PHOENIX COMPANIES INC/DE - 10-Q Quarterly Report

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FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

[ ] 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 333-55268

THE PHOENIX COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Delaware 06-0493340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One American Row, Hartford, Connecticut 06102-5056
(860) 403-5000
(Address, including zip code, and telephone number,
including area code, of principal executive offices)

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 .

On April 30, 2003, the registrant had 94,134,103 shares of common stock outstanding.

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TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION Page

Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet at March 31, 2003 (unaudited) and December 31, 2002.............. 3
Consolidated Statement of Income and Comprehensive Income for the three months ended
March 31, 2003 and 2002 (unaudited)....................................................... 4
Consolidated Statement of Cash Flows for the three months ended March 31, 2003
and 2002 (unaudited)...................................................................... 5
Consolidated Statement of Changes in Stockholders' Equity for the three months ended
March 31, 2003 and 2002 (unaudited)....................................................... 6
Notes to Consolidated Financial Statements for the three months ended March 31, 2003
and 2002 (unaudited)...................................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................... 51
Item 4. Controls and Procedures....................................................................... 54

PART II. OTHER INFORMATION

Item 1. Legal Proceedings............................................................................. 55
Item 2. Changes in Securities and Use of Proceeds..................................................... 55
Item 3. Defaults Upon Senior Securities............................................................... 55
Item 4. Submission of Matters to a Vote of Security Holders........................................... 55
Item 5. Other Information............................................................................. 56
Item 6. Exhibits and Reports on Form 8-K.............................................................. 56
Signature................................................................................................ 57
Certifications........................................................................................... 57

PART I.
FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

THE PHOENIX COMPANIES, INC.
Consolidated Balance Sheet
($ amounts in millions, except per share data)
March 31, 2003 (unaudited) and December 31, 2002

2003 2002
--------------- ---------------

ASSETS:
Available-for-sale debt securities, at fair value.......................... $ 12,818.4 $ 11,894.1
Equity securities, at fair value........................................... 361.1 391.2
Mortgage loans, at unpaid principal balances............................... 407.3 468.8
Venture capital partnerships, at equity in net assets...................... 227.4 228.6
Affiliate equity securities, at cost plus equity in undistributed earnings. 131.3 134.7
Policy loans, at unpaid principal balances................................. 2,202.9 2,195.9
Other investments.......................................................... 393.5 398.9
--------------- ---------------
Total investments.......................................................... 16,541.9 15,712.2
Cash and cash equivalents.................................................. 613.0 1,058.5
Accrued investment income.................................................. 212.1 192.3
Receivables................................................................ 276.3 217.3
Deferred policy acquisition costs.......................................... 1,270.0 1,234.1
Deferred income taxes...................................................... 66.0 41.4
Goodwill and other intangible assets....................................... 748.3 762.0
Other general account assets............................................... 214.2 225.2
Separate account and investment trust assets............................... 5,990.7 5,793.1
--------------- ---------------
Total assets............................................................... $ 25,932.5 $ 25,236.1
=============== ===============

LIABILITIES:
Policy liabilities and accruals............................................ $ 12,798.4 $ 12,680.0
Policyholder deposit funds................................................. 3,679.0 3,395.7
Stock purchase contracts................................................... 118.5 137.6
Indebtedness............................................................... 644.0 644.3
Other general account liabilities.......................................... 680.0 542.9
Separate account and investment trust liabilities.......................... 5,990.7 5,793.1
--------------- ---------------
Total liabilities.......................................................... 23,910.6 23,193.6
--------------- ---------------

MINORITY INTEREST:
Minority interest in net assets of consolidated subsidiaries............... 6.4 10.8
--------------- ---------------

STOCKHOLDERS' EQUITY:
Common stock, $.01 par value: 106,375,583 and 106,374,510 shares issued.... 1.0 1.0
Additional paid-in capital................................................. 2,427.1 2,424.4
Deferred compensation on restricted stock units............................ (2.8) --
Accumulated deficit........................................................ (289.4) (292.6)
Accumulated other comprehensive income..................................... 74.6 94.6
Treasury stock, at cost: 12,287,667 and 12,330,000 shares.................. (195.0) (195.7)
--------------- ---------------
Total stockholders' equity................................................. 2,015.5 2,031.7
--------------- ---------------
Total liabilities, minority interest and stockholders' equity.............. $ 25,932.5 $ 25,236.1
=============== ===============

The accompanying notes are an integral part of these financial statements.

THE PHOENIX COMPANIES, INC.
Consolidated Statement of Income and Comprehensive Income
($ amounts in millions, except per share data)
Three Months Ended March 31, 2003 and 2002 (unaudited)

2003 2002
-------------- --------------

REVENUES:
Premiums........................................................................ $ 246.1 $ 257.4
Insurance and investment product fees........................................... 132.9 140.3
Investment income, net of expenses.............................................. 276.7 231.2
Net realized investment losses.................................................. (12.3) (35.0)
-------------- --------------
Total revenues.................................................................. 643.4 593.9
-------------- --------------

BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends............................... 350.8 333.9
Policyholder dividends.......................................................... 116.5 74.2
Policy acquisition cost amortization............................................ 28.0 (10.9)
Intangible asset amortization................................................... 8.4 8.1
Interest expense................................................................ 9.8 7.7
Other operating expenses........................................................ 126.5 136.9
-------------- --------------
Total benefits and expenses..................................................... 640.0 549.9
-------------- --------------
Income before income taxes and minority interest................................ 3.4 44.0
Applicable income taxes (benefit)............................................... (2.6) 12.3
-------------- --------------
Income before minority interest................................................. 6.0 31.7
Minority interest in net income of consolidated subsidiaries.................... 2.8 2.8
-------------- --------------
Income before cumulative effect of accounting change............................ 3.2 28.9
Cumulative effect of accounting change for goodwill and other intangible assets. -- (130.3)
-------------- --------------
Net income (loss) .............................................................. $ 3.2 $ (101.4)
============== ==============

BASIC AND DILUTED EARNINGS PER SHARE:
Basic weighted average common shares outstanding (in thousands)................. 94,046 101,195
Diluted weighted average common shares outstanding (in thousands)............... 95,014 101,195
============== ==============
Basic and diluted income before cumulative effect of accounting change per share $ 0.03 $ 0.29
Basic and diluted net income (loss) per share................................... $ 0.03 $ (1.00)
============== ==============

COMPREHENSIVE INCOME:
Net income (loss)............................................................... $ 3.2 $ (101.4)
-------------- --------------
Net unrealized investment losses................................................ (30.1) (28.6)
Net unrealized foreign currency translation adjustment.......................... (1.0) (13.6)
Net unrealized derivative instruments gains (losses)............................ 11.1 (0.1)
-------------- --------------
Other comprehensive loss........................................................ (20.0) (42.3)
-------------- --------------
Comprehensive loss.............................................................. $ (16.8) $ (143.7)
============== ==============

The accompanying notes are an integral part of these financial statements

THE PHOENIX COMPANIES, INC.
Consolidated Statement of Cash Flows
($ amounts in millions)
Three Months Ended March 31, 2003 and 2002 (unaudited)

2003 2002
-------------- --------------

OPERATING ACTIVITIES:
Income before cumulative effect of accounting change............................ $ 3.2 $ 28.9
Net realized investment (gains) losses.......................................... 12.3 35.0
Amortization and depreciation................................................... 13.5 12.9
Investment loss (income)........................................................ (52.1) (12.9)
Deferred income taxes (benefit)................................................. (12.7) 38.5
Increase in receivables......................................................... (59.0) (74.5)
Deferred policy acquisition costs (increase) decrease........................... (28.6) (61.5)
(Increase) decrease in policy liabilities and accruals.......................... 114.9 58.6
Other assets and other liabilities net change................................... 47.6 8.7
-------------- --------------
Cash from continuing operations................................................. 39.1 33.7
Discontinued operations, net.................................................... -- (25.4)
-------------- --------------
Cash from operating activities.................................................. 39.1 8.3
-------------- --------------

INVESTING ACTIVITIES:
Investment purchases............................................................ (1,839.1) (997.6)
Investment sales, repayments and maturities..................................... 1,080.1 554.0
Subsidiary purchases............................................................ -- (110.8)
Premises and equipment additions................................................ (1.9) (4.3)
Premises and equipment dispositions............................................. -- --
Discontinued operations, net.................................................... -- 25.4
-------------- --------------
Cash (for) from investing activities............................................ (760.9) (533.3)
-------------- --------------

FINANCING ACTIVITIES:
Policyholder deposit fund receipts, net ........................................ 283.3 315.9
Common stock purchases ......................................................... -- (32.9)
Minority interest distributions................................................. (7.0) (9.1)
-------------- --------------
Cash from financing activities.................................................. 276.3 273.9
-------------- --------------
Change in cash and cash equivalents............................................. (445.5) (251.1)
Cash and cash equivalents, beginning of period.................................. 1,058.5 815.5
-------------- --------------
Cash and cash equivalents, end of period........................................ $ 613.0 $ 564.4
============== ==============

The accompanying notes are an integral part of these financial statements.

