SECURITIES AND EXCHANGE COMMISSION

	Washington, D.C. 20549

	FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

	OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

	OR

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

	OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ................ to ...................

Commission File Number 0-5486

 

PRESIDENTIAL LIFE CORPORATION 	(Exact name of registrant as specified in its charter)

Delaware 13-2652144 State or other jurisdiction of (I.R.S. Employer Identification No.)

incorporation or organization)

69 Lydecker Street, Nyack, New York 10960 (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (845) 358-2300

Securities registered pursuant to Section 12(b) of the Act:

Not Applicable

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

Title of Class

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 theRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge,in definitive proxy or information statements incorporated by reference in

Part III of this Form 10-K405 or any amendment to this Form 10-K405. [ X ]

The aggregate market value of voting stock held by nonaffiliates of the Registrant as of March 28, 2003 was approximately $183,635,022 based upon the average bid and asked prices of such stock on that date.

The number of shares outstanding of the Registrant's common stock as of

March 28, 2003 was 29,334,668.

	DOCUMENTS INCORPORATED BY REFERENCE

Selected designated portions of the definitive proxy statement to be used in connection with the registrant's 2002 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K405. Otherdocuments incorporated by reference into this Form 10-K405 are listed in the Exhibit

Index.

 

 

 

PART I

**Item 1. Business**

**General**

Presidential Life Corporation (the "Company") is an insurance holding company that, through its wholly-owned subsidiary Presidential Life Insurance Company (the "Insurance Company"), operates principally ina single business segment with two primary lines of business-individual annuities and individual life insurance. Unless the context otherwise requires, the "Company" shall be deemed to include Presidential Life Corporation and its subsidiaries. The Company wasfounded in 1969 and, through the Insurance Company, is licensed to market its products in 49 states and the District of Columbia. Approximately 41.3% of the Company's fiscal 2002 annuity and life insurance products were sold to individuals residing in the State ofNew York.

**Products**

The Company currently emphasizes the sale of a variety of single premium and flexible premium annuity products (including those written in connection with funding agreements for certain state lotteries,group annuities and other structured settlements) as well as annual and single premium life insurance products. Each of these products is designed to meet the needs of increasingly sophisticated consumers for supplemental retirement income, estate planning andprotection from unexpected death.

**Annuity Business**

Industry-wide sales of annuity products have experienced strong growth in recent years. Annuities currently enjoy an advantage over certain other savings mechanisms because the annuitant receives atax-deferred accrual of interest on his or her investment.

**Single Premium Annuity** products require a one-time lump sum premium payment. During the accumulation period, the accrual of interest is on a tax-deferred basis to the annuitant.

**Single Premium Deferred Annuities** ("SPDAs") provide for a single premium payment at the time of issue, an accumulation period and an annuity payout period at some future date. During theaccumulation period, the Company credits the account value of the annuitant with interest earnings at a current interest rate that is guaranteed for periods ranging from one to five years, at the annuitant's option, and that, thereafter, is subject to change based onmarket and other conditions. Each contract also has a minimum guaranteed rate. This accrual of interest during the accumulation period is on a tax-deferred basis to the annuitant. After the number of years specified in the annuity contract, the annuitant may elect totake the proceeds of the annuity as a single payment, a specified income for life or a specified income for a fixed number of years. The annuitant is permitted at any time during the accumulation period to withdraw all or part of the single premium paid plus theamount credited to his or her account. Any such withdrawal, however, typically is subject to a surrender charge during the early years of the annuity contract.

 

 

 

 

 

 

 

	2.

 

 

 

**Single Premium Immediate Annuity Products** ("SPIAs") guarantee a stream of payments, which begin immediately and continue for the life of the annuitant. The payment may be guaranteed for aperiod of time (typically five to 20 years) (the "Guarantee Period"). If the annuitant dies during the Guarantee Period, payments will continue to be made to the annuitant's beneficiary for the balance of the Guarantee Period. SPIAs differ from deferred annuities inthat generally they provide for payments to begin immediately and are not subject to surrender or loan. The implicit interest rate on SPIAs is based on market conditions, which existed at the time that the annuity was issued and is guaranteed for the term of theannuity.

**Single Premium Immediate Income Products** ("SPIIs") are similar to SPIAs in that they guarantee a stream of payments. Unlike SPIAs, SPII payments always are guaranteed for a specified period oftime, not for the life of the annuitant. Payments are made to the payee or beneficiary even if the annuitant dies during the payout period.

**Single Premium Immediate Structured Settlement Annuities** provide an alternative to a lump-sum payment or settlement in the case of a lottery or a personal injury case, as the case may be, andgenerally are purchased by state lottery agencies for the benefit of a lottery winner or by property and casualty insurance companies for the benefit of an injured claimant, as the case may be, with benefits scheduled over a fixed period or, over a fixed period andfor the life of the annuitant thereafter. Structured settlements offer tax advantaged long-range financial security to the annuitant and facilitate the operations of state lottery agencies and the ability of casualty insurance carriers to effect claim settlements.Structured settlement annuities are long-term in nature, guarantee a fixed benefit stream and cannot be surrendered or borrowed against.

**Flexible Premium Annuity** products provide similar benefits to those provided by the Company's single premium deferred annuity products, but instead permit periodic premium payments in suchamounts as the holder deems appropriate. As a result, the benefits attributable to such products will fluctuate according to the level of such payments.

**Group Terminal Funding Annuity** products provide benefits similar to single premium immediate annuities. Benefits are provided to employees when a company's pension plan is terminated or whenthe employer wants to transfer liability for making payments. Group terminal funding annuities cannot be surrendered or borrowed against.

All of the Company's deferred annuity products provide minimum interest rate guarantees. The minimum guaranteed rates on the Company's deferred annuity products currently range from 3.0% to 5 1/2% annuallyand the contracts (except for SPIAs) are designed to permit the Company to change the crediting rates annually subject to the minimum guaranteed rate. The Company takes into account the profitability of its annuity business and its relative competitive position indetermining the frequency and extent of changes to the interest crediting rates.

The Company's deferred annuity products are designed to encourage persistency (see "Pricing" below for a definition of the term "persistency") by incorporating surrender charges that exceed the cost ofissuing the annuity. An annuitant may not terminate or withdraw substantial funds for periods generally ranging from one to seven years without incurring significant penalties in the form of surrender charges. Notwithstanding the foregoing, approximately 24.9% of theCompany's deferred annuity contracts in force (measured by reserves) as of December 31, 2002 are surrenderable without charge.

 

 

 

	3.

 

 

 

The following table presents annuity products in force measured by reserves, as well as certain statistical data for each of the years in the five fiscal year period ended December 31, 2002, in each case,as determined in accordance with accounting principles generally accepted in the United States of America ("GAAP").

 

| **ANNUITIES IN FORCE**                                                  |
|-------------------------------------------------------------------------|
|                                                                    |
| Year Ended December 31,                                                 |
|                                                                    |   | 2002 |   | 2001 |   | 2000 |   | 1999 |   | 1998 |
| (Dollars in thousands)

Single premium immediate

Structured settlement |
| Annuities                                                               |   | $ 167,466 |   | $ 167,766 |   | $ 169,927 |   | $ 168,087 |   | $ 166,360 |
| Single premium immediate                                                |
| Annuities                                                               |   | 701,024 |   | 605,214 |   | 464,794 |   | 384,194  |   | 314,108 |
|                                                                    |   |   |   |   |   |   |   |   |   |   |
| Total immediate annuities                                               |   | 868,490 |   | 772,980 |   | 634,721 |   | 552,281  |   | 480,468 |
| Single premium deferred                                                 |
| Annuities                                                               |   | 2,256,448 |   | 1,592,890 |   | 1,095,860 |   | 914,460 |   | 865,884 |
| Flexible premium annuities                                              |   | 157,035 |   | 146,805 |   | 143,809 |   | 153,460 |   | 159,460 |
| Group terminal funding                                                  |   |   |   |   |   |   |   |   |   |   |
| annuities                                                               |   | 104,727 |   | 106,014 |   | 103,881 |   | 104,142 |   | 103,215 |
|                                                                    |   |   |   |   |   |   |   |   |   |   |
| Total annuities                                                         |   | $ 3,386,700 |   | $ 2,618,689 |   | $ 1,978,271 |   | $ 1,724,343 |   | $ 1,609,027 |
|                                                                         |  |  |  |  |  |  |  |  |  |  |

 

| For the fiscal year ended December 31, |
|----------------------------------------|
|                                        |  |  |  |  |  |  |  |  |  |  |
|                                   |   | 2002 |   | 2001 |   | 2000 |   | 1999 |   | 1998 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Ratio of annualized                    |   |   |   |   |   |   |   |   |   |   |
| voluntary terminations                 |   |   |   |   |   |   |   |   |   |   |
| (surrenders and lapses)                |   |   |   |   |   |   |   |   |   |   |
| to mean insurance                      |   |   |   |   |   |   |   |   |   |   |
| in force                               |   | 8.6% |   | 10.0% |   | 12.1% |   | 16.5% |   | 15.9% |
|                                   |   |   |   |   |   |   |   |   |   |   |
| At end of year:                        |   |   |   |   |   |   |   |   |   |   |
| Number of annuity                      |   |   |   |   |   |   |   |   |   |   |
| contracts in                           |   |   |   |   |   |   |   |   |   |   |
| force                                  |   | 72,089 |   | 56,104 |   | 45,056 |   | 43,337 |   | 43,695 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Average size of

annuity contract      |   |   |   |   |   |   |   |   |   |   |
| in force                               |  | $ 46,979 |   | $ 46,676 |   | $ 43,907 |   | $ 39,789 |   | $36,824 |
|                                   |   |   |   |   |   |   |   |   |   |   |

 

 

 

 

 

 

 

 

 

 

 

	4.

 

 

 

**Annuity Considerations and Premiums** - The following table sets forth certain information with respect to the Insurance Company's annuity considerations and premium revenues for each of thefive fiscal years ended December 31, 2002, as determined in accordance with statutory accounting principles. Premiums shown on the Company's consolidated financial statements in accordance with GAAP consist of premiums received for whole or term life insuranceproducts, as well as that portion of the Company's single premium immediate annuities, which have life contingencies. With respect to that portion of single premium annuity contracts without life contingencies, as well as deferred annuities and universal lifeinsurance products, premiums collected by the Company are not reported as premium revenues, but rather are reported as additions to policyholder account balances on the Company's consolidated balance sheet.

**Distribution of Products - By Gross Premiums and Other Considerations**

| For the fiscal year ended December 31, |
|----------------------------------------|
|                                        |  | 2002 |  | 2001 |  | 2000 |  | 1999 |  | 1998 |
| (dollars in thousands)                 |
| Annuity                                |   |   |   |   |   |   |   |   |   |   |
| Considerations                         |   | $ 738,467 |   | $ 615,736 |   | $ 356,144 |   | $ 191,815 |   | $ 142,435 |
|                                   |   |  |   |   |   |   |   |   |   |   |
| Whole Life and                         |   |   |   |   |   |   |   |   |   |   |
| Term Life                              |   | 13,911 |   | 12,100  |   | 8,626 |   | 8,589 |   | 8,041 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Universal Life                         |   | 24,385 |   | 9,939  |   | 7,363 |   | 5,550 |   | 4,240 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Other                                  |   | 10,894 |   | 3,987  |   | 9,907 |   | 1,158 |   | 0 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Total Premiums and                     |
| Considerations                         |   | $ 787,657 |   | $ 641,762 |   | $ 382,040 |   | $ 207,112 |   | $ 154,716 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Number of life

insurance policies     |
| in force                               |   | 20,626 |   | 19,200 |   | 18,896  |   | 18,605  |   | 18,491 |
|                                   |   |   |   |   |   |   |   |   |   |   |
| Average size of

life insurance        |   |   |   |   |   |   |   |   |   |   |
| policy in force                        |   | $ 55,833 |   | $ 48,879 |   | $ 44,170 |   | $ 40,441 |   | $ 41,794 |
|                                   |   |   |   |   |   |   |   |   |   |   |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	5.

 

 

 

**Life Insurance Business**

**Universal Life** policies are interest-sensitive products which typically provide the insured with "nonparticipating" (i.e. non-dividend paying) life insurance with a cash value. Currentinterest is credited to the policy's cash value based upon interest rates that periodically are revised by the Company to reflect current economic conditions (primarily interest rates). In no event, however, will the interest rate credited on the policy's cash valuebe less than the guaranteed rate specified in the policy. The Company offers both flexible premium and single premium universal life insurance products. The Company's flexible premium and single premium universal life insurance products differ based on policyprovisions affecting the amount and timing of premium payments.

**Whole Life** policies are products which provide the insured with life insurance with a guaranteed cash value. Typically, a fixed premium, which costs more than comparable term coverage when thepolicyholder is younger, but less than comparable term coverage as the policyholder grows older, is paid over a period of years. Whole life insurance products combine insurance protection with a savings plan that gradually increases in amount over time. With respectto the Company's whole life insurance products, the policyholder may borrow against the policy's accumulated cash value. However, the death benefit is decreased by the amount of the outstanding loan. In addition, the policyholder may choose to surrender the policyand receive the accumulated cash value rather than continuing the insurance protection.

**Term Life** policies are products which provide insurance protection if the insured dies during the time period specified in the policy. No cash value is built up. These products provide themaximum benefit for the lowest initial premium outlay. The Company's term life insurance products include annually renewable, convertible and decreasing term insurance.

**Graded Benefit Life** policies are products designed for the upper age (i.e. ages 40 to 80), sub-standard applicant. Depending upon age, these products provide for a limited death benefit ofeither the return of premium plus 5% interest for three years, or the return of premium plus 5% interest for two years. Thereafter, the death benefit is limited to the face amount of the policy. This product typically is offered with a maximum face value of$25,000.

**Increasing Premium Whole Life** policies are products which have characteristics of both whole life and term life products. Initial premiums are comparatively low and generally increase eachyear until the twentieth policy year when the premium becomes fixed. No cash values are built up in the early years of the policy, but cash values do begin to accumulate in the later (typically around the fifteenth policy year) years of the policy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	6.

 

 

** **

** **

**Insurance Policies in Force** - The following table provides a reconciliation of beginning and ending universal, whole and term life insurance policies, in force, as well as certain statisticaldata for each of the years in the five fiscal year period ended December 31, 2002.

 

| **LIFE INSURANCE IN FORCE** |
|-----------------------------|
|                        |
|                        |   | 2002 |   | 2001 |   | 2000 |   | 1999 |   | 1998 |
| (dollars in thousands)      |
|                        |
| In force beginning of year  |
| Universal                   |   | $ 385,857 |   | $ 370,393 |   | $ 368,424  |   | $ 377,470 |   | $ 383,233 |
| Whole<F1>             |   | 151,596 |   | 167,214 |   | 192,803  |   | 218,461 |   | 263,554 |
| Term                        |   | 402,443 |   | 297,037 |   | 191,185  |   | 176,875 |   | 176,470 |
|                        |   |  |   |   |   |   |   |   |   |   |
| Total                       |  | 939,896 |  | 834,644 |  | 752,412  |  | 772,806   |  | 823,257 |
|                        |   |   |   |   |   |   |   |   |   |   |
| Sales and additions:        |   |   |   |   |   |  |   |  |   |  |
| Universal                   |   | 26,718 |   | 33,878 |   | 30,119  |   | 24,435 |   | 23,735 |
| Whole<F1>             |   | 72,217 |   | 20,784 |   | 22,102  |   | 41,612 |   | 35,365 |
| Term                        |   | 216,116 |   | 150,869 |   | 139,920  |   | 49,887 |   | 27,954 |
|                        |   |   |   |  |   |   |   |   |   |   |
| Total                       |   | 315,051 |   | 205,531 |   | 192,141  |   | 115,934   |   | 87,054 |
|                        |   |   |   |   |   |   |   |   |   |   |
| Terminations:               |   |   |   |   |   |   |   |   |   |   |
| Death                       |   | 8,289 |   | 7,467 |   | 8,129 |   | 7,233 |   | 6,134 |
| Surrenders and              |   |   |   |  |   |   |   |   |   |   |
| conversions                 |   | 16,898 |   | 19,299 |   | 28,159 |   | 30,525 |   | 19,305 |
| Lapses                      |   | 73,237 |   | 70,192 |   | 68,237 |   | 98,541 |   | 107,484 |
| Other                       |  | 3,601 |  | 3,321 |  | 5,384 |  | 30 |  | 4,582 |
|                        |   |   |   |   |   |   |   |   |   |   |
| Total                       |   | 102,025 |   | 100,279 |   | 109,909 |   | 136,329 |   | 137,505 |
| In force end of year:       |  |  |  |  |  |  |  |  |  |  |
| Universal                   |   | 444,200 |   | 385,857 |   | 370,393 |   | 368,424 |   | 377,470 |
| Whole<F1>             |   | 146,359 |   | 151,596 |   | 167,214 |   | 192,803 |   | 218,461 |
| Term                        |  | 562,363 |  | 402,443 |  | 297,037 |  | 191,185 |  | 176,875 |
|                        |   |   |   |   |   |   |   |   |   |   |
| Total                       |   | $1,152,922 |   | $ 939,896 |   | $ 834,644 |   | $ 752,412 |   | $ 772,806 |
|                        |   |   |   |   |   |   |   |   |   |   |
| Total reinsurance           |   |   |   |   |   |   |   |   |   |   |
| ceded                       |   | $ 706,667 |   | $ 550,194 |   | $ 478,976 |   | $ 410,955 |   | $ 438,827 |
|                        |   |   |   |   |   |   |   |   |   |   |
| Total insurance in          |   |   |   |   |   |   |   |   |   |   |
| Force at end of year        |   |   |   |   |   |   |   |   |   |   |
| Net of reinsurance          |   | $ 446,255 |   | $ 389,702 |   | $ 355,668 |   | $ 341,457 |   | $ 333,979 |

 

 

----

 

<F1> Includes graded benefit life insurance products.

 

 

 

 

 

 

 

	7.

 

 

 

 

**Marketing and Distribution**

The Company, through the Insurance Company, is licensed to market its products in 49 states and in the District of Columbia. The Company sells its individual annuity and life insurance products through1,077 independent general agents (314 of which are located in the State of New York), who are independent contractors. These independent general agents market the Company's products through 20,326 licensed insurance agents or brokers, most of whom also write productssimilar to those sold by the Company for other companies. Management believes that the Company offers competitive commission rates and seeks to provide innovative products and quality service to its independent general agents. Compensation of agents is strictlyregulated by the New York State Department of Insurance (the "NYSID").

The independent general agency system has been the Insurance Company's primary distribution system since the Insurance Company was founded. Management believes that the Company's consistent focus on theindependent general agent distribution system provides a cost advantage, since the Company incurs no fixed costs associated with recruiting, training and maintaining employee agents. Accordingly, a substantial portion of the costs associated with generating newbusiness for the Company are not fixed costs but vary directly with the level of business produced.

Since the Company utilizes independent general agents to market its products, it is not dependent on any one agency for any substantial amount of its business. On the other hand, the independent agents arenot captive to the Company, and most write products similar to those sold by the Company for other companies. This can result in significant sales declines if for any reason the Company is relatively less competitive or if there is cause for generalconcern.

Among other things, crediting rates, commissions, the perceived quality of the issuer, product features and services generally are significant factors that management believes influence an agent'swillingness and ability to sell particular annuity products. The Company generally issues annuity contracts, together with the agent's commission check, within two business days of receiving the application and premium. The Company also seeks to provide ongoingservice to the agent. Towards that end, the Company provides agents with access to the Company's senior executives. In addition, agents and contract owners can access information about their contracts via a toll-free telephone number.

The Company's top ten general agents accounted for approximately 23.8% of the Company's combined individual life insurance policies and annuity contracts sold, (measured by the combined premiums andconsiderations), during fiscal 2002. Of the Company's combined annuity contracts and individual life insurance policies sold, no single agent accounted for more than 1.01% and no single generalagency accounted for more than 5.1% during 2002. The loss of any single sales source would not have a material adverse effect on the Company, but the loss of several could cause a decline in sales until they are replaced by the appointment of other general agents.The Company's agency department actively recruits new general agents on a continuous basis.

**Pricing**

Management believes that the Company is able to offer its products at competitive prices to its targeted markets as a result of: (i) maintaining relatively low issuance costs by selling through theindependent general agency system; (ii) minimizing home office administrative costs; and (iii) utilizing appropriate underwriting guidelines.

 

 

 

	8.

 

 

 

The long-term profitability of sales of life and most annuity products depends on the degree of margin of the actuarial assumptions that underlie the pricing of such products. Actuarial calculations forsuch products, and the ultimate profitability of sales of such products, are based on four major factors: (i) persistency; (ii) rate of return on cash invested during the life of the policy or contract; (iii) expenses of acquiring and administering the policy orcontract; and (iv) mortality.

Persistency is the rate at which insurance policies remain in force, expressed as a percentage of the number of policies remaining in force over the previous year. Policyholders sometimes do not paypremiums, thus, causing their policies to lapse.

The assumed rate of return on invested cash and desired spreads during the period that insurance policies or annuity contracts are in force also affects pricing of products and currently includes anassumption by the Company of a specified rate of return and/or spread on its investments for each year that such insurance or annuity product is in force.

Another major factor affecting profitability is the level of expenses. Management believes that one of the Company's strengths is its concentration on minimizing expenses through periodic review andadjustment of general and administrative costs.

Mortality is the rate of death experienced by life insurance policyholders and certain annuitants taken as a group. For calculating premiums, the Company uses actuarial assumptions with margins added toallow for adverse statistical variations. Actual mortality experience in a particular period may be different than actuarially expected mortality experience and, consequently, may adversely affect the Company's operating results for such period.

**Underwriting Procedures**

Premiums charged on insurance products are based, in part, on assumptions about the expected mortality experience. In that regard, the Company has adopted and follows detailed, uniform underwritingprocedures designed to assess and quantify insurance risks before issuing life insurance policies to individuals. To implement these procedures, the Company employs an experienced professional underwriting staff. The underwriting practice of the Company is to requireattending physicians' statements and medical examinations for each applicant over age 55 or for policies in excess of certain prescribed policy amounts, ranging from $25,000 and up. These requirements are graduated according to the applicant's age and the face amountof the policy. The Company also carefully reviews medical records and each applicant's written application for insurance, which generally is prepared under the supervision of one of the Company's independent general agents. The factors considered in evaluating anapplication for individual life insurance coverage include the applicant's age, occupation, avocations, driving record, finances, aviation activities, smoking habits, alcohol usage and general health and medical history. These factors are discovered through theapplication, attending physicians' statements, consumer investigation reports from investigative agencies, direct contact, motor vehicle reports and the Medical Information Bureau, an insurance industry information service. In accordance with industry practice,material misrepresentations on a policy application can result in the cancellation by the company of the policy under the two year incontestability clause in the general provisions of the policy.

 

 

 

 

 

 

	9.

 

 

To the extent that an applicant does not meet the Company's underwriting standards for issuance of a policy at the standard risk classifications, the Company may offer to issue a classified, sub-standard orimpaired risk policy for a risk adjusted premium amount rather than declining the application. The amount of the Company's impaired risk insurance in force in proportion to the total amount of the Company's individual life insurance in force was approximately 5.8% atDecember 31, 2002.

Acquired Immune Deficiency Syndrome ("AIDS"), which has received wide publicity because of its serious public health implications, presents special concerns to the life insurance industry. Mortality risksare accepted by insurers based on methods of classification designed to appropriately relate premiums charged to such risks and, in this connection, steps have been taken toward strengthening the Company's underwriting and selection process. The Company considersAIDS information in underwriting and pricing decisions in accordance with applicable laws. A prospective policyholder must submit to a blood or urine test, which includes AIDS antibody screening, if the amount of coverage applied for equals or exceeds $100,000. TheCompany's own mortality experience reflects no significant adverse impact as a result of any acceleration of AIDS-related claims. The Company is continuing to monitor developments in this area but is necessarily unable to predict the long term impact of this problemon the life insurance industry, in general, or on the Company, in particular.

**Life Insurance and Annuity Reserves**

In accordance with applicable insurance regulations, the Company has established and carries as liabilities in its statutory financial statements actuarially determined reserves that are calculated tosatisfy its policy and contract obligations. Reserves, together with premiums to be received on outstanding policies and contracts and interest thereon at certain assumed rates, are calculated to be sufficient to satisfy policy and contract obligations. The actuarialfactors used in determining such reserves are based on statutorily prescribed mortality and morbidity tables and interest rates. Reserves maintained also include unearned premiums, premium deposits, reserves for claims that have been reported but are not yet paid,reserves for claims that have been incurred but have not yet been reported and claims in the process of settlement. Generally, the Company maintains reserves on assumed reinsurance, but does not continue accumulating reserves with respect to that portion of policiesor contracts that are reinsured with, or ceded to, other insurance companies. Reserves for assumed reinsurance are computed on bases essentially comparable to direct insurance reserves.

