Phoenix Companies (PNX) 10-Q 2008 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-Q

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(MARK ONE)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDEDSEPTEMBER 30, 2008

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission File Number:001-16517

THE PHOENIX COMPANIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	06-1599088
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One American Row, Hartford, Connecticut	06102-5056
(Address of principal executive offices)	(Zip Code)
(860) 403-5000
(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 þ     NO ¨

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

Large accelerated filer þ

Accelerated filer o

Non-accelerated filer o

Smaller reporting company o

(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨     NO þ

On October 27, 2008, the registrant had 114.4 million shares of common stock outstanding.

TABLE OF CONTENTS
PART I	FINANCIAL INFORMATION		Page
Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		66
Item 4.	Controls and Procedures		66
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		68
Item 1A.	Risk Factors		68
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		70
Item 3.	Defaults Upon Senior Securities		70
Item 4.	Submission of Matters to a Vote of Security Holders		70
Item 5.	Other Information		70
Item 6.	Exhibits		71
Signatures		76

2

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Balance Sheet

($ in millions, except share data)

September 30, 2008 (unaudited) and December 31, 2007

	Sept 30,		Dec 31,
	2008		2007
ASSETS:
Available-for-sale debt securities, at fair value	$	10,658.0	$	11,970.0
Available-for-sale equity securities, at fair value		166.3		205.3
Venture capital partnerships, at equity in net assets		202.2		173.7
Policy loans, at unpaid principal balances		2,489.9		2,380.5
Other investments		529.2		507.3
Fair value option investments		105.8		—
		14,151.4		15,236.8
Available-for-sale debt and equity securities pledged as collateral, at fair value		163.4		219.1
Total investments		14,314.8		15,455.9
Cash and cash equivalents		312.1		577.7
Accrued investment income		223.4		209.6
Receivables		237.8		159.7
Deferred policy acquisition costs		2,460.5		2,089.9
Deferred income taxes		319.8		42.8
Intangible assets		86.1		208.2
Goodwill		152.8		484.5
Other assets		229.7		172.8
Separate account assets		9,830.8		10,820.3
Total assets	$	28,167.8	$	30,221.4
LIABILITIES:
Policy liabilities and accruals	$	13,827.5	$	13,816.7
Policyholder deposit funds		1,576.2		1,808.9
Indebtedness		467.0		627.7
Other liabilities		691.2		550.9
Non-recourse collateralized obligations		247.8		317.9
Separate account liabilities		9,830.8		10,820.3
Total liabilities		26,640.5		27,942.4
CONTINGENT LIABILITIES (NOTE 17)
STOCKHOLDERS’ EQUITY:
Common stock, $.01 par value: 125,727,166 and 125,604,486 shares issued		1.3		1.3
Additional paid-in capital		2,624.3		2,616.1
Accumulated deficit		(390.2)		(20.7)
Accumulated other comprehensive loss		(528.6)		(138.2)
Treasury stock, at cost: 11,313,564 and 11,313,564 shares		(179.5)		(179.5)
Total stockholders’ equity		1,527.3		2,279.0
Total liabilities and stockholders’ equity	$	28,167.8	$	30,221.4

The accompanying notes are an integral part of these financial statements.

3

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Statement of Income and Comprehensive Income

($ in millions, except share data)

Three and Nine Months Ended September 30, 2008 and 2007

	Three Months				Nine Months
	2008		2007		2008		2007
REVENUES:
Premiums	$	195.2	$	197.5	$	566.7	$	585.3
Insurance, investment management and product fees		184.3		164.5		546.2		470.5
Mutual fund ancillary fees and other revenue		12.6		17.0		41.8		50.9
Net investment income		218.0		261.2		712.8		800.5
Net realized investment gains (losses)		(60.6)		3.8		(134.3)		26.4
Total revenues		549.5		644.0		1,733.2		1,933.6
BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends		336.6		331.9		999.4		976.0
Policyholder dividends		43.4		98.1		203.1		292.2
Policy acquisition cost amortization		68.0		46.8		163.6		132.0
Intangible asset amortization		7.4		7.5		22.4		22.6
Intangible asset impairment		90.0		—		100.5		—
Goodwill impairment		331.7		—		331.7		—
Interest expense on indebtedness		8.8		11.5		27.8		32.6
Interest expense on non-recourse collateralized obligations		5.6		3.9		10.7		12.0
Other operating expenses		98.9		102.6		330.9		325.3
Total benefits and expenses		990.4		602.3		2,190.1		1,792.7
Income (loss) before income taxes		(440.9)		41.7		(456.9)		140.9
Income tax (expense) benefit		101.4		(6.9)		109.2		(27.7)
Income (loss) from continuing operations		(339.5)		34.8		(347.7)		113.2
Income from discontinued operations, net of income taxes		—		—		—		1.2
Net income (loss)	$	(339.5)	$	34.8	$	(347.7)	$	114.4
EARNINGS (LOSS) PER SHARE:
Net earnings (loss) – basic	$	(2.97)	$	0.30	$	(3.04)	$	1.00
Net earnings – diluted	$	(2.97)	$	0.30	$	(3.04)	$	0.99
Basic weighted-average common shares outstanding   (in thousands)		114,398		114,196		114,374		114,040
Diluted weighted-average common shares outstanding   (in thousands)		114,398		115,752		114,374		115,667
COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	(339.5)	$	34.8	$	(347.7)	$	114.4
Net unrealized investment losses		(260.2)		(13.7)		(345.9)		(47.0)
Net unrealized adjustment for retirement plan liabilities   and foreign currency translation		(57.9)		10.1		(54.5)		7.5
Net unrealized derivative instruments gains (losses)		5.4		(0.9)		7.1		0.8
Other comprehensive loss		(312.7)		(4.5)		(393.3)		(38.7)
Comprehensive income (loss)	$	(652.2)	$	30.3	$	(741.0)	$	75.7

The accompanying notes are an integral part of these financial statements.

4

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Statement of Cash Flows

($ in millions)

Nine Months Ended September 30, 2008 and 2007

	2008		2007
OPERATING ACTIVITIES:
Premiums collected	$	588.7	$	582.9
Insurance, investment management and product fees collected		594.1		524.6
Investment income collected		674.0		711.1
Policy benefits paid, excluding policyholder dividends		(840.1)		(755.5)
Policyholder dividends paid		(253.0)		(245.7)
Policy acquisition costs paid		(335.1)		(283.7)
Interest expense on indebtedness paid		(25.6)		(30.2)
Interest expense on collateralized obligations paid		(11.2)		(15.1)
Other operating expenses paid		(372.4)		(321.4)
Income taxes (paid) refunded		(8.4)		(6.3)
Cash from continuing operations		11.0		160.7
Discontinued operations, net		(20.1)		(12.0)
Cash from (for) operating activities		(9.1)		148.7
INVESTING ACTIVITIES:
Investment purchases		(3,827.7)		(3,477.3)
Investment sales, repayments and maturities		4,001.0		3,713.5
Debt and equity securities pledged as collateral sales		32.1		37.4
Subsidiary purchases		(0.8)		(9.8)
Premises and equipment additions		(13.8)		(14.3)
Discontinued operations, net		26.0		22.4
Cash from investing activities		216.8		271.9
FINANCING ACTIVITIES:
Policyholder deposit fund deposits		524.6		590.8
Policyholder deposit fund withdrawals		(784.0)		(957.0)
Indebtedness repayments		(158.5)		(57.2)
Collateralized obligations repayments		(37.5)		(22.0)
Common stock dividends paid		(18.3)		(18.4)
Proceeds from stock options exercised		0.4		1.1
Cash for financing activities		(473.3)		(462.7)
Change in cash and cash equivalents		(265.6)		(42.1)
Cash and cash equivalents, beginning of period		577.7		404.9
Cash and cash equivalents, end of period	$	312.1	$	362.8

Included in cash and cash equivalents above is cash pledged as collateral of $2.3 million and $12.0 million at September 30, 2008 and December 31, 2007, respectively.

The accompanying notes are an integral part of these financial statements.

5

THE PHOENIX COMPANIES, INC.

Unaudited Interim Consolidated Statement of Changes in Stockholders’ Equity

($ in millions)

Three and Nine Months Ended September 30, 2008 and 2007

	Three Months				Nine Months
	2008		2007		2008		2007
COMMON STOCK:
Balance, beginning of period	$	1.3	$	1.3	$	1.3	$	1.3
Balance, end of period	$	1.3	$	1.3	$	1.3	$	1.3
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	2,621.8	$	2,610.2	$	2,616.1	$	2,600.3
Compensation expense recognized on restricted stock units		1.3		2.2		4.6		12.0
Conversion of restricted stock units to common shares, net		—		(0.9)		(0.4)		(3.3)
Stock options awarded as compensation		1.0		0.6		3.6		2.1
Stock options exercised		0.2		0.2		0.4		1.2
Balance, end of period	$	2,624.3	$	2,612.3	$	2,624.3	$	2,612.3
RETAINED EARNINGS / ACCUMULATED DEFICIT:
Balance, beginning of period, as previously reported	$	(50.7)	$	(58.8)	$	(9.8)	$	(111.3)
Cumulative effect of retrospective application of change       in accounting (Note 2)		—		0.1		(11.0)		(4.6)
Adjustment for initial application of SFAS 159 (Note 2)		—		—		(2.9)		—
Net income (loss)		(339.5)		34.8		(347.7)		114.4
Common stock dividend declared ($0.16 per share)		—		—		(18.8)		(18.4)
Adjustment for initial application of FIN 48 (Note 2)		—		—		—		(4.0)
Balance, end of period	$	(390.2)	$	(23.9)	$	(390.2)	$	(23.9)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance, beginning of period	$	(215.9)	$	(108.9)	$	(138.2)	$	(74.7)
Adjustment for initial application of SFAS 159 (Note 2)		—		—		2.9		—
Other comprehensive loss		(312.7)		(4.5)		(393.3)		(38.7)
Balance, end of period	$	(528.6)	$	(113.4)	$	(528.6)	$	(113.4)
TREASURY STOCK, AT COST:
Balance, beginning of period	$	(179.5)	$	(179.5)	$	(179.5)	$	(179.5)
Balance, end of period	$	(179.5)	$	(179.5)	$	(179.5)	$	(179.5)
TOTAL STOCKHOLDERS’ EQUITY:
Balance, beginning of period	$	2,177.1	$	2,264.3	$	2,279.0	$	2,231.4
Change in stockholders’ equity		(649.8)		32.5		(751.7)		65.4
Stockholders’ equity, end of period	$	1,527.3	$	2,296.8	$	1,527.3	$	2,296.8

The accompanying notes are an integral part of these financial statements.

6

THE PHOENIX COMPANIES, INC.

Notes to Unaudited Interim Consolidated Financial Statements

Three and Nine Months Ended September 30, 2008 and 2007

1.

Organization and Operations

Our unaudited interim consolidated financial statements include the accounts of The Phoenix Companies, Inc. (the “Company”), its subsidiaries and certain sponsored collateralized obligation trusts as described in Note 11 to these financial statements. The Phoenix Companies, Inc. is a holding company and our operations are conducted through subsidiaries, the principal ones of which are Phoenix Life Insurance Company (“Phoenix Life”) and Virtus Investment Partners, Inc., formerly known as Phoenix Investment Partners, Ltd. (“Virtus” or “PXP”). We have eliminated significant intercompany accounts and transactions in consolidating these financial statements.

On February 7, 2008, we announced our intention to spin off our asset management subsidiary, Virtus, by way of a dividend of Virtus’s stock to our shareholders. The spin-off and related transactions are expected to be completed in the fourth quarter of 2008. The notes to these financial statements include disclosures that reflect our business and organization as currently structured.

2.

Basis of Presentation and Significant Accounting Policies

We have prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) which differ materially from the accounting practices prescribed by various insurance regulatory authorities.

Use of estimates

In preparing these financial statements in conformity with GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. We employ significant estimates and assumptions in the determination of deferred policy acquisition costs; policyholder liabilities and accruals; the valuation of goodwill and other intangible assets; the valuation of investments in debt and equity securities and venture capital partnerships; the valuation of deferred tax assets; pension and other postemployment benefits liabilities; and accruals for contingent liabilities. Our significant accounting policies are presented in the notes to our consolidated financial statements in our 2007 Annual Report on Form 10-K.

Our interim consolidated financial statements do not include all of the disclosures required by GAAP for annual financial statements. In our opinion, we have included all adjustments, consisting of normal, recurring adjustments, considered necessary for a fair statement of the results for the interim periods. Financial results for the three- and nine-month periods in 2008 are not necessarily indicative of the results that may be expected for the year 2008. These consolidated financial statements should be read in conjunction with our consolidated financial statements in our 2007 Annual Report on Form
10-K.

Accounting Change

Effective April 1, 2008, we changed our method of accounting for the cost of certain of our long duration reinsurance contracts accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 113,Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts (“SFAS 113”). In conjunction with this change, we also changed our method of accounting for the impact of reinsurance costs on deferred acquisition costs. SFAS 113 requires us to amortize the estimated cost of reinsurance over the life of the underlying reinsured contracts. Under our previous method, we recognized reinsurance recoveries as part of the net cost of reinsurance and amortized this balance over the estimated lives of the underlying reinsured contracts in proportion to estimated gross profits (“EGPs”) consistent with the method used for amortizing deferred policy acquisition costs. Under the new method, reinsurance recoveries are recognized in the same period as the related reinsured claim. In conjunction with this change, we also changed our policy for determining EGPs relating to these contracts to include the effects of reinsurance, where previously these effects had not been included.

7

2.

Basis of Presentation and Significant Accounting Policies (continued)

We adopted the new method because we believe that it better reflects the economics of the underlying reinsurance activity by better matching the reinsurance recovery with the insured loss that gave rise to that recovery. We also believe that the new method is consistent with management's intent in purchasing reinsurance, which is to protect the Company against large and unexpected claims. Comparative amounts from prior periods have been adjusted to apply the new method retrospectively in these financial statements. The following financial statement line items were affected by the change in accounting principle. Certain balances shown “as originally reported” have been reclassified to conform to the current period presentation.

Income Statement

	Three Months Ended September 30, 2008
($ in millions, except per share amounts)	As calculated under the new method			As calculated under the former method			Effect of change
Insurance, investment management and product fees		$	184.3		$	184.6		$	(0.3)
Policy benefits, excluding policyholder dividends			336.6			330.3			6.3
Policy acquisition cost amortization			68.0			71.0			(3.0)
Income tax (expense) benefit			101.4			100.2			1.2
Net income (loss)			(339.5)			(337.1)			(2.4)
Basic earnings (loss) per share			(2.97)			(2.91)			(0.6)
Diluted earnings per share			(2.97)			(2.91)			(0.6)

	Three Months Ended September 30, 2007
($ in millions, except per share amounts)	As adjusted			As originally reported			Effect of change
Insurance, investment management and product fees		$	164.5		$	164.6		$	(0.1)
Policy benefits, excluding policyholder dividends			331.9			330.7			1.2
Policy acquisition cost amortization			46.8			47.1			(0.3)
Income tax (expense) benefit			(6.9)			(7.2)			0.3
Net income (loss)			34.8			35.5			(0.7)
Basic earnings (loss) per share			0.30			0.31			(0.01)
Diluted earnings per share			0.30			0.31			(0.01)

	Nine Months Ended September 30, 2008
($ in millions, except per share amounts)	As calculated under the new method			As calculated under the former method			Effect of change
Insurance, investment management and product fees		$	546.2		$	545.4		$	0.8
Policy benefits, excluding policyholder dividends			999.4			1,020.7			(21.3)
Policy acquisition cost amortization			163.6			160.1			3.5
Income tax (expense) benefit			109.2			115.8			(6.6)
Net income (loss)			(347.7)			(359.7)			12.0
Basic earnings (loss) per share			(3.04)			(3.11)			0.07
Diluted earnings per share			(3.04)			(3.11)			0.07

	Nine Months Ended September 30, 2007
($ in millions, except per share amounts)	As adjusted			As originally reported			Effect of change
Insurance, investment management and product fees		$	470.5		$	471.1		$	(0.6)
Policy benefits, excluding policyholder dividends			976.0			964.5			11.5
Policy acquisition cost amortization			132.0			136.5			(4.5)
Income tax (expense) benefit			(27.7)			(30.4)			2.7
Net income (loss)			114.4			119.3			(4.9)
Basic earnings (loss) per share			1.00			1.05			(0.05)
Diluted earnings per share			0.99			1.03			(0.04)

8

2.

Basis of Presentation and Significant Accounting Policies (continued)

Balance Sheet

	September 30, 2008
($ in millions)	As calculated under the new method			As calculated under the former method			Effect of change
Deferred policy acquisition costs		$	2,460.5		$	2,455.3		$	5.2
Deferred income tax asset			319.8			320.4			(0.6)
Policy liabilities and accruals			13,827.5			13,824.2			3.3
Accumulated deficit			(390.2)			(391.5)			1.3

	December 31, 2007
($ in millions)	As adjusted			As originally reported			Effect of change
Deferred policy acquisition costs		$	2,089.9		$	2,081.2		$	8.7
Deferred income tax asset			42.8			36.9			5.9
Policy liabilities and accruals			13,816.7			13,791.2			25.5
Accumulated deficit			(20.7)			(9.8)			(10.9)

As of January 1, 2007, the cumulative effect of the new method on our stockholders’ equity was a decrease of $4.6 million, which was recorded to accumulated deficit.

Following is a description of our accounting for deferred policy acquisition costs, which has been updated from our 2007 Annual Report on Form 10-K to reflect a change in our method of accounting for the effects of reinsurance.

Deferred policy acquisition costs

The costs of acquiring new business, principally commissions, underwriting, distribution and policy issue expenses, all of which vary with and are primarily related to production of new business, are deferred. In connection with our 1997 acquisition of the Confederation Life business, we recognized an asset for the present value of future profits representing the present value of estimated net cash flows embedded in the existing contracts acquired. This asset is included in deferred policy acquisition costs.

We amortize deferred policy acquisition costs and present value of future profits based on the related policy’s classification. For individual participating life insurance policies, deferred policy acquisition costs and present value of future profits are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs and present value of future profits are amortized in proportion to EGPs. Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders.

Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs and present value of future profits requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year’s cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, indus try studies, regulatory requirements and estimates about the future.

To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries.

9

2.

Basis of Presentation and Significant Accounting Policies (continued)

In addition to our quarterly reviews, we complete a comprehensive assumption study during the fourth quarter of each year. Upon completion of an assumption study, we revise our assumptions to reflect our current best estimate, thereby changing our estimate of projected account values and the related EGPs in the deferred policy acquisition cost and unearned revenue amortization models as well as SOP 03-1 reserving models. The deferred policy acquisition cost asset, as well as the unearned revenue reserves and SOP 03-1 reserves are then adjusted with an offsetting benefit or charge to income to reflect such changes in the period of the revision, a process known as “unlocking.”

Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be unlocked, or adjusted, to reflect such change. Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances.

Adoption of new accounting standards

On October 10, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position FAS 157-3 (“FSP FAS 157-3”), which clarifies the application of SFAS No. 157,Fair Value Measurement (“SFAS 157”) in an inactive market. The FSP addresses application issues such as how management’s internal assumptions should be considered when measuring fair value when relevant observable data do not exist; how observable market information in a market that is not active should be considered when measuring fair value and how the use of market quotes should be considered when assessing the relevance of observable and unobservable data available to measure fair value. FSP FAS 157-3 was effective upon issuance. Our adoption of FSP FAS 157-3 had no material effect on our financial condition or results of operations.

On February 15, 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”), which gives entities the option to measure eligible financial assets, financial liabilities and firm commitments at fair value (i.e., the fair value option), on an instrument-by-instrument basis, that are otherwise not permitted to be accounted for at fair value under other accounting standards. The election to use the fair value option is available when an entity first recognizes a financial asset or financial liability or upon entering into a firm commitment. Subsequent changes in fair value must be recorded in earnings. Additionally, SFAS 159 allows for a one-time election for existing positions upon adoption, with the transition adjustment recorded to beginning retained earnings. We adopted SFAS 159 as of January 1, 2008 with no net effect to equity, as further described below.

We elected to apply the SFAS 159 fair value option to available-for-sale equity securities with a fair value of $74.6 million at January 1, 2008. These securities back our deferred compensation liabilities. Previously, changes in the fair value of the securities were recorded in other comprehensive income while changes in the liability were recorded in earnings. Electing the fair value option resulted in a decrease to accumulated other comprehensive loss and an offsetting increase to accumulated deficit of $2.9 million, net of tax, and allows us to mitigate the associated accounting volatility. Following election of the fair value option, changes in the fair value of these securities are recorded in earnings.

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS 157 provides guidance on how to measure fair value when required under existing accounting standards. The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels (“Level 1, 2 and 3”). Level 1 inputs are observable inputs that reflect quoted prices for identical assets or liabilities in active markets that we have the ability to access at the measurement date. Level 2 inputs are observable inputs, other than quoted prices included in Level 1, for the asset or liability. Level 3 inputs are unobservable inputs reflecting our estimates of the assumptions that market participants would use in pricing the asset or liability (including assum ptions about risk). Quantitative and qualitative disclosures will focus on the inputs used to measure fair value for both recurring and non-recurring fair value measurements and the effects of the measurements in the financial statements. We adopted SFAS 157 effective January 1, 2008 with no material impact on our financial position and results of operations.

10

2.

Basis of Presentation and Significant Accounting Policies (continued)

We adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, we recognized an increase in reserves for uncertain tax benefits through a cumulative effect adjustment of approximately $4.0 million, which was accounted for as an increase to the January 1, 2007 balance of accumulated deficit. Including the cumulative effect adjustment, we had approximately $23.9 million of total gross unrecognized tax benefits as of January 1, 2007. The amount of unrecognized tax benefits at January 1, 2007 that would, if recognized, impact the annual effective tax rate upon recognition was $21.0 million.

In March 2006, the FASB issued SFAS No. 156,Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140 (“SFAS 156”). SFAS 156 provides guidance on recognition and disclosure of servicing assets and liabilities and is effective beginning January 1, 2007. We adopted this standard effective January 1, 2007 with no material impact on our financial position and results of operations.

In September 2005, the Accounting Standards Executive Committee (“AcSEC”) of the AICPA issued Statement of Position 05-1,Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts (“SOP 05-1”). SOP 05-1 provides guidance on accounting by insurance enterprises for deferred policy acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in Statement of Financial Accounting Standards No. 97 (“SFAS No. 97”). The SOP 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. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. W e adopted this standard effective January 1, 2007 with no material effect on our financial position and results of operations.

Accounting standards not yet adopted

In May 2008, the FASB issued SFAS No. 163,Accounting for Financial Guarantee Insurance Contracts, an Interpretation of FASB Statement No. 60 (“SFAS 163”). Financial guarantee insurance and reinsurance contracts are contracts issued by insurance enterprises that provide protection to the holder of a financial obligation from a financial loss in the event of a default. The new accounting standard applies to recognition and measurement of premium revenue and claim liabilities on such contracts and to related disclosures. SFAS 163 will be effective for us on January 1, 2009. We do not have financial guarantee insurance products and, accordingly, do not expect our adoption of SFAS 163 to have an effect on our financial position and results of operations.

In May 2008, the FASB issued SFAS No. 162,The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of GAAP-basis financial statements. The Standard is effective 60 days following SEC approval of the Public Company Accounting Oversight Board amendments to remove the hierarchy of generally accepted accounting principles from the auditing standards. SFAS 162 is not expected to have an impact on our financial position and results of operations.

In March 2008, the FASB issued SFAS No. 161,Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”). This statement amends and expands the requirement for qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 will be effective for us on January 1, 2009.

In December 2007, the FASB issued SFAS No. 141(R),Accounting for Business Combinations (“SFAS 141(R)”). SFAS 141(R) requires the acquiring entity in a business combination to recognize all (and only) the assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed and requires the acquirer to disclose all information needed to evaluate and understand the nature and financial effect of the combination and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations.

11

2.

Basis of Presentation and Significant Accounting Policies (continued)

In December 2007, the FASB issued SFAS No. 160,Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling interests in subsidiaries in the same way—as equity in the consolidated financial statements and requires that associated transactions be treated as equity transactions—and is effective beginning for fiscal years beginning after December 15, 2008. We will adopt this standard effective January 1, 2009 and do not expect it to have a material impact on our financial position and results of operations.

3.

Business Combinationsand Dispositions

PFG Holdings, Inc.

In 2003, we acquired the remaining interest in PFG Holdings, Inc. (“PFG”), the holding company for our private placement operation. The initial purchase consideration was $16.7 million in addition to a contingent obligation for additional purchase consideration based on the achievement of certain performance targets through 2007 and the appraised value of PFG as of December 31, 2007. Through November 2007, we paid additional consideration of $19.4 million, including $13.4 million, $0.0 million and $3.0 million during 2007, 2006 and 2005 respectively. In November 2007, we amended the original purchase agreement to extend the term of the agreement through the end of 2009 and to establish a more objective mechanism to value PFG and calculate the final amount of contingent consideration. As a result, we may be obligated to make additional cash payments of $17.6 million by June 2010 if certain performance targets are met through December 2009. Since the contingent payments are base d on the achievement of performance targets, the actual payments may be lower. If the performance targets are exceeded, the actual payments may be higher, subject to a maximum of $77.1 million. In accordance with EITF 95-8,Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination, a portion of the contingent payments will be accounted for as goodwill, and the amounts related to performance in excess of targets will be expensed, if and when achieved.

