UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 10-Q  ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended March 31, 2011oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  toCommission file number   0-5486  Presidential Life Corporation  Delaware13-2652144(State of incorporation)(IRS Employer Identification No.)69 Lydecker Street, Nyack, NY10960(Address of principal executive offices)(Zip Code)Registrants telephone number, including area code:(845) 358-2300  Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  R        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  R        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  RNon-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  R The number of shares of registrants common stock outstanding as of May 13, 2011 was 29,574,697.


INDEX  Part IFinancial InformationPage No.Item 1.Consolidated Financial StatementsConsolidated Balance SheetsMarch 31, 2011 (Unaudited) and December 31, 2010 (Unaudited, as restated)4Consolidated Statements of Operation (Unaudited)For the three months ended March 31, 2011 and 2010 (As restated)5Consolidated Statements of Shareholders' Equity (Unaudited)For the three months ended March 31, 2011 and 2010 (As restated)6Consolidated Statements of Cash Flows (Unaudited) -For the three months ended March 31, 2011 and 2010 (As restated)7Notes to Consolidated Financial Statements (Unaudited)8-28Item 2.Management's Discussion and Analysis ofFinancial Condition and Results of Operations28Item 3.Quantitative and Qualitative Disclosures About Market Risk38Item 4.Controls and Procedures38Part II -Other Information40-40Item 1.Legal ProceedingsItem 1A.Risk FactorsItem 2.Unregistered Sales of Equity Securities and Use of ProceedsItem 3.Defaults Upon Senior SecuritiesItem 4.Other InformationItem 5.ExhibitsSignatures42Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer43444546   2   PART 1  Note on Forward-Looking Statements  This Quarterly Report on Form 10-Q (Form 10-Q) contains forward-looking statements that involve risks and uncertainties. Many of the forward-looking statements are located in the Managements Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-Q.   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 Annual Report on Form 10-K for the fiscal year ended December 31, 2010 (the 2010 10-K), which are incorporated herein by reference, and those set forth in the Risk Factors section of this Form 10-Q. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law. Explanatory Note This Form 10-Q reflects the restatement of the Companys Consolidated Financial Statements for the period ended March 31, 2010 and December 31, 2010 as discussed in note 9 to our unaudited consolidated financial statements included herein. As previously disclosed in a Current Report on Form 8-K filed with the SEC on May 10, 2011, on May 10, 2011, the Board of Directors of Presidential Life Corporation (the Company) determined that the Companys financial statements for the years ended December 31, 2009 and 2008, as previously restated 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 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 Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 250, Accounting Changes and Error Corrections.  The nature of the error is discussed below. 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 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 such financial statements included in its 2010 Form 10-K (the Original Restatement), and the Company intends to correct the error in the Quarterly Financial Statements 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. 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.  For the effect of this restatement of the Subject Financial Statements, please refer to the amendment to the 2010 Form 10-K to be filed on Form 10-K/A.  The Company intends to reflect the effects of the Original Restatement and this restatement on the Quarterly Financial Statements in the Form 10-Q amendments referenced above  to be filed on Form 10-Q/A for the respective periods.  3    PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(In thousands)Item 1. Financial StatementsMarch 31,December 31,20112010(Unaudited)(Unaudited)ASSETS:(As Restated)Investments:Fixed maturities:Available for sale at market (Amortized cost of$3,149,267 and $3,209,803 respectively)$3,323,714$3,391,998Common stocks (Cost of $2,102 and$472, respectively)2,8911,279Derivative instruments, at fair value9,2709,402Real estate415415Policy loans18,58219,607Short-term investments204,776107,958Limited Partnerships220,147195,501Total Investments3,779,7953,726,160Cash and cash equivalents2,2305,924Accrued investment income45,33742,757Deferred policy acquisition costs57,75557,298Furniture and equipment, net342376Amounts due from reinsurers17,07516,644Amounts due from investments transactions1,30349,005Federal income taxes recoverable7,3042,627Other assets1,4871,495TOTAL ASSETS$3,912,628$3,902,286LIABILITIES AND SHAREHOLDERS' EQUITY:Liabilities:Policy Liabilities:Policyholders' account balances$2,376,289$2,401,482Future policy benefits:Annuity655,391663,456Life and accident and health82,87381,081Other policy liabilities12,18811,718Total Policy Liabilities3,126,7413,157,737Deposits on policies to be issued8961,166General expenses and taxes accrued2,3171,573Deferred federal income taxes, net57,24145,157Amounts due for security transactions8,482-Other liabilities15,69714,745Total Liabilities$3,211,374$3,220,378Commitments and ContingenciesShareholders Equity:Capital stock ($.01 par value; authorized100,000,000 shares outstanding,29,574,697 and 29,574,697 shares, respectively)296296Additional paid in capital7,1947,123Accumulated other comprehensive gain132,271118,609Retained earnings561,493555,880Total Shareholders Equity701,254681,908TOTAL LIABILITIES AND SHAREHOLDERS EQUITY$3,912,628$3,902,286The accompanying notes are an integral part of these Consolidated Financial Statements.  4    PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except share data)THREE MONTHS ENDEDMarch 31,(UNAUDITED)REVENUES:20112010
(As restated)Insurance Revenues:Premiums$4,518$4,583Annuity considerations1,36410,135Universal life and investment type policy fee income931525Equity in earnings (losses) on limited partnerships2,140(4,730)Net investment income49,45848,222Realized investment gains5,781231Other than temporary impairment losses recognized in earnings(940)-Other income1,639990TOTAL REVENUES64,89159,956BENEFITS AND EXPENSES:Death and other life insurance benefits4,4844,460Annuity benefits21,42820,397Interest credited to policyholders' account balances25,47526,590Other interest and other charges260339Increase (decrease) in liability for future policy benefits(6,650)1,982Commissions to agents, net1,1531,812Costs related to consent revocation solicitation and related matters-968General expenses and taxes6,2185,271Change in deferred policy acquisition costs1,1311,015TOTAL BENEFITS AND EXPENSES53,49962,834Income (loss) before income taxes11,392(2,878)Provision (benefit) for income taxes:Current(950)1,788Deferred4,881(2,812)3,931(1,024)NET INCOME (LOSS)$7,461$(1,854)Earnings (loss) per common share, basic$0.25$(0.06)Earnings (loss) per common share, diluted$0.25$(0.06)Weighted average number of shares outstanding during the period, basic29,574,69729,574,697Weighted average number of shares outstanding during the period, diluted29,574,69729,574,697The accompanying notes are an integral part of these Consolidated Financial Statements.  5    PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITYFOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010(in thousands)(unaudited)AccumulatedAdditionalOtherCapitalpaid-in-RetainedComprehensiveThree months ended March 31, 2010 (as restated)stockCapitalEarningsIncomeTotalBalance at January 1, 2010 (As restated)$296$6,639$541,734$32,850$581,519Comprehensive Income:Net Loss(1,854)(1,854)Net Unrealized Investment Gains41,23241,232Comprehensive Income39,378Share Based Compensation144144Dividends paid to Shareholders ($.0625 per share)(1,848)(1,848)Balance at March 31, 2010$296$6,783$538,032$74,082$619,193Three months ended March 31, 2011Balance at January 1, 2011 (As restated)$296$7,123$555,880$118,609$681,908Comprehensive Income:Net Income7,4617,461Net Unrealized Investment Gains13,66213,662Comprehensive Income21,123Share Based Compensation7171Dividends paid to Shareholders ($.0625 per share)(1,848)(1,848)Balance at March 31, 2011$296$7,194$561,493$132,271$701,254The accompanying notes are an integral part of these Consolidated Financial Statements.  6    PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)THREE MONTHS ENDEDMARCH 31,(UNAUDITED)20112010OPERATING ACTIVITIES:(As restated)Net income (loss)$7,461$(1,854)Adjustments to reconcile net income to net cash provided by operating activities:Provision (benefit) for deferred income taxes4,881(2,812)Depreciation and amortization3333Stock option expense71144Amortization of fixed maturity discounts and premiums(1,904)(4,000)Equity in (gains) losses on limited partnerships(2,140)4,730Realized investment (gains) losses including OTTI charges(4,841)(231)Changes in:Accrued investment income(2,580)(1,651)Deferred policy acquisition costs1,1311,015Federal income tax recoverable(4,677)1,788Liability for future policy benefits(6,273)2,335Other items900(51)Net Cash Provided By (Used In) Operating Activities$(7,938)$(554)INVESTING ACTIVITIES:Fixed Maturities: Available for saleAcquisitions(81,924)(104,525)Sales145,43040,444Common Stock:Acquisitions(7,458)-Sales5,963-(Increase) decrease in short-term investments and policy loans(95,793)65,559Limited partnership investments:Contributions to limited partnerships(3,701)(5,595)Distributions from limited partnerships12,1881,813Amount due on security transactions56,1845,995Net Cash Provided By Investing Activities$30,889$3,691FINANCING ACTIVITIES:Decrease in policyholders account balances(25,193)(4,816)Bank overdrafts666(2,317)Deposits on policies to be issued(270)(447)Dividends paid to shareholders(1,848)(1,848)Net Cash Used In Financing Activities$(26,645)$(9,428)(Decrease) Increase in Cash and Cash Equivalents(3,694)(6,291)Cash and Cash Equivalents at Beginning of Period5,9248,763Cash and Cash Equivalents at End of Period$2,230$2,472Supplemental Cash Flow Disclosure:Income Taxes Paid$7,957$-Interest Paid$-$-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 (the Company), through its wholly owned subsidiary Presidential Life Insurance Company is engaged in the sale of annuity contracts, life insurance and accident and health insurance.  