8,041,854	$	11,841,460	$	6,952,149	$	5,369,107
Deferred policy acquisition costs and value of businesses acquired		1,846,219		1,022,369		164,675		16,603
Goodwill		10,354		32,007		0		0
Total assets	$	9,898,427	$	12,895,836	$	7,116,824	$	5,385,710

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	992,932	$	3,261,874	$	36,704	$	36,496,080
Deferred policy acquisition costs and value of businesses acquired		125,745		23,124		0		3,198,735
Goodwill		58,035		83		0		100,479
Total assets	$	1,176,712	$	3,285,081	$	36,704	$	39,795,294

9.	GOODWILL

During 2007, the Company increased its goodwill balance by approximately $13.3 million and $4.3 million, respectively, related to the acquisition of the Chase Insurance Group and Western General. Both of these acquisitions occurred during the third quarter of 2006. As of September 30, 2007, the Company had an aggregate goodwill balance of $118.0 million.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) relates to Protective Life Corporation and its subsidiaries (“the Company”) and should be read in conjunction with our consolidated condensed financial statements included under Part I, Item 1, Financial Statements (Unaudited), of this Quarterly Report on Form 10-Q and our audited consolidated financial statements for the year ended December 31, 2006 included in our Annual Report on Form 10-K. This MD&A contains detailed information that will assist in understanding our consolidated condensed financial statements and the Company’s results and financial condition.

FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

This report reviews the Company’s financial condition and results of operations including its liquidity and capital resources. Historical information is presented and discussed and where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts and may contain words like “believe,” “expect,” “estimate,” “project,” “budget,” “forecast,” “anticipate,” “plan,” “will,” “shall,” “may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties, which may cause actual results to differ materially from the results contained in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

For a more complete understanding of the Company’s business and its current period results, please read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the Company’s latest Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (the “SEC”).

OVERVIEW

The Company is a holding company whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company is the Company's largest operating subsidiary.

The Company operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. The Company's operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, and Asset Protection. The Company has an additional segment referred to as Corporate and Other which consists of net investment income on unallocated capital, interest on debt, earnings from various investment-related transactions, and the operations of several non-strategic lines of business. The Company periodically evaluates its operating segments in light of the segment reporting requirements prescribed by the Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosures about Segments of an Enterprise and Related Information, and makes adjustments to its segment reporting as needed.

KNOWN TRENDS AND UNCERTAINTIES

The factors which could affect the Company's future results include, but are not limited to, general economic conditions and the following known trends and uncertainties: we are exposed to the risks of natural disasters, pandemics, malicious and terrorist acts that could adversely affect our operations; we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry and negatively affect profitability; a ratings downgrade could adversely affect our ability to compete; our policy claims fluctuate from period to period resulting in earnings volatility; our results may be negatively affected should actual experience differ from management's assumptions and estimates; the use of reinsurance introduces variability in our statements of income; we could be forced to sell investments at a loss to cover policyholder withdrawals; interest rate fluctuations could negatively affect our spread income or otherwise impact our business; equity market volatility could negatively impact our business; insurance companies are highly regulated and subject to numerous legal restrictions and regulations; changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products; financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments; publicly held companies in general and the financial services industry in particular are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny; our ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business; our investments are subject to market and credit risks; we may not realize our anticipated financial results from our acquisitions strategy; we may not be able to achieve the expected results from our recent acquisition; we are dependent on the performance of others; our reinsurers could fail to meet assumed obligations, increase rates or be subject to adverse developments that could affect us; computer viruses or network security breaches could affect our data processing systems or those of our business partners and could damage our business and adversely affect our financial condition and results of operations; our ability to grow depends in large part upon the continued availability of capital; new accounting rules or changes to existing accounting rules could negatively impact us; our risk management policies and procedures may leave us exposed to unidentified or unanticipated risk, which could negatively affect our business or result in losses; and credit market volatility or the inability to access capital markets could adversely impact the Company’s financial condition or results from operations. Please refer to Exhibit 99 about these factors that could affect future results.

The Company’s results may fluctuate from period to period due to fluctuations in mortality, persistency, claims, expenses, interest rates, and other factors. Therefore, it is management's opinion that quarterly operating results for an insurance company are not necessarily indicative of results to be achieved in future periods, and that a review of operating results over a longer period is necessary to assess an insurance company's performance.

