General

The Insurance Company is engaged in the sale of insurance products with three primary lines of business: individual annuities, individual life insurance, and group accident and health. Revenues are derived primarily from premiums received from the sale of annuity contracts, life and accident and health products, and gains (or losses), from our investment portfolio. As described in Item 1A, since 2004 the Insurance Company has suspended the sale of traditional and universal life insurance due to existing market conditions.

For financial statement purposes, our revenues from the sale of whole life and term life insurance products and annuity contracts with life contingencies are treated differently from our revenues from the sale of annuity contracts without life contingencies, deferred annuities and universal life insurance products.
Premiums from the sale of whole or term life insurance products and life contingent annuities are reported as premium income on our financial statements.
Premiums from the sale of deferred annuities, universal life insurance products and annuities without life contingencies are not reported as premium revenues, but rather are reported as additions to policyholders' account balances. For these products, revenues are recognized over time in the form of policy fee income, surrender charges and mortality and other charges deducted from policyholders' account balances.

Profitability in the Insurance Company's individual annuities, individual life insurance and group accident and health depends largely on the size of its inforce block, the adequacy of product pricing and underwriting discipline, and the efficiency of its claim and expense management.

Unless specifically stated otherwise, all references to 2008, 2007 and 2006 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2008, December 31, 2007 and December 31, 2006, respectively.

When we use the term "We," "Us" and "Our" we mean the Corporation and its consolidated subsidiaries.

In this discussion, we have included statements that may constitute "forward-looking statements" within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control. These statements may relate to our future plans and objectives. By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from results indicated in these forward-looking statements.
Important factors, among others, that could cause our results to differ from those indicated in the forward-looking statements are discussed below under "Certain Factors That May Affect Our Business" and under "Risk Factors" (See item 1A).

Executive Overview

Results

The Corporation's earnings per share were $0.63 for 2008, as compared to $2.16 in 2007 and $1.69 in 2006. Results in 2008 reflect a decrease in investment income and net realized investment losses in 2008 as compared to a net realized investment gain in 2007. Our total revenues in 2008 were $266 million, compared to $364 million in 2007 and $359 million in 2006. The Corporation's decreases in earnings and revenues in 2008 resulted primarily from decreases in net investment income and realized capital losses. The difficult current economy, lower yields from the portfolio rebalancing (See, Item 7, Management's Discussion and Analysis, Liquidity and Capital Resources, "Asset/Liability Management."), a loss on the payor swaptions (reflected in the realized capital gains), and decreased investment income from the Corporation's short-term investments and fixed maturities all contributed to lower revenues in 2008.

Certain Factors That May Affect Our Business

There are numerous factors, some of which are outside our control, which could have a material impact on our business. These factors include market conditions, legal and regulatory changes and operational risk. A summary of these factors is set below:

1.

Market Conditions: The Corporation, like all companies, is affected by the general state of financial markets and economic conditions in the U.S. and elsewhere. The pressures related to the current recessionary environment coupled with the distortion of the capital markets have resulted in one of the most difficult business environments in years and the ability to obtain desired returns on the investment portfolio without exposing the Corporation to excess risk has never been more challenging. This, in turn, has had an impact on our willingness to expand sales of our single premium annuity products.

2.

Legal and Regulatory Risk: As an insurance company, we are subject to substantial regulatory control. Any material change in the framework in which we operate could have a material impact on the business. For further discussion on how we deal with the regulatory requirements, see "Business - Insurance Regulation."

3.

Operational Risk: Business is dependent on our ability to process, on a daily basis, our payment obligations under outstanding policies and the condition of the investment portfolio. Any internal failures in the internal processes, people, or systems could lead to adverse consequences to the Corporation. In addition, despite the contingency plans in place, the ability to conduct business may be adversely impacted by the disruption in the infrastructure that supports our business and the community in which we are located.

4.

