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 March 31, 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  Securities registered pursuant to Section 12(b) of the Act: Not applicable.  Securities registered pursuant to Section 12(g) of the Act: Title of Each ClassName of each exchange on which registeredCommon Stock, par value $.01 per shareNasdaq  Indicate by check mark 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  x        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 May 10, 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 11 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 account 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 was 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 its2010 Form 10-K (the 2010 Form 10-K/A) filed with the SEC on July 8, 2011 and further amended on July 16, 2011. The Company intends to correct the error in the Quarterly Financial Statements as a result of the Original Restatement and the OTTI Restatement through the filing of amendments to its Quarterly Reports on Form 10-Q for the periods ended March 31, 2010, June 30, 2010 and September 30, 2010, including 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 11 to Consolidated Financial Statements.    2





INDEX Part IFinancial InformationPage No.Item 1.Consolidated Financial StatementsConsolidated Balance SheetsMarch 31, 2010 (Unaudited) (Restated) and December 31, 20094Consolidated Statements of Operation (Unaudited) (Restated)For the Three months ended March 31, 2010 and 20095Consolidated Statements of Shareholders'Equity (Unaudited) (Restated) - For the Three months endedMarch 31, 2010 and 20096Consolidated Statements of Cash Flows (Unaudited) (Restated) -For the Three months ended March 31, 2010 and 20097Notes to Consolidated Financial Statements (Unaudited)8-24Item 2.Management's Discussion and Analysis of25-34Financial Condition and Results of OperationsPart II -Other Information34Exhibits and Reports on Form 8-KSignatures35a.
ExhibitsCertification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer36373839   3





PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)  March 31,
2010
(Unaudited)December 31,
2009
(Audited)ASSETS:(As Restated)Investments:(See Footnote 11)Fixed maturities:Available for sale at market (Amortized cost of$3,111,901 and $3,043,757respectively)$              3,223,363$               3,087,021Common stocks (Cost of $476 and$475, respectively)2,0161,947Derivative instruments, at fair value-390Real estate415415Policy loans18,81418,959Short-term investments227,722293,136Limited partnerships217,822212,707Total Investments3,690,1523,614,575Cash and cash equivalents2,4728,763Accrued investment income42,93241,281Deferred policy acquisition costs66,91078,065Furniture and equipment, net425447Amounts due from reinsurers15,57515,056Federal income taxes recoverable16,52518,313Deferred federal income taxes, net-175Other assets1,5071,506TOTAL ASSETS$                3,836,498$              3,778,181LIABILITIES AND SHAREHOLDERS' EQUITY:Liabilities:Policy Liabilities:Policyholders' account balances$                2,440,168$              2,444,984Future policy benefits:Annuity647,031645,801Life and accident and health77,56276,457Other policy liabilities11,56310,592Total Policy Liabilities3,176,3243,177,834Deposits on policies to be issued1,4581,905General expenses and taxes accrued2,0742,461Deferred federal income taxes, net19,212-Amounts due from security transactions5,995-Other liabilities12,24214,462Total Liabilities3,217,305$              3,196,662Commitments and ContingenciesShareholders Equity:Capital stock ($.01 par value; authorized100,000,000 shares outstanding,29,574,697 and 29,574,697 shares, respectively)296296Additional paid in capital6,7836,639Accumulated other comprehensive gain (loss)74,08232,850Retained earnings538,032541,734Total Shareholders Equity619,193581,519TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$               3,836,498$               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)  THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)REVENUES:2010
(As Restated)
(See Footnote 11)2009
(As Restated)
(See Footnote 11)Insurance Revenues:Premiums$                   4,583$                 3,759Annuity considerations10,1354,216Universal life and investment type policy fee income
Equity in losses on limited partnerships525
(4,730)606
(2,270)Net investment income48,22249,216Realized investment gains (losses)
OTTI losses recognized in earnings231
-(1,422)
(11,012)Other income990129TOTAL REVENUES59,95643,222BENEFITS AND EXPENSES:Death and other life insurance benefits4,4603,606Annuity benefits20,39719,457Interest credited to policyholders' account balances26,59026,901Interest expense on notes payable-753Other interest and other charges339264Increase (decrease) in liability for future policy benefits1,982(3,964)Commissions to agents, net1,8123,129Costs related to consent revocation solicitation and related matters968-General expenses and taxes5,2714,995Change in deferred policy acquisition costs1,015(402)TOTAL BENEFITS AND EXPENSES62,83454,739Loss before income taxes(2,878)(11,517)Provision (benefit) for income taxes:Current1,788(6,164)Deferred(2,812)2,197(1,024)(3,967)NET LOSS$                 (1,854)$                 (7,550)Loss per common share, basic$                     (.06)$                     (.25)Loss per common share, diluted$                     (.06)$                     (.25)Weighted average number of shares outstanding during the period, basic29,574,69729,574,315Weighted average number of shares outstanding during the period, diluted29,574,69729,574,315The accompanying notes are an integral part of these Consolidated Financial Statements.   5





PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009 (As restated, See Note 11) (in thousands, except per share data) (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 (Loss):                      |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Loss                                          |               |  |                             |  | (7,550)           |  |                                               |  | (7,550)         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Unrealized Investment Losses                  |               |  |                             |  |                   |  | (51,237)                                      |  | (51,237)        
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Loss                                |               |  |                             |  |                   |  |                                               |  | (58,787)        
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Share Based Compensation                          |               |  | 219                         |  |                   |  |                                               |  | 219             
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Dividends paid to Shareholders ($.0625 per share) |               |  |                             |  | (1,848)           |  |                                               |  | (1,848)         
|Balance at March 31, 2009                         |               |  |                             |  |                   |  |                                               |  |                 
|                                                  | $        296  |  | $          6,070            |  | $      534,835    |  | $         (183,467)                           |  | $       357,734 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Balance at January 1, 2010                        | $       296   |  | $          6,639            |  | $      541,734    |  | $            32,850                           |  | $        581,519
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Income (Loss):                      |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Loss                                          |               |  |                             |  | (1,854)           |  |                                               |  | (1,854)         
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Net Unrealized Investment Gains                   |               |  |                             |  |                   |  | 41,232                                        |  | 41,232          
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Comprehensive Income                              |               |  |                             |  |                   |  |                                               |  | 39,378          
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Share Based Compensation                          |               |  | 144                         |  |                   |  |                                               |  | 144             
|                                                  |               |  |                             |  |                   |  |                                               |  |                 
|Dividends paid to Shareholders ($.0625 per share) |               |  |                             |  | (1,848)           |  |                                               |  | (1,848)         
|Balance at March 31, 2010                         |               |  |                             |  |                   |  |                                               |  |                 
|                                                  | $        296  |  | $          6,783            |  | $      538,032    |  | $             74,082                          |  | $        619,193
|                                                  |               |  |                             |  |                   |  |                                               |  |                 

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)   THREE MONTHS ENDED
MARCH 31,
(UNAUDITED)20102009OPERATING ACTIVITIES:(As Restated)
(See Note 11)(As Restated)
(See Note 11)Net loss$               (1,854)$               (7,550)Adjustments to reconcile net income to net cash provided by operating                 activities:Provision (benefit) for deferred income taxes(2,812)2,197Depreciation and amortization33130Stock option expense144219Amortization of fixed maturity discounts and premiums(4,000)(4,190)Equity in losses on limited partnerships4,7302,270Realized investment (gains) losses including OTTI charges(231)12,434Changes in:Accrued investment income(1,651)(1,311)Deferred policy acquisition costs1,015(402)Federal income tax recoverable1,788(5,390)Liability for future policy benefits2,335(3,685)Other items(51)216Net Cash Used In  Operating Activities$                 (554)$               (5,062)INVESTING ACTIVITIES:Fixed Maturities:Available for Sale:Acquisitions(104,525)(65,110)Sales40,44441,237Decrease in short-term investments and policy loans65,55990,352Limited partnerships:Contributions to limited partnerships(5,595)(8,451)Distributions from limited partnerships1,8136,999Amount due on security transactions5,99512,516Net Cash Provided By Investing Activities$                3,691$               77,543FINANCING ACTIVITIES:Decrease in policyholders account balances(4,816)(2,507)Bank overdrafts(2,317)(1,463)Deposits on policies to be issued(447)2,095Retirement of Senior Notes-(66,500)Dividends paid to shareholders(1,848)(1,848)Net Cash Used In Financing Activities$               (9,428)$              (70,223)(Decrease) Increase in Cash and Cash Equivalents(6,291)2,258Cash and Cash Equivalents at Beginning of Period8,7633,820Cash and Cash Equivalents at End of Period$                 2,472$                 6,078Supplemental Cash Flow Disclosure:Income Taxes Paid$                         -$                         -Interest 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, 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.  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 three months ended March 31, 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 on March 11, 2010.  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 83%), life insurance (approximately 11%), and accident and health insurance (approximately 6%).  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 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.  Equity securities include common stocks and non-redeemable preferred stocks and are carried at market value, with the related unrealized gains and losses, net of deferred federal income tax effect, if any, charged or credited directly to shareholders equity, unless a decline in market value is deemed to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.  Premium and discounts are amortized/accrued using methods that 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  8





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.  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 do not have the ability and intent to hold the security for a sufficient period of time to allow for a recovery in value, we conclude that an other than temporary impairment has occurred, and 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, the length of time we have held the equity security, 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 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 include 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 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 (DAC) 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 three 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 three months ended March 31, 2010 and 2009 was 29,574,697 and 29,574,315, respectively.  The dilution from the potential exercise of stock options outstanding did not reduce EPS during the three months ended March 31, 2010 or 2009.  Options totaling 699,948 and 1,166,886 shares of common stock for the three months ended March 31, 2010 and March 31, 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 value measurement disclosures for each class of assets and liabilities and clarifies that a description of the valuation technique and  11





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.  2. INVESTMENTS  There were no investments in any one issuer that totaled 10% or more of Shareholders Equity as of March 31, 2010.  The following information summarizes the components of net investment income:  For the three months ended
March 31, 2010
(in thousands)For the three months ended
March 31, 2009
(in thousands)Fixed maturities$                          48,853$                          49,067Common stocks107Short-term investments94338Other investment income58244849,53949,860Less investment expenses1,317644Net investment income$                         48,222$                         49,216   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 March 31, 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 | $               -   |  | $             -   |  | $        2,005 |  | $         280     |  | $        2,005 |  | $        280     
|Corporate Bonds                                                          | 194,090             |  | 7,713             |  | 444,737        |  | 54,059            |  | 638,827        |  | 61,771           
|Preferred Stocks                                                         | 606                 |  | 40                |  | 63,955         |  | 10,613            |  | 64,561         |  | 10,654           
|Subtotal Fixed Maturities                                                | 194,696             |  | 7,753             |  | 510,697        |  | 64,952            |  | 705,393        |  | 72,705           
|Common Stock                                                             | 60                  |  | 20                |  | 0              |  | 0                 |  | 60             |  | 20               
|Total Temporarily Impaired Securities                                    | $    194,756        |  | $      7,773      |  | $    510,697   |  | $    64,952       |  | $    705,453   |  | $   72,725       
|                                                                         |                     |  |                   |  |                |  |                   |  |                |  |                  