EMCO

On December 20, 2007, we sold all of the outstanding stock of Emprendimiento Compartido S.A. (“EMCO”), an Argentine wholly-owned subsidiary. We realized an after-tax loss of $4.8 million on this sale. This loss and EMCO’s results up through the date of sale are reported in discontinued operations in these financial statements. Prior year results have also been reported in discontinued operations.

Kayne Anderson Rudnick Investment Management, LLC

As a result of a step acquisition completed in 2005, Virtus owns 100% of Kayne Anderson Rudnick Investment Management, LLC (“KAR”). In connection with the purchase, we issued promissory notes to the sellers in the amount of $67.0 million to finance the remainder of the acquisition, of which $9.8 million was paid on January 3, 2006. The remainder, plus deferred interest, was paid on January 2, 2007. The interest rate on the notes was 4.75%.

Lombard International Assurance S.A.

On January 11, 2005, we disposed of our interests in Lombard International Assurance S.A. (“Lombard”) for consideration of $59.0 million. In the first quarter of 2007, 2006 and 2005, we realized after-tax gains of $8.9 million, $6.5 million and $9.3 million, respectively, which included earn-out gain consideration received. We are not entitled to any additional consideration related to this sale going forward.

4.

Business Segments

We have two reportable operating segments—Life and Annuity and Asset Management. Businesses that are not sufficiently material to require separate disclosure as well as interest expense and indebtedness are included in Corporate and Other.

12

4.

Business Segments (continued)

The Life and Annuity segment includes individual life insurance and annuity products including universal life, variable universal life, term life and fixed and variable annuities. It also includes the results of our Closed Block, which consists primarily of participating whole life products. We allocate capital to our Life and Annuity segment based on risk-based capital for our insurance products. We used 300% of risk-based capital levels for the three- and nine-month periods ended September 30, 2008 and 2007. Capital within our life insurance companies that is unallocated is included in Corporate and Other operations.

Within Asset Management, we focus on two customer groups—retail investors and institutional clients. We provide investment management services to retail customers through open-end mutual funds, closed-end funds and managed accounts. Managed accounts include intermediary programs sponsored and distributed by non-affiliated broker-dealers, and direct managed accounts which are sold and administered by us. We also provide transfer agency, accounting and administrative services to our open-end mutual funds.

Through our institutional group, we provide investment management services primarily to corporations, multi-employer retirement funds and foundations, as well as to endowment and special purpose funds. In addition, we manage structured finance products, including collateralized debt obligations backed by portfolios of assets, for example, public high yield bonds, mortgage-backed and asset-backed securities or bank loans. See Note 11 to these financial statements for additional information.

Our investment management services are provided by wholly owned managers as well as unaffiliated managers through sub-advisory agreements. We provide managers with consolidated distribution and administrative support, thereby allowing each manager to focus on investment management. We monitor the quality of the managers’ products by assessing their performance, style consistency and the discipline with which they apply their investment processes.

We allocate capital to our Asset Management segment on the basis of the historical capital within that segment. Excess investment income on debt and equity securities pledged as collateral represent investment advisory fees earned by our asset management subsidiary and are allocated to the Asset Management segment as investment management fees for segment reporting purposes only.

Corporate and Other includes corporate operations that are not allocated to business segments. Corporate operations consist primarily of:

·

interest expense;

·

wind-down businesses which include group pension and guaranteed investment contract business that do not meet the criteria to be separately disclosed; and

·

investment income on debt and equity securities pledged as collateral, as well as interest expense on non-recourse collateralized obligations, both related to two consolidated collateralized obligation trusts we sponsor.

The accounting policies of the reportable operating segments are the same as those described in our Significant Accounting Policies in Note 2 to our financial statements in our 2007 Annual Report on Form 10-K. We allocate net investment income based on the assets allocated to the segments. We allocate certain costs and expenses to the segments based on a review of the nature of the costs, time studies and other methodologies.

In managing our business, we analyze segment performance on the basis of “operating income” which does not equate to “net income” as determined in accordance with GAAP. Rather, it is the measure of profit or loss used by the Company to evaluate performance, allocate resources and manage our operations.

Operating income is calculated by excluding realized investment gains (losses) and certain other items because we do not consider them to be related to the operating performance of our segments. The size and timing of realized investment gains and losses are often subject to our discretion. Certain other items are also excluded from operating income if, in our opinion, they are not indicative of overall operating trends. While some of these items may be significant components of net income in accordance with GAAP, we believe that operating income, and measures that are derived from or incorporate operating income, are appropriate measures that are useful to investors because they identify the earnings attributable to the ongoing operations of the business.

13

4.

Business Segments (continued)

The criteria used to identify an item that will be excluded from operating income include: whether the item is infrequent and is material to the segment’s income; or whether it results from a change in regulatory requirements, or relates to other unusual circumstances. Items excluded from operating income may vary from period to period. Because these items are excluded based on our discretion, inconsistencies in the application of our selection criteria may exist. Operating income is not a substitute for net income determined in accordance with GAAP and may be different from similarly titled measures of other companies. However, the Company believes that the presentation of operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of our business.

Segment Information on Assets:	Sept 30,		Dec 31,
($ in millions)	2008		2007
Segment assets
Life and annuity segment	$	27,004.7	$	28,689.5
Asset management segment		277.7		751.2
Corporate and other		870.3		759.7
Net assets of discontinued operations		15.1		21.0
Total assets	$	28,167.8	$	30,221.4

Segment Information on Revenues:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Segment revenues
Life and annuity segment	$	562.7	$	574.7	$	1,712.3	$	1,710.7
Asset management segment		41.9		54.2		135.4		162.9
Elimination of inter-segment revenues		2.9		2.8		9.2		8.6
Corporate and other		2.6		8.5		10.6		25.0
Net realized investment gains (losses)		(60.6)		3.8		(134.3)		26.4
Total revenues	$	549.5	$	644.0	$	1,733.2	$	1,933.6

Results of Operations by Segment as Reconciled to	Three Months Ended				Nine Months Ended
Consolidated Net Income:	September 30,				September 30,
($ in millions)	2008		2007		2008		2007
Life and annuity segment	$	33.3	$	48.6	$	112.1	$	155.7
Asset management segment		(427.7)		2.6		(445.0)		5.5
Corporate and other		(16.3)		(11.4)		(58.0)		(36.8)
Applicable income tax (expense) benefit		93.1		(6.3)		88.0		(23.8)
Realized investment gains (losses), net of income taxes   and other offsets		(21.9)		1.3		(44.8)		12.6
Income from discontinued operations, net of income taxes		—		—		—		1.2
Net income (loss)	$	(339.5)	$	34.8	$	(347.7)	$	114.4

Life and annuity segment

Life and Annuity Segment Assets:	Sept 30,		Dec 31,
($ in millions)	2008		2007
Investments	$	13,994.0	$	15,103.5
Cash and cash equivalents		211.1		289.0
Accrued investment income		222.6		203.5
Receivables		172.5		105.6
Deferred policy acquisition costs		2,460.5		2,089.9
Goodwill		30.1		30.1
Other general account assets		83.1		47.6
Separate accounts		9,830.8		10,820.3
Total segment assets	$	27,004.7	$	28,689.5

14

4.

Business Segments (continued)

Life and Annuity Segment Income:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Premiums	$	195.2	$	197.5	$	566.7	$	585.3
Insurance, investment management and product fees		155.2		127.8		453.6		360.3
Net investment income		212.3		249.4		692.0		765.1
Total segment revenues		562.7		574.7		1,712.3		1,710.7
Policy benefits, including policyholder dividends		403.9		427.4		1,247.7		1,256.7
Policy acquisition cost amortization		72.1		46.4		177.1		131.7
Other operating expenses		53.4		52.3		175.4		166.6
Total segment benefits and expenses		529.4		526.1		1,600.2		1,555.0
Operating income before income taxes		33.3		48.6		112.1		155.7
Allocated income tax (expense) benefit		(4.7)		(11.2)		(32.2)		(45.2)
Operating income		28.6		37.4		79.9		110.5
Realized investment gains (losses),  net of income taxes   and other offsets		(20.3)		2.5		(33.8)		3.5
Net income	$	8.3	$	39.9	$	46.1	$	114.0

Life and Annuity Segment Revenues by Product:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Premiums
Term life insurance	$	6.8	$	5.5	$	13.3	$	14.6
Other life insurance		2.9		2.8		8.6		8.6
Total, non-participating life insurance		9.7		8.3		21.9		23.2
Participating life insurance		185.5		189.2		544.8		562.1
Total premiums		195.2		197.5		566.7		585.3
Insurance, investment management and product fees
Variable universal life insurance		30.4		29.8		93.8		89.9
Universal life insurance		103.8		76.1		294.7		206.9
Other life insurance		1.9		1.7		5.3		4.4
Total, life insurance		136.1		107.6		393.8		301.2
Annuities		19.1		20.2		59.8		59.1
Total insurance, investment management and product fees		155.2		127.8		453.6		360.3
Net investment income		212.3		249.4		692.0		765.1
Segment revenues	$	562.7	$	574.7	$	1,712.3	$	1,710.7

Asset management segment

Asset Management Segment Assets:	Sept 30,		Dec 31,
($ in millions)	2008		2007
Investments	$	11.3	$	13.5
Cash and cash equivalents		22.6		36.5
Receivables		23.8		29.6
Intangible assets		86.1		208.2
Goodwill		122.7		454.4
Other assets		11.2		9.0
Total segment assets	$	277.7	$	751.2

15

4.

Business Segments (continued)

Asset Management Segment Income:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Investment management fees	$	29.3	$	36.9	$	93.0	$	110.9
Mutual fund ancillary fees and other revenue		12.6		17.0		41.8		50.9
Net investment income		—		0.3		0.6		1.1
Total segment revenues		41.9		54.2		135.4		162.9
Intangible asset amortization		7.4		7.5		22.4		22.6
Intangible asset impairment		90.0		—		100.5		—
Goodwill impairment		331.7		—		331.7		—
Other operating expenses		40.5		44.1		125.8		134.8
Total segment expenses		469.6		51.6		580.4		157.4
Operating income (loss) before income taxes		(427.7)		2.6		(445.0)		5.5
Allocated income tax (expense) benefit		91.2		(1.2)		98.1		(3.1)
Operating income (loss)		(336.5)		1.4		(346.9)		2.4
Realized investment gains (losses), net of income benefit		(0.5)		(0.2)		(1.5)		0.1
Net income (loss)	$	(337.0)	$	1.2	$	(348.4)	$	2.5

5.

Demutualization and Closed Block

In 1999, we began the process of reorganizing and demutualizing our then principal operating company, Phoenix Home Life Mutual Insurance Company. We completed the process in June 2001, when all policyholder membership interests in this mutual company were extinguished and eligible policyholders of the mutual company received shares of common stock of The Phoenix Companies, Inc., together with cash and policy credits, as compensation. To protect the future dividends of these policyholders, we also established a closed block for their existing policies.

Because closed block liabilities exceed assets, we have a net closed block liability at each period-end. This net liability represents the maximum future earnings contribution to be recognized from the closed block and the change in this net liability each period is in the earnings contribution recognized from the closed block for the period. To the extent that actual cash flows differ from amounts anticipated, we may adjust policyholder dividends. If the closed block has excess funds, those funds will be available only to the closed block policyholders. However, if the closed block has insufficient funds to make policy benefit payments that are guaranteed, the payments will be made from assets outside of the closed block.

					Inception
Closed Block Assets and Liabilities:	Sept 30,		Dec 31,		(Dec 31,
($ in millions)	2008		2007		1999)
Debt securities	$	6,317.4	$	6,919.4	$	4,773.1
Equity securities		109.4		134.0		—
Venture capital partnerships		187.0		157.3		—
Policy loans		1,365.7		1,357.1		1,380.0
Other investments		159.5		136.4		399.0
Total closed block investments		8,139.0		8,704.2		6,552.1
Cash and cash equivalents		81.2		67.8		—
Accrued investment income		116.8		112.1		106.8
Receivables		58.2		44.7		35.2
Deferred income taxes		428.5		329.3		389.4
Other closed block assets		18.7		10.0		6.2
Total closed block assets		8,842.4		9,268.1		7,089.7
Policy liabilities and accruals		9,792.0		9,811.2		8,301.7
Policyholder dividends payable		340.0		332.8		325.1
Policyholder dividend obligation		—		246.0		—
Other closed block liabilities		87.1		49.3		12.3
Total closed block liabilities		10,219.1		10,439.3		8,639.1
Excess of closed block liabilities over closed block assets	$	1,376.7	$	1,171.2	$	1,549.4

16

5.

Demutualization and Closed Block (continued)

Closed Block Revenues and Expenses andChanges in	Cumulative		Nine Months Ended
Policyholder Dividend Obligation:	From		September 30,
($ in millions)	Inception		2008		2007
Closed block revenues
Premiums	$	8,118.9	$	534.4	$	551.9
Net investment income		4,841.1		401.1		431.3
Net realized investment gains (losses)		(127.1)		(53.7)		2.7
Total revenues		12,832.9		881.8		985.9
Policy benefits, excluding dividends		8,746.0		630.5		643.0
Other operating expenses		83.4		4.5		4.7
Total benefits and expenses, excluding policyholder dividends		8,829.4		635.0		647.7
Closed block contribution to income before dividends and income taxes		4,003.5		246.8		338.2
Policyholder dividends		(3,344.4)		(202.7)		(291.7)
Closed block contribution to income before income taxes		659.1		44.1		46.5
Applicable income tax expense		(228.7)		(14.4)		(15.5)
Closed block contribution to income	$	430.4	$	29.7	$	31.0
Policyholder dividend obligation
Policyholder dividends provided through earnings	$	3,389.6	$	202.7	$	291.7
Policyholder dividends provided through other comprehensive income		(142.5)		(188.9)		(146.5)
Additions to policyholder dividend liabilities		3,247.1		13.8		145.2
Policyholder dividends paid		(3,232.2)		(252.6)		(245.3)
Increase (decrease) in policyholder dividend liabilities		14.9		(238.8)		(100.1)
Policyholder dividend liabilities, beginning of period		325.1		578.8		658.6
Policyholder dividend liabilities, end of period		340.0		340.0		558.5
Policyholder dividends payable, end of period		(340.0)		(340.0)		(341.1)
Policyholder dividend obligation, end of period	$	—	$	—	$	217.4

6.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Policy acquisition costs deferred	$	87.0	$	118.6	$	335.1	$	283.7
Costs amortized to expenses:
Recurring costs		(72.1)		(46.4)		(177.1)		(131.7)
Charged to benefits		(0.6)		—		(0.6)		—
Net realized investment (gains) losses		4.0		(0.5)		13.4		(0.4)
Offsets to net unrealized investment gains or losses   included in other comprehensive income		91.2		16.8		199.8		48.4
Change in deferred policy acquisition costs		109.5		88.5		370.6		200.0
Deferred policy acquisition costs, beginning of period		2,351.0		1,867.2		2,089.9		1,755.7
Deferred policy acquisition costs, end of period	$	2,460.5	$	1,955.7	$	2,460.5	$	1,955.7

7.

Goodwill and Other Intangible Assets

Carrying Amounts of Intangible Assets and Goodwill:	Sept 30,		Dec 31,
($ in millions)	2008		2007
Investment management contracts with definite lives	$	300.3	$	305.1
Accumulated amortization		(250.2)		(170.2)
Net investment management contracts with definite lives		50.1		134.9
Investment management contracts with indefinite lives		36.0		73.3
Intangible assets	$	86.1	$	208.2
Goodwill	$	152.8	$	484.5

17

7.

Goodwill and Other Intangible Assets (continued)

Activity in Intangible Assets and Goodwill:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Intangible assets
Purchases	$	0.3	$	0.3	$	0.8	$	0.7
Amortization		(7.4)		(7.5)		(22.4)		(22.6)
Impairment		(90.0)		—		(100.5)		—
Change in intangible assets		(97.1)		(7.2)		(122.1)		(21.9)
Balance, beginning of period		183.2		222.8		208.2		237.5
Balance, end of period	$	86.1	$	215.6	$	86.1	$	215.6
Goodwill
Asset impairment	$	(331.7)	$	—	$	(331.7)	$	4.0
Change in goodwill		(331.7)		—		(331.7)		4.0
Balance, beginning of period		484.5		475.1		484.5		471.1
Balance, end of period	$	152.8	$	475.1	$	152.8	$	475.1

During the third quarter of 2008, we recorded impairments of $421.7 million on intangible assets and asset management-related goodwill. We determined that a triggering event had occurred as a result of changes in the market environment, significant reductions in the market multiples for asset managers and accumulation of additional valuation data. The changes in the market environment were primarily driven by equity market declines in the third quarter. Other contributors were a marked decrease in credit market liquidity and unprecedented government intervention in the financial markets. We performed the impairment analysis using the methodology applied in annual and interim testing. We used a discounted cash flow model to calculate the fair value of definite- and indefinite-lived intangible assets. To test for impairment of goodwill, we obtained and weighted several estimates of the fair value of the reporting unit, including valuations from third parties as well as using a sum of a mu ltiple of revenue plus the fair value of the unit’s tangible net assets. The primary drivers of the impairment were a reduction in assets under management, due to markets being at multi-year lows, and valuation multiples for asset managers also being at multi-year lows. During the first quarter of 2008, we recorded a $10.5 million pre-tax impairment on identified intangible assets related to institutional investment management contracts. This impairment resulted from the termination of certain contracts and related factors.

8.

Investing Activities

Debt and equity securities

See Note 11 to these financial statements for information on available-for-sale debt and equity securities pledged as collateral.

Fair Value and Cost of Debt and Equity Securities:	September 30, 2008				December 31, 2007
($ in millions)	Fair Value		Cost		Fair Value		Cost
U.S. government and agency	$	587.2	$	608.7	$	618.8	$	605.2
State and political subdivision		199.1		197.6		234.3		224.7
Foreign government		189.8		173.6		197.2		172.0
Corporate		6,174.8		6,796.3		7,048.4		7,073.2
Mortgage-backed		2,663.0		2,892.7		2,830.8		2,880.2
Other asset-backed		844.1		983.2		1,040.5		1,116.0
Available-for-sale debt securities	$	10,658.0	$	11,652.1	$	11,970.0	$	12,071.3
Amounts applicable to the closed block	$	6,317.4	$	6,824.5	$	6,919.4	$	6,898.1
Available-for-sale equity securities	$	166.3	$	164.5	$	205.3	$	173.0
Amounts applicable to the closed block	$	109.4	$	107.4	$	134.0	$	109.2

18

8.

Investing Activities (continued)

Unrealized Gains and Losses from General Account Securities:	September 30, 2008				December 31, 2007
($ in millions)	Gains		Losses		Gains		Losses
U.S. government and agency	$	12.4	$	(33.9)	$	21.8	$	(8.2)
State and political subdivision		6.3		(4.8)		10.9		(1.3)
Foreign government		17.4		(1.2)		25.3		(0.1)
Corporate		54.5		(676.0)		161.4		(186.2)
Mortgage-backed		8.7		(238.4)		39.8		(89.2)
Other asset-backed		2.7		(141.8)		9.7		(85.2)
Debt securities gains (losses)	$	102.0	$	(1,096.1)	$	268.9	$	(370.2)
Debt securities net losses			$	(994.1)			$	(101.3)
Equity securities gains (losses)	$	14.5	$	(12.7)	$	37.0	$	(4.7)
Equity securities net gains	$	1.8			$	32.3

Aging of Temporarily Impaired	As of September 30, 2008
General Account Securities:	Less than 12 months				Greater than 12 months				Total
($ in millions)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt securities
U.S. government and agency	$	165.0	$	(12.0)	$	57.4	$	(21.9)	$	222.4	$	(33.9)
State and political subdivision		28.7		(2.0)		36.4		(2.8)		65.1		(4.8)
Foreign government		32.0		(1.2)		1.0		—		33.0		(1.2)
Corporate		2,695.0		(227.7)		2,001.9		(448.3)		4,696.9		(676.0)
Mortgage-backed		964.5		(52.2)		1,024.3		(186.2)		1,988.8		(238.4)
Other asset-backed		230.5		(26.8)		483.9		(115.0)		714.4		(141.8)
Debt securities	$	4,115.7	$	(321.9)	$	3,604.9	$	(774.2)	$	7,720.6	$	(1,096.1)
Equity securities		68.0		(12.7)		—		—		68.0		(12.7)
Total temporarily impaired securities	$	4,183.7	$	(334.6)	$	3,604.9	$	(774.2)	$	7,788.6	$	(1,108.8)
Amounts inside the closed block	$	2,569.9	$	(205.7)	$	1,775.9	$	(384.9)	$	4,345.8	$	(590.6)
Amounts outside the closed block	$	1,613.8	$	(128.9)	$	1,829.0	$	(389.3)	$	3,442.8	$	(518.2)
Amounts outside the closed block   that are below investment grade	$	121.2	$	(18.0)	$	196.8	$	(60.6)	$	318.0	$	(78.6)
Total after offsets for deferred policy   acquisition cost adjustment and taxes			$	(39.4)			$	(124.7)			$	(164.1)
Number of securities				1,969				1,657				3,626

Unrealized losses on below investment grade debt securities held outside the closed block with a fair value of less than 80% of the amortized cost of the securities totaled $49.2 million at September 30, 2008 ($15.3 million after offsets for taxes and deferred policy acquisition costs). Of this amount, $16.2 million has been below 20% of amortized cost for greater than 12 months.

Unrealized losses on below investment grade debt securities held in the closed block with a fair value of less than 80% of the securities amortized cost totaled $48.9 million at September 30, 2008 ($31.7 million after offsets for change in policy dividend obligation). Of this amount, $4.1 million has been below 20% of amortized cost for greater than 12 months.

The securities are considered to be temporarily impaired at September 30, 2008 as each of these securities has performed, and is expected to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

19

8.

Investing Activities (continued)

In determining that the securities are not other-than-temporarily impaired, we considered and evaluated the factors cited below. In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no assurance that actual results will not differ from our judgments and that such differences may require the future recognition of other-than-temporary impairment charges that could have a material effect on our financial position and results of operations. In addition, the value of, and the realization of any loss on, a debt security or equity security is subject to numerous risks, including interest rate risk, market risk, credit risk and liquidity risk. The magnitude of any loss incurred by us may be affected by the relative concentration of our investments in any one issuer or industry. We have established specific policies limiting the concentration of our investments in any single issuer and industry and believe our investment portfolio is prudently diversifie d.

At the end of each reporting period, we review all securities for potential recognition of an other-than-temporary impairment. We maintain a watch list of securities in default, near default or otherwise considered by our investment professionals as being distressed, potentially distressed or requiring a heightened level of scrutiny. We also identify securities whose carrying value has been below amortized cost on a continuous basis for zero to six months, six months to 12 months and greater than 12 months. Using this analysis, coupled with our watch list, we review securities to determine if a security is other-than-temporarily impaired.

Our assessment of whether an investment in a debt or equity security is other-than-temporarily impaired includes whether the issuer has:

·

defaulted on payment obligations;

·

declared that it will default at a future point outside the current reporting period;

·

announced that a restructuring will occur outside the current reporting period;

·

severe liquidity problems that cannot be resolved;

·

filed for bankruptcy;

·

a financial condition which suggests that future payments are highly unlikely;

·

deteriorating financial condition and quality of assets;

·

sustained significant losses during the current year;

·

announced adverse changes or events such as changes or planned changes in senior management, restructurings, or a sale of assets; and/or

·

been affected by any other factors that indicate that the fair value of the investment may have been negatively impacted.

In determining whether collateralized securities are impaired, we obtain underlying mortgage data from the security’s trustee and analyze it for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows.

If we determine that the security is impaired, we write it down to its then current fair value and record a realized loss in that period.

20

8.

Investing Activities (continued)

Aging of Temporarily Impaired	As of December 31, 2007
General Account Securities:	Less than 12 months				Greater than 12 months				Total
($ in millions)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt Securities
U.S. government and agency	$	12.6	$	(0.7)	$	133.9	$	(7.5)	$	146.5	$	(8.2)
State and political subdivision		1.2		—		47.4		(1.3)		48.6		(1.3)
Foreign government		0.2		—		8.9		(0.1)		9.1		(0.1)
Corporate		1,069.6		(68.3)		2,247.1		(117.9)		3,316.7		(186.2)
Mortgage-backed		449.7		(35.0)		1,201.8		(54.2)		1,651.5		(89.2)
Other asset-backed		547.7		(59.1)		249.8		(26.1)		797.5		(85.2)
Debt securities	$	2,081.0	$	(163.1)	$	3,888.9	$	(207.1)	$	5,969.9	$	(370.2)
Equity securities		50.2		(4.7)		—		—		50.2		(4.7)
Total temporarily impaired securities	$	2,131.2	$	(167.8)	$	3,888.9	$	(207.1)	$	6,020.1	$	(374.9)
Amounts inside the closed block	$	1,083.2	$	(85.4)	$	1,880.4	$	(93.0)	$	2,963.6	$	(178.4)
Amounts outside the closed block	$	1,048.0	$	(82.4)	$	2,008.5	$	(114.1)	$	3,056.5	$	(196.5)
Amounts outside the closed block that are   below investment grade	$	94.7	$	(4.6)	$	173.6	$	(21.6)	$	268.3	$	(26.2)
Total after offsets for deferred policy  acquisition cost adjustment and taxes			$	(25.8)			$	(39.2)			$	(65.0)
Number of securities				1,094				1,456				2,550

Unrealized losses of below investment grade debt securities outside the closed block with a fair value of less than 80% of the securities amortized cost totaled $10.6 million at December 31, 2007 ($2.6 million after offsets for taxes and deferred policy acquisition cost amortization). These have been at significant unrealized loss positions on a continuous basis for six months or less.