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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.  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, 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 65%), life insurance (approximately 23%), and accident and health insurance (approximately 12%).  The nature of these product lines is sufficiently similar to permit their aggregation as a single reporting segment.  Approximately 70% 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  8   amortized/accrued using methods which result in a constant yield over the securities expected lives.  Amortization/accrual of premium and discounts on residential and/or commercial mortgage and asset-backed securities incorporate prepayment assumptions to the estimate of the securities expected lives.  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 realized gains or losses 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.  For all equity investments, if we conclude that an other than temporary impairment has occurred, the carrying value of the equity security is written down to the current fair value, with a corresponding charge to realized gain (loss) in our Consolidated Statements of Income. We base our review on a number of factors including, but not limited to, the severity and duration of the decline in fair value of the equity security as well as the cause of the decline, our ability and intent to hold the security for a sufficient period of time to allow for a recovery in value, any third-party research reports or analysis, and the financial condition and near-term prospects of the securitys issuer, taking into consideration the economic prospects of the issuers industry and geographical location. When assessing our intent to sell a fixed maturity security or if it is more likely that the Company will be required to sell a fixed maturity security before recovery of its cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to reposition our security portfolio and sale of securities to meet cash flow needs.  In order to determine the amount of the credit loss for a fixed maturity security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover.  The discount rate is the effective interest rate implicit in the underlying fixed maturity security.  The effective interest rate is the original yield or the coupon if the fixed maturity security was previously impaired.  If an OTTI exists and we have the intent to sell the security, we conclude that the entire OTTI is credit-related and the amortized cost for the security is written down to current fair value with a corresponding charge to realized loss on our Consolidated Statements of Income.  If we do not intend to sell a fixed maturity security or it is not more likely than not we will be required to sell a fixed maturity security before recovery of its amortized cost basis but the present value of the cash flows expected to be collected is less than the amortized cost of the fixed maturity security (referred to as the credit loss), we conclude that an OTTI has occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge to realized loss on our Consolidated 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  9   versus the price at which the market is trading; fundamentals of the industry in which the issuer operates; expectations regarding defaults and recovery rates; and changes to the rating of the security by a rating agency.  Realized gains and losses on disposals of investments are determined for fixed maturities and equity securities by the specific-identification method.  Investments in short-term securities, which consist primarily of commercial paper and corporate debt issues maturing in less than one year, are recorded at amortized cost, which approximate market.  Policy loans are stated at their unpaid principal balance.  The Companys cash equivalents are primarily comprised of investments in overnight interest-bearing deposits, commercial paper and money market instruments and other short-term investments with original maturity dates of three months or less at the time of purchase.  The Company's investments in real estate consist of two acres of undeveloped land and two buildings in Nyack, New York, which are occupied entirely by the Company.  The investments are carried at cost less accumulated depreciation.  Both buildings are fully depreciated and have no depreciation expense.  E. Fair Value Measurements  The following estimated fair value disclosures of financial instruments have been determined using available market information, current pricing information and appropriate valuation methodologies.  If quoted market prices were not readily available for a financial instrument, management determined an estimated fair value. Accordingly, the estimates may not be indicative of the amounts the Company could have realized in a market transaction.  Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs are as follows: Level Input:Input Definition:Level 1Observable inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.  Level 1 securities include highly liquid U.S. Treasury securities, certain common stocks and cash and cash equivalents.Level 2Observable inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.  Most debt securities, preferred stocks, certain equity securities, short-term investments and derivatives are model priced using observable inputs and are classified with Level 2.Level 3Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date.  The Companys Level 3 assets include investments in limited partnerships.  For investments that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy.  The Company receives the quoted market prices from a third party, nationally recognized pricing service (pricing service).  When quoted market prices are unavailable, the Company utilizes a pricing service to determine an estimate of fair value, which is mainly for its fixed maturity investments.  The fair value estimates provided from this pricing service are included in the amount disclosed in Level 2 of the hierarchy.  If quoted market prices and an estimate from a pricing service are unavailable, the Company secures an estimate of fair value from brokers, when available, who utilize valuation techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level 3.  When broker prices are unavailable, the Company prices the securities using either discounted cash-flow models or matrix pricing.  The Companys policy is to transfer assets and liabilities into Level 3 when a significant input cannot be corroborated with market observable data.  This may include: circumstances in which market activity has dramatically decreased and transparency to underlying inputs cannot be observed, current prices are not available, and substantial price variances in quotations among market participants exist.  In certain cases, the inputs used to measure the fair value may fall into levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the  10   lowest level input that is significant to the fair value measurement.  The Companys assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.  In making the assessment, the Company considers factors specific to the asset.  Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data.  Additional observable inputs are used when available, and as may be appropriate, for certain security types, such as prepayment, default, and collateral information for the purpose of measuring the fair value of mortgage- and asset-backed securities.  The Company will challenge any prices for its investments which are not considered to represent fair value.  If a fair value is challenged, the Company will typically obtain a non-binding quote from a broker-dealer; multiple quotations are not typically sought.  At March 31, 2011, 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.  F. Deferred Policy Acquisition Costs  The costs of acquiring new business (principally commissions and certain underwriting, agency and policy issue expenses), all of which vary with the production of new business, have been deferred.  Deferred policy acquisition costs (DAC) are subject to recoverability testing at time of policy issue and loss recognition testing at the end of each year.  For immediate annuities with life contingencies, deferred policy acquisition costs are amortized over the life of the contract in proportion to expected future benefit payments.  For traditional life policies, deferred policy acquisition costs are amortized over the premium paying periods of the related policies using assumptions that are consistent with those used in computing the liability for future policy benefits.  Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts.  For these contracts, the amortization periods generally are for the scheduled life of the policy, not to exceed 30 years.  Deferred policy acquisition costs are amortized over periods ranging from 15 to 25 years for universal life products and investment type products as a constant percentage of estimated gross profits arising principally from surrender charges and interest and mortality margins based on historical and anticipated future experience, updated regularly.  The effects of revisions to reflect actual experience on previous amortization of deferred policy acquisition costs, subject to the limitation that the outstanding DAC asset can never exceed the original DAC plus accrued interest, are reflected in earnings in the period estimated gross profits are revised.  DAC is also adjusted for the impact of unrealized gains or losses on investments as if these gains or losses had been realized with corresponding credits or charges included in accumulated other comprehensive income.  For that portion of the business where acquisition costs are not deferred, (i.e., medical stop loss business) management believes the expensing of policy acquisition costs is immaterial.  G. Future Policy Benefits  Future policy benefits for traditional life insurance policies are computed using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established 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.  H. Policyholders' Account Balances  Policyholders' account balances for universal life and investment type contracts are equal to the policy account values.  The policy account values represent an accumulation of gross premium payments plus credited interest less mortality and expense charges and withdrawals.  I. Federal Income Taxes   11   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.  