RESULTS OF OPERATIONS

In the following discussion, segment operating income is defined as income before income tax, excluding net realized investment gains and losses (net of the related amortization of deferred policy acquisition costs (“DAC”) and value of businesses acquired (“VOBA”) and participating income from real estate ventures). Periodic settlements of derivatives associated with corporate debt and certain investments and annuity products are included in realized gains and losses but are considered part of segment operating income because the derivatives are used to mitigate risk in items affecting segment operating income. Management believes that segment operating income 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 segment operating income may be significant components in understanding and assessing the Company’s overall financial performance, management believes that segment operating income enhances an investor’s understanding of the Company’s results of operations by highlighting the income (loss) attributable to the normal, recurring operations of the Company’s business. However, segment operating income should not be viewed as a substitute for accounting principles generally accepted in the United States of America (“U.S. GAAP”) net income. In addition, the Company’s segment operating income measures may not be comparable to similarly titled measures reported by other companies.

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

	Three Months Ended									Nine Months Ended
	September 30									September 30
	2007			2006			Change			2007			2006			Change
	(Dollars In Thousands)									(Dollars In Thousands)
Segment Operating Income (Loss)
Life Marketing	$	39,974		$	40,270			(0.7	)%	$	143,088		$	132,276			8.2	%
Acquisitions		30,375			32,060			(5.3	)		93,438			70,924			31.7
Annuities		6,436			5,351			20.3			18,711			16,242			15.2
Stable Value Products		13,107			10,429			25.7			37,648			34,573			8.9
Asset Protection		9,905			(14,401	)		168.8			31,511			3,241			872.3
Corporate and Other		2,342			(3,929	)		159.6			2,819			14,582			(80.7	)
Total segment operating income (loss)		102,139			69,780			46.4			327,215			271,838			20.4
Realized investment gains (losses) - investments⁽¹⁾		43,070			72,266						(19,128	)		77,039
Realized investment gains (losses) -derivatives⁽²⁾		(37,792	)		(54,148	)					34,099			(47,636	)
Income tax expense		(34,425	)		(30,597	)					(113,506	)		(104,862	)
Net income	$	72,992		$	57,301			27.4		$	228,680		$	196,379			16.4

⁽¹⁾ Realized investment gains (losses) - investments	$	43,114		$	78,645					$	(10,201	)	$	98,461
Less participating income from real estate ventures		0			0						6,857			13,494
Less related amortization of DAC		44			6,379						2,070			7,928
	$	43,070		$	72,266					$	(19,128	)	$	77,039

⁽²⁾ Realized investment gains (losses) - derivatives	$	(37,467	)	$	(55,302	)				$	36,523		$	(46,764	)
Less settlements on certain interest rate swaps		132			654						626			2,659
Less derivative gains/(losses) related to certain annuities		193			(1,808	)					1,798			(1,787	)
	$	(37,792	)	$	(54,148	)				$	34,099		$	(47,636	)

Net income for the first nine months of 2007 reflects a 20.4% increase in segment operating income compared to the same period of 2006. The three largest items contributing to this increase include a $15.7 million gain before taxes on the sale of the Life Marketing segment’s direct marketing subsidiary, a $22.5 million increase in operating earnings in the Acquisitions segment resulting primarily from the prior year acquisition of the Chase Insurance Group, and a $27.1 million bad debt charge that occurred during 2006 in the Asset Protection segment. These favorable items were partially offset by a year-to-date decline in operating earnings for the Corporate & Other segment of $11.8 million resulting primarily from higher interest expense. Net realized investment gains were $15.0 million for the first nine months of 2007 compared to $29.4 million for the same period of 2006, a decrease of $14.4 million.

Life Marketing segment operating income was $40.0 million and $143.1 million for the current quarter and year-to-date, respectively, representing a quarterly decrease of 0.7% and a year-to-date increase of 8.2% over the same periods of the prior year. The year-to-date increase was primarily due to a $15.7 million gain before taxes on the sale of the segment’s direct marketing subsidiary, offset by the impact of securitizing a large block of universal life policies which results in less investment income being allocated to the segment.