Unrealized losses of below investment grade debt securities held in the closed block with a fair value of less than 80% of the securities amortized cost totaled $10.0 million at December 31, 2007 ($0.0 million after offsets for change in policy dividend obligation). These have been at significant unrealized loss positions on a continuous basis for six months or less.

The securities are considered to be temporarily impaired at December 31, 2007 as each of these securities has performed, and is expected to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

Venture capital partnerships

Investment Activity in Venture Capital Partnerships:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Contributions	$	7.3	$	14.7	$	37.6	$	46.0
Equity in earnings of partnerships		(8.4)		7.9		6.2		22.0
Distributions		(5.1)		(10.1)		(15.3)		(20.1)
Change in venture capital partnerships		(6.2)		12.5		28.5		47.9
Venture capital partnership investments, beginning of period		208.4		152.2		173.7		116.8
Venture capital partnership investments, end of period	$	202.2	$	164.7	$	202.2	$	164.7

21

8.

Investing Activities (continued)

Net investment income

Sources of Net Investment Income:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Debt securities	$	175.7	$	195.8	$	537.1	$	584.7
Equity securities		1.2		0.9		3.4		5.4
Mortgage loans		0.2		0.3		0.8		1.4
Venture capital partnerships		(8.4)		7.9		6.2		22.0
Policy loans		47.4		45.5		138.2		133.4
Other investments		1.2		6.3		19.2		35.0
Other income		0.1		(0.5)		2.3		5.3
Cash and cash equivalents		1.7		4.3		7.1		13.9
Total investment income		219.1		260.5		714.3		801.1
Less: Discontinued operations		0.4		0.7		1.7		5.2
Investment expenses		(2.6)		(2.5)		(6.9)		(7.5)
Net investment income, general account investments		216.1		257.3		705.7		788.4
Debt and equity securities pledged as collateral (Note 11)		1.9		3.9		7.1		12.1
Net investment income	$	218.0	$	261.2	$	712.8	$	800.5
Amounts applicable to the closed block	$	118.9	$	140.7	$	401.1	$	431.3

Net realized investment gains (losses)

Sources and Types of	Three Months Ended				Nine Months Ended
Net Realized Investment Gains (Losses):	September 30,				September 30,
($ in millions)	2008		2007		2008		2007
Debt security impairments	$	(37.1)	$	(3.8)	$	(94.6)	$	(18.4)
Equity security impairments		(1.0)		(0.3)		(1.6)		(0.4)
Other investments impairments		—		(1.3)		(8.8)		(1.3)
Debt and equity securities pledged as collateral impairments		(0.7)		—		(0.7)		(0.8)
Impairment losses		(38.8)		(5.4)		(105.7)		(20.9)
Debt security transaction gains		1.8		7.2		5.5		20.2
Debt security transaction losses		(9.8)		(1.7)		(16.3)		(5.9)
Equity security transaction gains		1.5		3.4		9.0		8.7
Equity security transaction losses		(4.0)		(0.6)		(9.4)		(2.0)
Mortgage loan transaction gains (losses)		—		—		(0.1)		1.4
Debt and equity securities pledged as collateral gains		0.2		0.5		1.8		2.3
Debt and equity securities pledged as collateral losses		(0.1)		—		(0.3)		(0.9)
Affiliate transactions gains		—		—		—		13.7
Other investments transaction gains (losses)		(1.5)		0.9		(2.6)		7.8
Real estate transaction gains		—		—		—		1.4
Net transaction gains (losses)		(11.9)		9.7		(12.4)		46.7
Realized losses on fair value option investments		(4.6)		—		(8.0)		—
Realized gains (losses) on derivative assets and liabilities		(5.3)		(0.5)		(8.2)		0.6
Net realized investment gains (losses)	$	(60.6)	$	3.8	$	(134.3)	$	26.4

During the third quarter of 2008, debt security impairments and transaction losses of $31.1 million were taken in the corporate sector associated with defaulted holdings in Lehman Brothers and Washington Mutual, Inc. Also included for the three and nine months ended September 30, 2008 are impairment losses of $11.5 million and $62.0 million, respectively, related to residential mortgage-backed securities. Of these impairment losses, $2.1 million and $21.2 million relate to the closed block for the three- and nine-month periods, respectively.

During the first quarter of 2008, we recorded an impairment loss of $7.3 million in a limited partnership investment. During the second quarter of 2008 we recorded an impairment loss of $1.5 million in a private equity security. During the third quarter of 2008, we did not record any impairments in other investments.

22

8.

Investing Activities (continued)

Unrealized investment gains (losses)

Sources of Changes in	Three Months Ended				Nine Months Ended
Net Unrealized Investment Gains (Losses):	September 30,				September 30,
($ in millions)	2008		2007		2008		2007
Debt securities	$	(429.0)	$	(29.4)	$	(892.8)	$	(265.2)
Equity securities		(9.3)		—		(30.5)		6.6
Debt and equity securities pledged as collateral		(6.4)		(1.5)		4.6		(5.6)
Other investments		(1.0)		—		(3.2)		—
Net unrealized investment losses	$	(445.7)	$	(30.9)	$	(921.9)	$	(264.2)
Net unrealized investment losses	$	(445.7)	$	(30.9)	$	(921.9)	$	(264.2)
Applicable closed block policyholder dividend obligation		43.5		6.1		(188.9)		(146.5)
Applicable deferred policy acquisition cost benefit		(91.2)		(16.8)		(199.8)		(48.4)
Applicable deferred income tax benefit		(137.8)		(6.5)		(187.3)		(22.3)
Offsets to net unrealized investment losses		(185.5)		(17.2)		(576.0)		(217.2)
Net unrealized investment losses included in   other comprehensive income	$	(260.2)	$	(13.7)	$	(345.9)	$	(47.0)

9.

Financing Activities

Indebtedness:	September 30, 2008				December 31, 2007
($ in millions)	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
7.15% surplus notes	$	174.1	$	166.0	$	174.0	$	179.6
6.675% senior unsecured bonds		—		—		153.7		153.7
7.45% senior unsecured bonds		292.9		165.0		300.0		243.1
Total indebtedness	$	467.0	$	331.0	$	627.7	$	576.4

Our 7.15% surplus notes are an obligation of Phoenix Life and are due December 15, 2034. The carrying value of the 2034 notes is net of $1.0 million of unamortized original issue discount. Interest payments are at an annual rate of 7.15%, require the prior approval of the Superintendent of Insurance of the State of New York and may be made only out of surplus funds which the Superintendent determines to be available for such payments under New York Insurance Law. The notes may be redeemed at the option of Phoenix Life at any time at the “make-whole” redemption price set forth in the offering circular. New York Insurance Law provides that the notes are not part of the legal liabilities of Phoenix Life.

Effective as of November 7, 2008, the Company and its subsidiary, Phoenix Life (Phoenix Life, together with the Company, the “Borrowers”) amended our existing $150 million unsecured senior revolving credit facility (the “Amendment”). The Amendment amends the terms of the First Amended and Restated Credit Agreement dated April 2, 2008 (the “First Amended and Restated Facility”).

Potential borrowers on the credit line are the Company and Phoenix Life. We unconditionally guarantee any loans under this facility to Phoenix Life. Base rate loans will bear interest at the greater of Wachovia Bank, National Association’s prime commercial rate or the federal funds rate plus 0.50%. Eurodollar rate loans will bear interest at LIBOR plus an applicable percentage based on our Standard & Poor’s and Moody’s ratings. There are no current borrowings on the credit facility.

The credit facility contains covenants that require us at all times to maintain a minimum level of consolidated tangible net worth, based on GAAP standards in effect on June 6, 2006 and a maximum consolidated debt-to-capital ratio of 30%. In addition, Phoenix Life must maintain a minimum risk-based capital ratio of 325%, a minimum A.M. Best financial strength rating of “A-”, a minimum level of surplus on a statutory basis and a minimum parent cash flow coverage ratio. The financing commitments under the Amendment will terminate on June 6, 2009.

We were in compliance with all of our credit facility covenants as of November 7, 2008, the effective date of the Amendment.

23

9.

Financing Activities (continued)

In December 2002, we issued 6,147,500 of 7.25% equity units in a public offering at $25 per unit for gross proceeds of $153.7 million (net proceeds of $149.1 million). Each equity unit consisted of an unsecured, subordinated note and a purchase contract (equity forward on our common stock collateralized by the note). On November 7, 2005, the notes were remarketed as senior unsecured obligations and the interest rate was reset to 6.675% at that time. The holders of the purchase contracts have been paid a contract adjustment payment at a rate of 0.65% per year. The present value of the future contract adjustment payments of $2.8 million was recorded as a charge to paid-in capital at inception. On February 16, 2006, these holders purchased 17,423,839 shares of our common stock in aggregate as part of the settlement of the original transaction. On February 19, 2008, the $153.7 million of senior unsecured obligations matured and were paid in full.

Our senior unsecured bonds were issued in December 2001 for gross proceeds of $300.0 million (net proceeds of $290.6 million) and mature in January 2032. We pay interest at an annual rate of 7.45%. We may redeem any or all of the bonds from January 2007 at a redemption price equal to 100% of principal plus accrued and unpaid interest to the redemption date. During the third quarter, we repurchased $7.1 million of par value of these bonds for $4.9 million.

We have recorded indebtedness at unpaid principal balances of each instrument net of issue discount. We have determined the fair value of indebtedness based on quoted market prices for surplus notes, bonds and equity units. The Phoenix Companies, Inc. and its subsidiaries may, from time to time, purchase its bond securities in the open market subject to considerations including, but not limited to, market conditions, relative valuations, capital allocation and the continued determination that it is in the best interest of the company and its stakeholders.

Future minimum annual principal payments on indebtedness as of September 30, 2008 are: in 2032, $300.0 million and in 2034, $175.0 million.

Common stock dividends

On May 2, 2008, we declared a dividend of $0.16 per share to shareholders of record on June 13, 2008. We paid that dividend on July 11, 2008. In the prior year, we declared a dividend of $0.16 per share on April 26, 2007 to our shareholders of record on June 13, 2007; we paid that dividend on July 11, 2007.

The Phoenix Life Board of Directors declared dividends of $30.0 million and $25.0 million on July 9, 2008 and March 19, 2008, respectively, to the Company, Phoenix Life’s sole shareholder. These dividends were paid in July 2008 and April 2008, respectively. During 2007, Phoenix Life paid total dividends of $30.0 million, $30.0 million and $32.2 million to the Company in April, July and November, respectively.

10.

Separate Accounts, Death Benefits and Other Insurance Benefit Features

Separate account products are those for which a separate investment and liability account is maintained on behalf of the policyholder. Investment objectives for these separate accounts vary by fund account type, as outlined in the applicable fund prospectus or separate account plan of operations. Our separate account products include variable annuities and variable life insurance contracts. The assets supporting these contracts are carried at fair value and reported as Separate account assets with an equivalent amount reported as Separate account liabilities. Amounts assessed against the policyholder for mortality, administration, and other services are included within revenue in insurance, investment management and product fees. During the nine-month periods ended September 30, 2008 and 2007, there were no gains or losses on transfers of assets from the general account to a separate account.

24

10.

Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

Many of our variable contracts offer various guaranteed minimum death, accumulation, withdrawal and income benefits. These benefits are offered in various forms as described in the footnotes to the table below. We currently reinsure a significant portion of the death benefit guarantees associated with our in-force block of business. We establish policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity policies as follows:

·

Liabilities associated with the guaranteed minimum death benefit (“GMDB”) are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating the liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.

·

Liabilities associated with the guaranteed minimum income benefit (“GMIB”) are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing deferred policy acquisition costs.

The GMDB and GMIB guarantees are recorded in policy liabilities and accruals on our balance sheet. Changes in the liability are recorded in policy benefits, excluding policyholder dividends, on our statement of operations. In a manner consistent with our policy for deferred policy acquisition costs, we regularly evaluate estimates used and adjust the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised.

We also offer certain variable products with a guaranteed minimum withdrawal benefit (“GMWB”), a guaranteed minimum accumulation benefit (“GMAB”) and a guaranteed pay-out annuity floor (“GPAF”).

The GMWB rider guarantees the policyholder a minimum amount of withdrawals and benefit payments over time, regardless of the investment performance of the contract, subject to an annual limit. Optional resets are available. In addition, we introduced a feature for these contracts, beginning in the fourth quarter of 2005, which allows the policyholder to receive the guaranteed annual withdrawal amount for as long as they are alive.

The GMAB rider provides the contractholder with a minimum accumulation of their purchase payments deposited within a specific time period, adjusted for withdrawals, after a specified amount of time determined at the time of issuance of the variable annuity contract.

The GPAF rider provides the policyholder with a minimum payment amount if the variable annuity payment falls below this amount on the payment calculation date.

The Combination Rider includes the GMAB and GMWB riders as well as the GMDB rider at the policyholder’s option.

The GMWB, GMAB and GPAF represent embedded derivatives in the variable annuity contracts that are required to be reported separately from the host variable annuity contract. They are carried at fair value and reported in policyholder deposit funds. The fair value of the GMWB, GMAB and GPAF obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions.

As of September 30, 2008 and December 31, 2007, 100% of the aggregate account value with the GMWB, GMAB and GPAF features was not reinsured. In order to minimize the volatility associated with the unreinsured liabilities, we have established an alternative risk management strategy. We began hedging our GMAB exposure in 2006 and GMWB exposure during the fourth quarter of 2007 using equity options, equity futures, swaps and swaptions. These investments are included in other investments on our balance sheet.

Embedded Derivative Liabilities:	Sept 30,		Dec 31,
($ in millions)	2008		2007
GMWB	$	10.9	$	(1.5)
GMAB		16.0		1.8
GPAF		2.0		1.7

25

10.

Separate Accounts, Death Benefits and Other Insurance Benefit Features (continued)

For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. For guarantees of benefits that are payable upon annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the policy holder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance.

Additional Insurance Benefits:				Net Amount			Average
($ in millions)	Account			At Risk After			Attained Age
	Value			Reinsurance			of Annuitant
GMDB return of premium		$	1,258.4		$	73.4	60
GMDB step up			1,698.5			279.1	60
GMDB earnings enhancement benefit (EEB)			60.8			1.6	60
GMDB greater of annual step up and roll up			31.9			9.9	63
Total GMDB at September 30, 2008		$	3,049.6		$	364.0
Combination Rider		$	1.1				65
GMAB			404.4				55
GMIB			570.1				60
GMWB			407.2				61
GPAF			25.1				75
Total at September 30, 2008		$	1,407.9

With the return of premium, the death benefit is the greater of current account value or premiums paid (less any adjusted partial withdrawals).

With the step up, the death benefit is the greatest of current account value, premiums paid (less any adjusted partial withdrawals) or the annual step up amount prior to the eldest original owner attaining a certain age. On and after the eldest original owner attains that age, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner’s attaining that age plus premium payments (less any adjusted partial withdrawals) made since that date.

With the EEB, the death benefit is the greater of the premiums paid (less any adjusted partial withdrawals) or the current account value plus the EEB. The EEB is an additional amount designed to reduce the impact of taxes associated with distributing contract gains upon death.

With the greater of annual step up and annual roll up, the death benefit is the greatest of premium payments (less any adjusted partial withdrawals), the annual step up amount, the annual roll up amount or the current account value prior to the eldest original owner attaining age 81. On and after the eldest original owner attained age 81, the death benefit is the greater of current account value or the death benefit at the end of the contract year prior to the eldest original owner’s attained age of 81 plus premium payments (less any adjusted partial withdrawals) made since that date.

Liabilities for universal life are generally determined by estimating the expected value of losses when death benefits exceed revenues and recognizing those benefits ratably over the accumulation period based on total expected assessments. The assumptions used in estimating these liabilities are consistent with those used for amortizing deferred policy acquisition costs. A single set of best estimate assumptions is used since these insurance benefits do not vary significantly with capital markets volatility. At September 30, 2008 and December 31, 2007, we held additional universal life benefit reserves of $55.8 million and $34.7 million, respectively.

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11.

Investments Pledged as Collateral and Non-recourse Collateralized Obligations

We are involved with various entities in the normal course of business that are deemed to be variable interest entities and, as a result, we may be deemed to hold interests in those entities. In particular, we serve as the investment advisor to seven collateralized obligation trusts. These seven collateralized obligation trusts are investment trusts with aggregate assets of $1.3 billion that are primarily invested in a variety of fixed income securities acquired from third parties. These collateralized obligation trusts, in turn, issued tranched collateralized obligations and residual equity securities to third parties, as well as to our principal life insurance subsidiary’s general account. The collateralized obligation trusts reside in bankruptcy remote special purpose entities for which we provide neither recourse nor guarantees. Accordingly, our sole financial exposure to these collateralized obligation trusts stems from our life insurance subsidiary’s general account dire ct investment in certain debt or equity securities issued by these collateralized obligation trusts and our investment management fee revenues related to our asset management affiliates’ advisory services. Our maximum exposure to loss with respect to our life insurance subsidiary’s direct investment in the seven collateralized obligation trusts is $8.1 million at September 30, 2008 (none of which relates to trusts that are consolidated). All of that exposure relates to investment grade debt securities.

We consolidated two collateralized obligation trusts as of September 30, 2008 and December 31, 2007. As of September 30, 2008, our direct investment in these two consolidated collateralized obligation trusts was zero. We recognized investment income on debt and equity securities pledged as collateral, net of interest expense on collateralized obligations and applicable minority interest of $(3.5) million and $0.4 million for the nine months ended September 30, 2008 and 2007, respectively, related to the consolidated collateralized obligation trusts.

Assets pledged as collateral are comprised of available-for-sale debt and equity securities at fair value of $163.4 million and $219.1 million at September 30, 2008 and December 31, 2007, respectively. In addition, cash and accrued investment income of $3.0 million and $13.4 million are included in these amounts at September 30, 2008 and December 31, 2007, respectively.

Fair Value and Cost of  Debt and Equity Securities	September 30, 2008				December 31, 2007
Pledged as Collateral:	Fair Value		Cost		Fair Value		Cost
($ in millions)
Debt securities pledged as collateral	$	163.4	$	159.0	$	219.1	$	219.3
Equity securities pledged as collateral		—		0.1		—		0.1
Total debt and equity securities pledged as collateral	$	163.4	$	159.1	$	219.1	$	219.4

Non-recourse collateralized obligations are comprised of callable collateralized obligations of $242.2 million and $307.2 million at September 30, 2008 and December 31, 2007, respectively, and non-recourse derivative cash flow hedge liabilities of $5.6 million (notional amount of $170.1 million with a maturity of June 2009) and $10.7 million (notional amount of $211.1 million with a maturity of June 2009) at September 30, 2008 and December 31, 2007, respectively.

Gross and Net Unrealized Gains and Losses from	September 30, 2008				December 31, 2007
Debt and Equity Securities Pledged as Collateral:	Gains		Losses		Gains		Losses
($ in millions)
Debt securities pledged as collateral	$	15.6	$	(11.2)	$	29.0	$	(29.2)
Equity securities pledged as collateral		—		(0.1)		—		(0.1)
Total	$	15.6	$	(11.3)	$	29.0	$	(29.3)
Net unrealized gains (losses)	$	4.3					$	(0.3)

Gross unrealized losses related to debt securities pledged as collateral whose fair value is less than the security’s amortized cost total $11.2 million at September 30, 2008. Debt securities with a fair value less than 80% of the security’s amortized cost total $8.9 million at September 30, 2008. The majority of these debt securities are investment grade issues that continue to perform to their original contractual terms at September 30, 2008.

We recognized a $0.7 million and $0.0 million charge to earnings in the quarters ended September 30, 2008 and 2007, respectively, related to the other-than-temporary impairment of debt securities pledged as collateral.

27

11.

Investments Pledged as Collateral and Non-recourse Collateralized Obligations (continued)

The effect of the method of consolidation of the collateralized debt obligation trusts was to change our net income by $(3.1) million and $0.6 million for the nine months ended September 30, 2008 and 2007, respectively, and to decrease our stockholders’ equity by $81.4 million and $85.4 million as of September 30, 2008 and December 31, 2007, respectively. The impact to net income and stockholders’ equity primarily relates to realized and unrealized investment and derivative cash flow gains and losses within the collateralized obligation trusts, which will ultimately be borne by third-party investors in the non-recourse collateralized obligations. Accordingly, these gains and losses and any future gains or losses under this method of consolidation will ultimately reverse upon the deconsolidation, maturity or other liquidation of the non-recourse collateralized obligations.

GAAP requires us to consolidate all the assets and liabilities of these collateralized obligation trusts, which results in the recognition of realized and unrealized losses even though we have no legal obligation to fund such losses in the settlement of the collateralized obligations.

The amount of derivative cash flow hedge ineffectiveness recognized on these collateralized obligation trusts for the nine months ended September 30, 2008 and 2007 changed realized gains by $0.4 million and $(0.9) million, respectively.

12.

Fair Value

SFAS No. 157 (“SFAS 157”) defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

SFAS 157 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels, from highest to lowest, are defined as follows:

·

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 securities include highly liquid government bonds, mortgage products, exchange-traded equities and exchange-traded corporate debt.

·

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Examples of such instruments include certain collateralized mortgage and debt obligations and certain high-yield debt securities.

·

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Securities classified within Level 3 include broker quoted investments, certain residual interests in securitizations and other less liquid securities. Most valuations that are based on brokers’ prices are classified as Level 3 due to a lack of transparency in the process they use to develop prices.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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12.

Fair Value (continued)

The following table presents the financial instruments carried at fair value as of September 30, 2008, by SFAS 157 valuation hierarchy (as described above).

Assets and Liabilities at Fair Value:	As of September 30, 2008
($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale debt securities	$	255.2	$	9,282.5	$	1,163.0	$	10,700.7
Available-for-sale equity securities		142.3		—		24.0		166.3
Derivative assets		—		76.8		—		76.8
Separate account assets		9,735.4		93.9		1.5		9,830.8
Debt and equity securities pledged as collateral		—		153.6		9.8		163.4
Fair value option investments		64.8		41.0		—		105.8
Total assets	$	10,197.7	$	9,647.8	$	1,198.3	$	21,043.8
Liabilities
Derivative liabilities	$	—	$	1.1	$	28.9	$	30.0
Total liabilities	$	—	$	1.1	$	28.9	$	30.0

Available-for-sale debt securities are reported net of $42.7 million of investments included in other assets on our balance sheet because they are allocated to discontinued reinsurance operations. See Note 17 to these financial statements for further information.

Fair value option investments at September 30, 2008 include $64.8 million of available-for-sale equity securities backing our deferred compensation liabilities. Prior to our adoption of SFAS 159, changes in the fair value of the securities were recorded in other comprehensive income while changes in the deferred compensation liability were recorded in earnings. Electing the fair value option allows us to mitigate the associated accounting volatility.

Fair value option investments also include a structured loan asset valued at $41.0 million as of September 30, 2008. We elected to apply the fair value option to this note at the time of its acquisition. We purchased the note to obtain principal protection without sacrificing earnings potential. Election of the fair value option allows current earnings recognition and is more consistent with management’s view of the security’s underlying economics.

We have an established process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon internally developed models that use primarily market-based or independently-sourced market parameters, including interest rate yield curves, option volatilities and currency rates. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments include amounts to reflect counterparty credit quality, our own creditworthiness, liquidity and unobservable parameters that are applied consistently over time. The majority of the valuations of Level 3 assets were internally calculated or obtained from independent third-party broker quotes.

For certain structured, collateralized loan obligation (“CLO”) and collateralized debt obligation (“CDO”) assets for which current broker quotes either do not exist, or are based on inactive markets, fair value was determined based on projected cash flows under normalized default and recovery assumptions made at the time of purchase. We then applied a current discount rate, determined by using a rate composed of the U.S. treasury rate for the average life of the investment, plus a credit spread derived from corporate bonds with the same credit rating, plus a spread for illiquidity and structure, based on average life and credit rating, weighted against available broker quotes, to determine the quarter end fair value. As of September 30, 2008, approximately $437 million par amount was priced in accordance with this methodology.

Following is a description of our valuation methodologies for assets and liabilities measured at fair value. Such valuation methodologies were applied to all of the assets and liabilities carried at fair value, whether as a result of the adoption of SFAS 159 or previously carried at fair value.

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12.

Fair Value (continued)

Derivatives

Exchange-traded derivatives valued using quoted prices are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; therefore, the majority of our derivative positions are valued using internally developed models that use as their basis readily observable market parameters and are classified within Level 2 of the valuation hierarchy. Such derivatives include basic interest rate swaps, options and credit default swaps.