J. 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, 2011 and 2010 was 29,574,697 and 29,574,697, respectively.  The dilution from the potential exercise of stock options outstanding did not reduce EPS during the three months ended March 31, 2011 or 2010.  Options totalling 495,458 and 699,948 shares of common stock for the three months ended March 31, 2011 and March 31, 2010, respectively were not included in the computation of weighted average shares because the impact of these options was antidilutive.  K. Reclassifications  To facilitate period-to-period comparisons, certain reclassifications have been made to prior period consolidated financial statement amounts to conform to current period presentation. There was no effect on net income from the change in presentation.  L. New Accounting Pronouncements  For a full discussion of new accounting pronouncements and other regulatory activity and their impact of the Company, please refer to the Companys 2010 Form 10-K.  Deferred Acquisition Costs  In October 2010, the FASB issued updated guidance to address the diversity in practice for the accounting for costs associated with acquiring or renewing insurance contracts. This guidance modifies the definition of acquisition costs to specify that a cost must be directly related to the successful acquisition of a new or renewal insurance contract in order to be deferred. If application of this guidance would result in the capitalization of acquisition costs that had not previously been capitalized by a reporting entity, the entity may elect not to capitalize those costs. The updated guidance is effective on either a retrospective or prospective basis for interim and annual reporting periods beginning after December 15, 2011, with early adoption permitted as of the beginning of a companys annual period. We are currently evaluating the impact of the adoption of this new guidance on our consolidated results of operations and financial condition.  Repo Accounting  On April 29, 2011, the FASB amended its guidance on accounting for repurchase agreements. The amendments simplify the accounting by eliminating the requirement that the transferor demonstrate it has adequate collateral to fund substantially all the cost of purchasing replacement assets. Under the amended guidance, a transferor maintains effective control over transferred financial assets (and thus accounts for the transfer as a secured borrowing) if there is an agreement that both entitles and obligates the transferor to repurchase the financial assets before maturity and if all of the following conditions previously required are met; (i) financial assets to be repurchased or redeemed are the same or substantially the same as those transferred, (ii) repurchase or redemption date before maturity at a fixed or determinable price, and (iii) the agreement is entered into contemporaneously with, or in contemplation of, the transfer. As a result, more arrangements could be accounted for as secured borrowings rather than sales. The updated guidance is effective on a prospective basis for interim and annual reporting periods beginning on or after December 15, 2011, early adoption if prohibited. We are currently evaluating the impact of the adoption of this new guidance on our consolidated results of operations and financial condition.  Fair Value Measurements In May 2011, the FASB issued updated guidance clarifying fair value measurement and disclosure requirements. It is intended to bring consistency to the fair value measurement and disclosure requirements of United States GAAP and International Accounting Standards. This new guidance is effective for interim or annual reporting period beginning after December 15, 2011 and should be applied prospectively. In the period of adoption the Company will be required to disclose a change, if any, in valuation technique and related inputs resulting from the application of the amendments. The Company is currently assessing the impact of the guidance on the Companys financial position, results of operations, and financial statement disclosures.


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|2.     INVESTMENTS                                                                                                 |                            |        |                            |   |        | 
|                                                                                                                   |                            |        |                            |   |        | 
|There were no investments in any one issuer that totaled 10% or more of Shareholders Equity as of March 31, 2011.
|                                                                                                                   |                            |        |                            |   |        | 
|The following information summarizes the components of net investment income:                                     
|                                                                                                                   |                            |        |                            |   |        | 
|                                                                                                                   | For the three months ended |        | For the three months ended |  
|                                                                                                                   | March 31, 2011             |        | March 31, 2010             |  
|                                                                                                                   | (in thousands)             |        | (in thousands)             |  
|                                                                                                                   |                            |        |                            |   |        | 
|Fixed maturities                                                                                                   | $                          | 48,817 |                            | $ | 48,853 | 
|Common stocks                                                                                                      |                            | 21     |                            |   | 10     | 
|Short term investments                                                                                             |                            | 90     |                            |   | 94     | 
|Other investment income                                                                                            |                            | 1,445  |                            |   | 582    | 
|                                                                                                                   |                            | 50,373 |                            |   | 49,539 | 
|                                                                                                                   |                            |        |                            |   |        | 
|Less investment expenses                                                                                           |                            | 915    |                            |   | 1,317  | 
|                                                                                                                   |                            |        |                            |   |        | 
|Net investment income                                                                                              | $                          | 49,458 |                            | $ | 48,222 | 

Net Realized Investment Gains (Losses):Period Ended March 31,(in thousands)20112010Fixed maturities$1,067$63Common stocks137-Limited partnerships4,709558Derivatives(132)(390)Net realized investment gains (losses), excluding OTTI losses$5,781$231Total OTTI losses recognized in earnings$(940)$-Net realized investment gains (losses), including OTTI losses$4,841$231  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, 2011:Less Than 12 Months12 Months or MoreTotalUnrealizedUnrealizedUnrealizedFair ValueLossesFair ValueLossesFair ValueLossesDescription of Securities(in thousands)US Treasury obligations and direct obligations of US Government Agencies$10$-$1,888$235$1,898$235States, municipalities and political subdivision153,1375,6973,7861,702156,9237,399Public Utilities43,1711,32510,1991,75553,3703,080Mortgage backed securities912785,0254075,116685Corporate Bonds228,9227,294175,71116,152404,63323,446Preferred Stocks1,30410243,8614,11745,1654,219Subtotal Fixed Maturities426,63514,696240,47024,368667,10539,064Common Stock1,67533--1,67533Total Temporarily Impaired Securities$428,310$14,729$240,470$24,368$668,780$39,097   12    The following table presents the total gross unrealized losses in excess of 12 months for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost by March 31, 2011# of Issuers% of Market/BookUnrealized Loss(In thousands)4690%-99%$9,7131180%-89%5,437470%-79%3,977360%-69%5,24010%-49%165$24,368  The following table presents the fair value and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at December 31, 2010:Less Than 12 Months12 Months or MoreTotalUnrealizedUnrealizedUnrealizedDescription of SecuritiesFair ValueLossesFair ValueLossesFair ValueLossesUS Treasury obligations and direct obligations of US Government Agencies$-$-$1,926$239$1,926$239States, municipalities and political subdivisions117,5244,4385,376113122,9004,551Public Utilities52,5412,0309,2011,76161,7423,791Mortgage backed securities--4,9724564,972456Corporate Bonds196,1007,473181,69020,743377,79028,216Preferred Stocks9,32714046,3146,66355,6416,803Subtotal Fixed Maturities375,49214,081249,47929,975624,97144,056Total Temporarily Impaired Securities$375,492$14,081$249,479$29,975$624,971$44,056  The following table presents the total gross unrealized losses in excess of 12 months for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost by December 31, 2010.# of Issuers% of Market/BookUnrealized Loss(In thousands)3690%-99%$6,2312480%-89%14,212670%-79%2,588260%-69%3,799150%-59%3,14410%-49%170$29,975As of March 31, 2011 and December 31, 2010 , the Company had approximately $213.5 million and $226.3 million, respectively, of gross unrealized gains in fixed maturities.   13    Limited Partnerships:The following table presents the carrying value of the limited partnership investments.