UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 10-K  ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2008Commission file number   0-5486  Presidential Life Corporation  Delaware13-2652144(State of incorporation)(IRS Employer Identification No.)69 Lydecker Street, Nyack, NY10960(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: Title of Each ClassName of each exchange on which registeredCommon Stock, par value $.01 per shareNasdaq  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  o    No  ý  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  o    No  ý  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý    No  o  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405) 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-K or any amendment to this Form 10-K.  o  Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  ý    No  o  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o    No  ý  The aggregate market value of the voting stock (Common Stock) held by non-affiliates of the Registrant as of the close of business on June 30, 2008 was approximately $334,912,886 based on the closing sale price of the common stock on the NASDAQ National Market System on that date.  The company does not have any non-voting common equity.  The aggregate market value of voting stock held by non-affiliates of the Registrant as of March 11, 2009 was approximately $170,153,806 based upon the closing price of such stock on that date.  The number of shares outstanding of the registrants common stock as of March 11, 2009 was 29,574,315.  DOCUMENTS INCORPORATED BY REFERENCE  Selected designated portions of the definitive proxy statement to be used in connection with the registrants 2008 Annual Meeting of Shareholders are incorporated by reference into Part III of this Form 10-K. Other documents incorporated by reference into this Form 10-K are listed in the Exhibit Index.    PART 1  ITEM 1. BUSINESS  General  Presidential Life Corporation (the Corporation or Company) is an insurance holding company that, through its wholly-owned subsidiary, Presidential Life Insurance Company (the Insurance Company), manages and reports as a single segment that is divided between annuities and life insurance.  Unless the context otherwise requires, the Corporation or Company shall be deemed to include Presidential Life Corporation and its subsidiaries.  The Corporation was founded in 1969 and, through the Insurance Company, is licensed to market its product in 49 states and the District of Columbia.  Approximately 54.1% of the Insurance Companys 2008 sales of annuity and life insurance products were made to individuals residing in the State of New York.  Organization  Headquartered in Nyack, New York, the Company had 114 full-time employees as of December 31, 2008.  Products  The Insurance Company currently emphasizes the sale of a variety of single premium and flexible premium annuity products.  Each of these products is designed to meet the needs of increasingly sophisticated consumers for supplemental retirement income and estate planning.  Due to the competitive nature of the term, whole life and universal life insurance business and the negative impact of that competition on profits from such business, management decided to exit the traditional life market in 2004 for at least so long as such market conditions prevail.  The Insurance Company will continue to service the inforce business and continue to issue the more profitable graded benefit life product.  For financial statement purposes, revenues from the sale of ordinary life insurance and annuity contracts with life contingencies are treated as revenues whereas the sale of annuity contracts without life contingencies, deferred annuities and universal life insurance products are reported as additions to policyholders account balances.  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 a tax-deferred accrual of interest on his or her investment.  Single Premium Annuityproducts require a one-time lump sum premium payment.  Single Premium Deferred Annuities(SPDAs) provide for a single premium at time of issue, an accumulation period and an annuity payout period at some future date.  During the accumulation period, the Insurance Company credits the account value of the annuitant with earnings at a current interest rate that is guaranteed for periods ranging from one to six years, at the annuitants option, and that, thereafter, is subject to change based on market and other conditions.  Each contract also has a minimum guaranteed rate.  The 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 to take 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 the amount 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.  All of the Insurance Companys deferred annuity products provide minimum interest rate guarantees.  These minimum guaranteed rates range from 3.0% to 5.5% annually and the contracts (except for immediate contracts) are designed to permit the Insurance Company to change the crediting rates annually after the initial guarantee period subject to the minimum guarantee rate.  The Insurance Company takes into account the profitability of its annuity business and its relative competitive position in the marketplacein determining the frequency and extent of changes to the interest-crediting rate.  The Insurance Companys deferred annuity products are designed to encourage persistency by incorporating surrender charges that exceed the cost of issuing the policy.  An annuitant may not terminate or withdraw substantial funds for periods generally ranging from one to seven years after purchase of the annuity without incurring significant penalties in the form of surrender charges.  As of December 31, 2008, approximately 43.6% of the Insurance Companys deferred annuity contracts inforce (measured by reserves) are subject to surrender charges.  2   Single Premium Immediate Products guarantee a stream of payments, which begin within the first contract year and continue for the life of the annuitant or for a specified period of time. In an immediate annuity, the payment may be guaranteed for a period of time (typically five to twenty years).  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.  Immediate annuities differ from deferred annuities in that they generally provide for fixed payments that are not subject to surrender or loan.  The implicit interest rate on immediate annuities is based on market conditions that exist at the time the annuity is issued and is guaranteed for the term of the annuity.  Other Annuity Productsinclude Flexible Premium Annuities and Group Terminal Funding Annuities. Flexible annuity products provide similar benefits to those provided by the Insurance Companys SPDA products, but instead permit periodic premium payments in such amounts as the holder deems appropriate.  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 when the owner wants to transfer liability for making payments.  A deferred immediate annuity was approved by the New York State Insurance Department (NYSID) and is scheduled for introduction in 2009, along with a novel immediate annuity structure for Joint lives.  A single premium, market value adjusted (MVA), and deferred annuity contract is expected to be approved in 2009.  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, 2008, in each case, as determined in accordance with accounting principles generally accepted in the United States of America (GAAP).  ANNUITIES IN FORCE AS OF DECEMBER 31 FOR THE FOLLOWING YEARS  20082007200620052004(dollars in thousands)Single PremiumDeferred$   1,854,726$   1,977,713$   2,350,978$   2,630,611$   2,597,436Immediate588,324613,952641,173664,215686,054Other Annuities437,844442,413441,938441,076433,886Total Annuities$   2,880,894$   3,034,078$   3,434,089$   3,735,902$   3,717,376Number of annuity contracts in force57,08761,30969,53876,24277,100Average size of annuity contract in force$            50.5$            49.5$            49.4$           49.0$            48.2Total dollar amount of annuity surrenders$       283,129$       535,149$       480,075$      151,182$       119,363Ratio of surrenders and withdrawals to mean surrenderable annuities in force*13.4%22.8%18.0%5.5%4.5% *See Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations, Interest Rate Risk  Annuity Considerations The following table sets forth certain information with respect to the Insurance Companys annuity considerations for each of the five fiscal years ended December 31, 2008, as determined in accordance with statutory accounting principles, which include as revenue the consideration from policyholders in such years other than consideration from immediate annuities without life contingencies.  The information below differs from the premiums shown on the Corporations consolidated financial statements in accordance with GAAP in that, under GAAP, consideration from single premium annuity contracts without life contingencies, universal life insurance products and deferred annuities are not reported as premium revenues, but are reported as additions to policyholder account balances, which are liabilities on the Corporations consolidated balance sheet. Distribution of Products  By Gross Annuity Considerations  For the fiscal years ended December 31,20082007200620052004Single Premium(dollars in thousands)Deferred$   109,180$      94,161$  118,613$      94,075$     182,518Immediate30,03524,78527,53927,36728,351Other Annuities7,3089,9009,46210,19814,025Total Annuities$   146,523$    128,846$  155,614$    131,640$    224,894  3       Life Insurance Business  Graded Benefit Life policies (the only life product currently issued) are products designed for the upper age (i.e. ages 40-80 in most states), substandard applicant.  Depending upon age, these products provide for a limited death benefit of either 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 $50,000.  Other Lifeproducts inforce, but no longer being issued, include Universal Life, Whole Life, and Term Life.  Universal life policies, flexible premium and single premium, are interest-sensitive products, which typically provide the insured with non-participating (i.e. non-dividend paying) life insurance with a cash value.  Current interest is credited to the policys cash value based primarily upon prevailing interest rates.  In no event, however, will the interest rate credited on the policys cash value be less than the guaranteed rate specified in the policy.  Whole life policies are products that provide the insured with life insurance with a guaranteed cash value.  Typically, a fixed premium, which costs more than comparable term coverage when the policyholder is younger, but less than comparable term coverage as the policyholder grows older, is paid over a period of years.  Whole life insurance products combine insurance protection with a savings plan that gradually increases over a period of time, which the policyholder may borrow against.  Term life policies are products that provide insurance protection if the insured dies during the time period specified in the policy.  No cash value is built up.  Term life products provide the maximum benefit for the lowest initial premium outlay.  Insurance Policies Inforce  The following table sets forth universal, whole and term life insurance policies inforce, as well as certain statistical data for each of the five years ended December 31, 2008.  LIFE INSURANCE INFORCE 20082007200620052004(dollars in thousands)Beginning of year:Universal$     425,496$     429,538$     443,738$    459,744$    474,888Whole <F1>189,894171,558158,669146,604136,744Term612,507650,584703,665748,069731,879Total$  1,227,897$  1,251,680$  1,306,072$ 1,354,417$1,343,511Sales and additions:Universal1,7008,8332,6421,4927,007Whole <F1>53,24771,17062,57561,13843,665Term----85,507Total54,94780,00365,21762,630136,179Terminations:Death17,56212,83414,99111,7689,291Surrenders and conversions23,05325,21121,48822,17324,310Lapses54,54356,75775,27670,90686,079Other8,6818,9847,8546,1285,593Total103,839103,786119,609110,975125,273End of year:Universal410,171425,496429,538443,738459,744Whole<F1>193,130189,894171,558158,669146,604Term575,705612,507650,584703,665748,069Total$  1,179,006$  1,227,897$  1,251,680$ 1,306,072$ 1,354,417Total reinsurance ceded$     656,997$     710,494$     755,516$    814,538$    868,321Total insurance inforce at end of year net of reinsurance$     522,009$     517,403$     496,164$    491,534$    486,096  <F1> Includes graded benefit life insurance products  4   Accident and Health  New York Statutory Disability Benefits,(DBL) are short-term disability contracts issued to employers of one or more employees in New York State.  The benefit must be equal or better, in every respect, to the minimum benefits defined in the New York Disability Benefits Law.  The minimum benefit allowed is 50% of the weekly earnings to a maximum of $170 commencing on the 8th day of non-occupation disabilities for a maximum of 26 weeks in any 52 week period for any one disability.  With few exceptions, employers are required to provide this coverage to their New York employees.  Medical Stop Loss Coverage is sold to employers (not individual employees) to cover their liabilities as incurred in the administration of self-funded medical plans. These are plans that are governed by ERISA. The employer does not buy a full-insured plan from a carrier, but instead opts to pay the benefits for its medical plan itself.  The parameters of these benefits are spelled out in a Plan Document that is disseminated to employees.  The employer then purchases Stop Loss coverage to insure it against claims in excess of contractually designated amounts.  The coverage purchased by the employer will typically cover two types of risks to the self-funded plan:  1) The risk that a claim on an individual employee exceeds a certain level, usually called the specific deductible or self-insured retention. This is known as specific stop-loss coverage. This level is usually defined in terms of dollars on a particular life. For example, the specific deductible may be $50,000 of claims paid by the plan on any one life.  2) The risk that the overall claims for the plan (less whatever amount is covered under the specific deductible) exceeds a given level. This is called Aggregate Stop Loss. The given level is usually called the aggregate attachment point. It is typically defined by first computing the level of claims the insurer expects to occur in the given period.  To this amount is added a corridor or margin amount, which is typically 25%. The aggregate cover would then reimburse all claims that exceed 125% of expected claims, exclusive of those claims reimbursed under the specific cover.  Both types of plans generally have a maximum reimbursement level. For specific claims, this generally ranges from $1 million to $2 million. For aggregate claims, the coverage is generally $1 million.  Sometimes, the specific coverage is sold without the aggregate coverage. The reverse is almost never sold.  One key aspect of stop-loss coverage is that reimbursement is made to the plan, not to the individual participants. The participants medical expenses are paid by the plan.  As such, only expenses spelled out in the Plan Document are covered.  Marketing and Distribution  The Insurance Company is licensed to market insurance products in 49 states and the District of Columbia.  The Insurance Company distributes its annuity contracts and life insurance policies (products) through 851 independent General Agents (333 of which are located in New York State).  These General Agents, in turn, distribute the Insurance Companys products through their 13,371 licensed insurance agents or brokers most of whom also distribute similar products marketed by other insurance companies.  Management believes the Insurance Company offers innovative products and quality service and that its product commission rates are competitive.  The New York State Department of Insurance (NYSID) regulates General Agent commission rates.  The independent General Agent system is the Insurance Companys primary product distribution system.  Management believes the Insurance Companys focus on the General Agent distribution system provides cost advantages since the Insurance Company incurs minimal fixed costs associated with recruiting, training and maintaining agents via their General Agents.  Therefore, a substantial portion of the costs normally associated with product distribution is variable.  Distribution costs rise and fall with the level of business.  The Insurance Company utilizes many General Agents to distribute its products and, therefore, is not dependent on any one General Agent or agent for a substantial amount of its business.  On the other hand, independent General Agents and agents are not captive to the Company.  Management believes that interest crediting rates, General Agent product commission levels, annuity and life product features, company support services and perceived company financial stability help determine our competitive nature at any given point in time and influence General Agents and their agents to distribute our products.  Generally, the Insurance Company issues annuity contracts along with the General Agents commission within two business days after application receipt.  The Insurance Company also provides General Agent support by providing direct access to the Insurance Companys senior executives.  Annuity contract and life insurance policyholders may access information regarding their individual holdings via the Companys website or toll-free telephone number.  5    The Insurance Companys top ten General Agents, as measured by combined 2008 annuity and life premiums, accounted for approximately 33% of the Insurance Companys sales in 2008.  No single General Agent accounted for more than 8.2% and no single agent accounted for more than 4.2% of total sales.  Management believes no single distribution source loss will have a material adverse impact on the Insurance Company.  However, the simultaneous loss of several distribution sources would diminish our product distribution and reduce sales unless these sources are timely replaced.  To guard against this contingency, the Insurance Company continuously recruits new independent General Agents.  Underwriting Procedures  Since March 2004, the only life policy the Insurance Company has issued has been Graded Benefit Life, a guaranteed issue product that requires no underwriting.  The maximum face amount for this product is $50,000.  The Insurance Company continues to maintain its life inforce business and this may require additional underwriting (i.e. reinstatements, re-entries, and conversions).  In that regard, the Insurance Company has adopted and follows detailed, uniform underwriting procedures designed to assess and quantify insurance risks.  To the extent that a policyholder eligible for reinstatement, reentry or conversion does not meet the Insurance Companys underwriting standards at the standard risk classifications, the Insurance Company may offer to issue a classified, sub-standard or impaired risk policy for a risk adjusted premium amount rather than declining the application.  The amount of the Insurance Companys impaired risk insurance in force in proportion to the total amount of the Insurance Companys individual life insurance in force was approximately 5.1% at December 31, 2008.  Policy Claims  Individual life claims are received and reviewed by claims examiners at the Insurance Companys home office.  The initial review of claims includes verification that coverage is in force and that the claim is not subject to exclusion under the policy.  Birth and death certificates are basic requirements.  Medical records and investigative reports are ordered for contestable claims.  Reinsurance  The Insurance Company follows the usual industry practice of reinsuring (ceding) portions of its life insurance and medical stop loss risks with other companies, a practice that permits the Insurance Company to write policies in amounts larger than the risk it is willing to retain and 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 Insurance Company on any one life is $50,000 per policy and $100,000 per life.  The Insurance Company cedes 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 which the reinsurers prior approval is required on each risk reinsured.  The maximum retention of the group medical stop loss business varies, but typically the Insurance Company cedes 85% on a quota share basis.  Use of reinsurance does not discharge an 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 able to receive payments from the reinsurer.  At December 31, 2008, of the approximately $1,179 million of the Companys individual life insurance in force, the Insurance Company had ceded to reinsurers approximately $657 million.  The principal reinsurance companies of individual life policies with whom the Insurance Company did business at December 31, 2008 were Transamerica International Re, Ltd. (not rated by A.M. Best) and Swiss Re Life and Health America, Inc. (A.M. Best rating of A (Excellent)).  Competition  The Insurance 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 Insurance Company, many of which are more highly rated and have substantially greater resources than the Insurance Company.  The Insurance 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 paying rating and service.  Many other insurance and financial services companies are capable of competing for sales in the Insurance Companys target markets.  Management believes that the Insurance Companys ability to compete is dependent upon, among other things, its ability to retain and attract independent General Agents to market its products and to successfully develop competitive, profitable products.  Management believes that the Insurance Company has good relationships with its agents, has an adequate variety of products approved for issuance and generally is competitive within the industry in all applicable areas.  6    Investments And Investment Policy  At December 31, 2008, the Corporation had an aggregate of investment assets and cash of $3.38 billion.  Of that amount, approximately 80.5%, or $2.7 billion, were invested in fixed maturity bonds and notes, consisting primarily of corporate bonds ($1.69 billion), U.S. Government, government agencies and authorities bonds ($356.1 million), public utility bonds ($394.3 million), commercial mortgage backed securities ($207.4 million), and preferred stocks ($72.4 million).  Approximately $290.7 million or 8.6% of invested assets were invested in limited partnerships, $346.1 million or 10.2% was invested in cash and short-term investments and the remainder was held as common stock, swaptions, policy loans and real estate.  Investment Grade Securities  As of December 31, 2008, approximately 86.3% or $2.92 billion of the Corporations investment portfolio consisted of investment grade securities (according to NAIC designations) and investment grade short-term commercial paper.  Of that amount, approximately $1.7 billion consisted of investment grade corporate bonds and preferred stock and $342.2 million consisted of short term securities and commercial paper rated A1/P1 or higher.with terms of 45 days or less.  The remaining $920.2 million, consisting of U.S. Government bonds and government agency securities, public utility bonds and commercial mortgage backed securities, are discussed below.  In addition, the Company has $342.4 million of securities designated as Rule 144A Investments which have not been registered under the Securities Act of 1933.  These securities are freely tradeable amongst institutions that are qualified investor buyers under Rule 144A.  Many of these securities may be exchanged for fully registered securities at the option of the issuer at a future date.  Below Investment Grade Securities  As of December 31, 2008, the Corporation held approximately $148.9 million in below investment grade securities, according to NAIC designations, representing approximately 4.4% of the Corporations investment portfolio.  This compares to $221.4 million, or 5.5% of the Corporations investment portfolio at December 31, 2007.  Of the 2008 amount, $111.3 million consisted of corporate bonds and preferred stock, $35.4 million of public utility bonds and $2.2 million of local governmental authority bonds.  Of these, approximately $103.3 million (69%) were rated at the highest below-grade investment level.  Approximately 99.6% of the Corporations holdings of below grade bonds were originally purchased at investment grade levels.  Included in the below-grade bond portfolios are non-performing assets totaling $0.6 million, or 0.02% of total invested assets.  Government Bonds and Agency Securities  As of December 31, 2008, the Corporation held approximately $356.1 million in U.S. Treasury or other government agency bonds consisting primarily of U.S. Treasury and GNMA, FNMA, FHLMC and FHLB obligations.  Public Utility Bonds  As of December 31, 2008, the Corporation held $394.3 million in public utility bonds, representing 11.7% of the investment portfolio.  Of that amount, 91% or $358.9 million consisted of investment grade securities.  Approximately 70% of the holdings represented bonds issued by the operating companies of electric and gas utilities, with the balance consisting of an assortment of electric utility holding company bonds, capital trust securities and U.S. dollar holdings in foreign electric and water utilities.  The portfolio is diversified, with 104 individual holdings of primarily investment-grade companies.  Given their large and continuing need for additional capital, public utilities are sensitive to a general rise in overall interest rates.  However, these risks are mitigated by overall economic growth, as utilities benefit by increased usage of electricity and gas and by an overall growth in their customer rate-base.  7    Callable Agency Securities  The Company from time to time purchases callable bonds and notes issued by one of the U.S. Government sponsored entities: FNMA, FHLMC, FHLB and the FFCB.  As of December 31, 2008, the Company had a market value total of approximately $52.7 million in positions as shown below. Book ValueMarket ValueFederal Home Loan Bank (FHLB)$         2,995,320$        3,000,930Freddie Mac (FHLMC)15,618,94214,779,410Fannie Mae (FNMA)34,744,17834,961,933Total Callable$       53,358,440$      52,742,273  Agencies frequently issue callable paper with spreads that compensate the buyer for the Agencies call options and make their paper more competitive with fixed-rate corporate bonds.  The Company typically purchases the callable Agency issues at par, or discounts to par, to insure that the yield-to-call is at least equal to the yield-to-maturity and to avoid principal loss in the event the issuer exercises its par call option.  In the event that interest rates fall and a call option is exercised, the Company may be forced to reinvest at lower yields.  Mortgage Backed Securities  As of December 31, 2008, approximately $207.4 million (6.1%) of the Companys investment portfolio was invested in commercial mortgage-backed obligations (CMBS), purchased as mezzanine level debt, between 1995 and 2001.  This compares to $268.8 million, or 6.7% of the Companys portfolio at December 31, 2007.  The Companys CMBS portfolio experienced significant credit upgrades resulting from loan performance defeasance and prepayments which improved subordination levels. The Company has not made any direct investments in residential mortgage backed securities (RMBS) since 2003.  The Companys total RMBS exposure is less than $2.56 million or 0.08% of invested assets.  These securities are all investment grade rated.  Collateralized Debt Obligations  The Company has a small portfolio (approximately $6.7 million or 0.2% of invested assets at December 31, 2008) of collateralized debt obligations (CDO) that were purchased between 1997 and 1999.  These securities are collateralized with high yield bank loans and high yield bonds.  These positions have substantial unrealized gains.  The CDO portfolio was responsible for generating approximately $1.8 million of income in 2008.  The market value and level of distributed income of the CDO portfolio is expected to fluctuate with changes in interest rates and the changes in credit spreads associated with below investment-grade debt.  Limited Partnerships  The Insurance Company has been investing in limited partnerships for over twenty years.  During this time, the Insurance Company has had an opportunity to consider and evaluate a substantial number of limited partnerships and their managers.  The Insurance 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 limited partnership.  Managers of the limited partnerships in which the Insurance Company is invested include, among others, Blackstone Investment Management, Starwood Capital, Goldman Sachs Capital Partners, Apollo Real Estate and Fortress Investment Group.  The book value of the Corporations investments in limited partnerships as of December 31, 2008, 2007 and 2006 was approximately $290.7 million, $309.7 million and $268.0 million respectively.  Net investment income derived from the Insurance Companys interests in limited partnership investments aggregated approximately $49.1 million, $52.9 million and $47.0 million in fiscal 2008, 2007 and 2006 respectively.  These amounts represented 18.8%, 17.9% and 14.8% of the Companys total net investment income in such years.  8    Pursuant to the terms of certain limited partnership agreements to which the Insurance Company is a party, the Insurance Company is committed to contribute, if called upon, an aggregate of approximately $117.9 million of additional capital to such limited partnerships.  Commitments of $13.7 million will expire in 2009, $4.7 million in 2010, $45.6 million in 2011 and $53.9 million in 2012.  