10-Q

FORM 10-Q

_____________

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __ to __
Commission File Number 001-12332
Protective Life Corporation
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization)	95-2492236 (IRS Employer Identification Number)
2801 Highway 280 South Birmingham, Alabama 35223 (Address of principal executive offices and zip code)
(205) 268-1000 (Registrant's telephone number, including area code)

__________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X ] No []

Number of shares of Common Stock, $.50 par value, outstanding as of August 9, 2005: 69,661,981 shares.

PROTECTIVE LIFE CORPORATION Quarterly Report on Form 10-Q For Quarter Ended June 30, 2005 INDEX
	Page
Part I. Financial Information:
Item 1.Financial Statements (unaudited):
Report of Independent Registered Public Accounting Firm	2
Consolidated Condensed Statements of Income for the
Three and Six Months ended June 30, 2005 and 2004	3
Consolidated Condensed Balance Sheets as of June 30, 2005
and December 31, 2004	4
Consolidated Condensed Statements of Cash Flows for the
Six Months ended June 30, 2005 and 2004	5
Notes to Consolidated Condensed Financial Statements	6
Item 2.Management’s Discussion and Analysis of Financial Condition
and Results of Operations	12
Item 3.Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.Controls and Procedures	35
Part II. Other Information:
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 4.Submission of Matters to a Vote of Security Holders	36
Item 6.Exhibits	36
Signatures	37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Directors and Share Owners

Protective Life Corporation

We have reviewed the accompanying consolidated condensed balance sheet of Protective Life Corporation and its subsidiaries as of June 30, 2005, and the related consolidated condensed statements of income for each of the three-month and six-month periods ended June 30, 2005 and 2004, and the consolidated condensed statements of cash flows for the six-month periods ended June 30, 2005 and 2004. These interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated condensed interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2004, and the related consolidated statements of income, share-owners' equity, and cash flows for the year then ended, management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 and the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004; and in our report dated March 15, 2005, we expressed unqualified opinions thereon. The consolidated financial statements and management’s assessment of the effectiveness of internal control over financial reporting referred to above are not presented herein. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of December 31, 2004 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Birmingham, Alabama

August 8, 2005

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

(Dollars in thousands except per share amounts)

(Unaudited)

Three Months Ended		Six Months Ended
June 30		June 30
2005	2004	2005	2004

REVENUES Premiums and policy fees	$	488,301		$	456,088		$	960,444		$	899,884
Reinsurance ceded		(314,899	)		(285,369	)		(599,812	)		(534,708	)
Net of reinsurance ceded		173,402			170,719			360,632			365,176
Net investment income		282,374			265,899			570,327			530,507
Realized investment gains (losses): Derivative financial instruments		(26,021	)		8,740			(32,389	)		13,823
All other investments		12,480			(923	)		40,358			15,704
Other income		44,235			37,563			87,651			74,982
Total revenues		486,470			481,998			1,026,579			1,000,192
BENEFITS AND EXPENSES Benefits and settlement expenses, net of reinsurance ceded: (three months: 2005 - $279,484; 2004 - $252,954 six months: 2005 - $544,847; 2004 - $494,241)		291,636			282,469			592,070			569,785
Amortization of deferred policy acquisition costs		51,867			45,053			126,118			104,847
Other operating expenses, net of reinsurance ceded: (three months: 2005 - $54,489; 2004 - $43,164 six months: 2005 - $91,363; 2004 - $82,726)		69,525			59,106			143,079			130,791
Total benefits and expenses		413,028			386,628			861,267			805,423
INCOME BEFORE INCOME TAX AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		73,442			95,370			165,312			194,769
Income tax expense		25,411			34,075			57,198			68,169
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		48,031			61,295			108,114			126,600
Cumulative effect of change in accounting principle, net of income tax		0			0			0			(15,801	)
NET INCOME	$	48,031		$	61,295		$	108,114		$	110,799
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE PER SHARE - BASIC	$	.68		$	.87		$	1.53		$	1.80
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE PER SHARE - DILUTED	$	.68		$	.86		$	1.52		$	1.78
NET INCOME PER SHARE - BASIC	$	.68		$	.87		$	1.53		$	1.58
NET INCOME PER SHARE - DILUTED	$	.68		$	.86		$	1.52		$	1.56
CASH DIVIDENDS PAID PER SHARE	$	.195		$	.175		$	0.37		$	0.335
Average shares outstanding - basic		70,517,476			70,284,893			70,496,026			70,213,500
Average shares outstanding - diluted		71,279,363			71,030,983			71,276,577			70,959,287

See notes to consolidated condensed financial statements

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands)

(Unaudited)

June 30	December 31
2005	2004

ASSETS Investments: Fixed maturities, at market (amortized cost: 2005 - $14,885,118; 2004 - $13,711,526)	$	15,686,373		$	14,412,605
Equity securities, at market (cost: 2005 - $111,088; 2004 - $56,049)		115,758			58,941
Mortgage loans on real estate		3,124,877			3,005,418
Investment in real estate, net		91,981			107,246
Policy loans		466,701			482,780
Other long-term investments		186,059			259,025
Short-term investments		626,795			1,059,557
Total investments		20,298,544			19,385,572
Cash		98,316			130,596
Accrued investment income		192,454			196,076
Accounts and premiums receivable, net		348,688			44,364
Reinsurance receivables		2,883,648			2,750,260
Deferred policy acquisition costs		1,866,815			1,821,972
Goodwill		49,423			46,619
Property and equipment, net		46,878			45,454
Other assets		255,413			264,512
Assets related to separate accounts Variable annuity		2,286,141			2,308,858
Variable universal life		225,527			217,095
	$	28,551,847		$	27,211,378
LIABILITIES Policy liabilities and accruals	$	11,179,410		$	10,680,666
Stable value product account balances		5,846,120			5,562,997
Annuity account balances		3,447,394			3,463,477
Other policyholders' funds		149,247			151,660
Securities sold under repurchase agreements		31,550			0
Other liabilities		1,495,208			1,075,949
Accrued income taxes		21,701			13,195
Deferred income taxes		311,146			312,544
Liabilities related to variable interest entities		465,078			482,434
Long-term debt		469,317			451,433
Subordinated debt securities		324,743			324,743
Liabilities related to separate accounts Variable annuity		2,286,141			2,308,858
Variable universal life		225,527			217,095
		26,252,582			25,045,051
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE 2 SHARE-OWNERS' EQUITY Preferred Stock, $1.00 par value, shares authorized: 3,600,000; Issued: None Junior Participating Cumulative Preferred Stock, $1.00 par value shares authorized: 400,000; Issued: None Common Stock, $.50 par value, shares authorized: 160,000,000 shares issued: 2005 and 2004 - 73,251,960		36,626			36,626
Additional paid-in capital		433,040			426,927
Treasury stock, at cost (2005 - 3,624,716 shares; 2004 - 3,802,071 shares)		(13,011	)		(13,632	)
Unallocated stock in Employee Stock Ownership Plan (2005 - 487,616 shares; 2004 - 594,961 shares)		(1,610	)		(1,989	)
Retained earnings		1,504,442			1,422,084
Accumulated other comprehensive income: Net unrealized gains on investments, net of income tax: (2005 - $180,178; 2004 - $154,913)		334,616			287,695
Accumulated gain - hedging, net of income tax: (2005 - $2,780; 2004 - $4,639)		5,162			8,616
		2,299,265			2,166,327
	$	28,551,847		$	27,211,378

See notes to consolidated condensed financial statements

PROTECTIVE LIFE CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

Six Months Ended
June 30
2005	2004

CASH FLOWS FROM OPERATING ACTIVITIES Net income	$	108,114		$	110,799
Adjustments to reconcile net income to net cash provided by operating activities: Realized investment (gains) losses		(40,358	)		(14,061	)
Amortization of deferred policy acquisition costs		126,118			104,847
Capitalization of deferred policy acquisition costs		(208,213	)		(184,876	)
Depreciation expense		7,635			4,355
Deferred income tax		(19,454	)		(10,823	)
Accrued income tax		7,193			(14,343	)
Interest credited to universal life and investment products		353,739			327,199
Policy fees assessed on universal life and investment products		(197,873	)		(174,381	)
Change in accrued investment income and other receivables		(434,111	)		(165,590	)
Change in policy liabilities and other policyholders' funds of traditional life and health products		381,201			359,401
Net change in trading securities		190			(13,594	)
Change in other liabilities		302,392			(86,310	)
Other, net		5,715			(6,320	)
Net cash provided by operating activities		392,288			236,303
CASH FLOWS FROM INVESTING ACTIVITIES Investments available for sale, net of short-term investments:
Maturities and principal reductions of investments		901,967			1,119,804
Sale of investments		2,887,405			1,654,206
Cost of investments acquired		(4,963,208	)		(2,988,484	)
Mortgage loans:
New borrowings		(304,451	)		(333,338	)
Repayments		182,005			229,592
Change in investment real estate, net		3,757			1,140
Change in policy loans, net		16,040			16,087
Change in other long-term investments, net		5,598			2,779
Change in short-term investments, net		446,623			(64,672	)
Purchase of property and equipment		(5,283	)		(5,536	)
Net cash used in investing activities		(829,547	)		(368,422	)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line of credit arrangements and long-term debt		52,600			76,000
Principal payments on line of credit arrangement and long-term debt		(34,716	)		(153,101	)
Net proceeds from securities sold under repurchase agreements		31,550			0
Dividends to share owners		(25,756	)		(23,204	)
Issuance of subordinated debt securities		0			103,093
Issuance (purchase) of common stock held in trust		0			(67	)
Investment product deposits and change in universal life deposits		1,563,274			1,301,337
Investment product withdrawals		(1,275,863	)		(1,208,967	)
Other financing activities, net		93,890			5,848
Net cash provided by financing activities		404,979			100,939
CHANGE IN CASH		(32,280	)		(31,180	)
CASH AT BEGINNING OF PERIOD		130,596			136,698
CASH AT END OF PERIOD	$	98,316		$	105,518

See notes to consolidated condensed financial statements

PROTECTIVE LIFE CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)

(Amounts in tables are in thousands, except per share amounts)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated condensed financial statements of Protective Life Corporation and its subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements reflect all adjustments (consisting only of normal recurring items) necessary for a fair statement of the results for the interim periods presented. Operating results for the three and six-month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The year-end consolidated condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. For further information, refer to the consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2004.

Certain reclassifications have been made in the previously reported financial statements and accompanying notes to make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on previously reported net income or share-owners' equity.

With respect to the unaudited consolidated condensed financial information of the Company for the three and six-month periods ended June 30, 2005 and 2004, PricewaterhouseCoopers LLP ("PricewaterhouseCoopers") reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, their separate report dated August 8, 2005, appearing herein, stated that they did not audit and they do not express an opinion on that unaudited consolidated condensed financial information. Accordingly, the degree of reliance on their report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933 for their report on the unaudited consolidated condensed financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers into which this Form 10-Q may be incorporated by reference within the meaning of Sections 7 and 11 of the Act.

NOTE 2 - COMMITMENTS AND CONTINGENT LIABILITIES

The Company is contingently liable to obtain a $20 million letter of credit under indemnity agreements with its directors. Such agreements provide insurance protection in excess of the directors’ and officer’s liability insurance in force at the time up to $20 million. Should certain events occur constituting a change in control of the Company, the Company must obtain the letter of credit upon which directors may draw for defense or settlement of any claim relating to performance of their duties as directors. The Company has similar agreements with certain of its officers providing up to $10 million in indemnification that are not secured by the obligation to obtain a letter of credit.

Under insurance guaranty fund laws, in most states insurance companies doing business therein can be assessed up to prescribed limits for policyholder losses incurred by insolvent companies. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements. Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's own financial strength.

A number of civil jury verdicts have been returned against insurers and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or persons with whom the insurer does business, and other matters. Increasingly these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive and non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very little appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments. The Company, like other financial services companies, in the ordinary course of business, is involved in such litigation and in arbitration. Although the outcome of any such litigation or arbitration cannot be predicted, the Company believes that at the present time there are no pending or threatened lawsuits that are reasonably likely to have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

NOTE 3 - OPERATING SEGMENTS

The Company operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. A brief description of each segment follows:

·   The Life Marketing segment markets level premium term and term-like insurance, universal life, variable universal life and "bank owned life insurance" (“BOLI”) products on a national basis primarily through networks of independent insurance agents and brokers, stockbrokers, and in the BOLI market.

·   The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals.

·   The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and independent insurance agents and brokers.

·   The Stable Value Products segment sells guaranteed funding agreements “GFAs” to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts “GICs” to 401(k) and other qualified retirement savings plans.

·   The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and watercraft.

The Company has an additional segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on all debt). This segment also includes earnings from several small non-strategic lines of business (primarily cancer insurance, residual value insurance, surety insurance, and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

The Company uses the same accounting policies and procedures to measure segment operating income and assets as it uses to measure its consolidated net income and assets. Segment operating income is generally income before income tax, adjusted to exclude net realized investment gains and losses (net of the related amortization of deferred policy acquisition costs and participating income from real estate ventures) and the cumulative effect of change in accounting principle. Periodic settlements of interest rate swaps associated with corporate debt and certain investments are included in realized gains and losses but are considered part of operating income because the swaps are used to mitigate risk in items affecting segment operating income. Segment operating income represents the basis on which the performance of the Company’s business is assessed by management. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of deferred policy acquisition costs are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities, while deferred policy acquisition costs and goodwill are shown in the segments to which they are attributable.

There are no significant intersegment transactions.

The following tables summarize financial information for the Company’s segments. Asset adjustments represent the inclusion of assets related to discontinued operations.