($ in thousands)March 31, 2011December 31, 2010Debt/Collateralized bond obligations$1,532$3,403Hedge Related Funds46,70540,382Infrastructure21,12920,889Leveraged buy-out/Merchant41,36239,968Mezzanine and Senior Debt1,4871,345Oil and Gas26,13517,083Real Estate30,01125,399Restructuring47,28142,652Equity Funds4,5054,380$220,147$195,501The cost basis of the investments in limited partnerships was approximately $178.4 and $181.2 million at March 31, 2011 and December 31, 2010, respectively.  The following table presents the investment activity in the limited partnership investments.Three Months Ended($ in thousands)March 31,20112010Contributions$3,701$5,595Equity in earnings (loss) of partnerships2,140(4,730)Realized gains from limited partnerships4,709558Change in unrealized gains (losses) reflected in other comprehensive income26,2845,036Distributions(12,188)(1,345)Change in limited partnerships24,6465,114Limited partnerships, beginning of period195,501212,707Limited partnerships, end of period$220,147$217,821   As of March 31, 2011, limited partnerships with a carrying value of $2.5 million and a gross unrealized loss of $0.7 million, have been in an unrealized loss position for under twelve months.  Limited partnerships with a carrying value of $18.6 million and a gross unrealized loss of $2.4 million have been in an unrealized loss position for over twelve months.  As of March 31, 2011, the Company was committed to contribute, if called upon, an aggregate of approximately $55.1 million of additional capital to certain of these limited partnerships.  Commitments of $29.5 million, $24.4 million and $1.2 million will expire in 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.  3. FAIR VALUE MEASUREMENTS  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  14   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.   15   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.   16    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 UsingQuoted prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable InputsAs ofDescriptionMarch 31, 2011(Level 1)(Level 2)(Level 3)Assets:Fixed Maturities:U.S. government and agencies$81,341$75,236$5,848$257States and municipalities297,485-294,1403,345Corporate debt securities2,689,992-2,677,64612,346Mortgage backed securities148,524-148,524-Preferred Stock106,372-103,0183,354Fixed Maturities3,323,71475,2363,229,17619,302Common Stock2,8918891,675327Derivatives9,270-9,270-Cash and cash equivalents2,2302,230--Short-Term investments204,776-204,776-Limited partnerships206,989--206,989Total$3,749,870$78,355$3,444,897$226,618  ($ in thousands)Fair Value Measurements UsingAs ofQuoted prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable InputsDescriptionDecember 31, 2010(Level 1)(Level 2)(Level 3)Assets:Fixed Maturities:U.S. government and agencies$167,537$140,628$26,651$258States and municipalities288,738-283,8084,930Corporate debt securities2,199,986-2,188,47611,510Public utilities474,318-474,318-Mortgage backed securities158,549-158,549-Preferred Stock102,870-99,5933,277Fixed Maturities3,391,998140,6283,231,39519,975Common Stock1,279898-381Derivatives9,402-9,402-Cash and cash equivalents5,9245,924--Short-Term investments107,958-107,958-Limited partnerships184,246--184,246Total$3,700,807$147,450$3,348,755$204,602  A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows:($ in thousands)Limited partnershipsCommon StockFixed MaturitiesTotalFor the three months ended March 31, 2011Beginning Balance at December 31, 2010$184,246$381$19,975$204,602Total gains or losses   (realized/unrealized)Included in earnings(940)--(940)Realized gains from limited partnerships4,709Included in other comprehensive income27,224123(1,383)25,964Purchases3,701--3,701Sales(11,951)(177)-(12,128)Transfers in and /or out of Level 3--710710Ending Balance at March 31, 2011$206,989$327$19,302$221,909  For the three months ended March 31, 2010Beginning Balance at December 31, 2009$190,406$1,244$39,157$230,807Total gains or losses   (realized/unrealized)Included in earnings--(1)(1)Realized gains from limited partnerships558---Included in other comprehensive income5,0371(213)4,825Purchases5,579--5,579Sales(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$220,368During the three months ended March 31, 2011 and 2010, certain fixed maturity securities were transferred in and out of Level 3 from Level 2 as a result of the unavailability or availability of market observable quoted prices received from an independent third-party pricing service.   18    Investments in limited partnership carried at fair value using net asset value per shareThe 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, 2011December 31, 2010Investment 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.$47,28111,860$42,65213,119Leveraged buyoutDebt and/or equity investments made as part of a transaction in which assets of mature companies are acquired with the use of leverage.41,36217,67139,96818,953Real estateReal estate assets, real estate joint ventures and real estate operating companies.30,0114,09325,3994,245InfrastructureInvestments in essential public goods and services such as transportation and energy projects with long-term stable cash flows located around the globe.21,12910,33420,88910,024Oil and gasEquity and equity related investments in the upstream and midstream independent oil and gas sector of North America.26,1358,35717,0839,231OtherSecondary, mezzanine, debt and collateralized bond offerings.7,5242,7829,1282,782Total private equity funds173,44255,097155,11958,354Hedge distressedSecurities of companies that are in default, under bankruptcy protection or troubled.22,102-20,747-Hedge multi-strategyPursue multiple strategies i.e. arbitrage, credit, structured credit, long/short equity to reduce risks and reduce volatility.24,603-19,635-Total hedge funds46,705-40,382-Total Limited Partnerships$220,14755,097$195,50158,354   19    Fair Values of Derivative Instruments($ in thousands)Asset DerivativesMarch 31, 2011December 31,  2010Balance Sheet LocationBalance Sheet LocationFair ValueFair ValuePayor SwaptionsDerivative Instruments$9,270Derivative Instruments$9,402Total derivatives not designated as hedging instruments$9,270$9,402Total derivatives$9,270$9,402  Derivatives Not Designated as Hedging InstrumentsLocation of Gain or (Loss) Recognized in Income on DerivativeAmount of Gain or (Loss) Recognized in Income on DerivativeThree Months Ended March 31,20112010($ in thousands)Payor SwaptionsRealized investment (losses) gains$(132)$(390)Total$(132)$(390)


|                                                                                                                                                         |                                 |                |                      |  |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | -------------- | -------------------- |  | - | --------- | 
|The following represents the fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:
|                                                                                                                                                         |                                 |                |                      |  |   |           | 
|March 31, 2011   (in thousands)                                                                                                                          |                                 | Carrying Value | Estimated Fair Value | 
|Assets                                                                                                                                                   |                                 |                |                     
|                                                                                                                                                         | Policy Loans                    | $              | 18,582               |  | $ | 18,582    | 
|                                                                                                                                                         | Limited Partnerships            |                | 13,158               |  |   | 13,158    | 
|Liabilities                                                                                                                                              |                                 |                |                      |  |   |          
|                                                                                                                                                         | Policyholders' Account Balances | $              | 2,376,289            |  | $ | 2,526,476 | 

The following represents the fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:December 31, 2010   (in thousands)Carrying ValueEstimated Fair ValueAssetsPolicy Loans$19,607$19,607Limited Partnerships11,25511,255LiabilitiesPolicyholders' Account Balances$2,401,482$2,554,161   20    4.CHANGE IN NET UNREALIZED INVESTMENT GAINS/(LOSSES)TaxPre Tax(Expense)/After-TaxAmountBenefitAmountFor the three months ended March 31, 2011:(in thousands)Net unrealized gains on investment securities:Net unrealized holding gains arising during period$14,613$(5,199)$9,414Plus: reclassification adjustment for gains realized in net income4,841(1,694)3,147Change related to deferred policy acquisition costs1,694(593)1,101Net unrealized investment gains$21,148$(7,487)$13,662For the three months ended March 31, 2010:Net unrealized gains on investment securities:Net unrealized holding gains arising during period$52,862$(18,502)$34,360Plus: reclassification adjustment for gains realized in net income231(81)150Change related to deferred policy acquisition costs10,341(3,619)6,722Net unrealized investment gains$63,434$(22,202)$41,232  5. SHAREHOLDERS' EQUITY  During 2010 and the first three months of 2011, the Board of Directors maintained a quarterly dividend of $.0625 per share.  During 2010 and through the first quarter of 2011, 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.  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, and 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 $95,600 and $103,300 into this plan during the three months ended March 31, 2011 and March 31, 2010, 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 relates to unrealized losses in the Companys bond portfolio.  If the Company determines that any of its deferred income tax assets will not result in future tax benefits, a valuation allowance must be established for the portion of these assets that is not expected to be realized.  