The decrease in the Acquisitions segment’s operating income for the current quarter is due primarily to unfavorable mortality, while the year-to-date increase is due to the acquisition of the Chase Insurance Group completed in the third quarter of 2006. This acquisition contributed $40.0 million to the Acquisition segment’s operating income for the first nine months of 2007, compared to $12.9 million in the first nine months of 2006.

Favorable results in the market value adjusted annuity line, partially offset by unfavorable mortality results in the single premium immediate annuity line, resulted in a 20.3% and 15.2% increase in operating income for the Annuities segment, respectively for the third quarter and first nine months of 2007. A general improvement in the equity markets and increasing account balances contributed to the increase in operating earnings during the first nine months of 2007 for the segment.

Declines in average account values offset by increases in operating spreads resulted in increases in operating income of 25.7% and 8.9% for the third quarter and first nine months of 2007, respectively, in the Stable Value Products segment compared to the same periods of 2006.

The Asset Protection segment’s operating income increases of 168.8% and 872.3% for the third quarter and first nine months of 2007, respectively, were primarily the result of bad debt charges of $26.0 million in the third quarter of 2006 and $27.1 million in the first nine months of 2006. These charges related to the Lenders Indemnity product line the Company is no longer marketing. Favorable results from the service contract line are also contributing to the increase in operating earnings and are partially offset by unfavorable results from other product lines.

The declines in operating income for the Corporate and Other segment are primarily the result of increases in operating expenses and higher interest expense resulting from increased borrowings, partially offset by higher net investment income. The increase in interest expense is primarily due to the issuance of $200 million of subordinated debt securities to finance the Chase Insurance Group acquisition in the third quarter of 2006 and the issuance of non-recourse funding obligations to fund statutory reserves required by the Valuation of Life Insurance Policies Model Regulation (“Regulation XXX”) and Actuarial Guideline 38 (commonly known as “AXXX”).

RESULTS BY BUSINESS SEGMENT

In the following segment discussions, various statistics and other key data the Company uses to evaluate its segments are presented. Sales statistics are used by the Company to measure the relative progress in its marketing efforts, but may or may not have an immediate impact on reported segment operating income. Sales data for traditional life insurance are based on annualized premiums, while universal life sales are based on annualized planned (target) premiums plus 6% of amounts received in excess of target premiums. Sales of annuities are measured based on the amount of deposits received. Stable value contract sales are measured at the time that the funding commitment is made based on the amount of deposit to be received. Sales within the Asset Protection segment are generally based on the amount of single premium and fees received.

Sales and life insurance in-force amounts are derived from the Company’s various sales tracking and administrative systems, and are not derived from the Company’s financial reporting systems or financial statements. Mortality variances are derived from actual claims compared to expected claims. These variances do not represent the net impact to earnings due to the interplay of reserves and DAC amortization.

Life Marketing

	Three Months Ended									Nine Months Ended
	September 30									September 30
	2007			2006			Change			2007			2006			Change
	(Dollars In Thousands)									(Dollars In Thousands)
REVENUES
Gross premiums and policy fees	$	360,450		$	327,355			10.1	%	$	1,067,759		$	978,215			9.2	%
Reinsurance ceded		(203,285	)		(206,269	)		(1.4	)		(650,601	)		(652,048	)		(0.2	)
Net premiums and policy fees		157,165			121,086			29.8			417,158			326,167			27.9
Net investment income		79,437			80,444			(1.3	)		242,831			228,771			6.1
Other income		27,514			32,278			(14.8	)		109,871			94,352			16.4
Total operating revenues		264,116			233,808			13.0			769,860			649,290			18.6
BENEFITS AND EXPENSES
Benefits and settlement expenses		182,010			147,213			23.6			483,486			405,544			19.2
Amortization of deferred policy acquisition costs		27,807			21,689			28.2			82,069			42,791			91.8
Other operating expenses		14,325			24,636			(41.9	)		61,217			68,679			(10.9	)
Total benefits and expenses		224,142			193,538			15.8			626,772			517,014			21.2
OPERATING INCOME		39,974			40,270			(0.7	)		143,088			132,276			8.2
INCOME BEFORE INCOME TAX	$	39,974		$	40,270			(0.7	)	$	143,088		$	132,276			8.2

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

Three Months Ended

Nine Months Ended

September 30