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 for fixed maturities where the estimated fair value had declined and remained below amortized cost by March 31, 2010. Gross Unrealized Losses% Of
Total(in thousands)Less than twelve months$       7,75310.66Twelve months or more64,95289.34Total$     72,705100.00 The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by December 31, 2009.  Gross Unrealized Losses% Of
Total(in thousands)Less than twelve months$     14,24513.85Twelve months or more88,62586.15Total$   102,870100.00   As of March 31, 2010 and December 31, 2009, the Company had approximately $184.2 million and $146.1 million, respectively, of gross unrealized gains in fixed maturities.  The Companys investments are concentrated in fixed income securities that are exposed to a variety of risks, including interest rate and credit risk, which can significantly impact fluctuations in overall market valuation. During the first three months of 2010, the portfolio experienced an improvement in market value caused by a tightening of corporate bond spreads, particularly in BBB-rated and high-yield bonds, against comparable U.S. Treasuries.  Spreads on 10-year, BBB-rated industrial bonds tightened from 198 basis points higher than 10-year Treasuries at December 31, 2009 to 177 over the 10-year Treasury at March 31, 2010, as evidenced by the Banc of America/Merrill Lynch Corporate Spline Index.  BBB-rated financial bonds tightened from 381 basis points higher than the 10-year Treasury yield at year-end 2009 to 304 over the U.S Treasury yield at March 31, 2010. This tightening in corporate spreads produced a rise in market value for the Companys fixed income portfolio, resulting in a corresponding increase in the Companys book value.   3. NOTES PAYABLE  The Companys 7 7/8% Senior Notes (Senior Notes) were paid in full on February 17, 2009.  This was financed through the sale of short-term commercial paper, fixed maturities and an upstream dividend payment from the Insurance Company in January 2009 in the amount of $16 million.  4. SHAREHOLDERS' EQUITY  During 2009 and the first quarter of 2010, the Board of Directors maintained a quarterly dividend of $.0625 per share.  During 2009 and through the first 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.              13





5. NET UNREALIZED INVESTMENT GAINS/(LOSSES)


|                                                                    |                |  |                        |  |                 
|------------------------------------------------------------------- | -------------- |  | ---------------------- |  | ----------------
|                                                                    | Pre Tax
Amount |  | Tax
(Expense)/
Benefit |  | After-Tax
Amount
|For the Three months ended March 31, 2010:                          | (in thousands)
|Net unrealized gains on investment securities:                      |                |  |                        |  |                 
|Net unrealized holding gains arising during year                    | $    52,862    |  | $        (18,502)      |  | $    34,360     
|Plus: reclassification adjustment for losses realized in net income | 231            |  | (81)                   |  | 150             
|Change related to deferred policy acquisition costs                 | 10,341         |  | (3,619)                |  | 6,722           
|Net unrealized investment gains                                     | $    63,434    |  | $        (22,202)      |  | $    41,232     
|                                                                    |                |  |                        |  |                 
|For the Three months ended March 31, 2009:                          |                |  |                        |  |                 
|Net unrealized losses on investment securities:                     |                |  |                        |  |                 
|Net unrealized holding losses arising during year                   | $    (60,325)  |  | $          21,114      |  | $    (39,211)   
|Plus: reclassification adjustment for losses realized in net income | (12,434)       |  | 4,352                  |  | (8,082)         
|Change related to deferred policy acquisition costs                 | (6,067)        |  | 2,123                  |  | (3,944)         
|Net unrealized investment losses                                    | $    (78,826)  |  | $          27,589      |  | $    (51,237)   

6. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS  Employee Savings Plan  The Company adopted an Internal Revenue Code (IRC) Section 401(k) plan for its employees effective January 1, 1992. Under the plan, participants may contribute up to the dollar limit as prescribed by IRC Section 415(d).  In January 2005, the Company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 $103,300 and $80,000 into this plan during the three months ended March 31, 2010 and March 31, 2009, respectively.  7. 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 relate 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 are not expected to be realized.  Upon review, the Companys management concluded that it is more likely than not that the net deferred income tax assets will be realized.  The Company does not record a tax valuation allowance relating to the net unrealized losses on investments, excluding stocks, because it is more likely than not that these losses would reverse or be utilized in future periods. The Company has the ability and it is the Companys intent to fully recover the principal, which could allow the Company to hold these securities until their maturity; therefore, the Company considers the impairment to be temporary.  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 2005.  For 2004 and 2005, however, the Company may be subject to tax examinations because the IRS and the Company extended the statute of limitations due to the amended returns filed by the Company.  While the Company cannot predict the outcome of the current IRS examination, any adjustments are not expected to be material.  The examination is expected to be concluded during 2010.  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  14