THE PHOENIX COMPANIES, INC.
Consolidated Statement of Changes in Stockholders' Equity
($ amounts in millions)
Three Months Ended March 31, 2003 and 2002 (unaudited)

2003 2002
------------- -------------

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL:
Additional common shares issued in demutualization (1,073 and 1,041 shares)...... $ -- $ --
Restricted stock units awarded (394,737 units)................................... 3.0 --
Excess of cost over fair value of common shares contributed to employee
savings plan.................................................................. (0.3) --

DEFERRED COMPENSATION ON RESTRICTED STOCK UNITS:
Restricted stock units awarded................................................... (3.0) --
Compensation expense recognized.................................................. 0.2 --

RETAINED EARNINGS (ACCUMULATED DEFICIT):
Net income (loss)................................................................ 3.2 (101.4)

ACCUMULATED OTHER COMPREHENSIVE INCOME:
Other comprehensive income (loss)................................................ (20.0) (42.3)

TREASURY STOCK:
Common shares purchased (1,858,700 shares)....................................... -- (33.1)
Common shares contributed to employee savings plan (42,333 shares)............... 0.7 --
------------- -------------
Change in stockholders' equity................................................... (16.2) (176.8)
Stockholders' equity, beginning of period........................................ 2,031.7 2,395.7
------------- -------------
Stockholders' equity, end of period.............................................. $ 2,015.5 $ 2,218.9
============= =============

The accompanying notes are an integral part of these financial statements

THE PHOENIX COMPANIES, INC.
Notes to Consolidated Financial Statements
($ amounts in millions, except per share and per unit data)
Three Months Ended March 31, 2003 and 2002 (unaudited)

1. Organization and Operations

Our consolidated financial statements include the accounts of The Phoenix Companies, Inc. and its subsidiaries.
The Phoenix Companies, Inc. is a holding company and our operations are conducted through subsidiaries, the
principal ones of which are Phoenix Life Insurance Company (Phoenix Life) and Phoenix Investment Partners, Ltd.
(PXP). We have eliminated significant intercompany accounts and transactions in consolidating these financial
statements. Also, we have reclassified certain amounts for 2002 to conform with 2003 presentations.

We have prepared these financial statements in accordance with generally accepted accounting principles (GAAP).
In preparing these financial statements in conformity with GAAP, we are required to make estimates and
assumptions that affect the reported amounts of assets and liabilities at reporting dates and the reported
amounts of revenues and expenses during the reporting periods. Actual results will differ from these estimates
and assumptions. We employ significant estimates and assumptions in the determination of deferred policy
acquisition costs; policyholder liabilities and accruals; the valuation of goodwill and other intangible
assets, investments in debt and equity securities, venture capital partnerships and affiliates; pension and
other post-employment benefits liabilities; and accruals for contingent liabilities. Our significant accounting
policies are presented in the notes to our consolidated financial statements in our 2002 Annual Report on Form
10-K.

Our interim financial statements do not include all of the information required by GAAP for annual financial
statements. In our opinion, we have included all adjustments, consisting of normal, recurring adjustments,
considered necessary for a fair statement of the results for the interim periods. Operating results for the
interim period in 2003 are not necessarily indicative of the results that may be expected for the year 2003.
These unaudited consolidated financial statements should be read in conjunction with our consolidated financial
statements in our 2002 Annual Report on Form 10-K.

In December 1999, we began the process of reorganizing and demutualizing our then principal operating company,
Phoenix Home Life Mutual Insurance Company. We completed the process in June 2001, when all policyholder
membership interests in the mutual company were extinguished and eligible policyholders of the mutual company
received shares of common stock, cash and policy credits as compensation. To protect the future dividends of
these policyholders, we also established a closed block for their existing policies, which we describe in Note
3. Concurrent with the demutualization, we sold common stock of The Phoenix Companies, Inc. to the public.

Accounting changes

Goodwill and Other Intangible Assets. In the first quarter of 2002, we adopted the new accounting standard for
goodwill and other intangible assets, including amounts reflected in our carrying value of equity-method
investments. Under this new standard, we discontinued recording amortization expense on goodwill and other
intangible assets with indefinite lives, but we continue recording amortization expense for those assets with
definite estimated lives. For more information, see Note 4 to our consolidated financial statements in our 2002
Annual Report on Form 10-K.

Variable Interest Entities: A new accounting standard was issued in January 2003 that interprets the existing
standard on consolidation. It clarifies the application of standards of consolidation to certain entities in
which

equity investors do not have the characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional subordinated financial support from
other parties ("variable interest entities"). For more information, see Note 8 to our consolidated financial
statements in our 2002 Annual Report on Form 10-K.

Stock-based Compensation: A new standard was issued in December 2002 which amends an existing standard on
accounting for stock-based compensation. The new standard provides methods of transition for a voluntary change
to fair value accounting for stock-based compensation. It also requires annual and quarterly disclosures about
the method of accounting for stock-based compensation and tabular information about the effect of the method of
accounting for stock-based compensation. We adopted fair value accounting for stock-based compensation in
2003 using the prospective method of transition provided by the new standard, which will result in expense
recognition for the award of stock options after December 31, 2002. For more information, see Note 7 of this
Form 10-Q.

Costs Associated with Exit or Disposal Activities. A new standard was issued in June 2002 which requires
recognition of certain costs associated with exit or disposal activities when they are incurred rather than at
the date of a commitment to an exit or disposal plan. The standard is effective for exit or disposal activities
that are initiated after December 31, 2002.

Business combinations

We acquired a 60% interest in Kayne Anderson Rudnick Investment Management, LLC (Kayne Anderson and Rudnick)
for $102.4 on January 29, 2002; management of the company retained the remaining ownership interest. In
addition to the initial cost of the purchase, we may make a subsequent payment in 2004 based upon growth in
management fee revenue for the purchased business through the end of 2003. We are obligated to purchase an
additional 15% interest in the company by 2007. We allocated $0.3 of the purchase price to tangible net assets
acquired and $102.1 to intangible assets ($58.3 to investment management contracts and $43.8 to goodwill).
Kayne Anderson and Rudnick's results of operations for the period from January 30, 2002 through quarter-end
2002 are included in our results of operations for the first quarter of 2002. We have not presented pro forma
information as if Kayne Anderson and Rudnick had been acquired at the beginning of January 2002, as it is not
material to our financial statements.

2. Business Segments

Segment information on assets at quarter-end 2003 and year-end 2002 and revenues and income for the 2003 and
2002 quarters follows:

2003 2002
-------------- --------------
Segment Assets
Life and Annuity.............................................................. $ 22,321.5 $ 21,533.7
Asset Management ............................................................. 949.4 1,027.9
-------------- --------------
Operating segment assets...................................................... 23,270.9 22,561.6
Venture Capital............................................................... 194.3 227.8
Corporate and Other........................................................... 2,446.5 2,425.9
-------------- --------------
Total segment assets.......................................................... 25,911.7 25,215.3
Net assets of discontinued operations......................................... 20.8 20.8
-------------- --------------
Total assets.................................................................. $ 25,932.5 $ 25,236.1
============== ==============

2003 2002
-------------- --------------
Segment Revenues
Life and Annuity ............................................................. $ 572.8 $ 558.2
Asset Management.............................................................. 56.8 69.9
Elimination of inter-segment revenues......................................... (3.1) (4.4)
-------------- --------------
Operating segment revenues.................................................... 626.5 623.7
Venture Capital............................................................... 23.9 (5.0)
Corporate and Other........................................................... 5.8 10.2
-------------- --------------
Total segment revenues........................................................ 656.2 628.9
Net realized investment gains (losses)........................................ (12.3) (35.0)
Other......................................................................... (0.5) --
-------------- --------------
Total revenues................................................................ $ 643.4 $ 593.9
============== ==============

Segment Income
Life and Annuity.............................................................. $ 17.4 $ 28.2
Asset Management.............................................................. (4.6) 1.9
-------------- --------------
Operating segment pre-tax income.............................................. 12.8 30.1
Venture Capital............................................................... 23.9 (5.0)
Corporate and Other........................................................... (12.6) (8.7)
-------------- --------------
Total segment income, before income taxes..................................... 24.1 16.4
Applicable income taxes....................................................... 7.3 3.6
-------------- --------------
Total segment income.......................................................... 16.8 12.8
Net realized investment gains (losses), net of income taxes and other offsets. (12.4) 1.6
Other income (expense), net of income taxes................................... (1.2) 14.5
-------------- --------------
Income before cumulative effect of accounting changes......................... $ 3.2 $ 28.9
============== ==============

3. Life and Annuity Segment

The Life and Annuity segment includes individual life insurance and annuity products and results of Phoenix
Life and certain of its subsidiaries and affiliates (together, our Life Companies), including universal life,
variable universal life, term life and fixed and variable annuities. It also includes the results of our closed
block, which consists primarily of participating whole life products. Segment information on assets as of
quarter-end 2003 and year-end 2002 and operating income for the 2003 and 2002 quarters follow:

2003 2002
-------------- --------------
Life and Annuity Segment Assets
Investments................................................................... $ 15,106.8 $ 14,480.0
Cash and cash equivalents..................................................... 827.6 924.0
Receivables................................................................... 258.4 236.4
Deferred policy acquisition costs............................................. 1,270.0 1,234.1
Deferred income taxes......................................................... 326.4 328.2
Goodwill and other intangible assets.......................................... 7.4 6.8
Other general account assets.................................................. 184.3 192.5
Separate accounts............................................................. 4,340.6 4,131.7
-------------- --------------
Total segment assets.......................................................... 22,321.5 21,533.7
-------------- --------------
Policy liabilities and accruals............................................... 12,670.0 12,695.6
Policyholder deposit funds.................................................... 3,667.4 3,237.9
Other general account liabilities............................................. 304.9 171.0
Separate accounts............................................................. 4,340.6 4,131.7
Minority interest............................................................. 1.6 1.6
-------------- --------------
Total segment liabilities and minority interest............................... 20,984.5 20,237.8
-------------- --------------
Segment net assets............................................................ $ 1,337.0 $ 1,295.9
============== ==============