	Three Months Ended June 30				Six Months Ended June 30
	2005		2004		2005		2004
Revenues
Life Marketing	$	144,013	$	127,136	$	307,745	$	273,419
Acquisitions		105,399		110,991		207,945		222,731
Annuities		66,390		60,962		159,568		127,967
Stable Value Products		78,166		68,688		152,660		136,600
Asset Protection		71,947		69,851		137,025		141,527
Corporate and Other		20,555		44,370		61,636		97,948
Total revenues	$	486,470	$	481,998	$	1,026,579	$	1,000,192

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
Segment Operating Income
Life Marketing	$	38,332		$	43,597		$	77,473		$	85,198
Acquisitions		21,473			23,461			42,508			44,664
Annuities		8,145			4,975			12,209			7,788
Stable Value Products		13,484			13,926			27,883			25,625
Asset Protection		6,292			4,371			12,464			8,974
Corporate and Other		9,380			3,128			21,025			7,433
Total segment operating income		97,106			93,458			193,562			179,682
Realized investment gains (losses) - investments(1)		5,317			(1,474	)		10,783			11,493
Realized investment gains (losses) - derivatives(2)		(28,981	)		3,386			(39,033	)		3,594
Income tax expense		(25,411	)		(34,075	)		(57,198	)		(68,169	)
Net income before cumulative effect of change in accounting principle		48,031			61,295			108,114			126,600
Cumulative effect of change in accounting principle		0			0			0			(15,801	)
Net income	$	48,031		$	61,295		$	108,114		$	110,799
(1)Realized investment gains (losses) - investments	$	12,480		$	(923	)	$	40,358		$	15,704
Participating income from real estate ventures		(5,883	)		0			(5,883	)		0
Related amortization of DAC		(1,280	)		(551	)		(23,692	)		(4,211	)
	$	5,317		$	(1,474	)	$	10,783		$	11,493
(2)Realized investment gains (losses) - derivatives	$	(26,021	)	$	8,740		$	(32,389	)	$	13,823
Settlements on certain interest rate swaps		(2,960	)		(5,354	)		(6,644	)		(10,229	)
	$	(28,981	)	$	3,386		$	(39,033	)	$	3,594

Operating Segment Assets June 30, 2005
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	6,540,245	$	4,012,350	$	5,978,170	$	5,722,142
Deferred policy acquisition costs		1,340,250		313,400		72,031		19,214
Goodwill		10,354		0		0		0
Total assets	$	7,890,849	$	4,325,750	$	6,050,201	$	5,741,356

		Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets	$	838,672	$	3,499,902	$	44,128	$	26,635,609
Deferred policy acquisition costs		113,937		7,983		0		1,866,815
Goodwill		38,986		83		0		49,423
Total assets	$	991,595	$	3,507,968	$	44,128	$	28,551,847

Operating Segment Assets December 31, 2004
		Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	5,967,768	$	4,063,711	$	5,980,259	$	5,377,917
Deferred policy acquisition costs		1,262,637		337,372		81,251		18,301
Goodwill		10,354		0		0		0
Total assets	$	7,240,759	$	4,401,083	$	6,061,510	$	5,396,218

		Asset Protection		Corporate and Other		Adjustments		Total Consolidated
Investments and other assets	$	879,385	$	3,027,486	$	46,261	$	25,342,787
Deferred policy acquisition costs		113,918		8,493		0		1,821,972
Goodwill		36,182		83		0		46,619
Total assets	$	1,029,485	$	3,036,062	$	46,261	$	27,211,378

NOTE 4 - STATUTORY REPORTING PRACTICES

Financial statements prepared in conformity with GAAP differ in some respects from the statutory accounting practices prescribed or permitted by insurance regulatory authorities. In accordance with statutory reporting practices, at June 30, 2005, and for the six months then ended, the Company's insurance subsidiaries had combined capital and surplus of $1.4 billion and net income of $94.3 million. At June 30, 2005, the combined asset valuation reserve held by the Company’s insurance subsidiaries was $186.4 million.

NOTE 5 - NET INCOME PER SHARE

Net income per share - basic is net income divided by the average number of shares of common stock outstanding including shares that are issuable under various deferred compensation plans. Net income per share - diluted is adjusted net income divided by the average number of shares outstanding including all diluted, potentially issuable shares that are issuable under various stock-based compensation plans and stock purchase contracts.

Net income and a reconciliation of basic and diluted average shares outstanding is summarized as follows:

	Three Months Ended June 30					Six Months Ended June 30
	2005		2004			2005		2004
Net income	$	48,031	$	61,295		$	108,114	$	110,799
Average shares issued and outstanding		69,618,179		69,388,677			69,578,030		69,281,046
Stock held in trust		0		(87,588	)		0		(84,365	)
Issuable under various deferred compensation plans		899,297		983,804			917,996		1,016,819
Average shares outstanding - basic		70,517,476		70,284,893			70,496,026		70,213,500
Stock held in trust		0		87,588			0		84,365
Stock appreciation rights (“SARs”) (a)		256,212		286,742			283,411		300,163
Issuable under various other stock-based compensation plans		505,675		371,760			497,140		361,259
Average shares outstanding - diluted		71,279,363		71,030,983			71,276,577		70,959,287

(a)    Excludes 119,400 and 0 SARs as of June 30, 2005 and 2004, respectively, that are antidilutive.  In the event the average  market price exceeds the issue price of the SARs,

such rights would be dilutive to the Company's earnings per share and will be included in the Company's calculation of the diluted average shares outstanding.

NOTE 6 - RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) is a revision of SFAS 123, “Accounting for Stock-Based Compensation,” which was originally issued by the FASB in 1995. SFAS 123(R) will become effective for the Company January 1, 2006. As originally issued, SFAS 123 provided companies with the option to either record expense for share-based payments under a fair value model, or to simply disclose the impact of the expense. SFAS 123(R) requires companies to measure the cost of share-based payments to employees using a fair value model, and to recognize that cost over the relevant service period. In addition, SFAS 123(R) requires that an estimate of future award forfeitures be made at the grant date, while SFAS 123 permitted recognition of forfeitures on an as incurred basis. When SFAS 123 was originally issued, the Company elected to recognize the cost of its share-based compensation plans in its financial statements. The Company is currently evaluating the provisions of SFAS 123(R), but does not anticipate that adoption of this standard will have a material impact on its financial position or results of operations.

NOTE 7 - COMPREHENSIVE INCOME

The following table sets forth the Company's comprehensive income (loss) for the periods presented below:

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
Net income	$	48,031		$	61,295		$	108,114		$	110,799
Change in net unrealized gains/losses on investments, net of income tax: (three months: 2005 - $123,035; 2004 - $(197,684) six months: 2005 - $39,390; 2004 - $(110,635))		228,494			(367,127	)		73,154			(205,465	)
Change in accumulated gain-hedging, net of income tax: (three months: 2005 - $(867); 2004 - $1,070 six months: 2005 $(1,860); 2004 - $2,204)		(1,610	)		1,987			(3,454	)		4,094
Reclassification adjustment for amounts included in net income, net of income tax: (three months: 2005 - $(4,368); 2004 - $323 six months: 2005 - $(14,125); 2004 - $(5,496))		(8,112	)		600			(26,233	)		(10,208	)
Comprehensive income (loss)	$	266,803		$	(303,245	)	$	151,581		$	(100,780	)

NOTE 8 - RETIREMENT BENEFIT PLANS

The net periodic benefit cost recognized for the Company’s defined benefit pension plan and unfunded excess benefits plan are as follows:

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
Service cost	$	1,691		$	1,201		$	3,795		$	3,213
Interest cost		1,736			1,352			4,144			3,677
Expected return on plan assets		(2,414	)		(1,427	)		(4,842	)		(3,707	)
Amortization of prior service cost		51			32			133			124
Amortization of net loss		950			734			1,739			1,204
Net periodic benefit cost	$	2,014		$	1,892		$	4,969		$	4,511

The Company previously disclosed in its financial statements for the year ended December 31, 2004, that it expected to contribute $6.6 million to its pension plan in 2005. The Company now estimates that it will contribute $9.9 million to its pension plan in 2005. As of June 30, 2005, no contributions had been made. As of August 9, 2005, $2.0 million had been contributed to the pension plan.

In addition to pension benefits, the Company provides limited healthcare benefits and life insurance benefits to eligible retirees. The cost of these plans for the six months ended June 30, 2005 and 2004 was not material.

NOTE 9 - LONG TERM DEBT

On April 1, 2005, the Company redeemed the $34.7 million of 8.25% Senior Notes due in 2030. At June 30, 2005, the Company had $52.6 million outstanding under its $200 million revolving line of credit due July 30, 2009. Additionally, at June 30, 2005, the Company was in compliance with all debt covenants.

NOTE 10 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

In January 2004, the Company adopted Statement of Position 03-1 “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (“SOP 03-1”). SOP 03-1 provides guidance related to the establishment of reserves for benefit guarantees provided under certain long-duration contracts, as well as the accounting for mortality benefits provided in certain universal life products. In addition, it addresses the capitalization and amortization of sales inducements to contract holders. The SOP was effective January 1, 2004 and was adopted through an adjustment for the cumulative effect of change in accounting principle originally amounting to $10.1 million (net of $5.5 million income tax). During the third quarter of 2004, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants “AcSEC” issued a Technical Practice Aid “TPA”, which provided additional interpretive guidance on applying certain provisions of the SOP. As a result of this additional guidance, in the fourth quarter of 2004, the Company restated its cumulative effect charge as of January 1, 2004 to record an additional expense of $5.7 million (net of $3.1 million income tax) for a total cumulative charge to net income of $15.8 million, net of income tax of $8.5 million ($0.22 per share on both a basic and diluted basis).

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(Dollar amounts in tables are in thousands)

INTRODUCTION

This Management’s Discussion and Analysis should be read in its entirety, since it contains detailed information that is important to understanding the Company’s results and financial condition. The Overview below is qualified in its entirety by the full Management’s Discussion and Analysis.

Protective Life Corporation (the “Company”) is a holding company whose subsidiaries provide financial services through the production, distribution, and administration of insurance and investment products. Founded in 1907, Protective Life Insurance Company is the Company's largest operating subsidiary. Unless the context otherwise requires, the "Company" refers to the consolidated group of Protective Life Corporation and its subsidiaries.

The Company operates several business segments each having a strategic focus. An operating segment is generally distinguished by products and/or channels of distribution. The Company's operating segments are Life Marketing, Acquisitions, Annuities, Stable Value Products, and Asset Protection. The Company also has an additional segment referred to as Corporate and Other which consists of net investment income on unallocated capital, interest on all debt, earnings from various investment-related transactions, and the operations of several non-strategic lines of business. The Company periodically evaluates its operating segments in light of the segment reporting requirements prescribed by SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, and makes adjustments to its segment reporting as needed.

FORWARD-LOOKING STATEMENTS - CAUTIONARY LANGUAGE

This report reviews the Company’s financial condition and results of operations including its liquidity and capital resources. Historical information is presented and discussed. Where appropriate, factors that may affect future financial performance are also identified and discussed. Certain statements made in this report include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statement that may predict, forecast, indicate or imply future results, performance or achievements instead of historical facts and may contain words like “believe,”“expect,”“estimate,”“project,”“budget,”“forecast,”“anticipate,”“plan,”“will,”“shall,”“may,” and other words, phrases, or expressions with similar meaning. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from the results contained in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

For a more complete understanding of the Company’s business and its current period results, please read the following Management’s Discussion and Analysis of Financial Condition and Results of Operations in conjunction with the Company’s latest annual report on Form 10-K and other filings with the SEC.

KNOWN TRENDS AND UNCERTAINTIES

The factors which could affect the Company's future results include, but are not limited to, general economic conditions and the following known trends and uncertainties: we are exposed to the risks of natural disasters, malicious and terrorist acts that could adversely affect our operations; we operate in a mature, highly competitive industry, which could limit our ability to gain or maintain our position in the industry; a ratings downgrade could adversely affect our ability to compete; our policy claims fluctuate from period to period, and actual results could differ from our expectations; our results may be negatively affected should actual experience differ from management's assumptions and estimates; the use of reinsurance introduces variability in our statements of income; we could be forced to sell investments at a loss to cover policyholder withdrawals; interest rate fluctuations could negatively affect our spread income or otherwise impact our business; equity market volatility could negatively impact our business; a deficiency in our systems could result in over or underpayments of amounts owed to or by the Company and/or errors in our critical assumptions or reported financial results; insurance companies are highly regulated and subject to numerous legal restrictions and regulations; the Company is exposed to potential risks from recent legislation requiring companies to evaluate their internal control over financial reporting; changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products; financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments; the financial services industry is sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny; our ability to maintain low unit costs is dependent upon the level of new sales and persistency of existing business; our investments are subject to market and credit risks; we may not realize our anticipated financial results from our acquisitions strategy; we are dependent on the performance of others; our reinsurers could fail to meet assumed obligations, increase rates or be subject to adverse developments that could affect us; computer viruses or network security breaches could affect our data processing systems or those of our business partners; our ability to grow depends in large part upon the continued availability of capital; and new accounting rules or changes to existing accounting rules could negatively impact us. Please refer to Exhibit 99, incorporated by reference herein, about these factors that could affect future results.

The Company’s results may fluctuate from period to period due to fluctuations in mortality, persistency, claims, expenses, interest rates, and other factors. Therefore, it is management's opinion that quarterly operating results for an insurance company are not necessarily indicative of results to be achieved in future periods, and that a review of operating results over a longer period is necessary to assess an insurance company's performance.

OVERVIEW — RESULTS OF OPERATIONS

In the following discussion, segment operating income is defined as income before income tax, adjusted to exclude net realized investment gains and losses (net of the related amortization of deferred policy acquisition costs (“DAC”) and participating income from real estate ventures) and the cumulative effect of change in accounting principle. Periodic settlements of interest rate swaps associated with corporate debt and certain investments are included in realized gains and losses but are considered part of segment operating income because the swaps are used to mitigate risk in items affecting segment operating income. Management believes that segment operating income provides relevant and useful information to investors, as it represents the basis on which the performance of the Company’s business is internally assessed. Although the items excluded from segment operating income may be significant components in understanding and assessing the Company’s overall financial performance, management believes that segment operating income enhances an investor’s understanding of the Company’s results of operations. Note that the Company’s segment operating income measures may not be comparable to similarly titled measures reported by other companies.

The following table sets forth a summary of results and reconciles segment operating income to consolidated net income:

	Three Months Ended June 30								Six Months Ended June 30
		2005			2004		Change			2005			2004		Change
Segment Operating Income
Life Marketing	$	38,332		$	43,597		(12.1	)%	$	77,473		$	85,198		(9.1	)%
Acquisitions		21,473			23,461		(8.5	)		42,508			44,664		(4.8	)
Annuities		8,145			4,975		63.7			12,209			7,788		56.8
Stable Value Products		13,484			13,926		(3.2	)		27,883			25,625		8.8
Asset Protection		6,292			4,371		43.9			12,464			8,974		38.9
Corporate and Other		9,380			3,128		199.9			21,025			7,433		182.9
Total segment operating income		97,106			93,458					193,562			179,682
Realized investment gains (losses) - investments(1)		5,317			(1,474	)				10,783			11,493
Realized investment gains (losses) - derivatives(2)		(28,981	)		3,386					(39,033	)		3,594
Income tax expense		(25,411	)		(34,075	)				(57,198	)		(68,169	)
Net income before cumulative effect of change in accounting principle		48,031			61,295		(21.6	)		108,114			126,600		(14.6	)
Cumulative effect of change in accounting principle, net of income tax		0			0					0			(15,801	)
Net income	$	48,031		$	61,295		(21.6	)	$	108,114		$	110,799		(2.4	)
(1)Realized investment gains (losses) - investments	$	12,480		$	(923	)			$	40,358		$	15,704
Participating income from real estate ventures		(5,883	)		0					(5,883	)		0
Related amortization of DAC		(1,280	)		(551	)				(23,692	)		(4,211	)
	$	5,317		$	(1,474	)			$	10,783		$	11,493
(2)Realized investment gains (losses) - derivatives	$	(26,021	)	$	8,740				$	(32,389	)	$	13,823
Less settlements on certain interest rate swaps		(2,960	)		(5,354	)				(6,644	)		(10,229	)
	$	(28,981	)	$	3,386				$	(39,033	)	$	3,594

Net income for the second quarter of 2005 reflects moderate growth in segment operating income, offset by net realized investment losses. Net realized investment losses were $23.7 million and $28.3 million for the second quarter and first six months of 2005, respectively, compared to net realized investment gains of $1.9 million and $15.1 million, respectively, for the same periods of 2004. Partially offsetting the change in realized investment gains and losses is the cumulative effect charge of $15.8 million recorded in the first six months of 2004, with no such adjustment in 2005. (See Note 10 to the Consolidated Condensed Financial Statements for additional information related to the cumulative effect of change in accounting principle.) Life Marketing’s operating income decreased 12.1% and 9.1% from the second quarter and first six months of 2004, respectively, reflecting higher overall expenses, partially offset by continued growth in life insurance in-force through new sales. The quarterly and year-to-date declines in the Acquisitions segment’s operating income are due to the normal runoff of the segment’s previously acquired blocks of business. Improvement in the equity markets and higher sales of variable annuities contributed to the increase in the Annuities segment’s earnings, while increases in average account values, partially offset by spread compression, resulted in higher year-to-date operating income in the Stable Value Products segment. The Asset Protection segment’s operating income increased 43.9% and 38.9% over the second quarter and first six months of 2004, respectively, primarily due to improvements in the segment’s service contract and credit insurance product lines. The second quarter results for the Asset Protection segment were also improved over the prior year due to improvements in the discontinued lines.

