20. Discontinued Operations

9 Months Ended

Sep. 30, 2012

Notes to Financial Statements

Note 20 - Discontinued Operations

PFG Holdings, Inc.

On January 4, 2010, we signed a definitive agreement to sell PFG and its subsidiaries, including AGL Life Assurance Company, to Tiptree. Because of the divestiture, these operations are reflected as discontinued operations. On June 23, 2010, we completed the divestiture of PFG and closed the transaction.

There were no assets or liabilities on the consolidated balance sheets identified as discontinued operations related to PFG at September 30, 2012 and December 31, 2011.

Net losses of $3.9 million and $0.6 million were recognized during the three months ended September 30, 2012 and 2011, respectively, primarily related to accrued legal fees attributable to these matters. Net losses of $4.9  million and $2.8 million were recognized during the nine months ended September 30, 2012 and 2011, respectively, primarily related to accrued legal fees attributable to these matters.

Discontinued Reinsurance Operations

In 1999, we discontinued our reinsurance operations through a combination of sale, reinsurance and placement of certain retained group accident and health reinsurance business into run-off. We adopted a formal plan to stop writing new contracts covering these risks and to end the existing contracts as soon as those contracts would permit. However, we remain liable for claims under contracts which have not been commuted.

We have established reserves for claims and related expenses that we expect to pay on our discontinued group accident and health reinsurance business. These reserves are based on currently known facts and estimates about, among other things, the amount of insured losses and expenses that we believe we will pay, the period over which they will be paid, the amount of reinsurance we believe we will collect from our retrocessionaires and the likely legal and administrative costs of winding down the business. Net losses of $2.1 million and net losses of $7.1 million were recognized during the three and nine months ended September 30, 2012 primarily due to the commutation of certain contracts. Net losses of $3.3 million and $3.3 million were recognized during the three and nine months ended September 30, 2011 as a result of an increase in reserves reported to us by certain ceding companies. See Note 21 to these financial statements for additional discussion on remaining liabilities of our discontinued reinsurance operations.