2003 2002
--------------- ---------------
Life and Annuity Segment Income
Premiums..................................................................... $ 246.1 $ 257.4
Insurance and investment product fees........................................ 78.3 77.6
Net investment income........................................................ 248.4 223.2
--------------- ---------------
Total segment revenues....................................................... 572.8 558.2
--------------- ---------------
Policy benefits, including policyholder dividends............................ 455.3 439.7
Policy acquisition cost amortization......................................... 27.5 14.7
Other operating expenses..................................................... 72.6 75.6
--------------- ---------------
Total segment benefits and expenses.......................................... 555.4 530.0
--------------- ---------------
Segment income before income taxes........................................... 17.4 28.2
Allocated income taxes....................................................... 3.8 9.9
--------------- ---------------
Segment income............................................................... $ 13.6 $ 18.3
=============== ===============

Deferred policy acquisition costs

In the first quarter 2002, we revised the mortality assumptions used in the development of estimated gross
margins for the traditional participating block of business to reflect favorable experience. This revision
resulted in a decrease in deferred policy acquisition cost amortization of $22.1 ($14.4 after income taxes).

The activity in deferred policy acquisition costs for the 2003 and 2002 quarters follows:

2003 2002
--------------- ---------------

Direct acquisition costs deferred............................................ $ 56.6 $ 50.5
Costs amortized to expenses:
(Cost) credit related to realized investment gains or losses............... (0.5) 3.8
Recurring costs related to segment income.................................. (27.5) (14.7)
Change in actuarial assumption............................................. -- 22.1
Offsets to net unrealized investment gains or losses included
in accumulated other comprehensive income.................................. 7.3 6.4
--------------- ---------------
Change in deferred policy acquisition costs.................................. 35.9 68.1
Deferred policy acquisition costs, beginning of period....................... 1,234.1 1,123.7
--------------- ---------------
Deferred policy acquisition costs, end of period............................. $ 1,270.0 $ 1,191.8
=============== ===============

Policy liabilities and accruals

Policyholder liabilities are primarily for participating life insurance policies and universal life insurance
policies. For universal life, it includes deposits received from customers and investment earnings on their
fund balances, which range from 4.0% to 7.0% at quarter-end 2003 and year-end 2002, less administrative and
mortality charges.

Policyholder deposit funds

Policyholder deposit funds primarily consist of annuity deposits received from customers, dividend
accumulations and investment earnings on their fund balances, which range from 1.3% to 12.3% at quarter-end
2003 and 1.6% to 12.3% at year-end 2002, less administrative charges.

Participating life insurance

Participating life insurance in-force was 44.2% and 45.5% of the face value of total individual life insurance
in-force at quarter-end 2003 and year-end 2002, respectively. The premiums on participating life insurance
policies were 68.8% and 68.9% of total individual life insurance premiums in the 2003 and 2002 quarters,
respectively.

Funds under management

Activity in annuity funds under management for the 2003 and 2002 quarters, respectively, follows:

2003 2002
--------------- ---------------

Deposits.................................................................... $ 432.1 $ 575.4
Performance................................................................. 20.2 (1.4)
Fees........................................................................ (11.5) (15.9)
Benefits and surrenders..................................................... (254.2) (134.2)
--------------- ---------------
Change in funds under management............................................ 186.6 423.9
Funds under management, beginning of period................................. 5,833.4 4,749.1
--------------- ---------------
Funds under management, end of period....................................... $ 6,020.0 $ 5,173.0
=============== ===============

Closed Block

Summarized information on closed block assets and liabilities at quarter-end 2003, year-end 2002 and inception
(December 31, 1999) and closed block revenues and expenses and changes in the policyholder dividend obligation,
all for the cumulative period from inception to quarter-end 2003 and the 2003 and 2002 quarters, follow:

2003 2002 Inception
--------------- --------------- ---------------

Debt securities.............................................. $ 6,635.1 $ 6,418.0 $ 4,773.1
Policy loans................................................. 1,401.1 1,399.0 1,380.0
Mortgage loans............................................... 338.9 373.2 399.0
Venture capital partnerships................................. 33.2 0.8 --
Other invested assets........................................ 44.0 -- --
--------------- --------------- ---------------
Total closed block investments............................... $ 8,452.3 8,191.0 6,552.1
Cash and cash equivalents.................................... 123.0 200.2 --
Accrued investment income.................................... 116.9 110.9 106.8
Receivables.................................................. 40.5 42.1 35.2
Deferred income taxes........................................ 404.9 402.7 389.4
Other closed block assets.................................... 28.3 45.2 6.2
--------------- --------------- ---------------
Total closed block assets.................................... 9,165.9 8,992.1 7,089.7
--------------- --------------- ---------------
Policy liabilities and accruals.............................. 9,515.5 9,449.0 8,301.7
Policyholder dividends payable............................... 374.5 363.4 325.1
Policyholder dividend obligation............................. 562.2 547.3 --
Other closed block liabilities............................... 89.9 24.2 12.3
--------------- --------------- ---------------
Total closed block liabilities............................... 10,542.1 10,383.9 8,639.1
--------------- --------------- ---------------
Excess of closed block liabilities over closed block assets.. $ 1,376.2 $ 1,391.8 $ 1,549.4
=============== =============== ===============

Cumulative 2003 2002
--------------- --------------- ---------------

Premiums..................................................... $ 3,476.7 $ 238.7 $ 248.7
Net investment income ....................................... 1,784.1 146.0 138.8
Net realized investment gains (losses)....................... (68.2) 11.5 (36.1)
--------------- --------------- ---------------
Total revenues............................................... 5,192.6 396.2 351.4
--------------- --------------- ---------------
Policy benefits, excluding dividends......................... 3,556.7 254.2 253.5
Policyholder dividends....................................... 1,258.1 105.1 100.2
Additional policyholder dividend obligation provision........ 35.3 11.4 (26.2)
Other operating expenses..................................... 41.7 2.7 2.8
--------------- --------------- ---------------
Total benefits and expenses.................................. 4,891.8 373.4 330.3
--------------- --------------- ---------------
Closed block contribution to income before income taxes...... 300.8 22.8 21.1
Applicable income taxes...................................... 105.7 8.0 7.4
--------------- --------------- ---------------
Closed block contribution to income.......................... $ 195.1 $ 14.8 $ 13.7
=============== =============== ===============

Unrealized investment gains.................................. $ 481.7 $ 3.5 $ (38.3)
Revenue in excess of benefits and expenses................... 80.5 11.4 (26.2)
Policyholder dividend obligation, beginning of period........ -- 547.3 167.2
--------------- --------------- ---------------
Policyholder dividend obligation, end of period.............. $ 562.2 $ 562.2 $ 102.7
=============== =============== ===============

4. Asset Management Segment

We conduct activities in Asset Management largely through our subsidiary, PXP, comprising two lines of business
- - private client and institutional. We provide investment management services through our affiliated asset
managers. We provide our affiliated asset managers with a consolidated platform of distribution and
administrative support. Each manager has autonomy with its investment process while we monitor performance and
ensure that each manager adheres to its stated investment style.

We report within our Asset Management segment our equity investment in Aberdeen Asset Management PLC
(Aberdeen), a Scottish investment management company with institutional and retail clients in the United
Kingdom, as well as in continental Europe, Asia, Australia and the U.S. We acquired 21.8% of the common stock
of Aberdeen in a series of transactions from 1996 through May 2001. Prior to 2003, we also reported our
investments in Aberdeen debt securities within our Asset Management segment. Aberdeen equity and debt
securities are holdings of Phoenix Life's general account.

Segment information on assets as of year-end 2002 and quarter-end 2003 and operating income for the 2003 and
2002 quarters follows:

2003 2002
--------------- ---------------
Asset Management Segment Assets
Aberdeen equity securities.................................................. $ 116.1 $ 119.3
Aberdeen debt securities.................................................... -- 52.7
Other investments........................................................... 11.1 6.3
Cash and cash equivalents................................................... 48.5 55.7
Receivables................................................................. 28.1 31.6
Goodwill and other intangible assets........................................ 732.1 740.5
Other assets................................................................ 13.5 21.8
--------------- ---------------
Total segment assets........................................................ 949.4 1,027.9
--------------- ---------------
Liabilities................................................................. 136.7 136.8
Minority interest........................................................... 4.7 9.0
--------------- ---------------
Total segment liabilities and minority interest............................. 141.4 145.8
--------------- ---------------
Segment net assets.......................................................... $ 808.0 $ 882.1
=============== ===============

2003 2002
--------------- ---------------
Asset Management Segment Income
Investment product fees..................................................... $ 55.5 $ 66.7
Net investment income....................................................... 1.3 3.2
--------------- ---------------
Total segment revenues...................................................... 56.8 69.9
--------------- ---------------
Intangible asset amortization............................................... 8.4 8.1
Other operating expenses.................................................... 50.2 57.1
--------------- ---------------
Total segment expenses...................................................... 58.6 65.2
--------------- ---------------
Segment income (loss) before income taxes and minority interest............. (1.8) 4.7
Allocated income tax benefit................................................ (1.7) (0.5)
--------------- ---------------
Segment income before minority interest..................................... (0.1) 5.2
Minority interest in segment income ........................................ 2.8 2.8
--------------- ---------------
Segment income (loss)....................................................... $ (2.9) $ 2.4
=============== ===============