RESULTS BY BUSINESS SEGMENT

In the following segment discussions, various statistics and other key data the Company uses to evaluate its segments are presented. Sales statistics are used by the Company to measure the relative progress in its marketing efforts, but may or may not have an immediate impact on reported segment operating income. Sales data for traditional life insurance are based on annualized premiums, while universal life sales are based on annualized planned premiums plus 6% of excess over target premiums. Sales of annuities are measured based on the amount of deposits received. Stable value contract sales are measured at the time that the funding commitment is made, based on the amount of deposit to be received. Sales within the Asset Protection segment are generally based on the amount of single premium and fees received.

Sales and life insurance in-force amounts are derived from the Company’s various sales tracking and administrative systems, and are not derived from the Company’s financial reporting systems or financial statements. Mortality variances are derived from actual claims compared to expected claims. These variances do not represent the net impact to earnings due to the interplay of reserves and DAC amortization.

Life Marketing

The Life Marketing segment markets level premium term and term-like insurance, universal life (“UL”), variable universal life and "bank owned life insurance" (“BOLI”) products on a national basis primarily through networks of independent insurance agents and brokers, stockbrokers, and in the BOLI market. Segment results were as follows:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	290,333		$	250,931			15.7	%	$	564,102		$	486,917			15.9	%
Reinsurance ceded		(235,968	)		(205,072	)		15.1			(435,714	)		(373,858	)		16.5
Net premiums and policy fees		54,365			45,859			18.5			128,388			113,059			13.6
Net investment income		62,541			58,929			6.1			123,694			116,869			5.8
Other income		27,107			22,348			21.3			55,663			43,491			28.0
Total operating revenues		144,013			127,136			13.3			307,745			273,419			12.6
BENEFITS AND EXPENSES
Benefits and settlement expenses		72,994			66,692			9.4			162,777			138,718			17.3
Amortization of deferred policy acquisition costs		21,413			10,926			96.0			39,240			32,007			22.6
Other operating expenses		11,274			5,921			90.4			28,255			17,496			61.5
Total benefits and expenses		105,681			83,539			26.5			230,272			188,221			22.3
OPERATING INCOME		38,332			43,597			(12.1	)		77,473			85,198			(9.1	)
INCOME BEFORE INCOME TAX	$	38,332		$	43,597			(12.1	)	$	77,473		$	85,198			(9.1	)

The following table summarizes key data for the Life Marketing segment:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Sales By Product
Traditional	$	26,861		$	42,208			(36.4	)%	$	61,369		$	89,043			(31.1	)%
Universal life		41,638			19,266			116.1			74,385			36,963			101.2
Variable universal life		1,197			1,474			(18.8	)		2,335			2,599			(10.2	)
	$	69,696		$	62,948			10.7		$	138,089		$	128,605			7.4
Sales By Distribution Channel
Brokerage general agents	$	29,495		$	39,580			(25.5	)	$	65,667		$	82,328			(20.2	)
Independent agents		18,746			12,570			49.1			36,057			25,310			42.5
Stockbrokers/banks		18,004			6,782			165.5			30,629			12,841			138.5
BOLI/other		3,451			4,016			(14.1	)		5,736			8,127			(29.4	)
	$	69,696		$	62,948			10.7		$	138,089		$	128,606			7.4
Average Life Insurance In-Force(1)
Traditional	$	337,741,129		$	290,597,427			16.2		$	333,005,255		$	282,880,158			17.7
Universal life		44,572,685			39,999,009			11.4			43,862,908			39,506,180			11.0
	$	382,313,814		$	330,596,436			15.6		$	376,868,163		$	322,386,338			16.9
Average Account Values
Universal life	$	4,036,023		$	3,571,371			13.0		$	3,960,093		$	3,518,249			12.6
Variable universal life		221,347			185,814			19.1			219,930			181,012			21.5
	$	4,257,370		$	3,757,185			13.3		$	4,180,023		$	3,699,261			13.0
Interest Spread - Universal Life(2)
Net investment income yield		6.18	%		6.45	%					6.16	%		6.46	%
Interest credited to policyholders		4.88			4.94						4.83			4.95
Interest spread		1.30	%		1.51	%					1.33	%		1.51	%
Mortality Experience (3)		3,813			(203	)					5,065			1,991
(1)Amounts are not adjusted for reinsurance ceded. (2)Interest spread on average general account values. (3)Represents a favorable (unfavorable) variance as compared to pricing assumptions.

Operating income decreased 12.1% and 9.1%, respectively, from the second quarter and first six months of 2004. This decrease is the result of higher overall expenses, partially offset by increases in total revenues of 13.3% and 12.6% for the quarter and year-to-date, respectively, primarily due to moderate increases in sales and growth of life insurance in-force and average account values.

Net premiums and policy fees grew by 18.5% in the current quarter and 13.6% year-to-date due to the growth in life insurance in-force achieved over the last several quarters. Net investment income increased approximately 6.0% for the quarter and first six months of 2005, reflecting the growth of the segment’s assets, offset by lower investment yields. Interest spreads for the first six months have declined 18 basis points from the prior year. The increases of 21.3% for the quarter and 28.0% year-to-date in other income are primarily due to additional income from the segment’s broker-dealer subsidiary. Due to the nature of these businesses, the majority of this additional income is offset by increases in other operating expenses.

Benefits and settlement expenses were 9.4% and 17.3% higher than the second quarter and first six months of 2004, respectively, due to growth in life insurance in-force, fluctuations in mortality experience and higher credited interest on UL products resulting from increases in account values. Mortality for the current quarter was $4.0 million more favorable than the prior year, while year-to-date mortality was $3.1 million more favorable than the same period of 2004. Amortization of DAC was 96.0% and 22.6% higher for the quarter and first six months, respectively, than 2004 primarily due to unfavorable effects of unlocking on UL amortization in 2005 compared to the prior year, increased amortization resulting from the capitalization of premium taxes on excess premiums in the universal life line, and reductions to amortization in 2004 resulting from the SOP implementation.

Other operating expenses for the segment were as follows:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Insurance Companies:
First year commissions	$	103,671		$	63,520			63.2	%	$	183,719		$	141,775			29.6	%
Renewal commissions		8,187			7,504			9.1			15,982			15,177			5.3
First year ceding allowances		(33,230	)		(39,002	)		(14.8	)		(73,583	)		(83,624	)		(12.0	)
Renewal ceding allowances		(47,664	)		(39,462	)		20.8			(85,790	)		(70,285	)		22.1
General & administrative		44,414			45,007			(1.3	)		91,322			93,572			(2.4	)
Taxes, licenses and fees		7,887			6,144			28.4			14,367			10,434			37.7
Other operating expenses incurred		83,265			43,711			90.5			146,017			107,049			36.4
Less commissions, allowances & expenses capitalized		(98,424	)		(59,622	)		65.1			(171,338	)		(131,893	)		29.9
Other operating expenses		(15,159	)		(15,911	)		(4.7	)		(25,321	)		(24,844	)		1.9
Marketing Companies:
Commissions		17,599			15,511			13.5			35,697			31,066			14.9
Other		8,834			6,321			39.8			17,879			11,274			58.6
Other operating expenses		26,433			21,832			21.1			53,576			42,340			26.5
Other operating expenses	$	11,274		$	5,921			90.4		$	28,255		$	17,496			61.5

Currently, the segment reinsures significant amounts of its life insurance in-force. The Company is currently in the process of increasing its retained amounts on certain of its newly written products. Pursuant to the underlying reinsurance contracts, reinsurers pay allowances to the segment as a percentage of both first year and renewal premiums. A portion of these allowances is deferred as part of DAC while the remainder is recognized immediately as a reduction of other operating expenses. While the recognition of reinsurance allowances is consistent with GAAP, non-deferred allowances often exceed the segment’s non-deferred direct costs, causing net other operating expenses to be negative. Consideration of all components of the segment’s income statement, including amortization of DAC, is required to assess the impact of reinsurance on segment operating income.

Other operating expenses for the insurance companies were relatively unchanged from the prior year, as the additional expenses incurred as a result of the increase in sales were offset by the additional amounts capitalized as DAC. Amounts capitalized as DAC generally include first year commissions and allowances, and other deferrable acquisition expenses. The change in these amounts generally reflects the trend in sales for the quarter.

Other operating expenses for the marketing companies increased 21.1% and 26.5%, respectively, for the second quarter and first six months of 2005, as compared to the same periods of 2004, primarily as a result of higher commissions and other expenses in the segment’s broker-dealer subsidiary, resulting from higher revenue.

Sales for the segment increased 10.7% and 7.4% versus the second quarter and first six months of 2004 primarily due to the significant increase in universal life sales. The strong UL sales were partially offset by lower production of traditional life in the brokerage general agent channel. Sales of BOLI business also declined from 2004. BOLI sales will vary widely between periods as the segment responds to opportunities for these products only when the market accommodates required returns.

Acquisitions

The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment's primary focus is on life insurance policies sold to individuals. Segment results were as follows:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	66,104		$	69,659			(5.1	)%	$	131,604		$	139,128			(5.4	)%
Reinsurance ceded		(17,257	)		(17,840	)		(3.3	)		(37,286	)		(34,941	)		6.7
Net premiums and policy fees		48,847			51,819			(5.7	)		94,318			104,187			(9.5	)
Net investment income		56,099			58,704			(4.4	)		112,813			117,359			(3.9	)
Other income		453			468			(3.2	)		814			1,185			(31.3	)
Total operating revenues		105,399			110,991			(5.0	)		207,945			222,731			(6.6	)
BENEFITS AND EXPENSES
Benefits and settlement expenses		68,784			71,340			(3.6	)		135,183			144,360			(6.4	)
Amortization of deferred policy acquisition costs		7,185			7,476			(3.9	)		14,256			15,325			(7.0	)
Other operating expenses		7,957			8,714			(8.7	)		15,998			18,382			(13.0	)
Total benefits and expenses		83,926			87,530			(4.1	)		165,437			178,067			(7.1	)
OPERATING INCOME		21,473			23,461			(8.5	)		42,508			44,664			(4.8	)
INCOME BEFORE INCOME TAX	$	21,473		$	23,461			(8.5	)	$	42,508		$	44,664			(4.8	)

The following table summarizes key data for the Acquisitions segment:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Average Life Insurance In-Force(1)
Traditional	$	10,912,493		$	12,243,296			(10.9	)%	$	11,052,073		$	12,421,888			(11.0	)%
Universal life		17,314,671			18,546,671			(6.6	)		17,476,843			18,720,370			(6.6	)
	$	28,227,164		$	30,789,967			(8.3	)	$	28,528,916		$	31,142,258			(8.4	)
Average Account Values
Universal life	$	1,708,352		$	1,732,770			(1.4	)	$	1,712,455		$	1,738,442			(1.5	)
Fixed annuity(2)		214,063			219,551			(2.5	)		215,016			220,821			(2.6	)
Variable annuity		77,202			97,447			(20.8	)		80,714			99,577			(18.9	)
	$	1,999,617		$	2,049,768			(2.4	)	$	2,008,185		$	2,058,840			(2.5	)
Interest Spread - UL & Fixed Annuities
Net investment income yield		7.04	%		7.28	%					7.07	%		7.25	%
Interest credited to policyholders		5.16			5.21						5.15			5.24
Interest spread		1.88	%		2.07	%					1.92	%		2.01	%
Mortality Experience(3)		2,718			2,216						3,165			2,876

⁽¹⁾    Amounts are not adjusted for reinsurance ceded.

⁽²⁾    Includes general account balances held within variable annuity products.

⁽³⁾    Represents a favorable variance as compared to pricing assuptions.

Net premiums and policy fees declined 5.7% and 9.5% from the second quarter and first six months of 2004, respectively. These decreases are the result of the runoff of the acquired blocks of business. Year-to-date net premiums were additionally decreased by payment during the first quarter of 2005 of amounts due under two reinsurance treaties. While this had no net income impact, the payments decreased net premiums and policy fees by $3.9 million, benefits and settlement expenses by $3.5 million, and other operating expenses by $0.3 million.

Net investment income was also lower for the current quarter and year-to-date due to the runoff of business and lower overall earned rates. The segment continues to review credited rates on UL and annuity business to minimize the impact of lower earned rates on interest spreads. The year-to-date interest spread declined 9 basis points from the same period of the prior year.

Benefits and settlement expenses for the second quarter and first six months are 3.6% and 6.4% lower, respectively, than the comparable periods of the prior year due to the decline in in-force business. The year-to-date decrease also includes the impact of the reinsurance payments mentioned above. Amortization of DAC decreased during the current quarter and the first six months of 2005 due to the overall decline in business as well as a favorable change in DAC adjustments on certain universal life and deferred annuity blocks. Other operating expenses decreased 8.7% and 13.0% from the second quarter and first six months of 2004, respectively, due to lower commissions resulting from lower net premiums, reductions in other general expenses, and the reinsurance payments discussed above.

The segment’s life insurance in-force and UL and annuity account values have declined from 2004 levels as no new acquisitions have been made since 2002. In the ordinary course of business, the segment regularly considers acquisitions of blocks of policies or smaller insurance companies. However, the level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, and market dynamics. The Company will continue to pursue suitable acquisitions as they become available.