The reserves reflected in the Company's consolidated financial statements included herein are calculated based on GAAP and differ from those specified by the laws of the various states in which theInsurance Company does business and those reflected in the Insurance Company's statutory financial statements. These differences arise from the use of different mortality and morbidity tables and interest rate assumptions, the introduction of lapse assumptions intothe reserve calculation and the use of the net level premium reserve method on all insurance business. See "Notes 1G, 1H and 8 to the Notes to the Consolidated Financial Statements."

The reserves reflected in the Company's consolidated financial statements are based upon the Company's best estimates of mortality, persistency, expenses and investment income, with appropriate provisionsfor adverse statistical deviation and the use of the net level premium method for all non-interest-sensitive products. For all interest-sensitive products the policy account value is equal to the accumulation of gross premiums plus interest credited less mortalityand expense charges and withdrawals. In determining reserves for its insurance and annuity products, the

Company performs periodic studies to compare current experience for mortality, interest and lapse rates with expected experience in the reserve assumptions.

Differences are reflected currently in earnings for each period. The Company historically has not experienced significant adverse deviations from its assumptions.

10.

 

**Claims Paying and Other Ratings**

Ratings are an important factor in establishing the competitive position in the insurance and financial services marketplace. There can be no assurance that the Company’s ratings will continue for anygiven period of time or that they will not be changed. In the event the Company’s ratings are downgraded, the level of revenues or the persistency of the Company’s business may be adversely impacted.

During 2002, the Insurance Company's rating was lowered to "B+2 (Very Good)" from an "A-" (Excellent) by A.M. Best Company ("A.M. Best"). Publications of A.M. Best indicate that the "B+" rating is assigned to those companies that, in A.M. Best's opinion, haveachieved a very good overall performance when compared to the norms of the insurance industry and that generally have demonstrated a good ability to meet their respective policyholder and other contractual obligations over a long period of time.

In evaluating a company's statutory financial and operating performance, A.M. Best reviews the company's profitability, leverage and liquidity, as well as the company's book of business, the adequacy andsoundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its reserves and the experience and competency of its management.

A.M. Best's rating is based on factors which primarily are relevant to policyholders, agents and intermediaries and is not directed towards the protection of investors, nor is it intended to allow investorsto rely on such a rating in evaluating the financial condition of the Insurance Company. Moody's Investor Services ("Moody's") lowered the Insurance Company's insurance financial strength rating from Baa1 to Ba1 ("Questionable financial security"). Standard &Poor's Corporation ("Standard & Poor's") lowered the Insurance Company's insurance financial strength from A- to BB+ and is defined as "Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions".The credit rating of the Company's Senior Notes, due February 15, 2009 (the "Senior Notes"), was lowered to a B+ (More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial requirements) from a BBB- byStandard & Poor's and to a B1 ("Poor financial security") from Ba1 by Moody's.

**Policy Claims**

Claims are received and reviewed by claims examiners at the Company's home office. The initial review of claims includes verification that coverage is in force and that the claim is not subject to anexclusion under the policy. Birth and death certificates are basic requirements. Medical records and investigative reports are ordered for contestable claims.

**Reinsurance**

	The Company follows the usual industry practice of reinsuring ("ceding") portions of its life insurance and accident and health, including medical stop loss, risks with other companies, a practice whichpermits the Company to write policies in amounts larger than the risk it is willing to retain on any one life or group of lives, and also to continue writing a larger volume of new business. The Company also reinsures a portion of its life insurance business andaccident and health business in order to obtain commissions on the insurance ceded and thereby reduce its net commission expense. The maximum amount of individual life insurance normally retained by the Company on any one life is $50,000 per policy and $100,000 perlife. The maximum retention with respect to impaired risk policies typically is the same. The Company cedes insurance primarily on an "automatic" basis, under which risks are ceded to a reinsurer on specific blocks of business where the underlying risks meet certainpredetermined criteria, and on a "facultative" basis, under which the

 

11.

reinsurer's prior approval is required on each risk reinsured. The maximum retention of the group medical stop loss business varies, but typically the Company cedes eighty five percent on a quota sharebasis. In 2003, the Company learned that one of its independent stop loss underwriter issued certain stop loss policies in the Company¢ s name without authorization and without applicable reinsurance in place.

The Company believes that its exposure for claims under those policies will be approximately $1.5 million. The Company is pursuing collection of such amounts from the underwriter, based upon breach ofcontract and other claims.

	Reinsurance assumed consists entirely of the Company's participation in Servicemen's Group Life Insurance and a quota share agreement with Transamerica Occidental Life Insurance Company.

Use of reinsurance does not discharge a insurer from liability on the insurance ceded. An insurer is required to pay the full amount of its insurance obligations regardless of whether it is entitled or ableto receive payments from its reinsurer. No reinsurer of business ceded by the Company has failed to pay any policy claims with respect to such ceded business. At December 31, 2002, of the approximately $1,153 million of the Company's individual life insurance inforce, the Company had ceded to reinsurers approximately $707 million of such insurance in force. The principal reinsuring companies of individual life policies with whom the Company does business at December 31, 2002 (and their corresponding A.M. Best ratings) wereLife Reassurance Corporation of America ("A+ (Superior) ") and Swiss Re Life & Health America ("A+ (Superior)"). In 2002, one of the reinsurers for the Company¢ s stop loss medical insurance business, Folksham International, filedfor

bankruptcy protection. The Company anticipates that it will have approximately $260,000 in unpaid reinsurance claims against Folksham. It is not clear how much, if any of such amount, the Company willcollect in the bankruptcy proceeding.

**Competition**

The Company operates in a highly competitive environment. There are numerous insurance companies, banks, securities brokerage firms and other financial intermediaries marketing insurance products,annuities, and other investments that compete with the Company, many of which have substantially greater resources than the Company.

The Company believes that the principal competitive factors in the sale of annuity and life insurance products are product features, commission structure, perceived stability of the insurer, claims payingratings, name recognition, crediting rates, and service. Many other insurance and other companies are capable of competing for sales in the Company's target markets.

Management believes that the Company's ability to compete is dependent upon, among other things, its ability to retain and attract independent general agents to market its products, its ability to developcompetitive products that also are profitable and its ability to provide quality service. Management believes that the Company has good relationships with its agents, has an adequate variety of products approved for issuance and generally is competitive within theindustry.

**Investments and Investment Policy**

The Company derives a substantial portion of its total revenues from investment income. The Company manages most of its investments internally. All investments made on behalf of the Company are governed bythe general requirements and guidelines established and approved by the Company's investment committee (the "Investment Committee") and by qualitative and quantitative limits prescribed by applicable insurance laws and regulations. The Investment Committee meetsregularly to set and review investment policy and to approve current investment plans. The actions of the Investment Committee are subject to review and approval by the Board of Directors of the Insurance Company. The Company's investment policy must comply withNYSID regulations and the regulations of other applicable regulatory bodies.

 

12.

The Company's investment philosophy generally focuses on purchasing investment grade securities with the intention of holding such securities to maturity. The Company's investment philosophy is focused onthe intermediate to longer-term horizon and is not oriented towards trading. However, as market opportunities, liquidity or

regulatory considerations may dictate, securities may be sold prior to maturity. The Company has categorized all fixed maturity securities as available for sale and carries such investments at marketvalue.

The Company manages its investment portfolio to meet the diversification, yield and liquidity requirements of its insurance policy and annuity contract obligations. The Company's liquidity requirements aremonitored regularly so that cash flow needs are sufficiently satisfied. Adjustments periodically are made to the Company's investment policies to reflect changes in the Company's short-and long-term cash needs, as well as changing business and economicconditions.

As of December 31, 2002, approximately 7.8% of the Company's investment portfolio was invested in mortgage-backed related securities most of which are U.S. government and agency mortgage-backed securities,and other mortgage-backed obligations, most of which are collateralized mortgage obligations ("CMOs") backed by residential mortgages. Most of the Company's CMOs represent beneficial ownership interests in mortgage-backed securities of the Federal Home Loan MortgageCorporation ("FHLMC"), the Federal National Mortgage Association ("FNMA"), the Government National Mortgage Association ("GNMA"), the Resolution Trust Corporation ("RTC") or other asset backed securities. Mortgage-backed securities are subject to significantprepayment risk due to the fact that, in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled as borrowers refinance higher rate mortgages to take advantage of the lower current rates. As a result, holders of mortgage-backedsecurities may receive prepayments on their investments, which cannot be reinvested at an interest rate comparable to the rate on the prepaid mortgages. Notwithstanding the foregoing, because the Company historically has purchased CMOs in the secondary market atprices which typically are below their par or maturity value, the Company's portfolio has not been materially impacted as a result of such prepayments. The Company does not invest in interest only or principal only CMOs.

As of December 31, 2002, approximately 80.8% of the Company¢ s investment portfolio consisted of corporate public bonds. These bonds include investments in public utilities,special revenue and special assessment obligations, political subdivisions of states, territories and possessions and corporate industrial and miscellaneous bonds. As of December 31, 2002, approximately 1.1% of the Company's investment portfolio consisted of bondsacquired in private placements. While private placement bonds are not usually registered with the Securities and Exchange Commission (the "SEC" or "Commission"), management believes that these bonds are marketable to other institutional investors. Approximately 79.9%of the investments acquired by the Company in private placements have been assigned a National Association Insurance Commissioners ("NAIC") designation corresponding to one of the two highest quality rating categories. NAIC designations corresponding to the entireInvestment Portfolio can be found on page 18.

As of December 31, 2002, approximately 6.0% of the Company's investment portfolio consisted of interests in over fifty limited partnerships which are engaged in a variety of investment strategies,principally including merchant banking, real estate, debt restructurings and international opportunities. In general, risks associated with such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities andreal estate), plus a level of illiquidity, which is mitigated by the ability of the Company to take annual distributions of partnership earnings.

The limited partnerships that are involved in merchant banking activities generally seek to achieve significant rates of return (including capital gains) through a wide variety of investment strategies,including leveraged acquisitions, bridge financing and other private equity investments in existing businesses.

 

13.

The limited partnerships that are involved in real estate activities generally invest in real estate assets, real estate joint ventures and real estate operating companies. These partnerships seek toachieve significant rates of return by targeting investments that provide a strategic or competitive advantage and are priced at levels that the general partner believes to be attractive.

The limited partnerships that are involved in debt restructuring activities take positions in debt and equity securities, loans originated by banks and other liabilities of financially troubled companies.Investments in companies undergoing debt restructurings, which by their nature have a high degree of financial uncertainty, may be senior, unsecured or subordinated indebtedness and carry a high degree of risk of loss upon default by the borrower. The high level ofindebtedness characteristic of merchant banking and debt restructuring transactions makes such underlying investments particularly sensitive to interest rate increases, which could affect the ability of the borrower to generate sufficient cash flow to meet its fixedcharges.

The limited partnerships that are involved in international investments generally purchase sovereign debt, corporate debt and/or equity in governments or foreign companies that are developing a greaterworldwide presence. Such limited partnerships are operated by a general partner who has a demonstrated expertise in this area and the particular country involved. Such investments involve risks related to the particular country including political instability,currency fluctuations, and repatriation restrictions.

The Company has been investing in limited partnerships for over thirteen years. During this time, the Company has had an opportunity to consider and evaluate a substantial number of limited partnerships andtheir managers. The Company makes limited partnership investments based on a number of considerations, including the reputation, investment philosophy (particularly with respect to risk), performance history and investment strategy of the manager of the limitedpartnership. Managers of the limited partnerships in which the Company is invested include, among others, Blackstone Investment Management, Omega Institutional Partners, Goldman Sachs Partners, Trust Company of the West Asset Management, Clayton Dubilier & RicePartners, Apollo Real Estate and DLJ Real Estate Capital.

Limited partnership investments are selected through a careful, two-stage review process. The Investment Analyst staff reviews the offering documents and performance history of each investment manager.Separately, the Investment Committee (which is comprised of investment professionals who, collectively have more than 90 years experience in analyzing investments) interviews the manager to determine whether the investment philosophy (particularly with respect torisk) and strategies of the limited partnership are in the best interests of the Company. Only after both the Investment Analyst Staff and the Investment Committee make a positive recommendation does the Company invest in a limited partnership. In addition, theactions of the Investment Committee are subject to review and approval by the Board of Directors of the Company or the Insurance Company, as the case may be. To evaluate both the carrying value and the continuing appropriateness of the Company's investment in anylimited partnership, management maintains ongoing discussions with the investment manager and considers the limited partnership's operations, its current and near term projected financial condition, earnings capacity and distributions received by the Company duringthe year.

Pursuant to the terms of certain limited partnership agreements to which the Company is a party, the Company is committed to contribute, if called upon, an aggregate of approximately $122.4 million ofadditional capital to certain of these limited partnerships. $7.7 million in commitments will expire in 2003, $30.4 million in 2004, $28.1 million in 2005, $21.4 million in 2006 and $34.7 in 2007.

The book value of the Company's investments in limited partnerships as of December 31, 2002, 2001 and 2000 was approximately $254.7 million, $240.1 million and $259.7 million respectively. Net investmentincome derived from the Company's interests in limited partnership investments aggregated approximately $21.9 million, $40.3 million and $36.8 million in fiscal 2002, 2001 and 2000, respectively.

14.

 

 

Management anticipates that in the future it will continue to make selective investments in limited partnerships as opportunities arise, subject to the approval of the Chief Investment Officer and theInvestment Committee and the review and approval by the Board of Directors of the Company or the Insurance Company, as the case may be. There can be no assurance that the Company will continue to achieve the same level of returns on its investments in limitedpartnerships that it has received during the foregoing periods or that it will achieve any returns on such investments at all. In addition, there can be no assurance that the Company will receive a return of all or any portion of its current or future capitalinvestments in limited partnerships. The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of returns on such investments, could have a material adverse effect on theCompany's financial condition and results of operations.

As of December 31, 2002 the Company's investment portfolio also consisted of approximately .09% invested in convertible debt securities, approximately 4.3% invested in preferred stock, approximately 0.2%invested in mortgage loans, and approximately 0.4% invested in common stock. The Company's mortgage loan is collateralized by retail properties located in Pennsylvania. The Company's only direct real estate investments are two buildings that are used as the currenthome office of the Insurance Company and two acres of undeveloped land in Nyack, New York.

In order to enhance investment income, the Company participates in "dollar roll" repurchase agreement transactions. Such transactions involve the sale of a mortgage-backed security to a holding institutionand a simultaneous agreement to purchase a substantially similar security (with the same coupon rate as the security sold) for forward settlement (typically, around 60 days) at a lower dollar price.

The proceeds are invested in short-term investment grade commercial paper or loan participations at a positive spread until the settlement date of the similar security. In connection with its "dollar roll"transactions, the Company does not engage in yield maintenance transactions. The purchase and maturity dates of all short-term investments are matched exactly to the sale and purchase dates of the underlying collateral, with a 90-day maximum for any one transaction.During this period, the holding institution receives all income and prepayments for the security. To reduce the risk that a party will default on its obligations under the repurchase agreement, the Company only enters into "dollar roll" transactions with majorsecurities dealers such as Morgan Stanley Dean Witter & Co. Incorporated, Bank of America, Merrill Lynch & Co., Salomon Smith Barney Inc., Bear, Stearns & Co. Inc., CS First Boston and Sandler, O'Neill L.P. Additionally, if the counterparty to the "dollarroll" agreement defaults under the terms of such agreement, the Company is not obligated to repurchase the underlying securities to the transaction. Under GAAP, during the period between the sale by the Company of a mortgage-backed security to the institution partyto the "dollar roll" transaction and the Company's repurchase of a substantially similar mortgage-backed security from the holding institution, the Company's consolidated balance sheet will reflect both the mortgage-backed security sold to the holding institution andthe cash received for such security as assets, and the Company's repurchase obligation as a liability. In fiscal 2002 and 2001, dollar roll transactions generated approximately $1.6 million and $1.7 million, respectively, of net investment income for the Company.Amounts outstanding to repurchase securities under dollar roll repurchase agreements were approximately $262.5 million and $260.6 million as of December 31, 2002 and December 31, 2001, respectively.

 

 

 

 

 

 

15.

 

 

The following table summarizes the Company's investment portfolio at

December 31, 2002.

| **Investment Portfolio**                   |
|--------------------------------------------|
|                                       |   |   |
|                                       |   | Total Carrying Value<F1> |
|                                       |   | (dollars in thousands) |
| Fixed Maturities                           |   |   |
| Bonds and Notes:                           |  |  |
| U.S. Government, government agencies       |   |   |
| and authorities<F2>                  |   | $ 574,175 |
| Investment grade corporate<F3>       |   | 1,932,856 |
| Public utilities                           |   | 402,897 |
| Below investment grade corporate<F3> |   | 223,832 |
| Mortgage backed                            |   | 328,324 |
| Preferred stocks                           |   | 180,498 |
|                                       |   |  |
| Total Fixed Maturities<F4>           |   | 3,642,582 |
|                                       |   |   |
| Equity Securities                          |   |   |
| Common stock                               |   | 16,886 |
|                                       |   |   |
| Other Investments:                         |   |   |
| Policy loans                               |   | 17,633 |
| Real Estate                                |   | 415 |
| Mortgage loans                             |   | 9,289 |
| Other long-term investments<F5>      |   | 254,659 |
| Cash and short-term investments<F6>  |   | 301,923 |
|                                            |  |  |
| Total cash and investments                 |   | 4,243,387 |
|                                       |   |   |

 

_______________________________________________________________________________

 

<F1>	All fixed maturity and equity securities are classified as available for sale; accordingly total carrying value equals estimated market value. Independent pricing services provide market pricesfor most publicly traded securities. Where prices are unavailable from pricing services, prices are obtained from securities dealers. For other long-term investments, estimated market value either approximates estimated carrying value or was not readilyascertainable. See "Note 1(c) to the Notes to the Consolidated Financial Statements for an explanation of the methodology used to value"Other Investments.""

<F2>	Approximately $283.9 million of such securities represent beneficial ownership interests in mortgage-backed securities of FDIC, FHLMC, FNMA, GNMA or the RTC.

<F3>	Ratings are based primarily upon those assigned by the NAIC.

<F4>	Includes approximately $6.9 million of convertible debt securities and convertible preferred stock.

<F5>	Consist principally of investments in limited partnerships, which are accounted for under the equity method.

<F6>	Includes approximately $262.5 million attributable to"dollar roll"repurchase agreements.

 

 

 

 

 

 

 

 

 

16.

 

The following table summarizes the Company's investment results for the periods indicated, as determined in accordance with GAAP.

| **INVESTMENT RESULTS**          |
|---------------------------------|
|                            |
|                            |   | Year Ended December 31, |
|                            |   | 2002 |   | 2001 |   | 2000 |   | 1999 |   | 1998 |
| (Dollars in thousands)          |
| Cash and total invested         |   |   |   |   |   |   |   |   |   |   |
| Assets<F1>                |   | $ 3,889,681 |   | $3,187,299 |   | $ 2,669,458 |   | $ 2,506,250 |   | $2,485,714 |
| Net investment income<F2> |   | $ 267,561 |   | $ 234,125  |   | $ 225,224 |   | $ 208,126 |   | $ 187,155 |
| Effective yield<F3>       |  | 7.56% |  | 8.19%  |  | 9.21% |  | 9.06% |  | 8.14% |
| Net realized investment         |  |  |  |  |  |  |  |  |  |  |
| Gains (Losses)<F4>        |   | $ (146,743) |   | $(65,132) |   | $ (8,449) |   | $ 2,775 |   | $ 17,185 |
|                                 |   |   |   |   |   |   |   |   |   |   |
|                            |   |   |   |   |   |   |   |   |   |   |

<F1>	Average of cash and aggregate invested amounts at the beginning and end of period.

<F2>	Net investment income is net of investment expenses and excludes capital gains and losses and provision for income taxes.

<F3>	Net investment income divided by average cash and total invested assets minus net investment income.

<F4>	Net realized investment gains (losses) include provisions for impairment in value that are considered other than temporary and exclude provisions for income taxes.

 

The following table sets forth the composition of the Company's bond and notes portfolio by rating as of December 31, 2002.

| **Bond Portfolio Ratings**        |
|-----------------------------------|
|                              |   |   |   | Percent |
|                              |   |   |   | of Total |
|                              |   | Estimated |   | Estimated |
|                              |   | Market |   | Market |
| Rating<F1>                  |   | Value<F2> |   | Value<F2> |
|                              |   | (Dollars in thousands) |   |   |
|                              |   |   |   |   |
| Aaa.........................      |   | $ 849,742 |   | 24.5% |
| Aa .........................      |   | 171,210 |   | 4.9 |
| A .........................       |   | 932,683 |   | 27.0 |
| Baa.........................      |   | 1,237,190 |   | 35.7 |
| Total investment grade<F3>. |   | 3,190,825 |   | 92.1 |
| Ba .........................      |   | 175,644 |   | 5.1 |
| B .........................       |   | 61,318 |   | 1.8 |
| C .........................       |   | 34,297 |   | 1.0 |
| Total non-investment grade.       |  | 271,259 |  | 7.9 |
| Total......................       |   | $3,462,084 |   | 100.0% |
|                                   |  |  |  |  |

----

<F1>	Ratings are those assigned primarily by Moody's when available, with remaining ratings as assigned by Standard & Poor's and converted to a generally comparable Moody's rating. Bonds not ratedby any such organization (e.g., private placement securities) are included based on the rating prescribed by the Securities Valuation Office of the NAIC. NAIC class 1 is considered equivalent to an A or higher rating; class 2, Baa; class 3, Ba; and classes 4-6, B andbelow. All securities are classified as available for sale; accordingly total carrying value equals estimated market value.

<F2>	Independent pricing services provide market prices for most publicly traded securities. Where prices are unavailable from pricing services, prices are obtained from securities dealers.

F3>	Approximately 8.9% of which consist of U.S. government and agency bonds.

 

 

 

 

 

 

17.

 

According to Moody's, bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. Moody's applies numerical modifiers "1", "2" and "3"in each generic rating classification from Aa to B. Modifier "1" indicates a bond in the higher end of a generic rating classification.

The NAIC assigns securities quality ratings and uniform prices called "NAIC Designations, " which are used by insurers when preparing their statutory annual statements. The NAIC assigns designations topublicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with a designation in class 1 being of the highest quality. NAIC ratings are assigned annually as of December 31, and rerated periodically. Ofthe bonds and notes in the Company's investment portfolio, approximately 90.6% were in one of the highest two NAIC Designations at December 31, 2002. The following table sets forth the carrying value and estimated market value of these securities according to NAICDesignations at December 31, 2002.

|                         |   |                   |   | Percent         |
|------------------------------|--------|------------------------|--------|-----------------|
|                         |   |                   |   | of Total        |
| NAIC Designations            |        | Estimated              |        | Estimated       |
| (generally comparable to     |   | Market                 |   | Market          |
| Moody's ratings)<F1>   |   | Value <F2>       |   | Value<F2> |
|                         |   | (Dollars in thousands) |   |            |
|                         |   |                   |   |            |
| 1 (Aaa, Aa, A) ............. |        | $1,731,561             |        | 50.1%           |
| 2 (Baa) .................... |        | 1,402,481              |        | 40.5            |
| 3 (Ba) ..................... |   | 211,058                |   | 6.1             |
| 4 (B) ...................... |   | 59,980                 |   | 1.7             |
| 5 (Caa, Ca) ................ |   | 49,279                 |   | 1.4             |
| 6 (C) ...................... |   | 7,725                  |   | .2              |
|                         |   | $3,462,084             |   | 100.0%          |
|                         |   |                   |   |            |

----

<F1>	Comparison between NAIC Designations and Moody's rating is as published by the NAIC. NAIC class 1 is considered equivalent to an A or higher rating by Moody's; class 2, Baa; class 3, Ba; class 4,B; class 5, Caa and Ca; and class 6, C. All securities are classified as available for sale; accordingly total carrying value equals estimated market value.

<F2>	Independent pricing services provide market prices for most publicly-traded securities. Where prices are unavailable from pricing services, prices are obtained from securities dealers.

 

The Insurance Company is subject to Regulation 130 adopted and promulgated by the NYSID. Under this Regulation, the Insurance Company's ownership of below investment grade debt securities is limited to 20%of total admitted assets, as calculated under statutory accounting. As of December 31, 2002, approximately 7.9% of the Insurance Company's total admitted assets were invested in below investment grade debt securities. In addition, as of that date, there were sevenbond holdings in the Insurance Company's investment portfolio, which were in default with an estimated market value totaling $7.3 million. For a detailed discussion concerning below investment grade debt securities, including the risks inherent in such investments,see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." Also see "Note 2 to the Notes to Consolidated Financial Statements" for certain other information concerning the Company's investmentportfolio.