Interest Rate Risk: The Insurance Company's principal products are deferred annuities, which are interest rate sensitive instruments. In an interest rate environment of falling or stable rates the Insurance Company's annuity holders are less likely to seek to surrender their annuities prior to maturity to seek alternative, higher-yielding investments. However, in an environment of moderately or significantly increasing rates, such surrenders should be expected to increase. As of December 31, 2008, the existence of surrender fees on approximately 43.6% of the Insurance Company's outstanding deferred annuities acts as a deterrent against surrenders. However, if interest rates climb sufficiently, such fees may not have a significant deterrent effect. Moreover, the surrender fees are only in effect, primarily for up to the first 7 years of each annuity policy and, therefore, disappear over time (see table below). In the event of a substantial increase in surrenders during a short period of time, the Insurance Company may have to sell off longer-term assets to pay current surrender liabilities. The Insurance Company continually develops strategies to address the match between the timing of its assets and liabilities. To that end, in 2006, 2007 and 2008, a significant number of policies came off surrender charge and a significant portion of this business did surrender. This can be seen in the surrender ratio in the table on page 3. The company anticipated this and maintained a significant level of cash equivalents to fund surrenders avoiding the need to sell long-term assets at a loss. The Company believes that the heavy surrender activity is now largely behind us. Additionally, management has increased the incentive for agents to retain this business with the Company by paying full first year compensation on internal rollovers. Beginning in 2008, and continuing into future years, a significantly smaller amount of business will be coming off surrender charge - as shown in the table below and consequently we expect a continuation of the markedly lower surrender ratio seen in prior years.

              Account Value with Surrender Charges Expiring

 Year Expiring       Account Value     Percent of Account Value Expiring
                     (in millions)
      2009            $       141.4                             15.8    %
      2010                     86.4                              9.6
      2011                    133.6                             14.9
      2012                    230.9                             25.7
      2013                    165.6                             18.5
 2014 and later               138.7                             15.5

     Total             $       896.6                            100.0   %

Pricing

Management believes that the Insurance Company is able to offer its products at competitive prices to its targeted markets as a result of: (i) maintaining relatively low issuance costs by selling through the independent general agency system; (ii) minimizing home office administrative costs; and (iii) utilizing appropriate underwriting guidelines.

The long-term profitability of sales of life and most annuity products depends on the degree of margin of the actuarial assumptions that underlie the pricing of such products. Actuarial calculations for such products, and the ultimate profitability of sales of such products, are based on four major factors: (i) persistency; (ii) rate of return on cash invested during the life of the policy or contract; (iii) expenses of acquiring and administering the policy or contract; and (iv) mortality.

Persistency is the rate at which insurance policies remain in force, expressed as a percentage of the number of policies remaining in force over the previous year. Policyholders can either surrender policies or cause their policies to lapse by failing to pay premiums.

                            2008         2007         2006        2005      2004
Ratio of annualized         6.5%         6.6%         7.6%        7.0%      8.2%
voluntary terminations
(surrenders and lapses)
to mean life insurance
in force

The assumed rate of return on invested cash and desired spreads during the period that insurance policies or annuity contracts are in force also affects pricing of products and currently includes an assumption by the Insurance Company of a specified rate of return and/or spread on its investments for each year that such insurance or annuity product is in force.

Investment Results


The following table summarizes the Insurance Company's investment results for
the periods indicated, as determined in accordance with GAAP.

                                     Year Ended December 31,
                           2008           2007           2006           2005            2004
                                                        (in thousands)
Cash and total        $   3,689,747  $   4,228,704  $   4,589,132  $    4,678,264  $    4,640,865
invested Assets <F1>
Net investment income $     261,735  $     294,860  $     316,415  $      339,711  $      339,442
<F2>
Effective yield <F3>           7.27%          7.14%          7.06%           7.45%           7.78%
Net realized
investment (Losses)   $     (47,893) $      24,833  $      (3,607) $       75,010  $       15,278
Gains <F4>

<F1> Average of cash and aggregate invested amounts at the beginning and end of period.

<F2> Net investment income is net of investment expenses and excludes capital gains and losses and provision for income taxes.

<F3> Net investment income divided by average cash and total invested assets (including accrued investment income) minus net investment income.

<F4> Net realized investment gains (losses) include provisions for impairment in value that are considered other than temporary and exclude provisions for income taxes.

