UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 10-Q/A  ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2010oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  toCommission 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   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x        No   ̈ Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ̈        No   ̈ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  Large accelerated filer   ̈Accelerated filer  xNon-accelerated filer   ̈Smaller reporting company   ̈(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈        No  x The number of shares of registrants common stock outstanding as of November 2, 2010 was 29,574,697.


Explanatory Note This Form 10-Q/A reflects the Original Restatement and the OTTI Restatement of the Companys Consolidated Financial Statements (as such terms are defined below), as discussed in note 10 to the Companys Consolidated Financial Statements included herein. As previously disclosed in a Current Report on Form 8-K filed with the SEC on March 10, 2011, the Board of Directors of the Company determined on March 7, 2011 that the Companys financial statements for the years ended December 31, 2009 and 2008 (the Annual Financial Statements) and for the quarterly periods ended March 31, 2010, June 30, 2010 and September 30, 2010 (the Quarterly Financial Statements and, together with the Annual Financial Statements, collectively, the Previously Issued Financial Statements) should no longer be relied upon because they contained an error as addressed in Financial Accounting Standards Board (FASB) ASC Topic 250.  The error in the Previously Issued Financial Statements related to the application of the equity method of accounting for the Companys limited partnership investments.  The Company sought to correct the error with respect to the Annual Financial Statements by restating (the Original Restatement) such financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission (SEC) on March 29, 2011 (2010 Form 10-K).   The Original Restatement incorporates a change in the way we accounted for certain of our investments.  Approximately 5% of our overall investment portfolio is invested in private limited partnerships, with respect to which we had historically applied the equity method of accounting.  After extensive discussions with the staff of the Securities and Exchange Commission (SEC), we determined that we should apply either the equity method or the fair value method of accounting to such investments depending upon the level of influence the Company has on the underlying policies of such limited partnerships.  As a result, we now apply the fair value method of accounting for investments in limited partnerships in which we have less than a 5% interest and do not have more than virtually no influence over the operating and financial policies of the partnership, and apply the equity method of accounting where we have either a 5% or greater interest or less than a 5% interest, but with respect to which partnership we have more than virtually no influence over the operating and financial policies of the partnership.  The Original Restatement primarily impacts the net investment income, change in deferred policy acquisition costs and provision (benefit) for income taxes amounts in the statement of income and the limited partnerships investments, deferred policy acquisition costs, deferred income tax asset and shareholders' equity amounts in the balance sheet. As previously disclosed in a Current Report on Form 8-K filed with the SEC on May 10, 2011, the Board of Directors of the Company determined that the Companys financial statements for the years ended December 31, 2009 and 2008, as previously restated in the 2010 Form 10-K, the financial statements for the year ended December 31, 2010 included in the 2010 Form 10-K and the financial statements for each of the first three quarters of the year ended December 31, 2010 (such financial statements, the Subject Financial Statements), should no longer be relied upon because they contain an error as addressed in FASB Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections.  In the process of preparing the Subject Financial Statements, the Company made an error in failing to analyze other-than-temporary-impairment (OTTI) related to its limited partnership investments. Management has determined that this error resulted in an understatement of net loss for the year ended December 31, 2008 and an overstatement of net income for the year ended December 31, 2009 in the Subject Financial Statements.  The error resulted in an understatement of accumulated other comprehensive income and an overstatement of retained earnings as of December 31, 2010, 2009 and 2008.  There was no change in total stockholders equity as a result of the error.  Because the components of stockholders equity are being restated, accumulated other comprehensive income and retained earnings will change in each of the first three quarters of 2010 from that previously reported.   This error has been corrected by restating (the OTTI Restatement) the Companys financial statements for the years ended December 31, 2008, 2009 and 2010, which were included in an amendment to its 2010 Form 10-K (the 2010 Form 10-K/A) filed with the SEC on July 6, 2011 and further amended on July 16, 2011. The Company previously corrected the error in the first two quarters of 2009 as a result of Original Restatement and the OTTI Restatement through the filing of amendments to its Quarterly Reports on Form 10-Q/A for the periods ended March 31, 2010 and June 30, 2010.  For the period ended September 30, 2010, corrections are included in this Form 10-Q/A. For a more detailed discussion of the Original Restatement and the OTTI Restatement including its impact on the Companys Consolidated Financial Statements, see Item 2:  Management Discussion and Analysis of Results of Operations and Financial Condition-Executive Summary and Note 10 to Consolidated Financial Statements.      2





INDEX Part IFinancial InformationPage No.Item 1.Consolidated Financial StatementsConsolidated Balance SheetsSeptember 30, 2010 (Unaudited) (Restated) and December 31, 20094Consolidated Statements of Operation (Unaudited) (Restated)For the three months and nine months ended September 30, 2010 and 20095Consolidated Statements of Shareholders'Equity (Unaudited) (Restated) - For the nine months endedSeptember 30, 2010 and 20096Consolidated Statements of Cash Flows (Unaudited)(Restated) -For the nine months ended September 30, 2010 and 20097Notes to Consolidated Financial Statements (Unaudited)8-25Item 2.Management's Discussion and Analysis of26-38Financial Condition and Results of OperationsPart II -Other Information38-39Item 5.Exhibits and Reports on Form 8-Ka)
Exhibits31.1     Certification of Chief Executive Officer
31.2     Certification of Chief Financial Officer
32.1     Certification of Chief Executive Officer
32.2     Certification of Chief Financial Officer40414243   3





PART 1  FINANCIAL INFORMATION PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) Item 1.  Financial Statements September 30,
2010
(Unaudited)December 31,
2009
(Audited)ASSETS:(As Restated)Investments:(See Footnote 10)Fixed maturities:Available for sale at market (Amortized cost of$3,214,438 and $3,043,757respectively)$              3,499,713$               3,087,021Common stocks (Cost of $476 and$475, respectively)2,0421,947Derivative instruments, at fair value-390Real estate415415Policy loans19,49518,959Short-term investments119,441293,136Limited partnerships235,972212,707Total Investments3,877,0783,614,575Cash and cash equivalents1,8338,763Accrued investment income43,86841,281Deferred policy acquisition costs46,11578,065Furniture and equipment, net417447Amounts due from reinsurers16,28615,056Federal income taxes recoverable22,80518,313Deferred federal income taxes, net-175Other assets1,4431,506TOTAL ASSETS$                4,009,845$              3,778,181LIABILITIES AND SHAREHOLDERS' EQUITY:Liabilities:Policy Liabilities:Policyholders' account balances$                2,420,280$              2,444,984Future policy benefits:Annuity661,430645,801Life and accident and health80,54876,457Other policy liabilities10,29210,592Total Policy Liabilities3,172,5503,177,834Deposits on policies to be issued9231,905General expenses and taxes accrued2,2582,461Deferred federal income taxes, net76,709-Amounts due for security transactions12,497-Other liabilities13,44114,462Total Liabilities$              3,278,378$              3,196,662Commitments and ContingenciesShareholders Equity:Capital stock ($.01 par value; authorized100,000,000 shares outstanding,29,574,697 and 29,574,697 shares, respectively)296296Additional paid in capital7,0526,639Accumulated other comprehensive gain181,03432,850Retained earnings543,085541,734Total Shareholders Equity731,467581,519TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$               4,009,845$               3,778,181The accompanying notes are an integral part of these Consolidated Financial Statements.   4





PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share data) (Unaudited)


|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                      | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- |  | --------------------------------------------------------------- |  | -------------------- |  | -------------------- | 
|                                                                                                                                                                                                                                                                    | THREE MONTHS ENDED
SEPTEMBER 30,
(As Restated)
(See Footnote 10) |  | NINE MONTHS ENDED
SEPTEMBER 30,
(As Restated)
(See Footnote 10)
|REVENUES:                                                                                                                                                                                                                                                           | 2010                                                             |  | 2009                                                            |  | 2010                 |  | 2009                
|Insurance Revenues:                                                                                                                                                                                                                                                 |                                                                  |  |                                                                 |  |                      |  |                      | 
|Premiums                                                                                                                                                                                                                                                            | $               4,274                                            |  | $              3,331                                            |  | $          13,031    |  | $          10,537   
|Annuity considerations                                                                                                                                                                                                                                              | 21,114                                                           |  | 11,239                                                          |  | 40,267               |  | 26,365              
|Universal life and investment type policy fee income
Equity in earnings (losses) on limited partnerships                                                                                                                                                            | 528
(845)                                                        |  | 489
1,603                                                       |  | 1,587
(6,036)        |  | 1,635
2,544         
|Net investment income                                                                                                                                                                                                                                               | 49,830                                                           |  | 48,930                                                          |  | 147,682              |  | 147,735             
|Realized investment gains (losses),excluding                                                                                                                                         other than temporary impairment (OTTI)                                losses | 1,807                                                            |  | (663)                                                           |  | 7,921                |  | 2,145               
|Total OTTI losses recognized in earnings                                                                                                                                                                                                                            | -                                                                |  | (3,430)                                                         |  | -                    |  | (20,315)            
|Other income                                                                                                                                                                                                                                                        | 1,124                                                            |  | 1,148                                                           |  | 3,739                |  | 2,864               
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|TOTAL REVENUES                                                                                                                                                                                                                                                      | 77,832                                                           |  | 62,647                                                          |  | 208,191              |  | 173,510             
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|BENEFITS AND EXPENSES:                                                                                                                                                                                                                                              |                                                                  |  |                                                                 |  |                      |  |                     
|Death and other life insurance benefits                                                                                                                                                                                                                             | 4,408                                                            |  | 3,704                                                           |  | 13,549               |  | 10,604              
|Annuity benefits                                                                                                                                                                                                                                                    | 19,991                                                           |  | 20,044                                                          |  | 60,670               |  | 58,934              
|Interest credited to policyholders'
account balances                                                                                                                                                                                                                | 26,677                                                           |  | 27,123                                                          |  | 79,996               |  | 81,373              
|Interest expense on notes payable                                                                                                                                                                                                                                   | -                                                                |  | -                                                               |  | -                    |  | 753                 
|Other interest and other charges                                                                                                                                                                                                                                    | 319                                                              |  | 418                                                             |  | 877                  |  | 1,068               
|Increase in liability for future policy benefits                                                                                                                                                                                                                    | 15,344                                                           |  | 3,143                                                           |  | 18,540               |  | 4,256               
|Commissions to agents, net                                                                                                                                                                                                                                          | 2,117                                                            |  | 2,286                                                           |  | 5,578                |  | 8,405               
|Costs related to consent revocation
solicitation and related matters                                                                                                                                                                                                | 297                                                              |  | -                                                               |  | 1,470                |  | -                   
|General expenses and taxes                                                                                                                                                                                                                                          | 5,237                                                            |  | 3,519                                                           |  | 13,966               |  | 12,496              
|Change in deferred policy acquisition costs                                                                                                                                                                                                                         | 881                                                              |  | 106                                                             |  | 2,989                |  | (714)               
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|TOTAL BENEFITS AND EXPENSES                                                                                                                                                                                                                                         | 75,271                                                           |  | 60,343                                                          |  | 197,635              |  | 177,175             
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|Income before income taxes                                                                                                                                                                                                                                          | 2,561                                                            |  | 2,304                                                           |  | 10,556               |  | (3,666)             
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|Provision (benefit) for income taxes:                                                                                                                                                                                                                               |                                                                  |  |                                                                 |  |                      |  |                     
|Current                                                                                                                                                                                                                                                             | 181                                                              |  | 4,003                                                           |  | 6,565                |  | (676)               
|Deferred                                                                                                                                                                                                                                                            | 710                                                              |  | (3,197)                                                         |  | (2,906)              |  | (530)               
|                                                                                                                                                                                                                                                                    | 891                                                              |  | 806                                                             |  | 3,659                |  | (1,206)             
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|NET INCOME (LOSS)                                                                                                                                                                                                                                                   | $               1,670                                            |  | $              1,498                                            |  | $            6,897   |  | $          (2,460)  
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|Earnings (loss) per common share, basic                                                                                                                                                                                                                             | $                   .06                                          |  | $                  .05                                          |  | $                .23 |  | $              (.08)
|Earnings (loss) per common share, diluted                                                                                                                                                                                                                           | $                   .06                                          |  | $                  .05                                          |  | $                .23 |  | $              (.08)
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|Weighted average number of shares outstanding during the period, basic                                                                                                                                                                                              | 29,574,697                                                       |  | 29,574,697                                                      |  | 29,574,697           |  | 29,574,511          
|Weighted average number of shares outstanding during the period, diluted                                                                                                                                                                                            | 29,574,697                                                       |  | 29,574,697                                                      |  | 29,574,697           |  | 29,574,511          
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 |  |                      |  |                     
|                                                                                                                                                                                                                                                                    |                                                                  |  |                                                                 | 
|The accompanying notes are an integral part of these Consolidated Financial Statements.                                                                                                                                                                             |                                                                  |  |                                                                 | 