 

 

 

 

 

 

 

 

18.

The following table sets forth the scheduled maturities for the Company's investments in bonds and notes as of December 31, 2002.

| **Scheduled Maturities**              |
|---------------------------------------|
|                                  |   |   |   | Percent |
|                                  |   |   |   | of Total |
|                                       |  | Estimated |  | Estimated |
|                                  |   | Market |   | Market |
| Maturity<F1>                    |   | Value<F2> |   | Value<F2> |
|                                  |   | (Dollars in thousands) |   |   |
| Due in one year or less               |   | $ 14,885 |   | .4% |
| Due after one year through five years |   | 66,337 |   | 1.9 |
| Due after five years through 10 years |   | 482,091 |   | 13.9 |
| Due after 10 years through 20 years   |   | 2,570,447 |   | 74.3 |
| Total                                 |   | 3,133,760 |   | 90.5 |
| Mortgage-backed bonds                 |   | 328,324 |   | 9.5 |
| Total bonds and notes                 |   | $3,462,084 |   | 100.0% |

________________________________________________________________________________

<F1>	This table is based upon stated maturity dates and does not reflect the effect of prepayments, which would shorten the average life of these securities. All securities areclassified as available for sale; accordingly total carrying value equals estimated market value.

<F2>	Independent pricing services provide market prices for most publicly traded securities. Where prices are unavailable from pricing services, prices are obtained from securities dealers.

 

**Insurance Regulation**

**General Regulation**

**As an insurance holding company, the Company is subject to regulation by the State of New York, where the Insurance Company is domiciled, as well as all states in which the Insurance Company transacts business. Most states have enactedlegislation that requires each insurance company in a holding company system to register with the insurance regulatory authority of its state of domicile and furnish to it financial and other information concerning the operations of companies within the holdingcompany system that may materially affect the operations, management or financial condition of the insurers within the system. The Company has registered as a holding company system in New York.**

**The laws and regulations of New York applicable to insurance holding companies require, among other things, that all transactions within a holding company system be fair and equitable and that charges for services be reasonable. In addition,many transactions require either prior notification to or approval of the Superintendent of Insurance of the State of New York (the "Superintendent"). Prior written approval of the Superintendent is required for the direct or indirect acquisition of 10% or more ofthe insurance companies' voting securities. Applicable state insurance laws, rather than federal bankruptcy laws, also apply to the liquidation or reorganization of insurance companies.**

**The Insurance Company is subject to regulation and supervision by the insurance regulatory agencies of the states in which it is authorized to transact business. State insurance laws establish supervisory agencies with broad administrative andsupervisory powers. Principal among these powers are granting and revoking licenses to transact business, regulating marketing and other trade practices, operating guaranty associations, licensing agents, approving policy forms, regulating certain premium rates,regulating insurance holding company systems, establishing reserve requirements, prescribing the form and content of required financial statements and reports, performing financial, market conduct and other examinations, determining the reasonableness and adequacy ofstatutory capital and surplus, defining acceptable accounting principles, regulating the type, valuation and amount of investments permitted, and limiting the amount of dividends that can be paid and the size of transactions that can be consummated without firstobtaining regulatory approval.**

 

 

 

 

 

 

 

19.

 

During the last decade, the insurance regulatory framework has been placed under increased scrutiny by various states, the federal government and the NAIC. Various states have considered or enactedlegislation that changes, and in many cases increases, the states' authority to regulate insurance companies. Legislation was passed in Congress that could result in the federal government assuming some role in the regulation of insurance companies and allowingcombinations between insurance companies, banks and other entities. In recent years, the NAIC has approved and recommended to the states for adoption and implementation several regulatory initiatives designed to reduce the risk of insurance company insolvencies andmarket conduct violations. These initiatives include investment reserve requirements, risk-based capital standards, codification of insurance accounting principles, new investment standards and restrictions on an insurance company's ability to pay dividends to itsstockholders.

The Insurance Company is required to file detailed periodic reports and financial statements with the state insurance regulators in each of the states in which it does business. In addition, insuranceregulators periodically examine the Insurance Company's financial condition, adherence to statutory accounting practices and compliance with insurance department rules and regulations. As part of their routine regulatory oversight process, the NYSID generallyconducts detailed examinations every three years of the books, records and accounts of the Insurance Company. The Insurance Company's last examination occurred during 2002 for the

four-year period ended December 31, 2000. The final report was issued on January 11, 2002 and it did not contain any significant issues or adjustments.

**Regulation of Dividends and Other Payments from the Insurance Company**

The Company is a legal entity separate and distinct from its subsidiaries. As a holding company with no other business operations, its primary sources of cash needed to meet its obligations, includingprincipal and interest payments on its outstanding indebtedness and to pay dividends on its common stock, are rent from its real estate, interest on its investments and dividends from the Insurance Company.

The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances that it may make to the Company without obtaining prior regulatoryapproval. Under the New York Insurance Law, the Insurance Company is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Company as long as the aggregate amount of all such dividends in any calendar year does not exceed thelesser of (i) 10% of its surplus as of the immediately preceding calendar year and (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains). The Insurance Company will be permitted to pay a stockholder dividendto the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York InsuranceLaw, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The NYSID has established informal guidelines for such determinations. Theguidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. Management of the Company cannot provide assurance that the Insurance Company will have statutory earnings to support payment ofdividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendent's consideration. The Company's otherinsurance subsidiary is also subject to restrictions on the payment of dividends to its parent company. To preserve capital, the Insurance Company paid no dividends in fiscal 2002 and in 2001 and 2000, the Insurance Company paid dividends of $27.7 million and $49.6million, respectively, to the Company.

 

 

 

 

 

 

 

20.

 

The dividend limitation is based on statutory financial results. Statutory accounting practices differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP. Thesignificant differences relate to deferred policy acquisition costs, deferred income taxes, required investment reserves and reserve calculation assumptions.

**Investment Reserve**

**Asset Valuation Reserve.** Statutory accounting practices require a life insurance company to maintain an Asset Valuation Reserve ("AVR") to absorb realized and unrealized capital gains and losses on aportion of an insurer's fixed income securities and equity securities.

The AVR is required to stabilize statutory surplus from fluctuations in the market value of bonds, stocks, mortgage loans, real estate and other invested assets. The maximum AVR is calculated based on theapplication of various factors that are applied to the assets in an insurer's portfolio. The AVR generally captures credit-related realized and unrealized capital gains or losses on such assets. Each year the amount of an insurer's AVR will fluctuate as theinvestment portfolio changes and capital gains or losses are absorbed by the reserve. To adjust for such changes over time, contributions must be made to the AVR in an aggregate annual amount equal to 20% of the difference between the maximum AVR as calculated andthe actual AVR. These

contributions may result in a slower rate of growth in or a reduction of the Insurance Company's Unassigned Surplus. The extent of the impact of the AVR on the Insurance Company's surplus depends in part onthe future composition of the Insurance Company's investment portfolio.

**Interest Maintenance Reserve.** The Interest Maintenance Reserve (the "IMR") captures capital gains and losses (net of taxes) on fixed income investments (primarily bonds and mortgage loans) resultingfrom interest rate changes, which are amortized into net income over the estimated remaining periods to maturity of the investments sold. The extent of the impact of the IMR depends on the amount of future capital gains and losses on fixed maturity investmentsresulting from interest rate changes.

**NAIC-IRIS Ratios**

The NAIC's Insurance Regulatory Information System ("IRIS") was developed by a committee of state insurance regulators and primarily is intended to assist state insurance departments in executing theirstatutory mandates to oversee the financial condition of insurance companies operating in their respective states. IRIS identifies 12 industry ratios and specifies "normal ranges" for each ratio. The IRIS ratios were designed to advise state insurance regulators ofsignificant changes in the operations of an insurance company, such as changes in its product mix, large reinsurance transactions, increases or decreases in premiums received and certain other changes in operations. These changes need not result from any problemswith an insurance company but merely indicate changes in certain ratios outside ranges defined as normal by the NAIC. When an insurance company has four or more ratios falling outside "normal ranges," such state regulators may, but are not obligated to, inquire ofthe company regarding the nature of the company's business to determine the reasons for the ratios being outside the "normal range." No regulatory significance results from being out of the normal range on fewer than four of the ratios. The Company anticipates thatit may from time to time fall outside the "normal range" on some of these ratios. For the year ended December 31, 2002, three ratios fell outside the normal range. These ratios consisted of 1) Net Change in Capital and Surplus, 2) Gross Change in Capital and Surplusand 3) Net Income to Total Income. The first two ratios decreased 18% and the third decreased 9%. These declines are attributable to other than temporary impairments the Insurance Company recognized in the financial statements at December 31, 2002. If four or more ofthe Company's ratios fall outside the "normal range," the Company is likely to experience regulatory inquiry and a higher level of scrutiny.

 

 

 

 

 

21.

 

 

 

**Risk-Based Capital**

Under the NAIC's risk-based capital formula, insurance companies must calculate and report information under a risk-based capital formula. The standards require the computation of a risk-based capitalamount, which then is compared to a company's actual total adjusted capital. The computation involves applying factors to various financial data to address four primary risks: asset default, adverse insurance experience, disintermediation and external events. Thisinformation is intended to permit insurance regulators to identify and require remedial action for inadequately capitalized insurance companies, but is not designed to rank adequately capitalized companies. The NAIC formula provides for four levels of potentialinvolvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for the Insurance Company to submit a plan to improve its capital (Company Action Level) to regulatory control of the insurance company (Mandatory ControlLevel). At December 31, 2002, the Insurance Company’s Company Action Level was $132.1 million and the Mandatory Control Level was $46.2 million. The Insurance Company’s adjusted capital at December 31, 2002 was $241.4 million which exceeds all four actionlevels.

**Assessments Against Insurers**

Most applicable jurisdictions require insurance companies to participate in guaranty funds, which are designed to indemnify policyholders of insolvent insurance companies. Insurers authorized to transactbusiness in these jurisdictions generally are subject to assessments based on annual direct premiums written in that jurisdiction. These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's solvency and, in certaininstances, may be offset against future state premium taxes. The amount of these assessments in prior years has not been material, however, the amount and timing of any future assessment on the Insurance Company under these laws cannot be reasonably estimated and arebeyond the control of the Company and the Insurance Company. Recent failures of substantially larger insurance companies could result in future assessments in material amounts.

**Regulation at Federal Level**

Although the federal government generally does not directly regulate the insurance business, federal initiatives often have an impact on the business in a variety of ways. Current and proposed federalmeasures that may significantly affect the insurance business include limitations on antitrust immunity, minimum solvency requirements and the removal of barriers restricting banks from engaging in the insurance and mutual fund business. It is not possible to predictthe outcome of any such congressional activity nor the potential effects thereof on the Company.

**Affiliates**

In addition to the Insurance Company, the Company has three subsidiaries, Presidential Securities Corporation, P.L. Assigned Services Corporation and Presidential Asset Management Company, Inc. In theaggregate, these three subsidiaries are not material to the Company's consolidated financial condition or results of operations.

 

On December 29, 2000, the Company announced the completion of the purchase of The Central National Life Insurance Company of Omaha ("Central National") from the Household Insurance Group Holding Company, asubsidiary of Household International, Inc. Central National which has assets of $15.2 million and capital and surplus of $14.9 million as of December 31, 2002, is licensed to market insurance products in 49 states, the District of Columbia, Puerto Rico and the U.S.Virgin Islands. In June 2002, the ownership of Central National was changed to the Insurance Company and treated as a capital contribution.

 

 

 

 

 

22.

 

 

 

**Item 2. Properties**

**The Company owns, and the Insurance Company is the sole occupant of, two adjacent office buildings located at 69 Lydecker Street and 10 North Broadway in Nyack, New York. These buildings contain an aggregate of approximately 45,000 square feetof useable floor space.**

**The Insurance Company also owns two acres of unimproved land in Nyack, New York.**

**Management believes that the Company's present facilities are adequate for its anticipated needs.**

**Item 3. Legal Proceedings**

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of March 28, 2003, the Company is not a party to any legal proceedings, the adverse outcome of which, inmanagement's opinion, individually or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations.

**Item 4. Submission of Matters to a Vote of Security Holders**

No matters were submitted by the Company to its shareholders for vote during the fiscal quarter ended December 31, 2002.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23.

 

 

**PART II**

**Item 5. Market for the Registrant's Common Equity and Related****Shareholder Matters**

The Company's common stock trades on The NASDAQ Stock MarketSM under the symbol "PLFE." The following table sets forth, for the indicated periods, the high and low bid quotations for the common stock as of the close ofbusiness each day, as reported by the National Association of Securities Dealers, Inc., and the per share cash dividends declared on the common stock.

|                     |   |     |   |     |   | **Cash Dividends**     |
|--------------------------|--------|----------|--------|----------|--------|------------------------|
|                     |   | **High** |   | **Low**  |   | **Declared Per Share** |
|                     |   |     |   |     |   |                   |
| **Fiscal 2001**          |   |     |   |     |   |                   |
| First Quarter            |   | $ 17.594 |   | $ 14.938 |   | $.10                   |
| Second Quarter           |   | 22.400   |   | 15.000   |   | .10                    |
| Third Quarter            |        | 21.310   |        | 16.990   |        | .10                    |
| Fourth Quarter           |   | 21.060   |   | 17.100   |   | .10                    |
|                     |   |     |   |     |   |                   |
| **Fiscal 2002**          |   |     |   |     |   |                   |
| First Quarter            |   | $ 23.01  |   | $ 19.40  |   | .10                    |
| Second Quarter           |   | 26.20    |   | 19.85    |   | .10                    |
| Third Quarter            |   | 20.70    |   | 14.25    |   | .10                    |
| Fourth Quarter           |   | 14.99    |   | 6.98     |   | .10                    |
|                     |   |     |   |     |   |                   |
| **Fiscal 2003**          |   |     |   |     |   |                        |
| First Quarter            |   | $ 10.32  |   | $ 6.18   |   | .10                    |
| (through March 28, 2003) |

 

 

The Company regularly has paid semi-annual cash dividends since 1980 and since the first quarter of 1997 has paid quarterly cash dividends. During the first quarter of 2003, the Company declared a quarterly cash dividend of $.10 pershare payable April 1, 2003. The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements, financial condition, and dividendsfrom the Insurance Company. Any determination to pay dividends would be at the discretion of the Company's Board of Directors and is subject to regulatory and contractual restrictions as described in "Part I -- Business -- Insurance Regulation" and Part II --Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." On March 28, 2003 there were approximately 718 holders of record of the Company's common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24.

** **

** **

**Item 6. Selected Financial Data**

Selected consolidated financial data for the Company are presented below for each of the five years in the period ended December 31, 2002. This data should be read in conjunction with the Company's Consolidated Financial Statementsand notes thereto and Item 7, Management's Discussion and Analysis of Results of Operations and Financial Condition.

| **Income Statement Data:**            |
|---------------------------------------|
|                                       |
|                                  |   | Year Ended December 31, |
|                                  |   | 2002 |   | 2001 |   | 2000 |   | 1999 |   | 1998 |
| (in thousands, except per share data) |
|                                       |  |  |  |  |  |  |  |  |  |  |
| Total Revenue                         |   | $ 204,740 |   | $ 284,408 |   | $ 284,458 |   | $ 278,060 |   | $ 242,206 |
|                                       |  |  |  |  |  |  |  |  |  |  |
| Benefits                              |   | 276,769 |   | 267,350 |   | 197,765 |   | 181,126 |   | 146,410 |
| Interest Expense                      |   |   |   |   |   |   |   |   |   |   |
| On Notes payable                      |   | 10,633 |   | 8,836 |   | 9,773 |   | 8,960 |   | 7,124 |
| Selling, General and                  |   |   |   |   |   |   |   |   |   |   |
| Administrative Expenses               |   | 16,579 |   | 26,823 |   | 18,931 |   | 18,482 |   | 16,927 |
| Total Benefits and                    |   |   |   |   |   |   |   |   |   |   |
| Expenses                              |   | 303,981 |   | 303,009 |   | 226,469 |   | 208,568 |   | 170,461 |
|                                  |   |   |   |   |   |   |   |   |   |   |
| Provision (benefit) for               |  |  |  |  |  |  |  |  |  |  |
| Income Taxes                          |   | (29,972) |   | (10,896) |   | 17,127 |   | 21,261 |   | 22,521 |
|                                  |   |   |   |   |   |   |   |   |   |   |
| Net Income                            |   | (69,269) |   | $ (7,705) |   | $ 40,862 |   | $ 47,717<F1> |   | $ 49,224 |
| Income Per Share                      |   | $ (2.36) |   | $ (.26) |   | $ 1.36 |   | $ 1.53<F1> |   | $ 1.53 |
| Dividends Per Share                   |   | $ .40 |   | $ .40 |   | $ .39 |   | $ .345 |   | $ .285 |

 

<F1> Includes extraordinary loss of $514 thousand or $.02 per share.

| **Balance Sheet Data:** |
|-------------------------|
|                         |
|                    |   | At December 31, |
|                    |   | 2002 | 2001 | 2000 |   | 1999 |   | 1998 |
| (in thousands)          |
|                    |   |   |   |   |   |   |   |   |   |   |
| Assets                  |   | $ 4,472,184 |   | $ 3,790,431 |   | $ 2,982,425 |   | $ 2,653,665 |   | $ 2,606,799 |
| Total Capitalization    |   |   |   |   |   |   |   |   |   |   |
| Notes Payable           |   | 150,000 |   | $ 150,000 |   | $ 100,000 |   | $ 100,000 |   | $ 50,000 |
| Shareholders' Equity    |   | 398,691 |   | 427,094 |   | 465,527 |   | 406,468 |   | 523,244 |
|                    |   |   |   |   |   |   |   |   |   |   |
| Total                   |   | 548,691 |   | $ 577,094 |   | $ 565,527 |   | $ 506,468 |   | $ 573,244 |

 

 

 

 

 

 

 

 

 

 

 

 

 

25.

 

** **

** **

Item 7. Management's Discussion and Analysis of Financial Condition and Results

of Operations

**General**

The Company has one reportable operating segment with two primary lines of business; individual annuities and individual life insurance. Operating segments are defined as components of an enterprise about which separate financialinformation is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Premiums shown on the Company's consolidated financial statements in accordance with GAAP consist ofpremiums received for whole or term life insurance products, as well as that portion of the Company's single premium immediate annuities, which have life contingencies. With respect to that portion of single premium annuity contracts without life contingencies, aswell as single premium deferred annuities and universal life insurance products, premiums collected by the Company are not reported as premium revenues, but rather are reported as additions to policyholders' account balances. With respect to products that areaccounted for as policyholders' account balances, revenues are recognized over time in the form of policy fee income, surrender charges and mortality and other charges deducted from the policyholders' account balances. The Company's operating earnings are derivedprimarily from these revenues, plus the Company's investment results, including realized gains (losses), less interest credited, benefits to policyholders and expenses.

Certain costs related to the sale of new business are deferred as "deferred policy acquisition costs" ("DAC") and amortized into expenses in proportion to the recognition of earned revenues. Costs deferred include principallycommissions, certain expenses of the policy issue and underwriting departments and certain variable sales expenses. Under certain circumstances, DAC will be expensed earlier than originally estimated, including those circumstances where the policy terminations arehigher than originally estimated with respect to certain annuity products. Most of the Company's annuity products have surrender charges that are designed to discourage and mitigate the effect of early terminations.

The Insurance Company is rated "B+ (Very Good)" by A.M. Best as of December 31, 2002.

**Results of Operations**

Comparison of Fiscal Year 2002 to Fiscal Year 2001 and Fiscal Year 2001 to Fiscal Year 2000.

**Revenues**

Annuity Considerations and Life Insurance Premiums

Total annuity considerations and life insurance premiums decreased to approximately $81.0 million in fiscal 2002 from approximately $111.5 million in fiscal 2001, a decrease of approximately 27.4%. This decrease is attributable to adecrease in sales of the Insurance Company¢ s Single Premium immediate annuities with life contingencies. Annuity considerations decreased to approximately $69.4 million in fiscal 2002 from approximately $97.4 million in fiscal 2001, adecrease of approximately $28.0 million. In accordance with GAAP, sales of single premium deferred annuities are not reported as annuity considerations, but rather as additions to policyholder account balances. Based on statutory accounting, revenue from sales ofsingle premium annuities were approximately $815.8 million, $700.1 million and $350.4 million in fiscal 2002, 2001 and 2000, respectively. Management believes that the increase in annuity considerations is due to the successful expansion of our Marketing Department.Beginning in 1996, the Company added regional sales directors in various states. These regional sales directors have added new general agents, which have generated sales.

 

 

 

26.

 

 

 

Total annuity considerations and life insurance premiums increased to approximately $111.5 million in fiscal 2001 from approximately $62.6 million in fiscal 2000, an increase of approximately 78.1%.Management believes that the increase in annuity considerations is due to the successful expansion of our Marketing Department. Beginning in 1996, the Company added regional sales directors in various states. These regional sales directors have added new generalagents, which have generated sales.

Of this amount, annuity considerations increased to approximately $97.4 million in fiscal 2001 from approximately $55.2 million in fiscal 2000, an increase of approximately $42.2 million.

**Policy Fee Income**

Universal life and investment type policy fee income was approximately $.7 million in fiscal 2002, as compared to approximately $.8 million in fiscal 2001 and approximately $.7 million in fiscal 2000. Thedecrease in 2002 is attributed to a reduced number of life policies surrendered during 2002 that were within the surrender charge period. Policy fee income consists principally of amounts assessed during the period against policyholders' account balances formortality charges and surrender charges.

**Net Investment Income**

Net investment income totaled approximately $267.6 million in fiscal 2002, as compared to approximately $234.1 million in fiscal 2001 and approximately $225.2 million in fiscal 2000. This representsapproximately a 14.3% increase comparing fiscal 2002 to fiscal 2001 and approximately 4.0% increase comparing fiscal 2001 to fiscal 2000. The increases are attributable principally to an increase in fixed maturities as a result of our increase in sales. Investmentincome from "other invested assets" totaled approximately $21.9 million in fiscal 2002, $40.3 million in fiscal 2001 and $36.8 million in fiscal 2000. In fiscal 2002, 2001 and 2000, the Insurance Company participated in "dollar roll" transactions (i.e., the sale of amortgage-backed security and a simultaneous agreement to purchase a similar security at a later date at a lower price) to enhance investment income. The proceeds from the sale are invested in short-term securities at a positive spread until the settlement date of thesimilar security. During this period, the holding institution receives all income and prepayments for the security. During 2002, the Company recorded approximately $1.6 million of additional investment income on these transactions. The Company's ratio of netinvestment income to average cash and invested assets less net investment income for the years ended December 31, 2002, 2001 and 2000 was approximately 7.56%, 8.19% and 9.21%, respectively. For additional information, please refer to "Note 2 of the Notes toConsolidated Financial Statements."

**Net Realized Investment Gains and Losses**

Realized investment losses amounted to approximately $146.7 million in fiscal 2002, as compared to approximately $65.1 million of losses in fiscal 2001 and losses of approximately $8.5 million in fiscal2000. Realized investment losses for years ended December 31, 2002, 2001 and 2000 include realized investment losses of approximately $147.3 million, $50.7 million and $22.8 million, respectively, attributable to writedowns of certain securities contained in theCompany's investment portfolio. Investment securities with unrealized losses are placed on an internal watch list and are carefully evaluated to determine whether such losses are other than temporary. Evaluations of watch list securities are monitored on an ongoingbasis. Various criteria are utilized in the evaluation of the financial performance of the issuer, including capital structure, debt maturities, earnings trends, asset quality, Industry trends, regional and economic trends and specific events including: a) companyspecific event, such as missed interest payments, accounting issues, gain or loss of major revenue generating contract(s), significant change in availability and cost of raw material or labor; and, b) specific market- driven events such asdramatic changes in interest rates or geo-political events. The result of this analysis is then evaluated in the context of the Company’s intent to hold to maturity barring any significant adverse change in credit conditions, as well as the Company’s needfor liquidity. When issuers are determined to be other than temporary, the Company adjusts the book value to reflect the net realizable value or fair value, as appropriate, on a quarterly basis. Realized investment gains (losses) also result from sales of certainequities and convertible securities, and calls and sales of fixed maturity investments in the Company's investment portfolio.

27.