Fair values for over-the-counter (“OTC”) derivative financial instruments, principally forwards, options and swaps, represent the present value of amounts estimated to be received from or paid to a marketplace participant in settlement of these instruments (i.e., the amount we would expect to receive in a derivative asset assignment or would expect to pay to have a derivative liability assumed). These derivatives are valued using pricing models based on the net present value of estimated future cash flows and directly observed prices from exchange-traded derivatives or other OTC trades, while taking into account the counterparty’s credit ratings, or our own credit ratings, as appropriate. Determining the fair value for OTC derivative contracts can require a significant level of estimation and management judgment.

New and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation often incorporate significant estimates and assumptions that market participants would use in pricing the instrument, which may impact the results of operations reported in the consolidated financial statements. For long-dated and illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. This enables us to mark-to-market all positions consistently when only a subset of prices are directly observable. Values for OTC derivatives are verified using observed information about the costs of hedging the risk and other trades in the market. As the markets for these products develop, we will continually refine our pricing models to correlate more closely to the market risk of these instruments.

Retained Interest in Securitization

Retained interests in securitizations do not trade in an active, open market with readily observable prices. Accordingly, we estimate the fair value of certain retained interests in securitizations using discounted cash flow (“DCF”) models.

For certain other retained interests in securitizations (such as interest-only strips), a single interest rate path DCF model is used and generally includes assumptions based upon projected finance charges related to the securitized assets, estimated net credit losses, prepayment assumptions and contractual interest paid to third-party investors. Changes in the assumptions used may have a significant impact on our valuation of retained interests and such interests are therefore typically classified within Level 3 of the valuation hierarchy.

We compare the fair value estimates and assumptions to observable market data where available and to recent market activity and actual portfolio experience.

Private equity investments

The valuation of nonpublic private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such assets. Private equity investments are valued initially based upon transaction price. The carrying values of private equity investments are adjusted either upwards or downwards from the transaction price to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing reviews by senior investment managers. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation including, but not limited to, current operating performance and future expectations of the particular investment, industry valuations of comparable public companies, changes in market outlook and the third-party financing environment over time. In determining valuation adjustment s resulting from the investment review process, emphasis is placed on current company performance and market conditions. Private equity investments are included in Level 3 of the valuation hierarchy.

Private equity investments may also include publicly held equity securities, generally obtained through the initial public offering of privately held equity investments. Such securities are marked-to-market at the quoted public value less adjustments for regulatory or contractual sales restrictions. Discounts for restrictions are quantified by analyzing the length of the restriction period and the volatility of the equity security.

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12.

Fair Value (continued)

Beneficial interests issued by consolidated Variable Interest Entities (“VIEs”)

The fair value of beneficial interests issued by consolidated VIEs (beneficial interests) is estimated based upon the fair value of the underlying assets held by the VIEs. The valuation of beneficial interests does not include an adjustment to reflect our credit quality as the holders of these beneficial interests do not have recourse to our general credit. As the inputs into the valuation are generally based upon readily observable pricing information, the majority of beneficial interests used by consolidated VIEs are classified within Level 2 of the valuation hierarchy.

Separate Accounts

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security and short-term investments of the Company. Mutual funds are included in Level 1. Most debt securities and short-term investments are included in Level 2.

Valuation of Embedded Derivatives

Embedded derivatives are guarantees that we make on certain variable annuity contracts, including GMAB and GMWB. These embedded derivatives are fair valued using a risk neutral stochastic valuation methodology. The inputs to our fair value methodology include information derived from the asset derivatives market, including the volatility surface and the swap curve. Several additional inputs are not obtained from independent sources, but instead reflect our own assumptions about what market participants would use in pricing the contracts. These inputs are therefore considered “unobservable” and fall into Level 3 of the fair value hierarchy. These inputs include mortality rates, lapse rates and policyholder behavior assumptions. Because there are significant Level 3 inputs included in our fair value methodology for these embedded derivative liabilities, we consider the above-described methodology as a whole to be Level 3.

Level 3 Financial Assets and Liabilities

The following table sets forth a summary of changes in the fair value of our Level 3 financial assets and liabilities. As required by SFAS 157, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. For example, a hypothetical derivative contract with Level 1, Level 2 and significant Level 3 inputs would be classified as a Level 3 financial instrument in its entirety. Subsequently, even if only Level 1 and Level 2 inputs are adjusted, the resulting gain or loss is classified as Level 3. Further, Level 3 instruments are frequently hedged with instruments that are classified as Level 1 or Level 2 and, accordingly, gains or losses reported as Level 3 in the table below may be offset by gains or losses attributable to instruments classified in Level 1 or 2 of the fair value hierarchy.

Level 3 Financial Assets and Liabilities:	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2008				September 30, 2008
	Assets		Liabilities		Assets		Liabilities
Balance, beginning of period	$	1,272.8	$	(7.1)	$	1,518.9	$	(2.0)
Purchases/(sales), net		(36.8)		—		(157.3)		—
Net transfers		(22.6)		—		(42.9)		—
Realized gains (losses)		(11.8)		(21.8)		(57.0)		(26.9)
Unrealized gains (losses) included in   other comprehensive income (loss)		(4.2)		—		(64.9)		—
Amortization/accretion		0.9		—		1.5		—
Balance, end of period	$	1,198.3	$	(28.9)	$	1,198.3	$	(28.9)
Portion of gain (loss) included in net income relating to   those assets/liabilities still held	$	(14.6)	$	(21.8)	$	(71.1)	$	(26.9)

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13.

Income Taxes

For the three and nine months ended September 30, 2008 and 2007, the effective income tax rates applicable to income from continuing operations differ from the 35.0% U.S. federal statutory tax rate. Items giving rise to the differences and the effects are as follows:

Analysis of Effective Income Tax Rates:	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Income taxes at statutory rate		35.0%		35.0%		35.0%		35.0%
Dividends received deduction		0.9%		(10.2%)		0.8%		(4.1%)
Low income housing tax credit		0.7%		(2.3%)		0.6%		(2.3%)
State income taxes, net of federal tax		2.3%		1.7%		2.1%		0.9%
Realized gains (losses) on available securities pledged as collateral		(0.3%)		(0.4%)		(0.2%)		(0.2%)
Release of foreign tax credit valuation allowance		—%		—%		—%		(4.1%)
Recognition of foreign tax credit benefit		—%		(2.5%)		—%		(2.9%)
Adjustments to tax accruals		—%		—%		0.4%		—%
Adjustments to deferred tax on reserves		—%		—%		0.2%		—%
Non-deductible goodwill impairment		(15.5%)		—%		(14.9%)		—%
Other, net		(0.1%)		(4.8%)		(0.1%)		(2.6%)
Effective income tax rates applicable to continuing operations		23.0%		16.5%		23.9%		19.7%

It is the our policy to estimate taxes for interim periods based on estimated annual effective tax rates which are derived, in part, from expected annual pre-tax income. However, the federal income tax benefit for the nine months ended September 30, 2008 has been computed based on the first nine months of 2008 as a discrete period due to the uncertainty regarding our ability to reliably estimate pre-tax income for the remainder of the year. We cannot reliably estimate pre-tax income for the remainder of 2008 primarily due to higher reserves and higher amortization of deferred policy acquisition costs, both resulting from the declines in the market. Due to this uncertainty, we are unable to develop a reasonable estimate of the annual effective tax rate for the full year 2008. Additionally, for the three and nine months ended September 30, 2008, we recognized a benefit of $89.1 million and $93.1 million, respectively, associated with non-cash impairment charges related to goodwi ll and other intangible assets. Federal income tax expense for the nine months ended September 30, 2007 has been calculated using estimated effective tax rates. The rates, in 2007, were revised as necessary, at the end of each successive interim period, to reflect the current estimates of the annual effective tax rates.

Our federal income tax returns are routinely audited by the IRS and estimated provisions are routinely provided in the financial statements in anticipation of the results of these audits. Unfavorable resolution of any particular issue could result in additional use of cash to pay liabilities that would be deemed owed to the IRS. Additionally, any unfavorable or favorable resolution of any particular issue could result in an increase or decrease, respectively, to our effective income tax rate to the extent that our estimates differ from the ultimate resolution. As of September 30, 2008, we had current taxes receivable of $31.0 million.

The company is presently under audit with the Internal Revenue Service (“IRS”) for 2004 and 2005. It is reasonably possible that the exam will conclude within the next 12 months. An estimate of resulting future changes in FIN 48 liabilities cannot be made at this time due to the number of items still being reviewed by the IRS.

See Note 2 to these financial statements for information regarding the implementation of FIN 48.

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14.

Employee Benefits

Pension and other postretirement benefits

We provide our employees with postemployment benefits that include retirement benefits, through pension and savings plans, and other benefits, including health care and life insurance. The components of pension and postretirement benefit costs follow:

Components of Pension Benefit Costs:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Service cost	$	2.0	$	2.0	$	6.1	$	9.3
Interest cost		10.0		9.7		29.5		28.5
Expected return on plan assets		(9.9)		(10.3)		(30.5)		(30.2)
Net loss amortization		3.1		1.3		6.6		4.8
Prior service cost amortization		0.1		0.3		0.2		0.8
Pension benefit cost	$	5.3	$	3.0	$	11.9	$	13.2

Components of Other Postretirement Benefit Costs:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Service cost	$	0.4	$	0.4	$	1.2	$	1.2
Interest cost		1.0		0.9		3.0		2.8
Prior service cost amortization		(0.4)		(0.4)		(1.2)		(1.2)
Net gain amortization		—		—		(0.1)		(0.1)
Other postretirement benefit cost	$	1.0	$	0.9	$	2.9	$	2.7

For both the three and nine months ended September 30, 2008, other comprehensive income includes net after-tax unrealized losses of $57.5 million on assets supporting the pension plan.

Savings plans

During the three months ended September 30, 2008 and 2007, we incurred costs of $1.6 million and $1.5 million, respectively, for contributions to our employer-sponsored savings plans. During the nine months ended September 30, 2008 and 2007, we incurred costs of $6.1 million and $4.5 million, respectively, for contributions to our employer-sponsored savings plans.

15.

Share-based compensation

On January 1, 2006, the Company adopted SFAS 123(R) using the modified prospective method.

We provide share-based compensation to certain of our employees and non-employee directors, as further described below. The compensation cost that has been charged against income for these plans is summarized in the following table:

	Three Months Ended				Nine Months Ended
Share-Based Compensation Plans:	September 30,				September 30,
($ in millions)	2008		2007		2008		2007
Compensation cost charged to income	$	2.5	$	2.9	$	8.5	$	8.8
Income tax benefit	$	0.9	$	1.6	$	3.0	$	3.4

We did not capitalize any cost of stock-based compensation during the three- and nine-month periods ended September 30, 2008 and 2007.

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15.

Share-based compensation (continued)

Stock options

We have stock option plans under which we grant options for a fixed number of common shares to employees and non-employee directors. Our options have an exercise price equal to the market value of the shares at the date of grant. Each option, once vested, entitles the holder to purchase one share of our common stock. The employees’ options generally vest over a three-year period while the directors’ options vest immediately. The fair values of options granted are measured as of the grant date and expensed ratably over the vesting period.

Stock Option Activity at	Three Months Ended September 30,
Weighted-Average Exercise Price:	2008			2007
	Common			Common
	Shares	Price		Shares	Price
Outstanding, beginning of period	5,073,237	$	13.79	4,657,689	$	14.87
Granted	—		—	25,000		13.45
Exercised	(20,210)		10.16	(13,667)		10.35
Forfeited	(90,981)		12.43	(750)		10.61
Expired/unexercised	(64,078)		15.00	(401,666)		16.20
Outstanding, end of period	4,897,968	$	13.81	4,266,606	$	14.76

Stock Option Activity at	Nine Months Ended September 30,
Weighted-Average Exercise Price:	2008			2007
	Common			Common
	Shares	Price		Shares	Price
Outstanding, beginning of period	4,087,486	$	14.79	4,522,618	$	14.85
Granted	1,423,832		11.37	506,500		14.07
Exercised	(36,777)		10.33	(153,443)		10.21
Forfeited	(155,455)		12.67	(28,537)		13.64
Expired/unexercised	(421,118)		15.83	(580,532)		16.17
Outstanding, end of period	4,897,968	$	13.81	4,266,606	$	14.76

Options granted during the nine months ended September 30, 2008 had a weighted-average fair value of $4.47.

The intrinsic value of stock options exercised during the three and nine months ended September 30, 2008 was less than $0.1 million.

As of September 30, 2008, 3.1 million of outstanding stock options were exercisable, with a weighted-average exercise price of $14.81.

As of September 30, 2008, there was $4.7 million of total unrecognized compensation cost related to unvested stock option grants.

Restricted stock units

We have restricted stock unit (“RSU”) plans under which we grant RSUs to employees and non-employee directors. Each RSU, once vested, entitles the holder to one share of our common stock when the restriction expires. We recognize compensation expense over the vesting period of the RSUs.

34

15.

Share-based compensation (continued)

RSU Activity at Weighted-Average Grant Price:	Three Months Ended September 30,
	2008			2007
	RSUs	Price		RSUs	Price
Outstanding, beginning of period	2,256,169	$	11.72	1,766,255	$	11.39
Awarded	50,055		8.23	51,292		14.17
Converted to common shares/applied to taxes	(6,901)		13.46	(137,451)		8.28
Canceled	(35,759)		11.28	(300)		13.80
Outstanding, end of period	2,263,564	$	11.64	1,679,796	$	11.73

RSU Activity at Weighted-Average Grant Price:	Nine Months Ended September 30,
	2008			2007
	RSUs	Price		RSUs	Price
Outstanding, beginning of period	1,664,021	$	11.86	1,432,454	$	10.73
Awarded	834,272		11.76	883,945		13.42
Converted to common shares/applied to taxes	(106,224)		13.78	(620,955)		11.77
Canceled	(128,505)		13.48	(15,648)		14.55
Outstanding, end of period	2,263,564	$	11.64	1,679,796	$	11.73

The intrinsic value of RSUs converted during the three months ended September 30, 2008 was $0.1 million. The intrinsic value of RSUs converted during the nine months ended September 30, 2008 was $1.2 million.

As of September 30, 2008, there was $7.7 million of total unrecognized compensation cost related to unvested RSU grants.

In addition to the RSU activity above, 2.5 million RSUs are subject to future issuance based on the achievement of performance criteria established under certain of our incentive plans. The performance contingencies for these RSUs will be resolved no later than December 31, 2010.

16.

Earnings Per Share

Shares Used in Calculation of Basic and Diluted	Three Months Ended		Nine Months Ended
Earnings per Share:	September 30,		September 30,
(in thousands)	2008	2007	2008	2007
Weighted-average common shares outstanding	114,398	114,196	114,374	114,040
Weighted-average effect of dilutive potential common shares:
Restricted stock units	1,854	1,388	2,042	1,453
Stock options	26	168	55	174
Potential common shares	1,880	1,556	2,097	1,627
Less: Potential common shares excluded from calculation due to   operating losses	(1,880)	—	(2,097)	—
Dilutive potential common shares	—	1,556	—	1,627
Weighted-average common shares outstanding   and dilutive potential common shares	114,398	115,752	114,374	115,667
Stock options excluded from calculation due to
anti-dilutive exercise prices:
(i.e., in excess of average common share market prices)
Stock options	4,779	3,148	4,594	2,765

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17.

Contingent Liabilities

Litigation and Arbitration

We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. The litigation and arbitration naming us as a defendant ordinarily involves our activities as an insurer, employer, investor, investment advisor or taxpayer. It is not feasible to predict or determine the ultimate outcome of all legal or arbitration proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and arbitration matters are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and arbitration, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods.

On May 20, 2008, SCM Advisors, LLC (“SCM”), an indirect wholly-owned subsidiary of the Company, was named a respondent in an arbitration commenced with the American Arbitration Association by former institutional clients, Forethought Investment Management, Inc., Forethought Life Insurance Company, Forethought Life Assurance Company and Forethought Financial Group, Inc., for alleged losses sustained while SCM was providing investment advisory services. The investment losses are primarily related to investments in collateralized debt obligations and are alleged to exceed $38.0 million. The Company believes that the claims lack merit and SCM intends to defend this matter vigorously.

Regulatory Matters

State regulatory bodies, the Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”) and other regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, and laws governing the activities of broker-dealers. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted.

For example, in October 2007, the New York State Insurance Department commenced the on-site portion of its routine quinquennial financial and market conduct exam of Phoenix Life and its New York domiciled life insurance subsidiary for the five year period ending December 31, 2007.

In addition, federal and state regulatory authorities from time to time make inquiries and conduct examinations regarding compliance by Phoenix Life and its subsidiaries with securities and other laws and regulations affecting their registered products. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. There has been a significant increase in federal and state regulatory activity relating to financial services companies, with a number of recent regulatory inquiries focusing on late-trading, market timing and valuation issues. Our products entitle us to impose restrictions on transfers between separate account sub-accounts associated with our variable products.

In 2005, the Boston District Office of the SEC completed a compliance examination of certain of the Company’s affiliates that are registered under the Investment Company Act of 1940 or the Investment Advisers Act of 1940. Following the examination, the staff of the Boston District Office issued a deficiency letter primarily focused on perceived weaknesses in procedures for monitoring trading to prevent market timing activity. The staff requested the Company to conduct an analysis as to whether shareholders, policyholders and contractholders who invested in the funds that may have been affected by undetected market timing activity had suffered harm and to advise the staff whether the Company believes reimbursement is necessary or appropriate under the circumstances. A third party was retained to assist the Company in preparing the analysis. Based on this analysis, the Company advised the SEC that it does not believe that reimbursement is appropriate.

Over the past several years, a number of companies have announced settlements of enforcement actions with various regulatory agencies, primarily the SEC and the New York Attorney General’s Office. While no such action has been initiated against us, it is possible that one or more regulatory agencies may pursue this type of action against us in the future.

Financial services companies have also been the subject of broad industry inquiries by state regulators and attorneys general which do not appear to be company-specific. In May 2005, we received a subpoena from the Connecticut Attorney General’s office and an inquiry from the Connecticut Insurance Department requesting information regarding finite reinsurance. We cooperated fully and have had no further inquiry since responding.

36

17.

Contingent Liabilities (continued)

These types of regulatory actions may be difficult to assess or quantify, may seek recovery of indeterminate amounts, including punitive and treble damages, and the nature and magnitude of their outcomes may remain unknown for substantial periods of time. While it is not feasible to predict or determine the ultimate outcome of all pending inquiries, investigations, legal proceedings and other regulatory actions, or to provide reasonable ranges of potential losses, we believe that their outcomes are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these actions and the inherent unpredictability of regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operation or cash flows in particular quarterly or annual periods.

Discontinued Reinsurance Operations

In 1999, we discontinued our reinsurance operations through a combination of sale, reinsurance and placement of certain retained group accident and health reinsurance business into run-off. We adopted a formal plan to stop writing new contracts covering these risks and to end the existing contracts as soon as those contracts would permit. However, we remain liable for claims under contracts which have not been commuted.

For example, we participate in a workers’ compensation reinsurance pool formerly managed by Unicover Managers, Inc. (“Unicover”). The pool ceased accepting new risks in early 1999. Further, we were a retrocessionaire (meaning a reinsurer of other reinsurers) of the Unicover pool. We have been involved in disputes relating to the activities of Unicover. These disputes have been substantially resolved or settled.

Our discontinued group accident and health reinsurance operations also include other (non-Unicover) workers’ compensation reinsurance contracts and personal accident reinsurance contracts, including contracts assumed in the London market. We are engaged in arbitrations, disputes or investigations with several ceding companies over the validity of, or amount of liabilities assumed under, their contracts. These arbitrations, disputes and investigations are in various stages.

We bought retrocessional reinsurance for a significant portion of our assumed reinsurance liabilities. Some of the retrocessionaires have disputed the validity of, or amount of liabilities assumed under, their contracts with us. Most of these disputes with retrocessionaires have been resolved or settled. The remaining arbitrations and disputes are at various stages.

We have established reserves for claims and related expenses that we expect to pay on our discontinued group accident and health reinsurance business. These reserves are based on currently known facts and estimates about, among other things, the amount of insured losses and expenses that we believe we will pay, the period over which they will be paid, the amount of reinsurance we believe we will collect from our retrocessionaires and the likely legal and administrative costs of winding down the business.

We expect our reserves and reinsurance to cover the run-off of the business; however, unfavorable or favorable claims and/or reinsurance recovery experience is reasonably possible and could result in our recognition of additional losses or gains, respectively, in future years. Given the uncertainty associated with litigation and other dispute resolution proceedings, as well as the lack of sufficient claims information, the range of any reasonably possible additional future losses or gains is not currently estimable. However, it is our opinion, based on current information and after consideration of the provisions made in these financial statements, that any future adverse or favorable development of recorded reserves and/or reinsurance recoverables will not have a material adverse effect on our consolidated financial position. Nevertheless, it is possible that future developments could have a material adverse effect on our consolidated results of operations or cash flows in particular q uarterly or annual periods.

Other

In September 2008, a security held in the Phoenix Insight Money Market Fund (the “Fund”), advised by one of our asset management subsidiaries and sub-advised by Harris Investment Management, had decreased in value and had the potential to cause the Fund’s net asset value per share to dip below 99.5 cents. In connection with actions taken to maintain the Fund’s net asset value, we agreed to partially address the ultimate loss, if any, on the security by restructuring existing money market agreements with Harris Investment Management or by an alternative means, subject to a maximum of $15 million. The contingency was extinguished in October concurrent with the agreement with Harris Bankcorp, Inc. to take a 23% equity position in our asset management subsidiary in connection with the planned spin-off.

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18.

Accounting Adjustments

During 2008, we identified an item related to the collateralized debt obligations that we consolidate under FIN 46(R) that required adjustment. We recorded a correction to the valuation of debt and equity securities pledged as collateral which increased the unrealized gain by $21.8 million for the year-to-date period. We evaluated the financial impact of this accounting adjustment and concluded that it was not material to current or prior periods. See Note 8 to these financial statements for additional information on unrealized investment gains and losses.

During the first quarter of 2007, we identified certain items that required adjustment. The adjustments relate primarily to two areas:

·

Overaccrual of interest expense. Between 2002 and 2006, interest was accrued on a note payable for more than was owed. The effect was immaterial in any one period and accumulated over several years to an overaccrual of approximately $1.4 million after-tax.

·

Under reporting of realized investment gains. We did not reflect approximately $2.7 million of after-tax realized investment gains associated primarily with the sale of a subsidiary in 1999. Instead, these gains were recognized as unrealized gains and included in accumulated other comprehensive income.

Management has evaluated the financial impact of the previously mentioned accounting adjustments and concluded that the effect both individually and in the aggregate was not material to the current year or any prior period. Accordingly, prior period financial statements have not been restated. Instead, to reflect these adjustments, we have recorded a cumulative increase to net income in the three months ended March 31, 2007 of $4.1 million after-tax. Of this increase, $2.7 million was related to net realized investment gains and $1.4 million was related to interest expense on indebtedness.

19.

Subsequent Events

Credit Facility

Effective as of November 7, 2008, we amended our existing unsecured senior revolving credit facility, as further described in Note 9 to these financial statements.

Harris Bankcorp, Inc.

During October 2008, we signed a definitive agreement with Harris Bankcorp, Inc., a U.S. subsidiary of Bank of Montreal, to take a 23% equity position in our asset management subsidiary in connection with the planned spin-off.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussion in this Form 10-Q may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating to forward-looking statements. These include statements relating to trends in, or representing management’s beliefs about our future strategies, operations and financial results, as well as other statements including, but not limited to, words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “may,” “should” and other similar expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. They are not guarantees of future performance. Actual results may differ materially from t hose suggested by forward-looking statements as a result of risks and uncertainties which include, among others: (i) the effects of recent adverse market and economic developments on all aspects of our business; (ii) changes in general market and business conditions, interest rates and the debt and equity markets; (iii) the possibility that mortality rates, persistency rates or funding levels may differ significantly from our pricing expectations; (iv) the availability, pricing and terms of reinsurance coverage generally and the inability or unwillingness of our reinsurers to meet their obligations to us specifically; (v) our dependence on non-affiliated distributors for our product sales, (vi) downgrades in our debt or financial strength ratings; (vii) our dependence on third parties to maintain critical business and administrative functions; (viii) the ability of independent trustees of our mutual funds and closed-end funds, intermediary program sponsors, managed account clients and institutional asset management clients to terminate their relationships with us; (ix) our ability to attract and retain key personnel in a competitive environment; (x) the poor relative investment performance of some of our asset management strategies and the resulting outflows in our assets under management; (xi) the possibility that the goodwill or intangible assets associated with our asset management business could become impaired, requiring a charge to earnings; (xii) the strong competition we face in our business from mutual fund companies, banks, asset management firms and other insurance companies; (xiii) our  reliance, as a holding company, on dividends and other payments from our subsidiaries to meet our financial obligations and pay future dividends, particularly since our insurance subsidiaries’ ability to pay dividends is subject to regulatory restrictions; (xiv) the potential need to fund deficiencies in our closed block; (xv) tax develop ments that may affect us directly, or indirectly through the cost of, the demand for or profitability of our products or services; (xvi) other legislative or regulatory developments; (xvii) legal or regulatory actions; (xviii) changes in accounting standards; (xix) the potential effects of the spin-off of our asset management business on our expense levels, liquidity and third-party relationships; and (xx) other risks and uncertainties described herein or in any of our filings with the SEC. We undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section reviews our consolidated financial condition as of September 30, 2008 as compared to December 31, 2007; our consolidated results of operations for the three and nine months ended September 30, 2008 and 2007; and, where appropriate, factors that may affect our future financial performance. This discussion should be read in conjunction with the unaudited interim financial statements and notes contained in this filing as well as in conjunction with our consolidated financial statements for the year ended December 31, 2007 in our 2007 Annual Report on Form 10-K.