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 March 31, 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 $733,499 as of March 31, 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 $392,000 as of December 31, 2009 and $414,000 as of March 31, 2010.  As of March 31, 2010, the Company is not aware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.  8. 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 March 31, 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.   9. 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 1      |  | Observable 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 2      |  | Observable 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 3      |  | Unobservable 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.  15





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:  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.  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.      17





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
3/31/2010               | 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       | 256,392                       | 228,773                                                        | 26,530                                        | 1,089                                    
|States and municipalities          | 146,120                       | -                                                              | 146,120                                       | -                                        
|Corporate debt securities          | 2,524,815                     | -                                                              | 2,510,314                                     | 14,501                                   
|Mortgage backed securities         | 190,036                       | -                                                              | 190,000                                       | 36                                       
|Preferred Stock                    | 106,000                       | -                                                              | 102,502                                       | 3,498                                    
|Fixed Maturities                   | 3,223,363                     | 228,773                                                        | 2,975,466                                     | 19,124                                   
|                                   |                               |                                                                |                                               |                                          
|Common Stock                       | 2,016                         | 771                                                            | -                                             | 1,245                                    
|Cash and cash equivalents          | 2,472                         | 2,472                                                          | -                                             | -                                        
|Short-Term investments             | 227,722                       | -                                                              | 227,722                                       | -                                        
|Limited partnerships (as restated) | 200,557                       | -                                                              | -                                             | 200,557                                  
|                                   |                               |                                                                |                                               |                                          
|Total                              | 3,656,130                     | 232,016                                                        | 3,203,188                                     | 220,926                                  




|                                   |                               |                                                                |                                               |                                          
|---------------------------------- | ----------------------------- | -------------------------------------------------------------- | --------------------------------------------- | -----------------------------------------
|($ 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) | 190,406                       | -                                                              | -                                             | 190,406                                  
|                                   |                               |                                                                |                                               |                                          
|Total                              | 3,581,663                     | 237,403                                                        | 3,113,453                                     | 230,807                                  

18





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 Three months ended March 31, 2010   |                                      |                                                                                   |                     |                
|Beginning Balance at December 31, 2009      | $        190,406                     | $             1,244                                                               | $            39,157 | $       230,807
|Total gains or losses (realized/unrealized) |                                      |                                                                                   |                     |                
|Included in earnings                        | 558                                  | -                                                                                 | (1)                 | 557            
|Included in other comprehensive income      | 5,037                                | 1                                                                                 | (213)               | 4,825          
|Purchases                                   | 5,579                                | -                                                                                 | -                   | 5,579          
|Sales                                       | (1,023)                              | -                                                                                 | (546)               | (1,569)        
|Transfers in and /or out of Level 3         | -                                    | -                                                                                 | (19,273)            | (19,273)       
|Ending Balance at March 31, 2010            | $        200,557                     | $             1,245                                                               | $            19,124 | $       220,926




|                                            |                                    |                                                                                   |                      |                 | 
|------------------------------------------- | ---------------------------------- | --------------------------------------------------------------------------------- | -------------------- | --------------- | 
|($ 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 March 31, 2009   |                                    |                                                                                   |                      |                
|Beginning Balance at December 31, 2008      | $        230,700                   | $              249                                                                | $              4,296 | $       235,245
|Total gains or losses (realized/unrealized) |                                    |                                                                                   |                      |                
|Included in earnings                        | (3,348)                            | -                                                                                 | -                    | (3,348)        
|Included in other comprehensive income      | (44,998)                           | -                                                                                 | (123)                | (45,121)       
|Purchases                                   | 6,937                              | -                                                                                 | -                    | 6,937          
|Sales                                       | (2,742)                            | -                                                                                 | (451)                | (3,193)        
|Transfers in and /or out of Level 3         | -                                  | -                                                                                 | 6,135                | 6,135          
|Ending Balance at March 31, 2009            | $        186,549                   | $               249                                                               | $              9,857 | $       196,655

During the three months ended March 31, 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.  19





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)March 31, 2010December 31, 2009Investment CategoryInvestment Category IncludesFair Value Using Net Asset ValueUnfunded CommitmentsFair Value Using Net Asset ValueUnfunded CommitmentsRestructuringSecurities of companies that are in default, under bankruptcy protection or troubled.$37,04122,077$34,48323,368Leveraged buyoutDebt and/or equity investments made as part of a transaction in which assets of mature companies are acquired with the use of leverage.39,39121,73936,56523,300Real estateReal estate assets, real estate joint ventures and real estate operating companies.25,0286,62026,3416,770InfrastructureInvestments in essential public goods and services such as transportation and energy projects with long-term stable cash flows located around the globe.15,60714,47914,32115,134Oil and gasEquity and equity related investments in the upstream and midstream independent oil and gas sector of North America.19,50915,39113,22022,492OtherSecondary, mezzanine, debt and collateralized bond offerings.9,5792,7829,1132,782Total private equity funds146,15583,088134,04393,846Hedge distressedSecurities of companies that are in default, under bankruptcy protection or troubled.13,412-17,686-Hedge multi-strategyPursue multiple strategies i.e. arbitrage, credit, structured credit, long/short equity to reduce risks and reduce volatility.58,255-60,978-Total hedge funds71,667-78,664-Total Limited Partnerships$217,82283,088$212,70793,846  The table below summarizes the fair value and balance sheet location of the Companys outstanding derivatives at March 31, 2010 and December 31, 2009.