The following table presents the amortized cost and gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by less than 20%, or 20% ormore for December 31, 2002:

|                                               | Amortized Cost |   | Gross Unrealized Losses |   | Gross Unrealized Losses Net of Principal Protected Notes |
|----------------------------------------------------|----------------|--------|-------------------------|--------|----------------------------------------------------------|
|                                               | Less than 20%  |   | 20% or

More            |   | Less than 20%                                            |   | 20% or

More |   | Less than 20% |   | 20% or

More |
|                                               |           |   |                    |   | (in thousands)                                           |   |   |   |   |
| Less than six months                               | 326,172        |   | 114,361                 |   | 13,105                                                   |   | 33,499 |   | 13,105 |   | 33,499 |
| Six months or greater but less than nine months    | 29,072         |   | 48,966                  |   | 618                                                      |   | 17,301 |   | 618 |   | 11,665 |
| Nine months or greater but less than twelve months |  

68,122 |   |  

24,159          |   |  

6,947                                            |   |  

6,787 |   |  

6,947 |   |  

2,616 |
| Twelve months or greater                           | 260,196        |   | 249,902                 |   | 18,873                                                   |   | 72,055 |   | 16,206 |   | 7,583 |
|                                               |           |   |                    |   |                                                     |   |   |   |   |   |   |
| Total                                              | 683,562        |   | 437,388                 |   | 39,543                                                   |   | 129,642 |   | 36,876 |   | 55,363 |
|                                                    |                |        |                         |        |                                                          |  |  |  |  |  |  |

The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by December 31, 2002.

|                                       | Gross Unrealized Losses |                | % Of

Total    | Gross Unrealized Losses Net of Principal Protected Notes | % Of

Total |
|---------------------------------------|-------------------------|----------------|----------------|----------------------------------------------------------|-------------|
|                                  |                    | (in thousands) | (in thousands) |                                                     |
| Less than 20%                         |                    | 39,543         |           | 23.4                                                     | 36,876      | 40.0 |
| 20% or more for less than six months  |                    | 33,499         |           | 19.8                                                     | 33,499      | 36.3 |
| 20% or more for six months or greater |                    | 96,143         |           | 56.8                                                     |        | 21,864 |   | 23.7 |
|                                  |                    |           |           |                                                     |        |   |
| Total                                 |                    | 169,185        |           | 100.0                                                    |        | 92,239 |   | 100.0 |
|                                  |                    |           |           |                                                     |        |   |

Approximately 89% of the securities with an unrealized loss of 20% or more for a period equal to or greater than twelve months are Principal Protected Notes. This structure utilizes AAA collateral such asU.S Treasury Strips, in conjuction with a variable rate coupon. The AAA rated collateral accretes to par at maturity, defeasing the security and thereby insulating the holder from any negative credit events which might interfere with the repayment ofprincipal.

**Total Benefits and Expenses**

Total benefits and expenses for fiscal 2002 aggregated approximately $304.0 million, as compared to approximately $303.0 million for fiscal 2001 and approximately $226.5 million for fiscal 2000. Thisrepresents an increase of approximately .3% comparing fiscal 2002 to fiscal 2001 and an increase of approximately 33.8% comparing fiscal 2001 to fiscal 2000. The reasons for these changes will be discussed under the respective components below.

**Interest Credited and Benefits to Policyholders**

Interest credited and benefits to policyholders amounted to approximately $276.8 million in fiscal 2002 as compared to approximately $267.4 million in fiscal 2001 and approximately $197.8 million in fiscal2000. This represents an increase of approximately 3.5% comparing fiscal 2002 to fiscal 2001 and approximately a 35.2% increase comparing fiscal 2001 to fiscal 2000. These increases principally are attributable to a higher level of policyholder account balances as aresult of the increase in annuity considerations received during the respective years.

The Insurance Company’s average credited rates for reserves and account balances for the 12 months ended December 31, 2002, 2001 and 2000 were less than the Company’s ratio of net investmentincome to mean assets for the same periods as noted above under "Net Investment Income." Although management does not currently expect material declines in the spread between the Company’s average credited rate for reserves and account balances and theCompany’s ratio of net investment income to mean assets (the "Spread"), there can be no assurance that the spread will not decline in future periods or that such decline will not have a material adverse effect on the Company’s financial condition andresults of operations. Depending, in part, upon competitive factors affecting the industry in general, and the Company in particular, the Company may, from time to time, adjust the average credited rates on certain of its products. There can be no assurance that theCompany will reduce such rates or that any such reductions will broaden the Spread.

28.

**Interest Expense on Notes Payable**

The interest expense on the Company's notes payable amounted to approximately $10.63 million in fiscal 2002, approximately $8.84 million in fiscal 2001 and approximately $9.77 million in fiscal 2000. Theincrease in interest expense in fiscal 2002 is attributable to the Company's rate lock loss in connection with the issuance of the senior notes due 2009.

**General Expenses, Taxes and Commissions**

General expenses, taxes and commissions to agents totaled approximately $47.2 million in fiscal 2002 as compared to approximately $50.3 million in fiscal 2001 and approximately $29.9 million in fiscal 2000.This represents a decrease of approximately 6.2% comparing fiscal 2002 to fiscal 2001 and an increase of approximately 68.2% comparing fiscal 2001 to fiscal 2000. The decrease in fiscal 2002 compared to fiscal 2001 is attributable to a reduction in theCompany’s general expenses due to expense controls initiated in 2002. The increase in fiscal 2001 compared to 2000, principally is attributable to higher costs associated with higher commissions and selling expenses incurred associated with the higher level ofsales of single premium annuities offset by the company¢ s general expenses and taxes.

**Deferred Policy Acquisition Costs**

The change in the net DAC for fiscal 2002 resulted in a credit of approximately $30.6 million, as compared to a credit of approximately $23.5 million in fiscal 2001 and a credit of approximately $11.0million in fiscal 2000. Such changes are due (i) to the increase in costs associated with recent new product sales which have been deferred and are amortized in proportion to the recognition of earned revenue and (ii) to the effect of revisions to estimated grossprofits on unamortized deferred acquisition costs which are reflected in the year such estimated gross profits are revised.

**Income Before Income Taxes**

For the reasons discussed above, income (loss) before income taxes amounted to approximately $(99.2) million in fiscal 2002, as compared to approximately $(18.6) million in fiscal 2001 and approximately$58.0 million in fiscal 2000.

**Income Taxes**

Income tax expense (benefit) was approximately $(30.0) million for fiscal 2002, as compared to approximately $(10.9) million in fiscal 2001 and approximately $17.1 million in fiscal 2000. The decrease inincome taxes in fiscal 2002 is primarily attributable to realized capital losses during fiscal 2002. The Company's strategy was to utilize a carryback of its net capital gains reported in the Company's consolidated tax return in 2000 and 1999.

**Net Income**

For the reasons discussed above, the Company had net loss of approximately $(69.3) million in fiscal 2002, net loss of approximately $(7.7) million in fiscal 2001 and net income of approximately $40.9million in fiscal 2000.

**Liquidity and Capital Resources**

The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances that it may make to the Company without obtaining prior regulatoryapproval. Under the New York Insurance Law, the Insurance Company is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Company as long as the aggregate amount of all such dividends in any calendar year does not exceed thelesser of (i) 10% of its surplus as of the immediately preceding calendar year and (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains and losses). The Insurance Company will be permitted to pay astockholder dividend to the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under theNew York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The NYSID has established informal guidelines for suchdeterminations.

29.

The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. Management of the Company cannot provide assurance that theInsurance Company will have statutory earnings to support payment of dividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that the Insurance Company mustsubmit for the Superintendent's

consideration. The Company's other insurance subsidiary is also subject to restrictions

on the payment of dividends to their respective parent companies. To preserve capital, the Insurance Company paid no dividends in fiscal 2002 and in 2001 and 2000, the Insurance Company paid dividends of$27.7 million and $49.6 million, respectively, to the Company.

Principal sources of funds at the Insurance Company are premiums and other considerations paid, net investment income received and proceeds from investmentscalled, redeemed or sold. The principal uses of these funds are the payment of benefits on annuity contracts and life insurance policies (including withdrawals and surrender payments), the payment of policy acquisition costs, operating expenses and the purchase ofinvestments.

Given the Insurance Company's historic cash flow and current financial results, management believes that, for the next twelve months and for the reasonably foreseeable future, the Insurance Company's cashflow from operating activities will provide sufficient liquidity for the operations of the Insurance Company.	

	The Company is an insurance holding company and its primary uses of cash are debt service obligations, operating expenses and dividend payments. The Company's principal sources of cash are dividends fromthe Insurance Company, sales of and interest on the Company's investments and rent from its real estate. During 2002, the Company's Board of Directors maintained the quarterly dividend rate of $.10 per share. During 2002 and 2001, the Company purchased and retired 0and 26,000 shares of common stock, respectively. At December 31, 2002, the Company was authorized to purchase approximately 385,000 additional shares of common stock.

Net cash provided by the Company's operating activities (reflecting principally: (i) premiums and contract charges collected less (ii) benefits paid on lifeinsurance and annuity products plus (iii) income collected on invested assets less (iv) commissions and other general expenses paid) was approximately $26.8 million, $104.1 million and $71.7 million in fiscal 2002, 2001 and 2000, respectively. Net cash used in theCompany's investing activities (principally reflecting investments purchased less investments called, redeemed or sold) was approximately $684.6 million, $815.4 million and $288.5 million in fiscal 2002, 2001 and 2000, respectively.

For purposes of the Company's consolidated statements of cash flows, financing activities relate primarily to "dollar roll" repurchase transactions, and to sales and surrenders of the Company's annuity anduniversal life insurance products. The payment of dividends by the Company to its stockholders also is considered to be a financing activity. Net cash provided by the Company's financing activities amounted to approximately $668.9 million, $711.9 million and $189.5million in fiscal 2002, 2001 and 2000, respectively. These fluctuations primarily are attributable to higher policyholder account balances (as a result of increased sales), the new line of credit established in 2001, partially offset by the payment of dividends tothe Company's shareholders during fiscal year 2002.

The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company. In the event the Company violates such covenantsas defined in the indenture, the Company may be obligated to offer to repurchase all of the outstanding principal amount of such notes. As of December 31, 2002, the Company believes that it is in compliance with all of the covenants.

**Market Risk**

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes. Market riskis directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of the Company's primary market risk exposures and how those exposures are currently managed as of December 31,2002.

 

30.

The primary market risk to the Company's investment portfolio is interest rate

risk. The Company's exposure to equity price risk and foreign exchange risk is not significant. The Company has no direct commodity risk.

	The Company believes that its fixed-rate liabilities should be backed by a portfolio principally composed of fixed-rate investments that generate predictable rates of return. The Company does not have aspecific target rate of return. Instead, its rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, and general economic conditions.Its portfolio strategy is constructed with a view to achieve adequate risk-adjusted returns consistent with its investment objectives of effective asset-liability matching, liquidity and safety.

The Company's deferred annuity products are designed to encourage persistency by incorporating surrender charges. An annuitant may not terminate or withdraw substantial funds for a period of generally sevenyears without incurring significant penalties in the form of surrender charges. Approximately 24.9%, 30.5% and 42.0% of the Company's deferred annuity contracts in force (measured by reserves) as of December 31, 2002, 2001, and 2000 are surrenderable without charge.The decrease since December 31, 2000 is attributable to the increase in deferred annuity contracts inforce as a result of the increase in annuity considerations received.

The market value of the Company's fixed maturity portfolio changes as interest rates change. In general, rate decreases cause asset prices to rise, while rate increases cause asset prices to fall. Interestrate sensitivity can be modeled using the fixed maturity's effective duration and convexity to estimate price change for a given rate change. To model such changes, both spreads and yield curve slope are held constant while the portfolio is subjected to ahypothetical instantaneous rate change. Actual results may differ from the hypothetical change in market rates assumed in this disclosure since the model does not reflect the results of any actions that would be taken by the Company to mitigate such hypothetical lossin market value.

Based on market values and prevailing interest rates as of December 31, 2002, a hypothetical instantaneous increase of 100 basis points would produce a loss in fair value of fixed maturity assets ofapproximately $242.8 million. Since the Company is able to hold its fixed maturity securities to maturity, it does not expect to realize significant losses under such a hypothetical scenario.	

To meet its anticipated liquidity requirements, the Company purchases investments taking into account the anticipated future cash flow requirements of its underlying liabilities. In managing therelationship between assets and liabilities, the Company analyzes the cash flows necessary to correspond with the expected cash needs on the underlying liabilities under various interest rate scenarios. In addition, the Company

invests a portion of its total assets in short-term investments (approximately 6.46%, 8.13% and 8.77% as of December 31, 2002, 2001 and 2000, respectively). The weighted average duration of the Company'sbond portfolio was approximately five and three quarter years as of December 31, 2002. The Company's fixed maturity investments are all classified as available for sale and include those securities available to be sold in response to, among other things, changes inmarket interest rates, changes in the security's prepayment risk, the Company's need for liquidity and other similar factors.

These investments are carried at market value, and unrealized gains (losses), net of federal income taxes and deferred policy acquisition costs, if any, are charged directly to shareholders' equity, unlessa decline in market value is considered to be other than temporary, in which event the Company recognizes a loss throught the income statement. Equity securities include common stocks and non-redeemable preferred stocks and are carried at market, with the relatedunrealized gains and losses, net of federal income taxes, if any, charged or credited directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event the Company recognizes a loss.

	Capital expenditures during fiscal 2002 were approximately $29,000. As of December 31, 2002, the Company had no outstanding commitments for significant capital expenditures.

The Insurance Company is subject to Regulation 130 adopted and promulgated by the NYSID. Under this Regulation, the Insurance Company's ownership of below investment grade debt securities is limited to20.0% of total admitted assets, as calculated under statutory accounting practices. As of December 31, 2002 and 2001, approximately 7.9% and 7.04%, respectively, of the Insurance Company's total admitted assets were invested in below investment grade debtsecurities.

31.

	The Company maintains a portfolio which includes below investment grade securities which were purchased to achieve a more favorable investment yield, all of which are classified as available for sale andreported at estimated market value. As of December 31, 2002 and 2001, the carrying value of these securities was approximately $271.3 million and $275.0 million, respectively (representing approximately 6.1% and 7.3%, respectively, of the Company's totalassets).

Investments in below investment grade debt securities have different risks than investments in corporate debt securities rated investment grade. Risk of loss upon default by the borrower is significantlygreater with respect to below investment grade debt securities than with respect to other corporate debt securities because below investment grade debt securities generally are unsecured and often are subordinated to other creditors of the issuer. Also, issuers ofbelow investment grade debt securities usually have high levels of indebtedness and often are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers. Typically, there is only a thinly tradedmarket for such securities and recent market quotations may not be available for some of these securities. Market quotes generally are available only from a limited number of dealers and may not represent firm bids of such dealers or prices for actual sales. TheCompany attempts to reduce the overall risk in its below investment grade portfolio, as in all of its investments, through careful credit analysis, investment policy limitations, and diversification by company and by industry. Below investment grade debt investments,as well as other investments, are being monitored on an ongoing basis.

In certain situations, the terms of some fixed maturity assets are restructured or modified. There were no restructured fixed maturity assets at December 31, 2002.

As of December 31, 2002, approximately 6.7% of the Insurance Company's total invested assets were invested in limited partnerships and equity securities. Pursuant to NYSID regulations, the Company'sinvestments in equity securities, including limited partnership interests, may not exceed 20% of the Insurance Company's invested assets. Investments in limited partnerships are included in the Company's consolidated balance sheet under the heading "Other investedassets." See "Note 2 to the Notes to Consolidated Financial Statements." The Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $122.4 million of additional capital to certain of these limited partnerships.$7.7 million in commitments will expire in 2003, $30.4 million in 2004, $28.1 million in 2005, $21.4 million in 2006 and $34.7 in 2007. The Company may make selective investments in additional limited partnerships as opportunities arise. In general, risks associatedwith such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Company to take annual distributions of partnershipearnings. There can be no assurance that the Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically or that the Company will achieve any returns on such investments at all. Further, there can be noassurance that the Company will receive a return of all or any portion of its current or future capital investments in limited partnerships. The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, orto achieve historic levels of return on such investments, could have a material adverse effect on the Company's financial condition and results of operations.

As previously discussed, in fiscal 2002 and 2001 the Company participated in "dollar roll" repurchase agreement transactions. Amounts outstanding to repurchase securities under such agreements wereapproximately $262.5 million and $260.6 million at December 31, 2002 and 2001, respectively. The Company may engage in selected "dollar roll" transactions as market opportunities arise.

 

 

 

 

 

 

 

 

 

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All 50 states of the United States, the District of Columbia and Puerto Rico have insurance guaranty fund laws requiring all life insurance companies doing business within the jurisdictions to participatein guaranty associations, which are organized to pay contractual obligations under insurance policies (and certificates issued under group insurance policies) issued by impaired or insolvent life insurance companies. These associations levy assessments (up toprescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer

is engaged. Some states permit member insurers to recover assessments paid through full or partial premium tax offsets. These assessments may be deferred or forgiven under most guaranty laws if they wouldthreaten an insurer's solvency. The amount of these assessments in current and prior years has not been material, however, the amount and timing of any future assessment on the Insurance Company under these laws cannot be reasonably estimated and are beyond thecontrol of the Company and the Insurance Company. Recent failures of substantially larger insurance companies could result in future assessments in material amounts.

See "Item 1 - Business - Insurance Regulation" for a description of certain NAIC initiatives that also may impact the Company's financial condition and results of operations.

**Effects of Inflation and Interest Rate Changes**

The Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations. In general, the market value of the Company's fixed maturity portfolio increases ordecreases in an inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship with interest rate changes. For example, if interest rates decline, the Company's fixed maturityinvestments generally will increase in market value, while net investment income will decrease as fixed income investments mature or are sold and proceeds are reinvested at the declining rates, and viceversa. Management is aware that prevailing marketinterest rates frequently shift and, accordingly, the Company has adopted strategies that are designed to address either an increase or decrease in prevailing rates. In a rising interest rate environment, the Company's average cost of funds would be expected toincrease over time as it prices its new and renewing annuities to maintain a generally competitive market rate. In addition, the market value of the Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity. Concurrently, the Companywould attempt to place new funds in investments that were matched in duration to, and higher yielding than, the liabilities associated with such annuities. Management believes that liquidity necessary in such an interest rate environment to fund withdrawals,including surrenders, would be available through income, cash flow, the Company's cash

reserves or from the sale of short-term investments. In a declining interest rate environment, the Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting rateson its fixed annuities. Should increased liquidity be required for withdrawals in such an interest rate environment, management believes that the portion of the Company's investments which are designated as available for sale in the Company's consolidated balancesheet could be sold without materially adverse consequences in light of the general strengthening in market prices which would be expected in the fixed maturity security market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33.

 

Interest rate changes also may have temporary effects on the sale and profitability of the universal life and annuity products offered by the Company. For example, if interest rates rise, competinginvestments (such as annuity or life insurance products offered by the Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases therates credited to holders of its universal life and annuity products. In contrast, as interest rates fall, the Company attempts to lower its credited rates to compensate for the corresponding decline in its net investment income. As a result, changes in interestrates could materially adversely effect the financial condition and results of operations of the Company depending on the attractiveness of alternative investments available to the Company's customers. In that regard, in the current interest rate

environment, the Company has attempted to maintain its credited rates at competitive levels which are designed to discourage surrenders and which may be considered attractive to purchasers of new annuityproducts. In addition, because the level of prevailing interest rates impacts the Company as well as its competition, management does not believe that the current interest rate environment has materially affected the Company's competitive position visavis other life insurance companies that emphasize the sale of annuity products. Notwithstanding the foregoing, if interest rates continue at current levels or decline, there can be no assurance that this segment of the life insurance industry, including theCompany, would not experience increased levels of surrenders and reduced sales and thereby be materially adversely affected. Conversley, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company’scompetitors, certificates of deposit, mutual funds and similar investments) may become more attractive to potential purchasers of the Company’s products until the Company increases it’s credited rates.

**Forward Looking Information**

The Company cautions readers regarding certain forward-looking statements contained in this report and in any other statements made by, or on behalf of, the Company, whether or not in future filings withthe SEC. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Statements using verbs such as "expect", "anticipate", "believe" or words of similarimport generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Company's beliefs concerning future levels of sales and redemptions of the Company's products, investment spreadsand yields, or the earnings and profitability of the Company's activities.

Forward-looking statements are necessarily based on estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which arebeyond the Company's control and many of which are subject to change. These uncertainties and contingencies could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or notactual results differ

materially from forward-looking statements may depend on numerous foreseeable and unforeseeable developments. Some may be national in scope, such as general economic conditions, changes in tax law andchanges in interest rates. Some may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation. Others may relate to the Company specifically, such as credit, volatility and other risks associatedwith the Company's investment portfolio. The Company disclaims any obligation to update forward-looking information.

 

 

 

 

 

 

 

 

 

 

 

 

34.

 

 

**Recent Accounting Pronouncements**

In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities-anAmendment of FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 deferred the provisions of Statement of Financial Accounting Standards No. 133, Accountingfor Derivative Instruments and Hedging Activities ("SFAS 133") until January 1, 2001. SFAS 133, as amended by SFAS 138, requires, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured atfair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteriain SFAS 133 and SFAS 138 are required to be reported in income. The impact of adopting SFAS 133 and 138 was for the Company to record, as a transition adjustment to accumulated comprehensive income, effective January 1, 2001, an unrealized loss of $5.5 million. InJuly 2002, the Financial Accounting Standards Board ("FASB") issued certain additional guidance relating to the identification of embedded derivatives under SFAS 133 and SFAS 138. The Financial Accounting Standards Board ("FASB") continues to issue additionalguidance relating to the accounting for derivatives under SFAS 133 and SFAS 138. Adoption of the additional guidance of SFAS 133 and SFAS 138 did not have an impact on the Company’s consolidated financial statements for 2002.

Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities - a Replacement of FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The initial adoption of these requirements didnot have an impact on the Company¢ s consolidated financial statements.

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other IntangibleAssets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratableamortization of goodwill be replaced with periodic tests of the goodwill's impairment and identifiable intangible assets other that goodwill be amortized over their useful lives. SFAS No. 141 is effective for acquisitions made after June 30, 2001. The provisions ofSFAS No. 142 were effective for fiscal years beginning after December 15, 2001. Adoption of SFAS 141 and SFAS 142 did not have an impact on the Company's consolidated financial statements for 2001 and 2002.

In September 2001, the Emerging Issues Task Force issued No. 01-10, "Accounting for the Impact of the Terrorist Attack of September 11, 2001" (EITF 01-10 requires that losses or cost resulting from theSeptember 11th events be classified as part of income from continuing operations in the statement of operations. Application of EITF 01-10 did not have an impact on the Company's consolidated financial statements.

In July 2001, the SEC released Staff Accounting Bulletin 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development,documentation and application of a systematic methodology for determining allowances for loan and lease losses. Adoption of SAB 102 by the Company did not have an impact on the Company's consolidated financial statements.

In October 2001, the FASB issued SFAS No.144, Accounting for the Impairment of Disposal of Long-Lived Assets ("SFAS 144"). SFAS provides a single model for accounting for long-lived assets to be disposed bysuperceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No.30, Reporting the Results of Operations -Reporting the Effects of

 

 

 

35.

Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carryingvalue or fair value less cost to sell rather than on a net realizable value basis. Future operating losses relating to discontinued operations are also no longer recognized before they occur. SFAS 144 broadens the definition of a discontinued operation to include acomponent of an entity (rather than a segment of a business.) SFAS 144 also requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the presentationof discontinued operations in the income statement, (ii) SFAS 121 relating to recognition and measurement of impaired long-lived assets classified as held for sale. SFAS 144 was effective beginning January 1, 2002. The adoption of SFAS 144 by the Company did not havean impact on the Company's consolidated financial statements.

In August 2002, the FASB issued SFAS No.146, Accounting for Costs Associated with Exit or Disposal Activities (2 SFAS 1462 ).The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Previous accounting guidance was provided by EITF 94-3, 2 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)2 . SFAS 146 replaces EITF 94-3. The provisions of thisstatement are effective for exit or disposal activities that are initiated after December 31, 2002.

The adoption of SFAS 146 is not expected to have a material impact on the Company¢ s consolidated financial statements.

	In October 2002, the FASB issued SFAS No.147, Acquisitions of Certain Financial Institutions (2 SFAS 1472 ). This statement, which provides guidanceon the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises. The standard is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. Theadoption of SFAS 147 did not have an impact on the Company¢ s consolidated financial statements.

	In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others (2 FIN 452 ). FIN 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures for others. Disclosure requirements under FIN 45 are effective forfinancial statements of annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the provisions of FIN 45. The intial recognition and initial measurement provisions of FIN 45 are applicable on a prospectivebasis to guarantees issued or modified after December 31, 2002. The Company does not expect the adoption of FIN 45 to have a significant impact on the Company’s consolidated financial statements.

	In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (2 FIN 462 ). FIN 46 requires certain variableinterest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is in the process of assessing the impactof FIN 46 on its consolidated financial statements.