The Insurance Company experienced a decline in net investment income of $33.2 million from $294.860 million in 2007 to $261.735 million in 2008. Net invested assets declined from $4.3 billion in 2007 to $3.7 billion in 2008. This was primarily caused by a decline in the market value of invested assets caused by the significant widening in corporate spreads resulting from the economic and capital market tumult. The decline was also attributable to annuity surrenders exceeding premium income for the third straight year. In anticipation of these surrenders, the Insurance Company has maintained cash investments in the vicinity of $300 million for each of the past 3 years. During 2008, the Federal Reserve's actions in lowering the Fed Funds rate from 4 ¼% at December 31, 2007 to .25% at December 31, 2008 resulted in a $17.2 million decline in investment income from the short-term investment portfolio. Income from fixed, long-term maturities declined by $12.4 million, due to the lower interest rates earned on the proceeds of called securities in 2008. Despite these factors, the portfolio yield rose from 7.14% in 2007 to 7.27% in 2008 due to the excellent returns from the partnership portfolios. Net realized investment gains for 2008 went from a gain of $24.8 million in 2007 to a loss of $47.9 million in 2008. Presidential Life experienced losses of $18.3 million from the sale of Lehman Brothers Holdings bonds and preferred stock that was sold subsequent to the bankruptcy and $ 4.2 million from the exchange of GMAC, LLC bonds. The Company also took write-downs of $5.7 million on its stock holding in ISTAR Financial and $3.5 million on its bond investment in Clear Channel Communications.

Investments

The Insurance Company derives a predominant portion of its total revenues from investment income. The Insurance Company manages most of its investments internally. All investments made on behalf of the Insurance Company are governed by the Statement of Investment Policy established and approved by the Investment Committee, the Finance Committee and the Board of Directors of the Insurance Company and the Corporation and by qualitative and quantitative limits prescribed by applicable insurance laws and regulations. The Investment Committee meets regularly to set and review investment policy and to approve current investment plans. The actions of the Investment Committee are subject to review and approval by the Finance Committee and the Board of Directors of the Insurance Company and Corporation. The Insurance Company's Statement of Investment Policy must comply with NYSID regulations and the regulations of other applicable regulatory bodies.

The Insurance Company's investment philosophy generally focuses on purchasing investment grade securities with the intention of holding such securities to maturity. However, as market opportunities, liquidity, or regulatory considerations may dictate, securities may be sold prior to maturity. The Insurance Company has categorized all fixed maturity securities as available for sale and carries such investments at market value.

The Insurance Company manages its investment portfolio to meet the diversification, yield and liquidity requirements of its insurance policy and annuity contract obligations. The Insurance Company's liquidity requirements are monitored regularly so that cash flow needs are satisfied. Adjustments periodically are made to the Insurance Company's investment policies to reflect changes in the Insurance Company's short-and long-term cash needs, as well as changing business and economic conditions.

The Insurance Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations. In general, the market value of our fixed maturity portfolio increases or decreases in an inverse relationship with fluctuations in interest rates, and our net investment income increases or decreases in direct relationship with interest rate changes. For example, if interest rates decline, the Insurance Company's fixed maturity investments generally will increase in market value, while net investment income will decrease as fixed income investments mature or are sold and proceeds are reinvested at the declining rates, and vice versa. Management is aware that prevailing market interest rates frequently shift and, accordingly, has adopted strategies that are designed to address either an increase or decrease in prevailing rates.

The Insurance Company¢s principal investments are in fixed maturities, all of which are exposed to at least one of three primary sources of investment risk:
credit, interest rate and market valuation. The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values. Management evaluates whether other than temporary impairments have occurred on a case-by-case basis. Inherent in management¢s evaluation of each security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used by the Insurance Company in the other than temporary impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) the potential for impairments of securities when the issuer is experiencing significant financial difficulties; (iii) the potential for impairments in an entire industry sector or sub-sector; (iv) the potential for impairments in certain economically depressed geographic locations; (v) the potential for impairments of securities where the issuer, series of issuers or industry has a catastrophic type of loss or has exhausted natural resources; (vi) in situations where it is determined that an impairment is attributable to changes in market interest rates, the Corporation's ability and intent to hold impaired securities until recovery of fair value at or above cost; and (vii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets. The determination of fair values in the absence of quoted market values is based on valuation methodologies, securities the Insurance Company deems to be comparable and assumptions deemed appropriate given the circumstances. There can be no assurance that the assumptions relied upon by the Insurance Company will yield accurate assessments of the fair value of these investments. As such, the Insurance Company reassesses its assumptions regularly.