Upon review, the Companys management concluded that it is more likely than not that the net deferred income tax assets will be realized.  The Company does not record a tax valuation allowance relating to the net unrealized losses on investments, excluding stocks, because it is more likely than not that these losses would reverse or be utilized in future periods. The Company has the ability and it is the Companys intent to fully recover the principal, which could allow the Company to hold these securities until their maturity; therefore, the Company considers the impairment to be temporary.  The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions.  In the United States, the Company is no longer subject to federal income tax examinations by tax authorities, generally for the years prior to 2004.  For 2004 and 2005 the Company may be subject to tax examinations because the IRS and the Company extended the statute of  21   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 2011.  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, 2011 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 $1,011,769 at December 31, 2010 and ($335,866) as of March 31, 2011.  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 $416,729 as of December 31, 2010 and $75,988 as of March 31, 2011.  As of March 31, 2011, the Company is not aware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits or liabilities will significantly increase or decrease within the next 12 months.  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, 2011, 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. PRESENTATION OF RESTATED FINANCIAL STATEMENTS The results included in this Form 10-Q for March 31, 2010 and the balance sheet as of December 31, 2010 have been restated from previously reported results. Our 2010 Form 10-K reflected the Original Restatement of the Companys Consolidated Financial Statements for the years ended December 31, 2008 and 2009 to 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 influence over the operating and financial policies of the partnership, and to 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 impacted 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.  Historically, the Company applied the equity method of accounting for its investments in limited partnerships 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).  After extensive discussions with the SEC Staff, we concluded that 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:  22     ? 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.   23    The effects of the Original Restatement on the Company's consolidated financial statements for 2009 and 2008 were set forth in our 2010 10-K.  The effects of the Original Restatement on the company's condensed consolidated financial statements for March 31, 2010 are summarized as follows:Balance Sheet as of March 31, 2010As Previously ReportedIncrease (Decrease)As RestatedAccumulated other comprehensive income$36,243$37,839$74,082Retained earnings566,252(28,220)538,032Statement of Income
for the quarter ended March 31, 2010Equity in earnings (loss) on limited partnerships$-$(4,730)$(4,730)Net investment income50,468(2,246)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 per share, basic and diluted0.07(0.13)(0.06)Statement of Cash Flowsfor the quarter ended March 31, 2010OPERATING ACTIVITIES:Net Income (Loss)$2,207(4,061)$(1,854)Provision 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)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  The effects of the Original Restatement on the Companys stockholders equity as of January 1, 2010 are as follows: Increase in accumulated other comprehensive income $18,237 Decrease in retained earnings (5,098) Increase in stockholders equity 13,139  In connection with our OTTI analysis for limited partnerships during the first quarter of 2011, we determined that we made an error in failing to analyze OTTI  and correctly recognize OTTI charges in prior periods as described in the Explanatory Note on page 3 of this Form 10-Q.  As a result of this accounting error, total revenue, net income, earnings per share and retained earnings were all overstated in the Subject Financial Statements with a corresponding understatement of accumulated other comprehensive income.  Management determined that the Subject Financial Statements should be restated to properly account for OTTI.   24    The effects of this further restatement on our consolidated statements of operations are summarized as follows (amounts in thousands, except per share amounts):Year ended December 31,Consolidated Statement of Operations2008
(Unaudited)2009
(Unaudited)OTTI losses recognized in earnings:As reported$(21,118)$(7,841)Correction of error(5,916)(15,114)Restated$(27,034)$(22,955)Total Revenues:As reported$231,709$262,955Correction of error(5,916)(15,114)Restated$225,793$247,841Provision (benefit) for income taxes:As reported$(13,049)$1,426Correction of error(2,071)(5,290)Restated$(15,120)$(3,864)Net income (loss):As reported$(2,493)$14,720Correction of error(3,845)(9,824)Restated$(6,338)$4,896Basic and diluted earnings (loss) per common shares:As reported$(0.08)$0.50Correction of error(0.13)(0.33)Restated$(0.21)$0.17Consolidated Balance SheetsDecember 31, 2008
(Unaudited)December 31, 2009
(Unaudited)December 31, 2010
(Unaudited)Accumulated Other Comprehensive Income (loss):As reported$(141,467)$13,789$99,548Correction of error9,23719,06119,061Restated$(132,230)$32,850$118,609Retained Earnings:As reported$553,470$560,795$574,941Correction of error(9,237)(19,061)(19,061)Restated$544,233$541,734$555,880Total Stockholders Equity:As reported$418,150$581,519$681,908Restated$418,150$581,519$681,908The effects of the OTTI restatement on the Company's stockholders' equity as of January 1, 2008 are as follows:Increase in accumulated other comprehensive income$5,392Decrease in retained earnings(5,392)Change in stockholders' equity-  26   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 (Form 10-Q) 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 set forth in Part I, Item 1A of our 2010 Form 10-K, which are incorporated herein by reference, and those discussed in Risk Factors under Part II, Item 1A of this Form 10-Q. 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 per share were $ 0.25 for the first three months of 2011, as compared to a loss of $ (0.06) per share for the same period in 2010.  The improved results in 2011 primarily reflect increases in the earnings in equity of our limited partnerships and realized investment gains.  Our total revenues in the first three months of 2011 were $ 64.9 million, compared to $ 60.0 million in the first three months of 2010.  Benefits and expenses in the first three months in 2011 were $ 53.5 million, compared to $ 62.8 million for the same three month period in 2010.  Net income in the first three months of 2011 was $ 7.5 million as compared to a net loss of  ($1.9) million for the same period in 2010.  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.  27    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 to the Condensed 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 (OTTI) and factors considered by security classification in the OTTI evaluation.  In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets.  The determination of fair values in the absence of quoted market values is based on valuation methodologies, securities the Company deems to be comparable, and assumptions deemed appropriate given the circumstances.  The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.  The Company derives a major portion of its total revenues from investment income. The Company manages most of its investments internally.  All investments made on behalf of the Company are governed by the general requirements and guidelines established and approved by the Company's investment committee (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.  If interest rates increase, the Companys fixed maturity investments generally will decrease in market value, while net investment income will generally increase.  Management is aware that prevailing market interest rates frequently shift and, accordingly, the Company has adopted strategies that are designed to address either an increase or decrease in prevailing rates.  The primary market risk in the Companys investment portfolio is interest rate risk and to a lesser degree, credit risk.  The Company's exposure to foreign exchange risk is not significant.  The Company has no direct commodity risk.  Changes in interest rates can potentially impact the Companys profitability.  In certain scenarios where interest rates are volatile, the Company could be exposed to disintermediation risk and reduction in net interest rate spread or profit margin.  (See the discussion below in Asset/Liability Management for additional information related to the Companys interest risk and its management.)  Risk-Based Capital  Under the National Association of Insurance Commissioners (NAIC) risk-based capital formula, insurance companies must calculate and report information under a risk-based capital formula.  The standards require the computation of a risk-based capital amount, which then is compared to a companys actual total adjusted capital.  The computation involves applying factors to various financial data to address four primary risks: asset default, adverse insurance experience, disintermediation and external events.  This information is intended to permit insurance regulators to identify and require remedial action for inadequately capitalized insurance companies, but is not designed to rank adequately capitalized companies.  The NAIC formula provides for four levels of potential involvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for an insurance company to submit a plan to improve its capital (Company Action Level) to regulatory control of the insurance company (Mandatory Control Level).  At December 31, 2010, the Insurance Companys Company Action Level was $69.4 million and the Mandatory Control Level was $24.3 million. The Insurance Companys adjusted capital at December 31, 2010 was $312.1 million,  28   which exceeds all four action levels.  The Companys RBC ratio as of December 31, 2010 was 449%.  Agency Ratings  Ratings are an important factor in establishing the competitive position in the insurance and financial services marketplace.  There can be no assurance that the Companys ratings will continue for any given period of time or that they will not be changed.  