In March 1999, the National Association of Insurance Commissioner ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"). The Codification, which is intended tostandardize regulatory accounting and reporting to state insurance departments, was effective January 1, 2002. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The New York State InsuranceDepartment ("NYSID") required adoption of the Codification with certain modifications, for the preparation of statutory financial statements, effective January 1, 2001. On October 1, 2002 NYSID modified its orginal adoption of Codification to allow for therecognition of Deferred

 

 

36.

 

 

Tax Assets (2 DTA2 ) and Deferred Tax Liabilities (2 DTL2 ), with certainrestrictions. This change allowed the Insurance Company to recognize a DTA of approximately $22.4 million at December 31, 2002 for statutory reporting purposes. The adoption of Codification by the NAIC and the Codification as modified by the NYSID, as currentlyinterpreted, did not adversely affect statutory capital and surplus as of December 31, 2002 or 2001.

**SUMMARY OF CRITICAL ACCOUNTING ESTIMATES**

**The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (2 GAAP2 ) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The critical accounting policies, estimates and related judgments underlying theCompany¢ s consolidated financial statements are summarized below. In applying these accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain.Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company¢ s business and operations.**

**INVESTMENTS**

The Company¢ s principal investments are in fixed maturities, all of which are exposed to at least one of three primary sources of investment risk: credit, interest rate and marketvaluation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. Management evaluates whether impairments have occurred case- by- case. Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause and decline in the estimated fair value of the security and in assessing the prospects for near- term recovery. Inherent in management¢ s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Company in theimpairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financialdifficulties; (iii) the potential for impairments in an entire industry sector or sub- sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities wherethe issuer, series of issuers or industry has a catastrophic type of loss or has exhausted natural resources; and (vi) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings oncertain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based onvaluation methodologies, securities the Company deems to be comparable and assumptions deemed appropriate given the circumstances. The use of different methodologies and assumptions may have a material effect of the estimated fair value amounts.

**DEFERRED POLICY ACQUISITION COSTS**

****The ****Company incurs significant costs in connection with acquiring new business. These costs, which vary with and are primarily related to the production of new ****business, are deferred.****The recovery of such costs is dependent upon the future profitability of the related product, which in turn is dependent mainly on investment returns in excess of interest credited, as well as, persistency and expenses. These factors enter into management¢ s estimate of future gross profits, which generally are used to amortize such costs. Changes in these estimates result in changes to the amounts expensed in the reporting period in which the revisions are made and could result in theimpairment of the deferred acquisition asset and a charge to income if estimated future gross profits are less than amounts deferred.

 

 

37.

** **

** **

**FUTURE POLICY BENEFITS**

	The Company establishes liabilities for amounts payable under life and health insurance policies and annuity contracts. Generally, these amounts are payable over a long period of time and the profitabiltiy of theproducts is dependent on the pricing. Principal assumptions used in pricing policies and in the establishment of liabilities for future policy benefits are investment returns, mortality, expenses and persistency.

**EMPLOYEE BENEFIT PLANS**

****The Company sponsors a defined benefit plan covering employees who meet specified eligibility requirements. The reported expense and liability associated with these plans requires use of assumptions whichinclude the discount rate, expected return on plan assets and rate of future compensation increases as determined by the Company. Management determines these assumptions based upon currently available market and industry data, historical performance of the plans andits assets. The actuarial assumptions used by the Company may differ materially from actual assets due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of the participants. These differences may have asignificant effect on the Company¢ s consolidated financial statements.

	The actuarial assumptions used in the calculation of the Company’s projected benefit obligation include the expected rate of compensation increases of 3.00%, a discount rate of 6.50% and an expected returnon assets of 7.50%. The projected benefit obligation at December 31, 2002 is $8.7 million.

**Item 7A. Quantitative and Qualitative Disclosures About Market Risk**

**The information required by this item is contained in the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations.**

**Item 8. Financial Statements and Supplementary Data**

	See the accompanying Table of Contents to Consolidated Financial Statements and Schedules on Page F-1.

**Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**

None

**PART III**

**Item 10. Directors and Executive Officers of the Registrant**

The information relating to the Company's directors, nominees for election as directors and executive officers will be included in the Company's definitive Proxy Statement for its 2002 Annual Meeting ofShareholders (the "Proxy Statement"), which the Company intends to file pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, under theheading "Directors and Executive Officers" and is incorporated herein by reference.

**Item 11. Executive Compensation**

The information relating to compensation paid to executive officers and directors of the Company will be included in the Proxy Statement under the heading "Compensation of Directors and Executive Officers"and is incorporated herein by reference.

**Item 12. Security Ownership of Certain Beneficial Owners and Management**

The information relating to the security ownership of certain beneficial owners and management of the Company will be included in the Proxy Statement under the heading "Security Ownership of CertainBeneficial Owners and Management" and is incorporated herein by reference.

**Item 13. Certain Relationships and Related Transactions**

None

38.

**Item 14. Controls and Procedures**

The Chairman and Chief Executive Officer and the Principal Financial Officer of the Company (its principal executive officer and principal financialofficer, respectively) have concluded, based on their evaluation as of a date within 90 days prior to the date of the filing of this Report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosedby the Company in reports filed or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods in the SEC’s rules and forms,and include controls and procedures designed to ensurethat information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chairman and Chief Executive Officer and the Principal Financial Officer of the Company, as appropriate to allowtimely decisions regarding required disclosure.

	There are no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of such evaluation.

**Item 15. Principal Accounting Fees and Services**

**The information relating to Principal Accounting Fees and Services will be included in**the Proxy Statement under the heading "Selection of Independent Auditors" and is incorporated herein byreference.

**PART IV**

**Item 16. Exhibits, Financial Statement Schedules, and Reports on Form 8-K**

(a). The Independent Auditors' Report, Consolidated Financial Statements and Consolidated Financial Statement Schedules listed in the Table of Contents on page F-1 are being filed as part of this Form10-K.

(b). During the last quarter of the fiscal year ended December 31, 2002 the Company did not file a current report on Form 8-K.

(c). Exhibit Index

Exhibit

NumberDescription of Document

    - Certificate of Ownership and Merger, as filed with the Secretary of State of Delaware on July 27, 1993 (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31,1993)

2.02		Certificate of Merger, as filed with the Secretary of State of State of New York on July 27, 1993 (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year endedDecember 31, 1993)

3.01		Certificate of Amendment of the Certificate of Incorporation of the Company, as filed with the Secretary of State of State of New York on June 8, 1993 (Incorporated by reference to the Annual Reporton Form 10-K of the Company for the fiscal year ended December 31, 1993)

3.02		Certificate of Correction of the Certificate of Amendment to the Certificate of Incorporation of the Company, as filed with the Secretary of State of State of New York on June 29, 1993 (Incorporatedby reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1993)

3.03		Certificate of Incorporation of Presidential Life Corporation, a Delaware corporation (now the Company) (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal yearended December 31, 1992)

 

 

 

39.

 

3.04		By-Laws of Presidential Life Corporation, a Delaware corporation (now the Company) (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31,1992)

4.01		Form of Indenture dated as of December 15, 1993 between the Registrant and M&T Bank relating to the 9 1/2% Senior Notes due 2000 (Incorporated by reference to Exhibit 4.1 to the RegistrationStatement on Form S-3 of the Company filed on September 2, 1993)

    - Form of Indenture dated as of February 23, 1999 between the Registrant and Bankers Trust Company relating to the 7 7/8% Senior Notes due 2009 (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to theRegistration Statement on Form S-3 of the Company filed on November 3, 1998)

10.01		Reinsurance Agreements, dated January 1, 1969, March 1, 1979 and November 15, 1980, in each case together with all amendments thereto, Between the Registrant and Life Reassurance Corporation ofAmerica (formerly known as General Reassurance Corporation) (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992)

10.02		Reinsurance Agreements, dated September 25, 1969 and November 21, 1980, in each case together with all amendments thereto, by and between Presidential Life Insurance Company and Security Benefit LifeInsurance Company (now known as Swiss Re Life & Health America) (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992)

10.03		Form of Indemnification Agreement (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31,1992)

10.04		Presidential Life Corporation 1984 Stock Option Plan (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992)

10.05		Presidential Life Corporation 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 28.1 to the Registration Statement on Form S-8 of the Company filed on July 16, 1996)

11.01		Statement Re Computation of Per Share Earnings is clearly determinable from the information contained in this Form 10-K

    - Subsidiaries of the Registrant (Incorporated by reference to the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1992)

    - Consent of Deloitte & Touche, LLP

	99.01		Certification of Chief Executive Officer Pursuant

to Exchange Act Rule 13a-14

	99.02 	Certification of Principal Financial Officer Pursuant

to Exchange Act Rule 13a-14.

    - Certification of Chief Executive Officer Pursuant to

	 Section 906 of the Sarbanes Oxley Act of 2002

99.04		Certification of Principal Financial Officer Pursuant to

		Section 906 of the Sarbanes Oxley Act of 2002

 

 

 

 

40.

 

SIGNATURES

 

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

 

 

PRESIDENTIAL LIFE CORPORATION

 

 

 

By /s/ Herbert Kurz

Herbert Kurz

Principal Executive Officer

and Director

 

Date: March 28, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41.

 

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the datesindicated:

 

 

Date: March 28, 2003			 /s/ Herbert Kurz

Herbert Kurz

Principal Executive Officer

and Director

 

 

Date: March 28, 2003			 /s/ Charles J. Snyder

Charles J. Snyder, Treasurer

and Principal Accounting Officer

 

 

Date: March 28, 2003			 /s/ Peter A. Cohen

Peter A. Cohen		Director

 

 

Date: March 28, 2003			 /s/ Jules Kroll

Jules Kroll			Director

 

 

Date:March 28, 2003/s/ Lawrence Rivkin

Lawrence Rivkin		Director

 

 

Date:March 28, 2003/s/ Morton B. Silberman

Morton B. Silberman	Director

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

42. A.-F.

 

 

INDEPENDENT AUDITORS¢ CONSENT

We consent to the incorporation by reference in Registration Statement Nos. 333- 63831 on Form S- 3 and 333- 08217 on Form S- 8, of Presidential Life Corporation, of our report dated February 14, 2003, appearing in this Annual Report on Form 10- K of Presidential Life Corporation for the year ended December 31 2002.

 

 

 

 

DELOITTE & TOUCHE LLP

New York, New York

March 28, 2003	

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

43.

 

TABLE OF CONTENTS TO

	CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

Page

Independent Auditors' Report......................................	F-2

Consolidated Financial Statements:

Consolidated Balance Sheets as of December 31, 2002 and 2001 ... F-3

Consolidated Statements of Income - Years Ended December 31,2002,

2001 and 2000...................................................	F-4

Consolidated Statements of Shareholders' Equity - Years Ended

December 31, 2001, 2001 and 2000.............................	F-5

Consolidated Statements of Cash Flows - Years Ended December 31,

2002, 2001 and 2000..........................................	F-6

Notes to Consolidated Financial Statements........................	F-7

 

Consolidated Financial Statement Schedules:

II Condensed Balance Sheets (Parent Company Only) as of

December 31, 2002 and 2001.................................	S-1

II Condensed Statements of Income (Parent Company

Only)- Years Ended December 31, 2002, 2001 and 2000........	S-2

II Condensed Statements of Cash Flows (Parent

Company Only) - Years Ended December 31, 2002, 2001

and 2000...................................................	S-3

III Supplemental Insurance Information - Years Ended

December 31, 2002, 2001 and 2000...........................	S-4

IV Reinsurance - Years Ended December 31, 2002, 2001 and 2000...	S-5

	 Certification for Chief Executive Officer ................... S-6

		Certification for Treasurer and Principal Accounting Officer. S-7

 

All schedules not included are omitted because they are either not applicable or because the information required therein is included in the Notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-1.

 

 

 

 

INDEPENDENT AUDITORS' REPORT

 

The Board of Directors and Shareholders

Presidential Life Corporation

Nyack, New York 10960

 

We have audited the accompanying consolidated balance sheets of Presidential Life Corporation and subsidiaries (the "Company") as of December 31, 2002 and 2001 and the related consolidated statements ofincome, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. Our audits also included the consolidated financial statement schedules listed in the foregoing Table of Contents. These financial statements and financialstatement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2002 and 2001 and the results of its operations andits cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to thebasic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

 

DELOITTE & TOUCHE LLP

New York, New York

February 14, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-2.

 

 

| PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES |
|------------------------------------------------|
| CONSOLIDATED BALANCE SHEETS                    |
| (in thousands, except share data)              |
|                                           |   |   |   |   |
|                                           |   | December 31, |
| ASSETS:                                        |   | 2002 |   | 2001 |
| Investments:                                   |   |   |   |   |
| Fixed maturities available for sale            |   | $ | 3,642,582  |   | $ | 2,967,684  |
| Common stocks                                  |   | 16,886  |   | 25,909  |
| Mortgage loans                                 |   | 9,289  |   | 13,398  |
| Real estate                                    |   | 415  |   | 415  |
| Policy loans                                   |   | 17,633  |   | 16,985  |
| Short-term investments                         |   | 288,822  |   | 308,311  |
| Other invested assets                          |   | 254,659  |   | 240,053  |
| Total investments                              |   | 4,230,286  |   | 3,572,755  |
|                                           |   |   |   |   |
| Cash and cash equivalents                      |   | 13,101  |   | 1,921  |
| Accrued investment income                      |   | 48,589  |   | 40,757  |
| Amounts due from security transactions         |   | 1,033  |   | 784  |
| Deferred federal income taxes, Net             |   | 9,319  |   | 15,199  |
| Federal income tax recoverable                 |   | 30,245  |   | 26,924  |
| Deferred policy acquisition costs              |   | 113,039  |   | 103,082  |
| Furniture and equipment, net                   |   | 309  |   | 458  |
| Amounts due from reinsurers                    |   | 18,617  |   | 19,575  |
| Other assets                                   |   | 5,450  |   | 5,923  |
| Assets held in separate account                |   | 2,196  |   | 3,053  |
| TOTAL ASSETS                                   | $ | 4,472,184  |   | $ | 3,790,431  |
|                                           |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY:          |   |   |   |   |
| Liabilities:                                   |   |   |   |   |
| Policy liabilities:                            |   |   |   |   |
| Policyholders' account balances                | $ | 2,911,554  |   | $ 2,167,332 |
| Future policy benefits:                        |   |   |   |   |
| Annuity                                        |   | 636,789  |   | 583,483  |
| Life and accident and health                   |  | 68,812  |  | 69,006  |
| Other policy liabilities                       |  | 5,284  |  | 4,348  |
| Total policy liabilities                       |  | 3,622,439  |  | 2,824,169  |
| Dollar repurchase agreements                   |  | 262,518  |  | 260,556  |
| Notes payable                                  |  | 100,000  |  | 100,000  |
| Short-term note payable                        |  | 50,000  |  | 50,000  |
| Deposits on policies to be issued              |  | 6,375  |  | 69,019  |
| General expenses and taxes accrued             |  | 6,380  |  | 9,255  |
| Other liabilities                              |  | 23,585  |  | 47,285  |
| Liabilities related to separate account        |  | 2,196  |  | 3,053  |
| Total liabilities                              |  | 4,073,493  |  | 3,363,337  |
|                                                |  |  |  |  |
| Shareholders' Equity:                          |  |  |  |  |
| Capital stock ($.01 par value; authorized      |  |  |  |  |
| 100,000,000 shares; issued and outstanding     |  |  |  |  |
| 29,334,668 shares in 2002 and 29,320,689       |  |  |  |  |
| Shares in 2001)                                |  | 293  |  | 293  |
| Accumulated other comprehensive income(loss)   |  | 17,820  |  | (34,552) |
| Retained earnings                              |  | 380,578  |  | 461,353  |
| Total Shareholders' Equity                     |  | 398,691  |  | 427,094  |
|                                                |  |  |  |  |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     |  | $ | 4,472,184  |  | $ | 3,790,431  |
|                                                |  |  |  |  |
|                                                |  |  |  |  |

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

	F-3.

 

 

| PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES |
|------------------------------------------------|
| CONSOLIDATED STATEMENTS OF INCOME              |
| (in thousands, except share data)              |
|                                           |   |   |   |   |   |   |
|                                           |   | Years Ended December 31 |
|                                           |   |   |   |   |   |   |
|                                           |   | 2002 |   | 2001 |   | 2000 |
| REVENUES:                                      |   |   |   |   |   |   |
| Insurance revenues:                            |   |   |   |   |   |   |
| Premiums                                       |   | $ | 11,605   |   | $ 14,137 |   | $ 7,402 |
| Annuity considerations                         |   | 69,422 |   | 97,380 |   | 55,247    |
| Universal life and investment type             |   |   |   |   |   |   |
| policy fee income                              |   | 679 |   | 777 |   | 697 |
| Net investment income                          |   | 267,561 |   | 234,125 |   | 225,224 |
| Net Realized investment losses                 |   | (146,743)  |   | (65,132) |   | (8,449) |
| Other income                                   |   | 2,216 |   | 3,121 |   | 4,337 |
| TOTAL REVENUES                                 |   | 204,740 |   | 284,408  |   | 284,458 |
|                                           |   |   |   |   |   |   |
| BENEFITS AND EXPENSES:                         |   |   |   |   |   |   |
| Death and other life insurance benefits        |   | 13,566 |   | 14,330 |   | 10,587 |
| Annuity benefits                               |   | 64,310 |   | 57,937 |   | 47,811 |
| Interest credited to policyholders'            |   |   |   |  |   |   |
| account balances                               |   | 146,502 |   | 108,422 |   | 86,943 |
| Interest expense on notes payable              |   | 10,633 |   | 8,836 |   | 9,773 |
| Other interest and other charges               |   | 79 |   | 980 |   | 490 |
| Increase in liability for                      |   |   |   |   |   |   |
| future policy benefits                         |   | 52,312 |   | 85,681 |   | 51,934 |
| Commissions to agents, net                     |   | 32,323 |   | 32,066 |   | 18,184 |
| General expenses and taxes                     |   | 14,888 |   | 18,280 |   | 11,698 |
| Increase in deferred policy                    |   |   |   |   |   |   |
| acquisition costs                              |   | (30,632) |   | (23,523) |   | (10,951) |
| TOTAL BENEFITS AND EXPENSES                    |   | 303,981 |   | 303,009   |   | 226,469     |
|                                           |   |   |   |   |   |   |
| (Loss)income before income taxes               |   | (99,241) |   | (18,601) |   | 57,989    |
|                                           |   |   |   |   |   |   |
| Provision (benefit) for income taxes:          |   |   |   |   |   |   |
| Current                                        |   | (8,370) |   | (13,363) |   | 19,173 |
| Deferred                                       |   | (21,602) |   | 2,467 |   | (2,046) |
|                                           |   | (29,972) |   | (10,896) |   | 17,127 |
|                                           |   |   |   |   |   |   |
| NET (LOSS)INCOME                               |   | $ | (69,269) |   | $ (7,705) |   | $	 40,862 |
|                                           |   |   |   |   |   |   |
| Weighted average number of shares              |   |   |   |   |   |   |
| outstanding during the year                    |   | 29,332,120  |   | 29,315,505 |   | 30,160,414 |
|                                           |   |   |   |   |   |   |
| (Loss) Earnings per common share               |   | $ (2.36) |   | $ (.26) |   | $ 1.36 |
|                                           |   |   |   |   |   |   |   |
|                                           |   |   |   |   |   |   |

The accompanying notes are an integral part of these Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

F-4

 

 

 

|  

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES |
|--------------------------------------------------------|
| CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY        |
| FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000   |
| (in thousands, except share data)                      |
|                                                   |   |   |   |   |   |   |   | Accumulated |   |   |
|                                                   |   |   |   | Additional |   |   |   | Other |   |   |
|                                                   |   | Capital |   | Paid-in- |   | Retained |   | Comprehensive |   |   |
|                                                   |   | Stock |   | Capital |   | Earnings |   | Income (loss) |   | Total |
| Balance at                                             |   |   |   |   |   |   |   |   |   |   |
| January 1, 2000                                        |   | 308 |   | 0 |   | 474,251 |   | (68,091) |   | 406,468 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income:                                  |  |  |  |  |  |  |  |  |  |  |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Net income                                             |   |   |   |   |   | 40,862 |   |   |   | 40,862 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Net Unrealized Investment                              |   |   |   |   |   |   |   |   |   |   |
| Gains                                                  |   |   |   |   |   |   |   | 52,428 |   | 52,428 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income                                   |   |   |   |   |   |   |   |   |   | 93,290 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Purchase and Retirement                                |   |   |   |   |   |   |   |   |   |   |
| of Stock                                               |   | (15) |   | (91) |   | (22,597) |   |   |   | (22,703) |
|                                                        |  |  |  |  |  |  |  |  |  |  |
| Issuance of Shares                                     |   |   |   |   |   |   |   |   |   |   |
| under Stock Option Plan                                |   |   |   | 91 |   |   |   |   |   | 91 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Dividends Paid to                                      |   |   |   |   |   |   |   |   |   |   |
| Shareholders ($.345 per                                |   |   |   |   |   |   |   |   |   |   |
| share)                                                 |   |   |   |   |   | (11,619) |   |   |   | (11,619) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Balance at                                             |   |   |   |   |   |   |   |   |   |   |
| December 31, 2000                                      |   | 293 |   | 0 |   | 480,897 |   | (15,663) |   | 465,527 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income:                                  |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Net loss                                               |   |   |   |   |   | (7,705) |   |   |   | (7,705) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Transition Adjustment                                  |   |   |   |   |   |   |   | (5,485) |   | (5,485) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Net Unrealized Investment                              |   |   |   |   |   |   |   |   |   |  |
| Losses                                                 |   |   |   |   |   |   |   | (13,404) |   | (13,404) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Loss                                     |   |   |   |   |   |   |   |   |   | (26,594) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Purchase and Retirement                                |   |   |   |   |   |   |   |   |   |  |
| of Stock                                               |   |   |   |   |   | (122) |   |   |   | (122) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Dividends Paid to                                      |   |   |   |   |   |   |   |   |   |   |
| Shareholders ($.39 per                                 |   |  |   |   |   |   |   |   |   |   |
| share)                                                 |   |   |   |   |   | (11,717) |   |   |   | (11,717) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Balance at                                             |   |   |   |   |   |   |   |   |   |   |
| December 31, 2001                                      |   | 293 |   | 0 |   | 461,353 |   | (34,552) |   | 427,094 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive Income:                                  |   |   |   |   |   |   |   |   |   |   |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Net Loss                                               |   |   |   |   |   | (69,269) |   |   |   | (69,269) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Loss on Rate Lock Hedge                                |   |   |   |   |   |   |   | (4,142) |   | (4,142) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Net Unrealized Investment                              |   |   |   |   |   |   |   |   |   |   |
| Gains (Losses)                                         |   |   |   |   |   |   |   | 56,514 |   | 56,514 |
|                                                   |   |   |   |   |   |   |   |   |   |  |
| Comprehensive Loss                                     |   |   |   |   |   |   |   |   |   | (16,897) |
|                                                        |  |  |  |  |  |  |  |  |  |  |
| Purchase and Retirement                                |   |   |   |   |   |   |   |   |   |   |
| of Stock                                               |   |   |   |   |   | 225 |   |   |   | 225 |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Dividends Paid to                                      |   |   |   |   |   |   |   |   |   |   |
| Shareholders ($.40 per                                 |   |   |   |   |   |   |   |   |   |   |
| share)                                                 |   |   |   |  |   | (11,731) |   |   |   | (11,731) |
|                                                   |   |   |   |   |   |   |   |   |   |   |
| Balance at                                             |   |   |   |   |   |   |   |   |   |   |
| December 31, 2002                                      |   | 293 |   | 0 |   | 380,578 |   | 17,820 |   | 398,691 |
|                                                   |   |   |   |   |   |   |   |   |   |   |

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-5.