As of December 31, 2008, approximately $290.7 million (8.6%) of the Companys investment portfolio consisted of interests in over seventy limited partnerships, which are engaged in a variety of investment strategies, including debt restructurings, real estate, international opportunities 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 of illiquidity, which is mitigated by the ability of the Insurance Company to take quarterly distributions of partnership earnings, with the exception of hedge fund limited partnerships.  Approximately 24% of the Companys investment portfolio in limited partnerships is involved in distressed asset investments. These limited partnerships 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 characteristic of merchant banking and debt restructuring transactions.  This 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 fixed charges.  The limited partnerships that are involved in real estate activities, representing approximately 21% of the Companys limited partnership portfolio, generally invest in real estate assets, real estate joint ventures and real estate operating companies.  These partnerships seek to achieve 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 international investments generally purchase sovereign debt, corporate debt, and/or equity in foreign companies that are developing a greater worldwide presence.  General partners who had demonstrated expertise in this area and in the particular country involved operate such limited partnerships.  Such investments involve risks related to the particular country including political instability, currency fluctuations, and repatriation restrictions.  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.  Limited partnership investments are selected through a careful, two-stage review process.  The Investment Analyst staff conducts a due diligence review which includes the offering documents, performance history of each investment manager as well as interviews with existing investors and/or market participants.  Separately, the Investment Committee interviews the manager to determine whether the investment philosophy (particularly with respect to risk) and strategies of the limited partnership are in the best interests of the Insurance Company.  Only after both the Investment Analyst Staff and the Investment Committee make a positive recommendation does the Insurance Company invest in a limited partnership.  In addition, the actions of the Investment Committee are subject to review and approval by the Board of Directors of the Corporation 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 any limited partnership, management maintains ongoing discussions with the investment manager and considers the limited partnerships operations, current and near term projected financial condition, earnings capacity and distributions received by the Insurance Company during the year.  Despite the Companys ongoing successful returns on its limited partnership investments and their substantial contributions to the Companys profits in recent years, the ratings agencies which evaluate the Company have an unfavorable view of such investments.  The Company believes that this has had a negative effect on the Companys ratings (See Item 7-Managements Discussion and Analysis-Ratings Agencies).  As such, although the limited partnership investments have contributed substantially to the Companys profits, they have not enabled the Company to achieve the ratings upgrades that might be expected to accompany such profitable performance.  This factor is continually monitored by Companys management in determining whether and to what extent the Company will continue to invest in limited partnerships at current, reduced or increased levels.  Such decisions will be subject to the approval of the Chief Investment Officer and the Investment Committee and the review and approval by the Board of Directors of the Insurance Company and the Corporation, as the case may be.  There can be no assurance that the Insurance Company will continue to achieve the same level of returns on its investments in limited partnerships 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 Insurance Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.  The failure of the Insurance 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 the Insurance Companys financial condition and results of operations.  9    Other  As of December 31, 2008, the Companys investment portfolio included approximately $72.4 million (2.1%) invested in preferred stock, and approximately $3.0 million (0.09%) invested in common stock.  The Companys only direct real estate investments are two buildings in Nyack, New York, which are used as the current home office of the Insurance Company, and two acres of undeveloped land in Nyack, New York.  The following table sets forth the scheduled maturities for the Companys investments in bonds and notes as of December 31, 2008.  Scheduled MaturitiesMaturity <F1>Estimated
Fair Value <F2>Percent of Total
Estimated
Fair Value <F2>(in thousands)Due in one year or less <F3>$                118,1834.46Due after one year through five years899,35533.90Due after five years through ten years602,22222.70Due after 10 years825,49631.12Total2,445,25692.18Mortgage-backed bonds (various Maturities)207,4067.82Total bonds and notes$            2,652,662100.00% <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 are classified as available for sale; accordingly total carrying value equals estimated fair value.  <F2> Quoted market prices for most publicly traded securities are available.  Where quoted prices are unavailable, prices are obtained from securities dealers and valuation methodologies.  <F3> Excludes Commercial paper of ninety days or less.  The NAIC assigns securities quality ratings and uniform prices called NAIC Designation, which are used by insurers when preparing their statutory annual statements.  The NAIC annually assigns designations at December 31 to publicly traded as well as privately placed securities.  These designations range from class 1 to class 6, with a designation in class 1 being of the highest quality.  Of the bonds and notes in the Companys investment portfolio, approximately 94.6% were in one of the highest two NAIC Designations at December 31, 2008.  The following table sets forth the carrying value and estimated fair value of the securities in the table above according to NAIC Designations at December 31, 2008.  NAIC Designations
(generally comparable to Moodys ratings <F1>Estimated
Fair Value <F2>Percent of Total Estimated
Fair Value <F2>(in thousands)1    (Aaa, Aa, A)$           1,587,39159.842    (Baa)923,01034.80Total investment grade2,510,40194.643    (Ba)99,5133.754    (B)13,852.525    (Caa, Ca)18,991.726    (C)9,905.37Total non-investment grade <F3>142,2615.36Total$           2,652,662100.00%  <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 fair value.  <F2> Quoted market prices for most publicly traded securities are available.  Where quoted prices are unavailable, prices are obtained from securities dealers and valuation methodologies.  <F3> Approximately 99.6% of the non-investment grade bonds represent bonds that experienced credit migration from investment grade status.  10    The following table sets forth the composition of the Companys bond and notes portfolio by rating as of December 31, 2008.  Rating <F1>Estimated
Fair Value <F2>Percent of Total
Estimated
Fair Value <F2>(in thousands)Aaa$            464,54717.51Aa173,0356.52A941,30735.49Baa937,97335.36Total investment grade <F3>2,516,86294.88Ba92,8683.50B10,930.41Caa, Ca22,097.83C or lower9,905.38Total non-investment grade135,8005.12Total$           2,652,662100.00% <F1>Ratings are those assigned primarily by Moodys when available, with remaining ratings assigned by Standard & Poors and converted to a generally comparable Moodys rating.  Bonds not rated by any such organization (e.g., private placement securities) are included based on the rating prescribed by the Securities Valuation Office of the National Association of Insurance Commissioners (NAIC).  NAIC class 1 is considered equivalent to an A or higher rating; class 2, Baa; class 3, Ba; and classes 4-6, B and below.  All securities are classified as available for sale; accordingly total carrying value equals estimated fair value  <F2> Quoted market prices for most publicly traded securities are available.  Where quoted prices are unavailable, prices are obtained from securities dealers and valuation methodologies.  <F3> Approximately 14.1% consists of U.S government and agency bonds.    New York State Insurance Department Regulation 130  The Insurance Company is subject to Regulation 130 adopted and promulgated by the New York State Insurance Department (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, 2008, approximately 4.6% of the Insurance Companys total admitted assets were invested in below investment grade debt securities.  Included in the below investment grade debt securities were 17 bond holdings in the Insurance Companys investment portfolio that were in or near default, with an estimated fair value totaling $9.5 million (0.03%) at December 31, 2008.  For a detailed discussion concerning below investment grade debt securities, including the risks inherent in such investments, see Item 7  Managements Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources.  Also see Note 2 to the Notes to Consolidated Financial Statements for certain other information concerning the Companys investment portfolio.  11    Investment Portfolio Summary  The following table summarizes the Company's investment portfolio at December 31, 2008.  This table consists primarily of fixed maturity investments available for sale, which are carried at fair value.  Investment PortfolioTotal Carrying Value<F1>(dollars in thousands)Fixed MaturitiesBonds and Notes:U.S. Government, government agenciesand authorities$                        356,070Investment grade corporate1,590,196Public utilities394,331Below investment grade corporate104,660Mortgage backed207,406Preferred stocks72,428Total Fixed Maturities2,725,091Equity SecuritiesCommon stock2,979Other Investments:Policy loans18,945Real Estate415Other long-term investments<F2>290,692Derivatives507Cash and short-term investments346,058Total cash and investments$                   3,384,687 _______________________________________________________________________________  <F1> All fixed maturity and equity securities are classified as available for sale; accordingly total carrying value equals estimated fair value.  Quoted market prices for most publicly traded securities are available.  Where quoted prices are unavailable, prices are obtained from securities dealers and valuation methodologies.  For other long-term investments, estimated market value either approximates estimated carrying value or was not readily ascertainable.  See Note 1(c) to the Notes to the Consolidated Financial Statements for an explanation of the methodology used to value "Other Investments."  <F2> Consist principally of investments in limited partnerships, which are accounted for under the equity method.  The equity method is an accounting method used to determine income derived from a companys investment in another company over which it exerts significant influence.  Under the equity method, investment income equals a share of net income proportional to the size of the equity investment.  Insurance Regulation  General Regulation  As an insurance holding company, the Corporation is subject to regulation by the State of New York, where the Insurance Company is domiciled, as well as all other states where the Insurance Company transacts business.  Most states have enacted legislation 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 the companies within the holding company system that may materially affect the operations, management or financial condition of the insurers within the system.  The Corporation 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 equitable.  In addition, many transactions require 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 of the insurance companies voting securities.  Applicable state insurance laws, rather than federal bankruptcy laws, also apply to the liquidation or reorganization of insurance companies.  12   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 and supervisory 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 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 of statutory 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 first obtaining regulatory approval.  One of the requirements is that the Insurance Company performs annual cash flow testing of its assets and liabilities.  Based on the testing performed, the Insurance Company held an asset/liability reserve of $68 million at year-end 2008, $60 million at year-end 2007 and $51 million at year-end 2006, for statutory accounting purposes only, to address the risk of a substantial increase in surrenders in a rising interest rate environment.  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, insurance regulators periodically examine the Insurance Companys financial condition, adherence to statutory accounting practices and compliance with the insurance department rules and regulations.  As part of their routine regulatory oversight process, the New York State Insurance Department (NYSID) generally conducts detailed examinations of the books, records and accounts of the Insurance Company every three years.  The most recent examination covered a three-year period ending December 31, 2006.  The final report was issued on March 14, 2008.  The examiners review did not reveal any differences which materially affected the Companys financial condition or deviated from the New York Insurance Law, Department regulations and circular letters or the operating rules of the Company.  The NYSID will continue to review the pricing methodologies and assumptions of the Companys products, in light of New York States Self-Support regulations, which state that life insurance companies domiciled or conducting business in New York State are prohibited to sell insurance products that are priced with expected loss based on reasonable actuarial assumptions.   Statutory Reporting Practices  The Insurance Company prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the New York State Insurance Department.  The New York State Insurance Department has adopted the provisions of the NAICs Statutory Accounting Practices as the basis for its statutory practices.  Accounting practices used to prepare statutory financial statements for regulatory filings of stock life insurance companies differ in certain instances from GAAP.  The following are the major differences between Statutory Accounting Principles (SAP) and GAAP:  § SAP, unlike GAAP, utilizes asset valuation reserves and interest maintenance reserves, which are intended to stabilize surplus from fluctuations in the value of the investment portfolio. § Future policy benefits and policyholders' account balances under SAP differ from GAAP due to differences between actuarial assumptions and reserving methodologies. § Certain policy acquisition costs, such as commissions, sales inducements, and certain expenses related to policy issuance and underwriting are expensed as incurred under SAP, but are deferred under GAAP and amortized over the premium-paying period of the related policies or based on past and projected profits to achieve a matching of revenues and expenses. § Under GAAP, Deferred Federal income taxes provide for temporary differences, which are recognized in the consolidated financial statements in a different period than for Federal income tax purposes. Deferred taxes are also recognized in statutory accounting practices; however, there are limitations as to the amount of deferred tax assets that may be reported as admitted assets. The change in the deferred taxes is recorded in surplus, rather than as a component of income tax expense. § For statutory accounting purposes, all of the Companys debt securities are recorded at amortized cost, except for securities in or near default, which are reported at fair value. Under GAAP, they are carried at amortized cost or fair value based on their classification as either held to maturity or available for sale. § Certain assets, such as furniture and equipment, agents debit balances, and prepaid expenses, are not admissible under SAP but are admissible under GAAP. § Under SAP, premiums from Universal Life and deferred annuities are recognized as premium when received.  Under GAAP, the premiums received are recorded as an increase in liability for policyholder account balances.    13   Regulation of Dividends and Other Payments from the Insurance Company  The Corporation 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, including principal and interest payments on its outstanding indebtedness and dividend payments on its common stock, are rent from its real estate, income from 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 regulatory approval.  Under New York 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 the lesser of (i) 10% of its surplus as of the end of the immediately preceding calendar year, or (ii) its net gain (after tax) from operations for the immediately preceding calendar year.  Any dividend in excess of such amount is subject to approval by the Superintendent.  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.  The guidelines focus on, among other things, an insurers overall financial condition and profitability under statutory accounting practices, which, as discussed above, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP.  In 2008, the Insurance Company paid $35.7 million in stockholder dividends to the Corporation.  However, there can be no assurance that this will continue to be the case in subsequent years.  Accordingly, Management of the Company cannot provide assurance that the Insurance Company will have adequate statutory earnings to support payment of dividends to the Company in an amount sufficient to fund the Companys cash requirements, including the payment of dividends, or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendents consideration.  In 2009, the Insurance Company will be permitted to pay a stockholder dividend of $32.6 million to the Corporation without prior regulatory clearance.  Investment Reserves  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 a portion 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, mortgages, real estate, and other long-term investments.  The maximum AVR is calculated based on the application of various factors that are applied to the assets in the insurers portfolio.  The AVR generally captures credit-related realized and unrealized capital gains and losses on such assets.  Each year the amount of an insurers AVR will fluctuate as the investment portfolio changes and capital gains and losses are absorbed by the reserve.  To adjust for such changes over time, contributions must be made to the AVR in an aggregate amount equal to 20% of the difference between the maximum AVR as calculated and the actual AVR.  These contributions may result in a slower rate of growth in or a reduction of the Insurance Companys surplus.  The extent of the impact of the AVR on the Insurance Companys surplus depends in part on the future composition of the Insurance Companys investment portfolio.  Interest Maintenance Reserve  The Interest Maintenance Reserve (IMR) captures capital gains and losses (net of taxes) on fixed income investments (primarily bonds and mortgage loans) resulting from 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 investments resulting 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 their statutory 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 of significant changes in an insurance companys product mix, large reinsurance transactions, increases or decreases in premiums received and certain other changes in operations.  These changes need not result from any problems with 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, state regulators may, but are not obligated to, inquire of the 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.  For the year ended December 31, 2008, the Change in Reserve Ratio  Life of the Insurance Company, fell outside the normal range.  This was primarily attributable to the elimination on December 31, 2008 of the additional reserve that had been established on December 31, 2007 on the guaranteed issued business as well as higher reserves released by death and surrenders in 2008 on the single premium whole life business.  14    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 capital amount, 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.  This information 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 potential involvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for an insurance company to submit a plan to improve its capital (Company Action Level) to regulatory control of the insurance company (Mandatory Control Level).  At December 31, 2008, the Insurance Companys Company Action Level was $80.7 million and the Mandatory Control Level was $28.3 million. The Insurance Companys adjusted capital at December 31, 2008 and 2007 was $370.9 million and $418.3 million, respectively, which exceeds all four action levels.  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 transact business 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 insolvency and, in certain instances, may be offset against future state premium taxes.  The amount of these assessments against the Insurance Company in 2008 and prior years have not been material.  However, the amount and timing of any future assessment against the Insurance Company under these laws cannot be reasonably estimated and are beyond the control of the Corporation and the Insurance Company.  As such, no reasonable estimate of such assessments can be made.  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 any future federal measures 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 predict the outcome of any such Congressional activity or the potential effects thereof on the Corporation.  Environmental Considerations  As an owner and operator of real property, the Company is subject to extensive federal, state and local environmental laws and regulations.  Inherent in such ownership and operation is also the risk that there may be potential environmental liabilities and costs in connection with any required remediation of such properties.  We cannot provide assurance that unexpected environmental liabilities will not arise.  However, based on information currently available to management, we believe that any costs associated with environmental regulations will not have a material adverse effect on our business or financial condition.  Enterprise Risk Management  The Company has adopted an Enterprise Risk Management (ERM) policy as a methodology for managing risks. Management is exploring the use of robust capital modeling as an alternative to an Economic Capital framework, to support decision making. In addition, management has developed a roadmap in order to improve its identification of key risks to strategic objectives, clarify governance structure, and identify potential gaps that may emerge in current risk management. By creating a more structured framework, optimizing investment decision-making and identifying major risks, management believes ERM will play an important role in the Companys efforts to create and preserve shareholder value. The Company continues to engage Tillinghast as consultants to support our efforts in this endeavor.  15    Affiliates  The Corporation has one principal subsidiary, the Insurance Company. The Corporation has three additional subsidiaries, Presidential Securities Corporation, P.L. Assigned Services Corporation, and Presidential Asset Management Company, Inc.  In aggregate, these three subsidiaries are not material to the Corporations consolidated financial condition or results of operations.  Available Information  The Companys website is www.presidentiallife.com.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports are available, free of charge, on our website as soon as reasonably practicable after filing or furnishing such reports electronically with the Securities and Exchange Commission.  Other information found on the website is not part of this or any other report filed with or furnished to the SEC.  ITEM 1A. RISK FACTORS  The following are certain risk factors that could affect the Corporations business, financial results and results of operations.  These risk factors should be considered in connection with evaluating the forward-looking statements contained in this Annual Report on Form 10-K.  Any or all forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining our actual future results. These statements are based on current expectations and the current economic environment. They involve a number of risks and uncertainties that are difficult to predict. These statements are not guarantees of future performance. Actual results could differ materially from those expressed or implied in the forward-looking statements. Among factors that could cause actual results to differ materially are:  § Credit market conditions, may adversely affect the business and the results of operations and we do not expect these conditions to improve in the near future.:  Since mid 2007, the capital and credit markets have been experiencing extreme volatility and disruption.  Beginning in the second half of 2008, the volatility and disruption have reached unprecedented levels and the markets have exerted downward pressure on availability of liquidity and credit capacity for certain issuers.  We maintain a level of cash and securities which, combined with expected cash inflows from investments and operations, is believed adequate to meet anticipated short-term and long-term benefit and expense obligations. In the event our current internal sources of liquidity do not satisfy our needs, we may have to sell our longer term fixed maturities into an environment that could produce significant losses.  Factors such as consumer spending, business investments, government spending, the volatility and strength of the capital markets, investor and consumer confidence and inflation all affect the business and economic environment and, ultimately, the amount and profitability of our business in an economic downturn characterized by higher unemployment, lower family income, lower corporate earnings and lower consumer spending, the demand for our insurance products could be adversely affected.  In addition, we may experience an elevated incidence of claims, lapses or surrenders of our policies.  Adverse changes in the economy could affect net income negatively and could have an adverse effect on our business and results of operations.  § Investment in limited partnerships:  As of December 31, 2008, approximately $290.7 million (8.6%) of the Companys investment portfolio consisted of interests in over seventy limited partnerships managed by various general partners, which are engaged in a variety of investment strategies, including real estate, international opportunities, debt restructurings, oil and gas 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 of illiquidity, which is mitigated by the ability of the Insurance Company to take quarterly distributions of partnership earnings.  The matters set forth above could have a material adverse impact on these partnerships.  16    There can be no assurance that the Insurance Company will continue to achieve the same level of returns on its investments in limited partnerships that it has received during the past periods or that it will achieve any returns on such investments at all.  In addition, there can be no assurance that the Insurance Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.  The failure of the Insurance 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 the Insurance Companys financial condition and results of operations.  § Heightened competition, including with respect to pricing, entry of new competitors and the development of new products by new and existing competitors:  The Insurance 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 Insurance Company, many of which are more highly rated and have substantially greater resources than the Insurance Company.  The Insurance 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 paying rating, and service.  Many other insurance and financial services companies are capable of competing for sales in the Insurance Companys target markets.  Management believes that the Insurance Companys ability to compete is dependent upon, among other things, its ability to retain and attract independent General Agents to market its products and its ability to successfully develop competitive, profitable products.  Management believes that the Insurance Company has good relationships with its agents, has an adequate variety of products approved for issuance and generally is competitive within the industry in all applicable areas.  § Our primary reliance, as a holding company, on sales of and interest on the Corporations investments and rent from its real estate to meet debt payment obligations, operating expenses and dividend payments:  The Corporation is a holding company and, therefore, depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments and to fund all payments on its obligations, including debt obligations. The Insurance Company is subject to laws that authorize regulatory bodies to block or reduce the flow of funds from the Insurance Company to the Corporation. Regulatory action of that kind could impede access to funds that the Corporation needs to make payments on obligations, including debt obligations, or dividend payments. An inability of the Corporation to access funds from its subsidiaries could adversely affect its ability to meet its obligations.  § Adverse results from litigation, arbitration or regulatory investigations:  Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments.  § Regulatory, accounting or tax changes that may affect the cost of, or demand for, our products or services:  The Company's insurance business is subject to comprehensive regulation and supervision throughout the United States by both state and federal regulators.  The primary purpose of state regulation of the insurance business is to protect contract owners, and not necessarily to protect other constituencies of the Insurance Company, such as creditors or shareholders. State insurance regulators, state attorneys general, the National Association of Insurance Commissioners, the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) continually reexamine existing laws and regulations and may impose changes in the future. Changes in federal legislation and administrative policies in areas such as employee benefit plan regulation, financial services regulation, and federal taxation could lessen the advantages of certain of the Company's products as compared to competing products, or possibly result in the surrender of some existing contracts and policies or reduced sales of new products and, therefore, could reduce the Company's profitability.  The adoption of new laws or regulations, enforcement action or litigation, whether or not involving the Company, could influence the manner in which it distributes its insurance products, which could adversely impact the Company.  17    Different interpretations of accounting principles could have a material adverse effect on our results of operations or financial condition.  Generally accepted accounting principles are complex, continually evolving and may be subject to varied interpretation by us, our independent registered public accounting firm and the SEC. Such varied interpretations could result from differing views related to specific facts and circumstances. Differences in interpretation of generally accepted accounting principles could have a material adverse effect on our results of operations or financial condition.  § Downgrades in our claims paying ability, financial strength or credit ratings:  Ratings are important factors in establishing the competitive position of insurance companies. A downgrade, or the potential for such a downgrade, of any of the ratings for the Company could, among other things:  § Materially increase the number of annuity contract surrenders and withdrawals;  § Result in the termination of relationships with broker-dealers, banks, agents, wholesalers, and other distributors of the Company's products and services; and  § Reduce new sales of annuity contracts or increase the minimum interest rate the Company may be required to pay under new annuity contracts.  Any of these consequences could adversely affect the Company's profitability and financial condition.  § Changes in rating agency policies or practices:  Rating organizations assign ratings based upon numerous factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions, and circumstances outside the rated company's control. In addition, rating organizations may employ different models and formulas to assess financial strength of a rated company, and from time to time rating organizations have, in their discretion, altered the models. Changes to the models, general economic conditions, or circumstances outside the Company's control could impact a rating organization's judgment and the subsequent rating it assigns the Company. The Company cannot predict what actions rating organizations may take, or what actions it may be required to take in response to the actions of rating organizations, which could adversely affect the Company.  § Reliance on General Agents:  The independent General Agent system is the Insurance Companys primary product distribution system.  The Insurance Company utilizes many General Agents to distribute its products and therefore, is not dependent on any one General Agent or agent for a substantial amount of its business.  On the other hand, independent General Agents and agents are not captive to the Company.  Management believes that interest crediting rates, General Agent product commission levels, annuity and life product features, company support services and perceived company financial stability help determine our competitive nature at any given point in time and influence General Agents and their agents to distribute our products.  The Insurance Companys top ten General Agents, as measured by combined 2008 annuity and life premiums, accounted for approximately 33% of the Insurance Companys sales in 2008.  No single General Agent accounted for more than 8.2% and no single agent accounted for more than 4.2% of total sales.  Management believes no single distribution source loss will have a material adverse impact on the Insurance Company.  However, the simultaneous loss of several distribution sources would diminish our product distribution and reduce sales and could have an adverse material impact on the Insurance Company unless these sources are timely replaced.  To guard against this contingency, the Insurance Company continuously recruits new independent General Agents.  § A failure in our operational systems or infrastructure could impair our liquidity, disrupt our businesses, damage our reputation and cause losses:   Shortcomings or failures in our internal processes, people or systems could lead to impairment of our liquidity, financial loss, disruption of our businesses, liability to clients, regulatory intervention or reputational damage. For example, our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions. The transactions we process have become increasingly complex and often must adhere to client-specific guidelines, as well as legal and regulatory standards. Our financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, adversely affecting our ability to process these transactions. Despite the contingency plans and facilities we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses or the community in which we are located. This may include a disruption involving electrical, communications, transportation or other services.  18     Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in significant losses or reputational damage. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.  § Our businesses may be adversely affected if we are unable to hire and retain qualified employees:  Our performance is largely dependent on the talents and efforts of highly skilled individuals. Competition in the financial services industry for qualified employees is intense. In addition, competition with businesses outside the financial services industry for the most highly skilled individuals has been intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees; an inability to do so may impact our ability to take advantage of business opportunities or remediate inefficiencies.  There have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years, and we run the risk that employee misconduct could occur. It is not always possible to deter or prevent employee misconduct and the precautions we take to prevent and detect this activity may not be effective in all cases.  § Discrepancies between actual claims experience and assumptions used in setting prices for our products and establishing the liabilities for our obligations for future policy benefits and claims:  The Insurance 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 profitability of the products 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. The reserves reflected in the Corporation's consolidated financial statements are based upon the Corporation's best estimates of mortality, persistency, expenses and investment income, with appropriate provisions for adverse statistical deviation and the use of the net level premium method for all non-interest-sensitive products.  While the Insurance Company historically has not experienced significant adverse deviations from its assumptions, there can be no guarantee that future estimates and assumptions will not significantly deviate from actual results.  § Our business may be adversely affected if the decline in annuity contracts in-force were to continue for an extended period of time  The declining trend in annuity inforce primarily reflects unusually large volumes of business written in 2000 thru 2002.  These contracts started to come off surrender charge at the end of 2005, through the end of 2008, at a relatively large expected surrender rate.  This large volume of surrenders outpaced new sales causing a general decline in total annuity inforce.  The Company believes that the heavy surrender activity is now largely behind us and, along with expected new sales, there should be a turn around in the inforce this year.  19    ITEM 1B. UNRESOLVED STAFF COMMENTS  None  ITEM 2. PROPERTIES  The Corporation owns, and the Insurance Company leases and 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 feet of usable office space.  The Insurance Company also owns two acres of unimproved land in Nyack, New York.  Management believes that the Corporations present facilities are adequate for its anticipated needs.  ITEM 3. LEGAL PROCEEDINGS  From time to time, the Corporation is involved in litigation relating to claims arising out of its operations in the normal course of business.  As of March 11, 2009, the Corporation is not a party to any legal proceedings, the adverse outcome of which, in managements opinion, individually or in the aggregate, would have a material adverse effect on the Corporations financial condition or results of operations.  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  No matters were submitted by the Corporation to its shareholders for vote during the fiscal year ended December 31, 2008.  Part II  ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED SHAREHOLDER MATTERS  The Corporations common stock trades on The NASDAQ Stock Market® 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 of business each applicable day, as reported by the National Association of Securities Dealers, Inc., and the per share cash dividends declared on the common stock. HighLowCash Dividends
Declared per ShareFiscal 2007First Quarter$            22.14$            19.02$         .1250Second Quarter20.7918.04.1250Third Quarter20.1415.27.1250Fourth Quarter19.0915.95.1250Fiscal 2008First Quarter$            18.41$            16.11$         .1250Second Quarter18.1615.42.1250Third Quarter19.3614.77.1250Fourth Quarter16.125.88.0625Fiscal 2009First Quarter(through March 11, 2009)$              10.75$              5.84$         .0625 The Corporation has paid regular cash dividends since 1980.  On November 12, 2008, the Presidential Life Corporation Board of Directors approved a 50% decrease in the quarterly dividend (6.25 cents vs. 12.5 cents per share) payable January 2, 2009 to holders of record on December 15, 2008.  During the first quarter of 2009, the Corporation declared a quarterly cash dividend of $.0625 per share, payable April 1, 2009.  The Corporation 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 and the financial condition of the Insurance Company.  Any determination to pay dividends is at the discretion of the Corporation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 11, 2009, there were approximately 540 holders of record of the Corporations common stock.  20   Comparative Performance by the Company    The SEC requires the Company to present a graph comparing the cumulative total shareholder return on its Common Stock with the cumulative total shareholder return of:  (i) a broad equity market index; and (ii) a published industry index or peer group.  The following graph compares the Common Stock with:  (i) the S&P 600 SmallCap Index; and (ii) the S&P Life and Health Insurance Index and assumes an investment of $100 on December 31, 2003 in each of the Common Stock, the stocks comprising the S&P 600 SmallCap Index and the stocks comprising the S&P Life and Health Insurance Index, assuming the reinvestment of dividends.  Total Return To Shareholders(Includes reinvestment of dividends)ANNUAL RETURN PERCENTAGEYears EndingCompany / IndexDec04Dec05Dec06Dec07Dec08Presidential Life Corporation31.9914.8517.26-18.04-41.83S&P 600 SmallCap Index22.657.6815.12-0.30-31.07S&P 500 Life & Health Insurance Index22.1522.5116.5111.00-48.32INDEXED RETURNSBaseYears EndingPeriodCompany / IndexDec03Dec04Dec05Dec06Dec07Dec08Presidential Life Corporation100131.99151.59177.75145.6984.74S&P 600 SmallCap Index100122.65132.07152.04151.59104.48S&P 500 Life & Health Insurance Index100122.15149.65174.36193.54100.02    21    ITEM 6.  SELECTED FINANCIAL DATA  Selected consolidated financial data for the Corporation are presented below for each of the five years in the period ended December 31, 2008.  This data should be read in conjunction with the Corporations Consolidated Financial Statements and notes thereto and Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations.  Income Statement Data:Year Ended December 31,20082007200620052004(in thousands, except per share data)Total Revenue$265,844$364,125$358,826$458,581$396,259Benefits208,740217,668242,218255,743254,022Interest Expense on Notes Payable7,3539,13810,4329,6369,805Expenses, excluding interest32,86740,65936,01344,99032,411Total Benefits and Expenses248,960267,465288,663310,369296,238(Benefit) Provision for Income Taxes(1,700)32,97820,45056,62334,056Net Income$18,584$63,682$49,713$91,589$65,965Income per Share, diluted$0.63$2.15$1.67$3.11$2.25Dividends per Share$.4375$.50$.40$.40$.40Balance Sheet Data:At December 31,20082007200620052004(in thousands)Assets$3,602,498$4,155,516$4,619,372$4,895,559$4,817,356Total CapitalizationNotes Payable66,50090,195150,000150,000150,000Shareholders Equity440,054661,955639,587626,496595,734Total$506,554$752,150$789,587$776,496$745,734Book Value Per Share$14.88$22.40$21.70$21.29$20.29Net Investment Return on Assets7.27%7.14%7.06%7.45%7.78%  In 2005 and 2006, the Company undertook 2 programs designed to rebalance a portion of its fixed income portfolio (See, Item 7, Managements Discussion and Analysis, Liquidity and Capital Resources, Asset/Liability Management.) This portfolio rebalancing resulted in a decreased yield on assets, as long-term, higher yielding assets were sold with the proceeds being reinvested in shorter term assets with lower yields. The sale of the long-term assets resulted in approximately $75 million of capital gains in 2005. In 2006 and 2007, the purchases of new fixed income assets from portfolio rebalancing resulted in decreased income from investments. Also, during 2008, 2007 and 2006, the Company experienced a decline in overall assets due to a substantial increase in annuity surrenders ($283.1 million in 2008, $535.2 million in 2007 and $480.1 million in 2006), resulting in an overall decline in Total Assets.  In 2008, the decline was further impacted by the reduction in market value of its invested assets due to the distressed economic environment that prevailed in the 2nd half of the year.  Net income in 2008 was impacted by the Companys realization of other than temporary impairments in its portfolio. (See Note 2, Investments for further discussion on other than temporary impairments) as well as significantly reduced income attributable to its cash equivalent investments.  As described under Ratings and Regulation, the Corporations business is substantially affected by capital ratios and their impact on its ratings.  Consequently, the Insurance Companys management established a policy of reducing the level of sales increases until capital and surplus ratios are further improved.  Sales are also being made with a greater selectivity based on increased profit level requirements for new business.  The Insurance Company has determined that the level of competition in the sale of traditional and universal life insurance products has made it very difficult for smaller insurance companies, such as the Insurance Company, to participate in this business in a profitable way.  Accordingly, the Insurance Company has determined that, under the current market conditions, it will not participate in the sale of traditional and universal life policies.     22    ITEM 7.   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF   OPERATIONS  General  The Insurance Company is engaged in the sale of insurance products with three primary lines of business: individual annuities, individual life insurance, and group accident and health.  Revenues are derived primarily from premiums received from the sale of annuity contracts, life and accident and health products, and gains (or losses), from our investment portfolio.  As described in Item 1A, since 2004 the Insurance Company has suspended the sale of traditional and universal life insurance due to existing market conditions.  For financial statement purposes, our revenues from the sale of whole life and term life insurance products and annuity contracts with life contingencies are treated differently from our revenues from the sale of annuity contracts without life contingencies, deferred annuities and universal life insurance products.  Premiums from the sale of whole or term life insurance products and life contingent annuities are reported as premium income on our financial statements.  Premiums from the sale of deferred annuities, universal life insurance products and annuities without life contingencies are not reported as premium revenues, but rather are reported as additions to policyholders account balances.  For these products, revenues are recognized over time in the form of policy fee income, surrender charges and mortality and other charges deducted from policyholders account balances.  Profitability in the Insurance Companys individual annuities, individual life insurance and group accident and health depends largely on the size of its inforce block, the adequacy of product pricing and underwriting discipline, and the efficiency of its claim and expense management.  Unless specifically stated otherwise, all references to 2008, 2007 and 2006 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2008, December 31, 2007 and December 31, 2006, respectively.  When we use the term We, Us and Our we mean the Corporation and its consolidated subsidiaries.  In this discussion, we have included statements that may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.  These statements may relate to our future plans and objectives.  By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from results indicated in these forward-looking statements.  Important factors, among others, that could cause our results to differ from those indicated in the forward-looking statements are discussed below under Certain Factors That May Affect Our Business and under Risk Factors (See item 1A).  Executive Overview  Results  The Corporations earnings per share were $0.63 for 2008, as compared to $2.16 in 2007 and $1.69 in 2006.  Results in 2008 reflect a decrease in investment income and net realized investment losses in 2008 as compared to a net realized investment gain in 2007.  Our total revenues in 2008 were $266 million, compared to $364 million in 2007 and $359 million in 2006.  The Corporations decreases in earnings and revenues in 2008 resulted primarily from decreases in net investment income and realized capital losses.  The difficult current economy, lower yields from the portfolio rebalancing (See, Item 7, Managements Discussion and Analysis, Liquidity and Capital Resources, Asset/Liability Management.), a loss on the payor swaptions (reflected in the realized capital gains), and decreased investment income from the Corporations short-term investments and fixed maturities all contributed to lower revenues in 2008.  Certain Factors That May Affect Our Business  There are numerous factors, some of which are outside our control, which could have a material impact on our business.  These factors include market conditions, legal and regulatory changes and operational risk.  A summary of these factors is set below:  1. Market Conditions:  The Corporation, like all companies, is affected by the general state of financial markets and economic conditions in the U.S. and elsewhere.  The pressures related to the current recessionary environment coupled with the distortion of the capital markets have resulted in one of the most difficult business environments in years and the ability to obtain desired returns on the investment portfolio without exposing the Corporation to excess risk has never been more challenging.  This, in turn, has had an impact on our willingness to expand sales of our single premium annuity products.  23    2. Legal and Regulatory Risk:  As an insurance company, we are subject to substantial regulatory control.  Any material change in the framework in which we operate could have a material impact on the business.  For further discussion on how we deal with the regulatory requirements, see Business  Insurance Regulation.  3. Operational Risk:Business is dependent on our ability to process, on a daily basis, our payment obligations under outstanding policies and the condition of the investment portfolio.  Any internal failures in the internal processes, people, or systems could lead to adverse consequences to the Corporation.  In addition, despite the contingency plans in place, the ability to conduct business may be adversely impacted by the disruption in the infrastructure that supports our business and the community in which we are located.  4. Interest Rate Risk:The Insurance Companys principal products are deferred annuities, which are interest rate sensitive instruments.  In an interest rate environment of falling or stable rates the Insurance Companys annuity holders are less likely to seek to surrender their annuities prior to maturity to seek alternative, higher-yielding investments.  However, in an environment of moderately or significantly increasing rates, such surrenders should be expected to increase.  As of December 31, 2008, the existence of surrender fees on approximately 43.6% of the Insurance Companys outstanding deferred annuities acts as a deterrent against surrenders.   However, if interest rates climb sufficiently, such fees may not have a significant deterrent effect.  Moreover, the surrender fees are only in effect, primarily for up to the first 7 years of each annuity policy and, therefore, disappear over time (see table below).  In the event of a substantial increase in surrenders during a short period of time, the Insurance Company may have to sell off longer-term assets to pay current surrender liabilities.  The Insurance Company continually develops strategies to address the match between the timing of its assets and liabilities.  To that end, in 2006, 2007 and 2008, a significant number of policies came off surrender charge and a significant portion of this business did surrender.  This can be seen in the surrender ratio in the table on page 3.  The company anticipated this and maintained a significant level of cash equivalents to fund surrenders avoiding the need to sell long-term assets at a loss. The Company believes that the heavy surrender activity is now largely behind us. Additionally, management has increased the incentive for agents to retain this business with the Company by paying full first year compensation on internal rollovers.  Beginning in 2008, and continuing into future years, a significantly smaller amount of business will be coming off surrender charge  as shown in the table below and consequently we expect a continuation of the markedly lower surrender ratio seen in prior years.  Account Value with Surrender Charges ExpiringYear ExpiringAccount Value
(in millions)Percent of Account Value Expiring2009$             141.415.8%201086.49.62011133.614.92012230.925.72013165.618.52014 and later138.715.5Total$            896.6100.0% Pricing  Management believes that the Insurance 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 the independent general agency system; (ii) minimizing home office administrative costs; and (iii) utilizing appropriate underwriting guidelines.  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 for such 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 or contract; and (iv) mortality.  24    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 can either surrender policies or cause their policies to lapse by failing to pay premiums. 20082007200620052004Ratio of annualized voluntary terminations (surrenders and lapses) to mean life insurance in force6.5%6.6%7.6%7.0%8.2%  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 an assumption by the Insurance 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.  Investment Results  The following table summarizes the Insurance Company's investment results for the periods indicated, as determined in accordance with GAAP. Year Ended December 31,20082007200620052004(in thousands)Cash and total invested Assets <F1>$     3,689,747$     4,228,704$     4,589,132$       4,678,264$       4,640,865Net investment income <F2>$        261,735$        294,860$        316,415$          339,711$          339,442Effective yield <F3>7.27%7.14%7.06%7.45%7.78%Net realized investment (Losses) Gains <F4>$         (47,893)$          24,833$          (3,607)$            75,010$            15,278  <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 (including accrued investment income) 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 Insurance Company experienced a decline in net investment income of $33.2 million from $294.860 million in 2007 to $261.735 million in 2008. Net invested assets declined from $4.3 billion in 2007 to $3.7 billion in 2008.  This was primarily caused by a decline in the market value of invested assets caused by the significant widening in corporate spreads resulting from the economic and capital market tumult.  The decline was also attributable to annuity surrenders exceeding premium income for the third straight year. In anticipation of these surrenders, the Insurance Company has maintained cash investments in the vicinity of $300 million for each of the past 3 years.  During 2008, the Federal Reserves actions in lowering the Fed Funds rate from 4 1⁄4% at December 31, 2007 to .25% at December 31, 2008 resulted in a $17.2 million decline in investment income from the short-term investment portfolio.  Income from fixed, long-term maturities declined by $12.4 million, due to the lower interest rates earned on the proceeds of called securities in 2008.  Despite these factors, the portfolio yield rose from 7.14% in 2007 to 7.27% in 2008 due to the excellent returns from the partnership portfolios.  Net realized investment gains for 2008 went from a gain of $24.8 million in 2007 to a loss of $47.9 million in 2008.  Presidential Life experienced losses of $18.3 million from the sale of Lehman Brothers Holdings bonds and preferred stock that was sold subsequent to the bankruptcy and $ 4.2 million from the exchange of GMAC, LLC bonds. The Company also took write-downs of $5.7 million on its stock holding in ISTAR Financial and $3.5 million on its bond investment in Clear Channel Communications.  Investments  The Insurance Company derives a predominant portion of its total revenues from investment income. The Insurance Company manages most of its investments internally.  All investments made on behalf of the Insurance Company are governed by the Statement of Investment Policy established and approved by the Investment Committee, the Finance Committee and the Board of Directors of the Insurance Company and the Corporation and by qualitative and quantitative limits prescribed by applicable insurance laws and regulations.  The Investment Committee meets regularly 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 Finance Committee and the Board of Directors of the Insurance Company and Corporation.  The Insurance Company's Statement of Investment Policy must comply with NYSID regulations and the regulations of other applicable regulatory bodies.  The Insurance Company's investment philosophy generally focuses on purchasing investment grade securities with the intention of holding such securities to maturity.  However, as market opportunities, liquidity, or regulatory considerations may dictate, securities may be sold prior to maturity.  The Insurance Company has categorized all fixed maturity securities as available for sale and carries such investments at market value.  25    The Insurance Company manages its investment portfolio to meet the diversification, yield and liquidity requirements of its insurance policy and annuity contract obligations. The Insurance Company's liquidity requirements are monitored regularly so that cash flow needs are satisfied.  Adjustments periodically are made to the Insurance Company's investment policies to reflect changes in the Insurance Company's short-and long-term cash needs, as well as changing business andeconomic conditions.  The Insurance Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations.  In general, the market value of our fixed maturity portfolio increases or decreases in an inverse relationship with fluctuations in interest rates, and our net investment income increases or decreases in direct relationship with interest rate changes.  For example, if interest rates decline, the Insurance Company's fixed maturity investments 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 vice versa.  Management is aware that prevailing market interest rates frequently shift and, accordingly, has adopted strategies that are designed to address either an increase or decrease in prevailing rates.  The Insurance 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 market valuation.  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 other than temporary impairments have occurred on a case-by-case basis.  Inherent in management¢s evaluation of each security are assumptions and estimates about the operations of the issuer and its future earnings potential.  