Goodwill and other intangible assets

The gross and net carrying amounts of Asset Management segment goodwill and other intangible assets at
quarter-end 2003 and year-end 2002 follow:

2003 2002
--------------------------------- -------------------------------
Gross Net Gross Net
--------------- --------------- --------------- --------------

Goodwill.................................... $ 429.5 $ 375.5 $ 429.5 $ 375.5
Asset management contracts.................. 491.0 356.5 491.0 364.9
Other....................................... 1.5 0.1 1.5 0.1
--------------- --------------- --------------- --------------
Goodwill and other intangible assets........ 922.0 $ 732.1 922.0 $ 740.5
=============== ==============
Accumulated amortization.................... (189.9) (181.5)
--------------- ---------------
Goodwill and other intangible assets........ $ 732.1 $ 740.5
=============== ===============

Aberdeen Asset Management

The fair value of our investment in Aberdeen common stock, based on the London Stock Exchange closing price at
quarter-end 2003 and year-end 2002, was $37.4 and $43.6, respectively. The carrying value of our investment in
Aberdeen on the equity method of accounting totaled $116.1 and $119.3 at quarter-end 2003 and year-end 2002,
respectively.

5. Stock Purchase Contracts

In November 2002, we issued stock purchase contracts in a public offering. The stock purchase contracts are
repaid forward contracts issued by us that will be settled in shares of Hilb, Rogal & Hamilton (HRH) common
stock. Upon issuance of the stock purchase contracts, we designated the embedded derivative instrument as a
hedge of the forecasted sale of our investment in HRH, whose shares underly the stock purchase contracts. All
changes in the fair value of the embedded derivative are recorded in other comprehensive income. During the
2003 quarter, we recorded a favorable change in fair value of the embedded derivative of $18.4 before income
taxes ($12.0 after income taxes) in other comprehensive income, primarily due to a decrease in the quoted
market price of HRH's common stock. The quoted market price at quarter-end 2003 ($31.24 per share) was below
the price that we received at issuance of the stock purchase contracts. For more information, see Notes 5 and 6
to our consolidated financial statements in our 2002 Annual Report on Form 10-K.

6. Income Taxes

The allocation of income taxes to elements of comprehensive income (loss) and between current and deferred for
the quarters-ended 2003 and 2002 follows:

2003 2002
--------------- ---------------

Income before cumulative effect of accounting change......................... $ (2.6) $ 12.3
Cumulative effect of accounting change....................................... -- (11.4)
--------------- ---------------
Net income (loss)............................................................ $ (2.6) $ 0.9
Other comprehensive loss..................................................... (11.9) (22.6)
--------------- ---------------
Comprehensive loss........................................................... $ (14.5) $ (21.7)
=============== ===============

Current...................................................................... $ 10.1 $ (26.2)
Deferred..................................................................... (24.6) 4.5
--------------- ---------------
Income taxes (benefit) applicable to comprehensive income.................... $ (14.5) $ (21.7)
=============== ===============

For the 2003 and 2002 quarters, the effective income tax rates applicable to income from continuing
operations differ from the 35.0% statutory tax rate. Items giving rise to the differences and the effects are
as follow:

2003 2002
--------------- ---------------

Income taxes at statutory rate............................................... $ 1.2 $ 15.4
Tax advantaged investment income............................................. (1.5) (1.5)
Non-taxable minority interest income......................................... (1.0) (1.0)
Other, net................................................................... (1.3) (0.6)
--------------- ---------------
Income taxes (benefit) applicable to continuing operations................... $ (2.6) $ 12.3
=============== ===============

7. Stockholders' Equity

During the 2003 quarter, we contributed 42,333 treasury shares to fund the employer match for our saving and
investment benefit plans. These shares had a cost basis of $0.7 (weighted average of $15.87 per share) and an
aggregate market value of $0.4.

On April 28, 2003, we declared a dividend of $0.16 per share to our shareholders. The record date will be
June 13, 2003 and the payable date will be July 11, 2003.

Stock-based Compensation

In the first quarter of 2003, we adopted a new accounting standard that amends an existing standard on
stock-based compensation. The new standard provides methods of transition for a voluntary change to fair value
accounting from intrinsic value accounting for stock-based compensation. It also requires annual and quarterly
disclosures about the method of accounting for stock-based compensation and tabular information about the
effect of the method of accounting for stock-based compensation. We adopted fair value accounting for
stock-based compensation on January 1, 2003 using the prospective method of transition.

Pro forma earnings and earnings per share as if we had applied the fair value method of accounting for
stock-based compensation for the 2003 and 2002 quarters follows:

2003 2002
--------------- ---------------

Net income (loss), as reported................................................ $ 3.2 $ (101.4)
Add: Stock-based employee compensation expense included in
net income (loss), net of applicable income taxes........................... -- --
Deduct: Stock-based employee compensation expense determined
under fair value accounting for all awards, net of applicable income taxes.. (1.1) --
--------------- ---------------
Pro forma net income (loss)................................................... $ 2.1 $ (101.4)
=============== ===============

Basic and diluted earnings per share, as reported............................. $ 0.03 $ (1.00)
=============== ===============
Pro forma basic and diluted earnings per share................................ $ 0.02 $ (1.00)
=============== ===============

Restricted Stock Units

On January 1, 2003, we awarded 394,737 restricted stock units valued at $7.60 per share ($3.0 aggregate). We
will recognize the expense associated with this award over the three-year vesting period. We will issue the
shares underlying this award on the later of June 26, 2006 or the employee's termination of employment. For the
2003 quarter, we recognized $0.2 in compensation expense for this award.

8. Earnings Per Share

A reconciliation of the weighted average number of shares outstanding (in thousands) used to compute basic
earnings per share to diluted earnings per share for 2003 and 2002 quarters follows:

2003 2002
--------------- ---------------

Basic weighted average shares outstanding..................................... 94,046 101,195
Shares issuable for restricted stock units.................................... 968 --
--------------- ---------------
Diluted weighted average shares outstanding................................... 95,014 101,195
=============== ===============

Other common stock equivalents, including stock options (related to 4,409,558 of our common shares) and equity
units (related to 17,423,859 to 21,256,826 of our common shares depending on its February 2006 quoted market
price), have not been included in the diluted earnings per share calculation because the effect would be
anti-dilutive. The related stock options exercise prices of $15.90 and $16.20 and equity units threshold
appreciation price of $8.8206 were greater than the average market price of the common stock.

9. Contingent Liabilities

In 1999, we discontinued our reinsurance operations through a combination of sale, reinsurance and placement of
certain retained group accident and health reinsurance business into run-off. We adopted a formal plan to stop
writing new contracts covering these risks and end the existing contracts as soon as those contracts would
permit. However, we remain liable for claims under those contracts.

Total reserves were $25.0 and total reinsurance recoverable balances were $75.0 as of March 31, 2003. In
addition, in 1999 we purchased finite aggregate excess-of-loss reinsurance to further protect us from
unfavorable results from this discontinued business. The maximum coverage available from our finite reinsurance
coverage is currently $125.0. The amount of our total financial provisions as of March 31, 2003 was therefore
$75.0, consisting of reserves, less reinsurance recoverable balances, plus the amount currently available from
our finite aggregate excess-of-loss reinsurance. Based on the most recent information, we did not recognize any
additional reserve provisions during the first quarter of 2003.

We expect the additional reserves and aggregate excess-of-loss reinsurance coverage to cover the run-off of the
business; however, the nature of the underlying risks is such that the claims may take years to reach the
reinsurers involved. Therefore, we expect to pay claims out of existing estimated reserves for up to ten years
as the level of business diminishes.

A significant portion of the claims arising from our discontinued group accident and health reinsurance
business arises from the activities of Unicover Managers, Inc. (Unicover). Unicover organized and managed a
group, or pool, of insurance companies (Unicover pool) and certain other facilities, which reinsured the life
and health insurance components of workers' compensation insurance policies issued by various property and
casualty insurance companies. We were a member of the Unicover pool and we terminated our participation in the
pool effective March 1, 1999.

We are involved in disputes relating to the activities of Unicover. Under Unicover's underwriting authority,
the Unicover pool and Unicover facilities wrote a dollar amount of reinsurance coverage that was many times
greater than originally estimated. As a member of the Unicover pool, we are involved in several proceedings in
which the pool members assert that they can deny coverage to certain insurers that claim that they purchased
reinsurance coverage from the pool.

Further, we were, along with Sun Life Assurance of Canada (Sun Life) and Cologne Life Reinsurance Company
(Cologne Life), a retrocessionaire (meaning a reinsurer of other reinsurers) of the Unicover pool and two other
Unicover facilities, providing the pool and facility members with reinsurance of the risks that the pool and
facility members had assumed. In September 1999, we joined an arbitration proceeding that Sun Life had begun
against the members of the Unicover pool and the Unicover facilities. In this arbitration, we and Sun Life
sought to cancel our retrocession agreements on the grounds that material misstatements and nondisclosures were
made to us about, among other things, the amount of risks we would be reinsuring. The arbitration proceeded
only with respect to the Unicover pool because we, Sun Life and Cologne Life reached settlement with the two
Unicover facilities in the first quarter of 2000. On October 8, 2002, the arbitration panel issued its
decision. The financial implications of the decision are consistent with our current financial provisions.