Annuities

The Annuities segment manufactures, sells, and supports fixed and variable annuity products. These products are primarily sold through stockbrokers, but are also sold through financial institutions and independent agents and brokers. Segment results were as follows:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	7,866		$	7,594			3.6	%	$	15,706		$	15,222			3.2	%
Reinsurance ceded		0			0						0			0
Net premiums and policy fees		7,866			7,594			3.6			15,706			15,222			3.2
Net investment income		54,786			51,523			6.3			110,936			103,111			7.6
Other income		2,264			1,555			45.6			3,990			3,340			19.5
Total operating revenues		64,916			60,672			7.0			130,632			121,673			7.4
BENEFITS AND EXPENSES
Benefits and settlement expenses		48,687			44,456			9.5			96,767			90,502			6.9
Amortization of deferred policy acquisition costs		2,173			6,568			(66.9	)		9,399			11,965			(21.4	)
Other operating expenses		5,911			4,673			26.5			12,257			11,418			7.3
Total benefits and expenses		56,771			55,697			1.9			118,423			113,885			4.0
OPERATING INCOME		8,145			4,975			63.7			12,209			7,788			56.8
Realized investment gains		1,474			290						28,936			6,294
Related amortization of DAC		(1,280	)		(551	)					(23,692	)		(4,211	)
INCOME BEFORE INCOME TAX	$	8,339		$	4,714			76.9		$	17,453		$	9,871			76.8

The following table summarizes key data for the Annuities segment:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Sales
Fixed annuity	$	60,841		$	108,305			(43.8	)%	$	120,409		$	124,400			(3.2	)%
Variable annuity		90,329			63,317			42.7			167,332			125,040			33.8
	$	151,170		$	171,622			(11.9	)	$	287,741		$	249,440			15.4
Average Account Values
Fixed annuity(1)	$	3,448,809		$	3,161,984			9.1		$	3,445,667		$	3,171,000			8.7
Variable annuity		2,181,000			1,992,455			9.5			2,190,214			1,994,422			9.8
	$	5,629,809		$	5,154,439			9.2		$	5,635,881		$	5,165,422			9.1
Interest Spread - Fixed Annuities(2)
Net investment income yield		6.42	%		6.60	%					6.45	%		6.54	%
Interest credited to policyholders		5.67			5.72						5.60			5.71
Interest spread		0.75	%		0.88	%					0.85	%		0.83	%
										As  of June 30
											2005			2004
GMDB - Net amount at risk(3)										$	183,797		$	252,932			(27.3	)
GMDB - Reserves										$	3,266		$	5,097			(35.9	)
S&P 500 Index											1,191			1,141			4.4

⁽¹⁾    Includes general account balances held within variable annuity products.

⁽²⁾    Interest spread on average general account values.

⁽³⁾    Guaranteed death benefit in excess of contract holder account balance.

Segment operating revenues increased 7.0% and 7.4% compared to the second quarter and first six months of 2004, respectively, primarily as a result of higher net investment income. Average account balances have grown approximately 9% from the prior year, resulting in higher investment income. The additional income resulting from the larger account balances was reduced in the second quarter of 2005 by lower interest spreads. Interest spreads on fixed annuities declined 13 basis points compared to the second quarter of 2004, primarily due to the rebalancing of the investment portfolio discussed below. The increase in other income is primarily due to an increase in asset-based fees.

During the first quarter of 2005, the investment portfolio was rebalanced to improve the duration match between the segment’s assets and liabilities. Approximately $300 million in securities were sold, causing the large increase in realized investment gains for the six months ended June 30, 2005. These gains were partially offset by an increase of $22.4 million in DAC amortization associated with those gains. The resulting funds from this transaction were reinvested in assets with lower rates than the investments that were sold, causing a decline in the investment income yield for the segment’s portfolio. The segment continually monitors and adjusts credited rates as appropriate in an effort to maintain the interest spread. The year-to-date interest spread has increased slightly (2 basis points) from the prior year.

Total benefits and expenses increased 1.9% and 4.0% for the quarter and year-to-date, compared to the same periods of 2004. This increase is primarily due to higher benefits and settlement expenses and other operating expenses, offset by lower DAC amortization. The increase in benefits and settlement expenses is primarily due to higher credited interest resulting from increased average account values, while additional operating expenses were incurred related to the development of a new product.

These increases were substantially offset by a $5.0 million reduction in DAC amortization in the current quarter due to favorable unlocking. While the investment income yield obtained on the reinvested assets resulting from the portfolio rebalancing discussed above was lower than the yield obtained prior to the rebalancing, the actual yield on the reinvested assets exceeded previously projected spread income. The higher investment yield resulted in higher future estimated gross profits in the segment’s market value adjusted annuity line, causing the favorable unlocking of DAC.

Sales of fixed annuities declined 43.8% and 3.2%, while sales of variable annuities increased 42.7% and 33.8% from the second quarter and first six months of 2004, respectively. Fixed annuity sales are down due to lower interest rates, while variable annuity sales are benefiting from the improvement in the equity markets. Total year-to-date sales are 15.4% higher than the prior year. In addition to improving variable annuity sales, the improved equity markets also reduced the net amount at risk with respect to guaranteed minimum death benefits by 27.3%.

Stable Value Products

The Stable Value Products segment sells guaranteed funding agreements “GFAs” to special purpose entities that in turn issue notes or certificates in smaller, transferable denominations. The segment also markets fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, institutional investors, bank trust departments, and money market funds. Additionally, the segment markets guaranteed investment contracts “GICs” to 401(k) and other qualified retirement savings plans. Segment results were as follows:

	Three Months Ended June 30							Six Months Ended June 30
	2005		2004		Change			2005		2004		Change
REVENUES
Net investment income	$	76,081	$	66,666		14.1	%	$	149,956	$	130,699		14.7	%
BENEFITS AND EXPENSES
Benefits and settlement expenses		60,084		50,720		18.5			117,253		100,489		16.7
Amortization of deferred policy acquisition costs		1,121		803		39.6			2,205		1,564		41.0
Other operating expenses		1,392		1,217		14.4			2,615		3,021		(13.4	)
Total benefits and expenses		62,597		52,740		18.7			122,073		105,074		16.2
OPERATING INCOME		13,484		13,926		(3.2	)		27,883		25,625		8.8
Realized investment gains		2,085		2,022					2,704		5,901
INCOME BEFORE INCOME TAX	$	15,569	$	15,948		(2.4	)	$	30,587	$	31,526		(3.0	)

The following table summarizes key data for the Stable Value Products segment:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Sales
GIC	$	5,000		$	39,000			(87.2	)%	$	29,050		$	39,000			(25.5	)%
GFA - Direct Institutional		0			960			(100.0	)		0			960			(100.0	)
GFA - Registered Notes - Institutional		350,000			0			n/a			700,000			300,000			133.3
GFA - Registered Notes - Retail		96,795			68,250			41.8			128,640			289,750			(55.6	)
	$	451,795		$	108,210			317.5		$	857,690		$	629,710			36.2
Average Account Values	$	5,808,943		$	5,062,014			14.8		$	5,763,519		$	4,956,987			16.3
Operating Spread
Net investment income yield		5.37	%		5.40	%					5.34	%		5.42	%
Interest credited		4.24			4.11						4.18			4.17
Operating expenses		0.18			0.16						0.17			0.19
Operating spread		0.95	%		1.13	%					0.99	%		1.06	%

Operating income declined 3.2% and increased 8.8% from the second quarter and first six months of the prior year, respectively. The quarterly decline is due to spread compression and higher operating expenses, offset by growth in average account balances. Differences in portfolio composition caused the investment income yield to decline, while increases in LIBOR caused the interest credited rate to increase, resulting in a decrease in the net interest spread of 16 basis points for the second quarter of 2005 compared to the same period of 2004. Increased operating expenses for the quarter primarily due to legal fees associated with the West Virginia subpoena discussed in the “Recent Developments” section herein and the upcoming registration associated with the GFA program, caused the additional decline of 2 basis points in operating spreads. Currently, operating spreads are anticipated to range from 90-95 basis points for the remainder of 2005. The growth in average account balances was primarily driven by sales of the Company’s registered funding agreement-backed notes program as discussed below.

The increase in operating income for the first six months is due to growth in average account balances of 16.3%, partially offset by spread compression of 6 basis points. The year-to-date spread compression is due to the same factors discussed above for the quarter, moderated by the maturity of high rate contracts in the first quarter resulting in an interest credited rate of 4.12% for the first quarter of 2005.

Total sales were 317.5% and 36.2% higher than the second quarter and first six months of 2004, respectively. Institutional sales continue to be strong. Retail note sales improved during the quarter but continue to lag behind prior year-to-date results. The decline in retail note sales from the prior year is due to general market conditions including interest rate volatility. The Company currently anticipates total annual sales for 2005 of $1.5 billion.

Asset Protection

The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles and watercraft. Segment results were as follows:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
REVENUES
Gross premiums and policy fees	$	113,504		$	115,354			(1.6	)%	$	227,508		$	233,533			(2.6	)%
Reinsurance ceded		(61,621	)		(62,120	)		(0.8	)		(126,684	)		(125,226	)		1.2
Net premiums and policy fees		51,883			53,234			(2.5	)		100,824			108,307			(6.9	)
Net investment income		8,602			7,500			14.7			16,202			15,041			7.7
Other income		11,462			9,117			25.7			19,999			18,179			10.0
Total operating revenues		71,947			69,851			3.0			137,025			141,527			(3.2	)
BENEFITS AND EXPENSES
Benefits and settlement expenses		29,851			33,363			(10.5	)		56,380			65,562			(14.0	)
Amortization of deferred policy acquisition costs		17,669			17,522			0.8			35,215			37,478			(6.0	)
Other operating expenses		18,135			14,595			24.3			32,966			29,513			11.7
Total benefits and expenses		65,655			65,480			0.3			124,561			132,553			(6.0	)
OPERATING INCOME		6,292			4,371			43.9			12,464			8,974			38.9
INCOME BEFORE INCOME TAX	$	6,292		$	4,371			43.9		$	12,464		$	8,974			38.9

The following table summarizes key data for the Asset Protection segment:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Sales
Credit insurance	$	51,421		$	59,035			(12.9	)%	$	101,527		$	110,281			(7.9	)%
Service contracts		62,437			54,861			13.8			109,575			99,136			10.5
Other products		13,567			8,940			51.8			22,642			17,091			32.5
	$	127,425		$	122,836			3.7		$	233,744		$	226,508			3.2
Loss Ratios (1)
Credit insurance		33.5	%		38.1	%					33.3	%		38.9	%
Service contracts		72.2			87.6						72.8			82.1
Other products		73.6			76.6						68.4			77.4

⁽¹⁾    Incurred claims as a percentage of earned premiums.

Operating income increased 43.9% and 38.9% from the second quarter and first six months of 2004, respectively. Earnings from core product lines are up $1.8 million and $4.8 million for the quarter and year-to-date, respectively, while, discontinued operations improved in the current quarter but are relatively unchanged year-to-date.

Within the segment’s core product lines, service contract earnings improved $2.0 million for the quarter and $3.8 million year-to-date, while credit insurance earnings improved $0.9 million and $1.9 million for the same periods. Earnings from other products were $1.1 million and $0.9 million lower for the quarter and year-to-date, respectively, compared to the prior year. The overall improvement in earnings from core operations was partially offset by the lack of income from charter sales in 2005, compared to charter sales of $0.2 million and $1.2 million for the second quarter and first six months of 2004, respectively.

The decline in net premiums was primarily related to decreases of $3.8 million and $9.3 million for the quarter and year-to-date periods, respectively, in the credit insurance lines due in part to higher levels of reinsurance. Additionally, as expected, net premiums in the discontinued lines continue to decrease, resulting in net premiums for these lines that were $2.1 million and $4.5 million lower for the second quarter and year-to-date, respectively. Partially offsetting these declines were increases in net premiums in the vehicle service contract and other lines of business totaling $5.1 million for the quarter and $6.5 million for the first six months, reflecting the continued steady growth of these lines.

Other income has increased from the prior year 25.7% and 10.0% for the quarter and year-to-date, respectively, due to increases in administrative fees on service contracts, resulting from the increased volume in this product line.

Benefits and settlement expenses decreased 10.5% and 14.0% from the second quarter and first six months of 2004, respectively, primarily due to the overall improvement in loss ratios, most notably in the service contract line. Loss ratios in both the service contracts and credit insurance have continued to improve over prior periods as a result of segment initiatives to increase pricing and tighten the underwriting and claims processes. Loss ratios for other products also declined, primarily due to the continuing improvement in the closed blocks of business in the segment’s runoff lines.

Other operating expenses are approximately $3.5 million higher for both the quarter and first six months of 2005 compared to the prior periods. Approximately one third of this increase is due to the reclassification of the interest on funds withheld expense. These costs were included in benefits and settlement expenses in the prior year, but are now being reflected as a component of other operating expenses. (This change also contributed to the overall decrease in benefits and settlement expenses discussed above.) The remainder of the increase is primarily due to higher commissions on service contracts due to increased volume.

Total segment sales increased 3.7% and 3.2% for the second quarter and the first six months, respectively, compared to the same periods of 2004. Sales of credit insurance through financial institutions have continued to outperform the prior year due to a third party administrator relationship. These sales are expected to decline over the next year as the third party administrator goes into runoff. Additionally, credit insurance sold through automobile dealers has declined from the prior year, resulting in an overall decline in credit insurance sales of 12.9% for the quarter and 7.9% for the first six months. Service contract sales continued to improve in the second quarter, exceeding the prior year amounts by 13.8% for the current quarter and 10.5% year-to-date. The year-to-date improvement in service contract sales is comprised of increases of $8.8 million and $4.8 million, respectively, in the vehicle and marine lines.

Corporate and Other

The Company has an additional segment referred to as Corporate and Other. The Corporate and Other segment primarily consists of net investment income and expenses not attributable to the segments above (including net investment income on unallocated capital and interest on debt). This segment also includes earnings from several small non-strategic lines of business (primarily cancer insurance, residual value insurance, surety insurance, and group annuities), various investment-related transactions, and the operations of several small subsidiaries.

The following table summarizes results for this segment:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004		Change
Operating income(1)	$	9,380		$	3,128		$	6,252		$	21,025		$	7,433	$	13,592
Realized gains and losses - investments		2,728			(3,100	)		5,828			2,655			3,915		(1,260	)
Realized gains and losses - derivatives		(28,671	)		3,251			(31,922	)		(38,853	)		3,188		(42,041	)
Income before income tax	$	(16,563	)	$	3,279		$	(19,842	)	$	(15,173	)	$	14,536	$	(29,709	)

⁽¹⁾    Includes settlements on interest rate swaps of $2,960 and $5,354 for the three months ended June 30, 2005 and 2004, respectively, and $6,644 and $10,229 for the six months ended

    June 30, 2005 and 2004, respectively.

Operating income increased $6.3 million and $13.6 million from the second quarter and first six months of 2004, respectively, primarily due to increased investment income, improved results from the runoff lines, and lower operating expenses. Net investment income increased $1.7 million and $9.3 million for the quarter and year-to-date, respectively, while income from interest rate swaps decreased $2.4 million and $3.6 million for these same periods. The year-to-date increase in net investment income is primarily the result of higher amounts of unallocated capital and increased participating income from mortgage and real estate, partially offset by lower income on trading securities. Results for the runoff insurance lines have improved from the prior year, with operating losses of $2.2 million and $5.0 million for the second quarter and first six months of 2005, respectively, compared to losses of $5.5 million and $9.4 million for the same periods of 2004.