5





PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (In thousands, except per share data) (As restated, See Footnote 10) (Unaudited)


|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|------------------------------------------------- | ------------- |  | --------------------------- |  | ----------------- |  | --------------------------------------------- |  | ----------------
|                                                  | Capital Stock |  | Additional
Paid-in-
Capital |  | Retained
Earnings |  | Accumulated
Other
Comprehensive
Income (Loss) |  | Total           
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Balance at January 1, 2009                        | $        296  |  | $          5,851            |  | $      544,233    |  | $          (132,230)                          |  | $        418,150
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Income:                             |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Loss                                          |               |  |                             |  | (2,460)           |  |                                               |  | (2,460)         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Unrealized Investment Gains                   |               |  |                             |  |                   |  | 161,164                                       |  | 161,164         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Income                              |               |  |                             |  |                   |  |                                               |  | 158,704         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Exercise of Shares Under Stock Option Plan        |               |  | 4                           |  |                   |  |                                               |  | 4               
|Share Based Compensation                          |               |  | 641                         |  |                   |  |                                               |  | 641             
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Dividends paid to Shareholders ($.0625 per share) |               |  |                             |  | (5,546)           |  |                                               |  | (5,546)         
|Balance at September 30, 2009                     | $        296  |  | $          6,496            |  | $      536,227    |  | $             28,934                          |  | $       571,953 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Balance at January 1, 2010                        | $        296  |  | $          6,639            |  | $      541,734    |  | $              32,850                         |  | $        581,519
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Income:                             |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Income                                        |               |  |                             |  | 6,897             |  |                                               |  | 6,897           
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Unrealized Investment Gains                   |               |  |                             |  |                   |  | 148,184                                       |  | 148,184         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Income                              |               |  |                             |  |                   |  |                                               |  | 155,081         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Share Based Compensation                          |               |  | 413                         |  |                   |  |                                               |  | 413             
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Dividends paid to Shareholders ($.0625 per share) |               |  |                             |  | (5,546)           |  |                                               |  | (5,546)         
|Balance at September 30, 2010                     | $        296  |  | $          7,052            |  | $      543,085    |  | $           181,034                           |  | $        731,467
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 

The accompanying notes are an integral part of these Consolidated Financial Statements.  6





PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)   NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED)2010
(As restated)
(See Footnote 10)2009
(As restated)
(See Footnote 10)OPERATING ACTIVITIES:Net income (loss)$                 6,897$               (2,460)Adjustments to reconcile net income to net cash provided by
operating activities:Benefit (provision) for deferred income taxes(2,906)(530)Depreciation and amortization114194Stock option expense413641Amortization of fixed maturity discounts and premiums(12,153)(12,415)Equity in earnings (losses) on limited partnerships6,036(2,544)Realized investment (gains) losses(7,921)(2,145)Other than temporary impairments recognized-20,315Changes in:Accrued investment income(2,587)(939)Deferred policy acquisition costs2,989(714)Federal income tax recoverable(4,492)(111)Liability for future policy benefits19,7205,148Other items(1,566)(389)Net Cash Provided by (Used In) Operating Activities$               4,544$              4,051INVESTING ACTIVITIES:Fixed Maturities:Available for Sale:Acquisitions(326,854)(204,214)Maturities, calls and repayments3,33110,411Sales166,674172,860Common Stocks:Acquisitions-(4)Decrease in short-term investments and policy loans173,15956,751Limited partnerships:Additions to limited partnerships(23,746)(18,720)Distributions from limited partnerships16,71613,062Amount due on security transactions, net12,49722,005Net Cash Provided By Investing Activities$               21,777$               52,151FINANCING ACTIVITIES:(Decrease) increase in policyholders account balances(24,704)12,694Bank overdrafts(2,019)1,147Deposits on policies to be issued(982)5Issuance of common stock-4Retirement of Senior Notes-(66,500)Dividends paid to shareholders(5,546)(5,546)Net Cash Used In Financing Activities$              (33,251)$            (58,196)Decrease in Cash and Cash Equivalents(6,930)(1,994)Cash and Cash Equivalents at Beginning of Period8,7633,820Cash and Cash Equivalents at End of Period$                 1,833$                 1,826Supplemental Cash Flow Disclosure:Income Taxes Paid$               11,058$                    208Interest Paid$                         -$                 2,618  The accompanying notes are an integral part of these Consolidated Financial Statements.  7





PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  A. Business  Presidential Life Corporation is an insurance holding company that, through its wholly owned subsidiary, Presidential Life Insurance Company (the Insurance Company), markets and sells a variety of fixed annuity, life insurance and accident and health insurance products.  We manage our business and report as a single business segment.  We are a Delaware corporation founded in 1965. Through the Insurance Company, we are licensed to market our products in all 50 states and the District of Columbia.  Unless the context otherwise requires, the Company, we, us, our and similar references shall mean Presidential Life Corporation and the Insurance Company, collectively  B. Basis of Presentation and Principles of Consolidation  The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to stock life insurance companies for interim financial statements and in accordance with the requirements of Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP applicable to stock life insurance companies for complete financial statements.  In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Interim results for the nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  Management believes that, although the disclosures are adequate, these consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2009, as filed with the Securities and Exchange Commission on Form 10-K/A on July 6, 2011 and further amended on July 16, 2011.  C. Segment Reporting  The Company has one reportable segment and therefore, no additional disclosures are required in accordance with current FASB guidance.  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 FASB guidance, 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 84%), life insurance (approximately 11%), and accident and health insurance (approximately 5%).  The nature of these product lines is sufficiently similar to permit their aggregation as a single reporting segment.  Approximately 71% 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, if any, 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 portion related to credit loss is recorded in the income statement.  Premium and discounts are amortized/accrued using methods which result in a constant yield over the securities expected lives.  Amortization/accrual of premium and discounts on residential mortgage and asset-backed securities incorporate prepayment assumptions to estimate the securities expected lives. Equity securities include common stocks and non-redeemable preferred stocks and are carried at market value, with the related unrealized gains and  8





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.  Where consolidation is not appropriate, the Company applies the equity method of accounting consistent with ASC 323, Investments  Equity Method and Joint Ventures, to limited partnerships in which the Company holds either (a) a five percent or greater interest or (b) less than a five percent interest, but with respect to which partnership the Company has more than virtually no influence over the operating or financial policies of the limited partnership.  The Company records realized and unrealized earnings (or losses) of the limited partnerships in net income each period.  Generally, the Company records its share of its earnings using a three month lag. The Company applies the fair value method of accounting consistent with ASC 944, Financial ServicesInsurance, to those limited partnerships in which the Company holds less than a five percent interest and does not have more than virtually no influence over the operating or financial policies of the limited partnership.  The Company recognizes the unrealized change in fair value of a partnership interest as a component of equity (other comprehensive income or loss) each period and recognizes cash distributions in earnings each period. The Company considers certain qualitative factors in assessing whether it has more than virtually no influence for partnership interests of less than five percent. The Company recognizes cash distributions from the limited partnerships as either a return on capital in earnings or a return of capital that reduces the investments carrying amount.  This distinction is based on whether the cash distribution represents earnings or loss of the investee, or a return of our investment.  A cash receipt that does not represent earnings (or loss) of the investee is treated as a return of capital, which the Company records as a reduction of the basis in the investment, rather than as a credit (or charge) to the income statement. 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, when available, 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.  When broker prices are unavailable, the Company prices the securities using either discounted cash-flow models or matrix pricing.  The Companys policy is to transfer assets and liabilities into Level 3 when a significant input cannot be corroborated with market observable data.  This may include: circumstances in which market activity has dramatically decreased and transparency to underlying inputs cannot be observed, current prices are not available, and substantial price variances in quotations among market participants exist.  In certain cases, the inputs used to measure the fair value may fall into levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.  The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.  In making the assessment, the Company considers factors specific to the asset.  For all equity investments, if we conclude that an other than temporary impairment has occurred, the carrying value of the equity security is written down to the current fair value, with a corresponding charge to realized gain (loss) in our Consolidated Statements of Income. We base our review on a number of factors including, but not limited to, the severity and duration of the decline in fair value of the equity security as well as the cause of the decline, our ability and intent to hold the security for a sufficient period of time to allow for a recovery in value, any third-party research reports or analysis, and the financial condition and near-term prospects of the securitys issuer, taking into consideration the economic prospects of the issuers industry and geographical location.  When assessing our intent to sell a fixed maturity security or if it is more likely that the Company will be required to sell a fixed maturity security before recovery of its cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to reposition our security portfolio and sale of securities to meet cash flow needs.  In order to determine the amount of the credit loss for a fixed maturity security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover.  The discount rate is the effective interest rate implicit in the underlying fixed maturity security.  The effective interest rate is the original yield or the coupon if the fixed maturity security was previously impaired.  If an OTTI exists and we have the intent to sell the security, we conclude that the entire OTTI is credit-related and the amortized cost for the security is written down to current fair value with a corresponding charge to realized loss on our Consolidated Statements of Income.  If we do not intend to sell a fixed maturity security or it is not more likely than not we will be required to sell a fixed maturity security before recovery of its amortized cost basis but the present value of the cash flows expected to be collected is less than the amortized cost of the fixed maturity security (referred to as the credit loss), we conclude that an OTTI has occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge to realized loss on our Consolidated  9





Statements of Income, as this is also deemed the credit portion of the OTTI.  The remainder, if any,  of the decline to fair value is recorded to OCI, as an unrealized OTTI loss on our Consolidated Balance Sheets, as this is considered a noncredit (i.e., recoverable) impairment.   To determine the recovery period of a fixed maturity security, we consider the facts and circumstances surrounding the underlying issuer including, but not limited to, the following:  · Historic and implied volatility of the security; · Length of time and extent to which the fair value has been less than amortized cost; · Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area; · Failure, if any, of the issuer of the security to make scheduled payments; and · Recoveries or additional declines in fair value subsequent to the balance sheet date.  For all fixed maturities securities evaluated for OTTI, we consider the timing and amount of the cash flows. When evaluating whether our collateralized mortgage obligations (CMOs) are other-than-temporarily impaired, we also examine the characteristics of the underlying collateral, such as delinquency, loss severities and default rates, the quality of the underlying borrower, the type of collateral in the pool, the vintage year of the collateral, subordination levels within the structure of the collateral pool, the quality of any credit guarantors, the susceptibility to variability of prepayments, our intent to sell the security and whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost basis. In assessing corporate fixed maturities securities for OTTI, we evaluate the ability of the issuer to meet its debt obligations and the value of the company or specific collateral securing the debt position including the fundamentals of the issuer to determine what we would recover if they were to file bankruptcy versus the price at which the market is trading; fundamentals of the industry in which the issuer operates; expectations regarding defaults and recovery rates; and changes to the rating of the security by a rating agency.  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s investments in real estate consist of two acres of undeveloped land and two buildings in Nyack, New York, which are occupied entirely by the Company.  The investments are carried at cost less accumulated depreciation.  Both buildings are fully depreciated and have no depreciation expense.  E. Deferred Policy Acquisition Costs  The costs of acquiring new business (principally commissions and certain underwriting, agency and policy issue expenses), all of which vary with the production of new business, have been deferred.  Deferred policy acquisition costs (DAC) 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. Future Policy Benefits  10