Considerations used by the Insurance Company in the other than temporary impairment 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 financial difficulties; (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 where the issuer, series of issuers or industry has a catastrophic type of loss or has exhausted natural resources; (vi) in situations where it is determined that an impairment is attributable to changes in market interest rates, the Corporations ability and intent to hold impaired securities until recovery of fair value at or above cost; and (vii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain 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 on valuation methodologies, securities the Insurance Company deems to be comparable and assumptions deemed appropriate given the circumstances.  There can be no assurance that the assumptions relied upon by the Insurance Company will yield accurate assessments of the fair value of these investments.  As such, the Insurance Company reassesses its assumptions regularly.  As of December 31, 2008, 10.1% of the Companys invested assets (approximately $342.2 million) consisted of short-term commercial paper with maturities of less than 45 days. This commercial paper consisted of direct obligations of various corporations rated a minimum of A1 by Standard and Poors and P1 by Moodys.  As part of its Asset-Liability management strategy, the Insurance Company has kept elevated levels of cash investments since 2005, anticipating the potential surrender of annuity policies with expiring surrender charges. This cash has been available to meet actual surrenders and any other cash needs. By having the liquidity afforded by these cash investments during 2008, the Company was been able to satisfy all of its cash needs without any portfolio sales from the fixed income portfolio.  As of December 31, 2008, approximately 8.7% of the Insurance Company's total invested assets were invested in limited partnerships and equity securities.  Investments in limited partnerships are included in the Corporation's consolidated balance sheet under the heading Other long-term investments.  See Note 2 to the Notes to Consolidated Financial Statements.  The Insurance Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $117.9 million of additional capital to certain of these limited partnerships.  Commitments of $13.7 million will expire in 2009, $4.7 million in 2010, $45.6 in 2011, and $53.9 in 2012.  The Insurance Company may make selective investments in additional limited partnerships as opportunities arise.  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 of illiquidity, which is mitigated by the ability of the Insurance Company to take quarterly distributions of partnership earnings.  There can be no assurance that the Insurance Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically.  Further, there can be no assurance that the Insurance Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.  The failure of the Insurance Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Corporation's financial condition and results of operations.  The Company believes that the current recessionary environment coupled with limited credit availability will challenge the partnerships ability to monetize investments and generate capital gains until conditions improve.   26    The primary market risks in the Insurance Companys investment portfolio are interest rate risk (discussed above), credit risk and, to a lesser degree, equity price risk.  Changes in credit risk are generally measured by changes in corporate yields in relation to the underlying Treasuries (corporate spreads) as well as changes in the Credit Default Swap (CDS) market, although the Company is a cash investor and does not buy or sell credit default swaps. The Insurance Company's exposure to foreign exchange risk is insignificant.  The Insurance Company has no direct commodity risk.  Changes in interest rates can potentially impact the Corporations profitability.  In certain scenarios where interest rates are volatile, the Insurance Company could be exposed to disintermediation risk (asset/liability mismatch) and reduction in net interest rate spread or profit margin.  [See Interest Rate Risk above.]  Unrealized Losses  The following table presents the amortized cost and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at December 31, 2008:  Less Than 12 Months12 Months or MoreTotalFair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized LossesDescription of Securities(in thousands)US Treasury obligations and direct obligations of US Government Agencies$       14,869$       1,301$         12,911$         2,540$         27,780$         3,841Corporate Bonds1,150,137163,040577,184148,1181,727,321311,158Preferred Stocks20,6617,11847,64833,59668,30940,714Subtotal Fixed Maturities1,185,667171,459637,743184,2541,823,410355,713Common Stock249144--249144Total$  1,185,916$   171,603$       637,743$     184,254$    1,823,659$     355,857 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, 2008. Gross      Unrealized Losses% Of
Total(in thousands)Less than twelve months$171,45948.20Twelve months or more184,25451.80Total$355,713100.00 As of December 31, 2008, the Company had 574 securities in a net unrealized loss position. Of this total, 535 are bonds holdings, 38 represent preferred stocks and 1 is an equity position.  Total unrealized losses increased from $73 million at December 31, 2007 to $355.9 million at December 31, 2008.  This increase in the unrealized losses resulted from the significant increase in corporate bond spreads caused by the unprecedented financial crisis and the economic recession that accelerated after the Lehman Brothers bankruptcy in September 2008.  According to the Merrill Lynch corporate spread indices, 10-year, BBB-rated industrial spreads widened by 457 basis points, BBB-rated financial spreads widened by 877 basis points and BBB-rated utility spreads widened by 329 basis points in 2008.  Spreads widened across the maturity spectrum and severely impacted financial bonds, particularly A-rated and BBB-rated bank and insurance company bonds.  Presidential carefully examines each issue where the market value has fallen below 70% of book value to determine if the bonds are not-other-than-temporarily impaired. Consistent with the Companys OTTI (Other than Temporarily Impaired) Policy as discussed above, the Company will recognize a write-down of book value to current market value, if warranted.  One of the Insurance Companys Limited Partnership investments has assets of approximately $9 million located at the prime brokerage unit of Lehman Brothers International (Europe) (LBIE), located in the United Kingdom.  Since September 2008 when Lehman Brothers filed for bankruptcy, the assets were frozen and the claims to such assets are subject to the resolution of the bankruptcy proceedings.  Due to the complexities surrounding the LBIE proceeding, we are unable, at this time, to determine the level, if any, of impairments the Limited Partnership may incur.  U.S. Treasury Obligations and Direct Obligations of U.S. Agencies:  The 2008 net unrealized loss was $3,841,000 on a fair value of $27,780,000.  Approximately $1.7 million of this loss represented a bond position in the Westchester County NY Industrial Development Agency (IDA), Series 2003.  This position is secured by a pledge of the rental payments from a 9-story parking garage to the Westchester County IDA.  There is also additional security provided by a leasehold mortgage on this property and a one-year debt service reserve fund. This bond had also been wrapped by bond insurance provided by ACA, a bond insurer that went bankrupt at the end of 2007. The bonds are current on principal and interest payments from the cash flow provided by the garage and are rated 2 (investment-grade) by the SVO Office of the NAIC.  27    Corporate Bonds:The predominant investment category for the Companys investments is the Corporate Bond Category (including Public Utilities), which totaled $2.089 billion at December 31, 2008.  The unrealized losses increased from $55 million at December 31, 2007 to $311.2 million at December 31, 2008.  The 5 largest loss positions consisted of the following holdings: Prudential Insurance Co. 8.30% due July 1, 2025 ($8.1 million); Motorola, Inc. 7 1⁄2% due May 15, 2025 ($6.1 million), American General Institutional Capital 7.57% due December 1, 2045 ($6.0 million), Nationwide Financial 6.60% due April 15, 2034 ($5.9 million) and Limited Brands 5 1⁄4% due November 1, 2014 ($5.9 million).  The Prudential and Nationwide Insurance bonds are A-rated, long term bonds in major insurance companies that have been affected by the financial crisis that climaxed in the months after the Lehman bankruptcy.  Spreads on 30 year, A-rated financial bonds widened by 278 basis points and BBB-rated financial bonds widened by 661 basis points in 2008, according to the Merrill Lynch spread indices. The Motorola bonds reflect a decline in the market for telecommunications equipment caused by the economic downturn.  The American General bond is a subsidiary of AIG (American International Group), a major recipient of financial aid from the U.S. Treasury following the Lehman Brothers bankruptcy. The Limited Brands bonds reflect the decline in the retail sector caused by the economic recession combined with a ratings downgrade by the 3 rating agencies to Ba1/BB+/BB+, the highest non investment-grade corporate rating.  Preferred Stocks: The preferred stock category, which totaled $72.4 million, at December 31, 2008, consists of bank, financial company, telecommunications, REIT and electric utility preferreds.  This represents a decrease in value from $112.0 million at December 31, 2007.  Unrealized losses totaled $40.7 million at December 31, 2008, reflecting an increase from a $16.2 million loss at December 31, 2007.  The 5 largest loss positions, each having an NAIC 2 (investment-grade) rating, consist of the following positions: Royal Bank of Scotland ($6.8 million); Centaur Funding Corp. ($5.4 million); National Westminster Bank ($5.1 million); Duke Realty Corp. ($2.1 million), and Telephone and Data Systems ($1.6 million).  The Royal Bank of Scotland and National Westminster Bank preferreds are both obligations of the Royal Bank of Scotland Group, which has been affected by the banking crisis in the United Kingdom.  Centaur Funding (backed by Airtouch Class D and E Preferred Stock) and Telephone and Data Systems are telecommunications preferreds that have been affected by the decline in the common stock of the 2 parent companies (Airtouch and Telephone and Data Systems).  The Duke Realty Corp. preferred has been affected by the credit crunch and fears anticipating a severe downturn in the commercial real estate markets in the U.S., particularly in the Midwest (Cincinnati and Indianapolis) and Southeast (Atlanta and Central Florida).  Common Stock:The Common Stock portfolio totaled 6 positions with a value of $2.6 million at December 31, 2008.  One of the positions, JAC Holdings, represented a distribution of a stock holding from one of the limited partnership investments owned by Presidential Life.  The unrealized loss in this position is approximately $144,000.   28   Statutory Information  The Insurance Company prepares its statutory financial statements in accordance with accounting practices prescribed by the New York State Insurance Department.  Prescribed SAP include state laws, regulations and general administrative rules, as well as a variety of publications from the NAIC.  Accounting principles used to prepare statutory financial statements differ from financial statements prepared on the basis of GAAP.  (See Item 1, Business, Insurance Regulation, Statutory Reporting Practices)  A reconciliation of the Insurance Companys net income (loss) as filed with regulatory authorities to net income reported in the accompanying financial statements for the years ended December 31, 2008, 2007 and 2006, is set forth in the following table:  (in thousands)200820072006Statutory net income$16,932$59,141$74,976Reconciling items:Deferred policy acquisition costs(6,085)(12,345)(9,020)Investment income difference5,9057,714(9,033)GAAP Deferred taxes12,3842,698(197)Policy liabilities and accruals10,0367,05315,449IMR amortization(3,482)(3,056)(2,938)IMR capital gains1,0759,676494Payor Swaptions(6,499)(8,314)(15,307)Federal income taxes-(693)(3,831)Other(488)550287Non-insurance companys net income(11,194)1,258(1,167)GAAP net income$18,584$63,682$49,713  A reconciliation of the Insurance Companys shareholders equity as filed with regulatory authorities to shareholders equity reported in the accompanying financial statements as of December 31 is set forth in the following table:  (in thousands)20082007Statutory shareholders equity$329,039$360,373Reconciling items:Asset valuation and interest maintenance reserves112,985131,494Investment valuation differences(281,500)65,364Deferred policy acquisition costs122,33877,721Policy liabilities and accruals144,847135,151Difference between statutory and GAAP deferred taxes20,134(95,510)Other(3,880)(2,754)Non-insurance companys shareholders equity(3,909)(9,884)GAAP shareholders equity$440,054$661,955  Agency 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 Corporations or the Insurance Companys ratings will continue for any given period of time or that they will not be changed.  In the event the ratings are downgraded, the level of revenues or the persistency of the Insurance Companys business may be adversely impacted.  In March 2008, A.M. Best Company reaffirmed the Insurance Companys rating at B+ (Good) with a stable outlook.  At the time of the B+ rating, publications of A.M. Best indicated that the B+ rating was assigned to those companies that, in A.M. Best's opinion, have achieved 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.  The B+ rating is within A.M Bests Secure classification, along with A++, A+, A, A-, and B++ ratings.  In 2007, A.M. Best Company changed the Financial Strength Rating Descriptor for B+ and B++ ratings on insurance companies from Very Good to Good.  The change was made to make the Rating Descriptor consistent with the existing Rating definition and did not, in any way, represent a change in A.M. Bests opinion of the Company.  29    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 and soundness 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 investors to rely on such a rating in evaluating the financial condition of the Insurance Company.  In July 2008, Moody's Investor Services (Moody's) upgraded the financial strength of the Insurance Company to Ba1 (Questionable financial security) with a positive outlook, from Ba2 (Questionable financial security) with a stable outlook.  Moodys also raised the senior debt rating of the Corporation from B2 to B1 (Speculative, subject to high credit risk) with a positive outlook.  In April 2008, Standard & Poors Ratings Services raised its counterparty credit rating on the Corporation to B+ from B.  An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation.  Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment of the obligation.   At the same time it raised its counterparty credit and financial strength ratings on the Insurance Company to BB+ from BB with a positive outlook.  An insurer rated BB has marginal financial security characteristics.  Positive attributes exist, but adverse business conditions could lead to insufficient ability to meet financial commitments.  In June 2008, Fitch Ratings affirmed the Insurance Companys Aq rating, Strong, - possessing strong capacity to meet policyholder and contract obligations based solely on the Companys stand-alone financial statement characteristics.  Fitch Ratings found that risk factors are moderate, and the impact of any adverse business and economic factors is expected to be small.  Results of Operations  Comparison of Fiscal Year 2008 to Fiscal Year 2007 and Fiscal Year 2007 to Fiscal Year 2006.  Operating Revenues  Annuity Considerations and Life Insurance Premiums  Total annuity considerations and life insurance premiums increased to approximately $46.8 million in 2008 from approximately $40.4 million in 2007, an increase of approximately 13.7% and decreased from approximately $41.4 million in 2006 to $40.4 million in 2007, a decrease of approximately 2.4%.  Life insurance premiums were $16.2 million, $15.6 million and $13.8 million in 2008, 2007 and 2006 respectively.  Annuity considerations increased to approximately $30.7 million in 2008 from approximately $24.8 million in 2007, an increase of approximately $5.9 million, and decreased from approximately $27.6 million in 2006 to $24.8 million in 2007, a decrease of approximately $2.8 million.  These amounts do not include consideration from the sales of deferred annuities or immediate annuities without life contingencies. Under GAAP, such sales are reported as additions to policyholder account balances. Consideration from such sales was approximately $143.2 million, $136.5 million and $163.6 million in 2008, 2007 and 2006, respectively.  In 2008, sales of immediate annuities increased by approximately $5.3 million due to a more focused marketing campaign during the year.  We also received upgrades from Standard and Poors and Moodys, each with positive outlooks, during the year.  These ratings play a significant part in annuity sales.  In 2007, several factors attributed to the decrease of annuity premium considerations.  The continued repressive interest environment beginning in 2002 has been persistent causing annuity carriers to credit relatively lower and unattractive rates of interest.  30    Policy Fee Income  Universal life and investment type policy fee income remained relatively stable at approximately $2.7 million and $2.6 in fiscal years 2008 and 2007, and decreased from approximately $2.9 million in fiscal year 2006.  Policy fee income consists principally of amounts assessed during the period against policyholders' account balances for mortality charges and surrender charges.  Net Investment Income  Net investment income totaled $261.7 million in 2008, as compared to $294.9 million in 2007 and $316.4 million in 2006.  This represents an 11.2% decrease comparing 2008 to 2007 and a 6.8% decrease comparing 2007 to 2006.  Invested assets, at amortized cost, for 2008, 2007 and 2006 totaled $3.4 billion, $4.0 billion and $4.2 billion, respectively.  This decrease in invested assets was primarily caused by unrealized losses in the underlying investments as well as an increase in policy surrenders in the Insurance Companys annuity business which exceeded the level of new annuity sales for the respective periods. Reduced income resulted from a decrease in invested assets, as well as, the income reduction attributable to portfolio rebalancing activities in 2006 and 2005, which involved the sale of higher yielding long-term assets and the reinvestment into lower yielding short-term investments.  The Insurance Company's ratios of net investment income to average cash and invested assets, at amortized cost, for the years ended December 31, 2008, 2007 and 2006 were approximately 7.14%, 7.44% and 7.43%, respectively.  Income from limited partnership investments amounted to approximately $49.1 million, $52.9 million and $47.0 million in 2008, 2007 and 2006, respectively.  The changes in the amounts are largely reflective of the inherent volatility of income in the Companys limited partnership portfolio.  (See Item 7, Managements Discussion and Analysis, Asset/Liability Management).  Without taking into account the Corporations returns on its limited partnership investments in those years, the respective ratios would have been 6.17%, 6.43% and 6.64% for the years ended December 31, 2008, 2007 and 2006.   For additional information, please refer to Note 2 of the Notes to Consolidated Financial Statements.  Net Realized Investment Gains and Losses  Net realized investment (losses)/gains (pre-tax) amounted to $(47.9 million) in fiscal 2008, as compared to $24.8 million in fiscal 2007 and $(3.6 million) in fiscal 2006.  The decrease in 2008 was primarily attributable to losses on fixed maturities.  Losses on common stocks and recorded losses on the Insurance Companys investment in unhedged Payor Swaptions also contributed to the decrease.  Due to accounting rules governing derivative instruments, fluctuations in market value are realized in the income statement, even if the investments continued to be held by the Company.  The values of the payor swaptions were $0.5 million, $7.0 million and $9.8 million for the years ended 2008, 2007 and 2006, respectively.  Net realized investment (losses)/gains for years ended December 31, 2008, 2007 and 2006 include realized investment losses of approximately $43.6 million, $52 thousand, and $4.5 million, respectively, attributable to writedowns of certain securities contained in the Company's investment portfolio that were deemed by management to be other than temporarily impaired.  For a discussion of the procedure by which such determinations were made, see Investments above.  Realized investment gains (losses) also resulted from sales of certain equities and convertible securities and calls and sales of fixed maturity investments in the Companys investment portfolio.  Total Benefits and Expenses  Interest Credited and Benefits to Policyholders  Interest credited and benefits paid to policyholders amounted to $208.7 million in fiscal 2008 as compared to $217.7 million in fiscal 2007 and $242.2 million in fiscal 2006.  These represent a decrease of 4.1% comparing fiscal 2008 to fiscal 2007 and a 10.1% decrease comparing fiscal 2007 to fiscal 2006.  The Insurance Companys average credited rate for reserves and account balances for the years ended December 31, 2008, 2007 and 2006 was less than the Companys ratio of net investment income to mean assets (based on book value) for the same period 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 the Company's ratio of net investment income to book value 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 and results 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, change the average credited rates on certain of its products.  There can be no assurance that the Company will be able to reduce such rates or that any such reductions will widen the Spread.  The actual Spread, excluding capital gains, for the for the 12 months ended December 31, 2008, 2007 and 2006 was 1.89%, 2.13% and 2.01%, respectively.  In comparing year-end 2008 to year-end 2007, the decrease was primarily due to a decrease in the earned rated partially offset by a decrease in the crediting rate.  From 2006 to 2007, the increase was primarily due to a reduction in the crediting rate.  31    Interest Expense on Notes Payable  The interest expense on the Corporation's notes payable amounted to approximately $7.4 million in 2008, approximately $9.1 million in 2007 and approximately $10.4 million in 2006.  The decrease in 2008 was primarily due to the repayment of the $50 million line of credit in July of 2007 and the Corporations partial repurchase and retirement of its senior notes in 2007 and 2008.  General Expenses, Taxes and Commissions  General expenses, taxes and commissions to agents totaled $26.8 million in 2008 as compared to $28.3 million in 2007 and $27.0 million in 2006.  This represents a decrease of 2.5% comparing 2008 to 2007 and an increase of 4.9% comparing fiscal 2007 to fiscal 2006.  The decrease in 2008 was primarily due to lower first year commissions and lowercommissions paid on internal rollovers in an effort to keep policies in-force.  The increase in 2007 was primarily due to 2006 refunds in state and franchise taxes, which reduced the taxes in 2006.  Consultant fees paid in connection with the Companys ERM project also contributed to the increase in 2007.  Change in Deferred Policy Acquisition Costs  The change in the net DAC for 2008 resulted in a charge of approximately $6.1 million, as compared to a charge of approximately $12.3 million and a charge of approximately $9.0 million for 2007 and 2006, respectively.  Changes in DAC consist of three elements:  deferred costs associated with product sales, amortization of the DAC on deferred annuity business and amortization of the DAC on the remainder of the Companys business.  Deferred costs consisted of credits of $8.3 million, $11.3 million and $12.1 million for 2008, 2007 and 2006 respectively.  Amortization of the DAC on deferred annuity business consisted of charges of $9.0 million, $17.9 million and $15.9 million in 2008, 2007 and 2006 respectively.  Amortization of the DAC on the remainder of the Companys business consisted of charges of $5.4 million in 2008, $5.8 million in 2007 and $5.2 million in 2006.  Under applicable accounting rules (FASB 97), DAC related to deferred annuities is amortized in proportion to the estimated gross profits over the estimated lives of the contracts.  Essentially, as estimated profits of the Insurance Company related to these assets increase, the amount and timing of amortization is accelerated.  The decrease in 2008 relates primarily to the occurrence of net capital losses in 2008 compared to net capital gains in 2006 and 2007.  The decrease from 2006 to 2007 reflects the reduction in inforce due to the high surrender rate of 2006. (See also the discussion of Deferred Policy Acquisition Costs under Critical Accounting Policies below.)  Income Before Income Taxes  For the reasons discussed above, income before income taxes amounted to approximately $16.9 million in 2008, as compared to approximately $96.7 million in 2007 and approximately $70.2 million in 2006.  Income Taxes  An income tax benefit of approximately $1.7 million was generated in 2008, as compared to expenses of approximately $33 million and $20.5 million in 2007 and 2006, respectively.  The benefit in 2008 was primarily attributable to a lower net income and a deferred tax benefit realized on other than temporary impairments incurred on the Corporations investment portfolio.  Higher income in 2007 generated higher income taxes.  Net Income  For the reasons discussed above, the Corporation had net income of approximately $18.6 million in 2008, as compared to $63.7 million in 2007 and $49.7 million in 2006.  32   Liquidity and Capital Resources  The Corporation is an insurance holding company and its primary uses of cash are debt service obligations, operating expenses and dividend payments.  The Corporations principal sources of cash are sales of and interest on the Corporations investments, rent from its real estate and dividends from the Insurance Company.  In 2007, the Corporations Board of Directors increased the quarterly dividend rate to $.125 per share from $.10 per share in 2006.  In 2008, due to the uncertain economic climate, the Board of Directors reduced the quarterly dividend by 50% to $.0625 per share as a prudent measure to preserve capital.  During 2008 and 2007, the Corporation did not repurchase any of its common stock, although at December 31, 2008, the Corporation was authorized to purchase approximately 385,000 shares of common stock.  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 Corporation without obtaining prior regulatory approval.  Under the New York Insurance Law, the Insurance Company is permitted without prior insurance regulatory clearance to pay a stockholder dividend to the Corporation as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its statutory surplus as of the immediately preceding calendar year or (ii) its statutory net gain from operations for the immediately preceding calendar year (excluding realized capital gains and losses). The Insurance Company will only be permitted to pay a stockholder dividend to the Corporation in excess of that amount 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. The Insurance Company paid $35.7 million, $32 million and $20 million in dividends to the Corporation in fiscal 2008, 2007 and 2006, respectively.  On a going forward basis, there can be no assurance that the Insurance Company will have statutory earnings to support payment of dividends to the Corporation 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 Corporation was able to meet all its liquidity needs in 2008, including the payment of dividends, and anticipates being able to meet those needs in 2009 and the foreseeable future.  Principal sources of funds at the Insurance Company are premiums and other considerations paid, net investment income received and proceeds from investments called, 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 of investments.  Given the Insurance Companys historical cash flow and current financial results, management believes that, for the next twelve months and for the reasonably foreseeable future, the Insurance Companys cash flow from operating activities will provide sufficient liquidity for the operations of the Insurance Company.  Net cash provided by the Corporations operating activities was approximately $15.6 million, $21.1 million and $77.4 million in 2008, 2007 and 2006, respectively.  Net cash provided by the Corporation's investing activities (principally reflecting investments purchased, called, redeemed or sold) was approximately $187.9 million, $416.4 million and $236.6 million in 2008, 2007 and 2006, respectively.  For purposes of the Corporation's consolidated statements of cash flows, financing activities relate primarily to sales and surrenders of the Insurance Company's annuity and universal life insurance products.  The payment of dividends by the Corporation to its stockholders is also considered to be a financing activity.  Net cash Used in the Company's financing activities amounted to approximately $203.3 million, $453.7 million and $300.8 million in 2008, 2007 and 2006, respectively.  These fluctuations primarily are attributable to changes in policyholder account balances as a result of surrenders, sales and interest earned by the policyholders as well as the repayment of debt.  