Realized Gains and Losses

The following table sets forth realized investment gains and losses for the periods shown:

	Three Months Ended June 30									Six Months Ended June 30
	2005			2004			Change			2005			2004			Change
Fixed maturity gains	$	6,550		$	5,954		$	596		$	43,314		$	25,852		$	17,462
Fixed maturity losses		(458	)		(2,299	)		1,841			(6,855	)		(5,376	)		(1,479	)
Equity gains		1,438			825			613			1,576			1,390			186
Equity losses		(28	)		(22	)		(6	)		(835	)		(22	)		(813	)
Impairments on fixed maturity securities		(50	)		(2,523	)		2,473			(296	)		(2,723	)		2,427
Impairments on equity securities		(24	)		(2,125	)		2,101			(24	)		(2,125	)		2,101
Other		5,052			(733	)		5,785			3,478			(1,292	)		4,770
Total realized gains (losses) - investments	$	12,480		$	(923	)	$	13,403		$	40,358		$	15,704		$	24,654
Foreign currency swaps	$	(9,483	)	$	(1,799	)	$	(7,684	)	$	(13,460	)	$	(11,518	)	$	(1,942	)
Foreign currency adjustments on stable value contracts		9,306			1,934			7,372			13,531			11,924			1,607
Derivatives related to corporate debt		8,838			(3,736	)		12,574			8,497			3,163			5,334
Derivatives related to mortgage loan commitments		(32,802	)		13,678			(46,480	)		(27,932	)		5,308			(33,240	)
Other derivatives		(1,880	)		(1,337	)		(543	)		(13,025	)		4,946			(17,971	)
Total realized gains (losses) - derivatives	$	(26,021	)	$	8,740		$	(34,761	)	$	(32,389	)	$	13,823		$	(46,212	)

 Realized gains and losses on investments reflect portfolio management activities designed to maintain proper matching of assets and liabilities and to enhance long-term investment portfolio performance. The change in net realized investment gains for the current quarter, excluding impairments, reflects the normal operation of the Company’s asset/liability program within the context of the changing interest rate environment. The reduction of investment impairments for the second quarter and first six months of 2005 compared to the same periods of 2004 reflects a significant reduction in default rates. Additional details on the Company’s investment performance and evaluation are provided in the “Liquidity” and “Capital Resources” sections included herein.

Realized investment gains and losses related to derivatives represent changes in the fair value of derivative financial instruments and gains and losses on derivative contracts closed during the period. The Company has entered into foreign currency swaps to mitigate the risk of changes in the value of principal and interest payments to be made on certain of its foreign currency denominated stable value contracts. The net change in the realized gains (losses) resulting from these securities in the second quarter and first six months of 2005 was $(0.3) million and $(0.3) million, respectively. These changes were the result of differences in the related foreign currency spot and forward rates used to value the stable value contracts and foreign currency swaps. The Company also uses interest rate swaps to mitigate interest rate risk related to certain Senior Notes, Medium-Term Notes, and subordinated debt securities. Declining long-term interest rates during the current quarter caused the 2005 results from these swaps to compare favorably with both the second quarter and first six months of 2004. The Company has taken short positions in U.S. Treasury futures to mitigate interest rate risk related to the Company’s mortgage loan commitments. The losses from these securities in the second quarter and first six months of 2005 were the result of declining interest rates in the current quarter.

The Company also uses various swaps and options to mitigate risk related to certain other investments held by the Company. For the second quarter and first six months of 2005, a portion of the change, a $0.3 million decrease and $5.7 million decrease, respectively, in realized gains (losses) resulted from lower interest rates in 2005, which impacted the fair value of certain interest rate swaps and options. An increase of $0.1 million and a decrease of $4.7 million for the second quarter and first six months of 2005, respectively, related to gains (losses) from embedded derivatives within certain bonds that matured during the respective periods. For the first six months of 2005, realized gains (losses) increased by $0.5 million due to the impact of embedded derivatives within certain asset swaps that were called in the first quarter of 2005. For the second quarter and the first six months of 2005, an immaterial increase and a $0.9 million decrease, respectively, in realized gains (losses) was due to embedded derivatives within annuity contracts and reinsurance agreements.

Additionally, in the first quarter of 2005, the Company recorded a $7.1 million realized investment loss (derivative financial instruments) related to accrued investment income, which arose in periods prior to 2003. The impact had no effect on previously reported segment operating income and no material effect on previously reported net income.

CONSOLIDATED INVESTMENTS

Portfolio Description

The Company's investment portfolio consists primarily of fixed maturity securities (bonds and redeemable preferred stocks) and commercial mortgage loans. The Company generally purchases its investments with the intent to hold to maturity by purchasing investments that match future cash flow needs. However, the Company may sell any of its investments to maintain proper matching of assets and liabilities. Accordingly, the Company has classified $15.4 billion of its fixed maturities and certain other securities as “available for sale.”

Additionally, the Company consolidates a special-purpose entity, in accordance with FIN 46, whose investments are managed by the Company. The Company has classified these investments with a market value of $413.3 million at June 30, 2005, as “trading” securities.

The Company’s investments in debt and equity securities are reported at market value, and investments in mortgage loans are reported at amortized cost. At June 30, 2005, the Company’s fixed maturity investments (bonds and redeemable preferred stocks) had a market value of $15.7 billion, which is 5.4% above amortized cost of $14.9 billion. The Company had $3.1 billion in mortgage loans at June 30, 2005. While the Company’s mortgage loans do not have quoted market values, at June 30, 2005, the Company estimates the market value of its mortgage loans to be $3.4 billion (using discounted cash flows from the next call date), which is 7.8% above amortized cost. Most of the Company’s mortgage loans have significant prepayment fees. These assets are invested for terms approximately corresponding to anticipated future benefit payments. Thus, market fluctuations are not expected to adversely affect liquidity.

The following table shows the reported values of the Company's invested assets.

	June 30, 2005				December 31, 2004
	($ in thousands)
Publicly-issued bonds	$	13,711,932	67.6	%	$	12,519,107	64.6	%
Privately issued bonds		1,973,245	9.7			1,889,905	9.7
Redeemable preferred stock		1,196	0.0			3,593	0.0
Fixed maturities		15,686,373	77.3			14,412,605	74.3
Equity securities		115,758	0.6			58,941	0.3
Mortgage loans		3,124,877	15.4			3,005,418	15.5
Investment real estate		91,981	0.4			107,246	0.6
Policy loans		466,701	2.3			482,780	2.5
Other long-term investments		186,059	0.9			259,025	1.3
Short-term investments		626,795	3.1			1,059,557	5.5
Total investments	$	20,298,544	100.0	%	$	19,385,572	100.0	%

Included in the table above are $413.3 million and $410.1 million of fixed maturities and $0.0 million and $7.2 million of short-term investments classified by the Company as trading securities at June 30, 2005 and December 31, 2004, respectively.

Market values for private, non-traded securities are determined as follows: 1) the Company obtains estimates from independent pricing services or 2) the Company estimates market value based upon a comparison to quoted issues of the same issuer or issues of other issuers with similar terms and risk characteristics. The market value of private, non-traded securities was $2.0 billion at June 30, 2005, representing 9.7% of the Company’s total invested assets.

The Company participates in securities lending, primarily as an investment yield enhancement, whereby securities that are held as investments are loaned to third parties for short periods of time. The Company requires collateral of 102% of the market value of the loaned securities to be separately maintained. The loaned securities’ market value is monitored on a daily basis, with additional collateral obtained as necessary. At June 30, 2005, securities with a market value of $551.3 million were loaned under these agreements. As collateral for the loaned securities, the Company receives short-term investments, which are recorded in “short-term investments” with a corresponding liability recorded in “other liabilities” to account for the Company’s obligation to return the collateral.

Risk Management and Impairment Review

The Company monitors the overall credit quality of the Company’s portfolio within general guidelines. The following table shows the Company's available for sale fixed maturities by credit rating at June 30, 2005.

S&P or Equivalent Designation	Market Value		Percent of Market Value
	($ in thousands)
AAA	$	6,112,093		40.0	%
AA		564,935		3.7
A		2,721,505		17.8
BBB		4,754,874		31.1
Investment grade		14,153,407		92.6
BB		729,355		4.8
B		335,257		2.2
CCC or lower		46,344		0.3
In or near default		7,475		0.1
Below investment grade		1,118,431		7.4
Redeemable preferred stock		1,196		0.0
Total	$	15,273,034		100.0	%

Not included in the table above are $386.9 million of investment grade and $26.4 million of less than investment grade fixed maturities classified by the Company as trading securities.

Limiting bond exposure to any creditor group is another way the Company manages credit risk. The following table summarizes the Company's ten largest fixed maturity exposures to an individual creditor group as of June 30, 2005.

Creditor	Market Value
	($ in millions)
Berkshire Hathaway	$	86.7
Goldman Sachs		82.1
American Electric Power		81.5
FPL Group		80.9
Kinder Morgan		79.0
Metlife		78.4
Dominion Resources		78.0
Wachovia		77.9
Bank of America		76.7
Southern Company		74.5

The Company’s management considers a number of factors when determining the impairment status of individual securities. These include the economic condition of various industry segments and geographic locations and other areas of identified risks. Although it is possible for the impairment of one investment to affect other investments, the Company engages in ongoing risk management to safeguard against and limit any further risk to its investment portfolio. Special attention is given to correlated risks within specific industries, related parties and business markets.

The Company generally considers a number of factors in determining whether the impairment is other-than-temporary. These include, but are not limited to: 1) actions taken by rating agencies, 2) default by the issuer, 3) the significance of the decline, 4) the intent and ability of the Company to hold the investment until recovery, 5) the time period during which the decline has occurred, 6) an economic analysis of the issuer’s industry, and 7) the financial strength, liquidity, and recoverability of the issuer. Management performs a security-by-security review each quarter in evaluating the need for any other-than-temporary impairment. Although no set formula is used in this process, the investment performance, collateral position and continued viability of the issuer are significant measures considered.

The Company generally considers a number of factors relating to the issuer in determining the financial strength, liquidity, and recoverability of an issuer. These include but are not limited to: available collateral, tangible and intangible assets that might be available to repay debt, operating cash flows, financial ratios, access to capital markets, quality of management, market position, exposure to litigation or product warranties, and the effect of general economic conditions on the issuer. Once management has determined that a particular investment has suffered an other-than-temporary impairment, the asset is written down to its estimated fair value.

There are certain risks and uncertainties associated with determining whether declines in market values are other-than-temporary. These include significant changes in general economic conditions and business markets, trends in certain industry segments, interest rate fluctuations, rating agency actions, changes in significant accounting estimates and assumptions, commission of fraud and legislative actions. The Company continuously monitors these factors as they relate to the investment portfolio in determining the status of each investment. Provided below are additional facts concerning the potential effect upon the Company’s earnings should circumstances lead management to conclude that some of the current declines in market value are other-than-temporary.

Unrealized Gains and Losses

The information presented below relates to investments at a certain point in time and is not necessarily indicative of the status of the portfolio at any time after June 30, 2005, the balance sheet date. Information about unrealized gains and losses is subject to rapidly changing conditions, including volatility of financial markets and changes in interest rates. As indicated above, the Company’s management considers a number of factors in determining if an unrealized loss is other-than-temporary, including its ability and intent to hold the security until recovery. Furthermore, since the timing of recognizing realized gains and losses is largely based on management’s decisions as to the timing and selection of investments to be sold, the tables and information provided below should be considered within the context of the overall unrealized gain (loss) position of the portfolio. At June 30, 2005, the Company had an overall pretax net unrealized gain of $805.6 million.

For traded and private fixed maturity and equity securities held by the Company that are in an unrealized loss position at June 30, 2005, the estimated market value, amortized cost, unrealized loss and total time period that the security has been in an unrealized loss position are presented in the table below.

	Estimated Market Value		% Market Value			Amortized Cost		% Amortized Cost			Unrealized Loss			% Unrealized Loss
	($ in thousands)
<= 90 days	$	656,467		38.8	%	$	660,131		37.8	%	$	(3,664	)		6.6	%
>90 days but <= 180 days		337,453		20.0			350,508		20.1			(13,055	)		23.5
>180 days but <= 270 days		289,575		17.1			293,052		16.8			(3,477	)		6.2
>270 days but <= 1 year		27,300		1.6			30,187		1.7			(2,887	)		5.2
>1 year but <= 2 years		182,636		10.8			196,162		11.2			(13,526	)		24.3
>2 years but <= 3 years		143,122		8.5			147,598		8.5			(4,476	)		8.0
>3 years but <= 4 years		23,579		1.4			24,668		1.4			(1,089	)		2.0
>4 years but <= 5 years		177		0.0			273		0.0			(96	)		0.2
>5 years		29,663		1.8			42,984		2.5			(13,321	)		24.0
Total	$	1,689,972		100.0	%	$	1,745,563		100.0	%	$	(55,591	)		100.0	%

At June 30, 2005, securities with a market value of $27.6 million and $16.2 million of unrealized losses were issued in Company-sponsored commercial mortgage loan securitizations, including $12.8 million of unrealized losses greater than five years. The Company does not consider these unrealized positions to be other-than-temporary, because the underlying mortgage loans continue to perform consistently with the Company’s original expectations.

The Company has no material concentrations of issuers or guarantors of fixed maturity securities. The industry segment composition of all securities in an unrealized loss position held by the Company at June 30, 2005, is presented in the following table.

	Estimated Market Value		% Market Value			Amortized Cost		% Amortized Cost			Unrealized Loss				% Unrealized Loss
	($ in thousands)
Agency Mortgages	$	5,572		0.3	%	$	5,611		0.3	%	$	(39	)	0.1%
Banking		83,863		5.0			85,355		4.9			(1,492	)	2.7
Basic Industrial		97,875		5.8			101,021		5.8			(3,146	)	5.7
Brokerage		27,917		1.6			28,197		1.6			(280	)	0.5
Communications		89,024		5.3			90,314		5.2			(1,290	)	2.3
Consumer Cyclical		93,596		5.5			100,788		5.8			(7,192	)	12.9
Consumer Noncyclical		25,353		1.5			27,804		1.6			(2,451	)	4.4
Electric		199,578		11.8			207,867		11.9			(8,289	)	14.9
Energy		42,129		2.5			43,280		2.5			(1,151	)	2.1
Finance Companies		254,975		15.1			261,727		15.0			(6,752	)	12.2
Insurance		48,000		2.8			48,561		2.8			(561	)	1.0
Municipal Agencies		70		0.0			70		0.0			0		0.0
Natural Gas		82,903		4.9			83,984		4.8			(1,081	)	1.9
Non-Agency Mortgages		498,470		29.5			512,827		29.4			(14,357	)	25.8
Other Finance		34,951		2.1			39,031		2.2			(4,080	)	7.3
Other Industrial		16,838		1.0			16,893		1.0			(55	)	0.1
Other Utility		41		0.0			44		0.0			(3	)	0.0
Technology		12,205		0.7			14,401		0.8			(2,196	)	4.0
Transportation		41,670		2.5			42,445		2.4			(775	)	1.4
U.S. Government		34,942		2.1			35,343		2.0			(401	)	0.7
Total	$	1,689,972		100.0	%	$	1,745,563		100.0	%	$	(55,591	)	100.0%

The range of maturity dates for securities in an unrealized loss position at June 30, 2005 varies, with 20.9% maturing in less than 5 years, 23.5% maturing between 5 and 10 years, and 55.6% maturing after 10 years. The following table shows the credit rating of securities in an unrealized loss position at June 30, 2005.

S&P or Equivalent Designation	Estimated Market Value		% Market Value			Amortized Cost		% Amortized Cost			Unrealized Loss			% Unrealized Loss
	($ in thousands)
AAA/AA/A	$	915,197		54.1	%	$	925,707		53.0	%	$	(10,510	)		18.9	%
BBB		491,279		29.1			502,945		28.8			(11,666	)		21.0
Investment grade		1,406,476		83.2			1,428,652		81.8			(22,176	)		39.9
BB		169,694		10.0			179,827		10.3			(10,133	)		18.1
B		65,576		3.9			73,404		4.2			(7,828	)		14.1
CCC or lower		48,226		2.9			63,680		3.7			(15,454	)		27.9
Below investment grade		283,496		16.8			316,911		18.2			(33,415	)		60.1
Total	$	1,689,972		100.0	%	$	1,745,563		100.0	%	$	(55,591	)		100.0	%

At June 30, 2005, securities in an unrealized loss position that were rated as below investment grade represented 16.8% of the total market value and 60.1% of the total unrealized loss. Unrealized losses related to below investment grade securities that had been in an unrealized loss position for more than twelve months were $20.4 million. Securities in an unrealized loss position rated less than investment grade were 1.4% of invested assets. The Company generally purchases its investments with the intent to hold to maturity. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities.