|                                                        |                        |                         |                         |           
|------------------------------------------------------- | ---------------------- | ----------------------- | ----------------------- | ----------
|Fair Values of Derivative Instruments                  
|                                                       
|($ in thousands)                                        | Asset Derivatives     
|                                                        | As of March 31, 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 March 31, 2010 and March 31, 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
Three months ended March 31,20102009Payor SwaptionsRealized investment (losses) gains$               (390)$                 99Total$               (390)$                 99  10. CONSENT REVOCATION SOLICITATION  In October 2009, the Companys former Chairman, Herbert Kurz, filed a Schedule 13-D amendment indicating his intention to commence a consent solicitation to replace members of the Companys Board of Directors.  In December 2009, Mr. Kurz commenced a solicitation of stockholder consents for the purpose of, among other things, removing from office, without cause, all of the current directors (other than Mr. Kurz) and electing in their place a slate of nominees proposed by Mr. Kurz.  Mr. Kurz further stated that, upon their election, his proposed directors would re-install Mr. Kurz as CEO, purportedly on an "interim" basis.  The independent directors of the Company determined that it was in the best interests of all of the Company's stockholders to oppose Mr. Kurz's consent solicitation.  In that regard, the Company engaged the services of special counsel, a proxy soliciting firm and a financial public relations firm, as is customary.  In addition, in connection with the Company's due diligence review of Mr. Kurz and his consent solicitation, the independent directors discovered several irregularities relating to the 2007 tax return for the Kurz Family Foundation, Ltd. (the "Foundation") filed by Mr. Kurz as part of an application that he submitted to the New York State Insurance Department (NYSID) seeking the NYSID's approval of (i) the Foundation's acquisition of a controlling interest of the Insurance Company, and (ii) continuing treatment of Mr. Kurz individually as a controlling person of the Insurance Company.  Mr. Kurz is an officer and director of the Foundation, which is a separate entity from the Company.  A special committee of the independent directors of the Company commenced an internal investigation into the circumstances surrounding the 2007 Foundation tax return and related matters. The special committee retained independent counsel to lead the investigation.  All of the foregoing resulted in approximately $2.5 million of expenses in 2009 and an additional $968,000 of expenses for the first three months of 2010, as reflected in the Companys Consolidated Statements of Operations. On February 12, 2010, Mr. Kurz notified the Company of his intention to nominate, for election at the next annual shareholders' meeting, the same slate of nominees that he had proposed in his unsuccessful consent solicitation.  Mr. Kurz further indicated that he may initiate a proxy contest in connection with those nominations.  11.      PRESENTATION OF RESTATED FINANCIAL STATEMENTS  The results included in this Form 10-Q/A for March 31, 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:  21





? 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 in during the three months ended March 31, 2010.  As a result of this accounting error, total revenue, net income, earnings per share and retained earnings were all overstated for the three month period ended March 31, 2010.  In addition, retained earnings were 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.  22





The effects of the Original Restatement and the OTTI Restatement on the Company's consolidated financial statements for 2010 and 2009 are summarized as follows:    Balance Sheet at
March 31, 2010March 31, 2010
As Previously            ReportedIncrease
(Decrease)March 31, 2010
As RestatedLimited partnerships$         204,13313,688$             217,822Total investments3,676,46313,6883,690,152Deferred policy acquisition costs65,8021,10866,910Total assets3,821,70114,7973,836,498Deferred federal income taxes, net14,0345,17819,212Total liabilities3,212,1275,1783,217,305Accumulated other comprehensive(loss) gain36,24337,83974,082Retained earnings566,252(28,220)538,032Total shareholders equity609,5749,619619,193Statement of Income for
the quarter ended March 31, 2010Equity in earnings (loss) on limited partnerships-(4,730)(4,730)Net investment income54,640(6,418)48,222Net realized investment (losses) gains,   excluding other than temporary impairment (OTTI) losses(327)558231Total Revenues66,374(6,418)59,956Change in deferred policy acquisition costs1,185(170)1,015Total Benefits and Expenses63,004(170)62,834Income (loss) before taxes3,370(6,248)(2,878)Deferred income taxes(625)(2,187)(2,812)Net Income (Loss)2,207(4,061)(1,854)Earnings (loss) per share, basic and diluted.07(.13)(.06)Statement of Cash Flows
the quarter ended March 31, 2010OPERATING ACTIVITIES:Net Income (Loss)2,207(4,061)(1,854)Equity in losses on limited partnerships-4,7304,730Realized investment (gains) losses327(558)(231)Provision (benefits) for deferred income taxes(625)(2,187)(2,812)Changes in:Deferred policy acquisition costs1,185(170)1,015Net Cash Provided by (Used In) Operating Activities1,692(2,246)(554)INVESTING ACTIVITIES:Contributions to limited partnerships(8,504)2,909(5,595)Distributions from limited partnerships2,476(663)1,813Net Cash Provided by Investing Activities1,4452,2463,691  23