In the event the ratings are downgraded, the level of revenues or the prospects of our business may be adversely impacted.  In May 2010, the A.M. Best Company removed from under review with negative implications and affirmed the financial strength rating of B+ (Good) and issuer credit rating (ICR) of bbb (Good) of Presidential Life Insurance Company (Presidential Life) and the ICR of bb- (Fair) of Presidential Life Corporation.  The ratings have been assigned a stable outlook.  The rating affirmation of Presidential Life reflects its favorable risk-adjusted capitalization, growth in its core annuity business and positive earnings over a five-year period.  While the Companys earnings are positive and capitalization levels remain favorable, both its capitalization and pre-tax earnings declined in recent years due to the economic crisis and low interest rate environment.  In addition, A.M. Best believes lower investment yields due to the current interest rate environment may result in further spread compression and lead to lower earnings.  The stable outlook reflected Presidential Lifes increase in new business writings, continued profitable operating postures and favorable capitalization ratios.  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 the company's profitability, leverage and liquidity, as well as the company's book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its reserves and the experience and competency of its management.  A.M. Best's rating is based on factors which primarily are relevant to policyholders, agents and intermediaries and is not directed towards the protection of investors, nor is it intended to allow investors to rely on such a rating in evaluating the financial condition of the Insurance Company.  Results of Operations  A Comparison of the significant items for the three months ended March 31, 2011 with the same period in 2010.  A. Revenues  Annuity Considerations and Life Insurance Premiums  Total annuity considerations and life and accident and health insurance premiums decreased from approximately $ 14.7 million for the three months ended March 31, 2010 to approximately $ 5.9 million for the three months ended March 31, 2011.  Life insurance and accident and health premiums were $ 4.5 million, and $ 4.6 million for the first three months of 2011 and 2010, respectively.  Annuity considerations were approximately $ 1.4 million for the three months ended March 31, 2011 as compared to approximately $ 10.1 million for the three months ended March 31, 2010.  The decrease is primarily due to decreased sales in our immediate annuities with life contingencies as a result of the low interest rate environment. 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 $12.4 million and $24.1 million in the first three months of 2011 and 2010, respectively.  The decrease was primarily due to the low interest rate environment that continued into the first quarter of 2011.  Policy Fee Income  Universal life and investment type policy fee income was approximately $0.9 million and $0.5 million for the three months ended March 31, 2011 and 2010, respectively.  Policy fee income consists principally of amounts assessed during the period against policyholders account balances for mortality and surrender charges.   29   Net Investment Income and Equity in Earnings on Limited Partnerships  Net investment income and equity in earnings on limited partnerships totalled approximately $ 51.6 million during the first three months of 2011, as compared to approximately $ 43.5 million during the first three months of 2010.  This represents an increase of approximately $ 8.1 million.  Income from limited partnerships that are accounted for using equity method of accounting, amounted to approximately $ 2.1 million during the first three months of 2011, as compared to a loss of approximately  ($4.7) million during the first three months of 2010.  This represents an increase of approximately $ 6.9 million. Income derived from the limited partnerships accounted for under the fair value method are classified as realized gains and losses; (see below).  The decreases and increases in investment income from the limited partnerships are largely reflective of the inherent volatility in this portfolio.  Net investment income totalled approximately $ 49.5 million during the first three months of 2011, as compared to approximately $ 48.2 million during the first three months of 2010.  This represents an increase of approximately $ 1.2 million.  The Company's ratios of net investment income to average cash and invested assets (based on book value and excluding equity in earnings of the limited partnerships) for the three month periods ended March 31, 2011 and March 31, 2010 were 6.0% and 5.8%, respectively.  Net Realized Investment Gains and Losses and other than temporary impairment losses recognized in earnings  Realized investment gains amounted to approximately $ 4.8 million during the first three months of 2011, as compared to realized investment gains of approximately $ .2 million during the first three months of 2010.  The increase of approximately $ 4.6 million was primarily due to an increase in realized gains on fixed maturities of approximately $1.0 million and an increase in realized gains in the limited partnerships of approximately $3.2 million.  The Company had write-downs of approximately $ 0.9 million attributable to other than temporary impairments in the limited partnerships for the three months ended March 31, 2011.  For the three months ended March 31, 2010, the Company had no write-downs attributable to other than temporary impairments in the limited partnerships.  During the first three months of 2011 and 2010, payor swaptions had realized losses of $132,000 and $390,000, 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 $ 45.0 million in the first three months of 2011 as compared to $ 53.8 million in the first three months of 2010.  This represents a decrease of approximately 16.3%.  This decrease was primarily due to a decrease in the liability for future policy benefits.  A significant contributor to the Companys profitability depends, in large part, on the investment returns generated on our portfolio, (excluding our limited partnerships), less what the Company is contractually obligated to credit to our policyholders (this is referred to as investment spread).  The crediting rate on reserves for the first three months of 2011 and 2010 was 4.97% and 5.08%, respectively.  The actual investment spread for the three months ended March 31, 2011 and March 31, 2010 was 1.00% and 0.74%, respectively.  General Expense, Taxes and Commissions  General expenses, taxes and commissions to agents totaled approximately $ 7.4 million for the three months ended March 31, 2011, as compared to approximately $ 7.1 million for the three months ended March 31, 2010.  This increase primarily resulted from increased expense in salaries, legal fees and data processing.  Change in Deferred Policy Acquisition Costs (DAC)  The change in the net DAC for the three months ended March 31, 2011 resulted in a charge of approximately $ 1.1 million, as compared to a charge of approximately $ 1.0 million for the three months ended March 31, 2010.  Changes in DAC consist of the following three elements as summarized below:   30    For the three months endedFor the three months endedMarch 31, 2011March 31, 2010(in thousands)(in thousands)Deferred costs associated with product sales$1,241$1,552Amortization of DAC on deferred annuity business(1,056)(1,347)Amortization of DAC on the remainder of the Companys business(1,316)(1,220)Net change in DAC$(1,131)$(1,015)  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 three months of 2011 relates primarily to unrealized capital gains reported as of March 31, 2011. C. Income (Loss) Before Income Taxes  For the reasons discussed above, income before income taxes amounted to approximately $ 11.4 million for the three months ended March 31, 2011, as compared to a loss of approximately  ($2.9) million for the three months ended March 31, 2010. D. Income Taxes Income tax expense was approximately $ 3.9 million for the three months ended March 31, 2011 as compared to a benefit of  ($1.0) million for the three months ended March 31, 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 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, 2011 and March 31, 2010 to be 34.5%.  E. Net Income  For the reasons discussed above, the Company had a net income of approximately $ 7.5 million during the three months ended March 31, 2011 and a net loss of approximately  ($1.9) million during the three months ended March 31, 2010. Accumulated Other Comprehensive Income Accumulated other comprehensive income increased from a gain of approximately $ 118.6 million at December 31, 2010 to a gain of $ 132.3 million at March 31, 2011.  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 $ 13.7 million.  General economic and market conditions were the primary reasons for the increase.   31    The following information summarizes the components of the unrealized investment gains:December 31, 2010As ofMarch 31, 2011(As restated)($ in thousands)Fixed maturities$174,446$182,196Limited Partnerships50,00222,779Common stocks788807225,236205,782Tax effect(71,069)(63,582)Contra DAC effect(21,896)(23,590)$132,271$118,610  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 three months of 2011, the Company's Board of Directors declared quarterly cash dividends of $0.0625 per share payable on April 1, 2011.  During the first three months of 2011, 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) both on a statutory basis.  The Insurance Company will be permitted to pay a stockholder dividend to the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution.  Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.  The New York State Insurance Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices.  Management of the Company cannot provide assurance that the Insurance Company will have statutory earnings to support payment of dividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendent's consideration.  In 2010, the Insurance Company made $23 million in dividend payments to the Company.  No dividend payments have been made to the Company during the first three months of 2011.  The Board of Directors passed a resolution to upstream up to $26.9 million in 2011, 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 41.4% 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 2010, annuity surrenders and death claims outpaced new sales causing a minor decline in total annuity inforce.  