 

| PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES |
|------------------------------------------------|
| CONSOLIDATED STATEMENTS OF CASH FLOWS          |
| (in thousands)                                 |
|                                           |
|                                           |   | Years Ended December 31 |
|                                           |   | 2002 |   | 2001 |   | 2000 |
|                                                |
| OPERATING ACTIVITIES:                          |   |   |   |   |   |   |
| Net income (loss)                              |   | $ | (69,269) |   | $ (7,705) |   | $ | 40,862 |
| Adjustments to reconcile net income to         |   |   |   |   |   |   |
| net cash provided by operating activities:     |   |   |   |   |   |   |
| Benefit(provision) for deferred income taxes   |   | (21,602)  |   | 2,467  |   | (2,046) |
| Depreciation and amortization                  |   | 1,783   |   | 711  |   | 1,386 |
| Net accrual of discount on fixed maturities    |   | (20,357)  |   | (11,166) |   | (9,812) |
| Realized investment losses                     |   | 146,743   |   | 65,132  |   | 8,449 |
| Changes in:                                    |   |   |   |   |   |   |
| Accrued investment income                      |   | (7,832)  |   | (9,325) |   | (3,616) |
| Deferred policy acquisition costs              |   | (30,632)  |   | (28,820) |   | (10,951) |
| Federal income tax recoverable                 |   | (3,321)  |   | (21,278) |   | (3,044) |
| Liability for future policy benefits           |   | 53,112   |   | 91,894  |   | 55,074 |
| Other items                                    |   | (21,779)  |   | 22,224  |   | (4,594) |
|                                           |   |   |   |   |   |   |
| Net Cash Provided by                           |   |   |   |   |   |   |
| Operating Activities                           |   | 26,846   |   | 104,134  |   | 71,708 |
|                                           |   |   |   |   |   |   |
| INVESTING ACTIVITIES:                          |   |   |   |   |   |   |
| Fixed Maturities:                              |   |   |   |   |   |   |
| Available for Sale:                            |   |   |   |   |   |   |
| Acquisitions                                   |   | (1,089,449) |   | (1,048,366) |   | (356,959) |
| Sales                                          |   | 119,038   |   | 99,240  |   | 30,535 |
| Maturities, calls and repayments               |   | 272,482   |   | 143,487  |   | 99,146 |
| Common Stocks:                                 |   |   |   |   |   |   |
| Acquisitions                                   |   | (10,292) |   | (8,038) |   | (15,969) |
| Sales                                          |   | 17,405   |   | 11,274  |   | 23,937 |
| Decrease (increase) in short-term              |   |   |   |   |   |   |
| investments and policy loans                   |   | 16,990   |   | (45,810) |   | (46,017) |
| Other Invested Assets:                         |   |   |   |   |   |   |
| Additions to other invested assets             |   | (85,187) |   | (43,819) |   | (64,256) |
| Distributions from other invested assets       |   | 70,581   |   | 63,507  |   | 50,000 |
| Purchase of property and equipment             |   | -   |   | 167  |   | 181 |
| Mortgage loan on real estate                   |   | 4,109   |   | 1,495  |   | 332 |
| Amounts due from security transactions         |   | (249) |   | 11,466  |   | (9,450) |
|                                           |   |   |   |   |   |   |
| Net Cash Used in                               |   |   |   |   |   |   |
| Investing Activities                           |   | (684,572) |   | (815,397) |   | (288,520) |
|                                           |   |   |   |   |   |   |
| FINANCING ACTIVITIES:                          |   |   |   |   |   |   |
| Proceeds from Dollar Repurchase Agreements     |   | 3,117,054   |   | 2,805,155  |   | 2,467,687 |
| Repayment of Dollar Repurchase Agreements      |   | (3,115,092) |   | (2,777,809) |   | (2,447,091) |
| Proceeds from (repayment of) line of credit    |   |   |   | 50,000  |   | (15,000) |
| Increase in policyholders' account balances    |   | 744,222   |   | 571,289  |   | 210,086 |
| Repurchase of common stock                     |   | 225   |   | (135) |   | (22,703) |
| Bank overdrafts                                |   | (3,127) |   | 14,979  |   | 5,935  |
| Deposits on policies to be issued              |   | (62,644) |   | 60,134  |   | 2,223 |
| Dividends paid to shareholders                 |   | (11,732) |   | (11,717) |   | (11,619) |
|                                           |   |   |   |   |   |   |
| Net Cash Provided by                           |   |   |   |   |   |   |
| Financing Activities                           |   | 668,906   |   | 711,896  |   | 189,518  |
|                                           |   |   |   |   |   |   |
| Increase (decrease) in Cash and Cash           |   |   |   |   |   |   |
| Equivalents                                    |   | 11,180   |   | 633  |   | (27,294) |
|                                                |  |  |  |  |  |  |
| Cash and Cash Equivalents at Beginning of Year |   | 1,921 |   | 1,288  |   | 28,582 |
|                                           |   |   |   |   |   |   |
| Cash and Cash Equivalents at End of Year       |   | $ | 13,101 |   | $ 1,921 |   | $ | 1,288 |
| Supplemental Cash Flow Disclosure:             |   |   |   |   |   |   |
|                                           |   |   |   |   |   |   |
| Income Taxes Paid                              |   | $ | 5,641   |   | $ 7,857  |   | $ | 22,442  |
|                                           |   |   |   |   |   |   |
| Interest Paid                                  |   | $ | 8,976   |   | $ 8,577  |   | $ | 8,919  |

The accompanying notes are an integral part of these Consolidated Financial Statements.

	F-6.

**PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**A. Business**

Presidential Life Corporation ("the Company"), through its wholly-owned subsidiary Presidential Life Insurance Company ("the Insurance Company"), is engaged in the sale of life insurance and annuities. TheInsurance Company has assets of approximately $4.3 billion and surplus of $400.7 million as of December 31, 2002 and is licensed in 49 states and the District of Columbia.

On December 29, 1999, the Company purchased The Central National Life Insurance Company of Omaha ("Central National") from the Household Insurance Group Holding Company, a subsidiary of HouseholdInternational, Inc. Central National which has assets of $15.2 million and capital and surplus of $14.9 million as of December 31, 2002, is licensed to market insurance products in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. In June2002, the ownership of Central National was transferred to the Insurance Company as a capital contribution.

**B. Basis of Presentation and Principles of Consolidation**

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Intercompany transactions andbalances have been eliminated in consolidation. Certain amounts have been reclassified to conform to the current year’s presentation. The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from thoseestimates. The Company has one reportable operating segment and therefore, no additional disclosures are required under Statement of Financial Accounting Standards No. 131 "Disclosures About Segments of an Enterprise and Related Information". Operating segments aredefined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

**C. Investments**

Fixed maturity investments available for sale represent investments which may be sold in response to changes in various economic conditions. These investments are carried at fair value and net unrealizedgains (losses), net of the effects of amortization of deferred policy acquisition costs and deferred federal income taxes are credited or charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary in which casethe investment is reduced to its net realizable value and the loss is recorded in the income statement. Equity securities include common stocks and non-redeemable preferred stocks and are carried at market value, with the related unrealized gains and losses, net ofdeferred federal income tax effect, if any, charged or credited directly to shareholders' equity, unless a decline in market value is deemed to be other than temporary in which case the investment is reduced to its net realizable value.

"Other invested assets" are recorded using the equity method and primarily include interests in limited partnerships, which principally are engaged in real estate, international opportunities, acquisitionsof private growth companies, debt restructuring and merchant banking. In general, risks associated with such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level ofilliquidity, which is mitigated by the ability of the Company to take annual distributions of partnership earnings. To evaluate the appropriateness of the carrying value of a limited partnership interest, management maintains ongoing discussions with the investmentmanager and considers the limited partnership's operation, its current and near term projected financial condition, earnings capacity, and distributions received by the Company during the year. Because it is not practicable to obtain an independent valuation for eachlimited partnership interest, for purposes of disclosure

the market value of a limited partnership interest is estimated at book value.

	F-7.

 

 

Management believes that the net realizable value of such limited partnership interests, in the aggregate, exceeds their related carrying value as of December 31, 2002 and 2001. As of December 31, 2002, theCompany was committed to contribute, if called upon, an aggregate of approximately $122.4 million of additional capital to certain of these limited partnerships.

In evaluating whether an investment security or other investment has suffered an impairment in value which is deemed to be "other than temporary", management considers all available evidence. When a declinein the value of an investment security or other investment is considered to be other than temporary, the investment is reduced to its net realizable value, (which contemplates the price that can be obtained from the sale of such asset in the ordinary course ofbusiness) which becomes the new cost basis. The amount of reduction is recorded in the income statement as a realized loss. A recovery from the adjusted cost basis is recognized as a realized gain only at sale.

The Company participates in "dollar roll" repurchase agreement transactions to enhance investment income. Dollar roll transactions involve the sale of certain mortgage-backed securities to a holdinginstitution and a simultaneous agreement to purchase substantially similar securities for forward settlement at a lower dollar price. The proceeds are invested in short-term securities at a positive spread until the settlement date of the similar securities. Duringthis period, the holding institution receives all income and prepayments for the security. Dollar roll repurchase agreement transactions are treated as financing transactions for financial reporting purposes.

Realized gains and losses on disposal of investments are determined for fixed maturities and equity securities by the specific-identification method.

Investments in short-term securities, which consist primarily of United States Treasury Notes and corporate debt issues maturing in less than one year, are recorded at amortized cost, which approximatesmarket. Mortgage loans are stated at their amortized indebtedness. Policy loans are stated at their unpaid principal balance.

The Company's investments in real estate include two buildings in Nyack, New York, which are occupied entirely by the Company. The investments are carried at cost less accumulated depreciation. Depreciationhas been provided on a straight-line basis at the rate of 4% per annum for one building and 8% per annum for the other. Accumulated depreciation amounted to $206,800 and $206,800 at December 31, 2002 and 2001, respectively, and both buildings are fully depreciatedand have no depreciation expense for the years ended December 31, 2002, 2001 and 2000.

**D. Furniture and Equipment**

Furniture and equipment is carried at cost and depreciated on a straight line basis over a period of five to ten years except for automobiles which are depreciated over a period of three years. Accumulateddepreciation amounted to $1,073,200 and $894,900 at December 31, 2002 and 2001, respectively, and related depreciation expense for the years ended December 31, 2002, 2001 and 2000 was $178,300 $230,900 and $230,400, respectively.

**E. Recognition of Insurance Income and Related Expenses**

Premiums from traditional life and annuity policies with life contingencies are recognized as income over the premium paying period. Benefits and expenses are matched with such income so as to result in therecognition of profits over the life of the contracts. This matching is accomplished by means of the provision for liabilities for future policy benefits and the deferral and subsequent amortization of policy acquisition costs.

For contracts with a single premium or a limited number of premium payments due over a significantly shorter period than the total period over which benefits are provided ("limited payment contracts"),premiums are recorded as income when due with any excess profit deferred and recognized in income in a constant relationship to insurance in force or, for annuities, the amount of expected future benefit payments.

	F-8.

 

 

**E. Recognition of Insurance Income and Related Expenses - continued**

Premiums from universal life and investment-type contracts are reported as deposits to policyholders' account balances. Revenues from these contracts consist of amounts assessed during the period againstpolicyholders' account balances for mortality charges and surrender charges. Policy benefits and claims that are charged to expense include benefit claims incurred in the period in excess of related policyholders' account balances and interest credited topolicyholders' account balances.

For the years ended December 31, 2002, 2001, and 2000, approximately 41.3%, 35.5% and 52.0%, respectively, of premiums from traditional life, annuity, universal life and investment-type contracts receivedby the Company were attributable to sales to annuitants and policyholders residing in the State of New York.

**F. Deferred Policy Acquisition Costs**

The costs of acquiring new business (principally commissions, certain underwriting, agency and policy issue expenses), all of which vary with and are primarily related to the production of new business,have generally been deferred. When a policy is surrendered, the remaining unamortized cost is written off. Deferred policy acquisition costs are subject to recoverability testing at time of policy issue and loss recognition testing at the end of each year.

For immediate annuities with life contingencies, deferred policy acquisition costs are amortized over the life of the contract, in proportion to expected future benefit payments.

For traditional life policies, deferred policy acquisition costs are amortized over the premium paying periods of the related policies using assumptions that are consistent with those used in computing theliability for future policy benefits. Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts. For these contracts the amortization periods generally are for the scheduled life ofthe policy, not to exceed 30 years.

Deferred policy acquisition costs are amortized over periods ranging from 15 to 25 years for universal life products and investment-type products as a constant percentage of estimated gross profits arisingprincipally from surrender charges and interest and mortality margins based on historical and anticipated future experience, updated regularly. The effects of revisions to reflect actual experience on previous amortization of deferred policy acquisition costs,subject to the limitation that the accrued interest on the deferred acquisition costs balance may not exceed the amount of amortization for the year, are reflected in earnings in the period estimated gross profits are revised.

Unamortized deferred policy acquisition costs for the years ended December 31, 2002 and 2001 are summarized as follows:

**  
2002
 
2001

(in thousands)

Balance at the beginning of year
 
$

103,082 
 
$

74,262

Current year's costs deferred
 
31,306 
 
33,817

Total
 
134,388 
 
108,079

Less, amortization for the year
 
266 
 
9,932

Total
 
134,122 
 
98,147

Change in amortization related to
    
Unrealized(loss)gain in investments
 
(21,083)
 
4,935

Balance at the end of the year
 
$

113,039 
 
$

103,082
**

 

 

 

 

	F-9.

 

** **

** **

** **

** **

**G. Future Policy Benefits**

Future policy benefits for traditional life insurance policies are computed using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established atpolicy issue. Assumptions established at policy issue as to mortality and persistency are based on anticipated experience, which, together with interest and expense assumptions, provide a margin for adverse deviation. Benefit liabilities for deferred annuities duringthe accumulation period are equal to accumulated contract holders' fund balances and after annuitization are equal to the present value of expected future payments. During the three years in the period ended December 31, 2002, interest rates used in establishing suchliabilities range from 4.5% to 11% for life insurance liabilities and from 5.5% to 13.60% for annuity liabilities.

**H. Policyholders' Account Balances**

Policyholders' account balances for universal life and investment-type contracts are equal to the policy account values. The policy account values represent an accumulation of gross premium payments pluscredited interest less mortality and expense charges and withdrawals.

These account balances are summarized as follows:

|                                  |   | 2002           |   | 2001        |   |
|---------------------------------------|--------|----------------|--------|-------------|--------|
|                                  |   | (in thousands) |
| Account balances at beginning of year |   | $ 2,167,332    |   | $ 1,596,043 |   |
| Additions to account balances         |   | 947,239        |   | 749,309     |   |
| Total                                 |   | 3,114,571      |   | 2,345,352   |   |
| Deductions from account balances      |   | 203,017        |   | 178,020     |   |
|                                  |   |           |   |        |   |
| Account balances at end of year       |   | $ 2,911,554    |   | $ 2,167,332 |   |

Interest rates credited to account balances ranged from 4% to 12.5% in 2002, 2001 and 2000.

**I. Federal Income Taxes**

The Company and its subsidiaries file a consolidated Federal income tax return. The asset and liability method in recording income taxes on all transactions that have been recognized in the financialstatements is used. Deferred income taxes are adjusted to reflect tax rates at which future tax liabilities or assets are expected to be settled or realized.

**J. Separate Accounts**

Separate Accounts are established in conformity with New York State Insurance Law and represent funds for which investment income and investment gains and losses accrue to the policyholders. Assets andliabilities (stated at market value) of the Separate Account, representing net deposits and accumulated net investment earnings less fees, held primarily for the benefit of contractholders, are shown as separate captions in the consolidated balance sheets.

Deposits to the Separate Account are reported as increases in Separate Account liabilities and are not reported in revenues. Mortality, policy administration and surrender charges to the Separate Accountare included in revenues.

 

 

 

 

 

F-10.

** **

**K. Earnings Per Common Share**

The Company has calculated earnings per share (EPS) presented on the face on the consolidated statement of income in accordance with SFAS No.128, Earnings Per Share. Basic EPS is computed based upon theweighted average number of common shares outstanding during the year. Diluted EPS is computed based upon the weighted average number of common shares including contingently issuable shares and other dilutive items. The weighted average number of common shares used tocompute diluted EPS for the year ended December 31, 2002, 2001 and 2000 was 29,374,401, 29,340,215 and 30,169,692 respectively. The dilution from the potential exercise of stock options outstanding did not change basic EPS.

**L. Cash and Cash Equivalents**

Cash and cash equivalents includes cash on hand and amounts due from banks with an original maturity of three months or less.

**M. New Accounting Pronouncements**

In June 2000, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities-anAmendment of FASB Statement No. 137, Accounting for Derivative Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement No. 133 ("SFAS 137"). SFAS 137 deferred the provisions of Statement of Financial Accounting Standards No. 133, Accountingfor Derivative Instruments and Hedging Activities ("SFAS 133") until January 1, 2001. SFAS 133, as amended by SFAS 138, requires, among other things, that all derivatives be recognized in the consolidated balance sheets as either assets or liabilities and measured atfair value. The corresponding derivative gains and losses should be reported based upon the hedge relationship, if such a relationship exists. Changes in the fair value of derivatives that are not designated as hedges or that do not meet the hedge accounting criteriain SFAS 133 and SFAS 138 are required to be reported in income. The impact of adopting SFAS 133 and 138 was to record, as a transition adjustment to accumulated comprehensive income, effective January 1, 2001, an unrealized loss of $5.5 million. In July 2001, theFinancial Accounting Standards Board ("FASB") issued certain additional guidance relating to the identification of embedded derivatives under SFAS 133 and SFAS 138. The Financial Accounting Standards Board ("FASB") continues to issue additional guidance relating tothe accounting for derivatives under SFAS 133 and SFAS 138. The adoption of the additional guidance related to SFAS 133 and SFAS 138 did not have an impact on the Company¢ s Consolidated Financial Statements at December 31,2002.

Effective April 1, 2001, the Company adopted certain additional accounting and reporting requirements of SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities - a Replacement of FASB Statement No. 125, relating to the derecognition of transferred assets and extinguished liabilities and the reporting of servicing assets and liabilities. The initial adoption of these requirements didnot have an impact on the Company¢ s consolidated financial statements.

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other IntangibleAssets." SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratableamortization of goodwill be replaced with periodic tests of the goodwill's impairment and identifiable intangible assets other that goodwill be amortized over their useful lives. SFAS No. 141 is effective for which the date of acquisitions made after June 30, 2001.The provisions of SFAS No. 142 were effective for fiscal years beginning after December 15, 2001. Adoption of SFAS 141 and SFAS 142 did not have a material impact on the Company's consolidated financial statements for 2001 and 2002.

In September 2001, the Emerging Issues Task Force issued No. 01-10, "Accounting for the Impact of the Terrorist Attack of September 11, 2001" (EITF 01-10 requires that losses or cost resulting from theSeptember 11th events be classified as part of income from continuing operations in the statement of operations. Application of EITF 01-10 did not have an impact on the Company's consolidated financial statements.

F-11

 

	In July 2001, the SEC released Staff Accounting Bulletin 102, Selected Loan Loss Allowance and Documentation Issues ("SAB 102"). SAB 102 summarizes certain of the SEC's views on the development,documentation and application of a systematic methodology for determining allowances for loan and lease losses. Adoption of SAB 102 by the Company did not have a material impact on the Company's consolidated financial statements.

In October 2001, the FASB issued SFAS No.144, Accounting for the Impairment of Disposal of Long-Lived Assets ("SFAS 144"). SFAS provides a single model for accounting for long-lived assets to be disposed bysuperceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No.30, Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less cost to sellrather than on a net realizable value basis. Future operating losses relating to discontinued operations are also no longer recognized before they occur. SFAS 144 broadens the definition of a discontinued operation to include a component of an entity (rather than asegment of a business.) SFAS 144 also requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the presentation of discontinued operations in theincome statement, (ii) SFAS 121 relating to recognition and measurement of impaired long-lived assets classified as held for sale. SFAS 144 was effective beginning January 1, 2002. The adoption of SFAS 144 by the Company did not have an impact on the Company'sconsolidated financial statements.

In August 2002, the FASB issued SFAS No.146, Accounting for Costs Associated with Exit or Disposal Activities (2 SFAS 1462 ).The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Previous accounting guidance was provided by EITF 94-3, 2 Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)2 . SFAS 146 replaces EITF 94-3. The provisions of thisstatement are effective for exit or disposal activities that are initiated after December 31, 2002.

The adoption of SFAS 146 is not expected to have a material impact on the Company¢ s consolidated financial statements.

	In October 2002, the FASB issued SFAS No.147, Acquisitions of Certain Financial Institutions (2 SFAS 1472 ). This statement, which provides guidanceon the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises. The standard is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. Theadoption of SFAS 147 did not have a material impact on the Company¢ s consolidated financial statements.

	In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others (2 FIN2 45). FIN 45 requires entities to establish liabilities for certain types of guarantees, and expands financial sttement disclosures for others. Disclosure requirements under FIN 45 are effective for financialstatements of annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the provisions of FIN 45. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis toguarantees issued or modified after December 31, 2002. The Company does not expect the adoption of FIN 45 to have a significant impact on the Company’s consolidated financial statements.

	In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (2 FIN 462 ). FIN 46 requires certain variableinterest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have sufficeint equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company is in the process of assessing the impactof FIN 46 on its consolidated financial statements.

F-12

 

 

In March 1999, the National Association of Insurance Commissioner ("NAIC") adopted the Codification of Statutory Accounting Principles (the "Codification"). The Codification, which is intended tostandardize regulatory accounting and reporting to state insurance departments, is effective January 1, 2001. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The New York State Insurance Dept("NYSID") required adoption of the Codification with certain modifications, for the preparation of statutory financial statements was effective January 1, 2001. On October 1, 2002, NYSID modified its original adoption of Codification to allow for the recognition ofDeferred Tax Assets (2 DTA2 ) and Deferred Tax Liabilities (2 DTL2 ). Such a change allowed the Insurance Company to realize a DTA ofapproximately $22.4 million. The adoption of Codification by the NAIC and the Codification as modified by the NYSID, as currently interpreted, did not adversely affect statutory capital and surplus as of December 31, 2002 and 2001.

- **INVESTMENTS**

The following information summarizes the components of net investment income and realized investment losses:

| Net Investment Income:   |
|--------------------------|
| Year Ended December 31   |
|                     |   | 2002 |   | 2001 |   | 2000 |
| (in thousands)           |
| Fixed maturities         |  | $ | 234,256 |  | $ | 177,531 |  | $ | 168,885 |
| Common stocks            |   | 332 |   | 240 |   | 770 |
| Short-term investments   |   | 6,294 |   | 13,723 |   | 17,432 |
| Other investment income  |   | 31,754 |   | 47,961 |   | 42,941 |
|                     |   | 272,636 |   | 239,455 |   | 230,028 |
|                     |   |   |   |   |   |   |
| Less investment expenses |   | 5,075 |   | 5,330 |   | 4,804 |
|                     |   |   |   |   |   |   |
| Net investment income    |   | $ | 267,561 |   | $ | 234,125 |   | $ | 225,224 |
|                     |   |   |   |   |   |   |   |

In 2002, 2001 and 2000 there were thirty-two fixed maturity investments with a carrying value of $215.7 million and sixteen fixed maturity investments with a carrying value of $134.9 and eight fixedmaturity investments with a carrying value of $42.0 million respectively, in the accompanying balance sheet which were non-income producing. Nineteen of these fixed maturity investments in 2002, twelve in 2001 and five in 2000 with a carrying value of $203.5, and$113.4 and $38.3 respectively, are defeased with U.S Treasuries in an amount sufficient to insure full payment of principal.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-13

 

| Realized Investment Losses:           |
|---------------------------------------|
|                                  |
|                                  |   | Year Ended December 31, |
|                                  |   | 2002 |   | 2001 |   | 2000 |
| (in thousands)                        |
| Fixed maturities                      |   | $ | (145,290) |   | $ | (56,826) |   | $ | (7,806) |
| Common stocks                         |   | (1,453) |   | (8,306)  |   | (643) |
| Total realized losses                 |   |   |   |   |   |   |
| on investments                        |   | $ | (146,743) |   | $ | (65,132) |   | $ | (8,449) |
|                                  |   |   |   |   |   |   |
| Unrealized Investment Gains (Losses): |   |   |   |   |   |   |
|                                  |   |   |   |   |   |   |
| Year Ended December 31,               |
|                                  |   | 2002 |   | 2001 |   | 2000 |
| (in thousands)                        |
| Fixed maturities                      |   | $ | 45,807  |   | $ (60,330) |   | $ (30,686) |
| Common stocks                         |   | 129  |   | 6,672  |   | 2,589  |
| Unrealized investment                 |   |   |   |   |   |   |
| gains (losses)                        |  | $ | 45,936  |  | $ | (53,658) |  | $ (28,097) |
| Amortization (benefit) of             |   |   |   |   |   |   |
| deferred acquisition costs            |   | (12,148) |   | 8,935  |   | 4,000  |
| Deferred federal income               |   |   |   |   |   |   |
| taxes (benefit)                       |   | (11,826) |   | 15,656  |   | 8,434  |
| Transition Adjustment                 |   | (4,142) |   | (5,485) |   | - |
| Net unrealized investment             |   |   |   |   |   |   |
| gains (losses)                        |   | 17,820  |   | (34,552) |   | (15,663) |
| Change in net unrealized              |   |   |   |   |   |   |
| investment gains (losses)             |   | $ | 52,372  |   | $ (18,889) |   | $ 52,428 |

 

The change in unrealized investment gains (losses) shown above resulted primarily from changes in general economic conditions which directly influenced investment security markets. These changes were alsoimpacted by writedowns of investment securities for declines in market values deemed to be other than temporary.