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 are based on anticipated experience, which, together with interest and expense assumptions, provide 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 the present value of expected future payments.  G. Policyholders' Account Balances  Policyholders' account balances for universal life and investment type contracts are equal to the policy account values.  The policy account values represent an accumulation of gross premium payments plus credited interest less mortality and expense charges and withdrawals.   H. 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.  FASB guidance provides that deferred income taxes are adjusted to reflect tax rates at which future tax liabilities or assets are expected to be settled or realized.  I. Earnings Per Common Share (EPS)  Basic EPS is computed based upon the weighted average number of common shares outstanding during the first nine months.  Diluted EPS is computed based upon the weighted average number of common shares including contingently issuable shares and other dilutive items.  The weighted average number of common shares used to compute diluted EPS for the nine months ended September 30, 2010 and 2009 was 29,574,697 and 29,574,511, respectively.  The dilution from the potential exercise of stock options outstanding did not reduce EPS during the nine months ended September 30, 2010 or 2009.  Options totaling 498,684 and 873,213 shares of common stock for the nine months ended September 30, 2010 and September 30, 2009, respectively were not included in the computation of weighted average shares because the impact of these options was antidilutive.  J. New Accounting Pronouncements  Adoption of new accounting pronouncements  On January 1, 2010, the Company adopted the new guidance on transfers of financial assets. This new guidance amends the derecognition guidance and eliminates the exemption from consolidation for qualifying special-purpose entities. The adoption of this new guidance did not have an impact on the Companys financial position or results of operations. On January 1, 2010, the Company adopted the new guidance on the accounting for a variable interest entity (VIE). This new guidance amends the consolidation guidance applicable to VIEs to require a qualitative assessment in the determination of the primary beneficiary of the VIE, to require an ongoing reconsideration of the primary beneficiary, to amend the events that trigger a reassessment of whether an entity is a VIE and to change the consideration of kick-out rights in determining if an entity is a VIE. The adoption of this new guidance did not have an impact on the Companys financial position or results of operations.  New Accounting pronouncements issued during 2010 impacting the Company are as follows: In February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements, that amends guidance on subsequent events. This amendment removes the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. However, the date-disclosure exemption does not relieve management of an SEC filer from its responsibility to evaluate subsequent events through the date on which financial statements are issued. This standard became effective for the Company upon issuance. The adoption of this standard did not have a material impact on our Consolidated Financial Statements.   In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosures, that requires entities to make new disclosures about recurring or nonrecurring fair-value measurements and provides clarification of existing disclosure requirements. For assets and liabilities that are measured at fair value on a recurring basis, the ASU requires disclosure of significant transfers between Levels 1 and 2, and transfers into and out of Level 3 of the fair value hierarchy and the reasons for those transfers. Significant transfers into each level must be disclosed and discussed separately from transfers out of each level. Significance is judged with respect to earnings, total assets, total liabilities or total equity. An accounting policy must be determined and disclosed as to when transfers between levels are recognized; (1) actual date, (2) beginning of period or (3) end of period. The ASU amends the reconciliation of the beginning and ending balances of Level 3 recurring fair value measurements to present information about purchases, sales, issuances and settlements on a gross basis rather than as a net number. The ASU amends ASC 820 to require fair  11





value measurement disclosures for each class of assets and liabilities and clarifies that a description of the valuation technique and inputs used to measure fair value is required for both recurring and nonrecurring fair value measurements. This standard became effective this quarter, except for the requirement to provide the Level activity of purchases, sales, issuances and settlement on a gross basis, which will be effective for us beginning in the first quarter of fiscal year 2011. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on our Consolidated Financial Statements.  In October 2010, the FASB issued updated guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred.  If application of this guidance would result in the capitalization of acquisition costs that had not previously been capitalized by a reporting entity, the entity may elect not to capitalize those costs.The updated guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011.  The Company is in the process of assessing the impact that this guidance will have on its financial condition and results of operations.    2. INVESTMENTS  There were no investments in any one issuer that totaled 10% or more of Shareholders Equity as of September 30, 2010.  The following information summarizes the components of net investment income:  For the nine months ended
September 30, 2010
(in thousands)For the nine months ended
September 30, 2009
(in thousands)Fixed maturities$                        148,575$                        146,720Common stocks386748Short-term investments299699Other investment income1,9311,702151,191149,869Less investment expenses3,5092,134Net investment income$                        147,682$                        147,735  For the three months ended
September 30, 2010
(in thousands)For the three months ended
September 30, 2009
(in thousands)Fixed maturities$                          50,229$                          48,533Common stocks710Short-term investments85153Other investment income46878850,78949,484Less investment expenses959554Net investment income$                         49,830$                         48,930   The following table presents fair value and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at September 30, 2010:


|                                                                         |                     |  |                   |  |                |  |                   |  |                |  |                  
|------------------------------------------------------------------------ | ------------------- |  | ----------------- |  | -------------- |  | ----------------- |  | -------------- |  | -----------------
|                                                                         | Less Than 12 Months |  | 12 Months or More |  | Total         
|                                                                         | Fair Value          |  | Unrealized Losses |  | Fair Value     |  | Unrealized Losses |  | Fair Value     |  | Unrealized Losses
|Description of Securities                                                |                     |  |                   |  | (in thousands) |  |                   |  |               
|                                                                         |                     |  |                   |  |                |  |                   |  |                |  |                  
|US Treasury obligations and direct obligations of US Government Agencies | $               -   |  | $             -   |  | $        1,986 |  | $         220     |  | $        1,986 |  | $        220     
|Corporate Bonds                                                          | 42,128              |  | 3,199             |  | 239,839        |  | 21,699            |  | 281,967        |  | 24,898           
|Preferred Stocks                                                         | -                   |  | -                 |  | 49,898         |  | 4,651             |  | 49,898         |  | 4,651            
|Subtotal Fixed Maturities                                                | 42,128              |  | 3,199             |  | 291,723        |  | 26,570            |  | 333,851        |  | 29,769           
|Common Stock                                                             | 50                  |  | 25                |  | 1              |  | 4                 |  | 51             |  | 29               
|Total Temporarily Impaired Securities                                    | $    42,178         |  | $      3,224      |  | $    291,724   |  | $    26,574       |  | $    333,902   |  | $   29,798       
|                                                                         |                     |  |                   |  |                |  |                   |  |                |  |                  

13





The following table presents the total gross unrealized losses in excess of 12 months for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost by September 30, 2010.  # of Issuers% of Market/BookUnrealized Loss(In thousands)5290%-99%$              9,3701380%-89%6,3361270%-79%9,557160%-69%207250%-59%1,10020%-49%482$            26,574  The following table presents the fair value 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, 2009:


|                                                                         |                     |  |                   |  |                  |  |                   |  |                |  |                  
|------------------------------------------------------------------------ | ------------------- |  | ----------------- |  | ---------------- |  | ----------------- |  | -------------- |  | -----------------
|                                                                         | Less Than 12 Months |  | 12 Months or More |  | Total           
|                                                                         | Fair Value          |  | Unrealized Losses |  | Fair Value       |  | Unrealized Losses |  | Fair Value     |  | Unrealized Losses
|Description of Securities                                                |                     |  |                   |  | (in thousands)   |  |                   |  |               
|                                                                         |                     |  |                   |  |                  |  |                   |  |                |  |                  
|US Treasury obligations and direct obligations of US Government Agencies | $        1,841      |  | $         482     |  | $              - |  | $              -  |  | $        1,841 |  | $         482    
|Corporate Bonds                                                          | 243,428             |  | 13,654            |  | 563,197          |  | 73,100            |  | 806,625        |  | 86,754           
|Preferred Stocks                                                         | 1,942               |  | 109               |  | 61,407           |  | 15,525            |  | 63,349         |  | 15,634           
|Subtotal Fixed Maturities                                                | 247,211             |  | 14,245            |  | 624,604          |  | 88,625            |  | 871,815        |  | 102,870          
|Common Stock                                                             | 1                   |  | 4                 |  | -                |  | -                 |  | 1              |  | 4                
|Total Temporarily Impaired Securities                                    | $    247,212        |  | $    14,249       |  | $  624,604       |  | $    88,625       |  | $    871,816   |  | $  102,874       

The following table presents the total gross unrealized losses in excess of 12 months for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost by December 31, 2009.  # of Issuers% of Market/BookUnrealized Loss(In thousands)10590%-99%$            17,5135480%-89%26,5832570%-79%22,281960%-69%10,841450%-59%10,50620%-49%901199$            88,625   As of September 30, 2010 and December 31, 2009, the Company had approximately $315.0 million and $146.1 million, respectively, of gross unrealized gains in fixed maturities.  14





3. FAIR VALUE MEASUREMENTS  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.  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 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.  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, when available, 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.  .  When broker prices are unavailable, the Company prices the securities using either discounted cash-flow models or matrix pricing.  The Companys policy is to transfer assets and liabilities into Level 3 when a significant input cannot be corroborated with market observable data.  This may include: circumstances in which market activity has dramatically decreased and transparency to underlying inputs cannot be observed, current prices are not available, and substantial price variances in quotations among market participants exist.  In certain cases, the inputs used to measure the fair value may fall into levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.  The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.  In making the assessment, the Company considers factors specific to the asset.  Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.  Additional observable inputs are used when available, and as may be appropriate, for certain security types, such as prepayment, default, and collateral information for the purpose of measuring the fair value of mortgage- and asset-backed securities.  The Company will challenge any prices for its investments which are not considered to represent fair value.  If a fair value is challenged, the Company will typically obtain a non-binding quote from a broker-dealer; multiple quotations are not typically sought.  At December 31, 2010, the Company has not adjusted any pricing provided by pricing service based on the review performed by our investment managers.  Level 3 valuations are generated from techniques that use significant assumptions not observable in the market.  These unobservable assumptions reflect the Companys assumptions that market participants would use in pricing the asset or liability.  Valuation techniques include the use of option pricing models, discounted cash flow models, spread-based models, and similar techniques, using the best information available in the circumstances.  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:    15





Fixed Maturities  The Company utilizes an independent third party pricing service to estimate fair value measurements for approximately 99% of its fixed maturities.  The majority of the remaining fair value measurements are based on non-binding broker prices  because either quoted market prices or an estimate from the pricing services are unavailable.  The broker prices are based on dealer quotations for recent activity in positions with the same or similar characteristics to that being valued or through consensus pricing of a pricing service.  In general, the Company utilizes one third party pricing service to obtain the market price of each security and utilizes a secondary pricing service to the extent needed.  The Company performs an analysis on the prices received from third party security pricing services and independent brokers to ensure that the prices represent a reasonable estimate of the fair value. The Company validates the valuations from its primary pricing source through a variety of procedures that include but are not limited to comparison to additional independent third-party pricing services or brokers, where possible, a review of third party pricing service methodologies, and comparison of prices to actual trades for specific securities where observable data exists.  The Company makes no adjustments to the quoted prices. 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.  The prices developed is an evaluated price, representing a bid-side valuation for the security as of 3:00 PM on the closing date of the quarterly financial statements.  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.  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 unobservable due to market conditions.  The methodology above is relevant for all fixed maturity securities; following are inputs used in the evaluation process associated with each asset class:  Asset ClassInputCorporate Bonds  (including public utility bonds)Trades, Bid Price or Spread, Two-sided markets, Quotes, Benchmark Curves including but not limited to Treasury Benchmarks and LIBOR and Swap Curves, Discount Rates, Market Data Feeds such as TRACE trade reports, Financial Statements and Trustee Reports.Municipal BondsTrades, Bid Price or Spread, Two-sided markets, Quotes, Benchmark Curves including but not limited to Treasury Benchmarks and LIBOR and Swap Curves, Market Data Feeds such as MSRB, New Issues and Trustee Reports.Commercial Mortgage Backed Securities (CMBS), Asset Backed Securities (ABS), and Collateralized Debt Obligations (CDO).Trades, Bid Price or Spread, Two-sided markets, Quotes, Benchmark Curves including but not limited to Treasury Benchmarks and LIBOR and Swap Curves, Discount Rates, Market Data Feeds from commercial vendors, Derivative Indices, Loan Level Information including without limitation loan loss, recovery and default rates, Prepayment Speeds, Trustee Reports, Investor Reports and Servicer Reports.Collateral Mortgage Obligations (CMO's)Trades, Bid Price or Spread, Two-sided markets, Quotes, Benchmark Curves including but not limited to Treasury Benchmarks and LIBOR and Swap Curves, Discount Rates, Market Data Feeds from commercial vendors, Loan Level Information, Prepayment Speeds, Trustee Reports, Investor Reports and Servicer Reports.  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.   16