The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Corporation. In the event the Corporation violated such covenants, we would have been obligated to offer to repurchase the entire outstanding principal amount of such notes.  As of December 31, 2008, we believe that we are 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 risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded.  The following is a discussion of our primary market risk exposures and how those exposures are currently managed.  We believe that a portfolio composed principally of fixed-rate investments that generate predictable rates of return should back our fixed-rate liabilities.  We do not have a specific target rate of return.  Instead, our 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.  Our portfolio strategy is designed to achieve adequate risk-adjusted returns consistent with our investment objectives of effective asset-liability matching, liquidity and safety.  33    In order to maintain consistency in our portfolio, our deferred annuity products incorporate surrender charges to discourage surrenders or withdrawals.  Annuitants may not terminate or withdraw funds from their annuity contracts for a significant initial period (generally seven years) without incurring penalties in the form of surrender charges.  These surrender charges generally range from 1% to 7%of the investment. Approximately 56.4%, 56.8% and 46.9% of the Insurance Company's deferred annuity contracts in force (measured by reserves) as of December 31, 2008, 2007, and 2006 were surrenderable without charge.  The market value of our 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.  Based on market values and prevailing interest rates as of December 31, 2008, a hypothetical instantaneous increase in interest rates of 100 basis points would produce a loss in fair value of our fixed maturity assets of approximately $134.6 million.  Asset/Liability Management  A persistent focus of the Insurance Companys management is maintaining the appropriate balance between the duration of its invested assets and the duration of its contractual liabilities to its annuity holders and credit suppliers.  Prior to 2005, the Insurance Company had permitted the duration gap between its assets and liabilities to rise during a period in which it expected relatively stable interest rates and, most importantly, in which its liabilities were largely protected by significant annuity surrender charges.  This strategy benefited the Company by allowing it to realize enhanced yield from longer duration assets.  At the end of 2004, the Insurance Company determined that the prospect of rising rates and declining surrender charges necessitated a reduction in the duration mismatch, as well as increased management of extension risk in its investment portfolio.  The Company developed a two-step asset liability management strategy.  The first step involved a duration reduction strategy, which involved the sale of certain longer duration assets that were purchased at prices below the existing market prices and reinvested into shorter duration assets.  Since December 31, 2004, the Company has completed in excess of $1,238.9 million of asset repositioning.  As the second element of the asset liability management strategy commencing in 2005, the Company hedged against the risks posed by a rapid and sustained rise in interest rates by entering into a form of derivative transaction known as a Payor Swaption. The effect of this transaction would be to lessen the negative impact on the Insurance Company of a significant increase in interest rates. With Payor Swaptions, the Company should be able to maintain more competitive crediting rates to policyholders when interest rates rise.  The Company has established International Swaps and Derivatives Association ISDA Credit Support Agreements with the two counterparties against the 2 Swaptions currently held by Presidential Life. The counterparties are major money center banks that carry credit ratings equal to or higher than Aa3 by Moody's and A+ by S&P. The ISDA Credit Support Agreement requires counterparties to post collateral in the event that the bank credit rating falls below A3 by Moodys and A- by S&P. These contracts expire in July 2009 and June 2010 at varying strike rates based on the 10-year swap rate. The Company has determined that the Payor Swaptions represent a "non-qualified hedge" and has adopted accounting procedures consistent with the provisions of FAS 133. The aggregate market value of the Payor Swaptions as of December 31, 2008 was $506,640. A variety of factors affect the value of the Payor Swaptions. These include overall Treasury interest rate levels, SWAP spreads, overall market volatility and the length of time remaining before the expiration of a Payor Swaption. These investments are classified on the balance sheet as "Derivative Instruments". Under FAS 133, the value of the Payor Swaptions is recognized at "fair value" (market value), with any resulting change in fair value reflected in the statement of income as a realized loss or gain. The change in market value during 2008 was a loss of $6,498,557. The Company has determined that the average fair value for the 2008 year was $4,557,347.  The Insurance Company is continually assessing its Swaption portfolio to determine if sufficient protection is provided to cover projected realized losses in the event of a liquidation of assets to satisfy annuity surrenders under the aforementioned 300 basis points increase in interest rates.  As part of this process, Presidential may consider purchasing additional Swaptions as well as extending the maturity of its Swaption portfolio by selling the Swaptions maturing in July 2009 and purchasing another Payor Swaption to cover future portfolio needs. Future consideration of these transactions or other asset/liability management strategies is dependent upon periodic testing based on updated asset and liability data as of December 31, 2008.  Off-Balance Sheet Arrangements The Corporation has not entered into any off-balance sheet financing arrangements and has made no financial commitments or guarantees with any unconsolidated subsidiary or special purpose entity.  All of the Corporations subsidiaries are wholly owned and their results are included in the accompanying consolidated financial statements.  Contractual Obligations  The accompanying Notes to Consolidated Financial Statements contain information regarding payments required under existing long-term borrowing arrangements.  The following presents a summary of the Companys significant contractual obligations as of December 31, 2008.  34    CONTRACTUAL OBLIGATIONS TABLE  Payment Due By Period (in thousands)Contractual ObligationsLess than
1 Year1-3 Years3-5 YearsAfter 5 YearsTotalSenior Notes Payable$    66,500$                -$                -$                    -$        66,500Interest on Senior Notes Payable2,618---2,618Unfunded Limited Partnership Commitments (1)13,711104,236117,947FIN 48 Liabilities-2,426--2,426Policy Liabilities (2)486,012840,689773,3262,575,7184,675,745Total Contractual Obligations$ 568,841$    947,351$    773,326$     2,575,718$   4,865,236  (1) See Note 1(D) Summary of Significant Accounting Policies, Investments, of the consolidated financial statements  (2) The difference between the recorded liability of $3,152.4 million, and the total payment obligation amount of $4,675.7 million, is $1,523.3 million and is comprised of (i) future interest to be credited; (ii) the effect of mortality discount for those payments that are life contingent; and (iii) the impact of surrender charges on those contracts that have such charges.  Of the total payment of $4,675.7 million, $3,014.7 million, or 64.5%, is from the Companys deferred annuity, life, and accident and health business.  Determining the timing of these payments involves significant uncertainties, including mortality, morbidity, persistency, investment returns, and the timing of policyholder surrender.  Notwithstanding these uncertainties, the table reflects an estimate of the timing of such payments.  Senior Notes Payable consist of $66.5 million, 7 7/8% senior notes due February 15, 2009.  See Note 3 in Notes to the Unaudited Condensed Consolidated Financial Statements for additional discussion concerning both long-term and short-term obligations.  On February 17th, 2009, the Corporation retired the remaining $66.5 million of its 7 7/8%, $100 million Senior Note.  This was financed through the sale of short-term commercial paper, fixed maturities and an upstream dividend payment from the Insurance Company in January 2009 in the amount of $16 million.  Effects of Inflation and Interest Rate Changes  In a rising interest rate environment, the Insurance Company's average cost of funds would be expected to increase over time, as it prices its new and renewing annuities to maintain a generally competitive market rate. In addition, the market value of the Insurance Company's fixed maturity portfolio would be expected to decrease, resulting in a decline in shareholders' equity.  Concurrently, the Insurance Company would attempt to place new funds in investments that were matched in duration to, and higher yielding than, the liabilities associated with such annuities.  Moreover, surrenders of its outstanding annuities would likely accelerate.  Management believes that liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, the Insurance Company's cash reserves and, if necessary, proceeds from the monetization of the Payor Swaption investments described above and the sale of short-term and long-term investments.  In a declining interest rate environment, the Insurance Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting rates on its fixed annuities.  Should increased liquidity be required for withdrawals in such an interest rate environment, management believes that the portion of the Insurance Company's investments that are designated as available for sale in the Corporation's consolidated balance sheet could be sold without materially adverse consequences in light of the general strengthening in market prices that would be expected in the fixed maturity security market.  Interest rate changes also may have temporary effects on the sale and profitability of our annuity products.  For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Insurance Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Insurance Company's products until the Insurance Company increases the rates credited to holders of its annuity products.  In contrast, as interest rates fall, we would attempt to lower our credited rates to compensate for the corresponding decline in net investment income.  As a result, changes in interest rates could materially adversely affect the financial condition and results of operations of the Insurance Company depending on the attractiveness of alternative investments available to the Insurance Company's customers.  In that regard, in the current interest rate environment, the Insurance Company has attempted to maintain its credited rates at competitive levels designed to discourage surrenders and also to be considered attractive to purchasers of new annuity products.   35   Recent Accounting Pronouncements  See Note 1, Item N, Notes to the Consolidated Financial Statements for a full description of the new accounting pronouncements including the respective dates of adoption and the effects on the results of operations and financial condition.  Critical Accounting Estimates  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (2GAAP2) 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 the Corporation¢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 Insurance Companys business operations.  Investments  The Insurance 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 market valuation.  The financial statement risks are those associated with the recognition of other than temporary impairments and income, as well as the determination of fair values. Recognition of income ceases when a bond goes into default and management evaluates whether temporary or other than temporary impairments have occurred on a case-by-case basis.  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 the other than temporary impairment 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) whether the issuer is experiencing significant financial difficulties; (iii) financial difficulties being experienced by an entire industry sector or sub-sector; (iv) economically depressed geographic locations; (v) situations where the issuer, series of issuers or industry  has a catastrophic type of loss or has exhausted natural resources; (vi) in situations where it is determined that an impairment is attributable to changes in market interest rates, the Corporations ability and intent to hold impaired securities until recovery of fair value at or above cost; and (vii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain 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 on valuation 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.  However, the Company believes that the estimates it uses in determining other than temporary impairment and fair value are realistic, conservative and fairly state the value of its investments.  The Company uses the equity method of accounting for investments in limited partnership interests in which it has more than a minor equity interest, or more than a minor influence over the joint ventures and partnerships operations, but does not have a controlling interest and is not the primary beneficiary.  The Company routinely evaluates its limited partnership investments for impairments. The Company considers financial and other information provided by the investee and other known information and inherent risks in the underlying investments in determining whether an impairment has occurred.  When an other-than-temporary impairment is deemed to have occurred, the Company records a realized capital loss within net investment income to record the investment at its fair value.  Investment income from limited partnerships is recorded based on the Companys share of earnings reported in the partnerships most recent audited financial statements and income distributed by the partnerships.  Management considers the quarterly financial information received from the limited partnerships to be unreliable or insufficient to record investment income, other than from distributions, on a quarterly basis.  Management estimates the classification of cash distributions received between investment income and return of capital based on correspondence from the respective partnerships.  The Company adjusts its estimate of investment income recorded during the year to the actual realized gains and other income reported in the limited partnerships most recent annual audited financial statements, which are generally received in the second quarter of the subsequent year.  As a result, there may be up to a one year reporting lag for recording investment income that is not distributed during the year, which may result in significant adjustments.  The Company records its share of net unrealized gains and losses (net of taxes) from the audited financial statements of the limited partnerships.  As a result, there may be up to a one year reporting lag for reporting unrealized gains and losses, which may result in significant adjustments to other comprehensive income in 2008.  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 at book value based on the most recent available audited financial statements.  Due to the significant unobservable inputs in these valuations, the Company includes the total fair value estimate for all of these investments in the amount disclosed in level 3.  The failure of the Insurance Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Corporation's financial condition and results of operations.   36    Deferred Policy Acquisition Costs  TheInsuranceCompany incurs significant costs in connection with acquiring new business. Under applicable accounting rules, these costs, which vary, 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 the impairment of the deferred acquisition cost asset and a charge to income if estimated future gross profits are less than amounts deferred.  To demonstrate the sensitivity of our net DAC balance ($122.3 million as of December 31, 2008) relative to our future spreads and expenses, the information below indicates how much the net DAC balance would have changed if the future spread assumption decreased by 30% and if the future expense assumption increased by 30%.  We believe that any variation in our expense or spread estimate is likely to fall within these ranges.  Change in AssumptionDecrease in Net DAC AssetFuture Spread Decreases 30%$6.1 millionFuture Expenses Increase 30%$0.9 million  Each year the company conducts testing to confirm that the DAC asset is recoverable and that no premium deficiency reserves are deemed necessary.  Future Policy Benefits  The Insurance 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 profitability of the products 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.  The reserves reflected in the Corporation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 the Insurance 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 into the 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 Corporation's consolidated financial statements are based upon the Corporation's best estimates of mortality, persistency, expenses and investment income, with appropriate provisions for 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 mortality and expense charges and withdrawals.  In determining reserves for its insurance and annuity products, the Insurance 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.  For policies and contracts where the reserve is reported as the account balance ($2,429.6 million), a change in expected experience would have no effect on the reserve.  For those annuities and supplementary contracts with life contingencies that comprise a portion of future policy benefits ($668 million of reserves), an increase in mortality experience of 1% per year for individual contracts would increase the present value of future benefits by approximately $29 million.  We believe that any variation of our mortality estimates is likely to fall within this range.  For traditional life insurance business ($42 million of reserves), establishing reserves requires the use of many assumptions.  Due to the number of independent variables inherent in the calculation of these reserves, and because this business is not material to the overall Company results, it is not practical to perform a quantitative analysis on the impact of changes in underlying assumptions.  However, the Insurance Company historically has not experienced significant adverse deviations from its assumptions and believes that its assumptions are realistic and produce reserves that are fairly stated in accordance with GAAP.  37    Income Taxes  Income taxes are recorded in accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). In accordance with SFAS No. 109, for all years presented we use the asset and liability method to record deferred income taxes. Accordingly, deferred income tax assets and liabilities are recognized that reflect the net tax effect of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, using enacted tax rates. Such temporary differences are primarily due to tax basis of reserves for future policy benefits, deferred acquisition costs, and net operating loss carry forwards. A valuation allowance is applied to deferred tax assets if it is more likely than not that all, or some portion, of the benefits related to the deferred tax assets will not be realized.  FIN 48 liabilities and tax reserves We have open tax years in the United States that are currently under examination by the applicable taxing authorities, and certain later tax years that may in the future be subject to examination. We periodically evaluate the adequacy of our FIN 48 liabilities and tax reserves, taking into account our open tax return positions, tax assessments received and tax law changes. The process of evaluating FIN 48 liabilities and tax reserves involves the use of estimates and a high degree of management judgment. The final determination of tax audits could affect our tax reserves.  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  ITEM 9A.  CONTROLS AND PROCEDURES  Disclosure Controls and Procedures  Management of the Company is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) of the Securities Exchange Act of 1934.  As of December 31, 2008, the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of such disclosure controls and procedures. Based on such evaluation, the Corporations Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Companys management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  Changes in Internal Controls Over Financial Reporting  There have been no changes in the Corporations internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities and Exchange Act of 1934, as amended) during the year ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  Managements Report On Internal Control Over Financial Reporting  The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal ControlIntegrated Framework. Based on our assessment we believe that, as of December 31, 2008, the Company's internal control over financial reporting is effective based on those criteria.  The Company's independent registered public accounting firm that audited the accompanying Consolidated Financial Statements has issued an attestation report on our assessment of the Company's internal control over financial reporting. Their report appears below.  38     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  Board of Directors and Stockholders Presidential Life Corporation Nyack, New York  We have audited Presidential Life Corporation and subsidiaries (the Company) internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.  We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.  A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  In our opinion, Presidential Life Corporation and subsidiaries maintained effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Presidential Life Corporation and subsidiaries as of December 31, 2008 and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for the year then ended and our report dated March 12, 2009 expressed an unqualified opinion.  /s/ BDO Seidman, LLP  BDO Seidman, LLP New York, New York March 12, 2009   39   ITEM 9B.  OTHER INFORMATION  None. PART III  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT  The information relating to the Corporation's directors, nominees for election as directors and executive officers will be included in the Corporation's definitive Proxy Statement for its 2009 Annual Meeting of Shareholders (the Proxy Statement), which the Corporation 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 the heading "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 Corporation will be included under the headings Compensation of Directors and Executive Officers and Compensation Discussion and Analysis in the Companys Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2009, and is incorporated herein by reference.  ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  The information relating to the security ownership of certain beneficial owners and management of the Corporation will be included in the Proxy Statement under the heading Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters and is incorporated herein by reference.  ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  The Insurance Company held a senior note of the Corporation with a par value of $9.8 million.  On September 27, 2007, the Insurance Company sold the senior note of the Corporation back to the Corporation and the debt was retired.  Upon the extinguishment of the debt, the Corporation recorded a loss of $49,000, net of taxes.  In anticipation of the Corporations senior notes maturing in February 2009 and the need to liquidate its investment portfolio to retire this obligation, the Corporation sold nine investment grade securities with a market value of $16.9 million (based upon third party broker quotes) to the Insurance Company in December 2008.  The Corporation realized a loss on the sale of $3.85 million, net of taxes.  Other than the foregoing, there are no matters required to be disclosed under this Item.  ITEM 14.  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 Registered Public Accounting Firm and is incorporated herein by reference.  PART IV  ITEM 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K  Reports of The Independent Registered Public Accounting Firms, 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 Form 10-K.  Exhibit Index  Exhibit Number Description of Document  2.01 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 Corporation 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 Corporation for the fiscal year ended December 31, 1993)  3.01 Certificate of Amendment of the Certificate of Incorporation of the Corporation, as filed with the Secretary of State of State of New York on June 8, 1993 (Incorporated by reference to the Annual Report on Form 10-K of the Corporation 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 Corporation, as filed with the Secretary of State of State of New York on June 29, 1993 (Incorporated by reference to the Annual Report on Form 10-K of the Corporation for the fiscal year ended December 31, 1993)  3.03 Certificate of Incorporation of Presidential Life Corporation, a Delaware corporation (now the Corporation) (Incorporated by reference to the Annual Report on Form 10-K of the Corporation for the fiscal year ended December 31, 1992)  3.04 By-Laws of Presidential Life Corporation, a Delaware corporation (now the Corporation) (Incorporated by reference to the Annual Report on Form 10-K of the Corporation 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 2001 (Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 of the Corporation filed on September 2, 1993)  4.02 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 the Registration Statement on Form S-3 of the Corporation 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 of America (formerly known as General Reassurance Corporation) (Incorporated by reference to the Annual Report on Form 10-K of the Corporation 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 Life Insurance Company (now known as Swiss Re Life & Health America) (Incorporated by reference to the Annual Report on Form 10-K of the Corporation 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 Corporation 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 Corporation 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 Corporation 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  21.01 Subsidiaries of the Registrant (Incorporated by reference to the Annual Report on Form 10-K of the Corporation for the fiscal year ended December 31, 1992)  23.01  Consents of the Independent Registered Public Accounting Firms  31.01 Certification of Chief Executive Officer Pursuant  to Exchange Act Rule 13a-14  31.02 Certification of Principal Financial Officer Pursuant to Exchange Act Rule 13a-14.  32.01 Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes Oxley Act of 2003  32.02 Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes Oxley Act of 2003     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 duly authorized.    PRESIDENTIAL LIFE CORPORATION     By  /s/ Herbert Kurz Herbert Kurz Chief Executive Officer and Chairman of the Board   Date:  March 12, 2009    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 dates indicated:    Date:   March 12, 2009 /s/ Herbert Kurz Herbert Kurz Chief Executive Officer and Chairman of the Board    Date:   March 12, 2009 /s/ Charles J. Snyder Charles J. Snyder, Treasurer and Chief Financial Officer    Date:   March 12, 2009 /s/ Donald Barnes Donald Barnes, Director    Date:   March 12, 2009 /s/ W. Thomas Knight W. Thomas Knight, Director    Date:   March 12, 2009 /s/ Stanley Rubin Stanley Rubin, Director    Date:  March 12, 2009 /s/ William M. Trust Jr. William M. Trust Jr., Director    Date:  March 12, 2009 /s/ Lawrence Read. Lawrence Read, Director    Date:  March 12, 2009 /s/ Lawrence Rivkin Lawrence Rivkin, Director    Date:  March 12, 2009 /s/ William DeMilt William DeMilt, Director    Date:  March 12, 2009 /s/ John D. McMahon John D. McMahon, Director     42    Consent of Independent Registered Public Accounting Firm  Presidential Life Corporation Nyack, New York We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-63831) and Form S-8 (No. 333-08217) of Presidential Life Corporation of our report dated March 12, 2009, relating to the consolidated financial statements and financial statement schedules, and the effectiveness of Presidential Life Corporations internal control over financial reporting, which appears in this Form 10-K.  /s/ BDO Seidman, LLP  BDO Seidman, LLP New York, New York March 12, 2009     43


TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES  Page  Report of Independent Registered Public Accounting Firm ..              F-2  Consolidated Financial Statements:  Consolidated Balance Sheets as of December 31, 2008 and 2007.... F-4  Consolidated Statements of Income  Years Ended December 31, 2008, 2007 and 2006....           F-5  Consolidated Statement of Shareholders Equity  Years Ended December 31, 2008, 2007 and 2006...... F-6  Consolidated Statements of Cash Flows  Years Ended December 31, 2008, 2007 and 2006  ... F-7  Notes to Consolidated Financial Statements  ... F-8   Consolidated Financial Statement Schedules:  II  Condensed Balance Sheets (Parent Company Only) as of December 31, 2008 and 2007 .. ... S-1  II  Condensed Statements of Income (Parent Company Only)  Years Ended December 31, 2008, 2007 and 2006 . S-2  II  Condensed Statements of Cash Flows (Parent Company Only)  Years Ended December 31, 2008, 2007 and 2006 . S-3  III  Supplemental Insurance Information  Years Ended December 31, 2008, 2007 and 2006 S-4  IV  Reinsurance  Years Ended December 31, 2008, 2007 and 2006  .. S-5  Certification for Chief Executive Officer  . S-6  Certification for Treasurer or Chief Financial 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    Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Presidential Life Corporation Nyack, New York We have audited the accompanying consolidated balance sheets of Presidential Life Corporation and subsidiaries as of December 31, 2008 and 2007 and the related consolidated statements of income, shareholders equity, and cash flows for the years ended December 31, 2008, 2007 and 2006.  We have also audited the financial statement schedules listed in the accompanying index as of and for the years ended December 31, 2008, 2007 and 2006.  These financial statements and schedules are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedules.  We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Presidential Life Corporation and subsidiaries at December 31, 2008 and 2007, and the results of its operations and its cash flows for the years ended December 31, 2008, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Presidential Life Corporation's internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 12, 2009 expressed an unqualified opinion thereon.  /s/ BDO Seidman, LLP  BDO Seidman, LLP New York, New York March 12, 2009   F-2   PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)  December 31,20082007ASSETS:Investments:Fixed maturities:Available for sale at fair value (Amortized cost of  $3,017,422 and $3,211,908 respectively)$               2,725,091$              3,282,099Common stocksAvailable for sale at fair value (Amortized cost of  $1,100 and $7,177  respectively)2,9799,732Derivatives, at fair value5077,005Real estate415415Policy loans18,94519,194Short-term investments342,238363,067Other long-term investments290,692309,663Total investments3,380,8673,991,175Cash and cash equivalents3,8203,631Accrued investment income40,98645,206Amounts due from security transactions13,01722,600Federal income tax recoverable24,801-Deferred federal income taxes, net78,810-Deferred policy acquisition costs122,33877,721Furniture and equipment, net538579Amounts due from reinsurers14,83913,124Other assets1,2921,480TOTAL ASSETS$              3,681,308$              4,155,516LIABILITIES AND SHAREHOLDERS EQUITY:Liabilities:Policy Liabilities:Policyholders account balances$              2,429,635$              2,579,907Future policy benefits:Annuity639,547642,931Life and accident and health72,22169,067Other policy liabilities11,0179,917Total policy liabilities3,152,4203,301,822Notes payable66,50090,195Deposits on policies to be issued2,9598,446General expenses and taxes accrued3,4874,073Federal income tax payable-183Deferred federal income taxes, net-60,217Other liabilities15,88828,625Total Liabilities3,241,2543,493,561Commitments and ContingenciesShareholders Equity:Capital stock ($.01 par value; authorized
100,000,000 shares; issued and outstanding 29,574,315 shares in 2008 and 29,553,710 in 2007)296295Additional paid in capital5,8514,538Accumulated other comprehensive income(137,160)91,704Retained earnings571,067565,418Total Shareholders Equity440,054661,955TOTAL LIABILITIES AND   SHAREHOLDERS EQUITY$               3,681,308$               4,155,516 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 31200820072006REVENUES:Insurance revenues:Premiums$        16,175$        15,634$        13,831Annuity considerations30,66824,78827,601Universal life and investment type          policy fee income2,6762,6002,916Net investment income261,735294,860316,415Net realized investment (losses) gains(47,893)24,833(3,607)Other income2,4831,4101,670TOTAL REVENUES265,844364,125358,826BENEFITS AND EXPENSES:Death and other life insurance benefits15,40313,49913,269Annuity benefits81,76277,54576,800Interest credited to policyholders             account balances112,815128,871151,906Interest expense on notes payable7,3539,13810,432Other interest and other charges1,355975879Decrease in liability for future policy benefits(2,595)(3,222)(636)Commissions to agents, net9,11511,74712,573General expenses and taxes17,66716,56714,420Increase in deferred policy acquisition cost6,08512,3459,020TOTAL BENEFITS AND EXPENSES248,960267,465288,663Income before income taxes16,88496,66070,163Provision for income taxes:Current13,75234,15019,904Deferred(15,452)(1,172)546(1,700)32,97820,450NET INCOME$        18,584$        63,682$        49,713Earnings per common share, basic$              .63$            2.16$            1.69Earnings per common share, diluted$              .63$            2.15$            1.67Weighted average number of shares outstanding during the year, basic29,563,26229,523,08929,449,256Weighted average number of shares outstanding during the year, diluted29,595,81929,650,89429,703,933  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, 2008, 2007, AND 2006 (in thousands, except share data)  Capital StockAdditional Paid-in-CapitalRetained EarningsAccumulated
Other Comprehensive
Income (loss)TotalBalance at January 1, 2006,$294$1,207$480,606$144,389$626,496Comprehensive Income:Net Income49,71349,713Loss on Rate Lock Hedge(1,456)(1,456)Net Unrealized Investment Losses(24,489)(24,489)Comprehensive Gain23,768Issuance of Shares
Under Stock Option Plan545545Share Based Compensation562562Dividends Paid to Shareholders  ($.40 per share)(11,784)(11,784)Balance at December 31, 2006$294$2,314$518,535$118,444$639,587Cumulative effect of adoption of FIN 48(2,036)(2,036)Balance at
January 1, 2007, as adjusted2942,314516,499118,444637,551Comprehensive Income:Net Income63,68263,682Loss on Rate Lock Hedge(707)(707)Net Unrealized Investment Losses(26,033)(26,033)Comprehensive Gain36,942Issuance of Shares
Under Stock Option Plan11,0951,096Share Based Compensation1,1291,129Dividends Paid to Shareholders  ($.50 per share)(14,763)(14,763)Balance at December 31, 2007$295$4,538$565,418$91,704$661,955Comprehensive Income:Net Income18,58418,584Loss on Rate Lock Hedge(74)(74)Net Unrealized Investment Losses(228,790)(228,790)Comprehensive Gain(210,280)Issuance of Shares
Under Stock Option Plan1238239Share Based Compensation1,0751,075Dividends Paid to Shareholders  ($.4375 per share)(12,935)(12,935)Balance at December 31, 2008$296$5,851$571,067$(137,160)$440,054
  The accompanying notes are an integral part of these Consolidated Financial Statements.  F-5   PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31,200820072006OPERATING ACTIVITIES:Net Income$       18,584$       63,682$       49,713Adjustments to reconcile net income to net cash provided by operating activities:(Provision) Benefit for deferred income taxes(15,452)(1,172)546Depreciation and amortization862979960Stock Option Compensation1,0751,129562Net amortization of discount on fixed maturities(18,726)(17,823)(28,146)Realized investment losses (gains)47,893(24,833)3,607Changes in:Accrued investment income4,2201,3086,168Deferred policy acquisition costs6,08512,3459,020Federal income tax recoverable(24,984)2,66920,137Liability for future policy benefits(230)(3,467)(286)Liability for amounts due brokers(541)(13,310)13,593Other items(3,179)(456)1,527Net Cash Provided by Operating Activities$       15,607$       21,051$       77,401INVESTING ACTIVITIES:Fixed Maturities:Acquisitions(349,323)(433,705)(34,301)Sales25,57010,350482,531Maturities, calls and repayments492,291376,060294,564Common Stocks:Acquisitions-(24,907)(36,016)Sales33853,22448,258Derivative InvestmentsAcquisitions-(6,156)(6,170)Sales-6,0515,930Decrease (Increase) in short-term investments and   policy loans30,078466,375(528,485)Other Long-term Investments:Additions to other long-term investments(67,294)(100,937)(66,682)Distributions from other long-term investments46,65687,11379,907Amounts due from security transactions9,583(17,036)(2,910)Net Cash Provided by Investing Activities187,899416,432236,626FINANCING ACTIVITIES:Decrease in policyholders account balances(150,272)(389,527)(300,447)Repurchase of common stock2381,095545Bank overdrafts(11,166)(4,171)7,937Deposits on policies to be issued(5,487)2,9252,910Repayment of short-term debt-(50,000)-Retirement of senior notes(23,695)--Dividends paid to shareholders(12,935)(14,018)(11,784)Net cash Used in Financing Activities(203,317)(453,696)(300,839)Increase (Decrease) in Cash and Cash Equivalents189(16,213)13,188Cash and Cash Equivalents at Beginning of Year3,63119,8446,656Cash and Cash Equivalents at End of Year$            3,820$            3,631$          19,844Supplemental Cash Flow Disclosure:Income Taxes Paid$          39,082$          30,795$               337Interest Paid$            7,309$          10,107$          10,596 The accompanying notes are an integral part of these Consolidated Financial Statements.  F-6    PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006  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.  The Insurance Company has assets of approximately $3.6 billion and shareholders equity of $444 million as of December 31, 2008 and is licensed in 49 states and the District of Columbia.  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).  Inter-company transactions and balances have been eliminated in consolidation.  The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect 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 those estimates.  The most significant estimates include those used in determining deferred policy acquisition costs, investments, future policy benefits, provisions for income taxes and reserves for contingent liabilities.  C. Segment Reporting  The Company has one reportable 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 are defined 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.  We manage and report our business as a single segment in accordance with the provisions of FAS 131, which views certain qualitative and quantitative criteria for determining whether different lines of business should be aggregated for financial reporting purposes.  Substantially all of the Companys business is divided between annuities (approximately 87%) and life insurance (approximately 13%).  The nature of these two product lines is sufficiently similar to permit their aggregation as a single reporting segment.  Approximately 72% of our life insurance liabilities reflect single premium universal life policies, which bear similar economic and business characteristics to our single premium deferred annuity products.  Both products are funded by initial single premiums, both maintain accreting fund values credited with interest as earned, both are surrenderable before maturity with surrender charges in the early years and the Company does not make mortality charges on either product.  Moreover, the two products generate similar returns to the Company and carry similar risks of early surrender by the product holder.  Both are marketed and distributed by the same independent agents.  The products are administered and managed within the same administrative facility, with overlapping administrative functions.  The products are also directed at a similar market, namely mature consumers seeking financial protection for secure future cash streams for themselves and their heirs and associated tax benefits.  The regulatory frameworks for the products are also substantially the same, as both Insurance Company and its independent agents sell these products under single licenses issued by various state insurance departments.  The remaining business of the Company is not material to the overall performance of the Company.  D. Investments  Fixed maturity investments available for sale represent investments that may be sold in response to changes in various economic conditions.  These investments are carried at fair value and net unrealized gains (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 case the investment is reduced to its fair 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 of deferred 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 fair value and the loss is recorded in the income statement.  F-7    Other long-term investments are recorded using the equity method and primarily include interests in limited partnerships, which principally are engaged in real estate, international opportunities, acquisitions of private growth companies, debt restructuring, oil and gas and merchant banking. Substantially all of their investments are recorded at fair value.  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 of illiquidity, which is mitigated by the practice of many of the partnerships to typically make quarterly distributions (to the extent that distributions are available) of partnership earnings, with the exception of hedge fund limited partnerships.  Investment income from limited partnerships is recorded based on the Companys share of earnings reported in the partnerships most recent audited financial statements and income subsequently distributed by the partnerships.  Management considers the quarterly financial information received from the limited partnerships to be unreliable or insufficient to record investment income, other than from distributions, on a quarterly basis.  Management estimates the classification of cash distributions received between investment income and return of capital based on correspondence from the respective partnerships.  Management also determines if distributions resulted from the sale of assets with previously recorded unrealized gains or losses and reduces or increases other comprehensive income accordingly.  The Company adjusts its estimate of investment income recorded during the year to the actual realized gains and other income reported in the limited partnerships most recent annual audited financial statements, which are generally received in the second quarter of the subsequent year.  As a result, there may be up to a one year reporting lag for recording investment income that is not distributed during the year, which may result in significant adjustments in 2009 pursuant to 2008.  The adjustments to its estimates of investment income recorded during the preceding year (true-up) for the twelve month periods ended December 31, 2008, 2007 and 2006 amounted to increases of approximately $27.1 million, $13.4 million and $7.3 million respectively.  The Company records its share of net unrealized gains and losses (net of taxes) from the audited financial statements of the limited partnerships.  As a result, there may be up to a one year reporting lag for reporting unrealized gains and losses, which may result in significant adjustments to other comprehensive income in 2009 pursuant to 2008.  Net unrealized gains (cumulative, after tax effects) totaled approximately $39.6 million at December 31, 2008 and $51.5 million at December 31, 2007 and are included in the balance sheet under other comprehensive income.  During periods of rapid growth in the economy, or rapid declines, the delayed impact on market values, either positive or negative, may be more pronounced.  To evaluate the appropriateness of the carrying value of a limited partnership interest, management maintains ongoing discussions with the investment manager 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 each limited partnership interest, for purposes of disclosure the market value of a limited partnership interest is estimated at book value based on the most recent available audited financial statements and contributions subsequently made by the Company and income subsequently distributed by the partnerships.  Management believes that the net realizable value of such limited partnership interests, in the aggregate, exceeds their related carrying value as of December 31, 2008 and December 31, 2007.  As of December 31, 2008, the Company was committed to contribute, if called upon, an aggregate of approximately $117.9 million of additional capital to certain of these limited partnerships.  Commitments of $13.7 million will expire in 2009, $4.7 million in 2010, $45.6 million in 2011, and $53.9 million in 2012.  In evaluating whether an investment security or other investment has suffered an impairment in value that is deemed to be other than temporary management considers all available evidence, including, but not limited to the following: (1) the length of time and the extent to which the market value has been below amortized cost; (2) the reasons for the decline in value (credit event, interest related or market fluctuation); (3) the Companys ability and intent to hold the investment for a period of time to allow for a recovery of value; and (4) the financial condition of and near-term prospects of the issuer.  When a decline in the value of an investment security or other investment is considered to be other than temporary, the investment is reduced to its net realizable or fair value, as applicable (which contemplates the price that can be obtained from the sale of such asset in the ordinary course of business) which becomes the new cost basis.  The amount of reduction is recorded in the income statement as a realized loss.  Any subsequent increase in the value of the investment over the adjusted cost basis is recognized as an unrealized gain until sold, at which time it is recognized as a realized gain.  Realized gains and losses on disposals of investments are determined for fixed maturities and equity securities by the specific-identification method.  Investments in short-term securities, which consist primarily of commercial paper and corporate debt issues maturing in less than one year, are recorded at amortized cost, which approximate market.  Policy loans are stated at their unpaid principal balance.  The Companys cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase. The Company has deposits that exceed amounts insured by the Federal Deposit Insurance Corporation (FDIC) up to $250, 000, but the Company does not consider this a significant concentration of credit risk based on the strength of the financial institutions.  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.  Accumulated depreciation amounted to $206,800 and $206,800 at December 31, 2008 and 2007, respectively.  Both buildings are fully depreciated and have no depreciation expense for the years ended December 31, 2008, 2007 and 2006.  F-8    E. 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.  Accumulated depreciation amounted to $1,575,000 and $1,461,000 at December 31, 2008 and 2007, respectively, and related depreciation expense for the years ended December 31, 2008, 2007 and 2006 was $114,800, $106,300 and $61,700, respectively.  F. 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 the recognition of profits over the life of the contracts.  This matching is accomplished by means of 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.  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 against policyholders 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 to policyholders account balances.  For the years ended December 31, 2008, 2007, and 2006, approximately 54.1%, 51.7% and 49.0%, respectively, of premiums from traditional life, annuity, universal life and investment-type contracts received by the Company were attributable to sales to annuitants and policyholders residing in the State of New York.  Premiums, benefits and expenses are stated net of reinsurance ceded to other companies.  Estimated reinsurance recoverables and the cost of reinsurance are recognized over the life of the reinsured policies using assumptions consistent with those used to account for the underlying policies.  G. Deferred Policy Acquisition Costs (DAC)  The costs of acquiring new business (principally commissions, certain underwriting, agency and policy issue expenses), all of which vary with the production of new business, have 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 the liability 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 of the 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 arising principally 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 outstanding DAC asset can never exceed the original DAC plus accrued interest, are reflected in earnings in the period estimated gross profits are revised.  DAC is also adjusted for the impact of unrealized gains or losses on investments as if these gains or losses had been realized with corresponding credits or charges included in accumulated other comprehensive income.  For that portion of the business where acquisition costs are not deferred, (i.e., medical stop loss business) management believes the expensing of policy acquisition costs is immaterial.  F-9    Unamortized deferred policy acquisition costs for the years ended December 31, 2008 and 2007 are summarized as follows:  20082007(in thousands)Balance at the beginning of year$                 77,721$                 81,069Current years costs deferred9,58211,339Total87,30392,408Less amortization for the year14,70123,632Total72,60268,776Change in amortization related to unrealized   loss in investments49,7368,945Balance at the end of the year$                122,338$                77,721  H. 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 at policy issue.  Assumptions established at policy issue as to mortality and persistency is based on anticipated experience, which, together with interest and expense assumptions, provides a margin for adverse deviation.  Benefit liabilities for deferred annuities during the accumulation period are equal to accumulated contract holders fund balances and after annuitization are equal to present value of expected future payments.  The average interest rate used in establishing liabilities for life insurance was 5.28%, 5.28%, and 5.27% for 2008, 2007, and 2006 respectively; and the average interest rate used in establishing liabilities for annuities was 7.43%, 7.50%, and 7.55% for 2008, 2007, and 2006 respectively.  I. Other Policy Liabilities  The other policy liabilities represents amounts needed to provide for the estimated ultimate cost of settling claims related to insured events that have occurred and have been reported to the insurer on or before the end of the respective reporting period.  J. Policyholders Account Balances  Policyholders account balances for universal life and investment-type contracts are equal to policy account values.  The policy account values represent an accumulation of gross premium payments plus credited interest less mortality and expense charges and withdrawals.  These account balances are summarized as follows: 20082007(in thousands)Account balances at beginning of year$               2,579,907$               2,969,434Additions to account balances263,594274,223Total2,843,5013,243,657Deductions from account balances413,866663,750Account balances at end of year$               2,429,635$               2,579,907 The average interest rate credited to account balances was 4.61%, 4.75%, and 4.99% for 2008, 2007, and 2006 respectively.  K. 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 financial statements 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.  Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  F-10   L. Earnings Per Common Share  The Company has calculated earnings per share (EPS) in accordance with SFAS No. 128, Earnings Per Share.  Basic EPS is computed based upon the weighted 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 numbers of common shares used to compute diluted EPS for the year ended December 31, 2008, 2007 and 2006 were 29,595,819, 29,650,894 and 29,703,933 respectively.  The dilution from the potential exercise of stock options outstanding did not reduce EPS in 2008.  M. Cash and Cash Equivalents  Cash and cash equivalents includes cash on hand and amounts due from an original maturity of three months or less.  N. New Accounting Pronouncements  In December 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 140-4 and FIN 46-(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities (FSP No. FAS 140-4 and FIN 46(R)-8). FSP No. FAS 140-4 and FIN 46(R)-8 amends FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140), to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46(R),to require public enterprises, including sponsors that have a variable interest in a VIE, to provide additional disclosures about their involvement with VIEs. FSP No. FAS 140-4 and FIN 46(R)-8 is related to disclosure only and will not have an impact on our consolidated financial position or results of operations.  In October 2008, the FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the Market For That Asset Is Not Active (FSP FAS 157-3), with an immediate effective date, including prior periods for which financial statements have not been issued.  FSP FAS 157-3 amends FAS 157 to clarify the application of fair value in inactive markets and allows for the use of managements internal assumptions about future cash flows with appropriately risk-adjusted discount rates when relevant observable market data does not exist.  The objective of FAS 157 has not changed and continues to be the determination of the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date.  The adoption of FSP FAS 157-3 in the third quarter did not have a material effect on the Companys results of operations, financial position or liquidity.  In May 2008, the FASB issued SFAS No. 162, Hierarchy of Generally Accepted Accounting Principles (SFAS 162). This statement is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements of nongovernmental entities that are presented in conformity with GAAP. This statement will be effective 60 days following the U.S. Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board amendment to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We do not expect that the adoption of SFAS 162 will have a material impact on our financial statements.  In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161). SFAS 161 amends and expands the disclosure requirements of SFAS 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). It requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2008. We do not expect that the adoption of SFAS 161 will have a material impact on our financial statements.  In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159).  SFAS 159 permits all entities the option to measure most financial instruments and certain other items at fair value at specified election dates and to report related unrealized gains and losses in earnings. The fair value option will generally be applied on an instrument-by-instrument basis and is generally an irrevocable election. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company adopted SFAS No. 159 January 1, 2008.  The adoption did not have an impact on the Companys consolidated financial statements.  F-11    In September 2006, FASB issued SFAS 157 Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements, but required additional disclosures regarding the existing fair value measurements we currently report. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company adopted SFAS 157 on January 1, 2008.  See Note 10 of the consolidated financial statements for disclosures under SFAS 157.  In February 2008, the FASB issued FSP SFAS No. 157-2, "Effective Date for FASB Statement No. 157." This FSP permits the delayed application of SFAS No. 157 for all non-recurring fair value measurements of non-financial assets and non-financial liabilities until fiscal years beginning after November 15, 2008.  In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings (deficit) as of the beginning of the fiscal year of adoption. SAB 108 was effective for fiscal years ending on or after November 15, 2006, and did not have material impact on the Companys consolidated financial statement, as we have not discovered material errors in prior years with material effect as of the reporting date.  In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that we recognize in the financial statements the impact of a tax position if that position more likely than not will be sustained on an audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition provisions. Any transition adjustment recognized on the date of adoption was recorded as an adjustment to retained earnings as of the beginning of the adoption period. We adopted FIN 48 on January 1, 2007. See Note 6 - Income Taxes for a discussion of the impact of FIN 48.  In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets  An Amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Specifically, the new Standard addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting.  SFAS 156 was effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006, which for the Company is as of the beginning of fiscal 2007. The adoption of SFAS 156 did not have an effect on the Companys consolidated financial statements.  On February 16, 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, Accounting for Certain Hybrid Instruments.  This statementremoves an exception from the requirement to bifurcate an embedded derivative feature from a beneficial interest in securitized financial assets.  This statement also provides an election, on an instrument-by-instrument basis, to measure at fair value the entire hybrid financial instrument that contains an embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis.  The Company adopted this guidance effective January 1, 2007 and has determined that SFAS No. 155 did not have a material impact on the Company's consolidated financial statements.   F-12    2. INVESTMENTS  The following tables provide information relating to fixed maturities and common stocks held by the Company:  Available for Sale investments at December 31, 2008: Cost or AmortizedGross UnrealizedType of InvestmentCostGains(Losses)Market Value(in thousands)Fixed Maturities:Bonds and Notes:United State government and government agencies and authorities$       332,048$        27,863$           (3,841)$         356,070States, municipalities and political subdivisions8,8834,533-13,416Public Utilities422,6812,713(31,063)394,331Commercial Mortgage Backed  Securities221,4424,294(18,330)207,406All other corporate bonds1,921,17822,026(261,764)1,681,440Preferred stocks, primarily corporate111,1901,953(40,715)72,428Total Fixed Maturities$     3,017,422$      63,382$        (355,713)$      2,725,091Common Stocks:Industrial, miscellaneous and all other1,1002,023(144)2,979Total Common Stocks$          1,100$        2,023$              (144)$           2,979 Available for sale investments at December 31, 2007: Cost or AmortizedGross UnrealizedType of InvestmentCostGains(Losses)Market Value(in thousands)Fixed Maturities:Bonds and Notes:United State government and government agencies and authorities$       510,105$        20,083$          (2,074)$         528,114States, municipalities and political subdivisions8,8593,383-12,242Public Utilities441,22112,273(8,881)444,613Commercial Mortgage Backed  Securities240,34628,569(110)268,805All other corporate bonds1,890,13270,895(44,734)1,916,293Preferred stocks, primarily corporate121,2456,955(16,168)112,032Total Fixed Maturities$     3,211,908$      142,158$        (71,967)$      3,282,099Common Stocks:Industrial, miscellaneous and all other7,1773,548(993)9,732Total Common Stocks$          7,177$        3,548$             (993)$           9,732   F-13   2. INVESTMENTS - CONTINUED  The estimated fair value of fixed maturities available for sale at December 31, 2008, by contractual maturity, is as follows.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.  Market Value(in thousands)Due in one year or less$118,183Due after one year through five years899,355Due after five years through ten years602,222Due after ten years825,497Total debt securities2,445,257Mortgage-Backed Bonds207,406Preferred Stocks72,428Total$2,725,091  The following information summarizes the components of net investment income and realized investment gains:  Net Investment Income: Year Ended December 31200820072006(in thousands)Fixed Maturities$           203,912$           215,538$           252,817Common Stocks1,4703,8952,171Short-term investments9,08326,30216,584Other long-term investments49,10252,87246,982Other investment income3,5642,6464,452267,131301,253323,006Less investment expenses5,3966,3936,591Net investment income$          261,735$          294,860$          316,415 As of December 31, 2008, 2007 and 2006 there were nine fixed maturity investments with a carrying value of $15.9 million and seven fixed maturity investments with a carrying value of $13.5 and twelve fixed maturity investments with a carrying value of $13.8 million respectively, in the accompanying balance sheet which were non-income producing.  The following table presents the amortized cost and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at December 31, 2008:  Less than 12 months12 months or moreTotalFair ValueUnrealized LossesFair ValueUnrealized   LossesFair ValueUnrealized LossesDescription of Securities(in thousands)US Treasury obligations and direct obligations of US Government Agencies$       14,869$           1,301$       12,911$        2,540$          27,780$           3,841Corporate Bonds1,150,137163,040577,184148,1181,727,321311,158Preferred Stocks20,6617,11847,64833,59668,30940,714Subtotal  Fixed Maturities1,185,667171,459637,743184,2541,823,410355,713Common Stock249144--249144Total$  1,185,916$       171,603$     637,743$   184,254$     1,823,659$        355,857    2. INVESTMENTS - CONTINUED   The following table presents the amortized cost and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at December 31, 2007:  Less than 12 months12 months or moreTotalFair ValueUnrealized LossesFair ValueUnrealized   LossesFair ValueUnrealized LossesDescription of Securities(in thousands)US Treasury obligations and direct obligations of US Government Agencies$          18,028$              612$        20,968$            1,462$          38,996$           2,074Corporate Bonds324,73613,307839,96840,4171,164,70453,724Preferred Stocks56,6178,92324,9967,24581,61316,168Subtotal  Fixed Maturities399,38122,842885,93249,1241,285,31371,966Common Stock5,402993--5,402993Total$        404,783$         23,835$     885,932$         49,124$     1,290,715$         72,959   The following presents the amortized cost and gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by December 31, 2008. Gross