In our capacity as a retrocessionaire of the Unicover business, we had an extensive program of our own
reinsurance in place to protect us from financial exposure to the risks we had assumed. Currently, we are
involved in separate arbitration proceedings with certain of our own retrocessionaires which are seeking on
various grounds to avoid paying any amounts to us. Because the same retrocession program that covers our
Unicover business covers a significant portion of our other remaining group accident and health reinsurance
business, we could have additional material losses if one or more of our retrocessionaires successfully avoids
its obligations.

A second set of disputes involves personal accident business that was reinsured in the London reinsurance
market in the mid-1990s in which we participated. The disputes involve multiple layers of reinsurance, and
allegations that the reinsurance program created by the brokers involved in placing those layers was
interrelated and devised to disproportionately pass losses to a top layer of reinsurers. Many companies who
participated in this business are involved in arbitrations in which those top layer companies are attempting to
avoid their obligations on the basis of misrepresentation. Because of the complexity of the disputes and the
reinsurance arrangements, many of these companies are currently participating in negotiations of the disputes
for certain contract years, and we believe that similar discussions will follow for the remaining years.
Although we are vigorously defending our contractual rights, we are actively involved in the attempt to reach
negotiated business solutions.

Given the uncertainty associated with litigation and other dispute resolution proceedings, and the expected
long-term development of net claims payments, the estimated amount of the loss on disposal of reinsurance
discontinued operations may differ from actual results. However, it is our opinion, after consideration of the
provisions made in these financial statements, as described above, that future developments will not have a
material effect on our financial position.

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENT

The following discussion may contain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The company intends these forward-looking statements to be covered by the safe
harbor provisions of the federal securities laws relating to forward-looking statements. These include
statements relating to trends in, or representing management's beliefs about, the company's future strategies,
operations and financial results, as well as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," "may," "should" and other similar expressions. Forward-looking
statements are made based upon management's current expectations and beliefs concerning trends and future
developments and their potential effects on the company. They are not guarantees of future performance. Actual
results may differ materially from those suggested by forward-looking statements as a result of risks and
uncertainties which include, among others: (i) changes in general economic conditions, including changes in
interest and currency exchange rates and the performance of financial markets; (ii) heightened competition,
including with respect to pricing, entry of new competitors and the development of new products and services by
new and existing competitors; (iii) the company's primary reliance, as a holding company, on dividends and
other payments from its subsidiaries to meet debt payment obligations, particularly since the company's
insurance subsidiaries' ability to pay dividends is subject to regulatory restrictions; (iv) regulatory,
accounting or tax changes that may affect the cost of, or demand for, the products or services of the company's
subsidiaries; (v) downgrades in the claims paying ability or financial strength ratings of the company's
subsidiaries or in its credit ratings; (vi) discrepancies between actual claims experience and assumptions used
in setting prices for the products of insurance subsidiaries and establishing the liabilities of such
subsidiaries for future policy benefits and claims relating to such products; (vii) movements in the equity
markets that affect our investment results, including those from venture capital, the fees we earn from assets
under management and the demand for our variable products; (viii) the company's success in achieving planned
expense reductions; and (ix) other risks and uncertainties described in any of the company's filings with the
SEC. The company undertakes no obligation to update or revise publicly any forward-looking statement, whether
as a result of new information, future events or otherwise.

RISKS RELATED TO OUR BUSINESS

Continued poor performance of the equity markets could adversely affect sales of our investment management,
variable universal life and variable annuity products. Sales of all of our products could also be adversely
affected by a general economic downturn.

The U.S. equity markets experienced strong growth followed by substantial declines. From April 1, 2000 through
quarter-end 2003, the Nasdaq Composite Index and the Standard & Poor's 500 Index fell 70.67% and 43.40%,
respectively. These market declines have been accompanied by increased volatility.

There are two main ways in which market declines and volatility have affected, or have the potential to affect,
our revenues negatively.

o First, significant market volatility or declines may cause potential purchasers of our products to
refrain from new or additional investments, and current investors to withdraw from the markets or reduce
their rates of ongoing investment. At this time we cannot estimate the impact to date of the market on
our sales.

o Second, because the revenues of our investment management and variable products businesses are to a

large extent based on fees related to the value of assets under our management, the poor performance of
the equity markets has limited our fee revenues by reducing the value of the investment assets we
manage. The possibility of declines in assets under management is heightened by the fact that as of
quarter-end 2003, approximately 22% of our variable universal life insurance assets under management
excluding our private placement business, and approximately 58% of our variable annuity assets under
management excluding our private placement business, were not subject to any surrender penalties. It is
also possible that we could begin to experience increasing surrenders if equity markets continue to
perform poorly. The surrender charges applicable to our variable universal life insurance policies and
variable annuities typically decline over a period of years and generally expire after 10 years.
Moreover, surrenders of life insurance policies and annuities require faster amortization of deferred
policy acquisition costs, which would reduce our profitability. Our total expense for amortization of
deferred policy acquisition costs was $28.0 million for the quarter ended quarter-end 2003.

In addition to the effects of poorly performing equity markets, a general economic downturn could have a
negative effect on households in our target affluent and high-net-worth market and therefore could hurt sales
of our products.

We experienced significant operating losses in 2002. Continued significant operating losses could impair our
ability to access the capital markets or repay our debt obligations.

We experienced losses from continuing operations before cumulative effect of accounting changes of $115.7
million in 2002. While we experienced net income of $28.9 million and $3.2 million in the first quarter of
2002 and 2003, respectively, any continuing operating losses could impair our ability to raise debt or equity
capital or pay amounts due under our debt obligations.

Some of our investments outside the closed block have limited liquidity, which could hurt our cash flow.

The plan of reorganization relating to our demutualization in June 2001 required Phoenix Life to establish and
operate an arrangement, known as a closed block, to ensure that the reasonable dividend expectations of
policyholders who own certain individual insurance policies of Phoenix Life are met, and that benefits under
such policies are paid. Phoenix Life must retain within the closed block the cash flows produced by closed
block assets in order to pay policy benefits and dividends to closed block policyholders, which means that
these cash flows are not available to us to meet unexpected cash needs in our other businesses. The assets that
are within the closed block include a substantial portion of our most liquid assets.

As of quarter-end 2003, $2.4 billion, or 28% of the invested assets outside the closed block, consisted of
investments in private debt securities, mortgage loans, real estate, policy loans, equity securities and
limited partnership interests, including our venture capital investments, all of which have limited liquidity.
If we need to sell such investments because we require significant amounts of cash on short notice in excess of
our normal cash requirements, as could be the case if we experience unexpectedly sudden and high volumes of
non-participating insurance policy and annuity surrenders, we might have difficulty doing so at attractive
prices or in a timely manner. This could cause a drain on our cash and, therefore, limit the cash we have
available to meet our other obligations.

We might need to fund deficiencies in our closed block, which would result in a reduction in net income and
could result in a reduction in investments in our on-going business.

We have allocated assets to the closed block required by our demutualization in an amount that will produce
cash flows that, together with anticipated revenues from the policies included in the closed block, are
reasonably expected to be sufficient to support obligations and liabilities relating to these policies. These
obligations and liabilities include, but are not limited to, provisions for the payment of claims and certain
expenses and taxes, and

provisions for the continuation of the policyholder dividend scales in effect for 2000, if the experience
underlying such scales continues, and for appropriate adjustments in such scales if the experience changes. Our
allocation of assets to the closed block was based on actuarial assumptions about our payment obligations to
closed block policyholders, as well as assumptions about the investment earnings the closed block assets will
generate over time. Since such assumptions are to some degree uncertain, it is possible that the cash flows
generated by the closed block assets and the anticipated revenues from the policies included in the closed
block will prove insufficient to provide for the benefits guaranteed under these policies. We would have to
fund the shortfall resulting from such an insufficiency. Moreover, even if these assets, cash flows and
revenues are sufficient, we may choose to support closed block policyholder dividend payments with assets and
cash flows from outside of the closed block.

Venture Capital earnings are dependent on the performance of the equity markets, which means that this
segment's effect on our income from continuing operations has been volatile.

At times in the last five years Venture Capital has represented a large component of our total income or loss
from continuing operations. Venture Capital is a higher risk, less liquid investment, the value of which is
prone to significant fluctuation. Income from Venture Capital represented 190% and 56% of our total income from
continuing operations in 2000 and 1999, respectively. In 2002 and 2001, however, our venture capital
investments decreased our income from continuing operations by $38.5 million and $54.9 million, respectively,
representing 33% and 40% of our total loss from continuing operations in 2002 and 2001, respectively.
Similarly, venture capital income of $18.8 million through quarter-end 2003 (including $3.3 million in the
closed block) represented 588% of income from operations. The performance of the partnerships depends upon the
economic performance of the underlying assets held by the partnerships, which is difficult to predict.

Our Venture Capital portfolio has a large technology component and includes investments in other sectors such
as telecommunications, the asset values of which tend to move in close relation with the technology sector. The
decrease in this portfolio's income in 2002 and 2001 resulted primarily from equity market declines in the
technology sector and other related sectors. It is possible that we will continue to experience declines
related to our venture capital investments.