Business Overview and Earnings Drivers

For an overview of our current business and an explanation of the key drivers of our revenues, expenses and overall profitability, please see the “Overview” discussion in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our 2007 Annual Report on Form 10-K.

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Recent Developments

Spin-Off of Asset Management Business

On February 7, 2008, we announced our intention to spin off our asset management subsidiary, Virtus Investment Partners, Inc. (“Virtus”), formerly known as Phoenix Investment Partners, Ltd., by way of a dividend of Virtus’s stock to the Company’s shareholders. The spin-off and related transactions are expected to be completed in the fourth quarter of 2008. At this point, decisions regarding the capital structure, expense and overhead support structure and other matters are under review and consideration.

On October 30, 2008, the Company and its wholly owned subsidiaries, Phoenix Investment Management Company (“PIMCO”) and Virtus Holdings, Inc. (“Virtus Holdings”) entered into an Investment and Contribution Agreement (the “Investment Agreement”) with Harris Bankcorp, Inc. (“Harris”), a U.S. subsidiary of Bank of Montreal, pursuant to which Harris would acquire $45 million in convertible preferred stock (the “Preferred Stock”) of Virtus Holdings, representing a 23% equity position in Virtus Holdings and its direct and wholly-owned subsidiary, Virtus. The Agreement calls for a two-step closing process, the first step of which was completed effective as of October 31, 2008. The second step of the transaction, which is subject to certain regulatory and other customary conditions, is expected to be completed in connection with the spin-off of Virtus Holdings and Virtus from the Company.

Upon completion of the spin-off, our shareholders will have separate, publicly-traded ownership interests in the Company and Virtus. Virtus will consist of the Company’s entire asset management business, with the exception of Goodwin Capital Advisors, Inc., which will remain with the Company and continue to manage the Company’s general account assets, as well as third-party assets. The Company and Virtus will be independent of each other and have separate boards of directors and management. To facilitate Virtus’s separation from the Company, each company will continue certain existing arrangements during a transition period following completion of the spin-off.

Recent Acquisitions and Dispositions

See our 2007 Annual Report on Form 10-K for a discussion of our recent acquisitions and dispositions.

Impact of New Accounting Standards

For a discussion of accounting standards, see Note 2 to our consolidated financial statements in this Form 10-Q.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting estimates are reflective of significant judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Deferred Income Taxes

Significant management judgment is required in determining the provision for income taxes and, in particular, any valuation allowance recorded against our deferred tax assets. We carried a valuation allowance of $19.6 million on $339.4 million of deferred tax assets at September 30, 2008, due to uncertainties related to our ability to utilize some of the deferred tax assets in certain state jurisdictions. The amount of the valuation allowance has been determined based on our estimates of taxable income by each jurisdiction in which we operate over the periods in which the deferred tax assets will be recoverable.

We concluded that a valuation allowance on the remaining $319.8 million of deferred tax assets at September 30, 2008, was not required. Our methodology for determining the realizability of deferred tax assets involves estimates of future taxable income from our operations and consideration of available tax planning strategies and actions that could be implemented, if necessary, as well as the expiration dates and amounts of carryforwards related to net operating losses, capital losses, foreign tax credits and general business tax credits. These estimates are projected through the life of the related deferred tax assets based on assumptions that we believe to be reasonable and consistent with current operating results. Changes in future operating results not currently forecasted may have a significant impact on the realization of deferred tax assets.

40

In concluding that a valuation allowance was not required on the remaining deferred tax assets, we considered both the positive and negative evidence regarding our ability to generate sufficient taxable income to realize those deferred tax assets. Positive evidence included having achieved profitability for financial reporting purposes since 2004. Further positive evidence included the fact that the net operating losses will not begin to expire until 2023, while projected earnings indicate that the deferred tax assets will be offset by taxable earnings prior to that expiration. Negative evidence included a history of net operating losses in the non-life insurance company group, including losses due to goodwill and intangible asset impairment charges in the current and prior years. In weighing the positive and negative evidence above, we considered the more likely than not criteria pursuant to SFAS 109. Based on this analysis we concluded that it was more likely than not that the deferre d tax assets of $319.8 million would be realized.

See our 2007 Annual Report on Form 10-K for further information on critical accounting estimates related to deferred income taxes.

As further described below, during 2008 we changed our method of accounting for reinsurance and for calculating deferred policy acquisition cost amortization. See our 2007 Annual Report on Form 10-K for a discussion of additional critical accounting estimates.

Accounting Change

Effective April 1, 2008, we changed our method of accounting for the cost of certain of our long duration reinsurance contracts accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 113,Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts(“SFAS 113”). In conjunction with this change, we also changed our method of accounting for the impact of reinsurance costs on deferred acquisition costs. SFAS 113 requires us to amortize the estimated cost of reinsurance over the life of the underlying reinsured contracts. Under our previous method, we recognized reinsurance recoveries as part of the net cost of reinsurance and amortized this balance over the estimated lives of the underlying reinsured contracts in proportion to estimated gross profits (“EGPs”) consistent with the method used for amortizing deferred policy acquisition costs. Under the new method, reinsurance recoveries are recognized in the same period as the related reinsured claim. In conjunction with this change, we also changed our policy for determining EGPs relating to these contracts to include the effects of reinsurance, where previously these effects had not been included.

We adopted the new method because we believe that it better reflects the economics of the underlying reinsurance activity by better matching the reinsurance recovery with the insured loss that gave rise to that recovery. We also believe that the new method is consistent with management’s intent in purchasing reinsurance, which is to protect the Company against large and unexpected claims. Following is a description of our accounting for deferred policy acquisition costs, which has been updated from our 2007 Annual Report on Form 10-K to reflect a change in our method of accounting for the effects of reinsurance.

Deferred Policy Acquisition Costs and Present Value of Future Profits

We amortize deferred policy acquisition costs and present value of future profits based on the related policy’s classification. For individual participating life insurance policies, deferred policy acquisition costs and present value of future profits are amortized in proportion to estimated gross margins. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs and present value of future profits are amortized in proportion to estimated gross profits (“EGPs”). Policies may be surrendered for value or exchanged for a different one of our products (internal replacement). The deferred policy acquisition costs balance associated with the replaced or surrendered policies is amortized to reflect these surrenders.

Each year, we develop future EGPs for the products sold during that year. The EGPs for products sold in a particular year are aggregated into cohorts. Future EGPs are projected for the estimated lives of the contracts. The amortization of deferred policy acquisition costs and present value of future profits requires the use of various assumptions, estimates and judgments about the future. The assumptions, in the aggregate, are considered important in the projections of EGPs. The assumptions developed as part of our annual process are based on our current best estimates of future events, which are likely to be different for each year’s cohort. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, indus try studies, regulatory requirements and estimates about the future.

41

To determine the reasonableness of the prior assumptions used and their impact on previously projected account values and the related EGPs, we evaluate, on a quarterly basis, our previously projected EGPs. Our process to assess the reasonableness of our EGPs involves the use of internally developed models, together with studies and actual experience. Incorporated in each scenario are our current best estimate assumptions with respect to separate account returns, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries.

In addition to our quarterly reviews, we complete a comprehensive assumption study during the fourth quarter of each year. Upon completion of an assumption study, we revise our assumptions to reflect our current best estimate, thereby changing our estimate of projected account values and the related EGPs in the deferred policy acquisition cost and unearned revenue amortization models as well as SOP 03-1 reserving models. The deferred policy acquisition cost asset, as well as the unearned revenue reserves and SOP 03-1 reserves are then adjusted with an offsetting benefit or charge to income to reflect such changes in the period of the revision, a process known as “unlocking.”

Underlying assumptions for future periods of EGPs are not altered unless experience deviates significantly from original assumptions. For example, when lapses of our insurance products meaningfully exceed levels assumed in determining the amortization of deferred policy acquisition costs, we adjust amortization to reflect the change in future premiums or EGPs resulting from the unexpected lapses. In the event that we were to revise assumptions used for prior year cohorts, our estimate of projected account values would change and the related EGPs in the deferred policy acquisition cost amortization model would be unlocked, or adjusted, to reflect such change. Continued favorable experience on key assumptions, which could include increasing separate account fund return performance, decreasing lapses or decreasing mortality could result in an unlocking which would result in a decrease to deferred policy acquisition cost amortization and an increase in the deferred policy acquisition costs asset. Finally, an analysis is performed periodically to assess whether there are sufficient gross margins or gross profits to amortize the remaining deferred policy acquisition costs balances.

The separate account fund performance assumption is critical to the development of the EGPs related to our variable annuity and variable life insurance businesses. As equity markets do not move in a systematic manner, we use a mean reversion method (reversion to the mean assumption), a common industry practice, to determine the future equity market growth rate assumption used for the amortization of deferred policy acquisition costs. This practice assumes that the expectation for long-term appreciation is not changed by minor short-term market fluctuations. The average long-term rate of assumed separate account fund performance used in estimating gross profits was 6.0% (after fund fees and mortality and expense charges) for the variable annuity business and 6.9% (after fund fees and mortality and expense charges) for the variable life business at both December 31, 2007 and 2006.

We perform analysis with respect to the sensitivity of a change in the separate account performance assumption as it is critical to the development of the EGPs related to our variable annuity and variable life insurance business. Equity market movements have a significant impact on the account value of variable life and annuity products and the fees earned on these. EGPs could increase or decrease with these movements in the equity market. Sustained and significant changes in the equity markets could therefore have an impact on deferred policy acquisition cost amortization. Periodically, we also perform analysis with respect to the sensitivity of a change in assumed mortality as it is critical to the development of the EGPs related to our universal life insurance business.

As part of our analysis of separate account returns, we perform two sensitivity tests. If at December 31, 2007 we had used a 100 basis points lower separate account return assumption (after fund fees and mortality and expense charges) for both the variable annuity and the variable life businesses and used our current best estimate assumptions for all other assumptions to project account values forward from the current value to reproject EGPs, the estimated increase to amortization and decrease to net income would be approximately $2.3 million, after-tax.

If, instead, at December 31, 2007 we had used a 100 basis points higher separate account return assumption (after fund fees and mortality and expense charges) for both the variable annuity and variable life businesses and used our current best estimate assumptions for all other assumptions to project account values forward from the current value to reproject EGPs, the estimated decrease to amortization and increase to net income would be approximately $2.2 million, after-tax.

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Consolidated Results of Operations

Summary Consolidated Financial Data:	Three Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
REVENUES:
Premiums	$	195.2	$	197.5		$	(2.3)	(1%)
Insurance, investment management and product fees		184.3		164.5			19.8	12%
Mutual fund ancillary fees and other revenue		12.6		17.0			(4.4)	(26%)
Net investment income		218.0		261.2			(43.2)	(17%)
Net realized investment gains (losses)		(60.6)		3.8			(64.4)	(1,695%)
Total revenues		549.5		644.0			(94.5)	(15%)
BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends		336.6		331.9			4.7	1%
Policyholder dividends		43.4		98.1			(54.7)	(56%)
Policy acquisition cost amortization		68.0		46.8			21.2	45%
Intangible asset amortization		7.4		7.5			(0.1)	(1%)
Intangible asset impairment		90.0		—			90.0	—
Goodwill impairment		331.7		—			331.7	—
Interest expense on indebtedness		8.8		11.5			(2.7)	(23%)
Interest expense on non-recourse collateralized obligations		5.6		3.9			1.7	44%
Other operating expenses		98.9		102.6			(3.7)	(4%)
Total benefits and expenses		990.4		602.3			388.1	64%
Income (loss) before income taxes		(440.9)		41.7			(482.6)	(1,157%)
Income tax (expense) benefit		101.4		(6.9)			108.3	(1,570%)
Income (loss) from continuing operations		(339.5)		34.8			(374.3)	(1,076%)
Income from discontinued operations, net of income taxes		—		—			—	—
Net income (loss)	$	(339.5)	$	34.8		$	(374.3)	(1,076%)

Summary Consolidated Financial Data:	Nine Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
REVENUES:
Premiums	$	566.7	$	585.3		$	(18.6)	(3%)
Insurance, investment management and product fees		546.2		470.5			75.7	16%
Mutual fund ancillary fees and other revenue		41.8		50.9			(9.1)	(18%)
Net investment income		712.8		800.5			(87.7)	(11%)
Net realized investment gains (losses)		(134.3)		26.4			(160.7)	(609%)
Total revenues		1,733.2		1,933.6			(200.4)	(10%)
BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends		999.4		976.0			23.4	2%
Policyholder dividends		203.1		292.2			(89.1)	(30%)
Policy acquisition cost amortization		163.6		132.0			31.6	24%
Intangible asset amortization		22.4		22.6			(0.2)	(1%)
Intangible asset impairment		100.5		—			100.5	—
Goodwill impairment		331.7		—			331.7	—
Interest expense on indebtedness		27.8		32.6			(4.8)	(15%)
Interest expense on non-recourse collateralized obligations		10.7		12.0			(1.3)	(11%)
Other operating expenses		330.9		325.3			5.6	2%
Total benefits and expenses		2,190.1		1,792.7			397.4	22%
Income (loss) before income taxes		(456.9)		140.9			(597.8)	(424%)
Income tax (expense) benefit		109.2		(27.7)			136.9	(494%)
Income (loss) from continuing operations		(347.7)		113.2			(460.9)	(407%)
Income from discontinued operations, net of income taxes		—		1.2			(1.2)	(100%)
Net income (loss)	$	(347.7)	$	114.4		$	(462.1)	(404%)

43

Executive Overview and Outlook

Analysis of Consolidated Results of Operations and Outlook

Our quarter and nine-month results were primarily affected by challenges in the financial environment. Our results reflect weaker market performance that reduced net investment income, affected fees adversely, increased annuity benefit reserves and amortization of deferred policy acquisition costs and contributed to an impairment loss on goodwill and other intangible assets. We also had higher expenses related to strategic transactions, including the planned spin-off of asset management and recognition of previously deferred securitization costs. Consolidated net results decreased in the third quarter to a net loss of $339.5 million, or $2.97 per share, compared with net income of $34.8 million in the prior year period. For the nine-month period, results decreased to a net loss of $347.7 million, compared with income of $114.4 million in the prior year period.

Pre-tax operating income in our Life and Annuity segment was $33.3 million for the third quarter and $112.1 million for the nine-month period, both down from the comparable prior year periods. This result reflects higher amortization of deferred policy acquisition costs and lower net investment income and interest margins, partially offset higher mortality margins. Our results for both years incorporate the effect of an accounting change which is more fully discussed in Note 2 to our financial statements in this Form 10-Q.

Total policy acquisition cost amortization in our Life and Annuity segment increased $25.7 million and $45.4 million in the three- and nine-month periods ended September 30, 2008, respectively, compared with the same periods in 2007. The increase in amortization was caused by growth and good mortality in the universal life business and the impact of market declines on annuity business. As we do every year, during the fourth quarter of 2008, we intend to perform a comprehensive study of the assumptions used in our deferred policy acquisition cost and unearned revenue amortization models, as well as our SOP 03-1 reserving models. In light of recent upheaval in the financial markets, it is possible that we will be unlocking some of our assumptions as a result of that study. During the past two years, we have had unlockings that both increased and decreased earnings during the period of the unlocking. Net investment income on surplus and assets supporting the open block traditional lif e products decreased in the quarter and year-to-date periods by $1.3 million and $32.7 million, respectively, reflecting lower investment yields and lower asset levels in 2008. Also, while there were increases during the three- and nine-month periods in the assets supporting universal life reserves, these generated lower yields which were more than offset by increases in interest credited on the related policyholder fund balances. Consequently, interest margin on universal life products decreased $3.4 million and $7.7 million in the three- and nine-month periods ended September 30, 2008, respectively, relative to the prior year periods. We also had lower interest margins on our annuity portfolio, mainly driven by the run-off of discontinued products. Mortality margins in universal life increased $30.3 million and $52.5 million in the three- and nine-month periods of 2008, respectively, reflecting increases in cost of insurance fee revenues that were only partially offset by higher net benefits. After-ta x net realized losses, discussed below, further decreased Life and Annuity income by $22.8 million and $37.3 million for the three- and nine-month periods in 2008 relative to the prior year.

The Asset Management pre-tax operating loss for the quarter included a $421.7 million pre-tax impairment charge related to goodwill and other intangible assets. We determined that a triggering event had occurred as a result of changes in the market environment, significant reductions in the market multiples for asset managers and accumulation of additional valuation data. The changes in the market environment were primarily driven by equity market declines in the third quarter. Other contributors were a marked decrease in credit market liquidity and unprecedented government intervention in the financial markets. We performed the impairment analysis using the methodology applied in annual and interim testing. We used a discounted cash flow model to calculate the fair value of definite- and indefinite-lived intangible assets. To test for impairment of goodwill, we obtained and weighted several estimates of the fair value of the reporting unit, including valuations from third parties as we ll as using a sum of a multiple of revenue plus the fair value of the unit’s tangible net assets. The primary drivers of the impairment were a reduction in assets under management, due to markets being at multi-year lows, and valuation multiples for asset managers also being at multi-year lows. In addition to the impairment, segment results for both the three- and nine-month periods ended September 30, 2008 were lower than the comparable prior year periods as a result of lower assets under management.

44

During the three- and nine-month periods ended September 30, 2008, we incurred net pre-tax operating losses in Corporate and Other of $16.3 million and $58.0 million, respectively. These represented increases of $4.9 million and $21.2 million, respectively, over the comparable prior year periods. During the first quarter of 2008, we announced our intention to spin off our asset management business; in connection with preparations for the planned spin-off and other strategic initiatives, we recorded expenses of $5.0 million and $11.8 million during the third quarter and year-to-date periods, respectively. In addition, in the first and second quarters of 2008 we incurred proxy solicitation expenses totaling $9.4 million related to a proxy contest. Proxy solicitation expenses in 2007 were $0.3 million. These expenses in the first nine months of 2008 were partially offset by lower interest expense resulting from the February 2008 maturity and repayment of one of our senior unsecured obligations as well as a $2.2 million gain on the repurchase of a portion of our senior unsecured bonds. After-tax net realized losses, discussed below, further decreased Corporate and Other results by $0.1 million and $18.5 million for the three- and nine-month periods, respectively, in 2008 relative to the prior year.

Current year results were also lower due to net realized investment losses of $21.9 million and $44.8 million, after tax and other offsets, during the three- and nine-month periods, respectively. These results compared with net gains of $1.3 million and $12.6 million during the comparable 2007 periods. Third quarter losses in 2008 included pre-tax impairments of $38.8 million and net losses on sales of $17.2 million. Impairments and net losses on sales included $31.1 million on Lehman Brothers and Washington Mutual holdings.

Analysis of Consolidated Financial Condition

Stockholders’ equity, excluding accumulated other comprehensive loss, decreased during the year-to-date period by $379.3 million to $2,055.9 million at September 30, 2008, primarily due to a net loss and the declaration of a stockholders’ dividend of $18.8 million. Total assets decreased $2,053.6 million to $28,167.8 million at September 30, 2008, primarily due to unrealized losses on general account debt securities and lower separate account assets due to weak market performance, as well as cumulative impairments of $432.2 million of goodwill and intangible assets. These decreases were partially offset by higher deferred acquisition costs related to new product sales.

Results of Operations by Segment

In managing our business, we analyze segment performance on the basis of “operating income” which does not equate to “net income” as determined in accordance with GAAP. Rather, it is the measure of profit or loss used by the Company to evaluate performance, allocate resources and manage our operations.

Operating income is calculated by excluding realized investment gains (losses) and certain other items because we do not consider them to be related to the operating performance of our segments. The size and timing of realized investment gains and losses are often subject to our discretion. Certain other items are also excluded from operating income if, in our opinion, they are not indicative of overall operating trends. While some of these items may be significant components of net income in accordance with GAAP, we believe that operating income, and measures that are derived from or incorporate operating income, are appropriate measures that are useful to investors because they identify the earnings attributable to the ongoing operations of the business.

The criteria used to identify an item that will be excluded from operating income include: whether the item is infrequent and is material to the segment’s income; or whether it results from a change in regulatory requirements, or relates to other unusual circumstances. Items excluded from operating income may vary from period to period. Because these items are excluded based on our discretion, inconsistencies in the application of our selection criteria may exist. Operating income, and other measures that are derived from or incorporate operating income, are not substitutes for net income determined in accordance with GAAP and may be different from similarly titled measures of other companies. However, the Company believes that the presentation of operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of our business.

45

Results of Operations by Segment as Reconciled to	Three Months Ended				Nine Months Ended
Consolidated Net Income:	September 30,				September 30,
($ in millions)	2008		2007		2008		2007
Life and annuity segment	$	33.3	$	48.6	$	112.1	$	155.7
Asset management segment		(427.7)		2.6		(445.0)		5.5
Corporate and other:		(16.3)		(11.4)		(58.0)		(36.8)
Applicable income tax (expense) benefit		93.1		(6.3)		88.0		(23.8)
Realized investment gains (losses), net of income taxes   and other offsets		(21.9)		1.3		(44.8)		12.6
Income from discontinued operations, net of income taxes		—		—		—		1.2
Net income (loss)	$	(339.5)	$	34.8	$	(347.7)	$	114.4

Segment Allocations

We allocate capital to our Life and Annuity segment based on risk-based capital (“RBC”) for our insurance products. We used a 300% risk-based capital ratio for allocations in 2007 and 2008. Capital within our Life Companies that is unallocated is included in Corporate and Other. We allocate capital to our Asset Management segment on the basis of the historical capital within that segment. We allocate net investment income based on the assets allocated to the segments. We allocate tax benefits related to tax-advantaged investments to the segment that holds the investment. We allocate certain costs and expenses to the segments based on a review of the nature of the costs, time studies and other methodologies.

Life and Annuity Segment

Summary Life and Annuity Financial Data:	Three Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Results of operations
Premiums	$	195.2	$	197.5		$	(2.3)	(1%)
Insurance, investment management and product fees		155.2		127.8			27.4	21%
Net investment income		212.3		249.4			(37.1)	(15%)
Total segment revenues		562.7		574.7			(12.0)	(2%)
Policy benefits, including policyholder dividends		403.9		427.4			(23.5)	(5%)
Policy acquisition cost amortization		72.1		46.4			25.7	55%
Other operating expenses		53.4		52.3			1.1	2%
Total segment benefits and expenses		529.4		526.1			3.3	1%
Operating income before income taxes		33.3		48.6			(15.3)	(31%)
Allocated income tax expense		(4.7)		(11.2)			6.5	(58%)
Operating income		28.6		37.4			(8.8)	(24%)
Realized investment gains (losses), net of income taxes   and other offsets		(20.3)		2.5			(22.8)	(912%)
Net income	$	8.3	$	39.9		$	(31.6)	(79%)

Three months ended September 30, 2008 compared to three months ended September 30, 2007

Life and Annuity net income and operating income decreased primarily as a result of lower investment earnings and higher policy acquisition cost amortization, partially offset by higher insurance, investment management and product fees and lower mortality costs.

·

Net investment income decreased due to lower yields, lower partnership and other gains and lower total assets levels, only partially offset by earnings on a higher asset base in the universal life line of business.

·

Insurance, investment management and product fees increased from higher cost of insurance charges for universal life insurance, reflecting continued growth of the in force block of business.

Total segment benefits and expenses increased primarily due to the following:

·

Policy acquisition cost amortization increased due to higher insurance margins and recent growth in the universal life business and from weak market performance in the annuity business.

·

Benefit costs decreased due to favorable mortality in universal and traditional life insurance.

46

Realized losses reflect higher impairments for 2008 primarily related to mortgage-backed securities and challenges in the financial markets.

Summary Life and Annuity Financial Data:	Nine Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Results of operations
Premiums	$	566.7	$	585.3		$	(18.6)	(3%)
Insurance, investment management and product fees		453.6		360.3			93.3	26%
Net investment income		692.0		765.1			(73.1)	(10%)
Total segment revenues		1,712.3		1,710.7			1.6	—
Policy benefits, including policyholder dividends		1,247.7		1,256.7			(9.0)	(1%)
Policy acquisition cost amortization		177.1		131.7			45.4	34%
Other operating expenses		175.4		166.6			8.8	5%
Total segment benefits and expenses		1,600.2		1,555.0			45.2	3%
Operating income before income taxes		112.1		155.7			(43.6)	(28%)
Allocated income tax expense		(32.2)		(45.2)			13.0	(29%)
Operating income		79.9		110.5			(30.6)	(28%)
Realized investment gains (losses), net of income taxes   and other offsets		(33.8)		3.5			(37.3)	(1,066%)
Net income	$	46.1	$	114.0		$	(67.9)	(60%)

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Life and Annuity net income and operating income decreased as a result of lower premiums and investment earnings and higher policy acquisition cost amortization, partially offset by higher insurance, investment management and product fees.

·

Net investment income decreased due to lower yields, lower partnership and other gains and lower assets levels.

·

Traditional premium income decreased primarily due to the fact that we no longer sell participating polices, resulting in a decline in renewal of participating life premiums. The decline in premiums was largely offset by a decrease in policy benefits related to the reduction of in-force policies for traditional life insurance.