 

**2.	INVESTMENTS**

The following tables provide additional information relating to investments held by the company:

**December 31,2002:**

| AVAILABLE FOR SALE:         |
|-----------------------------|
|                        |   | Cost or Amortized |   | Gross Unrealized |   | Market |
| Type of Investment          |   | Cost |   | Gains |   | Losses |   | Value |
| (in thousands)              |
| Fixed Maturities:           |   |   |   |   |   |   |   |   |
| Bonds and Notes:            |   |   |   |   |   |   |   |   |
| United States government    |   |   |   |   |   |   |   |   |
| and government agencies     |   |   |   |   |   |   |   |   |
| and authorities             |   | $ | 527,587 |   | $ 33,978 |   | $ 1,045 |   | $ 560,520 |
| States, municipalities and  |   |   |   |   |   |   |   |   |
| political subdivisions      |   | 9,200  |   | 3,276  |   | 0 |   | 12,476 |
| Foreign governments         |   | 13,887  |   | 1,437  |   | 1,669 |   | 13,655 |
| Public utilities            |  | 408,182  |  | 18,337  |  | 23,622 |  | 402,897 |
| All other corporate bonds   |   | 2,461,829  |   | 153,557  |   | 142,849 |   | 2,472,537 |
| Preferred stocks, primarily |   |   |   |   |   |   |   |   |
| corporate                   |   | 176,089  |   | 5,759  |   | 1,351 |   | 180,497 |
| Total Fixed Maturities:     |   | $3,596,774  |   | $ 216,344  |   | $ 170,536 |   | $3,642,582 |
|                        |   |   |   |  |   |   |   |   |
| Common Stocks               |   | $ | 16,757  |   | $ 1,594 |   | $ 1,465 |   | $ 16,886 |

F-14

 

** **

** **

** **

**December 31,2001:**

| AVAILABLE FOR SALE:         |
|-----------------------------|
|                        |   | Cost or Amortized |   | Gross Unrealized |   | Market |
| Type of Investment          |   | Cost |   | Gains |   | Losses |   | Value |
| (in thousands)              |
| Fixed Maturities:           |   |   |   |   |   |   |   |   |
| Bonds and Notes:            |   |   |   |   |   |   |   |   |
| United States government    |   |   |   |   |   |   |   |   |
| and government agencies     |   |   |   |   |   |   |   |   |
| and authorities             |   | $ 363,892 |   | $ 20,126 |   | $ 2,005 |   | $382,013 |
| States, municipalities and  |   |   |   |   |   |   |   |   |
| political subdivisions      |   | 7,427 |   | 0 |   | 0 |   | 7,427 |
| Foreign governments         |   | 8,754 |   | 2,108 |   | 0 |   | 10,862 |
| Public utilities            |  | 349,839 |  | 8,397 |  | 11,074 |  | 347,162 |
| All other corporate bonds   |   | 2,083,287 |   | 72,655 |   | 155,215 |   | 2,000,727 |
| Preferred stocks, primarily |   |   |   |   |   |   |   |   |
| corporate                   |   | 214,815 |   | 6,786 |   | 2,108 |   | 219,493 |
| Total Fixed Maturities:     |  | $3,028,014 |  | $ 110,072 |  | $ 170,402 |  | $2,967,684 |
|                        |   |   |   |   |   |   |   |   |
| Common Stocks               |   | $ 19,237 |   | $ 6,734 |   | $ 62 |   | $25,909 |

The estimated fair value of fixed maturities available for sale at December 31, 2002, by contractual maturity, are as follows. Expected maturities will differ from contractual maturities because borrowersmay have the right to call or prepay obligations with or without penalties.

|                                   | Market Value   |
|----------------------------------------|----------------|
|                                   | (in thousands) |
|                                        |                |
| Due in one year or less                | $ 14,885       |
| Due after one year through five years  | 66,337         |
| Due after five years through ten years | 599,257        |
| Due after ten years                    | 2,781,605      |
| Total debt securities                  | 3,462,084      |
| Preferred stock                        | 180,498        |
|                                   |           |
| Total                                  | $3,642,582     |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-15

Proceeds from sales and maturities of fixed maturities during 2002, 2001 and 2000 were $396.8 million, $251.6 million and $129.7 million, respectively. During 2002, 2001 and 2000, respectively, gross gainsof $18.0 million, $14.1 million and $10.0 million and gross losses of $90.3 million, $80.6 million and $.3 million were realized on those sales.

As of December 31, 2002, retail properties in Pennsylvania collateralized the Company’s mortgage loan.

There were no investments owned in any one issuer that aggregate 10% or more of shareholders' equity as of December 31, 2002.

As of December 31, 2002 securities with a carrying value of approximately $11.6 million were on deposit with various state insurance departments to comply with applicable insurance laws.

**3. NOTES PAYABLE**

Notes payable at December 31, 2002 and 2001 consist of $100 million, 7 7/8% Senior Notes ("Senior Notes") due February 15, 2009. Interest is payable February 15 and August 15. Debt issue costs are beingamortized on the interest method over the term of the notes. As of December 31, 2002, unamortized costs were $1.4 million. The total principal is due on February 15, 2009. In addition, the Company had deferred losses of approximately $4.1 million recorded inaccumulated other comprehensive income as of December 31, 2002, related to an interest rate lock agreement used to hedge the issuance of the Senior Notes. The Company reclassifies the deferred loss from a liability to accumulated other comprehensive income over theterm of the notes. The Company expects to reclassify approximately $672,000 into earnings within the next 12 months.

The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company. In the event the Company violates such covenantsas defined in the indenture, the Company may be obligated to offer to repurchase the entire outstanding principal amount of such notes. As of December 31, 2002, the Company believes that it is in compliance with all of the covenants.

The short-term note payable relates to a bank line of credit in the amount of $50,000,000 and provides for interest on borrowings based on market indices. At December 31, 2002 and 2001 the Company had$50,000,000 and $50,000,000 outstanding, respectively. For the year ended December 31, 2002 and 2001 the short-term note payable had a weighted average interest rate of 2.39% and 2.97%, respectively.

**4. SHAREHOLDERS' EQUITY**

During 2002, the Company's Board of Directors maintained the quarterly dividend rate of $.10 per share. During 2002, 2001 and 2000, the Company purchased and retired 0, 26,000 and 1,506,200 shares of commonstock, respectively. The Company is authorized pursuant to a resolution of the Board of Directors to purchase an additional 385,000 shares of common stock.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F-16

** **

 

 

 

 

The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances that it may make to the Company without obtaining prior regulatoryapproval.Under the New York Insurance Law,the Insurance Companyis permitted without prior insurance regulatory clearance to pay astockholder dividend to the Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus as of the immediately preceding calendar year and (ii) its net gain from operations for the immediatelypreceding calendar year (excluding realized capital gains).The Insurance Companywill be permitted to pay a stockholder dividend to the Company in excess of the lesser of suchtwo amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution. Under the New York Insurance Law, the Superintendent has broad discretion indetermining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders. The New York InsuranceNYSIDhasestablished informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices. Management of the Company cannot provide assurance thatthe Insurance Companywill have statutory earnings to support payment of dividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or thatthe Superintendent will not disapprove any dividends thatthe Insurance Companymust submit for the Superintendent's consideration. The Company's other insurance subsidiary isalso subject to restrictions on the payment of dividends to their respective parent companies.To preserve capital, the Insurance Company paid no dividends in fiscal 2002 and in 2001 and 2000, the Insurance Companypaid dividends of $27.7 million and $49.6 million, respectively, to the Company.

.

| Other Comprehensive Income (loss)             |
|-----------------------------------------------|
| For the years ended                           |   |   |   | Tax |   | After- |   |
| December 31,                                  |   | Pre-Tax |   | Expense/ |   | Tax |   |
|                                          |   | Amount |   | (Benefit) |   | Amount |   |
| (in thousands)                                |   |
| 2002                                          |   |   |   |   |   |   |   |
| Unrealized gains(losses)on                    |   | $ | 206,394  |   | $ | 61,918  |   | $ | 144,476  |   |
| investment securities:                        |   |   |   |   |   |   |   |
| Unrealized holding gains arising during year  |   |   |   |   |   |   |   |
| Less: reclassification adjustment for losses  |   |   |   |   |   |   |   |
| realized in net income                        |   | 146,743  |   | 44,023  |   | 102,720  |   |
| Change related to deferred acquisition costs  |   | (21,083) |   | (6,325) |   | (14,758) |   |
|                                          |   |   |   |   |   |   |   |
| Net unrealized investment gains               |   | 80,734  |   | 24,220  |   | 56,514  |   |
|                                          |   |   |   |   |   |   |   |
| 2001                                          |   |   |   |   |   |   |   |
| Unrealized gains(losses) on                   |   |   |   |   |   |   |   |
| investment securities:                        |   |   |   |   |   |   |   |
| Unrealized holding losses arising during year |   | $ (89,213) |   | (26,764) |   | $ (62,449) |   |
| Less: reclassification adjustment for gains   |   |   |   |   |   |   |   |
| realized in net income                        |   | 65,132  |   | 19,540   |   | 45,592  |   |
| Change related to deferred acquisition costs  |   | 4,935  |   | 1,481   |   | 3,454  |   |
|                                          |   |   |   |   |   |   |   |
| Net unrealized investment losses              |   | (19,146) |   | (5,743)  |   | (13,403) |   |
|                                          |   |   |   |   |   |   |   |
| 2000                                          |   |   |   |   |   |   |   |
| Unrealized gains(losses) on                   |   |   |   |   |   |   |   |
| investment securities:                        |   |   |   |   |   |   |   |
| Unrealized holding losses arising during year |   | $ 46,997 |   | $	11,616   |   | $ 35,381 |   |
| Less: reclassification adjustment for gains   |   |   |   |   |   |   |   |
| realized in net income                        |   | 8,449 |   | 2,088 |   | 6,361 |   |
| Change related to deferred acquisition costs  |   | 14,195 |   | 3,509 |   | 10,686 |   |
|                                          |   |   |   |   |   |   |   |
| Net unrealized investment gains               |   | 69,641 |   | 17,213   |   | 52,428 |   |
|                                          |   |   |   |   |   |   |   |

 

 

F-17

 

 

**5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS**

(a) Employee Retirement Plan

The Company has a noncontributory defined benefit pension plan covering all eligible employees. The Company is both sponsor and administrator of this plan. The plan provides for pension benefits based onaverage pay and years of service.

|                                          |
|------------------------------------------|
|                                          |  | Year Ended December 31, |
|                                     |   | 2002 |   | 2001 |
| (in thousands)                           |
|                                     |   |   |   |   |
|                                     |   |   |   |   |
|                                     |   |   |   |   |
| Change in benefit obligation             |   |   |   |   |
| Benefit obligation (beginning of year)   |   | $ | 7,371  |   | $ | 5,560  |
| Service cost                             |   | 495  |   | 412  |
| Interest cost                            |   | 499  |   | 323  |
| Actuarial gain                           |   | 607  |   | 1,245  |
| Benefits paid                            |   | (236) |   | (169) |
| Benefit obligation (end of year)         |   | 8,736  |   | 7,371  |
|                                     |   |   |   |   |
| Change in Plan assets                    |   |   |   |   |
| Fair value of assets (beginning of year) |   | 5,454  |   | 4,866  |
| Actual return on plan assets             |   | (2) |   | 332  |
| Employer contribution                    |   | 427  |   | 425  |
| Benefits paid                            |   | (236) |   | (169) |
| Fair value of assets (end of year)       |   | 5,643  |   | 5,454  |
|                                     |   |   |   |   |
| Funded status                            |   | (3,093) |   | (923) |
| Unrecognized transition amount           |   | 28  |   | 56  |
| Unrecognized net actuarial loss          |   | 1,062  |   | (945) |
| Prepaid (accrued) benefit cost           |   | (2,003) |   |   | (1,812) |
|                                     |   |   |   |   |
| Weighted average assumptions             |   |   |   |   |
|                                     |   |   |   |   |
| Discount rate                            |   | 6.50% |   | 7.00% |
| Expected return on assets                |   | 7.50% |   | 7.50% |
| Rate of compensation increase            |   | 3.00% |   | 3.00% |
|                                     |   |   |   |   |
| Components of net periodic benefit cost  |   |   |   |   |
| Service cost                             |   | $ | 495  |   | $ | 411  |
| Interest cost                            |   | 499  |   | 323  |
| Expected return on assets                |   | (404) |   | (372) |
| Amortization of prior service cost       |   | 28  |   | 28  |
| Recognized net actuarial loss            |   | -  |   | (110) |
| Net periodic benefit cost                |   | $ | 618  |   | $ | 280  |
|                                     |   |   |   |   |
|                                     |   |   |   |   |
|                                     |   |   |   |   |

 

(b) Employee Savings Plan

The Company adopted an Internal Revenue Code (IRC) Section 401(k) plan for its employees effective January 1, 1992. Under the plan, participants may contribute up to a maximum of 25% of their pre-taxearnings or the dollar limit as prescribed by IRC Section 415(d). The Company may match a portion of participants’ pre-tax earnings. For the years ended December 31, 2002, 2001 and 2000, the Company's contribution was approximately $53,000, $49,000 and $48,000,respectively.

 

	F-18

 

 

**5. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS - CONTINUED**

(c) Employee Stock Option Plan

The Company has adopted an incentive stock option plan recommended by the Board of Directors and approved by the shareholders. This plan grants options to purchase up to 1,000,000 shares of common stock ofthe Company to officers and key employees. Option prices are 100% of the fair market value at date of grant. The following schedule shows all options granted, exercised, expired and exchanged under the Company's Incentive Stock Option Plan as of December 31,2002.

Information relating to the options is as follows:

| Option Price                   |
|--------------------------------|
|                           |   | Number |   | Amount |   | Total |
|                           |   | of Shares |   | Per Share |   | Price |
|                           |   |   |   |   |   |   |
| Outstanding, January 1, 1999   |   | 242,422 |   | $ 16.51 |   | $4,001,342 |
| Granted                        |   | 113,700 |   | 14.93 |   | 1,697,882 |
| Exercised                      |   | (9,368) |   | 9.69 |   | (90,753) |
| Cancelled                      |  | (31,500) |  | 13.45 |  | (423,783) |
|                           |   |   |   |   |   |   |
| Outstanding, December 31, 2000 |   | 315,254 |   | $ 16.45 |   | $5,184,688 |
| Granted                        |   | 168,950  |   | 19.20 |   | 3,243,840  |
| Exercised                      |   | (36,454) |   | 9.73 |   | (354,552) |
| Cancelled                      |   | (5,650) |   | 17.44 |   | (98,542) |
|                           |   |   |   |   |   |   |
| Outstanding, December 31, 2001 |   | 442,100 |   | 18.04 |   | $7,975,484 |
| Granted                        |   | 179,750 |   | 15.60 |   | 2,804,100 |
| Exercised                      |   | (13,977) |   | 15.125 |   | (211,402) |
| Cancelled                      |   | (50,574) |   | 22.46 |   | (1,135,892) |
|                           |   |   |   |   |   |   |
| Outstanding, December 31, 2002 |   | 557,299 |   | $ 16.92 |   | $9,432,290 |
|                           |   |   |   |   |   |   |

At December 31, 2002, 220,044 options for shares of common stock were exercisable.

The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for its fixed stockoption plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the method of FASB Statement 123, the Company's net income and earnings per common share forthe years ended December 31, 2002, 2001 and 2000 would have been reduced to the pro forma amounts indicated below:

| Net income (in thousands) |   | Year Ended December 31, |
|---------------------------|--------|-------------------------|
|                      |   | 2002                    |   | 2001 |   |   | 2000 |
|                      |   |                    |   |   |   |   |   |
| As reported               |   | $                       | (69,269) |   | $ | (7,705) |   | $ | 40,862 |
| Pro forma                 |   | (69,448)                |   | (7,920) |   | $ | 40,765 |
|                      |   |                    |   |   |   |   |   |
| Earnings per common share |   |                    |   |   |   |   |   |
|                           |        |                         |  |  |  |  |  |
| As reported               |   | $                       | (2.36) |   | $ | (.26) |   | $ | 1.36 |
| Pro forma                 |   |                    | (2.37) |   | $ | (.27) |   | $ | 1.36 |
|                      |   |                    |   |   |   |   |   |

 

The fair value of options granted under the Company's fixed stock option plan during 2002 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-averageassumptions used: dividend yield of 2.56%, expected volatility of 46.0%, risk free interest rate of 6.0%, and expected lives of 4 years.

 

	F-19

 

 

 

**6. INCOME TAXES**

The following is a reconciliation of income taxes computed using the Federal statutory rate with the provision for income taxes for the years ended December 31:

|                                |   | 2002        |   | 2001      |    | 2000      |
|-------------------------------------|--------|-------------|--------|-----------|---------|-----------|
| (in thousands)                      |
| Provision for income taxes computed |   |        |   |      |    |      |
| at Federal statutory rate           |   | $(34,734)   |   | $         | (6,510) |      | $ | 20,296 |
|                                |   |        |   |      |    |      |
| Increase (decrease) in income taxes |   |        |   |      |    |      |
| resulting from:                     |   |        |   |      |    |      |
| Losses producing no current benefit |   |        |   | 0    |    | 671  |
| Other                               |   | 4,762  |   | (4,386)   |    | (3,840)   |
|                                |   |        |   |      |    |      |
| Provision (benefit) for Federal     |   |        |   |      |    |      |
| income taxes                        |   | $(29,972)   |   | $(10,896) |    | $         | 17,127 |
|                                |   |        |   |      |    |      |
|                                |   |        |   |      |    |      |
|                                |   |        |   |      |    |      |

The Company provides for deferred income taxes resulting from temporary differences, which arise from recording certain transactions in different years for income tax reporting purposes than for financialreporting purposes. The sources of these differences and the tax effect of each were as follows:

|                              |   | 2002           |        | 2001    |          | 2000        |
|-----------------------------------|--------|----------------|-------------|---------|---------------|-------------|
|                              |   | (in thousands) |
| Deferred policy acquisition costs |   | $              | 8,196  |    | $ 6,215  |        | $ 3,001 |
| Policyholders' account balances   |        | 21        |             | (8)     |               | 341    |
| Investment adjustments            |   | (23,425)       |        | 3,105   |          | (7,376)     |
| Insurance policy liabilities      |   | (2,315)        |        | (1,548) |          | 1,228  |
| Other                             |   | (4,079)        |        | (5,297) |          | 760    |
| Deferred Federal income tax       |   |           |        |    |          |        |
| expense/(benefit)                 |   | $              | (21,602)    |    | $ 2,467  |        | $(2,046) |
|                              |   |           |        |    |          |        |

Deferred federal income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for incometax purposes, and (b) operating loss carryforwards. Significant components of the Company's net deferred federal tax (asset) liability as of December 31, 2002 and 2001 are as follows:

|                                   |   | 2002               |   | 2001       |
|----------------------------------------|--------|--------------------|--------|------------|
| Deferred federal income tax asset:     |   | (in thousands)     |   |       |
| Investments                            |   | $ (38,190)         |   | $ (14,921) |
| Net unrealized investment losses       |   | 11,670   |   | (15,656)   |
| Insurance policy liabilities           |   | (12,396)           |   | (10,080)   |
| Operating loss carryforwards           |   | (886)         |   | (2,048)    |
| Capital loss carryforward              |   | (9,522)            |   | (4,145)    |
| Other                                  |   | (1,256)            |   | (1,392)    |
|                                   |   | (50,580)           |   | (48,242)   |
| Valuation allowance                    |   | 4,520    |   | 4,520      |
| Net deferred federal income tax asset  |   | $ (46,060)         |   | $ (43,722) |
|                                   |   |               |   |       |
| Deferred federal income tax liability: |   |               |   |       |
| Deferred policy acquisition costs      |   | $ 35,715           |   | $ 27,518   |
| Policyholder account balances          |   | 420      |   | 399        |
| Other                                  |   | 606      |   | 606        |
| Deferred federal income tax liability  |   | 36,741             |   | $ 28,523   |
| Net deferred federal income tax        |   |               |   |       |
| asset                                  |   | $ (9,319)          |   | $ (15,199) |
|                                   |   |               |   |       |

	F-20

 

** **

** **

** **

**6. INCOME TAXES - CONTINUED**

 

The valuation allowance relates principally to investment writedowns recorded for financial reporting purposes, which have not been recognized for income tax purposes, due to the uncertainty associated withtheir realizability for income tax purposes.

Prior to 1984, Federal income tax law allowed life insurance companies to exclude from taxable income and set aside certain amounts in a tax memorandum account known as the Policyholder Surplus Account("PSA"). Under the tax law, the PSA has been frozen at its December 31, 1983 balance of $2,900,000, which may under certain circumstances become taxable in the future. The Insurance Company does not believe that any significant portion of the amount in this accountwill be taxed in the foreseeable future. Accordingly, no provision for income taxes has been made thereon. If the amount in the PSA were to become taxable, the resulting liability using current rates would be approximately $1,015,000.

Under current tax law, there are certain limitations on the utilization of non-life insurance company losses ("non-life losses") against life insurance company income ("life income") in a consolidatedfederal income tax return. The utilization of non-life losses against life income in any year is limited to the lesser of 35 percent of life income or 35 percent of non-life losses. Any unutilized balance of non-life losses is carried over to subsequent taxyears.

The Company has net operating loss carryforwards of approximately $2,531,000 at December 31, 2002 of which $1,226,000 expire in 2018; $646,000 in 2019 and $659,000 in 2020.

 

**7. REINSURANCE**

Reinsurance allows life insurance companies to share risks on a case by case or aggregate basis with other insurance and reinsurance companies. The Insurance Company cedes insurance to the reinsurer andcompensates the reinsurer for its assumption of risk. The maximum amount of individual life insurance normally retained by the Company on any one life is $50,000 per policy and $100,000 per life. The maximum retention with respect to impaired risk policies typicallyis the same. The Insurance Company cedes insurance primarily on an "automatic" basis, under which risks are ceded to a reinsurer on specific blocks of business where the underlying risks meet certain predetermined criteria, and on a "facultative" basis, under whichthe reinsurer's prior approval is required on each risk reinsured.

The reinsurance of a risk does not discharge the primary liability of the insurance company ceding that risk, but the reinsured portion of the claim is recoverable from the reinsurer. The major reinsurancetreaties into which the Insurance Company has entered can be characterized as follows:

Reinsurance ceded from the Insurance Company to Swiss Re Life & Health America Inc. at December 31, 2002 and 2001 consists of coinsurance agreements aggregating face amounts of $310.1 million and $274.4million, respectively, representing the amount of individual life insurance contracts that were ceded to the reinsurers. The term "coinsurance" refers to an arrangement under which the Insurance Company pays the reinsurers the gross premiums on the portion of thepolicy to be reinsured and the reinsurers grant a ceding commission to the Insurance Company to cover its acquisition costs plus a margin for profit.

Premiums ceded for 2002, 2001 and 2000 amounted to approximately $6.5 million, $6.1 million, and $5.6 million, respectively.

 

 

 

	F-21

 

 

 

**8. STATUTORY FINANCIAL STATEMENTS**

Accounting practices used to prepare statutory financial statements for regulatory filings of stock life insurance companies differ from GAAP. Material differences resulting from these accounting practicesinclude: deferred policy acquisition costs, deferred Federal income taxes and statutory non-admitted assets are recognized under GAAP accounting while statutory investment valuation and interest maintenance reserves are not; premiums for universal life andinvestment-type products are recognized as revenues for statutory purposes and as deposits to policyholders' accounts under GAAP; different assumptions are used in calculating future policyholders' benefits; and different methods are used for calculating valuationallowances for statutory and GAAP purposes; fixed maturities are recorded at market value under GAAP while under statutory accounting practices they are recorded principally at amortized cost.

In March 1999, the NAIC adopted the Codification. The Codification, which is intended to standardize regulatory accounting and reporting to state insurance departments, is effective January 1, 2001.However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The NYSID required adoption of the Codification with certain modifications, for the preparation of statutory financial statements effectiveJanuary 1, 2001. On October 1, 2002, the NYSID modified its orginal adoption of Codification to allow for the recognition of DTA¢ s and DTL¢ s, with certain restrictions. DTA’s are equal to the sumof the lesser of: The amount of gross DTA expected to be realized within one year of the balance sheet date; or ten percent of statutory capital and surplus as reported on it’s most recently filed statutory statement; and the amount of gross DTA’s thatcan be offset against deferred existing gross DTL’s. This change allowed the Insurance Company to realize a DTA of approximately $22.4 million. The adoption of Codification by the NAIC and the Codification as modified by the NYSID, as currently interpreted, didnot adversely affect statutory capital and surplus as of December 31, 2002.

| For the years ended December 31, |
|----------------------------------|
|                             |   |   |   |   |   |   |
|                             |   | 2002 |   | 2001 |   | 2000 |
| (in thousands)                   |
|                             |   |   |   |   |   |   |
| Statutory surplus                |   | $ 200,352 |   | $ | 245,403  |   | $ | 279,163 |
| Statutory net (loss) income      |   | $ (88,192) |   | $ | (59,026) |   | $ | 41,090 |

**9. LITIGATION**

From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. The Company is not a party to any legal proceedings, the adverseoutcome of which, in management's opinion, individually or in the aggregate, would have a material adverse effect on the Company's financial position or results of operations.