In addition, the returns we achieve in Venture Capital depend in large part on the efforts and performance
results obtained by the managers of the partnerships in which we invest. We have neither an active role in the
day to-day management of the partnerships in which we invest, nor the ability to approve the specific
investment management decisions made by the managers of the partnerships. Although we evaluate each potential
partnership investment based on criteria such as the performance history of the partnership and its manager, as
well as the partnership's investment strategies, the past performance of a partnership and its manager may not
be a reliable indicator of future results. Furthermore, the managers, key personnel and investment strategies
of a partnership may change at any time without our consent.

The downgrades to the Company's debt ratings and Phoenix Life's financial strength ratings in 2002, as well as
the possibility of future downgrades, could increase policy surrenders and withdrawals, adversely affect
relationships with distributors, reduce new sales and earnings from our life insurance products and increase
our future borrowing costs.

Rating agencies assign Phoenix Life claims paying ability ratings, sometimes referred to as financial strength
ratings, and assign us debt ratings, based in each case on their opinions of the relevant company's ability to
meet its financial obligations.

Financial strength ratings indicate a rating agency's view of an insurance company's ability to meet its
obligations to its insureds. These ratings are therefore key factors underlying the competitive position of
life insurers. The current financial strength and debt ratings are set forth in the chart below.

Financial Strength Rating Senior Debt Rating
Rating Agency of Phoenix Life of the Company
- ------------------------------- --------------------------------- ----------------------------

A.M. Best Company, Inc. A ("Excellent") bbb+ ("Adequate")

Fitch Ratings AA- ("Very Strong") A- ("Strong")

Standard & Poor's A+ ("Strong") BBB+ ("Good")

Moody's A3 ("Good") Baa3 ("Adequate")

A.M. Best and Moody's have a stable outlook for our ratings, while Fitch Ratings and Standard & Poor's have a
negative outlook.

As a consequence of ratings downgrades, we may experience increased interest costs in connection with future
borrowings. Such increased costs would decrease our earnings and could reduce our ability to finance our future
growth on a profitable basis. The downgrades did not trigger any defaults or repurchase obligations.

In addition, the downgrades could adversely affect Phoenix Life's relationships with its existing distributors
and its ability to establish additional distributor relationships. If this were to occur, we might experience a
decline in sales of certain products and the persistency of existing customers. At this time, we cannot
estimate the impact on sales or persistency. If there were a significant decline in Phoenix Life's sales or
persistency, our results of operations would be materially adversely affected.

We could have material losses in the future from our discontinued reinsurance business.

In 1999, we sold our individual life reinsurance business and discontinued the operations of our group accident
and health and group life reinsurance business. We adopted a plan to stop writing new contracts covering these
risks and end our existing contracts as soon as those contracts would permit. However, we remain liable for
claims under those contracts.

We have established reserves and reinsurance recoverables for claims and related expenses that we expect to pay
on our discontinued group accident and health reinsurance business. These reserves and reinsurance recoverables
are a net present value amount that is based on currently known facts and estimates about, among other things,
the amount of insured losses and expenses that we believe we will pay, the period over which they will be paid,
the amount of reinsurance proceeds we believe we will collect under finite reinsurance and other reinsurance
and the likely legal and administrative cost of winding down the business. Total reserves were $25 million and
total reinsurance recoverable balances were $75 million at quarter-end 2003. In addition, in 1999 we purchased
finite aggregate excess-of-loss reinsurance to further protect us from unfavorable results from this
discontinued business. The maximum coverage available is currently $125 million. The amount of our total
financial provisions at quarter-end 2003 was, therefore, $75 million, consisting of reserves, less reinsurance
recoverable balances, plus the amount currently available from our finite aggregate excess-of-loss reinsurance,
and represents our best estimate of the provisions required for the payment of our entire remaining loss
exposure on the discontinued group accident and health reinsurance business.

Because we must use estimates in establishing our loss and expense reserves, they are subject to uncertainty.
In the case of our discontinued group accident and health reinsurance business, several factors make estimating
the required provisions more difficult. First, it may take a number of years for the claims on the large
majority of the remaining business to be reported to us. In many cases, the types of losses involved will
develop over a relatively long period. Further, some of our remaining contracts cover losses that will be
incurred in 2003 and subsequent years. For these reasons, we cannot know today what our actual claims
experience will be.

In addition, we are involved in two sets of disputes relating to certain portions of our discontinued group
accident and health reinsurance business. See Note 17 to our consolidated financial statements for the year
2002 on Form 10-K for more information.

In establishing our provisions described above for the payment of insured losses and expenses on this
discontinued business, we have made assumptions about the likely outcome of the disputes referred to above,
including an assumption that substantial recoveries would be available from our reinsurers on all of our
discontinued reinsurance business. However, the inherent uncertainty of arbitrations and lawsuits, including
the uncertainty of estimating whether any settlements we may enter into in the future would be on favorable
terms, makes it hard to predict the outcomes with certainty. Given the need to use estimates in establishing
loss reserves, and the difficulty in predicting the outcome of arbitrations and lawsuits, our actual net
ultimate exposure likely will differ from our current estimate. If future facts and circumstances differ
significantly from our estimates and assumptions about future events with respect to the disputes referred to
above or other portions of our discontinued reinsurance business, our current reserves may need to be increased
materially, with a resulting material adverse effect on our results of operations and financial condition.

A challenge to the plan of reorganization is outstanding.

A pending lawsuit seeks to challenge Phoenix Life's reorganization and the adequacy of the information provided
to policyholders regarding the plan of reorganization. We believe that this lawsuit lacks merit. The lawsuit,
Andrew Kertesz v. Phoenix Home Life Mut. Ins. Co., et al., was filed on April 16, 2001, in the Supreme Court of
the State of New York for New York County. The plaintiff seeks to maintain a class action on behalf of a
putative class consisting of the eligible policyholders of Phoenix Life as of December 18, 2000, the date the
plan of reorganization was adopted. Plaintiff seeks compensatory damages for losses allegedly sustained by the
class as a result of the demutualization, punitive damages and other relief. The defendants named in the
lawsuit include Phoenix Life, The Phoenix Companies, Inc., directors of Phoenix Life, as well as Morgan Stanley
& Co. Incorporated, financial advisor to Phoenix Life in connection with the plan of reorganization. A motion
to dismiss the claims asserted in this lawsuit has recently been granted. The plaintiff has filed a notice of
appeal.

Legislation eliminating or modifying either the federal estate tax or the federal taxation of investment income
could adversely affect revenues from our life insurance products because some of them are specifically designed
and marketed as policies that help a decedent's heirs to pay this tax. In addition, some of the Bush
Administration's legislative proposals would reduce or eliminate the benefit of deferral of taxation for our
insurance and annuity products.

Legislation eliminating or modifying either the federal estate tax or the federal taxation of investment income
could adversely affect revenues from our life insurance and annuity products. Some of our life insurance
products are specifically designed and marketed as policies that help a decedent's heirs to pay estate tax. In
addition, our life insurance and annuity products generally benefit from the deferral of federal income
taxation on the accretion of their value.

Legislation enacted in the spring of 2001 increased the size of estates exempt from the federal estate tax,
phased in reductions in the estate tax rate between 2002 and 2009 and repealed the estate tax entirely in 2010.
This legislation, despite its reinstatement of the estate tax in 2011, could have a negative effect on our
revenues from

the sale of estate planning products including in particular sales of second-to-die life insurance policies.
These policies insure the lives of both a husband and wife, with the policy proceeds payable after both spouses
have died. A second-to-die policy effectively enables a couple to pre-fund its heirs' estate tax obligations by
making the policy proceeds available to the heirs at the time estate taxes are due. Second-to-die policies are
often purchased by couples whose assets are largely illiquid, and whose heirs otherwise might have to attempt
to liquidate part of the estate in order to pay the tax. Second-to-die policies represented 35% and 22% of our
new life insurance premiums and deposits in 2002 and 2001, respectively, and the repeal, increase in exemption
or the reduction of the rate, of the federal estate tax may reduce the attractiveness of second-to-die policies
sold for this purpose. 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.

The attractiveness to our customers of many of our products is due, in part, to favorable tax treatment.
Current federal income tax laws generally permit the tax-deferred accumulation of earnings on the premiums paid
by the holders of annuities and life insurance products. Taxes, if any, are payable on income attributable to a
distribution under the contract for the year in which the distribution is made. Death benefits under life
insurance contracts may be received free of federal income tax. Legislative changes that would have the effect
of reducing the taxes imposed on investment income could reduce or eliminate the relative benefit of such
deferral of taxation for our insurance, annuity and investment products. There can be no assurance whether or
when any such legislation changes would be enacted. However, enactment of any such legislation could have a
negative impact on our revenues.

Changes in interest rates could harm cash flow and profitability in our life and annuity businesses.

Cash flows relating to, and the profitability of, our life insurance and annuity businesses are sensitive to
interest rate changes. In periods of increasing interest rates, life insurance policy loans and surrenders and
withdrawals may increase as policyholders seek investments with higher perceived returns. This process could
result in cash outflows requiring us to sell invested assets at a time when the prices of those assets are
adversely affected by the increase in market interest rates, which could cause us to suffer realized investment
losses.