Balance Sheet at
January 1, 2009January 1, 2009
As Previously ReportedIncrease
(Decrease)January 1, 2009
As RestatedAccumulated other comprehensive gain(137,160)4,930(132,230)Retained earnings560,785(16,552)544,233Statement of Income for
the quarter ended March 31, 2009March 31, 2009
As Previously            ReportedIncrease               (Decrease)March 31, 2009
As RestatedEquity in losses on limited partnerships-(2,270)(2,270)Net investment income35,84013,37649,216Net realized investment (losses) gains(3,451)2,029(1,422)OTTI losses recognized in earnings-(11,012)(11,012)Total Revenues41,0992,12343,222Change in deferred policy acquisition costs(1,165)763(402)Total Benefits and Expenses53,97676354,739Income (loss) before taxes(12,877)1,360(11,517)Deferred income taxes1,7214762,197Net Income (Loss)(8,434)884(7,550)Earnings (loss) per share, basic and diluted(.29).04(.25)Statement of Cash Flows
the quarter ended March 31, 2009OPERATING ACTIVITIES:Net Income (Loss)(8,434)884(7,550)Provision for deferred income taxes1,7214762,197Equity in losses on limited partnerships-2,2702,270Realized investment losses including OTTI charges3,4518,98312,434Changes in:Deferred policy acquisition costs(1,165)763(402)Net Cash Provided (Used in) by Operating Activities(17,684)12,622(5,062)INVESTING ACTIVITIES:Contributions to limited partnerships(8,957)506(8,451)Distributions from limited partnerships16,341(9,342)6,999Net Cash Provided by (Used In) Investing Activities86,379(8,836)77,543   24





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 I, Item 1A of our 2009 Form 10-K and 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  Our earnings (loss) per share was ($0.06) for the first quarter of 2010, compared to ($0.25) for the same period in 2009.  The improved results in the first quarter of 2010 primarily reflect a reduction in other than temporary impairment (OTTI) charges in the quarter.  Our total revenues in the first quarter of 2010 were $60.0 million, compared to $43.2 million in the first quarter of 2009.  Benefits and expenses in the first three months in 2010 were $62.8 million, compared to $54.7 million for the same three month period in 2009.  Net loss in the first quarter of 2010 was $1.9 million as compared to a loss of $7.6 million for the same period in 2009.   Pricing  Management believes that we are able to offer products at competitive prices to our targeted markets as a result of: (i) maintaining relatively low issuance costs by selling through the independent general agency system; (ii) minimizing home office administrative costs; and (iii) utilizing appropriate underwriting guidelines.  The long-term profitability of sales of life and most annuity products depends on the degree of margin of the actuarial assumptions that underlie the pricing of such products.  Actuarial calculations for such products, and the ultimate profitability of sales of such products, are based on four major factors: (i) persistency; (ii) rate of return on cash invested during the life of the policy or contract; (iii) expenses of acquiring and administering the policy or contract; and (iv) mortality.  Persistency is the rate at which insurance policies remain in force, expressed as a percentage of the number of policies remaining in force over the previous year. Policyholders sometimes do not pay premiums/annuity considerations, thus causing their policies/annuity contracts to lapse.  The assumed rate of return on invested cash and desired spreads during the period that insurance policies or annuity contracts are in force also affects pricing of products and currently includes an assumption by the Company of a specified rate of return and/or spread on its investments for each year that such insurance or annuity product is in force.  25





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 2 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 other-than-temporarily impaired 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 (the 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.  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, equity price 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.  To help address this risk, the Company has entered into a series of Payor Swaption investments designed to protect the Company against an instantaneous rise in the interest rates of 300 basis points. (See the discussion below in Asset/Liability Management for additional information related to the Companys payor swaption investments.)  Risk-Based Capital  Under the risk-based capital formula of the National Association of Insurance Commissioners (NAIC),, 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%.  26





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 our ratings will continue for any given period of time or that they will not be changed.  In the event the ratings are downgraded, our revenues or the persistency of the our business may be adversely impacted.  In December 2009, A.M. Best Company reaffirmed the Insurance Companys rating at B+ (Good) and placed the Company under review with negative implications.  According to A.M Best, the rating actions primarily reflect the lack of clarity regarding the Companys future management structure and the future strategic direction of the Company.  The Companys ratings will remain under review while A.M. Best conducts further discussions with management and gains a better understanding of the future make up of the management team and any changes in strategic direction.  In addition, A.M. Best will continue to monitor the financial performance of the Company.  At the time of the B+ rating, publications of A.M. Best indicated that the B+ rating was assigned to those companies that, in A.M. Best's opinion, have achieved a very good overall performance when compared to the norms of the insurance industry and that generally have demonstrated a good ability to meet their respective policyholder and other contractual obligations over a long period of time.  The B+ rating is within A.M Bests Secure classification, along with A++, A+, A, A-, and B++ ratings.  In evaluating a company's statutory financial and operating performance, A.M. Best reviews its profitability, leverage and liquidity, as well as its 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 Company or the Insurance Company.  In February 2009, the Company repaid its corporate debt in full.  In consideration of this repayment the Company decided that it was no longer necessary to retain the rating services and ongoing credit surveillance by S&P and Moodys.  Due to the repayment of the corporate debt, Fitch Ratings also withdrew its evaluation of the Company. The Company will maintain the Financial Strength Rating services of A.M. Best & Company.  Results of Operations - Comparison of First Quarter 2010 and First Quarter 2009.   A. Revenues  Annuity Considerations and Life Insurance Premiums  Total annuity considerations and life and accident and health insurance premiums increased from approximately $8.0 million for the three months ended March 31, 2009 to approximately $14.7 million for the three months ended March 31, 2010.  Life insurance and accident and health premiums were $4.6 million and $3.8 million for the first quarters of 2010 and 2009, respectively.  Annuity considerations were approximately $10.1 million for the three months ended March 31, 2010 as compared to approximately $4.2 million for the three months ended March 31, 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 $24.1 million and $56.8 million in the first quarters of 2010 and 2009, respectively.  The decrease was primarily due to the low interest rate environment that continued into the first quarter of 2010.  Policy Fee Income  Universal life and investment type policy fee income was approximately $0.5 million for the three-month period ended March 31, 2010 and approximately $0.6 million for the three-month period ended March 31, 2009.  Net Investment Income and Equity in Losses  Net investment income and equity in losses of limited partnerships totaled approximately $43.4 million during the first three months of 2010, as compared to approximately $46.9 million during the first three months of 2009.  This represents a decrease of approximately $3.5 million.  This decrease is primarily due to an increase from equity in losses from limited partnerships that are accounted for using the equity method.  The Company's ratios of net investment income to average cash and invested assets  (based on book value and excluding limited partnerships) for the three month periods ended March 31, 2010 and March 31, 2009 were 5.82% and 5.95%, respectively.    27