·

Insurance, investment management and product fees increased from higher cost of insurance charges for universal life insurance, reflecting continued growth of the in force block of business.

Total segment benefits and expenses increased primarily due to the following:

·

Policy acquisition cost amortization increased due to higher insurance margins and recent growth in the universal life business, and from higher surrenders and weak market performance in the annuity and variable universal life businesses.

Realized losses reflect higher impairments for 2008, primarily related to mortgage-backed securities and challenges in the financial markets.

Annuity Funds on Deposit

Annuity Funds on Deposit:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Deposits	$	251.2	$	188.8	$	679.5	$	682.2
Performance and interest credited		(484.4)		151.6		(485.6)		693.7
Fees		(17.8)		(17.0)		(56.4)		(52.4)
Benefits and surrenders		(288.2)		(340.2)		(942.0)		(937.7)
Change in funds on deposit		(539.2)		(16.8)		(804.5)		385.8
Funds on deposit, beginning of period		8,964.2		9,080.2		9,229.5		8,677.6
Annuity funds on deposit, end of period	$	8,425.0	$	9,063.4	$	8,425.0	$	9,063.4

47

Three and nine months ended September 30, 2008 compared to three and nine months ended September 30, 2007

For the three months ended September 30, 2008, annuity funds on deposit decreased more than they had during the comparable prior year quarter. For the nine-month period in 2008 they decreased, compared to an increase in 2007. The primary causes of these decreases were reduced fund performance due to weaker equity markets.

Variable Universal Life Funds on Deposit:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Deposits	$	46.3	$	40.3	$	189.0	$	139.8
Performance and interest credited		(250.1)		25.9		(355.7)		196.7
Acquisitions		11.2		—		11.2		—
Fees and cost of insurance		(28.4)		(26.4)		(88.3)		(82.3)
Benefits and surrenders		(29.2)		(38.0)		(114.8)		(103.1)
Change in funds on deposit		(250.2)		1.8		(358.6)		151.1
Funds on deposit, beginning of period		2,587.7		2,462.2		2,696.1		2,312.9
Variable universal life funds on deposit, end of period	$	2,337.5	$	2,464.0	$	2,337.5	$	2,464.0

Three and nine months ended September 30, 2008 compared to three and nine months ended September 30, 2007

For the three and nine months ended September 30, 2008, variable universal life funds on deposit decreased, compared to increases in the comparable 2007 periods. Negative performance for the 2008 quarter and year-to-date periods resulted from weak equity markets. For the nine months, these decreases relative to the prior year were partially offset by higher deposits driven by strong sales.

Universal Life Funds on Deposit:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Deposits	$	133.6	$	146.4	$	462.4	$	338.9
Interest credited		24.7		21.3		72.8		63.3
Fees and cost of insurance		(103.8)		(78.5)		(300.1)		(211.2)
Benefits and surrenders		(22.6)		(20.9)		(83.5)		(74.6)
Change in funds on deposit		31.9		68.3		151.6		116.4
Funds on deposit, beginning of period		2,243.6		1,952.2		2,123.9		1,904.1
Universal life funds on deposit, end of period	$	2,275.5	$	2,020.5	$	2,275.5	$	2,020.5

Three and nine months ended September 30, 2008 compared to three and nine months ended September 30, 2007

For the three months ended September 30, 2008, universal life funds on deposit increased less than they had during the comparable prior year periods, driven by modestly lower sales and higher benefits. For the year-to-date period, higher sales drove increased deposits, which were only partially offset by higher benefits.

Life and Annuity Segment Revenues by Product:	Three Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Variable universal life insurance	$	32.6	$	32.4		$	0.2	1%
Universal life insurance		133.7		107.9			25.8	24%
Other life insurance		2.2		2.0			0.2	10%
Total core life insurance		168.5		142.3			26.2	18%
Traditional life insurance		358.1		387.6			(29.5)	(8%)
Total life insurance		526.6		529.9			(3.3)	(1%)
Annuities		36.1		44.8			(8.7)	(19%)
Segment revenues	$	562.7	$	574.7		$	(12.0)	(2%)

Three months ended September 30, 2008 compared to three months ended September 30, 2007

Universal life insurance revenue increased significantly primarily due to higher cost of insurance charges from the growth of in-force business and fees from a higher level of sales in 2008.

48

Traditional life insurance revenue decreased primarily due to lower investment income and lower premiums, resulting from the fact that we no longer sell participating life policies. However, there is an offsetting decrease in policy benefits related to the reduction of in-force policies for traditional life insurance.

Annuity revenue decreased primarily due to lower interest earned on general account funds from the run-off of discontinued products and lower separate account based fees due to reduced asset balances.

Life and Annuity Segment Revenues by Product:	Nine Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Variable universal life insurance	$	101.1	$	97.3		$	3.8	4%
Universal life insurance		384.9		299.4			85.5	29%
Other life insurance		6.0		5.0			1.0	20%
Total core life insurance		492.0		401.7			90.3	22%
Traditional life insurance		1,105.6		1,171.8			(66.2)	(6%)
Total life insurance		1,597.6		1,573.5			24.1	2%
Annuities		114.7		137.2			(22.5)	(16%)
Segment revenues	$	1,712.3	$	1,710.7		$	1.6	—

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Universal life insurance revenue increased significantly primarily due to higher cost of insurance charges from the growth of in-force business and fees from a higher level of sales in 2008.

Traditional life insurance revenue decreased primarily due to lower premiums resulting from the fact that we no longer sell participating life policies. However, there is an offsetting decrease in policy benefits related to the reduction of in-force policies for traditional life insurance. In addition, investment income declined due to lower earnings on other invested assets.

Annuity revenue decreased primarily due to lower interest earned on general account funds from the run-off of discontinued products.

Composition of Life and Annuity Operating Income	Three Months Ended				Increase (decrease) and
before Income Taxes by Product:	September 30,				percentage change
($ in millions)	2008		2007		2008 vs. 2007
Variable universal life insurance	$	5.8	$	11.8		$	(6.0)	(51%)
Universal life insurance		18.2		9.4			8.8	94%
Other life insurance		(4.5)		(0.2)			(4.3)	(2,150%)
Total core life insurance		19.5		21.0			(1.5)	(7%)
Traditional life insurance		23.3		22.3			1.00	4%
Total life insurance		42.8		43.3			(0.5)	(1%)
Annuities		(9.5)		5.3			(14.8)	(279%)
Operating income before income taxes	$	33.3	$	48.6		$	(15.3)	(31%)

Three months ended September 30, 2008 compared to three months ended September 30, 2007

Variable universal life pre-tax operating income decreased due to lower insurance margins from higher death claims and lower surrender charges related to a higher percentage of withdrawals out of the surrender period.

Universal life pre-tax operating income increased due to higher mortality margins as revenue grew faster than claims. This improvement was partially offset by higher amortization of policy acquisition costs resulting from higher insurance margins and growth in the block of business. In addition, investment margins decreased from investment income growth that was not as high as the increase in interest credited.

Annuity pre-tax operating income decreased primarily due to lower insurance margins driven by increases in the GMDB and GMIB reserves reflecting adverse stock market conditions. In addition amortization of policy acquisition costs increase from the effects of severe stock market performance.

49

Composition of Life and Annuity Operating Income	Nine Months Ended				Increase (decrease) and
before Income Taxes by Product:	September 30,				percentage change
($ in millions)	2008		2007		2008 vs. 2007
Variable universal life insurance	$	22.2	$	31.5		$	(9.3)	(30%)
Universal life insurance		40.5		38.2			2.3	6%
Other life insurance		(8.1)		0.7			(8.8)	(1,257%)
Total core life insurance		54.6		70.4			(15.8)	(22%)
Traditional life insurance		70.0		67.9			2.1	3%
Total life insurance		124.6		138.3			(13.7)	(10%)
Annuities		(12.5)		17.4			(29.9)	(172%)
Operating income before income taxes	$	112.1	$	155.7		$	(43.6)	(28%)

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Variable universal life pre-tax operating income decreased primarily due to lower mortality margins. Higher death benefits were only partially offset by increased cost of insurance fees. In addition, amortization of policy acquisition costs increased from higher surrenders and weaker market performance.

Universal life pre-tax operating income increased due to higher mortality margins, partially offset by higher amortization of policy acquisition costs. Amortization of policy acquisition costs increased due to higher mortality margins and growth in the business.

Annuity pre-tax operating income decreased due to lower insurance margins driven by increases in GMDB and GMIB reserves and higher amortization of policy acquisition costs reflecting adverse stock market conditions.

Asset Management Segment

Summary Asset Management Financial Data:	Three Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Results of operations
Investment management fees	$	29.3	$	36.9		$	(7.6)	(21%)
Mutual fund ancillary fees and other revenue		12.6		17.0			(4.4)	(26%)
Net investment income		—		0.3			(0.3)	(100%)
Total segment revenues		41.9		54.2			(12.3)	(23%)
Intangible asset amortization		7.4		7.5			(0.1)	(1%)
Intangible asset impairment		90.0		—			90.0	—
Goodwill impairment		331.7		—			331.7	—
Other operating expenses		40.5		44.1			(3.6)	(8%)
Total segment expenses		469.6		51.6			418.0	810%
Operating income (loss) before income taxes		(427.7)		2.6			(430.3)	(16,550%)
Allocated income tax expense (benefit)		91.2		(1.2)			92.4	(7,700%)
Operating income (loss)		(336.5)		1.4			(337.9)	(24,136%)
Realized investment losses, net of income taxes		(0.5)		(0.2)			(0.3)	150%
Net income (loss)	$	(337.0)	$	1.2		$	(338.2)	(28,183%)

50

Three months ended September 30, 2008 compared to three months ended September 30, 2007

Asset Management net income and operating income decreased primarily impairment charges and a reduction in investment management fees which were driven by lower assets under management.

·

Asset Management pre-tax operating loss included a $421.7 million pre-tax impairment charge related to goodwill and other intangibles. We determined that a triggering event had occurred as a result of changes in the market environment, significant reductions in the market multiples for asset managers and accumulation of additional valuation data. The changes in the market environment were primarily driven by equity market declines in the third quarter. Other contributors were a marked decrease in credit market liquidity and unprecedented government intervention in the financial markets. We performed the impairment analysis using the methodology applied in annual and interim testing. We used a discounted cash flow model to calculate the fair value of definite- and indefinite-lived intangible assets. To test for impairment of goodwill, we obtained and weighted several estimates of the fair value of the reporting unit, including valuations from third parties as well as u sing a sum of a multiple of revenue plus the fair value of the unit’s tangible net assets. The primary drivers of the impairment were a reduction in assets under management, due to markets being at multi-year lows, and valuation multiples for asset managers also being at multi-year lows.

·

Investment management fees decreased due to net outflows and unfavorable market performance of $8.2 billion and $5.9 billion, respectively, over the past four quarters.

·

Mutual fund ancillary fees and other revenue decreased due to declines in mutual fund assets under management. The mutual fund ancillary fees decrease was partially offset by a corresponding decrease in trail payments which are a component of other operating expenses.

·

Intangible asset and goodwill impairments were the result of the continued decline in equity markets in the third quarter and valuation work conducted in advance of the planned spin-off of the Asset Management segment. See Note 7 to our consolidated financial statements in this Form 10-Q for additional disclosure regarding the impairment analysis.

·

Other operating expenses decreased primarily due to a decrease in employment expenses resulting from lower sales-based and other variable incentive compensation combined with lower trail payments explained above. Also contributing to the decrease in other operating expenses were decreases in shared services provided by the parent company. Partially offsetting these items were higher external legal costs, as well as $2.3 million of expenses related to long-term cost reduction initiatives, including severance and lease abandonment.

Summary Asset Management Financial Data:	Nine Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Results of operations
Investment management fees	$	93.0	$	110.9		$	(17.9)	(16%)
Mutual fund ancillary fees and other revenue		41.8		50.9			(9.1)	(18%)
Net investment income		0.6		1.1			(0.5)	(45%)
Total segment revenues		135.4		162.9			(27.5)	(17%)
Intangible asset amortization		22.4		22.6			(0.2)	(1%)
Intangible asset impairment		100.5		—			100.5	—
Goodwill impairment		331.7		—			331.7	—
Other operating expenses		125.8		134.8			(9.0)	(7%)
Total segment expenses		580.4		157.4			423.0	269%
Operating income (loss) before income taxes		(445.0)		5.5			(450.5)	(8,191%)
Allocated income tax (expense) benefit		98.1		(3.1)			101.2	(3,265%)
Operating income (loss)		(346.9)		2.4			(349.3)	(14,554%)	��
Realized investment gains (losses), net of income taxes		(1.5)		0.1			(1.6)	(1,600%)
Net income (loss)	$	(348.4)	$	2.5		$	(350.9)	(14,036%)

51

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Asset Management net income and operating income decreased primarily as a result of impairment charges in the first and third quarters.

·

Asset Management pre-tax operating loss included a $421.7 million pre-tax impairment charge related to goodwill and other intangibles. We determined that a triggering event had occurred as a result of changes in the market environment, significant reductions in the market multiples for asset managers and accumulation of additional valuation data. The changes in the market environment were primarily driven by equity market declines in the third quarter. Other contributors were a marked decrease in credit market liquidity and unprecedented government intervention in the financial markets. We performed the impairment analysis using the methodology applied in annual and interim testing. We used a discounted cash flow model to calculate the fair value of definite- and indefinite-lived intangible assets. To test for impairment of goodwill, we obtained and weighted several estimates of the fair value of the reporting unit, including valuations from third parties as well as u sing a sum of a multiple of revenue plus the fair value of the unit’s tangible net assets. The primary drivers of the impairment were a reduction in assets under management, due to markets being at multi-year lows, and valuation multiples for asset managers also being at multi-year lows.

·

The first quarter impairment was primarily the result of the termination of an institutional client. We recorded a non-cash impairment charge of $10.5 million pre-tax against the related identified intangible asset.

·

Investment management fees decreased due to net outflows and unfavorable market performance of $8.2 billion and $5.9 billion, respectively, over the past four quarters.

·

Mutual fund ancillary fees and other revenue decreased due to declines in mutual fund assets under management. The mutual fund ancillary fees decrease was partially offset by a corresponding decrease in trail payments which are a component of other operating expenses.

·

Other operating expenses decreased primarily due to a decrease in employment expenses resulting from lower sales-based and other variable incentive compensation combined with lower trail payments explained above. Also contributing to the decrease in other operating expenses were decreases in shared services provided by the parent company. Partially offsetting these items were higher portfolio management expenses and higher external legal costs, as well as $2.3 million of expenses related to long-term cost reduction initiatives, including severance and lease abandonment.

Our investment management fees are based on assets under management. Approximately 32% of our investment management fees were based on beginning of quarter assets under management which causes fee revenues to lag behind changes in assets under management. The remaining 68% were based on average daily closing asset values. The following table shows average assets under management.

Assets Under Management:	Three Months Ended				Nine Months Ended
($ in millions)	September 30,				September 30,
	2008		2007		2008		2007
Average fee earning assets
Money market mutual funds	$	5,966.2	$	6,676.1	$	5,922.9	$	5,949.8
All other mutual funds		14,670.7		16,886.6		15,222.8		16,744.8
Managed accounts		4,328.7		6,138.7		4,800.4		6,502.9
Institutional		6,274.8		11,477.9		7,861.1		11,918.5
Structured finance products		1,369.0		5,735.1		2,813.1		5,482.6
Total	$	32,609.4	$	46,914.4	$	36,620.3	$	46,598.6

Three and nine months ended September 30, 2008 compared to three and nine months ended September 30, 2007

Average fee earning assets decreased for both comparative periods primarily due to the redemption of a large institutional client at one of our subsidiaries in the first quarter of 2008, combined with unfavorable equity market performance over the past four quarters and unfavorable structured finance performance over the past four quarters. Also contributing to the decrease was net outflows in managed accounts and mutual funds over the past four quarters.

52

Corporate and Other

Summary Corporate and Other Financial Data:	Three Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Results of operations
Corporate investment income	$	(0.3)	$	1.8		$	(2.1)	(117%)
Interest expense on indebtedness		(8.8)		(11.5)			2.7	(23%)
Corporate expenses		(6.9)		(1.7)			(5.2)	306%
Other		(0.3)		—			(0.3)	—
Operating loss before income taxes		(16.3)		(11.4)			(4.9)	43%
Allocated income tax benefit		6.6		6.1			0.5	8%
Operating loss		(9.7)		(5.3)			(4.4)	83%
Realized investment gains (losses), net of income taxes   and other offsets		(1.1)		(1.0)			(0.1)	10%
Net loss	$	(10.8)	$	(6.3)		$	(4.5)	71%

Three months ended September 30, 2008 compared to three months ended September 30, 2007

Corporate and Other net loss increased compared to the prior year due to higher expenses, which reflected strategic transaction-related costs and to lower investment income, reflecting weaker financial markets. These reductions were only partially offset by lower interest expense, which resulted from the pay-off of the $153.7 million equity unit notes in February 2008.

Summary Corporate and Other Financial Data:	Nine Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Results of operations
Corporate investment income	$	0.3	$	4.8		$	(4.5)	(94%)
Interest expense on indebtedness		(27.8)		(32.6)			4.8	(15%)
Corporate expenses		(29.7)		(10.1)			(19.6)	194%
Other		(0.8)		1.1			(1.9)	(173%)
Operating loss before income taxes		(58.0)		(36.8)			(21.2)	58%
Allocated income tax benefit		22.1		24.5			(2.4)	(10%)
Operating loss		(35.9)		(12.3)			(23.6)	192%
Realized investment gains (losses), net of income taxes   and other offsets		(9.5)		9.0			(18.5)	(206%)
Net loss	$	(45.4)	$	(3.3)		$	(42.1)	1,276%

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Corporate and Other net loss increased compared to the prior year due to higher expenses, which reflected strategic transaction-related costs and to lower investment income, reflecting weaker financial markets. These reductions were only partially offset by lower interest expense, which resulted from the pay-off of the $153.7 million equity unit notes in February 2008. In addition, the higher prior year income tax benefit was driven by the utilization of foreign tax credits, which did not recur in 2008.

General Account

The invested assets in the Life Companies’ general account are generally of high quality and broadly diversified across asset classes, sectors and individual credits and issuers. Our investment professionals manage these general account assets in investment segments that support specific product liabilities. These investment segments have distinct investment policies that are structured to support the financial characteristics of the related liabilities within them. Segmentation of assets allows us to manage the risks and measure returns on capital for our various businesses and products.

Separate Accounts

Separate account assets are managed in accordance with the specific investment contracts and guidelines relating to our variable products. We generally do not bear any investment risk on assets held in separate accounts. Rather, we receive investment management fees based on assets under management. Assets held in separate accounts are not available to satisfy general account obligations.

53

Debt and Equity Securities Pledged as Collateral and Non-recourse Collateralized Obligations

Investments pledged as collateral trusts are assets held for the benefit of those institutional clients, which have investments in structured bond products offered and managed by our asset management subsidiary.

See Note 11 to our consolidated financial statements in this Form 10-Q as well as Note 11 to our consolidated financial statements in our 2007 Annual Report on Form 10-K for more information.

Debt and Equity Securities Held in Our General Account

Our general account debt securities portfolio consists primarily of investment grade publicly-traded and privately-placed corporate bonds, residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities. As of September 30, 2008, our general account held debt securities with a carrying value of $10,658.0 million, representing 75.3% of total general account investments. Public debt securities represented 71.6% of total debt securities, with the remaining 28.4% represented by private debt securities.

We consolidate debt and equity securities on our consolidated balance sheet that are pledged as collateral for the settlement of collateralized obligation liabilities related to two collateralized obligation trusts we sponsor. See Note 11 to our consolidated financial statements in this Form 10-Q for additional information on these debt and equity securities pledged as collateral.

General Account Debt Securities at Fair Value:
($ in millions)
		Total Debt Securities				Public Debt Securities				Private Debt Securities
SVO	S&P Equivalent	Sept 30,		Dec 31,		Sept 30,		Dec 31,		Sept 30,		Dec 31,
Rating	Designation	2008		2007		2008		2007		2008		2007
1	AAA/AA/A	$	6,751.0	$	7,473.6	$	5,324.3	$	5,950.6	$	1,426.7	$	1,523.0
2	BBB		2,979.8		3,567.7		1,654.4		1,997.9		1,325.4		1,569.8
Total investment grade			9,730.8		11,041.3		6,978.7		7,948.5		2,752.1		3,092.8
3	BB		583.1		604.3		429.6		507.7		153.5		96.6
4	B		189.5		227.3		123.4		179.3		66.1		48.0
5	CCC and lower		128.8		84.0		78.5		33.8		50.3		50.2
6	In or near default		25.8		13.1		16.5		6.1		9.3		7.0
Total debt securities		$	10,658.0	$	11,970.0	$	7,626.7	$	8,675.4	$	3,031.3	$	3,294.6

54

Debt Securities by Type:	As of September 30, 2008
($ in millions)					Unrealized Gains (Losses)
	Fair				Gross		Gross		Net
	Value		Cost		Gains		Losses		Gains
U.S. government and agency	$	587.2	$	608.7	$	12.4	$	(33.9)	$	(21.5)
State and political subdivision		199.1		197.6		6.3		(4.8)		1.5
Foreign government		189.8		173.6		17.4		(1.2)		16.2
Corporate		6,174.8		6,796.3		54.5		(676.0)		(621.5)
Mortgage-backed		2,663.0		2,892.7		8.7		(238.4)		(229.7)
Other asset-backed		844.1		983.2		2.7		(141.8)		(139.1)
Total debt securities	$	10,658.0	$	11,652.1	$	102.0	$	(1,096.1)	$	(994.1)
Debt securities outside closed block:
Unrealized gains	$	918.9	$	889.9	$	29.0	$	—	$	29.0
Unrealized losses		3,421.7		3,937.7		—		(516.0)		(516.0)
Total outside the closed block		4,340.6		4,827.6		29.0		(516.0)		(487.0)
Debt securities in closed block:
Unrealized gains		2,018.5		1,945.5		73.0		—		73.0
Unrealized losses		4,298.9		4,879.0		—		(580.1)		(580.1)
Total in the closed block		6,317.4		6,824.5		73.0		(580.1)		(507.1)
Total debt securities	$	10,658.0	$	11,652.1	$	102.0	$	(1,096.1)	$	(994.1)

We manage credit risk through industry and issuer diversification. Maximum exposure to an issuer is defined by quality ratings, with higher quality issuers having larger exposure limits. Our investment approach emphasizes a high level of industry diversification. The top five industry holdings as of September 30, 2008 in our debt securities portfolios are banking (6.5%), electrical utilities (3.9%), insurance (3.3%), diversified financial services (3.1%) and services (2.2%).

Residential Mortgage-Backed Securities

The weakness in the U.S. residential real estate markets, increases in mortgage rates and the effects of relaxed underwriting standards for mortgages and home equity loans have led to higher delinquency rates and losses for the residential mortgage-backed securities market. Delinquency rates for all sectors of the residential mortgage-backed market, including sub-prime, Alt-A and prime, have increased beyond historical averages.

We invest directly in residential mortgage-backed securities through our general account. To the extent these assets deteriorate in credit quality and decline in value for an extended period, we may realize impairment losses. We have been focused on identifying those securities that can withstand significant increases in delinquencies and foreclosures in the underlying mortgage pools before incurring a loss of principal.

Most of our residential mortgage-backed securities portfolio is highly rated. As of September 30, 2008, 97% of the total residential portfolio was rated AAA or AA. We have $201.9 million of sub-prime exposure, $231.5 million of Alt-A exposure and $513.4 million of prime exposure, which combined amount to less than 7% of our general account. Substantially all of our sub-prime, Alt-A and prime exposure is investment grade, with 88% being AAA rated and another 7% in AA securities. We have employed a disciplined approach in the analysis and monitoring of our mortgage-backed securities. Our approach involves a monthly review of each security. Underlying mortgage data is obtained from the security’s trustee and analyzed for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows. Year-to-date through Sep tember 30, 2008, we have taken impairments of $55.8 million on our residential mortgage-backed securities portfolio. This represents 3.0% of our total residential mortgage-backed securities portfolio and 0.4% of the general account. The losses consist of $24.3 million from prime, $28.8 million from Alt-A and $7.3 million from sub-prime.

55

General Account Residential Mortgage-Backed Securities:
($ in millions)	As of September 30, 2008
	Book		Market		% General					BB and	% Closed
	Value		Value		Account(1)	AAA	AA	A	BBB	Below	Block
Collateral
Agency	$	899.1	$	893.1	6.2%	100.0%	0.0%	0.0%	0.0%	0.0%	76.6%
Prime		594.7		513.4	3.6%	91.9%	4.9%	0.0%	3.0%	0.2%	39.6%
Alt-A		302.0		231.5	1.6%	80.2%	12.9%	2.6%	1.3%	3.0%	34.7%
Sub-prime		247.9		201.9	1.4%	86.8%	6.4%	1.3%	4.7%	0.8%	5.0%
Total	$	2,043.7	$	1,839.9	12.8%	93.8%	3.7%	0.5%	1.5%	0.5%	53.1%

_______

⁽¹⁾ Percentages based on Market Value.