Conversely, during periods of declining interest rates, a decrease in the spread between interest and dividend
rates to policyholders and returns on our investment portfolio could adversely affect our profitability. During
such periods, life insurance and annuity products may be relatively more attractive investments, resulting in
increased premium payments on products with flexible premium features, repayment of policy loans and increased
percentages of policies remaining in force during a period when we are earning lower returns on our own new
investments. For this reason, a sustained period of declining interest rates could cause cash flow problems for
us. In addition, lower returns on our investments could prove inadequate for us to meet contractually
guaranteed minimum payments to holders of our life and annuity products. We also face the risk in a declining
interest rate environment that borrowers may prepay or redeem mortgages and bonds in our investment portfolio
as they seek to borrow at lower market rates, so that we might have to reinvest proceeds we receive from these
prepayments or redemptions in lower interest-bearing investments.

Our product sales are highly dependent on our relationships with non-affiliated distributors. If these
relationships ended or diminished, our revenues would suffer accordingly.

We sell our products through our affiliated retail producers and non-affiliated advisors, broker-dealers and
other financial intermediaries. Non-affiliated distribution sources have contributed significantly to our sales
in recent years. For example, Merrill Lynch, with over 15,000 registered representatives, accounted for 42% of
our Asset Management private client asset inflows in 2002. The loss or diminution of our relationships with
non-affiliated distributors could materially reduce our revenues from sales of our products. The risk of such
loss or diminution is significant and ongoing, since we face substantial competition in seeking to convince
non-affiliated distributors

to sell our products, rather than those offered by our competitors.

The independent trustees of our mutual funds and closed-end funds, as well as intermediary program sponsors,
managed account clients and institutional investment management clients, could terminate their contracts with
us. This would reduce our Asset Management fee revenues and could also impair our intangible assets.

Each of the mutual funds and closed-end funds for which PXP acts as investment adviser or sub-adviser is
registered under the Investment Company Act of 1940 and is governed by a board of trustees or board of
directors. The Investment Company Act requires that at least 40% of these board members be unaffiliated with
PXP. Each fund's board has the duty of deciding annually whether to renew the contract appointing PXP to manage
the fund. Board members have a fiduciary duty to act in the best interests of the shareholders of their funds.
Either the board members or the shareholders may terminate an advisory contract with PXP and move the assets to
another investment adviser. The board members also may deem it to be in the best interests of a fund's
shareholders to make decisions adverse to us, including reducing the compensation paid to PXP or imposing
restrictions on PXP's management of the fund.

Our investment management agreements with institutional clients, intermediary program sponsors (who "wrap," or
make available, our investment products within the management agreements they have with their own clients),
direct managed account clients and institutional clients are generally terminable by these sponsors and clients
upon short notice without penalty. As a result, there would be little impediment to these sponsors or clients
terminating our agreements if they became dissatisfied with our performance.

The termination of any of the above agreements representing a material portion of assets under management would
adversely affect our Asset Management fee revenues.

We face strong competition in our wealth management businesses from mutual fund companies, banks, investment
management firms and other insurance companies. This competition may impair our ability to retain existing
customers, attract new customers and maintain our profitability.

We face strong competition in our wealth management businesses, comprising of life insurance, annuities and
investment management. We believe that our ability to compete is based on a number of factors, including
product features, investment performance, service, price, distribution, capabilities, scale, commission
structure, name recognition and financial strength ratings. While there is no single company that we identify
as a dominant competitor in our wealth management business, the nature of these businesses means that our
actual and potential competitors include a large number of mutual fund companies, banks, investment management
firms and other insurance companies, many of which have advantages over us in one or more of the above
competitive factors. Recent industry consolidation, including acquisitions of insurance and other financial
services companies in the United States by international companies, has resulted in larger competitors with
financial resources, marketing and distribution capabilities and brand identities that are stronger than ours.
Larger firms also may be able to offer, due to economies of scale, more competitive pricing than we can. In
addition, some of our competitors are regulated differently than we are, which may give them a competitive
advantage; for example, many non-insurance company providers of financial services are not subject to the costs
and complexities of insurance regulation by multiple states.

Our ability to compete in the investment management business depends in particular on our investment
performance. We may not be able to accumulate and retain assets under management if our investment results
underperform the market or the competition, since such underperformance likely would result in asset
withdrawals and reduced sales. For example, from 1993 through 1999, we experienced net asset withdrawals in our
private client investment management business. We attribute this in part to underperformance in some of our
mutual funds and managed accounts.

We compete for distribution sources in our life, annuity and investment management businesses. We believe that
our success in competing for distributors depends on factors such as our financial strength and on the services
we provide to, and the relationships we develop with, these distributors. Our distributors are generally free
to sell products from whichever providers they wish, which makes it important for us to continually offer
distributors products and services they find attractive. If our products or services fall short of
distributors' needs, we may not be able to establish and maintain satisfactory relationships with distributors
of our life insurance, annuity and investment management products. Accordingly, our revenues and profitability
would suffer.

National banks, with their pre-existing customer bases for financial services products, may increasingly
compete with insurers, as a result of recently enacted legislation removing restrictions on bank affiliations
with insurers. This legislation, the Gramm-Leach-Bliley Act of 1999, permits mergers that combine commercial
banks, insurers and securities firms under one holding company. Until passage of the Gramm-Leach-Bliley Act,
prior legislation had limited the ability of banks to engage in securities-related businesses and had
restricted banks from being affiliated with insurance companies. 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 our products by substantially increasing the number and financial strength of our potential
competitors.

We might be unable to attract or retain personnel who are key to our business, especially in Asset
Management and distribution.

The success of our business is dependent to a large extent on our ability to attract and retain key employees.
Our investment management business, in particular, depends on the employment of experienced securities analysts
and portfolio managers. In addition, our wealth management businesses are dependent on the employment of highly
productive sales personnel. Competition in the job market for these types of professionals is generally
intense, and is particularly acute with respect to experienced securities analysts and portfolio managers such
as those needed by PXP. In general, our employees are not subject to employment contracts or non-compete
arrangements.

Changes in insurance and securities regulation could affect our profitability by imposing further
restrictions on the conduct of our business.

Our life insurance and annuity businesses are subject to comprehensive state regulation and supervision
throughout the United States. State insurance regulators and the National Association of Insurance
Commissioners continually reexamine existing laws and regulations, and may impose changes in the future that
put further regulatory burdens on us, thereby increasing our costs of business. This could materially adversely
affect our results of operations and financial condition.

The U.S. federal government does not directly regulate the insurance business. However, federal legislation and
administrative policies in areas which include employee benefit plan regulation, financial services regulation
and federal taxation and securities laws could significantly affect the insurance industry and our costs.

We and some of the policies, contracts and other products that we offer are subject to various levels of
regulation under the federal securities laws administered by the SEC as well as regulation by those states and
foreign countries in which we provide investment advisory services, offer products or conduct other
securities-related activities. We could be restricted in the conduct of our business for failure to comply with
such laws and regulations. Future laws and regulations, or the interpretation thereof, could materially
adversely affect our results of operations and financial condition by increasing our expenses in having to
comply with these regulations.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations reviews our consolidated
financial condition as of quarter-end 2003 as compared to year-end 2002; our consolidated results of operations
for the quarters ended 2003 and 2002; and, where appropriate, factors that may affect our future financial
performance. This discussion should be read in conjunction with the unaudited interim financial statements and
notes contained in this filing as well as in conjunction with our consolidated financial statements for the
year 2002 on Form 10-K.

Overview

We are a leading provider of wealth management products and services offered through a variety of select
advisors and financial services firms to serve the accumulation, preservation and transfer needs of the
affluent and high-net-worth market, businesses and institutions. We refer to our products and services together
as our wealth management solutions. We offer a broad range of life insurance, annuity and investment management
solutions through a variety of distributors. These distributors include affiliated and non-affiliated advisors
and financial services firms who make our solutions available to their clients.

We provide our wealth management solutions through two operating segments - Life and Annuity and Asset
Management - which include three businesses, life insurance, annuities and investment management. Through Life
and Annuity we offer a variety of life insurance and annuity products, including universal, variable universal,
whole and term life insurance, and a range of annuity offerings. We conduct activities in Asset Management
largely through Phoenix Investment Partners, Ltd. (PXP) comprising two lines of business - private client and
institutional.

Business Acquisition

On May 1, 2003, we acquired the remaining interest in PFG Holdings, Inc. (PFG) not already owned by us for
initial consideration of $16.7 million. Under the terms of the purchase agreement, additional consideration of
up to $13.0 million may be paid to the selling shareholders during the years 2004 through 2007 in the event
that certain financial performance targets are met. In addition, a final contingent payment may be paid in 2008
based on appraised value of PFG as of December 31, 2007. Maximum total contingent consideration, inclusive of
the additional consideration that may be paid in 2004 through 2007, under the terms of the purchase agreement
is $89.0 million, based on a contractually capped appraised value of PFG of $450.0 million as of December 31,
2007.

The Demutualization

Phoenix Home Life Mutual Insurance Company demutualized on June 25, 2001 by converting from a mutual life
insurance company to a stock life insurance company, became a wholly-owned subsidiary of The Phoenix Companies,
Inc. and changed its name to Phoenix Life Insurance Company (Phoenix Life). See Note 1 to our consolidated
financial statements for more information regarding the demutualization and Note 3 for more information
regarding the closed block.

Consolidated Results of Operations

The following table and discussion presents summary consolidated financial data for the quarters ended 2003 and
2002 ($ amounts in millions).