Unrealized Losses% of Total(in thousands)Less than twelve months$     171,45948.20Twelve months or more184,25451.80Total$    355,713100.00  The following presents the amortized cost and gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by December 31, 2007. Gross Unrealized Losses% of Total(in thousands)Less than twelve months$     22,84231.74Twelve months or more49,12468.26Total$    71,966100.00 The Company owned 574 and 360 securities with an unrealized loss position as of December 31, 2008 and 2007, respectively.  During 2008, 2007, and 2006 the Company realized losses related to other than temporary impairments of approximately $40.3 million, $52 thousand and $4.5 million, respectively.  Of the $40.3 million realized in 2008, approximately $19.2 million was sold prior to year end and the remaining amount consisted of write-downs primarily in the following investments: Istar Financial, common stock ($5.7 million), Clear Channel Communications, bond ($3.5 million), Knight-Ridder, bond ($5.4 million), GMAC, LLC ($2.6 million) and MBIA, Inc. ($1.6 million).   F-14   2. INVESTMENTS - CONTINUED  Net Realized Investment (Losses) Gains: Year Ended December 31,200820072006(in thousands)Fixed maturities$        (35,655)$        23,880$        (3,373)Common stocks(5,740)3,7838,740Derivatives(6,498)(2,830)(8,974)Total realized (losses) gains on investments$        (47,893)$        24,833$        (3,607)  Net Unrealized Investment (Losses) Gains:  Year Ended December 31,200820072006(in thousands)Fixed maturities$         (292,331)$             70,190$           138,139Common stocks1,8792,55513,706Other Assets39,58679,19551,331Unrealized investment gains$          (250,866)$           151,940$           203,176Amortization (benefit of deferred acquisition costs)39,965(9,770)(18,715)Deferred federal income tax benefit73,815(49,759)(64,561)Transition Adjustment(74)(707)(1,456)Net unrealized investment (losses) gains(137,160)91,704118,444Change in net unrealized investment (losses) gains$          (228,864)$           (26,740)$          (25,945)  The change in unrealized investment gains (losses), as presented below, resulted primarily from changes in general economic conditions, which directly influenced investment security markets.  These changes were also impacted by writedowns of investment securities for declines in market values deemed to be other than temporary.   Pre Tax
AmountTax
(Expense)/
BenefitAfter-Tax
AmountFor the Year Ended December 31, 2008:(in thousands)Net unrealized losses on investment securities:Net unrealized holding losses arising during year$     (254,356)$          89,025$     (165,331)Plus: reclassification adjustment for losses realized in net income(47,893)16,763(31,130)Change related to deferred policy acquisition costs(49,736)17,407(32,329)Net unrealized investment gains (losses)$     (351,985)$        123,195$     (228,790)For the Year Ended December 31, 2007:Net unrealized losses on investment securities:Net unrealized holding losses arising during year$      (55,938)$          19,579$      (36,359)Plus: reclassification adjustment for gains realized in net income24,833(8,692)16,141Change related to deferred policy acquisition costs(8,946)3,131(5,815)Net unrealized investment gains (losses)$      (40,051)$          14,018$      (26,033)For the Year Ended December 31, 2006:Net unrealized losses on investment securities:Net unrealized holding losses arising during year$      (24,090)$            8,432$      (15,658)Plus: reclassification adjustment for losses realized in net income(3,607)1,262(2,345)Change related to deferred policy acquisition costs(9,978)3,492(6,486)Net unrealized investment gains (losses)$      (37,675)$          13,186$      (24,489)   F-15   Proceeds from sales and maturities of fixed maturities during 2008, 2007 and 2006 were $517.9 million, $386.4 million and $777.1 million, respectively.  During 2008, 2007 and 2006, respectively, gross gains of $11.2 million, $26.4 million and $20.6 million and gross losses of $31.8 million, $2.4 million and $19.4 million were realized on those sales.  There were no investments owned in any one issuer that aggregate 10% or more of shareholders equity as of December 31, 2008.  As of December 31, 2008 and 2007, securities with a carrying value of approximately $6.9 million and $6.4 million, respectively, were on deposit with various state insurance departments to comply with applicable insurance laws.  Other long-term investments are comprised of equity interests in limited partnerships.  (See Note 10: Fair Value Information)  Variable Interest Entities  The following table presents the total assets and maximum exposure to loss relating to variable interest entities for which the Company has concluded that (i) it is the primary beneficiary and which are consolidated in the Companys consolidated financial statements at December 31, 2008 and December 31, 2007, and (ii) it holds significant variable interests but it is not the primary beneficiary and which have not been consolidated.  These VIEs represent approximately 70 different limited partnerships which principally are engaged in real estate, international opportunities, acquisitions of private growth companies, debt restructurings and merchant banking.  When evaluating whether we are the primary beneficiary of a VIE and must therefore consolidate the entity, we perform a qualitative analysis that considers the design of the VIE, the nature of our involvement and the variable interests held by other parties.  The Company, in most instances, has an ownership interest of 1% to 3%.  These obligations consist solely to fund committed dollars and no additional funding is required.  The general partner is responsible for management and operations.  December 31, 2008PRIMARY BENEFICIARYNOT PRIMARY BENEFICIARY(in thousands)Total AssetsMaximum Exposure to LossRecognized
LiabilityTotal Assets (1)Maximum Exposure to
Loss (2)Limited Partnerships---$    290,692$     251,106December 31, 2007PRIMARY BENEFICIARYNOT PRIMARY BENEFICIARY(in thousands)Total AssetsMaximum Exposure to LossRecognized
LiabilityTotal Assets (1)Maximum Exposure to
Loss (2)Limited Partnerships---$    309,663$     230,468 (1) Market value at year-end (2) Cost at year-end  The Companys maximum exposure to loss represents the maximum loss amount the company could recognize as a reduction in net investment income.  The Company has unfunded commitments to these variable interest entities in the amount of $117.9 million.  One of the Insurance Companys Limited Partnership investments has assets of approximately $9 million located at the prime brokerage unit of Lehman Brothers International (Europe) (LBIE), located in the United Kingdom.  Since September 2008 when Lehman Brothers filed for bankruptcy, the assets were frozen and the claims to such assets are subject to the resolution of the bankruptcy proceedings.  Due to the complexities surrounding the LBIE proceeding, we are unable, at this time, to determine the level, if any, of impairments the Limited Partnership may incur.  F-16    Derivative Financial Instruments  The Company accounts for its derivative financial instruments under SFAS No. 133, Accounting for Derivative Instrument and Hedging Activities.  SFAS No. 133 requires all derivative instruments to be recorded in the balance sheet at fair value.  Changes in the fair value of derivative instruments are recorded as other income (loss) in the period in which they arise.  The Company has not designated its derivatives related to marketable securities as hedges, in accordance with SFAS No. 133.  Accordingly, the change in fair value of derivatives is recognized as a component of realized investment gains and losses in earnings as described above.  The Company does not hold or issue any derivative financial instruments for speculative trading purposes.  As an element of its asset liability management strategy, the Company has utilized hedges against the risks posed by a rapid and sustained rise in interest rates by entering into a form of derivative transaction known as payor swaptions.  Swaptions are options to enter into an interest rate swap arrangement with a counter party at a specified future date.  At expiration, the counter party would be required to pay the Insurance Company the amount of the present value of the difference between the fixed rate of interest on the swap agreement and a specified strike rate in the agreement multiplied by the notional amount of the swap agreement.  The total notional amount of these contracts at December 31, 2008 was $725 million.  The effect of these transactions would be to lessen the negative impact on the Insurance Company of a significant and prolonged increase in interest rates.  With the Swaptions, the Company should be able to maintain more competitive crediting rates to policyholders when interest rates rise.  The Company has determined that the Payor Swaptions represent a non-qualified hedge and has adopted accounting procedures consistent with the provisions of SFAS 133. These investments are classified on the balance sheet as Derivative Instruments. Under SFAS 133, the value of the Payor Swaptions is recognized at fair value (market value), with the resulting change in fair value reflected in the income statement as a realized gain or loss.  The change in market value since purchase was a loss of $19,268,734.  The Company has determined that the average fair value for the period (based upon weekly market values from January 1, 2008 to December 31, 2008 was $4,557,347.  3.  NOTES PAYABLE  Notes payable at December 31, 2008 and December 31, 2007 consist of $66.5 million and $90.2 million, respectively, 7 7/8% Senior Notes (Senior Notes) due February 15, 2009.  Interest is payable February 15 and August 15.  Debt issue costs are being amortized on the interest method over the term of the notes.  As of December 31, 2008, unamortized costs were $24,500.  The total remaining principal is due on February 15, 2009.  In addition, the Company had deferred losses of approximately $74,500 recorded in accumulated other comprehensive income as of December 31, 2008, related to an interest rate lock agreement used to hedge the issuance of the Senior Notes.  The Company amortizes the deferred loss from accumulated other comprehensive income to income over the term of the notes.  The Company expects to amortize approximately $74,500 into earnings during 2009.  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 covenants as 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, 2008, the Company believes that it is in compliance with all of the covenants.  The Insurance Company held a senior note of the Corporation with a par value of $9.8 million.  On September 27, 2007, the Insurance Company sold the senior note of the Corporation back to the Corporation and the debt was retired.  Upon the extinguishment of the debt, the Corporation recorded a loss of $49,000, net of taxes.  On February 17th, 2009, the Corporation retired the remaining $67 million of its 7 7/8%, $100 million Senior Note.  This was financed through the sale of short-term commercial paper, fixed maturities and an upstream dividend payment from the Insurance Company in January 2009 in the amount of $16 million.  The short-term note payable relates to a bank line of credit with JPMorgan Chase Bank which had been in the amount of $50,000,000 (Bank Line) and provided for interest on borrowings based on market indices.  The Bank Line was up for renewal on July 31, 2007, however, on July 9, 2007, the Company paid down the full $50,000,000 Bank Line with available cash.  The proceeds from the Bank Line had previously been used as an arbitrage facility to purchase higher yielding investments.  The Company decided to pay off the Bank Line because, due to the increased cost of the Bank Line, it no longer provided a positive spread to the Company.  F-17    4.  SHAREHOLDERS' EQUITY  In February 2007, the Company's Board of Directors increased the quarterly dividend rate to $.125 per share from $.10 per share in 2006.  This dividend rate was maintained through the first three quarters of 2008.  On November 12, 2008, due to the uncertain economic climate, the Board of Directors determined that a reduction of the dividend was a prudent measure to preserve capital, they therefore approved a 50% decrease in the quarterly dividend to $.0625 per share from $.125 per share, payable January 2, 2009 to holders of record on December 15, 2008.  During 2008, 2007 and 2006, the Company had not purchased or retired shares of its common stock.  The Company is authorized pursuant to a resolution of the Board of Directors to purchase 385,000 shares of common stock.  The Corporation 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, including principal and interest payments on its outstanding indebtedness and dividend payments on its common stock, are rent from its real estate, income from 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 Company without obtaining prior regulatory approval.  Under New York 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 the lesser of (i) 10% of its statutory surplus as of the end of the immediately preceding calendar year, or (ii) its statutory net gain (after tax) from operations for the immediately preceding calendar year.  Any dividend in excess of such amount is subject to approval by the Superintendent.  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.  The guidelines focus on, among other things, an insurers overall financial condition and profitability under statutory accounting practices.  Statutory accounting practices differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP.  The significant differences relate to the treatment of deferred policy acquisition costs, deferred income taxes, required investment reserves and reserve calculation assumptions.  F-18    5.  EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS  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 the dollar limit as prescribed by IRC Section 415(d).  In January 2005, the Company announced its intention to make an annual contribution to the 401(k) plan equal to 4% of all employees salaries, allocated to each of the Companys employees without regard to the amounts, if any, contributed to the plan by the employees.  The Company contribution is subject to a vesting schedule.  The Company contributed approximately $332,000, $287,000 and $285,000 into this plan during the twelve months ended December 31, 2008, 2007 and 2006, respectively.  Share-Based Compensation  Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123(R) Share-Based Payment and began recognizing compensation expense for its share-based payments based on the fair value of the awards. Share-based payments include stock option grants under the Companys stock plans. SFAS 123(R) requires share-based compensation expense recognized since January 1, 2006, to be based on the following: a) grant date fair value estimated in accordance with the original provisions of SFAS 123 for unvested options granted prior to the adoption date; and b) grant date fair value estimated in accordance with the provisions of SFAS 123(R) for unvested options granted subsequent to the adoption date. Prior to January 1, 2006, the Company accounted for share-based payments using the intrinsic-value-based recognition method prescribed by Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and SFAS 123, Accounting for Stock-Based Compensation. As options were granted at an exercise price equal to the market value of the underlying common stock on the date of grant, no stock-based employee compensation cost was reflected in net income prior to adopting SFAS 123(R).  Under SFAS 123(R) forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate is adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the previous estimate.  The adoption of SFAS 123(R)s fair value method has resulted in additional share-based expenses (a component of general expenses and taxes) in the amounts of $1,074,409 and $1,128,996 related to stock options for the twelve months ended December 31, 2008 and 2007, respectively, than if the Company had continued to account for share-based compensation under APB No. 25. For the twelve months ended December 31, 2008, this additional share-based compensation lowered pre-tax earnings by $1,074,409, lowered net income by $703,738, and lowered both basic and diluted earnings per share by $0.02.  The Companys 1996 Stock Option Plan expired on June 1, 2006.  As of December 31, 2008, there were 575,734 granted options outstanding under the 1996 Stock Incentive Plan.  In May 2006, the shareholders of the Company approved the Companys 2006 Stock Incentive Plan, which became effective on June 1, 2006.  The Companys 2006 Stock Incentive Plan authorized the granting of awards in the form of non-qualified options or incentive stock options qualifying under Section 422A of the Internal Revenue Code.  The plan authorized the granting of options to purchase up to 1,000,000 shares of common stock of the Company to employees, directors and independent contractors of the Company.  All stock options granted will have an exercise price equal to the fair market value of the Corporations common stock on the date of grant.  As of December 31, 2008, there were 563,300 granted options outstanding under the 2006 Stock Incentive Plan.  F-19    The Company generally issues new shares when options are exercised.  The following schedule shows all options granted, exercised, expired and exchanged under the Company's 1996 and 2006 Incentive Stock Option Plans.  Information relating to the options is as follows: NumberAmountTotalof SharesPer SharePriceOutstanding, December 31, 2004648,700$                13.79$          8,944,986Granted210,75018.333,863,048Repriced(65,323)13.86(905,377)Cancelled(17,406)13.96(243,057)Outstanding, December 31, 2005776,721$                15.01$        11,659,600Granted197,90022.824,516,078Exercised(41,306)13.17(544,131)Cancelled(6,950)15.52(107,881)Outstanding, December 31, 2006926,365$                16.76$        15,523,666Granted251,10016.974,261,167Exercised(84,638)12.95(1,096,064)Cancelled(48,383)16.12(780,038)Outstanding, December 31, 20071,044,444$                17.15$        17,908,731Granted125,00016.672,083,750Exercised(20,605)11.58(238,542)Cancelled(9,805)18.04(176,859)Outstanding, December 31, 20081,139,034$                17.19$       19,577,080  The Company may grant options to purchase common stock to its employees, directors and independent contractors at prices equal to the market value of the stock on the dates the options were granted. The options granted to date have a term of 5 years from grant date and vest in equal annual installments over the four-year period following the grant date for employee options. Employees generally have three months after the employment relationship ends to exercise all vested options. The fair value of each option grant is separately estimated for each vesting date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company has estimated the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The Company awarded 125,000 options in 2008.  The key assumptions used in determining the fair value of options granted in 2008 and a summary of the methodology applied to develop each assumption are as follows: Expected price volatility28.37%Risk-free interest rate2.80%Weighted average expected lives in years3.75Forfeiture rate0%Dividend yield3.00%  Expected Price Volatility - This is a measure of the amount by which a price has fluctuated or is expected to fluctuate. We use actual historical changes in the market value of our stock to calculate the volatility assumption, as it is managements belief that this is the best indicator of future volatility. We calculate weekly market value changes from the date of grant over a past period representative of the expected life of the options to determine volatility. An increase in the expected volatility will increase compensation expense.  Risk-Free Interest Rate - This is the U.S. Treasury rate for the week of the grant having a term equal to the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.  Expected Lives - This is the period of time over which the options granted are expected to remain outstanding giving consideration to vesting schedules, historical exercise and forfeiture patterns.  The Company used the simplified method outlined in SEC Staff Accounting Bulletin No. 107 to estimate expected lives for options granted in prior periods as it did not have sufficient historical exercise date to provide a reasonable basis upon which to estimate the expected term.  In 2008, the Company used historical data to estimate the expected lives. Options granted have a maximum term of five years. An increase in the expected life will increase compensation expense  F-20    Forfeiture Rate - This is the estimated percentage of options granted that are expected to be forfeited or canceled before becoming fully vested. This estimate is based on historical experience. An increase in the forfeiture rate will decrease compensation expense.  Dividend Yield  The expected dividend yield is based on the Companys current dividend yield and the best estimate of projected dividend yields for future periods within the expected life of the option.  An increase in the dividend yield will decrease compensation expense.  There was no impact on cash provided by operating and/or financing activities related to increased tax benefits from stock based payment arrangements.  During the year ended December 31, 2008, 20,605 options were exercised increasing cash provided by financing activities, issuance of common stock, by approximately $239,000.  At December 31, 2008, the aggregate intrinsic value of all outstanding options was $11.3 million with a weighted average remaining contractual term of 2.2 years.  The total compensation cost related to non-vested awards not yet recognized was $1.5 million with an expense recognition period of 3 years.  During the twelve months ended December 31, 2008, 237,234 options vested with an intrinsic value of approximately $2.3 million at December 31, 2008.  6.  INCOME TAXES  The provision for income taxes differs from the amount of income tax expense determined by applying the 35% U.S. statutory federal income tax rate to pre-tax net income from continuing operations as follows:  200820072006(in thousands)Pre-Tax Net Income$    16,884$    96,660$    70,163Provision for income taxes computedAt Federal statutory rate5,90933,83124,557Increase (decrease) in income taxesresulting from:FIN 48 current year activity1,232(843)-Prior period permanent(7,686)(1,200)-True-Up of amended returns-1,197-Dividends received deduction(843)(1,009)-ISO Book Compensation376395-Current payable true-up(693)727-Other5(120)(4,107)(Benefit) Provision for Federal income taxes$    (1,700)$    32,978$    20,450  The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:  20082007(in thousands)Deferred tax assetsInvestments and payor swaptions$     32,835$   28,966Insurance reserves9,54211,155Unrealized Capital Losses73,815-Other9,0046,403Total deferred tax assets$   125,196$   46,524Deferred tax liabilitiesOID and Market Discount Investments18,23126,416Unrealized Capital Gains-49,760Policyholder Account Balances8487Deferred Acquisition Costs27,85629,986Other215492Total deferred tax liabilities46,386106,741Net deferred tax assets$     78,810$   (60,217)  The change in net deferred income taxes is comprised of the following:  December 31,
2008December 31,