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.  The Company holds privately placed securities and estimates the fair value of these securities using either an internal matrix that is based on market information regarding interest rates, credit spreads and liquidity or a discounted cash flow model.  The Company includes the fair value estimates of these securities in Level 3.  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.  Limited partnerships  The Company initially estimates the fair value of investments in certain limited partnerships by reference to the transaction price. Subsequently, the Company generally obtains the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are generally audited annually. The Company considers observable market data and performs diligence procedures in validating the appropriateness of using the net asset value as a fair value measurement. The remaining carrying value recognized in the consolidated balance sheets represents investments in other limited partnership interests accounted for using the equity method, which do not meet the definition of financial instruments for which fair value is required to be disclosed.  Derivatives  Valuations are secured monthly from each Counterparty which is a major money center bank for the three 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.  The Company 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 the Company 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.  Cash and Short-Term Investments  The market value of cash and short-term investments is estimated to approximate the carrying value. 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 Using
|                                   |                               |                                                                |                                               |                                          
|Description                        | As of
9/30/2010               | Quoted prices in Active Markets for Identical Assets
(Level 1) | Significant Other Observable Inputs
(Level 2) | Significant Unobservable Inputs
(Level 3)
|Assets:                            |                               |                                                                |                                               |                                          
|Fixed Maturities:                  |                               |                                                                |                                               |                                          
|U.S. government and agencies       | $            229,380          | $          202,125                                             | $              26,930                         | $                  325                   
|States and municipalities          | 259,275                       | -                                                              | 259,275                                       | -                                        
|Corporate debt securities          | 2,736,295                     | -                                                              | 2,723,162                                     | 13,133                                   
|Mortgage backed securities         | 165,759                       | -                                                              | 165,759                                       | -                                        
|Preferred Stock                    | 109,004                       | -                                                              | 106,024                                       | 2,980                                    
|Fixed Maturities                   | 3,499,713                     | 202,125                                                        | 3,281,150                                     | 16,438                                   
|                                   |                               |                                                                |                                               |                                          
|Common Stock                       | 2,042                         | 748                                                            | -                                             | 1,294                                    
|Cash and cash equivalents          | 1,833                         | 1,833                                                          | -                                             | -                                        
|Short-Term investments             | 119,441                       | -                                                              | 119,441                                       | -                                        
|Limited partnerships (as restated) | 219,266                       | -                                                              | -                                             | 219,266                                  
|                                   |                               |                                                                |                                               |                                          
|Total                              | $         3,842,295           | $         204,706                                              | $         3,400,591                           | $           236,998                      




|                                   |                               |                                                                |                                               |                                          
|---------------------------------- | ----------------------------- | -------------------------------------------------------------- | --------------------------------------------- | -----------------------------------------
|($ in thousands)                   | Fair Value Measurements Using
|                                   |                               |                                                                |                                               |                                          
|Description                        | As of
12/31/2009              | Quoted prices in Active Markets for Identical Assets
(Level 1) | Significant Other Observable Inputs
(Level 2) | Significant Unobservable Inputs
(Level 3)
|Assets:                            |                               |                                                                |                                               |                                          
|Fixed Maturities:                  |                               |                                                                |                                               |                                          
|U.S. government and agencies       | $           254,878           | $         227,937                                              | $            22,398                           | $               4,543                    
|States and municipalities          | 99,856                        | -                                                              | 99,856                                        | -                                        
|Corporate debt securities          | 2,435,429                     | -                                                              | 2,419,252                                     | 16,177                                   
|Mortgage backed securities         | 197,189                       | -                                                              | 182,210                                       | 14,979                                   
|Preferred Stock                    | 99,669                        | -                                                              | 96,211                                        | 3,458                                    
|Fixed Maturities                   | 3,087,021                     | 227,937                                                        | 2,819,927                                     | 39,157                                   
|                                   |                               |                                                                |                                               |                                          
|Common Stock                       | 1,947                         | 703                                                            | -                                             | 1,244                                    
|Derivatives                        | 390                           | -                                                              | 390                                           | -                                        
|Cash and cash equivalents          | 8,763                         | 8,763                                                          | -                                             | -                                        
|Short-Term investments             | 293,136                       | -                                                              | 293,136                                       | -                                        
|Limited partnerships (as restated) | 186,966                       | -                                                              | -                                             | 186,966                                  
|                                   |                               |                                                                |                                               |                                          
|Total                              | $        3,578,223            | $         237,403                                              | $        3,113,453                            | $          227,367                       

Limited partnerships recorded using the equity method of accounting are not recognized to be accounted for under ASC 820 and as such are not reflected in the tables above.  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)
|                                              |                                                                       |                                                                                   |                      |                
|                                              | Limited                                    partnerships
(as restated) | Common Stock                                                                      | Fixed Maturities     | Total          
|For the nine months ended September 30, 2010  |                                                                       |                                                                                   |                      |                
|Beginning Balance at December 31, 2009        | $        190,406                                                      | $             1,244                                                               | $            39,157  | $       230,807
|Total gains or losses (realized/unrealized)   |                                                                       |                                                                                   |                      |                
|Included in earnings                          | 6,636                                                                 | -                                                                                 | (1)                  | 6,635          
|Included in other comprehensive income        | 14,896                                                                | 50                                                                                | (1,215)              | 13,731         
|Purchases                                     | 22,219                                                                | -                                                                                 | -                    | 22,219         
|Sales                                         | (14,891)                                                              | -                                                                                 | (1,936)              | (16,827)       
|Transfers in and /or out of Level 3           | -                                                                     | -                                                                                 | (19,567)             | (19,567)       
|Ending Balance at September 30, 2010          | $        219,266                                                      | $             1,294                                                               | $            16,438  | $       236,998
|For the nine months ended September 30, 2009  |                                                                       |                                                                                   |                      |                
|Beginning Balance at December 31, 2008        | $        230,700                                                      | $                249                                                              | $              4,296 | $       235,245
|Total gains or losses   (realized/unrealized) |                                                                       |                                                                                   |                      |                
|Included in earnings                          | (1,038)                                                               | -                                                                                 | 1                    | (1,037)        
|Included in other comprehensive income        | (50,344)                                                              | (173)                                                                             | 303                  | (50,214)       
|Purchases                                     | 16,586                                                                | -                                                                                 | -                    | 16,586         
|Sales                                         | (8,938)                                                               | -                                                                                 | (1,726)              | (10,664)       
|Transfers in and /or out of Level 3           | -                                                                     | -                                                                                 | 2,417                | 2,417          
|Ending Balance at September 30, 2009          | $        186,966                                                      | $                 76                                                              | $             5,291  | $      192,333 




|                                              |                                       |                                                                                   |                      |                 | 
|--------------------------------------------- | ------------------------------------- | --------------------------------------------------------------------------------- | -------------------- | --------------- | 
|($ in thousands)                              |                                       | Recurring Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
|                                              |                                       |                                                                                   |                      |                
|                                              | Limited    partnerships
(as restated) | Common Stock                                                                      | Fixed Maturities     | Total          
|For the three months ended September 30, 2010 |                                       |                                                                                   |                      |                
|Beginning Balance at July 1, 2010             | $        212,650                      | $             1,231                                                               | $            17,143  | $       231,024
|Total gains or losses   (realized/unrealized) |                                       |                                                                                   |                      |                
|Included in earnings                          | 1,650                                 | -                                                                                 | -                    | 1,650          
|Included in other comprehensive income        | 1,491                                 | 63                                                                                | (80)                 | 1,474          
|Purchases                                     | 7,191                                 | -                                                                                 | -                    | 7,191          
|Sales                                         | (3,716)                               | -                                                                                 | (331)                | (4,047)        
|Transfers in and /or out of Level 3           | -                                     | -                                                                                 | (294)                | (294)          
|Ending Balance at September 30, 2010          | $        219,266                      | $             1,294                                                               | $            16,438  | $       236,998
|For the three months ended September 30, 2009 |                                       |                                                                                   |                      |                
|Beginning Balance at July 1, 2009             | $        187,759                      | $                  76                                                             | $              6,226 | $      194,061 
|Total gains or losses   (realized/unrealized) |                                       |                                                                                   |                      |                
|Included in earnings                          | 941                                   | -                                                                                 | 2                    | 943            
|Included in other comprehensive income        | (1,871)                               | -                                                                                 | 63                   | (1,808)        
|Purchases                                     | 4,231                                 | -                                                                                 | -                    | 4,231          
|Sales                                         | (4,094)                               | -                                                                                 | (557)                | (4,651)        
|Transfers in and /or out of Level 3           | -                                     | -                                                                                 | (443)                | (443)          
|Ending Balance at September 30, 2009          | $        186,966                      | $                 76                                                              | $             5,291  | $      192,333 

During the nine months ended September 30, 2010, certain fixed maturity securities were transferred into Level 2 from Level 3 as a result of the availability of market observable quoted prices received from an independent third-party pricing service. Investments in limited partnership carried at fair value using net asset value per share The following table includes information related to the Company's investments in certain other invested assets, including private equity funds and hedge funds that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring or non-recurring basis, the Company uses the net asset value per share as a practical expedient for fair value.


|                           |                                                                                                                                                          |   |                                  |                      |                   |                                  |                      |  | 
|-------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------------- | -------------------- | ----------------- | -------------------------------- | -------------------- |  | 
|                           |                                                                                                                                                          |   |                                  |                      |                   |                                  |                     
|(in thousands)             |                                                                                                                                                          |   | September 30, 2010               |                      | December 31, 2009
|Investment Category        | Investment Category Includes                                                                                                                             |   | Fair Value Using Net Asset Value | Unfunded Commitments |                   | Fair Value Using Net Asset Value | Unfunded Commitments
|Restructuring              | Securities of companies that are in default, under bankruptcy protection or troubled.                                                                    | $ | 40,809                           | 14,025               | $                 | 34,483                           | 23,368              
|Leveraged buyout           | Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired with the use of leverage.                  |   | 39,156                           | 21,597               |                   | 36,565                           | 23,300              
|Real estate                | Real estate assets, real estate joint ventures and real estate operating companies.                                                                      |   | 23,526                           | 6,014                |                   | 26,341                           | 6,770               
|Infrastructure             | Investments in essential public goods and services such as transportation and energy projects with long-term stable cash flows located around the globe. |   | 20,369                           | 10,698               |                   | 14,321                           | 15,134              
|Oil and gas                | Equity and equity related investments in the upstream and midstream independent oil and gas sector of North America.                                     |   | 25,720                           | 10,178               |                   | 13,220                           | 22,492              
|Other                      | Secondary, mezzanine, debt and collateralized bond offerings.                                                                                            |   | 8,530                            | 2,782                |                   | 9,113                            | 2,782               
|Total private equity funds |                                                                                                                                                          |   | 158,110                          | 65,294               |                   | 134,043                          | 93,846              
|Hedge distressed           | Securities of companies that are in default, under bankruptcy protection or troubled.                                                                    |   | 20,083                           | -                    |                   | 17,686                           | -                   
|Hedge multi-strategy       | Pursue multiple strategies i.e. arbitrage, credit, structured credit, long/short equity to reduce risks and reduce volatility.                           |   | 57,779                           | -                    |                   | 60,978                           | -                   
|Total hedge funds          |                                                                                                                                                          |   | 77,862                           | -                    |                   | 78,664                           | -                   
|Total Limited Partnerships |                                                                                                                                                          | $ | 235,972                          | 65,294               | $                 | 212,707                          | 93,846              

The table below summarizes the fair value and balance sheet location of the Companys outstanding derivatives at September 30, 2010 and December 31, 2009.


|                                                        |                          |                         |                         |           
|------------------------------------------------------- | ------------------------ | ----------------------- | ----------------------- | ----------
|Fair Values of Derivative Instruments                  
|                                                       
|($ in thousands)                                        | Asset Derivatives       
|                                                        | As of September 30, 2010 | As of December 31, 2009
|                                                        | Balance Sheet Location   | Fair
Value              | Balance Sheet Location  | Fair
Value
|                                                        |                          |                         |                         |           
|Payor Swaptions                                         | Derivative Instruments   | $          -            | Derivatives Instruments | $    390  
|                                                        |                          |                         |                         |           
|Total derivatives not designated as hedging instruments |                          | $          -            |                         | $    390  
|                                                        |                          |                         |                         |           
|Total derivatives                                       |                          | $          -            |                         | $    390  