The following table shows the estimated market value, amortized cost, unrealized loss and total time period that the security has been in an unrealized loss position for all below investment grade securities.

	Estimated Market Value		% Market Value			Amortized Cost		% Amortized Cost			Unrealized Loss			% Unrealized Loss
			($ in thousands)
<= 90 days	$	64,912		22.9	%	$	66,114		20.9	%	$	(1,202	)		3.6	%
>90 days but <= 180 days		109,987		38.8			120,453		38.0			(10,466	)		31.3
>180 days but <= 270 days		1,986		0.7			2,456		0.8			(470	)		1.4
>270 days but <= 1 year		5,557		2.0			6,448		2.0			(891	)		2.7
>1 year but <= 2 years		51,375		18.1			58,277		18.4			(6,902	)		20.7
>2 years but <= 3 years		567		0.2			647		0.2			(80	)		0.2
>3 years but <= 4 years		23,222		8.2			24,221		7.7			(999	)		3.0
>4 years but <= 5 years		55		0.0			130		0.0			(75	)		0.2
>5 years		25,835		9.1			38,165		12.0			(12,330	)		36.9
Total	$	283,496		100.0	%	$	316,911		100.0	%	$	(33,415	)		100.0	%

At June 30, 2005, below investment grade securities with a market value of $24.0 million and $11.9 million of unrealized losses were issued in Company sponsored commercial mortgage loan securitizations, including securities in an unrealized loss position greater than five years with a market value of $24.0 million and $11.9 million of unrealized losses. The Company does not consider these unrealized positions to be other-than-temporary, because the underlying mortgage loans continue to perform consistently with the Company’s original expectations.

Realized Losses

Realized losses are comprised of both write-downs for other-than-temporary impairments and actual sales of investments. For the second quarter and first six months of 2005, the Company recorded pretax other-than-temporary impairments in its investments of $0.1 million and $0.3 million, respectively, compared to $4.6 million and $4.8 million for the comparable periods of 2004.

As previously discussed, the Company’s management considers several factors when determining other-than-temporary impairments. Although the Company generally intends to hold securities until maturity, the Company may change its positions as a result of a change in circumstances. Any such decision is consistent with the Company’s classification of all but a specific portion of its investment portfolio as available for sale. During the six months ended June 30, 2005, the Company sold securities in an unrealized loss position with a market value of $634.1 million resulting in a realized loss of $7.7 million. The securities were sold as a result of normal portfolio rebalancing activity and tax planning. For such securities, the proceeds, realized loss and total time period that the security had been in an unrealized loss position are presented in the table below.

	Proceeds		% Proceeds			Realized Loss			% Realized Loss
	($ in thousands)
<= 90 days	$	530,311		83.6	%	$	(4,122	)		53.6	%
>90 days but <= 180 days		0		0.0			0			0.0
>180 days but <= 270 days		9,019		1.4			(223	)		2.9
>270 days but <= 1 year		14,749		2.3			(224	)		2.9
> 1 year		80,011		12.7			(3,121	)		40.6
Total	$	634,090		100.0	%	$	(7,690	)		100.0	%

MORTGAGE LOANS

The Company records mortgage loans net of an allowance for credit losses. This allowance is calculated through analysis of specific loans that are believed to be at a higher risk of becoming impaired in the near future. At June 30, 2005 and December 31, 2004, the Company's allowance for mortgage loan credit losses was $4.6 million and $3.3 million, respectively.

During the first quarter of 2005, Winn-Dixie Stores Inc. (Winn-Dixie), an anchor tenant in the Company’s mortgage loan portfolio, declared Chapter 11 bankruptcy. At June 30, 2005, the Company had 40 loans amounting to $106.4 million in loan balances in which Winn-Dixie was considered to be the anchor tenant for the underlying property (including 12 loans with balances of $20.8 million included in mortgage loan securitization trusts in which the Company holds retained beneficial interests). At June 30, 2005, the rents from Winn-Dixie represented approximately 51% of the total rents applicable to the properties underlying these loans (including approximately 67% of rents on loans in mortgage loan securitizations). On June 21, 2005, Winn-Dixie announced a reorganization plan that included selling or closing 27 stores that served as the anchor tenant for properties underlying loans in the Company’s mortgage loan portfolio. At June 30, 2005, the 27 loans associated with these properties had outstanding principal balances totaling $56.1 million. As of the date of this report, Winn-Dixie has rejected the lease on eight of these properties and the Company is either in the process of foreclosing on the property or negotiating with the owner. The eight mortgage loans associated with these properties had outstanding balances of $22.8 million as of June 30, 2005. One potential impairment has been identified and the mortgage loan reserve included $1.6 million related to this loan at June 30, 2005. Of the remaining 19 stores, five have been sold and the leases on 14 stores are in the process of being offered for sale. The Company will continue to actively monitor these loans and assess them for potential impairments as circumstances develop in the future.

For several years the Company has offered a type of commercial mortgage loan under which the Company will permit a slightly higher loan-to-value ratio in exchange for a participating interest in the cash flows from the underlying real estate. As of June 30, 2005, approximately $474.9 million of the Company’s mortgage loans have this participation feature.

At June 30, 2005, delinquent mortgage loans and foreclosed properties were less than 0.1% of invested assets. The Company does not expect these investments to adversely affect its liquidity or ability to maintain proper matching of assets and liabilities.

LIABILITIES

Many of the Company's products contain surrender charges and other features that reward persistency and penalizes the early withdrawal of funds. Certain stable value and annuity contracts have market-value adjustments that protect the Company against investment losses if interest rates are higher at the time of surrender than at the time of issue.

At June 30, 2005, the Company had policy liabilities and accruals of $11.2 billion. The Company's interest-sensitive life insurance policies have a weighted average minimum credited interest rate of approximately 3.92%.

MARKET RISK EXPOSURES

The Company’s financial position and earnings are subject to various market risks including changes in interest rates, changes in the yield curve, changes in spreads between risk-adjusted and risk-free interest rates, changes in foreign currency rates, changes in used vehicle prices, and equity price risks. The Company analyzes and manages the risks arising from market exposures of financial instruments, as well as other risks, through an integrated asset/liability management process. The Company’s asset/liability management programs and procedures involve the monitoring of asset and liability durations for various product lines; cash flow testing under various interest rate scenarios; and the continuous rebalancing of assets and liabilities with respect to yield, risk, and cash flow characteristics.

The primary focus of the Company’s asset/liability program is the management of interest rate risk within the insurance operations. This includes monitoring the duration of both investments and insurance liabilities to maintain an appropriate balance between risk and profitability for each product category, and for the Company as a whole. It is the Company’s policy to generally maintain asset and liability durations within one-half year of one another, although, from time to time, a broader interval may be allowed.

These programs also incorporate the use of derivative financial instruments primarily to reduce its exposure to interest rate risk, inflation risk, and currency exchange risk. Combinations of interest rate swap contracts, futures contracts, and option contracts are used to mitigate or eliminate certain financial and market risks, including those related to changes in interest rates for certain investments, primarily outstanding mortgage loan commitments and mortgage-backed securities, and the Company’s outstanding debt. Swap contracts are also used to alter the effective durations of assets and liabilities and to mitigate the inflation risk caused by the issuance of inflation adjusted notes through the Stable Value Products segment. The Company uses foreign currency swaps to manage its exposure to currency exchange risk on certain stable value contracts denominated in foreign currencies, primarily the European euro and the British pound.

Derivative instruments expose the Company to credit and market risk and could result in material changes from quarter-to-quarter. The Company minimizes its credit risk by entering into transactions with highly rated counterparties. The Company manages the market risk associated with interest rate and foreign exchange contracts by establishing and monitoring limits as to the types and degrees of risk that may be undertaken. The Company monitors its use of derivatives in connection with its overall asset/liability management programs and procedures.

In the ordinary course of its commercial mortgage lending operations, the Company will commit to provide a mortgage loan before the property to be mortgaged has been built or acquired. The mortgage loan commitment is a contractual obligation to fund a mortgage loan when called upon by the borrower. The commitment is not recognized in the Company's financial statements until the commitment is actually funded. The mortgage loan commitment contains terms, including the rate of interest, which may be different than prevailing interest rates. At June 30, 2005, the Company had outstanding mortgage loan commitments of $954.2 million at an average rate of 6.00%.

The Company believes its asset/liability management programs and procedures and certain product features provide protection for the Company against the effects of changes in interest rates under various scenarios. Additionally, the Company believes its asset/liability management programs and procedures provide sufficient liquidity to enable it to fulfill its obligation to pay benefits under its various insurance and deposit contracts. However, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve), relationships between risk-adjusted and risk-free interest rates, market liquidity and other factors, and the effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from those assumptions.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company meets its liquidity requirements primarily through positive cash flows from its operating subsidiaries. Primary sources of cash from the operating subsidiaries are premiums, deposits for policyholder accounts, investment sales and maturities, and investment income. Primary uses of cash for the operating subsidiaries include benefit payments, withdrawals from policyholder accounts, investment purchases, policy acquisition costs, and other operating expenses.

While the Company generally anticipates that the cash flows of its subsidiaries will be sufficient to meet their investment commitments and operating cash needs, the Company recognizes that investment commitments scheduled to be funded may, from time to time, exceed the funds then available. Therefore, the Company has established repurchase agreement programs for certain of its insurance subsidiaries to provide liquidity when needed. The Company expects that the rate received on its investments will equal or exceed its borrowing rate. Additionally, the Company may, from time to time, sell short-duration stable value products to complement its cash management practices. The Company has also used securitization transactions involving its commercial mortgage loans to increase liquidity for the operating subsidiaries.

The Company’s positive cash flows from operations are used to fund an investment portfolio that provides for future benefit payments. The Company employs a formal asset/liability program to manage the cash flows of its investment portfolio relative to its long-term benefit obligations. See additional discussion of the Company’s asset/liability program in the “Market Risk Exposures” section.

The life insurance subsidiaries were committed at June 30, 2005 to fund mortgage loans in the amount of $954.2 million. The Company's subsidiaries held $725.1 million in cash and short-term investments at June 30, 2005. Protective Life Corporation had an additional $2.7 million in cash and short-term investments available for general corporate purposes.

Protective Life Corporation’s primary sources of cash are dividends from its operating subsidiaries; revenues from investment, data processing, legal, and management services rendered to subsidiaries; investment income; and external financing. These sources of cash support the general corporate needs of the holding company including its common stock dividends and debt service. The states in which the Company’s insurance subsidiaries are domiciled impose certain restrictions on the insurance subsidiaries’ ability to pay dividends to Protective Life Corporation. These restrictions are generally based in part on the prior year’s statutory income and surplus. Generally, these restrictions pose no short-term liquidity concerns for Protective Life Corporation. The Company plans to retain substantial portions of the earnings of its insurance subsidiaries in those companies primarily to support their future growth.

Capital Resources

To give the Company flexibility in connection with future acquisitions and other funding needs, the Company has registered debt securities, preferred and common stock, and stock purchase contracts of Protective Life Corporation, and additional preferred securities of special purpose finance subsidiaries under the Securities Act of 1933 on a delayed (or shelf) basis.

In May 2004, the Company’s Board of Directors authorized a $100 million share repurchase program, available through May 2, 2007. There has been no activity under this program, and future activity will be dependent upon many factors, including capital levels, rating agency expectations, and the relative attractiveness of alternative uses for capital.

A life insurance company's statutory capital is computed according to rules prescribed by the National Association of Insurance Commissioners ("NAIC"), as modified by the insurance company's state of domicile. Statutory accounting rules are different from GAAP and are intended to reflect a more conservative view by, for example, requiring immediate expensing of policy acquisition costs. The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula. The achievement of long-term growth will require growth in the statutory capital of the Company's insurance subsidiaries. The subsidiaries may secure additional statutory capital through various sources, such as retained statutory earnings or equity contributions by the Company.

Contractual Obligations

The table below sets forth future maturities of debt, subordinated debt securities, stable value products, notes payable, operating lease obligations, other property lease obligations, mortgage loan commitments, and liabilities related to variable interest entities.

	2005		2006-2007		2008-2009		After 2009
	(in thousands)
Long-term debt(a)	$	18	$	2,167	$	52,600	$	414,532
Subordinated debt securities(b)								324,743
Securities sold under repurchase agreements		31,550
Stable value products(c)		508,739		2,439,054		1,681,150		1,217,178
Operating leases(d)		2,905		8,477		3,788		2,982
Home office lease(e)		1,148		77,678
Mortgage loan commitments		954,157
Liabilities related to variable interest entities(f)		406,103		2,401		35,755		20,819
Policyholder obligations(g)		472,927		1,812,722		1,647,509		9,405,192

(a) Long-term debt includes all principal amounts owed on note agreements, and does not include interest payments due over the term of the notes.

(b) Subordinated debt securities includes all principal amounts owed to non-consolidated special purpose finance subsidiaries of the Company, and does not include interest payments due over the term of the obligations.

(c) Anticipated stable value products cash flows, excluding interest not yet accrued.

(d) Includes all base lease payments required under operating lease agreements.

(e) The lease payments shown assume the Company exercises its option to purchase the building at the end of the lease term.

(f) Liabilities related to variable interest entities are not the legal obligations of the Company, but will be repaid with cash flows generated by the variable interest entities. The amounts represent scheduled principal payments.

(g) Estimated contractual policyholder obligations are based on mortality, morbidity, and lapse assumptions comparable to the Company’s historical experience, modified for recent observed trends. These obligations are based on current balance sheet values and do not incorporate an expectation of future market growth, interest crediting, or future deposits. Due to the significance of the assumptions used, the amounts presented could materially differ from actual results. As separate account obligations are legally insulated from general account obligations, the separate account obligations will be fully funded by cash flows from separate account assets. The Company expects to fully fund the general account obligations from cash flows from general account investments.

RECENTLY ISSUED ACCOUNTING STANDARDS

 In July 2005, the FASB issued an exposure draft of a proposed interpretation, Accounting for Uncertain Tax Positions - an Interpretation of FASB Statement 109. The draft contains proposed guidance on the recognition and measurement of uncertain tax positions. It also addresses the accrual of any interest and penalties related to tax uncertainties and the classification of liabilities resulting from tax uncertainties on the balance sheet. The draft includes a proposed effective date of December 15, 2005. The Company is currently evaluating the provisions of this draft interpretation, but does not currently anticipate that its adoption would have a material impact on its financial position or results of operation.

See Note6 to the Consolidated Condensed Financial Statements for additional information regarding recently issued accounting standards.