2007Change(in thousands)Total deferred tax assets$     125,196$       46,524$          78,672Total deferred tax liabilities46,386106,741(60,355)Net deferred tax asset$     78,810$     (60,217)139,027Tax effect of unrealized losses to other comprehensive income(123,575)Change in net deferred income tax to income tax benefit$        15,452  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 financial reporting purposes.  The sources of these differences and the tax effect of each were as follows:  200820072006(in thousands)Deferred policy acquisition costs$          (1,802)$         (3,674)$       2,432Policyholders' account balances(15)(375)(2,408)Investment adjustments(4,293)7,7884,481Insurance policy liabilities1,6211,361-Original issue discount and market discount on                    bonds(736)1,548(4,978)Net operating loss(1,234)(200)-Deferred intercompany transaction, bond loss(1,472)--Section 481 tax adjustment method change(7,450)(7,450)-Other(71)(170)1,019Deferred Federal income tax(benefit) expense$       (15,452)$       (1,172)$       546  If the Company determines that any of its deferred income tax assets will not result in future tax benefits, a valuation allowance must be established for the portion of these assets that are not expected to be realized.  Upon review, the Companys management concluded that it is more likely than not that the net deferred income tax assets will be realized.  The Company does not record a tax valuation allowance relating to the net unrealized losses on investments, excluding stocks, because it is more likely than not that these losses would reverse or be utilized in future periods. The Company has the ability and it is the Companys intent to fully recover the principal, which could allow the Company to hold these securities until their maturity; therefore, the Company considers the impairment to be temporary.  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 account will 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.  The Company has a net operating loss of approximately $912,000 and it expires in 2023.  Deferred 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 income tax purposes, (b) operating loss carry forwards, and (c) a valuation allowance.  The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions.  In the United States, the Company is no longer subject to federal income tax examinations by tax authorities, generally for the years prior to 2001.  From 2001 through 2004, however, the Company may be subject to tax examinations because the IRS is performing audits on partnership returns in which the Company has investments.  While the Company cannot predict the outcome of the current IRS examination, any adjustments are not expected to be material.  The examination is expected to be concluded during 2009.  F-21    The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No.109 (FIN 48), on January 1, 2007.  As a result of the implementation of FIN 48, the Company recognized a $2 million increase to the liability for uncertain tax positions, which was accounted for as an adjustment to the beginning balance of retained earnings.   The balance of the unrecognized tax benefits was $2,036,000 at January 1, 2007, $1,194,005 at December 31, 2007, and $2,426,454 at December 31, 2008. If recognized, this entire adjustment would impact the effective tax rate.  A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):  Balance at January 1, 2008$1,194Increases related to prior year tax positions1,329Decreases related to prior year tax positions-Increases related to current year tax positions-Settlements-Lapse of statute of limitations(97)Balance at December 31, 2008$2,426  The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense.  The total amount of accrued interest and penalties included in the FIN 48 liability above was $189,000 as of December 31, 2007 and $364,000 as of December 31, 2008.  While we expect the amount of unrecognized tax benefits to change in the next 12 months, we do not expect the change to have a significant impact on our financial position or results of operations  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 and compensates 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 typically is 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 which the 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 reinsurance treaties 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, 2008 and 2007 consists of coinsurance agreements aggregating face amounts of $274.4 million and $298.1 million, respectively, reinsurance ceded to Transamerica International was $142.4 and $151.2 at December 31, 2008 and 2007, 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 the policy 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 2008, 2007 and 2006 amounted to approximately $6.0 million, $4.8 million and $5.0 million, respectively.  F-22    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 practices include the following:  (1) 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; (ii) premiums for universal life and investment-type products are recognized as revenues for statutory purposes and as deposits to policyholders' accounts under GAAP; (iii) different assumptions are used in calculating future policyholders' benefits under the two methods; (iv) different methods are used for calculating valuation allowances for statutory and GAAP purposes; and (v) fixed maturities are recorded at market value under GAAP while under statutory accounting practices, they are recorded principally at amortized cost.  Effective January 1, 2001, the NAIC adopted the Codification, which is intended to standardize regulatory accounting and reporting to state insurance departments.  However, statutory accounting principles 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 effective January 1, 2001.  Deferred tax assets (DTAs) are equal to 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 its most recently filed statutory statement. This change allowed the Insurance Company to realize a DTA of approximately $53.5 million in 2008 and $37.2 million in 2007. The Codification, as currently interpreted, did not adversely affect statutory capital or surplus as of December 31, 2008.  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 regulatory approval.  Under New York 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 the lesser of (i) 10% of its surplus as of the end of the immediately preceding calendar year, or (ii) its net gain (after tax) from operations for the immediately preceding calendar year.  Any dividend in excess of such amount is subject to approval by the Superintendent.  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.  The guidelines focus on, among other things, an insurers overall financial condition and profitability under statutory accounting practices, which, as discussed above, differ in certain respects from accounting principles used in financial statements prepared in conformity with GAAP.  In 2008, the Insurance Company paid $35.7 million in stockholder dividends to the Corporation.  However, there can be no assurance that this will continue to be the case in subsequent years.  Accordingly, Management of the Company cannot provide assurance that the Insurance Company will have adequate statutory earnings to support payment of dividends to the Company in an amount sufficient to fund the Companys cash requirements, including the payment of dividends, or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendents consideration.  In 2009, the Insurance Company would be permitted to pay a stockholder dividend of $32.6 million to the Corporation without prior regulatory clearance and in January 2009, the Insurance Company paid $16 million of the $32.6 million to the Corporation.  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 adverse outcome 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.  If quoted 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 quoted market prices. For a limited number of privately placed securities, where quoted market prices are not available, 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-23   10.  FAIR VALUE INFORMATION- CONTINUED  The Company determines the fair value of its limited partnership investments based upon financial reports and valuations provided by the general partners.  During 2008, the Companys unrealized gain from its limited partnership investments decreased by $39.6 million (pre-tax), which carry a book value of $290.7 million at December 31, 2008.  As of December 31, 2008, the Company was committed to contribute, if called upon, an aggregate of approximately $117.9 million of additional capital to certain of these limited partnerships.  The market value of short-term investments 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 calculated by 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 are based on an assumed lapse rate and crediting rate (based on the current treasury yield 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 spread above treasuries on investment grade fixed maturity securities, less an expense and profit spread.  December 31, 2008Carrying ValueEstimated Fair ValueAssets(in thousands)Fixed Maturities:Available for Sale$2,725,091$2,725,091Common Stock2,9792,979Derivatives507507Policy Loans18,94518,945Cash and Short-Term Investments346,058346,058Other Long-Term Investments290,692290,692LiabilitiesPolicyholders' Account Balances$2,429,635$2,611,399Note Payable66,50066,500December 31, 2007Carrying ValueEstimated Fair ValueAssets(in thousands)Fixed Maturities:Available for Sale$3,282,099$3,282,099Common Stock9,7329,732Derivatives7,0057,005Policy Loans19,19419,194Cash and Short-Term Investments366,698366,698Other Long-Term Investments309,663309,663LiabilitiesPolicyholders' Account Balances$2,579,907$2,579,803Note Payable90,19590,195  FAIR VALUE MEASUREMENTS  Effective January 1, 2008, we adopted SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 clarifies the definition of fair value, prescribes methods for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value and expands disclosures about the use of fair value measurements. In accordance with Financial Accounting Standards Board Staff Position No. FAS 157-2, Effective Date of FASB Statement No. 157 (FSP 157-2), we will defer the adoption of SFAS No. 157 for our nonfinancial assets and nonfinancial liabilities, except those items recognized or disclosed at fair value on an annual or more frequently recurring basis, until January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on our fair value measurements.  F-24    Beginning January 1, 2008, assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by SFAS No. 157, are as follows: Level Input:Input Definition:Level 1Observable inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.  Level 1 securities include highly liquid U.S. Treasury securities, certain common stocks and cash and cash equivalents.Level 2Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.  Most debt securities, preferred stocks, certain equity securities, short-term investments and derivatives are model priced using observable inputs and are classified with Level 2.Level 3Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date.  The Companys Level 3 assets include investments in limited partnerships.  Valuation of Investments  For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy.  The Company receives the quoted market prices from a third party, nationally recognized pricing service (pricing service).  When quoted market prices are unavailable, the Company utilizes a pricing service to determine an estimate of fair value, which is mainly for its fixed maturity investments.  The fair value estimates provided from this pricing service are included in the amount disclosed in Level 2 of the hierarchy.  If quoted market prices and an estimate from a pricing service are unavailable, the Company secures an estimate of fair value from brokers who utilize valuation techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level 3.  The following section describes the valuation methods used by the Company for each type of financial instrument it holds that is carried at fair value.  Fixed Maturities  The Company utilizes a pricing service to estimate fair value measurements for approximately 97.6% of its fixed maturities.  The majority of the remaining fair value measurements are based on non-binding broker prices.  The pricing service utilizes market quotations for fixed maturity securities that have quoted prices in active markets, such as U.S Treasury Securities.  Since fixed maturities other than U.S. Treasury securities generally do not trade on a daily basis, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications and models which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings and matrix pricing.   Additionally, the pricing service uses an Option Adjusted Spread model to develop prepayment and interest rate scenarios for issues that have early redemption features.  The pricing service evaluates each asset class based on relevant market information, relevant credit information, perceived market movements and sector news.  The market inputs utilized in the pricing evaluation include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data and industry and economic events.  If the pricing service discontinues pricing an investment due to the lack of objectively verifiable data, the Company would be required to produce an estimate of fair value using some of the same methodologies as the pricing service, but would have to make assumptions for market based inputs that are unavailable due to market conditions.  The fair value estimates of most fixed maturity investments are based on observable market information rather than market quotes.  Accordingly, the estimates of fair value for such fixed maturities, other than U.S. Treasury securities, provided by the pricing service are included in the amount disclosed in Level 2 of the hierarchy.  The estimated fair value of U.S. Treasury securities are included in the amount disclosed in Level 1 as the estimates are based on unadjusted market prices.  The Company holds privately placed corporate bonds and estimates the fair value of these bonds using an internal matrix that is based on market information regarding interest rates, credit spreads and liquidity.  The underlying source data for calculating the matrix of credit spreads relative to the U.S. Treasury curve are the Merrill Lynch U.S. Corporate Index and the Merrill Lynch High Yield BB Rated Index.  The Company includes the fair value estimates of these corporate bonds in Level 2 since all significant inputs are market observable.   F-25    Equities  For public common and preferred stocks, the Company receives prices from a nationally recognized pricing service that are based on observable market transactions and includes these estimates in the amount disclosed in Level 1.  When current market quotes in active markets are unavailable for certain non-redeemable preferred stocks held by the Company, the Company receives an estimate of fair value from the pricing service that provides fair value estimates for the Companys fixed maturities. The service utilizes some of the same methodologies to price the non-redeemable preferred stocks as it does for the fixed maturities. The Company includes the estimate in the amount disclosed in Level 2.  For private equity, the Company adjusts its estimate of investment income recorded during the year to the actual realized gains and other income reported in the limited partnerships most recent annual audited financial statements, which are generally received in the second quarter of the subsequent year.  As a result, there may be up to a one year reporting lag for recording investment income that is not distributed during the year, which may result in significant adjustments.  The Company records its share of net unrealized gains and losses (net of taxes) from the audited financial statements of the limited partnerships.  As a result, there may be up to a one year reporting lag for reporting unrealized gains and losses, which may result in significant adjustments to other comprehensive income in 2009.  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 at book value based on the most recent available audited financial statements.  Due to the significant unobservable inputs in these valuations, the Company includes the total fair value estimate for all of these investments at December 31, 2008 in the amount disclosed in Level 3.  Derivatives  Valuations are secured monthly from each Counterparty which is a major money center bank for the 2 Payor Swaptions owned by the Insurance Company. Factors considered in the valuation include interest rate volatility, decay (remaining life of the Swaption before expiration), delta (duration), gamma (convexity), Swap rates and Swap spreads against U.S. Treasuries. Each dealer has its own proprietary software that evaluates each of these components to determine the Swaption valuation at the end of each month. Presidential Life also obtains a competing valuation from its consultant, Milliman Inc., which uses its own proprietary valuation software called MG Hedge-Information Dashboard. The Company compares the two valuations and generally selects the valuation of the bank, as each Counterparty is responsible for settling for cash with Presidential Life if the Payor Swaption expires with value. All of the factors noted are observable inputs; consequently the Company includes the Swaption Valuations in Level 2.  The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.  ($ in thousands)Fair Value Measurements UsingDescriptionAs of
12/31/2008Quoted prices in Active Markets for Identical Assets
(Level 1)Significant Other Observable Inputs
(Level 2)Significant Unobservable Inputs
(Level 3)Assets:Fixed Maturities$     2,725,091$       255,031$          2,465,764$               4,296Common Stock2,9798751,855249Derivatives507-507-Cash and cash equivalents3,8203,820--Short-Term investments342,238-342,238-Other Long-Term Investments290,692--290,692Liabilities:Notes Payable$         66,500$                   -$               66,500$                       -   F-26    A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:  ($ in thousands)Recurring Fair Value Measurements Using Significant Unobservable Inputs (Level 3)Other Long-Term InvestmentsCommon StockFixed MaturitiesTotalFor the twelve months ended December 31, 2008Beginning Balance at December 31, 2007$        309,663$             420$                     -$       310,083Total gains or losses   (realized/unrealized)Included in earnings----Included in other comprehensive income(39,609)(171)-(39,780)Purchases, issuances, and settlements20,638--20,638Transfers in and /or out of Level 3--4,2964,296Ending Balance at December 31, 2008$        290,692$             249$            4,296$       295,237   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 Ended2008March 31
June 30September 30December 31(in thousands, except per share)Premiums and otherInsurance revenues$              12,205$            14,818$           14,340$          10,639Net investment income65,62069,55375,14951,413Realized investment gains/(losses)1,038(4,476)(26,137)(18,318)Total revenues78,86379,89563,35243,734Benefits and expenses62,17165,00862,38259,399Net income$              10,934$              9,751$                 625$          (2,726)Earnings per share, basic$                    .37$                  .33$                  .02$              (.09)  Three Months Ended2007March 31
June 30September 30December 31(in thousands, except per share)Premiums and otherInsurance revenues$              11,902$          10,836$            8,419$       13,275Net investment income75,84973,63978,81966,553Realized investment gains/(losses)13,62918,977(1,896)(5,877)Total revenues101,380103,45285,34273,951Benefits and expenses69,15966,86963,02468,413Net income$             21,105$          23,962$          14,618$          3,997Earnings per share, basic$                   .72$                .81$                .49$              .14   F-27    12.  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 capital amount, 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.  This information 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 potential involvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for an insurance company to submit a plan to improve its capital (Company Action Level) to regulatory control of the insurance company (Mandatory Control Level).  At December 31, 2008, the Insurance Companys Company Action Level was $80.7 million and the Mandatory Control Level was $28.3 million. The Insurance Companys adjusted capital at December 31, 2008 and 2007 was $370.9 million and $418.3 million, respectively, which exceeds all four action levels.  13.  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 transact business 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 insolvency and, in certain instances, may be offset against future state premium taxes.  The amount of these assessments against the Insurance Company in 2008 and prior years have not been material.  However, the amount and timing of any future assessment against the Insurance Company under these laws cannot be reasonably estimated and are beyond the control of the Corporation and the Insurance Company.  As such, no reasonable estimate of such assessments can be made.  14.  ANNUITY AND UNIVERSAL LIFE DEPOSITS  The Company offers, among other products, annuity and universal life insurance.  The amounts received as deposits for each of the years ended December 31 are as follows:  200820072006(in thousands)Universal Life$1,381$1,451$1,474Annuity143,883136,467163,648Total$145,264$137,918$165,122   F-28    15.  STATUTORY INFORMATION  The Insurance Company prepares its statutory financial statements in accordance with accounting practices prescribed by the New York State Insurance Department.  Prescribed SAP include state laws, regulations and general administrative rules, as well as a variety of publications from the NAIC.  Accounting principles used to prepare statutory financial statements differ from financial statements prepared on the basis of GAAP.  A reconciliation of the Insurance Companys net income (loss) as filed with regulatory authorities to net income reported in the accompanying financial statements for the years ended December 31, 2008, 2007 and 2006 is set forth in the following table:  (in thousands)200820072006Statutory net income$16,932$59,141$74,976Reconciling items:Deferred policy acquisition costs(6,085)(12,345)(9,020)Investment income difference5,9057,714(9,033)GAAP Deferred taxes12,3842,698(197)Policy liabilities and accruals10,0367,05315,449IMR amortization(3,482)(3,056)(2,938)IMR capital gains1,0759,676494Payor Swaptions(6,499)(8,314)(15,307)Federal income taxes-(693)(3,831)Other(488)550287Non-insurance companys net income(11,194)1,258(1,167)GAAP net income$18,584$63,682$49,713  A reconciliation of the Insurance Companys shareholders equity as filed with regulatory authorities to shareholders equity reported in the accompanying financial statements as of December 31 is set forth in the following table:  (in thousands)20082007Statutory shareholders equity$329,039$360,373Reconciling items:Asset valuation and interest maintenance reserves112,985131,494Investment valuation differences(281,500)65,364Deferred policy acquisition costs122,33877,721Policy liabilities and accruals144,847135,151Difference between statutory and GAAP deferred taxes20,134(95,510)Other(3,880)(2,754)Non-insurance companys shareholders equity(3,909)(9,884)GAAP shareholders equity$440,054$661,955  16.  SUBSEQUENT EVENTS  On February 17th, 2009, the Corporation retired the remaining $67 million of its 7 7/8%, $100 million Senior Note.   F-29     Schedule II PRESIDENTIAL LIFE CORPORATION (PARENT COMPANY ONLY)CONDENSED FINANCIAL INFORMATION OF REGISTRANTBALANCE SHEETS(in thousands)December 31,20082007ASSETS:Investment in subsidiaries at equity$444,054$671,928Cash in bank(24)49Real estate, net3535Fixed maturities, available for sale3,04654,422Investments, common stocks3391,003Short-term investments44,49813,853Other long-term investments220,322Deferred debt issue costs24233Other assets17,5154,160TOTAL ASSETS$509,489$766,005LIABILITIES AND SHAREHOLDERS' EQUITY:Liabilities:Notes payable, long term66,50090,195Other liabilities2,93513,855TOTAL LIABILITIES69,435104,050Total Shareholders' Equity440,054661,955TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY$509,489$766,005        S-1    Schedule II PRESIDENTIAL LIFE CORPORATION (PARENT COMPANY ONLY)CONDENSED FINANCIAL INFORMATION OF REGISTRANTSTATEMENTS OF INCOME(in thousands)Year Ended December 31,200820072006REVENUES:Income from rents$              835$          819$         803Investment income5827,0488,764Realized investment (losses) gains(8,518)6,2053,863Total Revenues(7,101)14,07213,430EXPENSES:Operating and administrative3,0112,4231,734Interest7,35310,08711,593Total Expenses10,36412,51013,327(Loss) Income before federal income taxesand equity in income of subsidiaries(17,465)1,562103Federal income tax (benefit) expense(6,269)3051,272(Loss) Income before equity in income of subsidiaries(11,196)1,257(1,169)Equity in income of subsidiaries29,78062,42550,882Net income$        18,584$      63,682$     49,713             S-2    Schedule II PRESIDENTIAL LIFE CORPORATION (PARENT COMPANY ONLY)CONDENSED FINANCIAL INFORMATION OF REGISTRANTSTATEMENTS OF CASH FLOWS(in thousands)200820072006Operating Activities:Net Income$     18,584$     63,682$   49,713Adjustments to reconcile net income tonet cash provided by operating activities:Realized investment losses (gains)8,518(6,205)(3,863)Depreciation and amortization744871893Stock Option Compensation1,0751,129562Equity in income of subsidiary companies(29,780)(62,425)(50,882)Deferred Federal income taxes(3,068)1,526349Dividend from Subsidiaries35,70032,00020,000Changes in:Accrued investment income1,107587168Amounts due from security transactions(12,981)--Accounts payable and accrued expenses(129)9144Other assets and liabilities(3,464)(564)1,007Net Cash Provided By Operating Activities16,30630,61018,091Investing Activities:Purchase of fixed maturities-(387)(10,436)Sale of fixed maturities35,18531,18515,494Common stock acquisitions-(13,140)(18,170)Common stock sales33828,06623,384Other invested asset acquisitions16,980(16,980)-(Increase) decrease in short-term investments(30,645)10,815(12,471)Net Cash Provided by (Used In) Investing Activities21,85839,559(2,199)Financing Activities:Dividends to shareholders(14,780)(14,018)(11,784)Repayment of short-term debt-(50,000)-Retirement of senior notes(23,695)(9,756)-Repurchase of common stock2381,095545Net Cash Used In Financing Activities(38,237)(72,679)(11,239)(Decrease) Increase  in Cash(73)(2,510)4,653Cash at Beginning of Year492,559(2,094)Cash at End of Year$           (24)$           49$     2,559    S-3


PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIESSchedule IIISUPPLEMENTAL INSURANCE INFORMATION(in thousands)Column AColumn BColumn CColumn DColumn EColumn FColumn F-1Column GColumn HColumn IColumn JColumn KBenefits,Claims, Losses,Future PolicyInterestBenefits,OtherCredited toLosses, Claims,PolicyMortality,AccountAmortizationDeferredLoss Expenses,ClaimsSurrenderBalancesof DeferredPolicyand Policy-andand OtherNetandPolicyOtherAcquisitionholder AccountUnearnedBenefitsPremiumCharges toInvestmentSettlementAcquisitionOperatingPremiumsCostsBalancesPremiumsPayableRevenuePolicyholdersIncomeExpensesCostsExpensesWrittenYear Ended December 31, 2008Life Insurance$      16,315$       236,168$              -$          -$       11,160$             38$           17,293$            20,205$          2,331$            7,591Annuity106,0232,913,191--30,668838244,315184,64212,00518,380Accident and Health-3,061--5,015-1272,538-2,166$ 5,015Total$    122,338$    3,152,420$              -$          -$      46,843$          876$         261,735$          207,385$        14,336$          28,137$ 5,015Year Ended December 31, 2007Life Insurance$    16,048$       231,320$              -$          -$       11,166$             16$           16,818$            18,836$          2,537$           7,320Annuity61,6733,068,185--24,7881,179277,922195,56321,14720,228Accident and Health-2,318--4,468-1202,294-1,741$ 4,468Total$    77,721$    3,301,823$              -$          -$      40,422$        1,195$         294,860$          216,693$        23,684$          29,289$ 4,468Year Ended December 31, 2006Life Insurance$    15,255$       223,622$             -$          -$        9,355$             41$           17,121$            16,892$          1,791$           6,657Annuity65,8143,469,180--27,6011,288299,179222,06619,28320,205Accident and Health-2,503--4,476-1152,381-1,010$ 4,476Total$    81,069$    3,695,305$             -$          -$      41,432$        1,329$         316,415$          241,339$        21,074$          27,872$ 4,476


S-4


REINSURANCE (in thousands)Schedule IVColumn AColumn BColumn CColumn DColumn EAssumedCeded toFromGrossOtherOtherNetAmountCompaniesCompaniesAmountYear Ended December 31, 2008Life Insurance in Force$         1,182,155$           656,997$       1,007,618$    1,532,776Premiums:Life Insurance15,9915,9171,08611,160Annuity30,668--30,668Accident and Health Insurance8,4373,422-5,015Total$              55,096$                9,339$              1,086$          46,843Year Ended December 31, 2007Life Insurance in Force$         1,230,057$           710,494$       1,031,541$    1,551,104Premiums:Life Insurance14,6014,7781,34311,166Annuity24,788--24,788Accident and Health Insurance6,3501,882-4,468Total$              45,739$                6,660$              1,343$          40,422Year Ended December 31, 2006Life Insurance in Force$         1,253,908$           755,516$       1,185,426$    1,683,818Premiums:Life Insurance13,1135,0761,3189,355Annuity27,601--27,601Accident and Health Insurance6,4031,927-4,476Total$              47,117$                7,003$              1,318$          41,432   Note:  Reinsurance assumed consists entirely of Servicemen's Group Life Insurance      S-5     Exhibit 31.01  Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15f  I, Herbert Kurz, Chief Executive Officer of Presidential Life Corporation certify that: 1. I have reviewed this annual report on Form 10-K of Presidential Life Corporation; 2. Based on my knowledge, this 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 under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.  Date: March 12, 2009 /s/Herbert Kurz ---------------------- Herbert Kurz Chief Executive Officer  S-6       Exhibit 31.02  Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15f  I, Charles Snyder, Chief Financial Officer and Treasurer of Presidential Life Corporation certify that:  1.    I have reviewed this annual report on Form 10-K of Presidential Life Corporation; 2. Based on my knowledge, this 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 under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting. 5. The company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.  Date: March 12, 2009  /s/Charles Snyder ---------------------- Charles Snyder  Treasurer and Chief Financial Officer  S-7    Exhibit 32.01    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, 2008 as filed with the Securities and Exchange Commission on the date hereof (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  (2) 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 12, 2009                  S-8     Exhibit 32.02   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, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles Snyder, Treasurer and Chief Financial 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:   (3) Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  (4) 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 Chief Financial Officer March 12, 2009  S-9