The table below summarizes the fair value and income statement location of the Companys outstanding derivatives at September 30, 2010 and September 30, 2009.  Derivatives Not Designated as Hedging Instruments
($ in thousands)Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative
Nine months ended September 30,20102009Payor SwaptionsRealized investment (losses) gains$               (390)$                477Total$               (390)$                477       Derivatives Not Designated as Hedging Instruments
($ in thousands)Location of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on Derivative
Three months ended September 30,20102009Payor SwaptionsRealized investment (losses) gains$                      -$                (2,220)Total$                      -$                (2,220)            4. CHANGE IN NET UNREALIZED INVESTMENT GAINS/(LOSSES)


|                                                                    |                |  |                        |  |                 
|------------------------------------------------------------------- | -------------- |  | ---------------------- |  | ----------------
|                                                                    | Pre Tax
Amount |  | Tax
(Expense)/
Benefit |  | After-Tax
Amount
|For the nine months ended September 30, 2010:                       | (in thousands)
|Net unrealized gains on investment securities:                      |                |  |                        |  |                 
|Net unrealized holding gains arising during the period              | $    249,825   |  | $        (87,439)      |  | $    162,386    
|Plus: reclassification adjustment for gains realized in net income  | 7,921          |  | (2,772)                |  | 5,149           
|Change related to deferred policy acquisition costs                 | (29,771)       |  | 10,420                 |  | (19,351)        
|Net unrealized investment gains                                     | $    227,975   |  | $        (79,791)      |  | $    148,184    
|                                                                    |                |  |                        |  |                 
|For the Nine months ended September 30, 2009:                       |                |  |                        |  |                 
|Net unrealized gains on investment securities:                      |                |  |                        |  |                 
|Net unrealized holding gains arising during the period              | $    313,649   |  | $      (109,777)       |  | $    203,872    
|Plus: reclassification adjustment for losses realized in net income | (18,170)       |  | 6,360                  |  | (11,810)        
|Change related to deferred policy acquisition costs                 | (47,535)       |  | 16,637                 |  | (30,898         
|Net unrealized investment gains                                     | $    247,944   |  | $        (86,780)      |  | $    161,164    

5. NOTES PAYABLE  The Companys 7 7/8% Senior Notes (Senior Notes) were paid in full on February 17, 2009.  This was funded from cash, the sale of securities and an upstream dividend payment from the Insurance Company in January 2009 in the amount of $16 million.  6. SHAREHOLDERS' EQUITY  During 2009 and the first nine months of 2010, the Board of Directors maintained a quarterly dividend of $.0625 per share.  During 2009 and through the third quarter of 2010, 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.  7. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS  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s Board of Directors approved 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.  Beginning January 1, 2010, the Board of Directors approved an increase to 5% in the Companys contribution.  The Company contribution is subject to a vesting schedule.  The Company contributed approximately $340,100 and $253,900 into this plan during the nine months ended September 30, 2010 and September 30, 2009, respectively.  21





8. INCOME TAXES  Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for federal and state income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. The Companys accounting for income taxes represents managements best estimate of various events and transactions.  Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.  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.   A significant portion of the deferred tax assets relates to unrealized losses in the Companys bond portfolio.  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 is 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.  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 2006.    The 2004 and 2005 tax examination concluded in January, 2011 with no adjustments to the filed returns.  In order to calculate income tax expense the Company estimates an annual effective income tax rate based on projected results for the year and applies this projected rate to income before taxes to calculate income tax expense. Any refinements made, due to subsequent information that affects the estimated annual effective income tax rate, are reflected as adjustments in the current period.  The Company currently estimates the annual effective income tax rate from continuing operations as of September 30, 2010 to be 34.5%.  The Company applied FASB guidance relating to accounting for uncertainty in income taxes.   The balance of the unrecognized tax benefits was $712,149 at December 31, 2009 and $777,564 as of September 30, 2010.  If recognized, this entire adjustment would reduce the effective tax rate.  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 uncertain tax liability above was $392,444 as of December 31, 2009 and $475,859 as of September 30, 2010.  As of September 30, 2010, the Company is not aware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits or liabilities will significantly increase or decrease within the next 12 months.  9. COMMITMENTS AND CONTINGENCIES  From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.  As of September 30, 2010, 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 condition or results of operations.                 22





10. PRESENTATION OF RESTATED FINANCIAL STATEMENTS  The results included in this Form 10-Q/A for September 30, 2010 and 2009 are restated from previously reported results.  a) Original Restatement  Historically, the Company applied the equity method of accounting based primarily on actual cash distributions from (or contributions to) the limited partnerships.  Each quarter, the Company recorded cash distributions either as income (loss) or return of capital, as appropriate.  Subsequent to the end of the fiscal year, upon receipt of the Schedule K-1s and annual audited GAAP-basis financial statements provided by the limited partnerships, the Company would record changes in market values of the limited partnerships as a component of equity (in other comprehensive income or loss); the Company would also record its allocable share of undistributed earnings (losses), recognized by the limited partnerships during the preceding year, on its income statement (as a component of consolidated net income).  The SEC informed the Company in March 2011 that it believed we erred in our application of the equity method under ASC Topic 323, InvestmentsEquity Method and Joint Ventures.  As a result, we concluded that, (i) under the equity method, the Company should record its share of investee earnings, whether realized or unrealized, as a component of consolidated net income in each quarterly and annual period; and (ii) certain qualitative factors previously used by the Company to assess its level of influence with respect to the partnerships should not, in fact, be considered in determining whether to use the equity method, rather than the fair value method.  The Company now accounts for its limited partnership investments as follows:  ? where consolidation is not appropriate, the Company applies the equity method of accounting consistent with ASC 323, Investments  Equity Method and Joint Ventures, to limited partnerships in which the Company holds either (a) a five percent or greater interest or (b) less than a five percent interest, but with respect to which partnership the Company has more than virtually no influence over the operating or financial policies of the limited partnership.  The Company records realized and unrealized earnings (or losses) of the limited partnerships as equity in earnings (loss) each period.  Generally, the Company records its share of its earnings using a three month lag.  ? the Company applies the fair value method of accounting consistent with ASC 944, Financial ServicesInsurance, to those limited partnerships in which the Company holds less than a five percent interest and does not have more than virtually no influence over the operating or financial policies of the limited partnership.  The Company recognizes the unrealized change in fair value of a partnership interest as a component of equity (other comprehensive income or loss) each period and recognizes distributed gains and losses in realized gains (losses) each period. The Company considers certain qualitative factors in assessing whether it has more than virtually no influence for partnership interests of less than five percent.  b) OTTI Restatement In connection with OTTI analysis for limited partnerships during the first quarter of 2011, the Company determined that it made an error in failing to analyze OTTI and correctly recognize OTTI charges during the three and nine months period ended September 30, 2009.  As a result of this accounting error, total revenue, net income, and earnings per share were all overstated for the three and nine months period ended September 30, 2009. In addition, retained earnings were all overstated in the accompanying financial statements with a corresponding understatement of accumulated other comprehensive income.There was no change to total stockholders equity as a result of this error.  The effects of the restatement on the Company's consolidated financial statements for 2010 and 2009 are summarized as follows:  January 1, 2009 Balance Sheet at
January 1, 2009As Previously ReportedIncrease
(Decrease)January 1, 2009
As RestatedAccumulated other comprehensive gain(137,160)4,930(132,230)Retained earnings560,785(16,552)544,233   Balance Sheet at
September 30, 2010September 30, 2010
As Previously            ReportedIncrease
(Decrease)September 30, 2010
As RestatedLimited partnerships$         228,6507,322$             235,972Total investments3,869,7567,3223,877,078Deferred policy acquisition costs46,0447146,115Deferred federal income taxes, net74,1222,58776,709Total liabilities3,275,7912,5873,278,378Accumulated other comprehensive gain154,35226,682181,034Retained earnings564,961(21,876)543,085Total shareholders equity726,6614,806731,467Statement of Income for the nine months ended September 30, 2010Equity in losses on limited partnerships-(6,036)(6,036)Net investment income143,9863,696147,682Net realized investment gains, excluding other than temporary impairment (OTTI) losses1,2876,6347,921Total Revenues203,8964,294208,191Change in deferred policy acquisition costs2,2067832,989Total Benefits and Expenses196,852783197,635Income before taxes7,0443,51210,556Deferred income taxes(4,135)1,229(2,906)Net Income4,6142,2836,897Earnings per share, basic and diluted.15.08.23Statement of Income for
the three months ended September 30, 2010September 30,  2010
As Previously                                                   ReportedIncrease
(Decrease)September 30, 2010
As RestatedEquity in losses on limited partnerships-(845)(845)Net investment income48,98085049,830Net realized investment gains, excluding other than temporary impairment (OTTI) losses1581,6491,807Total Revenues76,1781,65477,832Change in deferred policy acquisition costs718163881Total Benefits and Expenses75,10816375,271Income before taxes1,0701,4912,561Deferred income taxes188522710Net Income7019691,670Earnings per share, basic and diluted.02.04.06Statement of Cash Flows for
the nine months ended September 30, 2010OPERATING ACTIVITIES:Net Income4,6142,2836,897Provision for deferred income taxes(4,135)1,229(2,906)Equity in losses on limited partnerships-6,0366,036Realized investment losses(1,287)(6,634)(7,921)Changes in:Deferred policy acquisition costs2,2067832,989Net Cash Provided By (Used) In by Operating Activities8473,6974,544INVESTING ACTIVITIES:Contributions to limited partnerships(29,553)5,807(23,746)Distributions from limited partnerships26,220(9,504)16,716Net Cash Provided by Investing Activities25,474(3,697)21,777Statement of Income for
the nine months ended September 30, 2009September 30, 2009
As Previously                       ReportedIncrease
(Decrease)September 30, 2009
As RestatedEquity in earnings on limited partnerships-2,5442,544Net investment income125,96421,771147,735Net realized investment gains, excluding OTTI losses3,184(1,039)2,145Total OTTI losses recognized in earnings(9,927)(10,388)(20,315)Total Revenues160,62212,888173,510Change in deferred policy acquisition costs(2,003)1,289(714)Total Benefits and Expenses175,8861,289177,175Income (Loss) before taxes(15,264)11,598(3,666)Deferred income taxes(4,590)4,060(530)Net Income (Loss)(9,998)7,538(2,460)Earnings (Loss) per share, basic and diluted(.34).26(.08)Statement of Income for
the three months ended September 30, 2009Equity in earnings on limited partnerships-1,6031,603Net investment income46,5732,35748,930Net realized investment (losses) gains,   excluding other than temporary impairment (OTTI) losses(1,604)941(663)Total OTTI losses recognized in earnings(979)(2,451)(3,430)Total Revenues60,1972,45062,647Change in deferred policy acquisition costs(136)242106Total Benefits and Expenses60,10124260,343Income before taxes962,2082,304Deferred income taxes(3,970)773(3,197)Net Income631,4381,498Earnings per share, basic and diluted-.05.05  Statement of Cash Flows for
the nine months ended September 30, 2009OPERATING ACTIVITIES:Net Income (Loss)(9,998)7,538(2,460)Provision for deferred income taxes
Realized investment gains(4,590)
6,7434,060
(8,888)(530)
(2,145)Total OTTI losses recognized in earnings7,72612,58920,315Equity in earnings on limited partnerships-(2,544)(2,544)Changes in:Deferred policy acquisition costs(2,003)1,289(714)Net Cash Provided by (Used In) Operating Activities(9,993)14,0444,051INVESTING ACTIVITIES:Contributions to limited partnerships(30,450)11,730(18,720)Distributions from limited partnerships38,836(25,774)13,062Net Cash Provided by Investing Activities66,195(14,044)52,151  25





Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations  General  We are engaged in the sale of insurance products including individual annuities, individual life insurance and accident and health insurance.  Our revenues are derived primarily from premiums received from the sale of annuity contracts and life, accident and health products, and from gains (net of losses) from our investment portfolio.  Under GAAP, our revenues from the sale of whole 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 life insurance products and life contingent annuities are reported as premium income on our income statement.  Premiums from the sale of deferred annuities, universal life insurance products and annuities without life contingencies are not reported as revenues, but rather are reported as additions to policyholders account balances on our balance sheet.  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.  The profitability of our individual annuities, individual life insurance and group accident and health products depends largely on the size of our in-force book of business, the adequacy of product pricing and underwriting discipline, and the efficiency of our claim and expense management  This Quarterly Report on Form 10-Q/A (Form 10-QA) contains forward-looking statements that involve risks and uncertainties.   Forward-looking statements reflect management's current expectations of future events, trends or results based on certain assumptions and include any statement that does not directly relate to any historical or current fact.  Forward-looking statements can be identified by words such as anticipates, believes, estimates, expects, intends, plans, predicts and similar terms. Forward-looking statements are not guarantees of future performance and the Companys actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Risk Factors under Part II, Item 1A of this Form 10-Q/A, which are incorporated herein by reference. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law   Executive Overview  Results  The Corporations earnings per share were $0.23 for the first nine months of 2010, as compared to ($0.08) per share for the same period in 2009.  The improved results in 2010 primarily reflect an increase in realized investment gains and a decrease in other than temporary impairments (OTTI) losses.  Our total revenues in the first nine months of 2010 were $208.2 million, compared to $173.5 million in the first nine months of 2009.  Benefits and expenses in the first nine months in 2010 were $197.6 million, compared to $177.2 million for the same nine month period in 2009.  Net income in the first nine months of 2010 was $6.9 million as compared to a loss of $2.5 million for the same period in 2009.  The Corporations earnings per share were $0.06 for the three months ended September 30, 2010, as compared to $0.05 for the same period in 2009.  The improved results in 2010 primarily reflect an increase in investment income and realized investment gains and a decrease in OTTI.  Our total revenues in the three months ended September 30, 2010 were $77.8 million, compared to $62.6 million in the three month period ended September 30, 2009.  Benefits and expenses in the quarter ended September 30, 2010 were $75.3 million, compared to $60.3 million for the same three month period in 2009.  Net income for the three month period ended September 30, 2010 was $1.7 million as compared to $1.5 million for the same period in 2009.   26





Investments  The Company¢s principal investments are in fixed maturities, all of which are exposed to at least one of three primary sources of investment risk: credit, interest rate and market valuation.  The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values.See Note 1D of the Notes to the Consolidated Financial Statements Investments for a discussion of the evaluation of available-for-sale securities holdings in accordance with our impairment policy, whereby we evaluate whether such investments are OTTI and factors considered by security classification in the OTTI evaluation.  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 on the estimated fair value amounts.  The Company derives a major portion of its total revenues from investment income. The Company manages most of its investments internally.  All investments made on behalf of the Company are governed by the general requirements and guidelines established and approved by the Company's Investment Committee  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 Board of Directors of the Insurance Company.  The Company's investment policy must comply with New York State Insurance Department (NYSID) regulations and the regulations of other applicable regulatory bodies.  The Company's investment philosophy generally focuses on purchasing investment grade securities with the intention of holding such securities to maturity.  The Company's investment philosophy is focused on the intermediate longer-term horizon and is not oriented towards trading.  However, as market opportunities, liquidity, or regulatory considerations may dictate, securities may be sold prior to maturity.  The Company has categorized all fixed maturity securities as available for sale and carries such investments at market value.  The Company manages its investment portfolio to meet the diversification, yield and liquidity requirements of its insurance policy and annuity contract obligations. The Company's liquidity requirements are monitored regularly so that cash flow needs are sufficiently satisfied.  Adjustments are made periodically to the Company's investment policies to reflect changes in the Company's short and long-term cash needs, as well as changing business and economic conditions.  The Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations.  In general, the market value of the Company's fixed maturity portfolio increases or decreases in an inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship with interest rate changes.  For example, if interest rates decline, the Company's fixed 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.  If interest rates increase, the Companys fixed maturity investments generally will decrease in market value, while net investment income will generally increase.  Management is aware that prevailing market interest rates frequently shift and, accordingly, the Company has adopted strategies that are designed to address either an increase or decrease in prevailing rates.  The primary market risk in the Companys investment portfolio is interest rate risk and to a lesser degree, credit risk.  The Company's exposure to foreign exchange risk is not significant.  The Company has no direct commodity risk.  Changes in interest rates can potentially impact the Companys profitability.  In certain scenarios where interest rates are volatile, the Company could be exposed to disintermediation risk and reduction in net interest rate spread or profit margin.  (See the discussion below in Asset/Liability Management for additional information related to the Companys interest risk and its management.)  Risk-based Capital  Under the National Association of Insurance Commissioners (NAIC) 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, 2009, the Insurance Companys Company Action Level was $72.3 million and the Mandatory Control Level was $25.3 million. The Insurance Companys adjusted capital at December 31, 2009 was $280.5 million, which exceeds all four action levels.  The Companys RBC ratio as of December 31, 2009 was 388%.  27





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 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 prospects of our business may be adversely impacted.  In June 2011, the A.M. Best Co. upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating (ICR) to "bbb" from "bbb-" of Presidential Life Insurance Company (Presidential Life) (Nyack, NY). A.M. Best also upgraded the ICR to "bb" from "bb-" of the parent company, Presidential Life Corporation [NASDAQ: PLFE]. A.M. Bests outlook for all ratings is stable.  The rating upgrades reflect Presidential Life's solid capitalization, profitable earnings achieved through strong, albeit volatile, investment income, resolution of litigation issues from prior management and shareholder proxy issues, along with a future business strategy underpinned by growth, which builds on the company's core competencies within the retail insurance annuity business segment.  Partially offsetting these positive rating factors is the Companys concentrated market profile operating as a mono-line insurer writing predominantly fixed annuity business in a limited geographic area with a narrow product offering, continued future investment income volatility due to exposure to the limited partnership investment asset class and execution risks associated with the company's expansion plans.  Despite these concerns, Presidential Life's outlook is reflective of management's ability to manage the company's continued elevated investment risk profile, improving capitalization and A.M. Best's expectation that solid operating performance will be sustained over the near to medium term and will contribute to organic surplus growth.  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.   28





Results of Operations  A Comparison of the significant items for the nine months ended September 30, 2010 with the same period in 2009 and a comparison of significant items for the three months ended September 30, 2010 with the same period in 2009.  A. Revenues  Annuity Considerations and Life Insurance Premiums  Total annuity considerations and life and accident and health insurance premiums increased from approximately $36.9 million for the nine months ended September 30, 2009 to approximately $53.3 million for the nine months ended September 30, 2010.  Life insurance and accident and health premiums were $13.0 million and $10.5 million for the first nine months of 2010 and 2009, respectively.  Annuity considerations were approximately $40.3 million for the nine months ended September 30, 2010 as compared to approximately $26.4 million for the nine months ended September 30, 2009.  The increase is primarily due to increased sales in our immediate annuities with life contingencies. 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 $66.3 million and $148.7 million in the first nine months of 2010 and 2009, respectively.  The decrease was primarily due to the low interest rate environment that continued into the third quarter of 2010.  Total annuity considerations and life and accident and health insurance premiums increased from approximately $14.6 million for the three months ended September 30, 2009 to approximately $25.4 million for the three months ended September 30, 2010 as sales of immediate annuities with life contingencies increased.  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 $20.6 million and $38.7 million in the third quarters of 2010 and 2009, respectively.  The decrease was primarily due to the low interest rate environment that continued into the third quarter of 2010.   Policy Fee Income  Universal life and investment type policy fee income was approximately $1.6 million for both of the nine-month periods ended September 30, 2010 and 2009.  Policy fee income consists principally of amounts assessed during the period against policyholders account balances for mortality and surrender charges.  Net Investment Income and Equity in Earnings (Losses)  Net investment income and equity in earnings (losses) from limited partnerships totaled approximately $141.6 million during the first nine months of 2010, as compared to approximately $150.3 million during the first nine months of 2009.  This represents a decrease of approximately $8.7 million or 5.8%.  The decrease was primarily attributable to equity in losses from the limited partnerships of $6.0 million for the first nine months of 2010 compared to a gain of $2.5 million for the same period in 2009.  The Company's ratios of net investment income to average cash and invested assets (based on book value and excluding limited partnerships) for the nine month periods ended September 30, 2010 and September 30, 2009 were 5.95% and 5.93%, respectively.  The Company had net investment income and equity in earnings (losses) of $49.0 million and $50.5 million for the three month periods ended September 30, 2010 and September 30, 2009, respectively.  The variance was approximately $1.5 million and was primarily attributable to the equity in gain (losses) from the limited partnerships.   Net Realized Investment Gains and Losses  Realized investment gains, including OTTI losses, amounted to approximately $7.9 million during the first nine months of 2010, as compared to realized investment losses of approximately $18.2 million during the first nine months of 2009.  The improvement of approximately $26.1 million was primarily due to realized gains on fixed maturities and limited partnerships of approximately $1.7 million and $6.6 million, respectively, in the first nine months of 2010 as opposed to realized losses on fixed maturities of approximately $6.9 million and a realized loss on limited partnerships of approximately $16.1 million in the first nine months of 2009, including $18.1 million in OTTI losses.  During the first nine months of 2010 and 2009, payor swaptions had realized losses of $390,000 and realized gains of $477,000, respectively.  The change in the fair value of the derivative instruments is reflected in the income statement as a realized loss or gain.  The Company had no write-downs attributable to other than temporary impairments for the nine months ended September 30, 2010.  For the nine months ended September 30, 2009, the Company had approximately $9.9 million in write-downs attributable to other than temporary impairments in fixed maturities and $18.1 million for limited partnerships.  The Company had realized investment gains of $1.8 million for the three months ended September 30, 2010 and $4.1 million in realized losses for the three months ended September 30, 2009.  The improvement of approximately $5.9 million is primarily due the change in the fair value of the payor swaptions as well as OTTI losses in 2009.  29





B. Benefits and Expenses  Interest Credited and Benefits to Policyholders  Interest credited and benefits paid to policyholders amounted to $173.6 million in the first nine months of 2010 as compared to $156.2 million in the first nine months of 2009.  This represents an increase of approximately 11%.  This increase was primarily due to an increase in the liability for future policy benefits as well as an increase in claims under the new dental insurance program.  For the three month period ended September 30, interest credited and benefits paid to policyholders increased from $54.4 million in 2009 to $66.7 million in the same period of 2010, an increase of approximately $12.3 million.  This increase was primarily due to an increase in the liability for future policy benefits of approximately $12.2 million. This was attributable to: (1) an increase in sales of the immediate annuities with life contingencies of approximately $9.9 million and, (2) the strengthening of the GAAP benefit reserves for approximately $1.2 million during the third quarter, associated with the issuance of immediate annuities with life contingencies.  A significant contributor to the Companys profitability depends, in large part, on the investment returns generated on our portfolio, (excluding our limited partnerships), less what the Company is contractually obligated to credit to our policyholders is referred to as investment spread.  The crediting rate on reserves for the first nine months of 2010 and 2009 was 5.08% and 5.24%, respectively.   The investment spread for the three months ended September 30, 2010 and September 30, 2009 was 0.95% and 0.72%, respectively.  The investment spread for the first nine months of 2010 and 2009 was 0.87% and 0.69%, respectively.  Interest Expense on Notes Payable  The Company had no interest expense on notes payable for the nine months ended September 30, 2010, and approximately $0.8 million for the nine months ended September 30, 2009. On February 17, 2009, the Company repaid the remaining $67 million of its 7 7/8%, $100 million Senior Notes due February, 2009.  General Expenses and Taxes, Commissions, Costs Related to Consent Revocation Solicitation and Related Matters  General expenses, taxes and commissions to agents and costs related to the Companys consent revocation solicitation totaled approximately $21.0 million for the nine months ended September 30, 2010, as compared to approximately $20.9 million for the nine months ended September 30, 2009.  Excluding the costs of the consent revocation solicitation and related matters, these expenses would have decreased by $1.4 million or 6.5%, compared to the same period in 2009.  This decrease primarily resulted from decreased commissions paid to agents based upon decreased sales of deferred annuities.  For the three months ended September 30, 2010, general expenses, taxes and commissions to agents and costs related to the Companys consent revocation solicitation totaled approximately $7.7 million as compared to $5.8 million for the same period in 2009. The increase was primarily due to the timing of directors fees and increases in legal expenses and third party service fees.  Change in Deferred Policy Acquisition Costs (DAC)  The change in the net DAC for the nine months ended September 30, 2010 resulted in a charge of approximately $3.0 million, as compared to a benefit of approximately $714,000 for the nine months ended September 30, 2009.  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, and is summarized below:


|                                                               |  |                                                             |  |                                                             |  | 
|-------------------------------------------------------------- |  | ----------------------------------------------------------- |  | ----------------------------------------------------------- |  | 
|                                                               |  | For the nine months ended
September 30, 2010
(in thousands) |  | For the nine months ended
September 30, 2009
(in thousands) | 
|                                                               |  |                                                             |  |                                                             | 
|Deferred costs associated with product sales                   |  | $                        4,655                              |  | $                        7,990                              | 
|Amortization of DAC on deferred annuity business (as restated) |  | (4,154)                                                     |  | (3,570)                                                     | 
|Amortization of DAC on the remainder of the Companys business |  | (3,490)                                                     |  | (3,706)                                                     | 
|Net change in DAC                                              |  | $                     (2,989)                               |  | $                           714                             | 
|                                                               |  |                                                             |  |                                                             |  | 