The following table presents certain information with respect to realized investment gains and losses including those on debt securities pledged as collateral, with losses from other-than-temporary impairment charges reported separately in the table. These impairment charges were determined based on our assessment of factors enumerated below, as they pertain to the individual securities determined to be other-than-temporarily impaired.

Sources and Types of	Three Months Ended				Nine Months Ended
Net Realized Investment Gains (Losses):	September 30,				September 30,
($ in millions)	2008		2007		2008		2007
Debt security impairments	$	(37.1)	$	(3.8)	$	(94.6)	$	(18.4)
Equity security impairments		(1.0)		(0.3)		(1.6)		(0.4)
Other investments impairments		—		(1.3)		(8.8)		(1.3)
Debt and equity securities pledged as collateral impairments		(0.7)		—		(0.7)		(0.8)
Impairment losses		(38.8)		(5.4)		(105.7)		(20.9)
Debt security transaction gains		1.8		7.2		5.5		20.2
Debt security transaction losses		(9.8)		(1.7)		(16.3)		(5.9)
Equity security transaction gains		1.5		3.4		9.0		8.7
Equity security transaction losses		(4.0)		(0.6)		(9.4)		(2.0)
Mortgage loan transaction gains (losses)		—		—		(0.1)		1.4
Debt and equity securities pledged as collateral gains		0.2		0.5		1.8		2.3
Debt and equity securities pledged as collateral losses		(0.1)		—		(0.3)		(0.9)
Affiliate transactions gains		—		—		—		13.7
Other investments transaction gains (losses)		(1.5)		0.9		(2.6)		7.8
Real estate transaction gains		—		—		—		1.4
Net transaction gains (losses)		(11.9)		9.7		(12.4)		46.7
Realized losses on fair value option investments		(4.6)		—		(8.0)		—
Realized gains (losses) on derivative assets and liabilities		(5.3)		(0.5)		(8.2)		0.6
Net realized investment gains (losses)	$	(60.6)	$	3.8	$	(134.3)	$	26.4

Total impairment losses increased $33.4 million and $84.8 million for the 2008 quarter and year-to-date period, respectively, as compared to the comparable 2007 periods.

Debt security impairments for the three and nine months ended September 30, 2008 include impairment losses of $11.5 million and $62.0 million, respectively, related to residential mortgage-backed securities. Of these impairment losses, $2.1 million and $21.2 million relate to the closed block.

During the first quarter of 2008, we recorded an impairment loss of $7.3 million in a limited partnership investment. During the second quarter of 2008 we recorded an impairment loss of $1.5 million in a private equity security. During the third quarter of 2008, we did not record any impairments in other investments.

Affiliate transactions of $0.0 million in 2008 and $13.7 million in 2007 are attributable to the Lombard earn-out associated with the sale of Lombard that occurred in the first quarter of 2005.

We recognized impairment losses of $0.7 million and $0.0 million on debt and equity securities pledged as collateral in the consolidated collateralized obligation trusts for the three and nine months ended September 30, 2008 and 2007, respectively, none of which is attributable to a direct investment.

56

Gross and Net	As of September 30, 2008
Unrealized Gains (Losses):	Total				Outside Closed Block				Closed Block
($ in millions)	Gains		Losses		Gains		Losses		Gains		Losses
Debt securities
Number of positions		1,126		3,403		667		2,441		459		962
Unrealized gains (losses)	$	102.0	$	(1,096.1)	$	29.0	$	(516.0)	$	73.0	$	(580.1)
Applicable policyholder dividend obligation   (reduction)		73.0		(217.6)		—		—		73.0		(217.6)
Applicable deferred policy acquisition costs   (benefit)		0.2		(263.6)		0.2		(263.6)		—		—
Applicable deferred income taxes (benefit)		10.1		(215.2)		10.1		(88.3)		—		(126.9)
Offsets to net unrealized gains (losses)		83.3		(696.4)		10.3		(351.9)		73.0		(344.5)
Unrealized gains (losses) after offsets	$	18.7	$	(399.7)	$	18.7	$	(164.1)	$	—	$	(235.6)
Net unrealized losses after offsets			$	(381.0)			$	(145.4)			$	(235.6)
Equity securities
Number of positions		177		223		95		115		82		108
Unrealized gains (losses)	$	14.5	$	(12.7)	$	2.0	$	(2.2)	$	12.5	$	(10.5)
Applicable policyholder dividend obligation   (reduction)		12.5		(10.5)		—		—		12.5		(10.5)
Applicable deferred income taxes (benefit)		0.7		(0.8)		0.7		(0.8)		—		—
Offsets to net unrealized gains (losses)		13.2		(11.3)		0.7		(0.8)		12.5		(10.5)
Unrealized gains (losses) after offsets	$	1.3	$	(1.4)	$	1.3	$	(1.4)	$	—	$	—
Net unrealized losses after offsets			$	(0.1)			$	(0.1)			$	—

Unrealized losses above included amounts related to holdings in American International Group, Inc., the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and Wachovia Corporation. We continue to monitor these holdings for additional clarity regarding their ultimate realizable value. We consider these securities to have been temporarily impaired at September 30, 2008 as they have performed, and are expected to perform, in accordance with their original contractual terms, and we have the ability and intent to hold these securities until they recover their value.

Total net unrealized losses on debt and equity securities as of September 30, 2008 were $992.3 million (unrealized gains of $116.5 million less unrealized losses of $1,108.8 million). Of that net amount, net unrealized losses of $487.2 million were outside the closed block ($145.5 million after applicable deferred policy acquisition costs and deferred income taxes) and net unrealized losses of $505.1 million were in the closed block ($235.6 million after applicable policyholder dividend obligation).

At the end of each reporting period, we review all securities for potential recognition of an other-than-temporary impairment. We maintain a watch list of securities in default, near default or otherwise considered by our investment professionals as being distressed, potentially distressed or requiring a heightened level of scrutiny. We also identify securities whose carrying value has been below amortized cost on a continuous basis for zero to six months, six months to 12 months and greater than 12 months. This analysis is provided for investment grade and below investment grade securities and closed block and outside of closed block securities. Using this analysis, coupled with our watch list, we review all securities whose fair value is less than 80% of amortized cost (significant unrealized loss) with emphasis on below investment grade securities with a continuous significant unrealized loss in excess of six months. In addition, we review securities that had experienced lesser perce ntage declines in value on a more selective basis to determine if a security is other-than-temporarily impaired.

57

Our assessment of whether an investment in a debt or equity security is other-than-temporarily impaired includes whether the issuer has:

·

defaulted on payment obligations;

·

declared that it will default at a future point outside the current reporting period;

·

announced that a restructuring will occur outside the current reporting period;

·

severe liquidity problems that cannot be resolved;

·

filed for bankruptcy;

·

a financial condition which suggests that future payments are highly unlikely;

·

deteriorating financial condition and quality of assets;

·

sustained significant losses during the current year;

·

announced adverse changes or events such as changes or planned changes in senior management, restructurings, or a sale of assets; and/or

·

been affected by any other factors that indicate that the fair value of the investment may have been negatively impacted.

In determining whether collateralized securities are impaired, we obtain underlying mortgage data from the security’s trustee and analyze it for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows.

If we determine that the security is impaired, we write it down to its then current fair value and record a realized loss in that period.

The following tables present certain information with respect to our gross unrealized losses with respect to our investments in general account debt securities, both outside and inside the closed block, as of September 30, 2008. In the tables, we separately present information that is applicable to unrealized losses both outside and inside the closed block. We believe it is unlikely that there would be any effect on our net income related to the realization of investment losses inside the closed block due to the current policyholder dividend obligation liability in the closed block and due to our intent and ability to hold these securities until they recover their value. See Note 5 to our consolidated financial statements in this Form 10-Q for more information regarding the closed block. Applicable deferred policy acquisition costs and deferred income taxes further reduce the effect on our comprehensive income.

Duration of Gross Unrealized Losses on	As of September 30, 2008
General Account Securities Outside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities outside closed block
Total fair value	$	3,421.7	$	1,223.2	$	369.5	$	1,829.0
Total amortized cost		3,937.7		1,298.8		420.6		2,218.3
Unrealized losses	$	(516.0)	$	(75.6)	$	(51.1)	$	(389.3)
Unrealized losses after offsets	$	(164.1)	$	(24.1)	$	(15.3)	$	(124.7)
Number of securities		2,441		926		305		1,210
Investment grade:
Unrealized losses	$	(437.4)	$	(67.1)	$	(41.6)	$	(328.7)
Unrealized losses after offsets	$	(138.5)	$	(21.2)	$	(11.5)	$	(105.8)
Below investment grade:
Unrealized losses	$	(78.6)	$	(8.5)	$	(9.5)	$	(60.6)
Unrealized losses after offsets	$	(25.6)	$	(2.9)	$	(3.8)	$	(18.9)
Equity securities outside closed block
Unrealized losses	$	(2.2)	$	(2.0)	$	(0.2)	$	—
Unrealized losses after offsets	$	(1.2)	$	(1.1)	$	(0.1)	$	—
Number of securities		115		84		31		—

58

For debt securities outside of the closed block with gross unrealized losses, 84.4% of the unrealized losses after offsets pertain to investment grade securities and 15.6% of the unrealized losses after offsets pertain to below investment grade securities at September 30, 2008.

The following table represents those securities whose fair value is less than 80% of amortized cost (significant unrealized loss) that have been at a significant unrealized loss position on a continuous basis.

Duration of Gross Unrealized Losses on	As of September 30, 2008
General Account Securities Outside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities outside closed block
Unrealized losses over 20% of cost	$	(267.0)	$	(166.8)	$	(75.0)	$	(25.2)
Unrealized losses over 20% of cost after offsets	$	(84.0)	$	(52.8)	$	(23.7)	$	(7.5)
Number of securities		403		301		83		19
Investment grade:
Unrealized losses over 20% of cost	$	(217.8)	$	(144.4)	$	(64.4)	$	(9.0)
Unrealized losses over 20% of cost after offsets	$	(68.7)	$	(44.3)	$	(20.0)	$	(4.4)
Below investment grade:
Unrealized losses over 20% of cost	$	(49.2)	$	(22.4)	$	(10.6)	$	(16.2)
Unrealized losses over 20% of cost after offsets	$	(15.3)	$	(8.5)	$	(3.7)	$	(3.1)
Equity securities outside closed block
Unrealized losses over 20% of cost	$	(0.7)	$	(0.6)	$	(0.1)	$	—
Unrealized losses over 20% of cost after offsets	$	(0.4)	$	(0.3)	$	(0.1)	$	—
Number of securities		50		31		19		—

Duration of Gross Unrealized Losses on	As of September 30, 2008
General Account Securities Inside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities inside closed block
Total fair value	$	4,298.9	$	2,061.5	$	461.5	$	1,775.9
Total amortized cost		4,879.0		2,192.3		525.9		2,160.8
Unrealized losses	$	(580.1)	$	(130.8)	$	(64.4)	$	(384.9)
Unrealized losses after offsets	$	(235.6)	$	(53.1)	$	(26.2)	$	(156.3)
Number of securities		962		406		109		447
Investment grade:
Unrealized losses	$	(501.0)	$	(117.2)	$	(58.7)	$	(325.1)
Unrealized losses after offsets	$	(203.5)	$	(47.6)	$	(23.8)	$	(132.1)
Below investment grade:
Unrealized losses	$	(79.1)	$	(13.6)	$	(5.7)	$	(59.8)
Unrealized losses after offsets	$	(32.1)	$	(5.5)	$	(2.4)	$	(24.2)
Equity securities inside closed block
Unrealized losses	$	(10.5)	$	(4.8)	$	(5.7)	$	—
Unrealized losses after offsets	$	—	$	—	$	—	$	—
Number of securities		108		74		34		—

For debt securities inside the closed block with gross unrealized losses, 86.4% of the unrealized losses pertain to investment grade securities and 13.6% of the unrealized losses pertain to below investment grade securities at September 30, 2008.

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The following table represents those securities whose fair value is less than 80% of amortized cost (significant unrealized loss) that have been at a significant unrealized loss position on a continuous basis.

Duration of Gross Unrealized Losses on	As of September 30, 2008
General Account Securities Inside Closed Block:			0 – 6		6 – 12		Over 12
($ in millions)	Total		Months		Months		Months
Debt securities inside closed block
Unrealized losses over 20% of cost	$	(266.2)	$	(180.8)	$	(79.1)	$	(6.3)
Unrealized losses over 20% of cost after offsets	$	(173.1)	$	(117.6)	$	(51.4)	$	(4.1)
Number of securities		172		126		39		7
Investment grade:
Unrealized losses over 20% of cost	$	(217.3)	$	(163.0)	$	(52.1)	$	(2.2)
Unrealized losses over 20% of cost after offsets	$	(141.4)	$	(106.0)	$	(33.9)	$	(1.5)
Below investment grade:
Unrealized losses over 20% of cost	$	(48.9)	$	(17.8)	$	(27.0)	$	(4.1)
Unrealized losses over 20% of cost after offsets	$	(31.7)	$	(11.6)	$	(17.5)	$	(2.6)
Equity securities inside closed block
Unrealized losses over 20% of cost	$	(7.0)	$	(5.5)	$	(1.5)	$	—
Unrealized losses over 20% of cost after offsets	$	—	$	—	$	—	$	—
Number of securities		49		44		5		—

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporarily impaired, we considered and evaluated the factors cited above. In making these evaluations, we must exercise considerable judgment. Accordingly, there can be no assurance that actual results will not differ from our judgments and that such differences may require the future recognition of other-than-temporary impairment charges that could have a material effect on our financial position and results of operations. In addition, the value of, and the realization of any loss on, a debt security or equity security is subject to numerous risks, including interest rate risk, market risk, credit risk and liquidity risk. The magnitude of any loss incurred by us may be affected by the relative concentration of our investments in any one issuer or industry. We have established specific policies limiting the concentration of our investments in any single issuer and industry a nd believe our investment portfolio is prudently diversified.

Lombard International Assurance S.A.

On January 11, 2005, we disposed of our interests in Lombard for consideration of $59.0 million. In the first quarter of 2007, 2006 and 2005, we realized after-tax gains of $8.9 million, $6.5 million and $9.3 million, respectively, which included earn-out gain consideration received. We do not expect any further consideration related to this sale going forward.

Liquidity and Capital Resources

In the normal course of business, we enter into transactions involving various types of financial instruments such as debt and equity securities. These instruments have credit risk and also may be subject to risk of loss due to interest rate and market fluctuations.

Liquidity refers to the ability of a company to generate sufficient cash flow to meet its cash requirements. The following discussion includes both liquidity and capital resources as these subjects are interrelated.

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The Phoenix Companies, Inc. (consolidated)

Summary Consolidated Cash Flows:	Nine Months Ended				Increase (decrease) and
($ in millions)	September 30,				percentage change
	2008		2007		2008 vs. 2007
Continuing operations:
Cash from operating activities	$	11.0	$	160.7		$	(149.7)	(93%)
Cash from investing activities		190.8		249.5			(58.7)	(24%)
Cash for financing activities		(473.3)		(462.7)			(10.6)	(2%)
Discontinued operations:
Cash for operating activities		(20.1)		(12.0)			(8.1)	(68%)
Cash from investing activities		26.0		22.4			3.6	16%

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007

Continuing Operations

Cash from operating activities decreased $149.7 million primarily due to higher benefit payments reflecting the growth in the universal life business and to higher policy acquisition costs paid, related to increased sales. In addition, we made higher expense payments, including those related to our planned spin-off transaction and resolution of a proxy contest. Partially offsetting these higher outflows were increased fee inflows driven by growth in the universal life business.

Cash from investing activities decreased $58.7 million principally due to a larger income in purchase outflows than the increase in investment sales and repayment inflows.

Cash used for financing activities decreased $10.6 million primarily due to increased outflows for indebtedness repayments, offset by lower net policyholder outflows. In 2008, our $153.7 million of equity units matured and were repaid, while in 2007 we paid off $57.2 million in promissory notes.

See Note 9 to our consolidated financial statements in this Form 10-Q for additional information on financing activities.

The Phoenix Companies, Inc. Sources and Uses of Cash

Our primary sources of liquidity have been dividends from Phoenix Life and interest income received from Virtus. Under New York Insurance Law, Phoenix Life can pay stockholder dividends to the holding company in any calendar year without prior approval from the New York Superintendent of Insurance in the amount of the lesser of 10% of Phoenix Life’s surplus to policyholders as of the immediately preceding calendar year or Phoenix Life’s statutory net gain from operations for the immediately preceding calendar year, not including realized capital gains. Phoenix Life is able to pay a dividend of $83.8 million in 2008 under this provision.

On May 2, 2008, we declared a dividend of $0.16 per share to shareholders of record on June 13, 2008. We paid that dividend on July 11, 2008. In the prior year, we declared a dividend of $0.16 per share on April 26, 2007 to our shareholders of record on June 13, 2007; we paid that dividend on July 11, 2007.

The Phoenix Life Board of Directors declared dividends of $30.0 million and $25.0 million on July 9, 2008 and March 19, 2008, respectively, to the Company, Phoenix Life’s sole shareholder. These dividends were paid in July 2008 and April 2008, respectively. During 2007, Phoenix Life paid total dividends of $30.0 million, $30.0 million and $32.2 million to the Company in April, July and November, respectively.

See Note 22 to our consolidated financial statements in our 2007 Annual Report on Form 10-K for more information on Phoenix Life statutory financial information and regulatory matters.

We sponsor postemployment benefit plans through pension and savings plans and postretirement health care and life insurance for employees of Phoenix Life and Virtus. Funding of these obligations is provided by Phoenix Life and Virtus on a 100% cost reimbursement basis through administrative services agreements with the holding company. See Note 14 to our consolidated financial statements in this Form 10-Q for additional information.

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The holding company does not expect to receive dividends from Virtus in the near term because this subsidiary will likely use a substantial portion of its cash flows from operations to repay intercompany debt and interest on debt.

Effective as of November 7, 2008, the Company and its subsidiary, Phoenix Life (Phoenix Life, together with the Company, the “Borrowers”) amended our existing $150 million unsecured senior revolving credit facility (the “Amendment”). Please see Part II Item 5 herein for a discussion of the terms of the Amendment.

Potential borrowers on the credit line are the Company and Phoenix Life. The Company unconditionally guarantees any loans under this facility to Phoenix Life. Base rate loans will bear interest at the greater of Wachovia Bank, National Association’s prime commercial rate or the federal funds rate plus 0.50%. Eurodollar rate loans will bear interest at LIBOR plus an applicable percentage based on our Standard & Poor’s and Moody’s ratings. There are no current borrowings on the credit facility.

The credit facility contains covenants that require us at all times to maintain a minimum level of consolidated tangible net worth, based on GAAP standards in effect on June 6, 2006 and a maximum consolidated debt-to-capital ratio of 30%. In addition, Phoenix Life must maintain a minimum risk-based capital ratio of 325%, a minimum A.M. Best financial strength rating of “A-”, a minimum level of surplus on a statutory basis and a minimum parent cash flow coverage ratio.

We were in compliance with all of our credit facility covenants as of November 7, 2008, the effective date of the Amendment.

Future minimum annual principal payments on indebtedness as of September 30, 2008 are: in 2032, $300.0 million and in 2034, $175.0 million.

The Company and its subsidiaries may, from time to time, purchase our 7.45% Quarterly Interest Bonds, due 2032, in the open market subject to considerations including, but not limited to, market conditions, relative valuations, capital allocation and the continued determination that it is in the best interest of the Company and its shareholders.

Ratings

Rating agencies assign Phoenix Life financial strength ratings and assign us debt ratings based in each case on their opinions of the relevant company’s ability to meet its financial obligations. Ratings declines may result in lower sales, higher surrenders and increased or decreased interest costs in connection with future borrowings.

On September 18, September 29, October 2 and October 10, 2008, A.M. Best Company, Inc., Fitch Ratings Ltd., Moody’s Investors Service and Standard & Poor’s, respectively, each revised its outlook for the U.S. life insurance sector to negative from stable, citing, among other things, the significant deterioration and volatility in the credit and equity markets, economic and political uncertainty, and the expected impact of realized and unrealized investment losses on life insurers’ capital levels and profitability.

Given these developments, it is possible that rating agencies will heighten the level of scrutiny that they apply to us, will increase the frequency and scope of their credit reviews, will request additional information from us, and may adjust upward the capital and other requirements employed in their models for maintenance of certain ratings levels.

We cannot predict what additional actions rating agencies may take, or what actions we may take in response to the actions of rating agencies, which could adversely affect our business. As with other companies in the financial services industry, our ratings could be downgraded at any time and without any notice by any rating agency.

The financial strength and debt ratings as of October 31, 2008 were as follows:

	Financial Strength Rating		Senior Debt Rating of
Rating Agency	of Phoenix Life	Outlook	The Phoenix Companies, Inc.	Outlook
A.M. Best Company, Inc.	A (“Excellent”)	Stable	bbb (“Adequate”)	Positive
Fitch	A (“Strong”)	Negative	Not rated
Moody’s	A3 (“Good”)	Stable	Baa3 (“Adequate”)	Stable
Standard & Poor’s	BBB+ (“Good”)	Negative	BB+ (“Marginal”)	Negative

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On October 31, 2008, Fitch downgraded our financial strength rating to A from A+ and maintained its negative outlook. On October 31, 2008, Standard & Poor’s downgraded our financial strength rating to BBB+ from A- and downgraded our senior debt rating to BB+ from BBB- and changed our outlook to negative from stable.

These ratings are not a recommendation to buy or hold any of our securities.

See Note 9 to our consolidated financial statements in this Form 10-Q for additional information on financing activities.

See Note 17 to our consolidated financial statements in this Form 10-Q for more information on our contingent liabilities.

Life Companies Sources and Uses of Cash

The Life Companies’ liquidity requirements principally relate to: the liabilities associated with various life insurance and annuity products; the payment of dividends by Phoenix Life to us; operating expenses; contributions to subsidiaries; and payment of principal and interest by Phoenix Life on its outstanding debt obligations. Liabilities arising from life insurance and annuity products include the payment of benefits, as well as cash payments in connection with policy surrenders, withdrawals and loans. The Life Companies also have liabilities arising from the runoff of the remaining group accident and health reinsurance discontinued operations.

Historically, our Life Companies have used cash flow from operations and investment activities to fund liquidity requirements. Their principal cash inflows from life insurance and annuities activities come from premiums, annuity deposits and charges on insurance policies and annuity contracts. In the case of Phoenix Life, cash inflows also include dividends, distributions and other payments from subsidiaries. Principal cash inflows from investment activities result from repayments of principal, proceeds from maturities, sales of invested assets and investment income. The principal cash inflows from our discontinued group accident and health reinsurance operations come from our reinsurance, recoveries from other retrocessionaires and investment activities.

See our 2007 Annual Report on Form 10-K for additional information as to liquidity and capital resources related to our Life Companies.

Virtus Investment Partners, Inc. (Virtus) Sources and Uses of Cash

Virtus’s liquidity requirements are primarily to fund operating expenses and pay its debt and interest obligations. Virtus also requires liquidity to fund any potential acquisitions. Historically, Virtus’s principal source of liquidity has been cash flow from operations. We expect that cash flow from operations will continue to be its principal source of working capital. We believe that Virtus’s current and anticipated sources of liquidity are adequate to meet its present and anticipated needs.

See our 2007 Annual Report on Form 10-K for additional information as to liquidity and capital resources related to Virtus.

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Consolidated Financial Condition

Consolidated Balance Sheet:					Increase (decrease) and
($ in millions)	Sept 30,		Dec 31,		percentage change
	2008		2007		2008 vs. 2007
ASSETS:
Available-for-sale debt securities, at fair value	$	10,658.0	$	11,970.0		$	(1,312.0)	(11%)
Available-for-sale equity securities, at fair value		166.3		205.3			(39.0)	(19%)
Venture capital partnerships, at equity in net assets		202.2		173.7			28.5	16%
Policy loans, at unpaid principal balances		2,489.9		2,380.5			109.4	5%
Other investments		529.2		507.3			21.9	4%
Fair value option investments		105.8		—			105.8	—
		14,151.4		15,236.8			(1,085.4)	(7%)
Available-for-sale debt and equity securities pledged as collateral,   at fair value		163.4		219.1			(55.7)	(25%)
Total investments		14,314.8		15,455.9			(1,141.1)	(7%)
Cash and cash equivalents		312.1		577.7			(265.6)	(46%)
Accrued investment income		223.4		209.6			13.8	7%
Receivables		237.8		159.7			78.1	49%
Deferred policy acquisition costs		2,460.5		2,089.9			370.6	18%
Deferred income taxes		319.8		42.8			277.0	647%
Other intangible assets		86.1		208.2			(122.1)	(59%)
Goodwill		152.8		484.5			(331.7)	(68%)
Other assets		229.7		172.8			56.9	33%
Separate account assets		9,830.8		10,820.3			(989.5)	(9%)
Total assets	$	28,167.8	$	30,221.4		$	(2,053.6)	(7%)
LIABILITIES:
Policy liabilities and accruals	$	13,827.5	$	13,816.7		$	10.8	—
Policyholder deposit funds		1,576.2		1,808.9			(232.7)	(13%)
Indebtedness		467.0		627.7			(160.7)	(26%)
Other liabilities		691.2		550.9			140.3	25%
Non-recourse collateralized obligations		247.8		317.9			(70.1)	(22%)
Separate account liabilities		9,830.8		10,820.3			(989.5)	(9%)
Total liabilities		26,640.5		27,942.4			(1,301.9)	(5%)
STOCKHOLDERS’ EQUITY:
Common stock and additional paid in capital		2,625.6		2,617.4			8.2	—
Accumulated deficit		(390.2)		(20.7)			(369.5)	1,785%
Accumulated other comprehensive loss		(528.6)		(138.2)			(390.4)	282%
Treasury stock		(179.5)		(179.5)			—	—
Total stockholders’ equity		1,527.3		2,279.0			(751.7)	(33%)
Total liabilities and stockholders’ equity	$	28,167.8	$	30,221.4		$	(2,053.6)	(7%)

September 30, 2008 compared to December 31, 2007

The fair value of available-for-sale debt and equity securities decreased due to unrealized and impairment losses driven by challenges in the financial markets. Widening credit spreads and liquidity premiums drove unrealized losses, which increased $892.8 million during the nine-month period, including $528.4 million in the closed block.