2003 2002 Change
--------------- --------------- ---------------

REVENUES:
Premiums...................................................... $ 246.1 $ 257.4 $ (11.3)
Insurance and investment product fees......................... 132.9 140.3 (7.4)
Investment income, net of expenses............................ 276.7 231.2 45.5
Net realized investment gains (losses)........................ (12.3) (35.0) 22.7
--------------- --------------- ---------------
Total revenues................................................ 643.4 593.9 49.5
--------------- --------------- ---------------

BENEFITS AND EXPENSES:
Policy benefits, excluding policyholder dividends............. 350.8 333.9 16.9
Policyholder dividends........................................ 116.5 74.2 42.3
Policy acquisition cost amortization.......................... 28.0 (10.9) 38.9
Intangible asset amortization................................. 8.4 8.1 0.3
Interest expense.............................................. 9.8 7.7 2.1
Other operating expenses...................................... 126.5 136.9 (10.4)
--------------- --------------- ---------------
Total benefits and expenses................................... 640.0 549.9 90.1
--------------- --------------- ---------------
Income (loss) before income taxes and minority interest....... 3.4 44.0 (40.6)
Applicable income taxes (benefit)............................. (2.6) 12.3 (14.9)
--------------- --------------- ---------------
Income before minority interest............................... 6.0 31.7 (25.7)
Minority interest in net income of subsidiaries............... 2.8 2.8 --
--------------- --------------- ---------------
Income (loss) before cumulative effect of accounting change... 3.2 28.9 (25.7)
Cumulative effect of accounting change........................ -- (130.3) 130.3
--------------- --------------- ---------------
Net income (loss) ............................................ $ 3.2 $ (101.4) $ 104.6
=============== =============== ===============

Premium revenues declined $11.3 million, or 4%, primarily as a result of a shift in sales from traditional life
to universal life products and a decline in the traditional in-force business. Premium revenue for traditional
life policies during the 2003 quarter was $241.5 million versus $252.3 million in the 2002 quarter, a decrease
of $10.8 million.

Insurance and investment product fees decreased by $7.4 million, or 5% from the prior year. Universal life fees
increased due to increased sales while annuity fees declined due to lower separate account assets. Further,
decreased investment product fees resulted from lower private client and institutional assets under management.

Net investment income increased $45.5 million, or 20%, due to an increase in invested assets related to the
guaranteed interest account portion of our annuity business, principally from the sales of the Retirement
Planners Edge (RPE) variable annuity and fixed annuities. Invested assets at the end of the 2003 quarter were
approximately $1.6 billion higher than at the end of the 2002 quarter. Equity in earnings in venture capital
investments increased $28.9 million to $23.9 million in the 2003 quarter from $5.0 million loss in the 2002
quarter.

Net realized investment losses decreased $22.7 million, or 65%, from the prior quarter due to lower impairments
on debt securities during the 2003 quarter than the 2002 quarter. Additionally, net transaction gains increased
substantially from the 2002 quarter, primarily for debt securities sale.

Policy benefits increased $16.9 million, or 5%, primarily due to an increase in interest credited on the
guaranteed interest accounts portion of our variable annuity business and on fixed annuities.

Policyholder dividends increased $42.3 million, or 57%, from the 2002 quarter due to the impact of realized
gains and losses on the policyholder dividend obligation. In the 2002 quarter, dividend expense was lower due
to the impact of $34.0 million in realized losses. In the 2003 quarter, dividend expense was higher due to the
impact of

$8.5 million in realized gains, a change of $42.5 million.

Policy acquisition cost amortization increased $38.9 million from the prior year quarter primarily due to lower
margins due to spread compression, higher surrenders and favorable variable universal life mortality.
Amortization in the 2002 quarter includes a $22.1 million adjustment (credit) associated with a revision of the
mortality assumptions.

Interest expense increased $2.1 million, or 27%, due to the equity units issuance during the fourth quarter of
2002. This increased interest expense is reflected in the 2003 quarter.

Our income tax benefit of $2.6 million applicable to operating income for the quarter ended 2003 differed from
the statutory U.S. federal income tax of $1.2 million as a result of the tax benefits associated with low
income housing tax credits, non-taxable dividend and interest income and the recovery of interest amounts
previously paid to the Internal Revenue Service (I.R.S). The effective income tax of $12.3 million for the
quarter ended 2002 also differed from the statutory income tax of $15.4 million as a result of the tax benefits
associated with low income housing tax credits, non-taxable dividend and interest income and the recovery of
non-taxable amounts related to an I.R.S settlement.

Based on the current low level of pre-tax operating income in relation to permanent tax benefits, future
changes in our pre-tax operating income may produce disproportionate changes to our effective income tax rate.
As a result, our effective income tax rate for the quarter ended 2003 should not be considered an estimate of
the effective income tax rate for the year 2003. The effective income tax benefit rate for the year 2002 was
35.5%.

Results of Operations by Segment

We evaluate segment performance on the basis of segment income. Realized investment gains and losses and
certain other items are excluded because we do not consider them when evaluating the financial performance of
the segments. The size and timing of realized investment gains and losses are often subject to our discretion.
Certain items are removed from segment after-tax income if, in our opinion, they are not indicative of overall
operating trends. While some of these items may be significant components of net income reported in accordance
with GAAP, we believe that segment income is an appropriate measure that represents the earnings attributable
to the ongoing operations of the business. Also, all interest expense is included in the Corporate and Other
segment, as well as several smaller subsidiaries and investment activities which do not meet the thresholds of
reportable segments. These include international operations and the run-off of our group pension and guaranteed
investment contract businesses.

The criteria used to identify an item that will be excluded from segment income include: whether the item is
infrequent and is material to the segment's income; or whether it results from a business restructuring or a
change in regulatory requirements, or relates to other unusual circumstances (e.g., non-routine litigation). We
include information on other items allocated to our segments in their respective notes for information only.
Items excluded from segment income may vary from period to period. Because these items are excluded based on
our discretion, inconsistencies in the application of our selection criteria may exist. Segment income is not a
substitute for net income determined in accordance with GAAP and may be different from similarly titled
measures of other companies.

Segment Allocations

We allocate capital to our Life and Annuity segment based on risk-based capital (RBC) for our insurance
products. We used 300% RBC levels for 2003 and 2002. Capital within our Life Companies that is unallocated is
included in our Corporate and Other segment. We allocate capital to our Asset Management segment on the basis
of the historical capital within that segment. We allocate net investment income based on the assets allocated
to the segments. We allocate tax benefits related to tax advantaged investments to the segment that

holds the investment. We allocate certain costs and expenses to the segments based on a review of the nature of
the costs, time studies and other methodologies.

The following table presents a reconciliation of segment after-tax income (loss) to consolidated income (loss)
from continuing operations for the 2003 and 2002 quarters ($ amounts in millions).

2003 2002 Change
--------------- --------------- ---------------
Segment Income
Life and Annuity...................................... $ 17.4 $ 28.2 $ (10.8)
Asset Management...................................... (4.6) 1.9 (6.5)
--------------- --------------- ---------------
Operating segment pre-tax income...................... 12.8 30.1 (17.3)
Venture Capital....................................... 23.9 (5.0) 28.9
Corporate and Other................................... (12.6) (8.7) (3.9)
--------------- --------------- ---------------
Total segment income, before income taxes............. 24.1 16.4 7.7
Applicable income taxes............................... 7.3 3.6 3.7
--------------- --------------- ---------------
Total segment income.................................. 16.8 12.8 4.0
--------------- --------------- ---------------

Adjustments after income taxes
Net realized investment gains (losses).............. (12.4) 1.6 (14.0)
Management restructuring charges.................... (2.5) -- (2.5)
Deferred policy acquisition costs adjustment........ -- 15.1 (15.1)
Other income........................................ 1.3 -- 1.3
Demutualization expense............................. -- (0.6) 0.6
Cumulative effect of accounting change.............. -- (130.3) 130.3
--------------- --------------- ---------------
Net income (loss)..................................... $ 3.2 $ (101.4) $ 104.6
=============== =============== ===============

Life and Annuity Segment

The following table and discussion present summary financial data relating to Life and Annuity for the 2003 and
2002 quarters ($ amounts in millions).

2003 2002 Change
--------------- --------------- ---------------
Results of Operations
Premiums.............................................. $ 246.1 $ 257.4 $ (11.3)
Insurance and investment product fees................. 78.3 77.6 0.7
Net investment income................................. 248.4 223.2 25.2
--------------- --------------- ---------------
Total segment revenues................................ 572.8 558.2 14.6
--------------- --------------- ---------------
Policy benefits, including policyholder dividends..... 455.3 439.7 15.6
Policy acquisition cost amortization.................. 27.5 14.7 12.8
Other operating expenses.............................. 72.6 75.6 (3.0)
--------------- --------------- ---------------
Total segment benefits and expenses................... 555.4 530.0 25.4
--------------- --------------- ---------------
Segment income (loss) before income taxes and
minority interest................................... 17.4 28.2 (10.8)
Allocated income taxes................................ 3.8 9.9 (6.1)
--------------- --------------- ---------------
Segment income (loss) before minority interest........ 13.6 18.3 (4.7)
Minority interest in segment income................... -- -- --
--------------- --------------- ---------------
Segment income........................................ $ 13.6 $ 18.3 $ (4.7)
=============== =============== ===============

Premium revenues declined $11.3 million, or 4%, primarily as a result of a shift in sales from traditional life
to universal life products and a decline in the traditional in-force business. Premium revenue for traditional
life policies during the quarter was $241.5 million versus $252.3 in the 2002 quarter, a decrease of $10.8
million.

Insurance and investment product fees decreased by $0.7 million from the prior year. Universal life fees