**10. FAIR VALUE INFORMATION**

The following estimated fair value disclosures of financial instruments have been determined using available market information, current pricing information and appropriate valuation methodologies. Ifquoted market prices were not readily available for a financial instrument, management determined an estimated fair value. Accordingly, the estimates may not be indicative of the amounts the Company could have realized in a market transaction.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.

For fixed maturities and common stocks, estimated fair values were based primarily upon independent pricing services. For a limited number of privately placed securities, where prices are not available fromindependent pricing services, the Company estimates market values using a matrix pricing model, based on the issuer's credit standing and the security's interest rate spread over U.S. Treasury bonds.

 

F-22

 

 

 

 

**10. FAIR VALUE INFORMATION- CONTINUED**

 

Because it is not practicable to obtain an independent valuation for each limited partnership interest for purposes of disclosure, the market value of a limited partnership interest is estimated toapproximate the carrying value. As of December 31, 2002, the Company was committed to contribute, if called upon, an aggregate of approximately $122.4 million of additional capital to certain of these limited partnerships. The market value of short-term investments,mortgage loans and policy loans is estimated to approximate the carrying value.

Estimated fair values of policyholders' account balances for investment type products (i.e., deferred annuities, immediate annuities without life contingencies and universal life contracts) are calculatedby projecting the contract cash flows and then discounting them back to the valuation date at an appropriate discount rate. For immediate annuities without life contingencies, the cash flows are defined contractually. For all other products, projected cash flows arebased on an assumed lapse rate and crediting rate (based on the current treasury curve), adjusted for any anticipated surrender charges. The discount rate is based on the current duration-matched treasury curve, plus an adjustment to reflect the anticipated spreadabove treasuries on investment grade fixed maturity securities, less an expense and profit spread.

| December 31, 2002               |   | Carrying Value |   | Estimated Fair Value |
|---------------------------------|--------|----------------|--------|----------------------|
| *Assets*                        |   | (in thousands) |
| Fixed Maturities:               |   |           |   |                 |
| Available for Sale              |   | 3,642,582      |   | 3,642,582            |
| Common Stock                    |   | 16,886         |   | 16,886               |
| Mortgage Loans                  |   | 9,289          |   | 9,289                |
| Policy Loans                    |   | 17,633         |   | 17,633               |
| Cash and Short-Term Investments |   | 301,923        |   | 301,923              |
| Other Invested Assets           |   | 254,659        |   | 254,659              |
|                            |   |           |   |                 |
| *Liabilities*                   |   |           |   |                 |
| Policyholders' Account Balances |   | 2,911,554      |   | 3,081,367            |
| Note Payable                    |   | 100,000        |   | 70,536               |
| Short-Term Note Payable         |   | 50,000         |   | 50,000               |
|                            |   |           |   |                 |
| December 31, 2001               |   | Carrying Value |   | Estimated Fair Value |
| *Assets*                        |   |           |   |                 |
| Fixed Maturities:               |   |           |   |                 |
| Available for Sale              |   | 2,967,684      |   | 2,967,684            |
| Common Stock                    |   | 25,909         |   | 25,909               |
| Mortgage Loans                  |   | 13,398         |   | 13,398               |
| Policy Loans                    |   | 16,985         |   | 16,985               |
| Cash and Short-Term Investments |   | 310,232        |   | 310,232              |
| Other Invested Assets           |   | 240,053        |   | 240,053              |
|                            |   |           |   |                 |
| *Liabilities*                   |   |           |   |                 |
| Policyholders' Account Balances |   | 2,167,332      |   | 2,079,260            |
| Note Payable                    |   | 100,000        |   | 94,613               |
| Short-Term Note payable         |   | 50,000         |   | 50,000               |
|                            |   |           |   |                 |

 

 

 

 

 

 

 

 

	F-23

 

 

** **

** **

**11. QUARTERLY FINANCIAL DATA (UNAUDITED)**

Summarized quarterly financial data is presented below. Certain amounts have been reclassified to conform to the current year's presentation.

| Three Months Ended               |
|----------------------------------|
| 2002                             | March 31June 30 | September 30 | December 31 |
| (in thousands, except per share) |
| Premiums and other               |   |   |   |   |   |   |   |   |   |   |   |   |
| Insurance revenues               |   | $ | 19,594  |   | $ | 18,279  |   | $ | 25,456  |   | $ | 20,594  |
| Net investment income            |   | 63,968  |  | 67,186  |   | 70,041  |   | 66,365  |
| Realized investment              |   |   |   |   |   |   |   |   |
| gains (losses)                   |   | (2,681) |   | (27,326) |   | (88,339) |   | (28,397) |
| Total revenues                   |   | 80,881 |   | 58,139  |   | 7,158  |   | 58,562  |
| Benefits and expenses            |   | 70,619 |   | 73,967  |   | 77,374  |   | 82,021  |
| Net income (loss)                |   | 7,179 |   | (11,075) |   | (49,220) |   | (16,153) |
|                             |   |   |   |   |   |   |   |   |
| Earnings per share               |   | $ | .25 |   | $ | (.38) |   | $ | (1.68) |   | $ | (.55) |

| Three Months Ended               |
|----------------------------------|
| 2001                             | March 31June 30 | September 30 | December 31 |
| (in thousands, except per share) |
| Premiums and other               |   |   |   |   |   |   |   |   |
| Insurance revenues               |   | $ 24,736 |   | 29,811  |   | $ 23,169  |   | $ 37,699  |
| Net investment income            |   | 52,474 |   | 54,429  |   | 54,762  |   | 72,461  |
| Realized investment              |   |   |   |   |   |   |   |   |
| gains (losses)                   |   | 3,061 |   | (2,935) |   | (35,506) |   | (29,752) |
| Total revenues                   |   | 80,271 |   | 81,305  |   | 42,425  |   | 80,408  |
| Benefits and expenses            |   | 68,733 |   | 75,353  |   | 65,741  |   | 93,182  |
| Net income (loss)                |   | 8,142 |   | 4,221  |   | (16,442) |   | (3,626) |
|                             |   |   |   |   |   |   |   |   |
| Earnings per share               |   | .28 |   | $ .14  |   | $ (.56) |   | $ (.12) |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	F-24

 

 

 

 

Schedule II

| PRESIDENTIAL LIFE CORPORATION (PARENT COMPANY ONLY) |
|-----------------------------------------------------|
| CONDENSED FINANCIAL INFORMATION OF REGISTRANT       |
| BALANCE SHEETS                                      |
| (in thousands)                                      |
|                                                |   |   |   |   |
| December 31,                                        |
|                                                |   | 2002 |   | 2001 |
|                                                |   |   |   |   |
| ASSETS:                                             |   |   |   |   |
| Investment in subsidiaries at equity                |   | $ | 412,489 |   | $ 422,249 |
| Cash in bank                                        |   | 36 |   | 439 |
| Real estate, net                                    |   | 35 |   | 35 |
| Fixed maturities, available for sale                |   | 103,914 |   | 123,652 |
| Investments, common stocks                          |   | 2,745 |   | 1,976 |
| Short-term investments                              |   | 13,750 |   | 6,495 |
| Other invested assets                               |   | 8,600 |   | 11,241 |
| Deferred debt issue costs                           |   | 1,364 |   | 1,586 |
| Other assets                                        |   | 19,798 |   | 14,034 |
|                                                |   |   |   |   |
| TOTAL ASSETS                                        |   | $ | 562,731 |   | 581,707 |
|                                                |   |   |   |   |
| LIABILITIES AND SHAREHOLDERS' EQUITY:               |   |   |   |   |
| Liabilities:                                        |   |   |   |   |
| Notes payable, long term                            |   | 100,000 |   | 100,000 |
| Short-term note payable                             |   | 50,000 |   | 50,000 |
| Other liabilities                                   |   | 14,040 |   | 4,613 |
|                                                |   |   |   |   |
| TOTAL LIABILITIES                                   |   | 164,040 |   | 154,613 |
|                                                     |  |  |  |  |
| Total Shareholders' Equity                          |   | 398,691 |   | 427,094 |
|                                                |   |   |   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          |   | $ | 562,731 |   | $ 581,707 |
|                                                |   |   |   |   |
|                                                |   |   |   |   |
|                                                |   |   |   |   |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	S-1.

 

Schedule II

| PRESIDENTIAL LIFE CORPORATION (PARENT COMPANY ONLY) |
|-----------------------------------------------------|
| CONDENSED FINANCIAL INFORMATION OF REGISTRANT       |
| STATEMENTS OF INCOME                                |
| (in thousands)                                      |
| Year Ended December 31,                             |
|                                                |   | 2002 |   | 2001 |   | 2000 |
| REVENUES:                                           |   |   |   |   |   |   |
| Income form rents                                   |   | $ | 742  |   | 701  |   | $ | 842  |
| Investment income                                   |   | 8,980  |   | 6,578  |   | 8,153  |
| Realized investment losses                          |   | (21,924) |   | (12,798) |   | (6,505) |
|                                                |   |   |   |   |   |   |
| Total Revenues                                      |   | (12,202) |   | (5,519) |   | 2,490  |
|                                                |   |   |   |   |   |   |
| EXPENSES:                                           |   |   |   |   |   |   |
| Operating and administrative                        |   | 647  |   | 1,864  |   | 287  |
| Interest                                            |   | 10,633  |   | 8,836  |   | 9,773  |
|                                                |   |   |   |   |   |   |
| Total Expenses                                      |   | 11,280  |   | 10,700  |   | 10,060  |
|                                                |   |   |   |   |   |   |
|                                                |   |   |   |   |   |   |
| Loss before federal income taxes and                |   |   |   |   |   |   |
| equity in income of subsidiaries                    |   | (23,482) |   | (16,219) |   | (7,570) |
|                                                |   |   |   |   |   |   |
| Federal income tax benefit                          |   | (10,738) |   | (6,802) |   | (2,842) |
|                                                |   |   |   |   |   |   |
| Loss before equity in income                        |   |   |   |   |   |   |
| of subsidiaries                                     |  |  

(12,744) |  | (9,417) |  | (4,728) |
|                                                |   |   |   |   |   |   |
| Equity in income of subsidiaries                    |   |   |   |   |   |   |
| before deducting dividends received                 |   | (56,525) |   | 1,712  |   | 45,590  |
|                                                |   |   |   |   |   |   |
| Net (loss)income                                    |   | $ (69,269) |   | $ | (7,705) |   | $ | 40,862  |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	S-2.

 

Schedule II

| PRESIDENTIAL LIFE CORPORATION (PARENT COMPANY ONLY) |
|-----------------------------------------------------|
| CONDENSED FINANCIAL INFORMATION OF REGISTRANT       |
| STATEMENTS OF CASH FLOWS                            |
| (in thousands)                                      |
|                                                |
| Year Ended December 31,                             |
|                                                |   | 2002 |   | 2001 |   | 2000 |
| Operating Activities:                               |   |   |   |   |   |   |
| Net (loss) income                                   |   | $(69,269) |   | $(7,705) |   | $40,862  |
| Adjustments to reconcile net income to              |   |   |   |   |   |   |
| net cash provided by operating activities:          |   |   |   |   |   |   |
| Realized investment losses                          |   | 21,924  |   | 12,798  |   | 6,505  |
| Depreciation and amortization                       |   | 1,565  |   | 219  |   | 894  |
| Equity in income of subsidiary companies            |   | 56,525  |   | (1,712) |   | (45,590) |
| Deferred Federal income taxes                       |   | (7,827) |   | (5,116) |   | (1,288) |
| Dividends from subsidiaries                         |   |  0  |   | 27,660  |   | 49,915  |
| Changes in:                                         |   |   |   |   |   |   |
| Accrued investment income                           |   | 230  |   | (1,757) |   | (360) |
| Accounts payable and accrued expenses               |   | 83  |   | 587  |   | (476) |
| Other assets and liabilities                        |   | 7,944  |   | 3,953  |   | (5,705) |
|                                                     |  |  |  |  |  |  |
| Net Cash Provided By                                |   |   |   |   |   |   |
| Operating Activities                                |   | 11,175  |   | 28,927  |   | 44,757 |
|                                                |   |   |   |   |   |   |
| Investing Activities:                               |   |   |   |   |   |   |
| Purchase of fixed maturities                        |   | (9,174) |   | (109,195) |   | (14,153) |
| Sale of fixed maturities                            |   | 13,921  |   | 29,947  |   | 12,018  |
| Common stock acquisitions                           |   | 0  |   | (93) |   | (10,763) |
| Common stock sales                                  |   | 1,646  |   | 1,161  |   | 11,083  |
| Other invested asset additions                      |   | (4,946) |   | 0  |   | 0  |
| Other invested asset distributions                  |   | 7,587  |   | 4,808  |   | 14,483  |
| Decrease (increase) in short-term investments       |   | (9,105) |   | 6,450  |   | (12,945) |
|                                                |   |   |   |   |   |   |
| Net Cash (Used In) Provided by                      |   |   |   |   |   |   |
| Investing Activities                                |   | (71) |   | (66,922) |   | (277) |
|                                                |   |   |   |   |   |   |
| Financing Activities:                               |   |   |   |   |   |   |
| Dividends to shareholders                           |  | (11,732) |  | (11,717) |  | (11,619) |
| Proceeds from (repayment of) line of credit         |   | 0  |   | 50,000  |   | (15,000) |
| Repurchase of common stock                          |   | 225  |   | (122) |   | (22,703) |
|                                                |   |   |   |   |   |   |
| Net Cash (Used In) Provided By                      |   |   |   |   |   |   |
| Financing Activities                                |   | (11,507) |   | 38,161  |   | (49,322) |
|                                                |   |   |   |   |   |   |
| Increase (Decrease) in Cash                         |   | (403) |   | 166  |   | (4,842) |
|                                                |   |   |   |   |   |   |
| Cash at Beginning of Year                           |   | 439  |   | 273  |   | 5,115  |
|                                                |   |   |   |   |   |   |
| Cash at End of Year                                 |   | $  36  |   | $ 439 |   | $ 273 |
|                                                |   |   |   |   |   |   |

 

 

 

 

 

 

	S-3.

| PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES |        |            |      | Schedule III |
|------------------------------------------------|-------------|-----------------|-----------|--------------|
| SUPPLEMENTAL INSURANCE INFORMATION             |        |            |      |         |   |   |   |   |   |   |
| (in thousands)                                 |        |            |      |         |   |   |   |   |   |   |   |
|                                           |        |            |      |         |   |   |   |   |   |   |   |
| Column A                                       | Column B    | Column C        | Column D  | Column E     | Column F | Column F-1 | Column G | Column H | Column I | Column J | Column K |
|                                           |        |            |      |         |   |   |   | Benefits, |   |   |   |
|                                           |        |            |      |         |   |   |   | Claims, Losses, |   |   |   |
|                                           |        | Future Policy   |      |         |   |   |   | Interest |   |   |   |
|                                           |        | Benefits,       |      | Other        |   |   |   | Credited to |   |   |   |
|                                           |        | Losses, Claims, |      | Policy       |   | Mortality, |   | Account | Amortization |   |   |
|                                           | Deferred    | Loss Expenses,  |      | Claims       |   | Surrender |   | Balances | of Deferred |   |   |
|                                           | Policy      | and Policy-     |      | and          |   | and Other | Net | and | Policy | Other |   |
|                                           | Acquisition | holder Account  | Unearned  | Benefits     | Premium | Charges to | Investment | Settlement | Acquisition | Operating | Premiums |
| Segment                                        | Costs       | Balances        | Premiums  | Payable      | Revenue | Policyholders | Income | Expenses | Costs | Expenses | Written |
|                                           |        |            |      |         |   |   |   |   |   |   |   |
| Year Ended December 31, 2002                   |        |            |      |         |   |   |   |   |   |   |   |
| Life Insurance                                 | $ 12,268    | $ 194,843       | $ 0       | $ 271        | $ 7,146 | $ 18 | $ 14,606 | $ 10,879 | $ 911 | $ 3,898 |   |
| Annuity                                        | 100,771     | 3,423,132       | 0         |         | 69,422 | 628 | 252,838 | 262,159 | (645) | 12,176 |   |
| Accident and Health                            |        | 4,193           | 0         |         | 4,459 |   | 117 | 3,652 |   | 318 | $4,459 |
| Total                                          | $ 113,039   | $ 3,622,168     | $ 0       | $ 271        | $ 81,027 | $ 646 | $ 267,561 | $ 276,690 | $ 266 | $ 16,392 |   |
|                                           |        |            |      |         |   |   |   |   |   |   |   |
| Year Ended December 31, 2001                   |        |            |      |         |   |   |   |   |   |   |   |
| Life Insurance                                 | $ 9,617     | $ 166,592       | $ 0       | $ 657        | $ 10,150 |   | 61 | 13,234 | $ 19,161 | $ 790 | $ 3,736 |   |
| Annuity                                        | 93,465      | 2,650,714       | 0         | 0            | 97,380 | 652 | 220,828 | 243,688 | 9,141 | 13,706 |   |
| Accident and Health                            | 0           | 6,205           | 0         | 0            | 3,987 | 0 | 63 | 3,521 | 0 | 430 | $3,987 |
| Total                                          | $ 103,082   | $ 2,823,511     | $ 0       | $ 657        | $111,517 | $ | 713 | $234,125 | $ 266,370 | $ 9,931 | $ 17,872 |   |
|                                           |        |            |      |         |   |   |   |   |   |   |   |
| Year Ended December 31, 2000                   |        |            |      |         |   |   |   |   |   |   |   |
| Life Insurance                                 | $ 8,446     | $ 118,849       | $ 0       | $ 245        | $ 3,900 | $ | 54 | $ 13,217 | $ 13,643 | $ 925 | $ 2,922 |   |
| Annuity                                        | 65,816      | 2,008,269       | 0	0	0	0	0 | 0            | 55,247 | 643 | 211,942 | 180,954 | 8,360 | 6,937 |   |
| Accident and Health                            | 0           | 2,758           | 0         | 0            | 3,502 | 0 | 66 | 2,677 | 0 | 359 | $3,502 |
| Total                                          | $ 74,262    | $ 2,129,876     | $ 0       | $ 245        | $ 62,649 | $ | 697 |   | 225,224 | $ 197,274 | $ 9,258 | $ 10,218 |   |
|                                           |        |            |      |         |   |   |   |   |   |   |   |

 

 

 

 

 

 

 

 

S-4

| PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES Schedule IV |
|------------------------------------------------------------|
| REINSURANCE (in thousands)                                 |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Column A                                                   |   | Column B |   | Column C |   | Column D |   | Column E |   | Column F |
|                                                       |   |   |   |   |   | Assumed |   |   |   | Percentage |
|                                                       |   |   |   | Ceded to |   | From |   |   |   | of Amount |
|                                                       |   | Gross |   | Other |   | Other |   | Net |   | Assumed |
|                                                       |   | Amount |   | Companies |   | Companies |   | Amount |   | to Net |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2002                               |   |   |   |   |   |   |   |   |   |   |
| Life Insurance in Force                                    |   | $1,151,819 |   | $ 706,667 |   | $ 761,893 |   | $ 1,206,845 |   | 63.13 |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Premiums:                                                  |   |   |   |   |   |   |   |   |   |   |
| Life Insurance                                             |   | 9,852 |   | 6,396 |   | 3,690 |   | 7,146 |   | 51.64 |
| Annuity                                                    |   | 69,422 |   |   |   |   |   | 69,422 |   | 0 |
| Accident and Health Insurance                              |   | 10,894 |   | 6,435 |   |   |   | 4,459 |   | 0 |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Total                                                      |   | $ 90,168 |   | $ 12,831 |   | $ 3,690 |   | $ 81,027 |   |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2001                               |   |   |   |   |   |   |   |   |   |   |
| Life Insurance in Force                                    |   | $ 982,879 |   | $ 590,029 |   | $ 728,379 |   | $ 1,121,229 |   | 64.96 |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Premiums:                                                  |   |   |   |   |   |   |   |   |   |   |
| Life Insurance                                             |   | $ 9,589 |   | 6,006 |   | 6,567 |   | 10,150 |   | 64.70 |
| Annuity                                                    |   | 97,380 |   |   |   |   |   | 97,380 |   | 0 |
| Accident and Health Insurance                              |   | 11,313 |   | 7,326 |   |   |   | 3,987 |   | 0 |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Total                                                      |   | $ 118,282 |   | $ 13,332 |   | $ 6,567 |   | $ 111,517 |   |  |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Year Ended December 31, 2000                               |   |   |   |   |   |   |   |   |   |   |
| Life Insurance in Force                                    |   | $ 963,605 |   | $ 595,042 |   | $ 463,996 |   | $ 832,559 |   | 55.73 |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Premiums:                                                  |   |   |   |   |   |   |   |   |   |   |
| Life Insurance                                             |   | $ 9,027 |   | $ 5,569 |   | $ 442 |   | $ 3,900 |   | 11.33 |
| Annuity                                                    |   | 55,247 |   | 0 |   | 0 |   | 55,247 |   | 0 |
| Accident and Health Insurance                              |   | 9,559 |   | 6,057 |   | 0 |   | 3,502 |   | 0 |
|                                                       |   |   |   |   |   |   |   |   |   |   |
| Total                                                      |   | $ 73,883 |   | $ 11,626 |   | $ 442 |   | $ 62,649 |   |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |
|                                                       |   |   |   |   |   |   |   |   |   |   |

Note: Reinsurance assumed consists entirely of Servicemen's Group Life Insurance.

S-5

Exhibit 99.01

Certification of Chief Executive Officer

Pursuant to Exchange Act Rule 13a-14

I, Herbert Kurz, Chief Executive Officer of Presidential Life Corporation (the 2 Company2 ) certify that:

    - I have reviewed this annual report on Form 10- K of the Company.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the period covered by this annual report;

 

	3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this annual report;

 

	4. The registrant¢ s other certifying officers and I are responsible for establishing and maintaing disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d- 14) for the registrant and we have:

 

	 	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period which this annual report is being prepared;

 

		b) evaluated the effectiveness of the registrant¢ s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the 2 Evaluation Date2 ); and	

c) presented in this annual report our conclusions about he effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	5. The registrant¢ s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant¢ s auditors and auditcommittee of registrant¢ s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant¢ s ability to record, process, summarize and reportfinancial data and have identified for the registrant¢ s auditors any material weaknesses in internal controls; and	

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant¢ s internal controls;and

	6. The registrant¢ s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

----

Herbert Kurz

Chief Executive Officer

S-6

Exhibit 99.02

Certification of Principal Financial Officer

Pursuant to Exchange Act Rule 13a-14

I, Charles Snyder, Principal Financial Officer and Treasurer of Presidential Life Corporation (the 2 Company2 ) certify that:

    - I have reviewed this annual report on Form 10- K of the the Company.;

2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under whichsuch statements were made, not misleading with respect to the period covered by this annual report;

 

	3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cashflows of the registrant as of, and for, the periods presented in this annual report;

 

	4. The registrant¢ s other certifying officers and I are responsible for establishing and maintaing disclosure controls and procedures (as defined in Exchange Act Rules 13a- 14 and 15d- 14) for the registrant and we have:

 

	 	a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period which this annual report is being prepared;

 

	 b) evaluated the effectiveness of the registrant¢ s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the 2 Evaluation Date2 ); and	

c) presented in this annual report our conclusions about he effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

	5. The registrant¢ s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant¢ s auditors and the auditcommittee of registrant¢ s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant¢ s ability to record, process, summarize and reportfinancial data and have identified for the registrant¢ s auditors any material weaknesses in internal controls; and	

	b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant¢ s internal controls;and

	6. The registrant¢ s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors thatcould significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date: _________________________

----

Treasurer and Principal Accounting Officer

S-7

Exhibit 99.03

 

 

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Presidential Life Corporation (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the datehereof (the "Report"), I, Herbert Kurz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) 	Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

    - The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
    -     /s/Herbert Kurz     Herbert Kurz  Chief Executive Officer  March 28, 2003                                                                                       S-8             Exhibit 99.04        CERTIFICATION PURSUANT TO  18 U.S.C SECTION 1350,  AS ADOPTED PURSUANT TO  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  In connection with the Annual Report of Presidential Life Corporation (the "Company") on Form 10-K for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the datehereof (the "Report"), I, Charles Snyder, Treasurer and Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:    (1) 	Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 
    - The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/Charles Snyder

 

Charles Snyder

Treasurer and Princial Accounting Officer

March 28, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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