Net Realized Investment Gains and Losses and other than temporary losses recognized in earnings  Realized investment gains (losses) amounted to approximately $0.2 million gain during the first three months of 2010, as compared to realized investment losses of approximately $12.4 million during the first three months of 2009.  This improvement of approximately $12.6 million was primarily due to the reduction in OTTI charges associated with the fixed maturity and limited partnership portfolio.  These charges amounted $11.0 million in the first quarter of 2009 compared to no OTTI charges for the same period in 2010.  During the first quarters of 2010 and 2009, payor swaptions had realized losses of $390 thousand and realized gains of $99 thousand, respectively.  The change in the fair value of the derivative instruments is reflected in the income statement as a realized loss or gain.   B. Benefits and Expenses  Interest Credited and Benefits to Policyholders  Interest credited and benefits paid to policyholders amounted to $53.8 million in the first quarter of 2010 as compared to $46.3 million in the first quarter of 2009.  This represents an increase of approximately 16%.  This increase was primarily due to an increased liability for future policy benefits.  In the first quarter of 2010, the Insurance Companys average credited rate for reserves and account balances was less than the Companys ratio of net investment income to mean assets (based on book value) for the same period.  In the first quarter of 2009, the average credited rate was greater than the Companys ratio of net investment income to mean assets (based on book value).  There can be no assurance that the difference in the Company's ratio of net investment income to book value mean assets and the average credited rate for reserves and account balances (the spread) will not decline in future periods or that such decline will not have a material adverse effect on the Company's financial condition and results of operations.  Depending, in part, upon competitive factors affecting the industry in general, and the Company in particular, the Company may, from time to time, change the average credited rates on certain of its products.  There can be no assurance that the Company will be able to reduce such rates or that any such reductions will broaden the spread.  The actual spread, excluding capital gains, for the three months ended March 31, 2010 and March 31, 2009 was 0.74% and 0.61%, respectively.  Interest Expense on Notes Payable  The Company had no interest expense on notes payable for the three months ended March 31, 2010, and approximately $0.8 million for the three months ended March 31, 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 $8.1 million for the three months ended March 31, 2010, as compared to approximately $8.1 million for the three months ended March 31, 2009.  Excluding the costs of the consent revocation solicitation and related matters, these expenses would have decreased by $1.0 million or 12.8%, compared to the same period in 2009.  This decrease primarily resulted from decreased commissions paid to agents based upon decreased sales of deferred annuities.  Change in Deferred Policy Acquisition Costs (DAC)  The change in the net DAC for the three months ended March 31, 2010 resulted in a charge of approximately $1.0 million, as compared to a benefit of approximately $0.4 million for the three months ended March 31, 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.  Deferred costs consisted of credits of $1.6 million and $3.0 million for the first three months of 2010 and 2009, respectively.  Amortization of the DAC on deferred annuity business consisted of charges of $2.0 million and $2.0 million in the first three months of 2010 and 2009, respectively.  Amortization of the DAC on the remainder of the Companys business consisted of charges of 0.62 million in the first quarter of 2010 and $0.6 million in the first quarter of 2009.  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 quarter of 2010 relates primarily to unrealized capital gains reported as of March 31, 2010.     28





C. Loss Before Income Taxes  For the reasons discussed above, loss before income taxes amounted to approximately $2.9 million for the three months ended March 31, 2010, as compared to approximately $11.5 million for the three months ended March 31, 2009.  D. Income Taxes  Income tax benefit was approximately $1.0 million for the three months ended March 31, 2010 as compared to $4.0 million for the three months ended March 31, 2009.  The decrease in the income tax benefit was attributable to a reduction in the net loss in the first quarter 2010 as compared to the first quarter 2009.  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 March 31, 2010 and March 31, 2009 to be 34.5%.  E. Net Loss  For the reasons discussed above, the Company had a net loss of approximately $1.9 million during the three months ended March 31, 2010 and a net loss of approximately $7.5 million during the three months ended March 31, 2009.  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 $74.1 million at March 31, 2010.  The increase was due to an increase in net unrealized investment gains, net of taxes, during the first three months of the year of approximately $41.2 million.  General economic and market conditions were the primary reasons for the increase.  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 quarter of 2010, the Company's Board of Directors declared quarterly cash dividends of $0.0625 per share payable on April 1, 2010.  During the first three months of 2010 the Company did not purchase or retire any shares of common stock.   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 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).  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 has not made any dividends payment to the Company during the first quarter of 2010. The Board of Directors passed a resolution to upstream up to $23 million in 2010, if necessary.  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.  29