RECENT DEVELOPMENTS

A proposal to amend Actuarial Guideline 38 (promulgated by the NAIC and part of the codification of statutory accounting principles) has been approved by two groups within the NAIC structure, and appears likely to be officially adopted during third quarter 2005, with an effective date of July 1, 2005. Actuarial Guideline 38, also known as AXXX, sets forth the reserve requirements for universal life insurance with secondary guarantees (“ULSG”). The Company believes that the proposal will increase the reserve levels required for many ULSG products, and potentially make those products more expensive and less competitive as compared to other products including term and whole life products. The Company believes that the impact of the proposal on the Company will be prospective only and has the potential to reduce the competitiveness and/or profitability of its newly written products as compared to traditional whole life or other high cash value insurance products or other products supported by relatively inexpensive capital (such as reinsurance of redundant reserves). To the extent that the additional reserves are generally considered to be economically redundant, capital market or other solutions may emerge to reduce the impact of the proposal, if adopted in its current form. The ability of the Company to access such solutions may depend on factors such as the ratings of the Company, the size of the blocks of business affected, the mortality experience of the Company and other factors. The Company cannot predict when or if these solutions may become available to the Company or its competitors.

The financial services industry has recently become the focus of increased scrutiny by regulatory and law enforcement authorities relating to allegations of improper special payments, price-fixing, bid-rigging and other alleged misconduct, including payments made by insurers and other financial service providers to brokers and the practices surrounding the placement of insurance business and sales of other financial products as well as practices related to finite reinsurance. Such publicity may generate litigation against financial service providers, even those who do not engage in the business lines or practices currently at issue. It is impossible to predict the outcome of these investigations or proceedings, whether they will expand into other areas not yet contemplated, whether they will result in changes in insurance regulation, whether activities currently thought to be lawful will be characterized as unlawful, or the impact, if any, of this increased regulatory and law enforcement scrutiny of the financial services industry on the Company. As these inquiries appear to encompass a large segment of our industry, it would not be unusual for large numbers of companies in the financial services industry to receive subpoenas, requests for information from regulatory authorities or other inquiries relating to these and similar matters. From time to time, the Company receives subpoenas, requests or other inquires and responds to them in the ordinary course of business.

In the first quarter of 2005, the Company received a subpoena from the Attorney General of West Virginia for documents and other information relating to funding agreement-backed securities, special purpose vehicles, and related subjects. The Company understands that other U.S. based life insurers that participate in funding agreement backed note programs have received similar subpoenas. The Company has responded to the subpoena. The Company is not aware of any problems relating to its participation in funding agreement-backed note programs that would have a material adverse effect on its results of operations or financial condition.

The California Department of Insurance has promulgated proposed regulations that would characterize some life insurance agents as brokers and impose certain obligations on those agents that may conflict with the interests of insurance carriers or require the agent to, among other things, advise the client with respect to the best available insurer. The Company cannot predict the outcome of this regulatory proposal or whether any other state will propose or adopt similar actions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change from the disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, 2004.

Item 4. Controls and Procedures

(a) Disclosure controls and procedures

Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures and internal control over financial reporting and concluded that our disclosure controls and procedures were effective as of June 30, 2005. It should be noted that any system of controls, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of any control system is based in part upon certain judgments, including the costs and benefits of controls and the likelihood of future events. Because of these and other inherent limitations of control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within the Company have been detected.

(b) Changes in internal control over financial reporting

No significant changes in our internal control over financial reporting occurred during the quarter ended June 30, 2005 that have materially affected, or is reasonably likely to materially affect, such internal control over financial reporting. Our internal controls exist within a dynamic environment and the Company continually strives to improve its internal controls and procedures to enhance the quality of its financial reporting.

PART II

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended June 30, 2005, the Company issued no securities in transactions which were not registered under the Securities Act of 1933, as amended (the “Act”).

Item 4. Submission of Matters to a Vote of Security Holders

The Annual Meeting of Share Owners of Protective Life Corporation (the “Company”) was held on May 2, 2005. Shares entitled to vote at the Annual Meeting totaled 69,608,132 of which 65,256,062 shares were represented.

At the Annual Meeting the following directors were elected. The number of shares cast for and authorized withheld for each nominee is shown below.

Name of Directors	Number of Shares Voted For	Authorization Withheld
John J. McMahon, Jr.	63,652,297	1,603,565
James S. M. French	65,082,679	173,183
John D. Johns	63,179,809	2,076,052
Donald M. James	63,759,129	1,496,733
J. Gary Cooper	65,083,264	172,598
H. Corbin Day	65,193,026	62,836
W. Michael Warren, Jr.	65,186,215	69,646
Malcolm Portera	65,187,593	68,268
Thomas L. Hamby	65,187,837	68,025
Vanessa Leonard	65,201,862	53,999
William A. Terry	65,193,741	62,121

Share owners approved a proposal to ratify the appointment by the Board of Directors of PricewaterhouseCoopers LLP as the independent registered public accountants for the Company and its subsidiaries for 2005. Shares voting for this proposal were 63,087,993, shares voting against were 2,121,534, and shares abstaining were 46,535.

Item 6. Exhibits

Exhibit 15 - Letter re: unaudited interim financial information.

Exhibit 31(a) - Certification Pursuant to §302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31(b) - Certification Pursuant to §302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(a) - Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32(b) - Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 99 - Safe Harbor for Forward-Looking Statements.

SIGNATURE

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.

PROTECTIVE LIFE CORPORATION

Date:August 9, 2005      /s/ Steven G. Walker _________________

Steven G. Walker

Senior Vice President, Controller

and Chief Accounting Officer

(Duly authorized officer)

EX-15

Exhibit 15

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Commissioners:

We are aware that our report dated August 8, 2005 on our review of interim financial information of Protective Life Corporation and its subsidiaries (the "Company") for the six month periods ended June 30, 2005 and 2004, and included in the Company's quarterly report on Form 10-Q for the quarter ended June 30, 2005, is incorporated by reference in the Company's registration statements on Form S-8 (File Nos. 333-32420, 33-51887 and 33-61847) and Form S-3 (File Nos. 333-121791, 333-86477, 333-39103 and 33-59769).

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

Birmingham, Alabama

August 9, 2005

EX-31.A

Exhibit 31(a)

Certification Pursuant to §302 of the Sarbanes-Oxley Act of 2002

I, John D. Johns, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Protective Life Corporation for the period ended June 30, 2005;

2.Based on my knowledge, this Quarterly 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 quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:August 9, 2005

/s/ John D. Johns                                  

John D. Johns

Chairman of the Board, President and

Chief Executive Officer

EX-31.B

Exhibit 31(b)

Certification Pursuant to §302 of the Sarbanes-Oxley Act of 2002

I, Allen W. Ritchie, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Protective Life Corporation for the period ended June 30, 2005;

2.Based on my knowledge, this Quarterly 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 quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005

/s/ Allen W. Ritchie                                   

Allen W. Ritchie

Executive Vice President and

Chief Financial Officer

EX-32.A

[PROTECTIVE LIFE CORPORATION LETTERHEAD]

EXHIBIT 32(a)

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 on Form 10-Q of Protective Life Corporation (the “Company”) for the period ending June 30, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, John D. Johns, Chairman of the Board, President and 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 to the best of my knowledge:

(1)The 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/ John D. Johns

John D. Johns

Chairman of the Board,

President and Chief Executive Officer

August 9, 2005

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

EX-32.B

[PROTECTIVE LIFE CORPORATION LETTERHEAD]

EXHIBIT 32(b)

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 on Form 10-Q of Protective Life Corporation (the “Company”) for the period ending June 30, 2005 as filed with the Securities and Exchange Commission (the “Report”), I, Allen W. Ritchie, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)The 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/ Allen W. Ritchie

Allen W. Ritchie

Executive Vice President and

Chief Financial Officer

August 9, 2005

This certification accompanies the Report pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

EX-99

Exhibit 99

to

Form 10-Q

of

Protective Life Corporation

for the six months

ended June 30, 2005

Safe Harbor for Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the “Act”) encourages companies to make “forward-looking statements” by creating a safe harbor to protect the companies from securities law liability in connection with forward-looking statements. All statements are based on future expectations rather than on historical facts and forward-looking statements. Forward-looking statements can be identified by use of words such as “expect,”“estimate,”“project, “budget,”“forecast,”“anticipate,”“plan,” and similar expressions. Protective Life Corporation (the “Company”) intends to qualify both its written and oral forward-looking statements for protection under the Act.

To qualify oral forward-looking statements for protection under the Act, a readily available written document must identify important factors that could cause actual results to differ materially from those in the forward-looking statements. The Company provides the following information to qualify forward-looking statements for the safe harbor protection of the Act.

The operating results of companies in the insurance industry have historically been subject to significant fluctuations. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and the known trends and uncertainties which are discussed more fully below.

The Company is exposed to the risks of natural disasters, malicious and terrorist acts that could adversely affect the Company’s operations.

While the Company has obtained insurance, implemented risk management and contingency plans, and taken preventive measures and other precautions, no predictions of specific scenarios can be made nor can assurance be given that there are not scenarios that could have an adverse effect on the Company. A natural disaster or an outbreak of an easily communicable disease could adversely affect the mortality or morbidity experience of the Company or its reinsurers.

The Company operates in a mature, highly competitive industry, which could limit its ability to gain or maintain its position in the industry.

Life and health insurance is a mature industry. In recent years, the industry has experienced little growth in life insurance sales, though the aging population has increased the demand for retirement savings products. Life and health insurance is a highly competitive industry. The Company encounters significant competition in all lines of business from other insurance companies, many of which have greater financial resources than the Company, as well as competition from other providers of financial services. Competition could result in, among other things, lower sales or higher lapses of existing products.

The insurance industry is consolidating, with larger, potentially more efficient organizations emerging from consolidation. Participants in certain of the Company’s independent distribution channels are also consolidating into larger organizations. Some mutual insurance companies are converting to stock ownership, which will give them greater access to capital markets. Additionally, commercial banks, insurance companies, and investment banks may now combine, provided certain requirements are satisfied. The ability of banks to increase their securities-related business or to affiliate with insurance companies may materially and adversely affect sales of all of the Company’s products by substantially increasing the number and financial strength of potential competitors.

The Company’s ability to compete is dependent upon, among other things, its ability to attract and retain distribution channels to market its insurance and investment products, its ability to develop competitive and profitable products, its ability to maintain low unit costs, and its maintenance of strong ratings from rating agencies.

A ratings downgrade could adversely affect the Company’s ability to compete.

Rating organizations periodically review the financial performance and condition of insurers, including the Company’s subsidiaries. In recent years, downgrades of insurance companies have occurred with increasing frequency. A downgrade in the rating of the Company’s subsidiaries could adversely affect the Company’s ability to sell its products, retain existing business, and compete for attractive acquisition opportunities. Specifically, a ratings downgrade would materially harm the Company’s ability to sell certain products, including guaranteed investment products and funding agreements.

Rating organizations assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating organization, general economic conditions and circumstances outside the rated company’s control. In addition, rating organizations use various models and formulas to assess the strength of a rated company, and from time to time rating organizations have, in their discretion, altered the models. Changes to the models could impact the rating organizations’ judgment of the rating to be assigned to the rated company. The Company cannot predict what actions the rating organizations may take, or what actions the Company may be required to take in response to the actions of the rating organizations, which could adversely affect the Company.

The Company’s policy claims fluctuate from period to period, and actual results could differ from its expectations.

The Company’s results may fluctuate from period to period due to fluctuations in policy claims received by the Company. Certain of the Company’s businesses may experience higher claims if the economy is growing slowly or in recession, or equity markets decline.

Mortality, morbidity, and casualty expectations incorporate assumptions about many factors, including for example, how a product is distributed, persistency and lapses, future progress in the fields of health and medicine, and the projected level of used vehicle values. Actual mortality, morbidity, the projected level of used vehicle values, and casualty claims could differ from expectations if actual results differ from those assumptions. In addition, continued activity in the life settlement industry could have an adverse impact on the Company’s level of persistency and lapses.

The Company’s results may be negatively affected should actual experience differ from management’s assumptions and estimates.

In the conduct of business, the Company makes certain assumptions regarding the mortality, persistency, expenses and interest rates, or other factors appropriate to the type of business it expects to experience in future periods. These assumptions are also used to estimate the amounts of deferred policy acquisition costs, policy liabilities and accruals, future earnings, and various components of the Company’s balance sheet. The Company’s actual experience, as well as changes in estimates, are used to prepare the Company’s statements of income.

The calculations the Company uses to estimate various components of its balance sheet and statements of income are necessarily complex and involve analyzing and interpreting large quantities of data. The Company currently employs various techniques for such calculations and it from time to time will develop and implement more sophisticated administrative systems and procedures capable of facilitating the calculation of more precise estimates.

Assumptions and estimates involve judgment, and by their nature are imprecise and subject to changes and revision over time. Accordingly, the Company’s results may be affected, positively or negatively, from time to time, by actual results differing from assumptions, by changes in estimates, and by changes resulting from implementing more sophisticated administrative systems and procedures that facilitate the calculation of more precise estimates.

The use of reinsurance introduces variability in the Company’s statements of income.

The timing of premium payments to, and receipt of expense allowances from, reinsurers may differ from the Company’s receipt of customer premium payments and incurrence of expenses. These timing differences introduce variability in certain components of the Company’s statements of income, and may also introduce variability in the Company’s quarterly results.

The Company could be forced to sell investments at a loss to cover policyholder withdrawals.

Many of the products offered by the Company and its insurance subsidiaries allow policyholders and contract holders to withdraw their funds under defined circumstances. The Company and its insurance subsidiaries manage their liabilities and configure their investment portfolios so as to provide and maintain sufficient liquidity to support anticipated withdrawal demands and contract benefits and maturities. While the Company and its life insurance subsidiaries own a significant amount of liquid assets, a certain portion of their assets are relatively illiquid. If the Company or its subsidiaries experience unanticipated withdrawal or surrender activity, the Company or its subsidiaries could exhaust their liquid assets and be forced to liquidate other assets, perhaps on unfavorable terms. If the Company or its subsidiaries are forced to dispose of assets on unfavorable terms, it could have an adverse effect on the Company’s financial condition.

Interest-rate fluctuations could negatively affect the Company’s spread income or otherwise impact its business.

Significant changes in interest rates expose insurance companies to the risk of not earning anticipated spreads between the interest rate earned on investments and the credited interest rates paid on outstanding policies and contracts. Both rising and declining interest rates can negatively affect the Company’s spread income. While the Company develops and maintains asset/liability management programs and procedures designed to preserve spread income in rising or falling interest rate environments, no assurance can be given that changes in interest rates will not affect such spreads.

From time to time, the Company has participated in securities repurchase transactions that have contributed to the Company’s investment income. Such transactions involve some degree of risk that the counterparty may fail to perform its obligations to pay amounts owed and the collateral has insufficient value to satisfy the obligation. No assurance can be given that such transactions will continue to be entered into and contribute to the Company’s investment income in the future.

Changes in interest rates may also impact its business in other ways. Lower interest rates may result in lower sales of certain of the Company’s insurance and investment products. In addition, certain of the Company’s insurance and investment products guarantee a minimum credited interest rate, and the Company could become unable to earn its spread income should interest rates decrease significantly.

Higher interest rates may create a less favorable environment for the origination of mortgage loans and decrease the investment income the Company receives in the form of prepayment fees, make-whole payments, and mortgage participation income. Higher interest rates may also increase the cost of debt and other obligations having floating rate or rate reset provisions and may result in lower sales of variable products.