In 2011, the Company believes that surrenders and death claim activity combined with the challenging low interest rate environment for annuity sales, may result in a slight decline in  total annuities inforce.  Policyholder account balance surrenders totaled approximately $32.0 million and $28.9 million for the three-month periods ending March 31, 2011 and 2010, respectively. In 2011, approximately 6.2% 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  32   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 2011 is approximately 6.1% on an annualized basis.  As of December 31, 2010, the Companys ratio of surrenders to average reserves on its deferred annuity business was 5.6%.  The Company conducts testing of its cash flow needs based on varying interest rate scenarios.  These tests are conducted pursuant to the New York State Insurance Department requirements and are filed with that Department. 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 operate as a buffer to the Company against the impact of interest sensitive surrenders in a possibly 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 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  ($7.9) million and  ($.6) million during the three months ended March 31, 2011 and 2010, respectively.  Net cash provided by the Company's investing activities (principally reflecting investments purchased less investments called, redeemed or sold) was approximately $ 30.9 million, and $ 3.7 million during the three months ended March 31, 2011 and 2010, 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  ($26.6) million and  ($9.4) million during the three months ended March 31, 2011 and 2010, 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 Companys consolidated balance sheet.  Given the Insurance Company's historic cash flow and current financial results, management believes that, for the next twelve months and for the reasonably foreseeable future, the Insurance Company's cash flow from investments and operating activities will provide sufficient liquidity for the operations of the Insurance Company, as well as provide sufficient funds to the Company, so that the Company will be able to pay its other operating expenses.   Due to the extraordinary nature of the current economic climate, the Company can make no assurances with respect to the payment of future dividends.  To meet its anticipated liquidity requirements, the Company purchases investments taking into account the anticipated future cash flow requirements of its underlying liabilities.  In managing the relationship between assets and liabilities, the Company analyzes the cash flows necessary to correspond with the expected cash needs on the underlying liabilities under various interest rate scenarios.  In addition, the Company invests a portion of its total assets in short-term investments, approximately 5.2% and 2.8% as of March 31, 2011 and December 31, 2010, respectively.  The Company manages the investment portfolio focusing on duration management to support our current and future liabilities.  Through periodic monitoring of the effective duration of the companys assets and liabilities, the company ensures that the degree of duration mismatch is within the guidelines of the Companys policy which provides for a mismatch of up to one year. As of March 31, 2011 and December 31, 2010, the effective duration of the Company's fixed income portfolio was approximately 5.5 and 5.6 years, respectively, which was within one year of the Companys liability duration.  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  33   deferred policy acquisition costs and deferred federal income taxes, if any, are credited or charged directly to shareholders equity, unless a decline in market value is considered to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.  Equity securities include common stocks and are carried at market value, with the related unrealized gains and losses, net of deferred federal income tax effect, if any, charged or credited directly to shareholders equity, unless a decline in market value is deemed to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.  The table below summarizes the credit quality of our fixed maturity securities, excluding preferred stocks, as of March 31, 2011 and December 31, 2010 as rated by Standard and Poors.  The table below summarizes the credit quality of our fixed maturity securities, excluding preferred stocks, as of March 31, 2011 and December 31, 2010 as rated by Standard and Poors.As of March 31, 2011As of December 31, 2010($ in thousands)Fair Value% of Fair ValueFair Value% of Fair ValueUS Treasuries$75,2362.3%$161,3244.9%AAA156,1244.9%158,5914.8%AA339,19910.5%338,13310.3%A1,013,03231.5%1,021,86831.1%BBB, BBB+, BBB-1,425,79544.3%1,384,36442.1%BB, BB+, BB-165,7395.2%173,8885.3%B25,3210.8%39,4271.2%CCC, CC, C or lower16,8950.5%11,5330.4%Total$3,217,341100.0%$3,289,128100.0%  On a statutory basis, the Insurance Company is subject to Regulation 130 adopted and promulgated by the New York State Insurance Department ("NYSID").  Under this Regulation, the Insurance Company's ownership of below investment grade debt securities is limited to 20.0% of total admitted assets, as calculated under statutory accounting practices.  As of March 31, 2011 and December 31, 2010, approximately 4.0% 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 99.96% 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, 2011 the carrying value of these securities was approximately $155.9 million. 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, 2011, the carrying value of the Companys limited partnerships was approximately $220.1 million or 5.8% 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, 2011, the Companys investments in equity securities, including limited partnership interests, were approximately 5.8% 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 $55.1 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 $29.5 million, $24.4 million and $1.9 million will expire in 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  34   in the event capital from the investments is returned to the limited partners prior to the end of the commitment period (generally 3-5 years) the capital may be recalled.  In general, risks associated with such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Company to typically take quarterly distributions (to the extent that distributions are available) of partnership earnings, except for hedge fund limited partnerships.  There can be no assurance that the Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically or that the Company will achieve any returns on such investments at all.  Further, there can be no assurance that the Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.  The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Company's financial condition and results of operations.  All 50 states of the United States and the District of Columbia have insurance guaranty fund laws requiring all life insurance companies doing business within the jurisdiction to participate in guaranty associations that are organized to pay contractual obligations under insurance policies (and certificates issued under group insurance policies) issued by impaired or insolvent life insurance companies.  These associations levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged.  Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.  These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's solvency.  The amount of these assessments in prior years has not been material.  However, the amount and timing of any future assessment on the Insurance Company under these laws cannot be reasonably estimated and are beyond the control of the Company and the Insurance Company.  Market Risk  Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes.  Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded.  We believe that a portfolio composed principally of fixed-rate investments that generate predictable rates of return should back our fixed-rate liabilities.  We do not have a specific target rate of return.  Instead, our rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, and general economic conditions. Our portfolio strategy is designed to achieve adequate risk-adjusted returns consistent with our investment objectives of effective asset-liability matching, liquidity and safety.  The market value of the Company's fixed maturity portfolio changes as interest rates change.  In general, rate decreases causes asset prices to rise, while rate increases causes asset prices to fall.  Asset/Liability Management  A persistent focus of the Insurance Companys management is maintaining the appropriate balance between the duration of its invested assets and the duration of its contractual liabilities to its annuity holders and credit suppliers.  Towards this end, at least quarterly, the investment department of the Company determines the duration of the Companys invested assets in coordination with the Companys actuaries, who are responsible for calculating the liability duration.  In the event it is determined that the duration gap between its assets and liabilities exceeds a one year target level, the Company may re-position its assets through the sale of invested assets or the purchase of new investments.  As an element of its asset liability management strategy, the Company has utilized hedges against the risks posed by a rapid and sustained rise in interest rates by entering into a form of derivative transaction known as Payor Swaptions.  Swaptions are options to enter into an interest rate swap arrangement with a Counterparty (major money-center U.S. bank) at a specified future date.  At expiration, the Counterparty would be required to pay the Insurance Company the amount of the present value of the difference between the fixed rate of interest on the swap agreement and a specified strike rate in the agreement multiplied by the notional amount of the swap agreement.  The total notional amount of the three payor swaptions at March 31, 2011 was $221.5 million and the Swaptions expire annually in January 2015 through 2017.  The effect of these transactions would be to lessen the negative impact on the Insurance Company of a significant and prolonged increase in interest rates.  With the Swaptions, the Company should be able to maintain more competitive crediting rates to policyholders when interest rates rise.  