Policyholder account balance surrenders totaled approximately $28.9 million and $56.4 million for the three-month periods ending March 31, 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 three 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 New York State Insurance Department.  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 have been 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.  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 $(0.6) million and ($5.0) million during the three months ended March 31, 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 $3.7 million and $77.5 million during the three months ended March 31, 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 ($9.4) million and ($70.2) million during the three months ended March 31, 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 reasonable 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  30





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 6.0% and 7.8% as of March 31, 2010 and December 31, 2009, respectively).  The effective duration of the Company's debt portfolio was approximately 5.1 years and 4.5 years as of March 31, 2010 and March 31, 2009, respectively.  The Company's fixed maturity investments are all classified as available for sale and may be sold in response to, among other things, changes in market interest rates, changes in the security's prepayment risk, the Company's need for liquidity and various other economic conditions.  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 non-redeemable preferred stocks and are carried at market value, with the related unrealized gains and losses, net of deferred federal income tax effect, if any, charged or credited directly to shareholders equity, unless a decline in market value is deemed to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.  The Insurance Company is subject to Regulation 130 adopted and promulgated by the NYSID.  Under this Regulation, the Insurance Company's ownership of below investment grade debt securities is limited to 20.0% of total admitted assets, as calculated under statutory accounting practices.  As of March 31, 2010 and December 31, 2009, approximately 5.5% 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 99.95% were originally purchased as investment grade investments.  All of these are classified as available for sale and reported at fair value. As of March 31, 2010 and December 31, 2009, the carrying value of these securities was approximately $199.6 million and $201.0 million, respectively, (representing approximately 5.4% 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 March 31, 2010, the carrying value of the Companys limited partnerships was approximately $217.8 million or 5.9% 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 March 31, 2010, the Companys investments in equity securities, including limited partnership interests, were approximately 6.0% 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 $83.1 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 $12.1 million, $27.1 million, $38.4 million, and $5.5 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 are 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  31





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.  Recent failures of substantially larger insurance companies could result in future assessments in material amounts. Market Risk  Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes.  Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded.  The following is a discussion of the Company's primary market risk exposures and how those exposures are currently managed as of March 31, 2010.  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 target levels, the Company may re-position its assets through the sale of invested assets or the purchase of new investments.  Another element of the asset liability management strategy has been to hedge against the risks posed by a rapid and sustained rise in interest rates by entering into a form of derivative transaction known as a Payor Swaption. The effect of this transaction would be to lessen the negative impact on the Insurance Company of a significant increase in interest rates. As noted below, the Companys Payor Swaption contract is due to expire in June 2010.  The Companys management is currently determining if current market conditions warrant extending its payor swaption program beyond June of 2010.  The Company has established an International Swaps and Derivatives Association ISDA Credit Support Agreement with its counterparty against whom it holds the Swaption currently held by the Company. The counterparty is a major money center bank that carries credit ratings of Aa3 by Moody's and A+ by S&P.  The ISDA Credit Support Agreement requires the counterparty to post collateral in the event that the bank credit rating falls below A3 by Moodys and A- by S&P.  This contract expires in June 2010 at a strike rate based on the 10-year swap rate.  The Company has determined that the Payor Swaption represents a "non-qualified hedge".  The aggregate market value of the Payor Swaption as of March 31, 2010 was $348.  A variety of factors affect the value of the Payor Swaptions.  These include overall Treasury interest rate levels, swap spreads, overall market volatility and the length of time remaining before the expiration of a Payor Swaption.  This investment is classified on the balance sheet as a "Derivative Instrument".  The value of the Payor Swaptions is recognized at "fair value" (market value), with any resulting change in fair value reflected in the statement of income as a realized loss or gain.  The change in market value for the first quarter of 2010 was a loss of $389,622.  The Company has determined that the average fair value for the first quarter of 2010 was $19,576.  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.   32





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.  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)$     12,110$     70,978$               -$                   -$      83,088FIN 48 Liabilities$               -$          733$               -$                   -$             733Policy Liabilities (2)$   482,316$   904,147$   728,652$    2,578,732$   4,693,847  (1) See Note 1(C) Summary of Significant Accounting Policies, Investments, of the consolidated financial statements  (2) The difference between the recorded liability of $3,176.3 million, and the total payment obligation amount of $4,693.8 million, is $1,517.5 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 $4,693.8 million, $3,052.1 million, or 65.0%, 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.  33





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.  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 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 March 31, 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. Changes in Internal Control over Financial Reporting  34





Other than as described above, there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 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 controls 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  35





PRESIDENTIAL LIFE CORPORATION May 10, 2010    SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.    Presidential Life Corporation (Registrant)   Date:   August 5, 2011 /s/ Donald L. Barnes Donald L. Barnes, President and Chief Executive Officer                                 36





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 as amended of Presidential Life Corporation;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;  4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (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 company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and  5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.  Date: August 5, 2011 /s/Donald L. Barnes --------------------- Donald L. Barnes Chief Executive Officer         37





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 as amended of Presidential Life Corporation,  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;  4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (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 company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and  5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.  Date: August 5, 2011 /s/P.B. (Pete) Pheffer ---------------------- P.B. (Pete) Pheffer  Chief Financial Officer       38





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 March 31, 2010, as amended, 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 5, 2011                            39





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 March 31, 2010, as amended, 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 5, 2011                               40