Under applicable accounting rules, 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 higher level of amortization in the first nine months of 2010 relates primarily to unrealized capital gains reported as of September 30, 2010.  30





The change in the net DAC for the three months ended September 30, 2010 resulted in a charge of approximately $0.9 million, as compared to a benefit of approximately $0.1 million for the three months ended September 30, 2009.  C. Income Before Income Taxes  For the reasons discussed above, income before income taxes amounted to approximately $10.6 million for the nine months ended September 30, 2010, as compared to a loss of approximately $3.7 million for the nine months ended September 30, 2009.  For the quarters ended September 30, 2010 and 2009, income before income taxes amounted to approximately $2.6 million and $2.3 million, respectively.  D. Income Taxes  Income tax expense was approximately $3.7 million for the nine months ended September 30, 2010 as compared to a benefit of $1.2 million for the nine months ended September 30, 2009.  The increase in income tax expense was attributable to higher net income in the first nine months of 2010 as compared to the same period in 2009.  The income tax expense was approximately $891,000 and $806,000 for the third quarters of 2010 and 2009, respectively.  In order to calculate income tax expense, the Company estimates an annual effective income tax rate based on projected results for the year and applies this projected rate to income before taxes to calculate income tax expense. Any refinements made, due to subsequent information that affects the estimated annual effective income tax rate, are reflected as adjustments in the current period.  The Company currently estimates the annual effective income tax rate from continuing operations as of September 30, 2010 and September 30, 2009 to be 34.5%.  E. Net Income  For the reasons discussed above, the Company had a net income of approximately $6.9 million during the nine months ended September 30, 2010 and as compared to a loss of approximately $2.5 million during the nine months ended September 30, 2009.  The Company had a net income of $1.7 million and $1.5 million for the three months ended September 30, 2010 and September 30, 2009, respectively.  Accumulated Other Comprehensive Income  Accumulated other comprehensive income increased from a gain of approximately $32.9 million at December 31, 2009 to a gain of $181.0 million at September 30, 2010.  The increase was due to an increase in net unrealized investment gains, net of taxes, during the first nine months of the year of approximately $148.1 million.  General economic and market conditions were the primary reasons for the increase. The following information summarizes the components of the unrealized investment gains (losses):  As ofSeptember 30, 2010December 31, 2009($ in thousands)Fixed maturities$                        285,275$                        43,263Limited Partnerships28,25013,060Common stocks1,5671,473315,09257,796Tax effect(97,192)(17,851)Contra DAC effect(36,866)(7,095)$                       181,034$                        32,850  Liquidity and Capital Resources  The Company is an insurance holding company and its primary uses of cash are operating expenses and dividend payments.  The Company's principal sources of cash are interest on its investments, dividends from the Insurance Company, and rent from its real estate.  During the first nine months of 2010, the Company's Board of Directors declared quarterly cash dividends of $0.0625 per share payable on April 1, July 1, and October 1, 2010.  During the first nine months of 2010, the Company did not purchase or retire any shares of common stock.  31





The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances, which it may make to the Company 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 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 immediately preceding calendar year or (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains and losses) on a statutory basis.  The Insurance Company will be permitted to pay a stockholder dividend to the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution.  Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.  The New York State Insurance Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices.  Management of the Company cannot provide assurance that the Insurance Company will have statutory earnings to support payment of dividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendent's consideration.  In 2009, the Insurance Company made $24.8 million in dividend payments to the Company.  The Insurance Company made a $5 million dividend payment to the Company in April of 2010 and another $1 million dividend payment in October of 2010. The Board of Directors passed a resolution to upstream up to $23 million in 2010.  The key need for liquidity in the Insurance Company is the need to fund policy benefit payments on surrendered or expired annuities.  Approximately 43.6% of the deferred annuities held by the Company have provisions that allow the purchaser to surrender the policy in exchange for the payment of a surrender fee.  In an environment of flat or falling interest rates, surrender activity is generally low, as annuitants prefer to lock in the higher rates obtained.  In an environment of rising interest rates or even in an environment where interest rates are decreasing at the same time surrender charges are expiring, surrender activity would be expected to increase, as investors seek to place their money in higher interest rate instruments.  In 2009, annuity surrenders and death claims outpaced new sales causing a minor decline in total annuity inforce.  In 2010, the Company believes that surrenders and death claim activity combined with the challenging low interest rate environment for annuity sales, total annuities inforce may decline slightly.  Policyholder account balance surrenders totaled approximately $86.6 million and $127.4 million for the nine-month periods ending September 30, 2010 and 2009, respectively. In 2010, approximately 3.9% of account values have expiring surrender charges.  This allows the annuitant to terminate or withdraw funds from his or her annuity contract without incurring substantial penalties in the form of surrender charges.  The existing surrender charges act as a disincentive to surrender, as the annuitant must take into account the cost of surrender in calculating the likelihood of higher post-surrender returns, although, if interest rates climb sufficiently, such fees may not have a significant deterrent effect.  Also, the Companys ability to increase the interest rate on certain of these policies can act as a disincentive to surrender.  On the other hand, a significant reduction in the credited rates at the same time the surrender charge is expiring can result in an increase in surrenders.  The Company has operated in the annuity business throughout rising and falling interest rate periods and has consistently managed this business regardless of the rate trends.  The Company's ratio of surrenders to average reserves on its deferred annuity business for the first nine months of 2010 is approximately 5.4% on an annualized basis.  As of December 31, 2009, the Companys ratio of surrenders to average reserves on its deferred annuity business was 7.6%.  The Company conducts testing of its cash flow needs based on varying interest rate scenarios.  These tests are conducted pursuant to the NYSID requirements and are filed with NYSID. Recent testing indicates that in a moderately increasing interest rate environment, annuity surrenders would not materially alter the Company's liquidity needs.   This is partially due to the fact that the Company's average annuity credited rate is somewhat higher than the market average.  The Company's blend of deferred and immediate annuities and its payor swaption investments have operated as a buffer to the Company against the impact of interest sensitive surrenders in a rising interest rate environment.  The Company's life and accident and health insurance liabilities are actuarially calculated on a regular basis and the Company is capable of meeting such liabilities.  Reserves for such business are carefully monitored and regulated by the NYSID.  Because life and accident and health insurance products represent a relatively small percentage of the Company's product mix and because the business is heavily reinsured, it is not anticipated that any spike in life and accident and health insurance claims would have a material impact on the Company's liquidity.  The Company's asset/liability management process is designed to limit the duration mismatch of its assets and liabilities.  For the three year period ending with December 31, 2009, investments were largely short-term in an effort to mitigate interest rate risk in the event that a substantial call on liabilities required the Company to liquidate some investments.  In such event, the Company would experience a decline in overall investment income due to the sale of higher yielding invested assets.  The Company would attempt to minimize the loss of income by the selection for sale of those shorter-term assets, which would produce the highest possible price.  Moreover, the mix of the Company's products between deferred and immediate annuities provides the Company with some protection against excessive calls on liabilities.  The Company does not currently rely on credit facilities to fund its liquidity needs for the payment of policyholder withdrawals or claims and does not anticipate such a need in the coming year. Moreover, based on projected trends within the Company and in the economy as a whole and on the Company's financial condition, the Company does not anticipate the need to liquidate a material amount of its investment portfolio to meet surrender and policy claim liabilities in the coming year.  32





Principal sources of funds at the Insurance Company are premiums and other considerations paid, contract charges earned, net investment income received and proceeds from investments called, redeemed or sold.  The principal uses of these funds are the payment of benefits on life insurance policies and annuity contracts, operating expenses and the purchase of investments.  Net cash provided by (used in) the Company's operating activities (reflecting principally: (i) premiums and contract charges collected less (ii) benefits paid on life insurance and annuity products plus (iii) income collected on invested assets, less (iv) commissions and other general expenses paid) was approximately $4.5 million and $4.1 million during the nine months ended September 30, 2010 and 2009, respectively.  Net cash provided by the Company's investing activities (principally reflecting investments purchased less investments called, redeemed or sold) was approximately $21.8 million, and $52.2 million during the nine months ended September 30, 2010 and 2009, respectively.  For purposes of the Company's consolidated statements of cash flows, financing activities relate primarily to sales and surrenders of the Company's universal life insurance and annuity products.  The payment of dividends by the Company is also considered to be a financing activity.  Net cash used in the Company's financing activities amounted to approximately $33.3 million and $58.2 million during the nine months ended September 30, 2010 and 2009, respectively.  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.  Given the Insurance Company's historic cash flow and current financial results, management believes that, for the next twelve months and for the reasonably foreseeable future, the Insurance Company's cash flow from investments and operating activities will provide sufficient liquidity for the operations of the Insurance Company, as well as provide sufficient funds to the Company, so that the Company will be able to pay its other operating expenses.   Due to the extraordinary nature of the current economic climate, the Company can make no assurances with respect to the payment of future dividends.  To meet its anticipated liquidity requirements, the Company purchases investments taking into account the anticipated future cash flow requirements of its underlying liabilities.  In managing the relationship between assets and liabilities, the Company analyzes the cash flows necessary to correspond with the expected cash needs on the underlying liabilities under various interest rate scenarios.  In addition, the Company invests a portion of its total assets in short-term investments, approximately 3.0% and 7.8% as of September 30, 2010 and December 31, 2009, respectively.  The Company manages the investment portfolio focusing on duration management to support our current and future liabilities.  Through periodic monitoring of the effective duration of the companys assets and liabilities, the company ensures that the degree of duration mismatch is within the guidelines of the Companys policy which provides for a mismatch of up to one year. As of September 30, 2010 and December 31, 2009, the effective duration of the Company's fixed income portfolio was approximately 5.4 and 4.9 years, respectively.  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, if any, 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 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.  The table below summarizes the credit quality of our fixed maturity securities, excluding preferred stocks, as of September 30, 2010 and December 31, 2009 as rated by Standard and Poors.  As of September 30, 2010As of December 31, 2009($ in thousands)Fair Value% of Fair ValueFair Value% of Fair ValueUS Treasuries$   222,7896.57$      248,4208.32AAA153,5924.5395,6563.20AA320,8249.46255,1928.54A1,091,35032.19993,19733.25BBB, BBB+, BBB-1,371,57440.451,171,04739.20BB, BB+, BB-175,8555.19175,3955.87B39,1201.1530,7251.03CCC, CC, C or lower15,6050.4617,7210.59Total$        3,390,709100.00%$       2,987,353100.00%  On a statutory basis, 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  33