The Company has determined that the Payor Swaptions represent a non-qualified hedge. These investments are classified on the balance sheet as Derivative Instruments. The value of the Payor Swaptions is recognized at fair value (market value), with any change in fair value reflected in the income statement as a realized gain or loss. The market value of the Payor Swaptions totalled $ 9.3 million at March 31, 2011. This represented a decline in market value since December 31, 2010 of $ 131,557.  35    The 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 Company may be required to increase its reserves to satisfy its statutory accounting requirements. Based on testing as of December 31, 2010, the Insurance Company held a reserve of $46.2 million which satisfies the statutory requirements.  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.  Less thanAfterContractual Obligations1 Year1-3 Years4-5 Years5 YearsTotalUnfunded Limited Partnership Commitments (1)$29,532$25,565$-$-$55,097Policy Liabilities (2)$564,891$907,227$656,794$2,440,357$4,569,269  1) See Note 1(C) Summary of Significant Accounting Policies, Investments, of the consolidated financial statements  (2) The difference between the recorded liability of $3,126.7 million, and the total payment obligation amount of $4,569.3 million, is $1,442.4 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 $4,569 million, $2,966 million, or 64.9%, is from the Companys deferred annuity, life, and accident and health business.  Determining the timing of these payments involves significant uncertainties, including mortality, morbidity, persistency, investment returns, and the timing of policyholder surrender.  Notwithstanding these uncertainties, the table reflects an estimate of the timing of such payments.  Effects of Inflation and Interest Rate Changes  In a rising interest rate environment, the Company's average cost of funds would be expected to increase over time as it prices its new and renewing annuities to maintain a generally competitive market rate. In addition, the market value of the Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity.  Concurrently, the Company would attempt to place new funds in investments that were matched in duration to, and higher yielding than, the liabilities associated with such annuities.  Management believes that the liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, bond maturities, the Company's cash reserves or from the sale of short-term investments.  In a declining interest rate environment, the Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting rates on its fixed annuities.  Should increased liquidity be required for withdrawals in such an interest rate environment, management believes that the portion of the Company's investments which are designated as available for sale in the Company's consolidated balance sheet could be sold without materially adverse consequences in light of the general strengthening in market prices which would be expected in the fixed maturity security market.  Interest rate changes also may have temporary effects on the sale and profitability of our universal life and annuity products.  For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases the rates credited to holders of its universal life and annuity products.  In contrast, as interest rates fall, we would attempt to lower our credited rates to compensate for the corresponding decline in net investment income.  As a result, changes in interest rates could materially adversely affect the financial condition and results of operations of the Company depending on the attractiveness of alternative investments available to the Company's customers.  In that regard, in the current interest rate environment, the Company has attempted to maintain its credited rates at competitive levels designed to discourage surrenders and also to be considered attractive to purchasers of new annuity products.  Because the level of prevailing interest rates impacts the Companys competitors in the same fashion, management does not believe that the current interest rate environment will materially affect the Company's competitive position vis a vis other life insurance companies that emphasize the sale of annuity products.  Notwithstanding the foregoing, if interest rates continue at current levels or decline, there can be no assurance that this segment of the life insurance industry would not experience increased levels of surrenders and reduced sales and thereby be materially  36   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, 2010.  New Accounting Pronouncements  See Note 1 of the consolidated financial statements for a full description of the new accounting pronouncements including the respective dates of adoption and the effects on the results of operations and financial condition.  Item 3.   Quantitative and Qualitative Disclosures About Market Risk.  For a discussion of market risks, refer to the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  During the first three months of 2011, there were no material changes or developments that would materially alter the market risk assessment performed as of December 31, 2010.  Item 4.  Controls and Procedures  Disclosure Controls and Procedures  Management of the Company is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) of the Securities Exchange Act of 1934.  As of March 31, 2011, 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.  Material Weakness in Internal Control over Financial Reporting  The Company did not maintain effective controls over the accounting for its investments in limited partnerships.  With respect to the Original Restatement, the Companys procedures were not sufficient to adequately assess the level of influence or lack thereof that existed with respect to the limited partnerships, nor did they report the limited partnerships financial results within an appropriate lag period.  With respect to the OTTI Restatement, the Companys procedures were not sufficient to ensure that other-than-temporary impairments of the limited partnerships were recorded timely in the Companys consolidated financial statements.  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  37   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 may retain outside advisors to assist the Company in further developing and implementing an appropriate remediation plan.   Other than the remediation efforts discussed above, there were no changes in the Companys internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified in connection with the evaluation of our controls performed during the fiscal quarter ended March 31, 2011, that have materially affected or are reasonably likely to materially affect the Companys internal control over financial reporting.  38   PART II - OTHER INFORMATION  Item 1.  Legal Proceedings  From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.  As of March 31, 2011 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.  Item 1A.  Risk Factors  The Companys business is subject to certain risks and events that, if they occur, could adversely affect the financial condition and results of operations and the trading price of our common stock.  For a discussion of these risks, please refer to the Risk Factors section of the Companys 2010 Form 10-K.  In connection with its preparation of this quarterly report, management has reviewed and considered these risk factors and has determined that there have been no material changes to the Companys risk factors since the date of filing the 2010 Form 10-K, except as set forth below:  We have made errors in the preparation of certain or our historical financial statements and our internal control over financial reporting has not been effective.  Because of the material weaknesses in our internal control over financial reporting as described in our 2010 Form 10-K and in this Form 10-Q, 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 Securities Exchange Act of 1934, 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 2.  Unregistered Sales of Equity Securities and Use of Proceeds None  Item 3.  Defaults Upon Senior Securities None  Item 4.  Other Information None  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  b) Reports on Form 8-K Description  Non-reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review, filed on March 10, 2011  Adoption on April 13, 2011 of the Executive Annual Incentive Plan, effective January 1, 2011 and filed on April 18, 2011.  Notice of Director not standing for re-election (filed as Exhibit 99.1 to the Companys Form 8-K filed on February 1, 2011, and incorporated herein by reference).  Press Release (filed as Exhibit 99.1 to the Companys Form 8-K filed on April 14, 2011, and incorporated herein by reference).  39    Press Release entitled Presidential Life Announces Full Year and Fourth Quarter 2010 Results (filed as Exhibit 99.1 to the Companys Form 8-K filed on March 31, 2011, and incorporated herein by reference).  40   PRESIDENTIAL LIFE CORPORATION May 16, 2011    SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.    Presidential Life Corporation (Registrant)   Date:   May 16, 2011 /s/ Donald L. Barnes Donald L. Barnes, President and Duly Authorized Officer of the Registrant   Date:   May 16, 2011 /s/ P.B. (Pete) Pheffer P.B. (Pete) Pheffer, Chief Financial Officer of the Registrant  41   Exhibit 31.1  Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15f  I, Donald L. Barnes, Chief Executive Officer of Presidential Life Corporation certify that:   1. I have reviewed this quarterly report on Form 10-Q of Presidential Life Corporation;  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the 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: May 16, 2011 /s/Donald L. Barnes --------------------- Donald L. Barnes Chief Executive Officer  42   Exhibit 31.2  Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15f  I, P.B. (Pete) Pheffer, Chief Financial Officer and Treasurer of Presidential Life Corporation certify that:  1.    I have reviewed this quarterly report on Form 10-Q of Presidential Life Corporation,  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the 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: May 16, 2011 /s/P.B. (Pete) Pheffer ---------------------- P.B. (Pete) Pheffer  Chief Financial Officer  43   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, 2011 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 May 16, 2011  44   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, 2011 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 May 16, 2011   45