Venture capital partnerships increased primarily due to additional contributions of $37.6 million.

Fair value option investments represent investments for which we elected the fair value option under SFAS 159. See Note 2 to our financial statements in this Form 10-Q for additional information.

Cash and cash equivalents decreased primarily due to cash used for financing activities, partially offset by cash received from investing activities. Cash used for financing activities related to repayment of the equity unit notes of $153.7 million and payments for net withdrawals on policyholder deposit funds. Cash from investing activities primarily related to investment sales, repayments and maturities that were higher than new investment purchases.

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Composition of Deferred Policy Acquisition Costs					Increase (decrease) and
by Product:	Sept 30,		Dec 31,		percentage change
($ in millions)	2008		2007		2008 vs. 2007
Variable universal life	$	361.3	$	367.2		$	(5.9)	(2%)
Universal life		1,112.9		821.1			291.8	36%
Variable annuities		349.9		310.0			39.9	13%
Fixed annuities		10.9		14.0			(3.1)	(22%)
Traditional life		625.5		577.6			47.9	8%
Total deferred policy acquisition costs	$	2,460.5	$	2,089.9		$	370.6	18%

Deferred policy acquisition costs increased primarily due to the deferral of $335.1 million in acquisition costs related to sales.

The net deferred income tax asset increased due to changes in the tax basis of assets and liabilities during the period primarily related to unrealized losses on available-for-sale debt securities.

Other intangible assets and goodwill decreased as a result of impairments in the first and third quarters. During the first quarter, we recorded a $10.5 million impairment driven by the termination of certain contracts. During the third quarter, we recorded additional impairments of $421.7 million related to reduced assets under management and reduced valuation multiples for asset managers.

Policyholder deposit funds decreased due to net outflows, primarily from discontinued annuity products.

Indebtedness decreased due to the pay off of our equity unit notes and the repurchase of a portion of our senior unsecured bonds.

Contractual Obligations and Commercial Commitments

As of September 30, 2008, there were no significant changes to our outstanding contractual obligations and commercial commitments as disclosed in our 2007 Annual Report on Form 10-K.

Commitments Related to Recent Business Combinations

Under the terms of purchase agreements related to certain recent business combinations, we are subject to certain contractual obligations and commitments related to additional purchase consideration and other purchase arrangements as described in our 2007 Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

As of September 30, 2008 and December 31, 2007, we did not have any significant off-balance sheet arrangements as defined by Item 303(a)(4)(ii) of SEC Regulation S-K. See Note 11 to our consolidated financial statements in this Form 10-Q for information on variable interest entities.

Reinsurance

We maintain life reinsurance programs designed to protect against large or unusual losses in our life insurance business. Based on our review of their financial statements, reputations in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance.

Statutory Capital and Surplus and Risk Based Capital

Phoenix Life’s consolidated statutory basis capital and surplus (including AVR) decreased from $1,055.6 million at December 31, 2007 to $840.8 million at September 30, 2008. The principal factors resulting in this decrease are losses from operations of $68.7 million, net realized losses of $108.5 million and cumulative dividends of $55.0 million to its sole shareholder, The Phoenix Companies, Inc.

At September 30, 2008, Phoenix Life’s and each of its insurance subsidiaries’ estimated Total Adjusted Capital levels were in excess of 300% of Company Action Level.

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The Phoenix Life Board of Directors declared dividends of $30.0 million and $25.0 million on July 9, 2008 and March 19, 2008, respectively, to the Company, Phoenix Life’s sole shareholder. These dividends were paid in July 2008 and April 2008, respectively. During 2007, Phoenix Life paid total dividends of $30.0 million, $30.0 million and $32.2 million to the Company in April, July and November, respectively.

Net Capital Requirements

Our broker-dealer subsidiaries are each subject to the net capital requirements imposed on registered broker-dealers by the Securities Exchange Act of 1934. Each are also required to maintain a ratio of aggregate indebtedness to net capital that does not exceed 15:1. At September 30, 2008, the largest of these subsidiaries had net capital of approximately $6.1 million, which is $5.2 million in excess of its required minimum net capital of $0.9 million. The ratio of aggregate indebtedness to net capital for that subsidiary was 2.3:1. The ratios of aggregate indebtedness to net capital for each of our other broker-dealer subsidiaries were also below the regulatory ratio at September 30, 2008 and their respective net capital each exceeded the applicable regulatory minimum.

Obligations Related to Pension and Postretirement Employee Benefit Plans

As of September 30, 2008, there were no material changes to our obligations related to pension and postretirement employee benefit plans as described in our 2007 Annual Report on Form 10-K.

See Note 14 to our consolidated financial statements in this Form 10-Q for additional information.

Enterprise Risk Management

We have implemented a comprehensive, enterprise-wide risk management program, overseen by our Chief Risk Officer, who reports to the Chief Financial Officer. We have also established an Enterprise Risk Management Committee, chaired by the Chief Executive Officer, to follow our risk management principles and accomplish our objectives. In addition, we have established several management committees overseeing and addressing issues pertaining to all our major risks—product, market and operations—and capital management.

See our 2007 Annual Report on Form 10-K for more information regarding our enterprise risk management. There were no material changes in our exposure to operational and market risk exposure at September 30, 2008 in comparison to December 31, 2007.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information about our management of market risk, see the Enterprise Risk Management section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2007 Annual Report on Form 10-K.

Item 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have carried out an evaluation under the supervision and with the participation of our management, including our Principal Executive Officer and our Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, these officers have concluded that, as of September 30, 2008, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

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Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

We are regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. In addition, various regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, laws governing the activities of broker-dealers and other laws and regulations affecting our registered products. It is not feasible to predict or determine the ultimate outcome of all legal or regulatory proceedings or to provide reasonable ranges of potential losses. We believe that the outcomes of our litigation and regulatory matters are not likely, either individually or in the aggregate, to have a material adverse effect on our consolidated financial condition. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our results of operations or cash flows in particular quarterly or annual periods. See Item 1A, “Risk Factors” in our Form 10-K for the year ended December 31, 2007 and Note 17 to our consolidated financial statements in this Form 10-Q for additional information.

Item 1A.

RISK FACTORS

In addition to the normal risks of business, we are subject to significant risks and uncertainties, including those listed below. The risks described below update the risk factors described in our 2007 Annual Report on Form 10-K and should be read in addition to those risk factors. You should carefully consider the following risk factors and the risk factors described in our 2007 Annual Report on Form 10-K before investing in our securities, any of which could have a significant or material adverse effect on our business, financial condition, operating results or liquidity. This information should be considered carefully together with the other information contained in this report and the other reports and materials we file with the Securities and Exchange Commission. The risks described below and in our 2007 Annual Report on Form 10-K are not the only ones we face. Additional risks may also have an adverse effect on our business, financial condition, operating results or liquidity.

Recent market and economic developments may materially and adversely affect our business, revenues, earnings, sales, assets under management, financial condition and results of operations.

Recent markets have experienced unprecedented credit and liquidity issues as well as volatility and declines in the equity markets. Lending practices in past years, particularly in the “sub-prime” market, coupled with dramatic declines in home prices, rising mortgage defaults and increasing home foreclosures, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to most sectors of the credit markets, and to credit default swaps and other derivative securities, have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions, to be subsidized by the U.S. government and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, credit markets have worsened considerably, wi th many lenders and institutional investors reducing, and in some cases, ceasing to provide funding to borrowers, including other financial institutions. Additionally, concerns over increasing unemployment, inflation and energy costs as well as geopolitical issues have contributed to diminished expectations for the economy and the financial markets going forward. These factors, combined with declining business and consumer confidence and increased unemployment, have precipitated an economic slowdown and fears of a prolonged recession. As a result, the financial markets and the U.S. economy are experiencing a period of extreme volatility.

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It is difficult to predict how long the current economic and market conditions will continue, how the coordinated actions of the U.S. government and other international economic leaders will affect the current environment, and whether the financial markets will continue to deteriorate and which aspects of our products and/or business will be adversely affected. However, the resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity may materially and adversely affect us. Recent market and economic developments, including a 17% decline in equity markets during October 2008, have affected, or have the potential to affect, us negatively by:

·

Affecting the value of our investments, which has resulted in, and may continue to result in, higher realized and/or unrealized losses;

·

Reducing the value of the assets we manage, which has resulted in, and may continue to result in, lower fee revenues;

·

Raising the cost of some of our products, especially annuities, resulting in lower profits, because of higher reserves for guaranteed death benefits and living benefits, and higher DAC amortization because of lower revenue and higher reserves in the future;

·

Increasing consumer concerns about the returns and attractiveness of our products, which may cause existing clients to surrender policies or withdraw assets, and diminish our ability to sell policies and attract assets from new and existing clients, which would result in lower sales and fee revenues;

·

Reducing the ability and/or willingness of our reinsurers to meet their obligations, or adversely affecting the availability and cost of reinsurance, which would negatively affect our operating results;

·

Affecting the access to, reliability of, and service levels provided by our non-affiliated distribution intermediaries, which could materially affect our sales, redemptions and business operations;

·

Increasing the likelihood of our debt and financial strength ratings being downgraded. Both Standard & Poor’s and Fitch downgraded us on October 31, 2008. These and any future downgrades could increase policy surrenders and withdrawals, adversely affect relationships with distributors, reduce new sales, reduce our ability to borrow and increase our future borrowing costs;

·

Exacerbating the conditions which caused us to recognize an impairment of the goodwill and intangible assets on our balance sheet and lead to future impairments;

·

Increasing competition from stronger rivals in a more consolidated financial services industry, driven by regulatory action or other opportunistic transactions;

·

Causing regulators to change the laws and regulations that affect us, which may result in greater compliance costs and restrictions on our ability to do business;

·

Encouraging litigation, arbitration and regulatory action in response to the increased frequency and magnitude of investment losses, which may result in unfavorable judgments, awards and settlements, regulatory fines and an increase in our related legal expenses;

·

Changing the accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies, which may adversely affect our financial statements;

·

Reducing our ability to access existing or to obtain new financing in support of our business on favorable terms, or eliminating our ability to access existing or obtain new financing at all;

·

Increasing the difficulty of performing administrative functions such as determining the fair value of assets we manage and changing our investment positions in assets we manage, which may affect our service levels and the ability to retain existing clients or attract new clients;

·

Damaging our reputation indirectly by association with the industries most seriously affected by market and economic developments, or directly due to a decline in investment performance or service levels, which may affect our ability to retain existing clients or attract new clients;

·

Damaging our reputation due to the inability of investors to redeem auction rate preferred securities due to the failure, since February 2008, of such remarketing auctions caused by illiquidity in the auction rate preferred market, which previously provided investment liquidity to certain of our closed-end funds; and

·

Damaging our reputation or creating pressure to contribute capital to certain of our money market funds should these funds become at risk of falling below a $1.00 net asset value, referred to as “breaking the buck,” due to illiquidity in the money markets or credit-related impairments of their holdings.

Any of these negative effects may materially and adversely affect our business, revenues, earnings, sales, assets under management, financial condition and results of operations.

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Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

During the three months ended September 30, 2008, we issued 43,516 restricted stock units (“RSUs”) to 14 of our independent directors, without registration under the Securities Exchange Act of 1934 in reliance on an applicable exemption from registration under the Securities Act of 1933. Each RSU is potentially convertible into one share of our common stock.

(b)

Not applicable.

(c)

Not applicable.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

Item 5.

OTHER INFORMATION

(a)

Effective as of November 7, 2008, the Company and its subsidiary, Phoenix Life (Phoenix Life, together with the Company, the “Borrowers”) amended its existing $150 million unsecured senior revolving credit facility (the “Amendment”), between the Borrowers and a syndicate of banks (the “Lenders”) arranged by Wachovia Capital Markets, LLC, as sole lead arranger. The Amendment amends the terms of the First Amended and Restated Credit Agreement dated April 2, 2008 (the “First Amended and Restated Facility”). The terms of the First Amended and Restated Facility are described in a report on Form 8-K filed by the Company on April 7, 2008.

The financing commitments under the Amendment will terminate on June 6, 2009. The Amendment reflects amendments that, in anticipation of the spin-off of the Company’s wholly-owned asset management subsidiary, Virtus Investment Partners, Inc. to the Company’s shareholders (the “Spin-off”), (i) reduce the commitments of the Lenders from $150 million to $100 million upon the consummation of the Spin-off, and (ii) adjust certain financial covenants of the Borrowers. The adjusted covenants include those related to minimum consolidated net worth. Pursuant to the terms of Amendment, the Lenders also waived the noncompliance of the Borrowers with the minimum consolidated net worth covenant in Section 6.2(a) of the First Amended and Restated Facility for the third quarter of 2008.

Certain agent banks and lenders under the Amendment, or their affiliates, perform other services for the Company and its subsidiaries from time to time in the normal course of business, including but not limited to providing valuation, custodial, cash management and transfer agent services. The Company’s and Phoenix Life’s director, Peter C. Browning, and the Company’s and Phoenix Life’s Chairman of the Board, President and Chief Executive Officer, Dona D. Young, both serve as directors of Wachovia Corporation, an affiliate of Wachovia Capital Markets, LLC and Wachovia Bank, National Association, the administrative agent and a lender under the Amendment.

The foregoing description of the material terms of the Amendment is qualified in its entirety by reference to the Amendment, a copy of which is attached hereto as Exhibit 10.55.

(b)

No material changes.

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Item 6.

EXHIBITS

Exhibit
3.1	Amended and Restated Certificate of Incorporation of The Phoenix Companies, Inc. (incorporated herein by reference to Exhibit 3.1 to The Phoenix Companies, Inc. Registration Statement on Form S-l (Registration No. 333-73896), filed November 21, 2001, as amended)
3.2	By-Laws of The Phoenix Companies, Inc., as amended June 5, 2003 (incorporated herein by reference to Exhibit 3.2 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
4.1	Amended and Restated Certificate of Incorporation and By-Laws of The Phoenix Companies, Inc. (incorporated herein by reference to Exhibits 3.1 and 3.2 hereto, respectively)
10.1	The Phoenix Companies, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Registration Statement on Form S-l (Registration No. 333-55268), filed February 9, 2001)
10.2	The Phoenix Companies, Inc. Stock Incentive Plan, as amended and restated to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.3	Form of Incentive Stock Option Agreement under The Phoenix Companies, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit 10.3 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
10.4	Form of Non-Qualified Stock Option Agreement under The Phoenix Companies, Inc. Stock Incentive Plan (incorporated herein by reference to Exhibit 10.4 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
10.5	The Phoenix Companies, Inc. Directors Stock Plan (incorporated herein by reference to Exhibit 10.4 to The Phoenix Companies, Inc. Registration Statement on Form S-l (Registration No. 333-55268), filed February 9, 2001)
10.6	The Phoenix Companies, Inc. Directors Stock Plan, as amended and restated to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.6 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.7	The Phoenix Companies, Inc. Excess Benefit Plan, as amended and restated effective January 1, 2003 (incorporated herein by reference to Exhibit 10.7 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
10.8	First Amendment to The Phoenix Companies, Inc. Excess Benefit Plan, as amended and restated effective January 1, 2003 (incorporated herein by reference to Exhibit 10.8 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed August 9, 2005)
10.9	The Phoenix Companies, Inc. Excess Benefit Plan, as amended and restated to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.9 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.10	The Phoenix Companies, Inc. Non-Qualified Deferred Compensation and Excess Investment Plan, as amended and restated effective as of January 1, 2004 (incorporated herein by reference to Exhibit 10.8 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
10.11	First Amendment to The Phoenix Companies, Inc. Non-Qualified Deferred Compensation and Excess Investment Plan, as amended and restated effective January 1, 2004 (incorporated herein by reference to Exhibit 10.10 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed August 9, 2005)

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10.12	Second Amendment to The Phoenix Companies, Inc. Non-Qualified Deferred Compensation and Excess Investment Plan, as amended and restated effective January 1, 2004 (incorporated herein by reference to Exhibit 10.3 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 1, 2007)
10.13	The Phoenix Companies, Inc. Non-Qualified Deferred Compensation Plan to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.13 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.14	The Phoenix Companies, Inc. Non-Qualified Excess Investment Plan to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.14 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.15	The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan, as amended and restated effective as of July 1, 2007 (incorporated herein by reference to Exhibit 10.10 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 1, 2007)
10.16	The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan, as amended and restated effective as of January 1, 2008 (incorporated herein by reference to Exhibit 10.16 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.17	The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan B, as amended and restated effective as of July 1, 2007 (incorporated herein by reference to Exhibit 10.12 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 1, 2007)
10.18	The Phoenix Companies, Inc. Nonqualified Supplemental Executive Retirement Plan B, as amended and restated effective as of January 1, 2008 (incorporated herein by reference to Exhibit 10.18 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.19	Phoenix Investment Partners, Ltd. Nonqualified Profit-Sharing Plan, as amended and restated effective March 3, 2003 (incorporated herein by reference to Exhibit 10.17 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed August 9, 2005)
10.20	First Amendment to The Phoenix Investment Partners, Ltd. Nonqualified Profit-Sharing Plan, as amended and restated March 3, 2003 (incorporated herein by reference to Exhibit 10.18 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed August 9, 2005)
10.21	The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan (incorporated herein by reference to Exhibit B to The Phoenix Companies, Inc. 2003 Proxy Statement, filed March 21, 2003)
10.22	The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan, as amended and restated to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.22 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.23	Form of Award Letter under The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 8, 2006)
10.24	Form of Description of Long Term Incentive Cycle under The Phoenix Companies, Inc. 2003 Restricted Stock, Restricted Stock Unit and Long-Term Incentive Plan (incorporated herein by reference to Exhibit 10.2 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 8, 2006)
10.25	Form of Restricted Stock Units Agreement of The Phoenix Companies, Inc. (incorporated herein by reference to Exhibit 10.27 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 10, 2006)
10.26	Form of Restricted Stock Units Agreement Individual for Performance-Based Incentive Grants (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed February 28, 2007)

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10.27	Form of Restricted Stock Units Agreement for Cliff Vested Grants (incorporated herein by reference to Exhibit 10.21 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 1, 2007)
10.28	Form of Restricted Stock Units Agreement for Performance-Based Grants Tied to Business Line Metrics (incorporated herein by reference to Exhibit 10.22 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 9, 2007)
10.29	Form of Restricted Stock Units Agreement for 3-Year Performance-Based Long-Term Incentive Cycles (incorporated herein by reference to Exhibit 10.23 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 9, 2007)
10.30	The Phoenix Companies, Inc. Executive Severance Allowance Plan (incorporated herein by reference to Exhibit 10.15 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
10.31	First Amendment to The Phoenix Companies, Inc. Executive Severance Allowance Plan (incorporated herein by reference to Exhibit 10.22 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 7, 2005)
10.32	Second Amendment to The Phoenix Companies, Inc. Executive Severance Allowance Plan (incorporated herein by reference to Exhibit 10.26 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 1, 2007)
10.33	The Phoenix Companies, Inc. Executive Severance Allowance Plan, as amended and restated to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.33 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.34	The Phoenix Companies, Inc. Annual Incentive Plan for Executive Officers (incorporated herein by reference to Exhibit C to The Phoenix Companies, Inc. Proxy Statement filed March 21, 2005)
10.35	The Phoenix Companies, Inc. Annual Incentive Plan for Executive Officers, as amended and restated to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.35 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.36	The Phoenix Companies, Inc. Equity Deferral Plan to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.36 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.37	The Phoenix Companies, Inc. Directors Equity Deferral Plan to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.37 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.38	The Phoenix Companies, Inc. Directors Cash Deferral Plan to be effective as of January 1, 2009 (incorporated herein by reference to Exhibit 10.38 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.39	Form of Change in Control Agreement (for employees receiving reimbursement for certain excise taxes) (incorporated herein by reference to Exhibit 10.29 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 1, 2007)
10.40	Form of Change in Control Agreement (for use in all other instances) (incorporated herein by reference to Exhibit 10.30 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 1, 2007)
10.41	Amended and Restated Employment Agreement dated as of May 18, 2005 between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to Exhibit 10.29 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed August 9, 2005)

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10.42	Letter Agreement dated May 6, 2008 between The Phoenix Companies, Inc. and Dona D. Young amending Mrs. Young’s Amended and Restated Employment Agreement dated May 18, 2005 (incorporated herein by reference to Exhibit 10.42 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.43	Second Amended and Restated Employment Agreement dated May 6, 2008 between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to Exhibit 10.43 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed May 8, 2008)
10.44	Amended and Restated Employment Continuation Agreement effective January 1, 2008, between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 9, 2007)
10.45	Restricted Stock Units Agreement dated as of January 25, 2003, between The Phoenix Companies, Inc. and Dona D. Young (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed August 14, 2003)
10.46	Offer Letter dated February 9, 2004 by The Phoenix Companies, Inc. to Philip K. Polkinghorn (incorporated herein by reference to Exhibit 10.50 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 22, 2004)
10.47	Discussion of compensation of George R. Aylward (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 9, 2006)
10.48	Discussion of compensation of Peter A. Hofmann (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 14, 2007)
10.49	Discussion of compensation of David R. Pellerin (incorporated herein by reference to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 14, 2007)
10.50	Table of Board Compensation for the Directors of The Phoenix Companies, Inc. as adopted on October 29, 2007, effective January 1, 2008 (incorporated herein by reference to Exhibit 10.39 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q filed November 1, 2007)
10.51	Stockholder Rights Agreement dated as of June 19, 2001 (incorporated herein by reference to Exhibit 10.24 to The Phoenix Companies, Inc. Registration Statement on Form S-l (Registration No. 333-73896), filed November 21, 2001, as amended)
10.52	Technology Services Agreement effective as of July 29, 2004 by and among Phoenix Life Insurance Company, Electronic Data Systems Corporation and EDS Information Services, L.L.C. (incorporated herein by reference to Exhibit 10.49 to The Phoenix Companies, Inc. Quarterly Report on Form 10-Q dated August 9, 2004)
10.53	Fiscal Agency Agreement dated as of December 15, 2004 between Phoenix Life Insurance Company and The Bank of New York (incorporated herein by reference to Exhibit 10.38 to The Phoenix Companies, Inc. Annual Report on Form 10-K filed March 11, 2005)
10.54	First Amended and Restated Credit Agreement dated as of April 2, 2008, by and among The Phoenix Companies, Inc., and Phoenix Life Insurance Company as Borrowers; Wachovia Bank, National Association, as Administrative Agent; The Bank of New York, as Syndication Agent; BMO Capital Markets Financing, Inc., JPMorgan Chase Bank, N.A., and PNC Bank, National Association, as Documentation Agents; and the other Lenders party thereto (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed April 7, 2008)
10.55	First Amendment to First Amended and Restated Credit Agreement, dated as of November 7, 2008, by and among The Phoenix Companies, Inc. and Phoenix Life Insurance Company as borrowers; Wachovia Bank, National Association, as administrative agent; The Bank of New York, as syndication agent; BMO Capital Markets Financing, Inc., JPMorgan Chase Bank, N.A., and PNC Bank, National Association, as documentation agents; and the other lenders party thereto*

74

10.56	Agreement, dated as of April 16, 2008, among The Phoenix Companies, Inc. Oliver Press Partners, LLC and certain of its affiliates party thereto (incorporated herein by reference to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed April 16, 2008)
10.57	Investment and Contribution Agreement, dated as of October 30, 2008, by and among The Phoenix Companies, Inc., Phoenix Investment Management Company, Virtus Holdings, Inc. and Harris Bankcorp, Inc. (incorporated by reference herein to Exhibit 10.1 to The Phoenix Companies, Inc. Current Report on Form 8-K filed November 5, 2008)
12	Ratio of Earnings to Fixed Charges*
31.1	Certification of Dona D. Young, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of Peter A. Hofmann, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32	Certification by Dona D. Young, Chief Executive Officer and Peter A. Hofmann, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

* Filed herewith

We will furnish any exhibit upon the payment of a reasonable fee, which fee shall be limited to our reasonable expenses in furnishing such exhibit.Requests for copies should be directed to: Corporate Secretary, The Phoenix Companies, Inc., One American Row, P.O. Box 5056, Hartford, Connecticut 06102-5056.

75

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	THE PHOENIX COMPANIES, INC.
Date:  November 10, 2008	By:	/s/ Peter A. Hofmann
	Peter A. Hofmann
	Senior Executive Vice President and Chief Financial Officer

76