securities is limited to 20.0% of total admitted assets, as calculated under statutory accounting practices.  As of September 30, 2010 and December 31, 2009, approximately 4.1% and 5.7%, respectively, of the Insurance Company's total admitted assets were invested in below investment grade debt securities.  The Companys portfolio includes below investment grade fixed maturity debt securities, of which approximately 99.93% were originally purchased as investment grade investments.  All of these are classified as available for sale and reported at fair value. As of September 30, 2010 and December 31, 2009, the carrying value of these securities was approximately $154.9 million and $201.0 million, respectively, (representing approximately 4.0% and 5.5% of the Company's investment portfolio, respectively).  Investments in below investment grade securities have different risks than investments in corporate debt securities rated investment grade.  Risk of loss upon default by the borrower is significantly greater with respect to below investment grade securities than with other corporate debt securities because below investment grade securities generally are unsecured and often are subordinated to other creditors of the issuer.  Also, issuers of below investment grade securities usually have high levels of indebtedness and often are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers.  Typically, there is only a thinly traded market for such securities and recent market quotations may not be available for some of these securities.  Market quotes generally are available only from a limited number of dealers and may not represent firm bids of such dealers or prices for actual sales.  The Company attempts to reduce the overall risk in its below investment grade portfolio, as in all of its investments, through careful credit analysis, investment policy limitations, and diversification by company and by industry.  Below investment grade debt investments, as well as other investments, are being monitored on an ongoing basis.  As of September 30, 2010, the carrying value of the Companys limited partnerships was approximately $236.0 million or 6.0% of the Company's total invested assets.  Pursuant to NYSID regulations, the Company's investments in equity securities, including limited partnership interests, may not exceed 20% of the Company's total invested assets.  At September 30, 2010, the Companys investments in equity securities, including limited partnership interests, were approximately 6.1% of the Companys total invested assets. Such investments are included in the Company's consolidated balance sheet under the heading "Limited partnerships."  The Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $65.3 million of additional capital to certain of these limited partnerships.  However, management does not expect the entire amount to be drawn down, as certain of these limited partnerships are nearing the end of the period during which investors are required to make contributions.  Commitments of $11.4 million, $22.2 million, $30.5 million, and $1.2 million will expire in 2010, 2011, 2012 and 2013, respectively.  The commitment expirations are estimates based upon the commitment periods of each of the partnerships.  Certain partnerships provide, however, that in the event capital from the investments is returned to the limited partners prior to the end of the commitment period (generally 3-5 years) the capital may be recalled.  The 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 Company to typically take quarterly distributions (to the extent that distributions are available) of partnership earnings, except for hedge fund limited partnerships.  There can be no assurance that the Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically or that the Company will achieve any returns on such investments at all.  Further, there can be no assurance that the Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.  The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Company's financial condition and results of operations.  All 50 states of the United States and the District of Columbia have insurance guaranty fund laws requiring all life insurance companies doing business within the jurisdiction to participate in guaranty associations that are organized to pay contractual obligations under insurance policies (and certificates issued under group insurance policies) issued by impaired or insolvent life insurance companies.  These associations levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged.  Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.  These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's solvency.  The amount of these assessments in prior years has not been material.  However, the amount and timing of any future assessment on the Insurance Company under these laws cannot be reasonably estimated and are beyond the control of the Company and the Insurance Company.  34





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.  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.  The market value of the Company's fixed maturity portfolio changes as interest rates change.  In general, rate decreases cause asset prices to rise, while rate increases cause asset prices to fall.  Asset/Liability Management  A persistent focus of our 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.  Towards this end, at least quarterly, the investment department of the Company determines the duration of the Companys invested assets in coordination with the Companys actuaries, who are responsible for calculating the liability duration.  In the event it is determined that the duration gap between its assets and liabilities exceeds a one year target level, the Company may re-position its assets through the sale of invested assets or the purchase of new investments.  During the 2005-2010 period, the Insurance Company established and implemented a program of Payor Swaptions designed to lessen the impact of a 300 basis points rise in interest rates.  The Company established International Swaps and Derivatives Association ISDA Credit Support Agreements with its various counterparties, which are six money center banks with credit ratings exceeding Aa3 by Moodys and A+ by Standard and Poors.  The final contract expired on June 21, 2010 with no residual value.  From year-end 2009 to expiration, the change in market value was a loss of $389,970.  The Company is exploring the possibility of establishing a new program of Payor Swaptions, but believes that the current asset portfolio duration is closely matched against its liability portfolio.  The Insurance Company conducts periodic cash flow tests assuming different interest rates scenarios in order to demonstrate the reserve adequacy.  If a test reveals a potential deficiency, the Insurance Company may be required to increase its reserves to satisfy its statutory accounting requirements. Based on testing as of December 31, 2009, the Insurance Company held a reserve of $46.2 million.  Off-Balance Sheet Arrangements  The Company 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 Companys subsidiaries are wholly owned and their results are included in the accompanying consolidated financial statements.  35





Contractual Obligations  The following presents a summary of the Companys significant contractual obligations.  CONTRACTUAL OBLIGATIONS TABLE  Payment Due By Period (in thousands)Contractual
ObligationsLess than
1 Year1-3 Years4-5 YearsAfter 5 YearsTotalUnfunded Limited Partnership Commitments (1)$     11,344$     53,950$               -$                   -$        65,294FIN 48 Liabilities$               -$          778$               -$                   -$             778Policy Liabilities (2)$   492,485$   922,970$   703,497$    2,539,100$   4,658,052  (1) See Note 1(C) Summary of Significant Accounting Policies, Investments, of the consolidated financial statements  (2) The difference between the recorded liability of $3,173 million, and the total payment obligation amount of $4,658 million, is $1,486 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 $4,658 million, $3,023 million, or 64.9%, 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.  Effects of Inflation and Interest Rate Changes  In a rising interest rate environment, the 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 Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity.  Concurrently, the 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.  Management believes that the liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, and the Company's cash reserves or from the sale of short-term investments.  In a declining interest rate environment, the Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting 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 Company's investments which are designated as available for sale in the Company's consolidated balance sheet could be sold without materially adverse consequences in light of the general strengthening in market prices which would be expected in the fixed maturity security market.  Interest rate changes also may have temporary effects on the sale and profitability of our universal life and annuity products.  For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases the rates credited to holders of its universal life and 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 Company depending on the attractiveness of alternative investments available to the Company's customers.  In that regard, in the current interest rate environment, the Company has attempted to maintain its credited rates at competitive levels designed to discourage surrenders and also to be considered attractive to purchasers of new annuity products.  Because the level of prevailing interest rates impacts the Companys competitors in the same fashion, management does not believe that the current interest rate environment will materially affect the Company's competitive position vis a vis other life insurance companies that emphasize the sale of annuity products.  Notwithstanding the foregoing, if interest rates continue at current levels or decline, there can be no assurance that this segment of the life insurance industry would not experience increased levels of surrenders and reduced sales and thereby be materially adversely affected. Conversely, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Companys competitors, certificates of deposit, mutual funds and similar investments) may become more attractive to potential purchasers of the Companys products until the Company increases its credited rates.  36





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.  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.  The accounting policies considered by management to be critically important in the preparation and understanding of our financial statements and related disclosures are presented in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operationsof our Annual Report on Form 10-K for the year ended December 31, 2009.  New Accounting Pronouncements  See Note 1 of 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.  Item 3.   Quantitative and Qualitative Disclosures About Market Risk.  For a discussion of market risks, refer to the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009. During the first nine months of 2010, there were no material changes or developments that would materially alter the market risk assessment performed as of December 31, 2009.  Item 4.  Controls and Procedures  Evaluation of 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 September 30, 2010, 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, and as a result of the Original Restatement and the OTTI Restatement, and the related material weaknesses in the Companys internal control over financial reporting, the Companys Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are not 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. Remediation of the Material Weakness in Internal Control over Financial Reporting To date, the Company has implemented certain changes in its internal control over financial reporting related to the Original Restatement.  In particular, the Company has implemented new policies and controls with respect to assessing the level of influence for its limited partnership investments and reporting the limited partnership activity based on a three month lag. With respect to the OTTI Restatement, the Company is in the process of developing and implementing an appropriate remediation plan. In particular, the investment accounting function reporting responsibility has changed and now reports to the Chief Financial Officer, or CFO.  In the past, the investment accounting function reported directly to the Chief Investment Officer, or CIO, who was primarily responsible for determining OTTI write-downs. We have adopted new procedures pursuant to which the investment accounting staff must analyze all investments for OTTI and provide the CFO and CIO their recommendation. These new procedures require the investment accounting staff, at the direction of the CFO, to perform more rigorous analytical testing of selected securities on a quarterly basis, which include discounted cash flow modeling.  The results of such testing will be utilized, in conjunction with detailed write-ups on selected securities to be provided by the CIO, in determining the proper OTTI for the quarter, if any. Once approved by the CIO and CFO, an OTTI analysis and recommendation will be presented to the Investment Committee of the Board for their review and approval. Once approved by the Investment Committee, the OTTI analysis and recommendations will be presented to the Audit Committee for their review and approval.  This change in reporting responsibility and additional review procedures are designed to remediate the material weakness by strengthening the control environment as it relates to the OTTI review process. In addition, the Audit Committee has retained an independent advisor to assist the Company in further developing and implementing an appropriate remediation plan.   Management is committed to continuous improvement of the Companys internal control processes and will continue to diligently review the Companys financial reporting controls and procedures.   37





Changes in Internal Control over Financial Reporting Other than as described above, there were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.   PART II - OTHER INFORMATION  Item 1A, Risk Factors  There have been no material changes in risk factors disclosed in Part 1, Item 1A of our Annual Report in Form 10-K for the year ended December 31, 2009, except:  We have made errors in the preparation of certain of our historical financial statements and our internal control over financial reporting has not been effective.  Because of the material weaknesses in our internal control over financial reporting, we could be subject to sanctions or investigations by the exchange on which we list our shares, the SEC or other regulatory authorities, including the NYSID.  In addition, as a result of restatements of our previously issued financial statements, we have from time to time been unable to timely file reports we are required to file under the Exchange Act, including our Forms 10-K and 10-Q.  Because of these events, investor perceptions of our company may suffer, and this could cause a decline in the market price of our stock.  If we are unable to remediate any material deficiencies in our internal control effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from our independent registered public accounting firm.  In addition, we may identify additional material weaknesses in the future.  Any additional failures of internal controls could have a material adverse effect on our results of operations and harm our reputation.   Item 5.  Exhibits and Reports on Form 8-K  a) Exhibits 31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer 32.2 Certification of Chief Financial Officer   38





PRESIDENTIAL LIFE CORPORATION November 3, 2010    SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.    Presidential Life Corporation (Registrant)   Date:   August 25, 2011 /s/ Donald L. Barnes Donald L. Barnes, President and Duly Authorized Officer of the Registrant   Date:   August 25, 2011 /s/ P.B. (Pete) Pheffer P.B. (Pete) Pheffer, Chief Financial Officer of the Registrant                               39





Exhibit 31.1  Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15f  I, Donald L. Barnes, Chief Executive Officer of Presidential Life Corporation certify that:   1. I have reviewed this quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;  4. The registrant'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 registrant 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 registrant, 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; (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; (c) Evaluated the effectiveness of the registrant'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 registrant's internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting.  Date: August 25, 2011 /s/Donald L. Barnes --------------------- Donald L. Barnes Chief Executive Officer        40





Exhibit 31.2  Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15f  I, P.B. (Pete) Pheffer, Chief Financial Officer and Treasurer of Presidential Life Corporation certify that:  1.    I have reviewed this quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;  4. The registrant'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 registrant 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 registrant, 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; (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; (c) Evaluated the effectiveness of the registrant'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 registrant's internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and  5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant'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 registrant'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 registrant's internal control over financial reporting.  Date: August 25, 2011 /s/ P. B. (Pete) Pheffer ---------------------- P. B. (Pete) Pheffer  Chief Financial Officer    41





Exhibit 32.1    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 Quarterly Report of Presidential Life Corporation (the "Company") on Form 10-Q for the period ending September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Donald L. Barnes, 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/Donald L. Barnes ------------------ Donald L. Barnes Chief Executive Officer August 25, 2011                            42





Exhibit 32.2    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 Quarterly Report of Presidential Life Corporation (the "Company") on Form 10-Q for the period ending September 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, P.B. (Pete) Pheffer, 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:  (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/ P. B. (Pete) Pheffer ------------------- P. B. (Pete) Pheffer Chief Financial Officer August 25, 2011                               43