Additionally, the Company’s asset/liability management programs and procedures incorporate assumptions about the relationship between short-term and long-term interest rates (i.e., the slope of the yield curve) and relationships between risk-adjusted and risk-free interest rates, market liquidity, and other factors. The effectiveness of the Company’s asset/liability management programs and procedures may be negatively affected whenever actual results differ from these assumptions.

In general terms, the Company’s results are improved when the yield curve is positively sloped (i.e., when long-term interest rates are higher than short-term interest rates), and will be adversely affected by a flat or negatively sloped curve.

Equity market volatility could negatively impact the Company’s business.

The amount of policy fees received from variable products is affected by the performance of the equity markets, increasing or decreasing as markets rise or fall. Equity market volatility can also affect the profitability of variable products in other ways.

The amortization of deferred policy acquisition costs relating to variable products and the estimated cost of providing guaranteed minimum death benefits incorporate various assumptions about the overall performance of equity markets over certain time periods. The rate of amortization of deferred policy acquisition costs and the estimated cost of providing guaranteed minimum death benefits could increase if equity market performance is worse than assumed.

A deficiency in the Company’s systems could result in over or underpayments of amounts owed to or by the Company and/or errors in the Company’s critical assumptions or reported financial results.

The business of insurance necessarily involves the collection and dissemination of large amounts of data using systems operated by the Company. Examples of data collected and analyzed include policy information, policy rates, expenses, mortality and morbidity experience. To the extent that data input errors, systems errors, or systems failures are not identified and corrected by the Company’s internal controls, the information generated by the systems and used by the Company and/or supplied to business partners, policyholders, and others may be incorrect and may result in an overpayment or underpayment of amounts owed to or by the Company and/or the Company using incorrect assumptions in its business decisions or financial reporting.

In the third quarter of 2002, the Company discovered that the rates payable on certain life insurance policies were incorrectly entered into its reinsurance administrative system in 1991. As a result, the Company overpaid to several reinsurance companies the reinsurance premiums related to such policies of approximately $94.5 million over a period of 10 years beginning in 1992. The Company has received payment from substantially all of the affected reinsurance companies.

Insurance companies are highly regulated and subject to numerous legal restrictions and regulations.

The Company and its subsidiaries are subject to government regulation in each of the states in which they conduct business. Such regulation is vested in state agencies having broad administrative power dealing with many aspects of the Company’s business, which may include, among other things, premium rates, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, and capital adequacy, and is concerned primarily with the protection of policyholders and other customers rather than share owners. At any given time, a number of financial and/or market conduct examinations of the Company’s subsidiaries is ongoing. The Company is required to obtain state regulatory approval for rate increases for certain health insurance products, and the Company’s profits may be adversely affected if the requested rate increases are not approved in full by regulators in a timely fashion. From time to time, regulators raise issues during examinations or audits of the Company’s subsidiaries that could, if determined adversely, have a material impact on the Company. The Company cannot predict whether or when regulatory actions may be taken that could adversely affect the Company or its operations. In addition, the interpretations of regulations by regulators may change and statutes may be enacted with retroactive impact, particularly in areas such as health insurance and accounting or reserve requirements. In particular, the NAIC has been debating whether changes should be made to Actuarial Guideline 38, which interprets the reserve requirements for universal life insurance with secondary guarantees, and, if so, whether any such changes should be made retroactively. In July 2005, the governing Committee of the NAIC adopted amendments that, if adopted by the full NAIC, would increase these reserve requirements as of July 2005 for products issued after that time.

The Company and its insurance subsidiaries may be subject to regulation by the United States Department of Labor when providing a variety of products and services to employee benefit plans governed by the Employee Retirement Income Security Act (ERISA). Severe penalties are imposed for breach of duties under ERISA.

Certain policies, contracts, and annuities offered by the Company and its subsidiaries are subject to regulation under the federal securities laws administered by the Securities and Exchange Commission. The federal securities laws contain regulatory restrictions and criminal, administrative, and private remedial provisions.

Other types of regulation that could affect the Company and its subsidiaries include insurance company investment laws and regulations, state statutory accounting practices, anti-trust laws, minimum solvency requirements, state securities laws, federal privacy laws, federal money laundering and anti-terrorism laws, and because the Company owns and operates real property state, federal, and local environmental laws. The Company cannot predict what form any future changes in these or other areas of regulation affecting the insurance industry might take or what effect, if any, such proposals might have on the Company if enacted into law.

The Company is exposed to potential risks from recent legislation requiring companies to evaluate their internal control over financial reporting.

Under Section 404 of the Sarbanes Oxley Act of 2002, effective at year-end 2004, management is required to assess the effectiveness of the Company’s internal control over financial reporting. The Company’s auditors are required to attest to and report on management’s assessment. Implementation guidance has been issued by the Public Company Accounting Oversight Board (PCAOB) and the SEC. The Company, like other publicly traded companies, has limited experience with this process. The Company believes that its control environment is effective; however, it is possible that adverse attestations with respect to other companies in the industry or in business in general could result in a loss of investor confidence and/or impact the Company or the environment in which it operates.

Changes to tax law or interpretations of existing tax law could adversely affect the Company and its ability to compete with non-insurance products or reduce the demand for certain insurance products.

Under the Internal Revenue Code of 1986, as amended (the “Code”), income tax payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain of the Company’s products a competitive advantage over other non-insurance products. To the extent that the Code is revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, all life insurance companies, including the Company and its subsidiaries, would be adversely affected with respect to their ability to sell such products, and, depending upon grandfathering provisions, would be affected by the surrenders of existing annuity contracts and life insurance policies. For example, changes in laws or regulations could restrict or eliminate the advantages of certain corporate or bank-owned life insurance products. Changes in tax law, which have reduced the federal income tax rates on corporate dividends in certain circumstances, could make the tax advantages of investing in certain life insurance or annuity products less attractive. Additionally, changes in tax law based on proposals to establish new tax advantaged retirement and life savings plans, if enacted, could reduce the tax advantage of investing in certain life insurance or annuity products. For example, President Bush’s Fiscal Year 2006 Budget proposal includes changes that would create new and expanded vehicles for tax-exempt savings, including expanded “Retirement Savings Accounts” and “Lifetime Savings Accounts” which would permit higher contributions and tax-free build-up. In addition, life insurance products are often used to fund estate tax obligations. Legislation has been enacted that would, over time, reduce and eventually eliminate the federal estate tax. Under the legislation that has been enacted, the estate tax will be reinstated, in its entirety, in 2011 and thereafter. President Bush and members of Congress have expressed a desire to modify the existing legislation, which modification could result in faster or more complete reduction or repeal of the estate tax. If the estate tax is significantly reduced or eliminated, the demand for certain life insurance products could be adversely affected. Additionally, the Company is subject to the federal corporation income tax. President Bush has also formed a President’s Advisory Panel, which has been instructed to develop proposals for fundamental reform of the federal tax system. Such proposals could include substantial changes to the federal income tax laws currently in effect, or the adoption of a “flat tax” or federal sales tax in lieu of the current income tax structure. The Company cannot predict what changes to tax law or interpretations of existing tax law may ultimately be enacted or adopted or whether such changes could adversely affect the Company.

Financial services companies are frequently the targets of litigation, including class action litigation, which could result in substantial judgments.

A number of civil jury verdicts have been returned against insurers, broker-dealers, and other providers of financial services involving sales practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, and other matters. Often these lawsuits have resulted in the award of substantial judgments that are disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges, and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, companies have made material settlement payments.

Group health coverage issued through associations has received some negative coverage in the media as well as increased regulatory consideration and review. The Company has a small closed block of group health insurance coverage that was issued to members of an association; a lawsuit is currently pending against the Company in connection with this business.

The Company, like other financial services companies, in the ordinary course of business is involved in such litigation and arbitration. Although the Company cannot predict the outcome of any such litigation or arbitration, the Company does not believe that any such outcome will have a material impact on the financial condition or results of operations of the Company.

The financial services industry is sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny.

The financial services industry is sometimes the target of law enforcement investigations relating to the numerous laws that govern the financial services and insurance business. The Company cannot predict the impact of any such investigations on the Company or the industry.

The financial services industry has recently become the focus of increased scrutiny by regulatory and law enforcement authorities relating to allegations of improper special payments, price-fixing, bid-rigging and other alleged misconduct, including payments made by insurers and other financial services providers to brokers and the practices surrounding the placement of insurance business and sales of other financial products as well as practices related to finite reinsurance. Such publicity may generate litigation against financial service providers, even those who do not engage in the business lines or practices currently at issue. It is impossible to predict the outcome of these investigations or proceedings, whether they will expand into other areas not yet contemplated, whether they will result in changes in insurance regulation, whether activities currently thought to be lawful will be characterized as unlawful, or the impact, if any, of this increased regulatory and law enforcement scrutiny of the financial services industry on the Company. As these inquiries appear to encompass a large segment of our industry, it would not be unusual for large numbers of companies in the financial services industry to receive subpoenas, requests for information from regulatory authorities or other inquiries relating to these and similar matters. From time to time, the Company receives subpoenas, requests or other inquires and responds to them in the ordinary course of business.

The Company’s ability to maintain low unit costs is dependent upon the level of new sales and persistency of existing business.

The Company’s ability to maintain low unit costs is dependent upon the level of new sales and persistency (continuation or renewal) of existing business. A decrease in sales or persistency without a corresponding reduction in expenses may result in higher unit costs.

Additionally, a decrease in persistency may result in higher or more rapid amortization of deferred policy acquisition costs and thus higher unit costs, and lower reported earnings. Although many of the Company’s products contain surrender charges, the charges decrease over time and may not be sufficient to cover the unamortized deferred policy acquisition costs with respect to the insurance policy or annuity contract being surrendered. Some of the Company’s products do not contain surrender charge features and such products can be surrendered or exchanged without penalty. A decrease in persistency may also result in higher claims.

The Company’s investments are subject to market and credit risks.

The Company’s invested assets and derivative financial instruments are subject to customary risks of credit defaults and changes in market values. The value of the Company’s commercial mortgage loan portfolio depends in part on the financial condition of the tenants occupying the properties which the Company has financed. Factors that may affect the overall default rate on, and market value of, the Company’s invested assets, derivative financial instruments, and mortgage loans include interest rate levels, financial market performance, and general economic conditions as well as particular circumstances affecting the businesses of individual borrowers and tenants.

The Company may not realize its anticipated financial results from its acquisitions strategy.

The Company’s acquisitions have increased its earnings in part by allowing the Company to enter new markets and to position itself to realize certain operating efficiencies. There can be no assurance, however, that suitable acquisitions, presenting opportunities for continued growth and operating efficiencies, or capital to fund acquisitions will continue to be available to the Company, or that the Company will realize the anticipated financial results from its acquisitions.

Additionally, in connection with its acquisitions, the Company assumes or otherwise becomes responsible for the obligations of policies and other liabilities of other insurers. Any regulatory, legal, financial, or other adverse development affecting the other insurer could also have an adverse effect on the Company.

The Company is dependent on the performance of others.

The Company’s results may be affected by the performance of others because the Company has entered into various arrangements involving other parties. For example, most of the Company’s products are sold through independent distribution channels, and variable annuity deposits are invested in funds managed by third parties. Additionally, the Company’s operations are dependent on various technologies, some of which are provided and/or maintained by other parties.

Certain of these other parties may act on behalf of the Company or represent the Company in various capacities. Consequently, the Company may be held responsible for obligations that arise from the acts or omissions of these other parties.

As with all financial services companies, its ability to conduct business is dependent upon consumer confidence in the industry and its products. Actions of competitors and financial difficulties of other companies in the industry could undermine consumer confidence and adversely affect retention of existing business and future sales of the Company’s insurance and investment products.

The Company’s reinsurers could fail to meet assumed obligations, increase rates or be subject to adverse developments that could affect the Company.

The Company and its insurance subsidiaries cede material amounts of insurance and transfer related assets to other insurance companies through reinsurance. The Company may enter into third-party reinsurance arrangements under which the Company will rely on the third party to collect premiums, pay claims, and/or perform customer service functions. However, notwithstanding the transfer of related assets or other issues, the Company remains liable with respect to ceded insurance should any reinsurer fail to meet the obligations assumed by it.

The Company’s ability to compete is dependent on the availability of reinsurance or other substitute capital market solutions. Premium rates charged by the Company are based, in part, on the assumption that reinsurance will be available at a certain cost. Under certain reinsurance agreements, the reinsurer may increase the rate it charges the Company for the reinsurance. Therefore, if the cost of reinsurance were to increase or if reinsurance were to become unavailable or if alternatives to reinsurance were not available to the Company, or if a reinsurer should fail to meet its obligations, the Company could be adversely affected.

Recently, access to reinsurance has become more costly for the Company as well as the insurance industry in general. This could have a negative effect on the Company’s ability to compete. In recent years, the number of life reinsurers has decreased as the reinsurance industry has consolidated. The decreased number of participants in the life reinsurance market results in increased concentration risk for insurers, including the Company. In addition, going forward reinsurers are unwilling to continue to reinsure new sales of long-term guarantee products. If the reinsurance market further contracts, the Company’s ability to continue to offer its products on terms favorable to the Company would be adversely impacted.

Computer viruses or network security breaches could affect the data processing systems of the Company or its business partners.

A computer virus could affect the data processing systems of the Company or its business partners, destroying valuable data or making it difficult to conduct business. In addition, despite our implementation of network security measures, our servers could be subject to physical and electronic break-ins, and similar disruptions from unauthorized tampering with our computer systems.

The Company’s ability to grow depends in large part upon the continued availability of capital.

The Company has recently deployed significant amounts of capital to support its sales and acquisitions efforts. Capital has also been consumed as the Company increased its reserves on the residual value product. Although positive performance in the equity markets has recently allowed the Company to decrease its guaranteed minimum death benefit related policy liabilities and accruals, deterioration in these markets could lead to further capital consumption. Although the Company believes it has sufficient capital to fund its immediate growth and capital needs, the amount of capital available can vary significantly from period to period due to a variety of circumstances, some of which are neither predictable nor foreseeable, nor within the Company’s control. A lack of sufficient capital could impair the Company’s ability to grow.

New accounting rules or changes to existing accounting rules could negatively impact the Company.

Like all publicly traded companies, the Company is required to comply with accounting principles generally accepted in the United States of America (GAAP). A number of organizations are instrumental in the development and interpretation of GAAP such as the Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the American Institute of Certified Public Accountants (AICPA). GAAP is subject to constant review by these organizations and others in an effort to address emerging issues and otherwise improve financial reporting. In this regard, these organizations adopt new accounting rules and issue interpretive accounting guidance on a continual basis. The Company can give no assurance that future changes to GAAP will not have a negative impact on the Company.

In addition, the Company’s insurance subsidiaries are required to comply with statutory accounting principles (SAP). SAP is subject to constant review by the NAIC and its committees as well as state insurance departments in an effort to address emerging issues and otherwise improve financial reporting. The Company can give no assurance that future changes to SAP will not have a negative impact on the Company.

Forward-looking statements express expectations of future events and/or results. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected. Due to these inherent uncertainties, investors are urged not to place undue reliance on forward-looking statements. In addition, the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes to projections over time.