As of December 31, 2008, 10.1% of the Company's invested assets (approximately $342.2 million) consisted of short-term commercial paper with maturities of less than 45 days. This commercial paper consisted of direct obligations of various corporations rated a minimum of A1 by Standard and Poor's and P1 by Moody's. As part of its Asset-Liability management strategy, the Insurance Company has kept elevated levels of cash investments since 2005, anticipating the potential surrender of annuity policies with expiring surrender charges. This cash has been available to meet actual surrenders and any other cash needs. By having the liquidity afforded by these cash investments during 2008, the Company was been able to satisfy all of its cash needs without any portfolio sales from the fixed income portfolio.

As of December 31, 2008, approximately 8.7% of the Insurance Company's total invested assets were invested in limited partnerships and equity securities.
Investments in limited partnerships are included in the Corporation's consolidated balance sheet under the heading "Other long-term investments." See "Note 2 to the Notes to Consolidated Financial Statements." The Insurance Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $117.9 million of additional capital to certain of these limited partnerships. Commitments of $13.7 million will expire in 2009, $4.7 million in 2010, $45.6 in 2011, and $53.9 in 2012. The Insurance Company may make selective investments in additional limited partnerships as opportunities arise. In general, risks associated with such limited partnerships include those related to their underlying investments (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Insurance Company to take quarterly distributions of partnership earnings. There can be no assurance that the Insurance Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically. Further, there can be no assurance that the Insurance Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.
The failure of the Insurance Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Corporation's financial condition and results of operations.

The Company believes that the current recessionary environment coupled with limited credit availability will challenge the partnerships' ability to monetize investments and generate capital gains until conditions improve.

The primary market risks in the Insurance Company's investment portfolio are interest rate risk (discussed above), credit risk and, to a lesser degree, equity price risk. Changes in credit risk are generally measured by changes in corporate yields in relation to the underlying Treasuries ("corporate spreads") as well as changes in the Credit Default Swap ("CDS") market, although the Company is a cash investor and does not buy or sell credit default swaps. The Insurance Company's exposure to foreign exchange risk is insignificant. The Insurance Company has no direct commodity risk. Changes in interest rates can potentially impact the Corporation's profitability. In certain scenarios where interest rates are volatile, the Insurance Company could be exposed to disintermediation risk (asset/liability mismatch) and reduction in net interest rate spread or profit margin. [See "Interest Rate Risk" above.]

Unrealized Losses


The following table presents the amortized cost and gross unrealized losses for
fixed maturities and common stock where the estimated fair value had declined
and remained below amortized cost at December 31, 2008:


                          Less Than 12 Months           12 Months or More                                   Total
                       Fair Value      Unrealized      Fair Value      Unrealized Losses       Fair Value      Unrealized Losses
                                         Losses
Description of                                                  (in thousands)
Securities

US Treasury            $    14,869     $    1,301     $     12,911          $     2,540       $     27,780          $     3,841
obligations and
direct obligations of
US Government
Agencies
Corporate Bonds          1,150,137        163,040          577,184              148,118          1,727,321              311,158
Preferred Stocks            20,661          7,118           47,648               33,596             68,309               40,714
Subtotal Fixed           1,185,667        171,459          637,743              184,254          1,823,410              355,713
Maturities
Common Stock                   249            144                -                    -                249                  144

Total                 $  1,185,916     $  171,603     $    637,743          $   184,254      $   1,823,659          $   355,857

The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by December 31, 2008.

                         Gross    Unrealized Losses     % Of
                                                        Total
                            (in thousands)
Less than twelve months $                   171,459      48.20
Twelve months or more                       184,254      51.80

Total                   $                   355,713    100.00

As of December 31, 2008, the Company had 574 securities in a net unrealized loss position. Of this total, 535 are bonds holdings, 38 represent preferred stocks and 1 is an equity position.

Total unrealized losses increased from $73 million at December 31, 2007 to $355.9 million at December 31, 2008. This increase in the unrealized losses resulted from the significant increase in corporate bond spreads caused by the unprecedented financial crisis and the economic recession that accelerated after the Lehman Brothers bankruptcy in September 2008. According to the Merrill Lynch corporate spread indices, 10-year, BBB-rated industrial spreads widened by 457 basis points, BBB-rated financial spreads widened by 877 basis points and BBB-rated utility spreads widened by 329 basis points in 2008. Spreads widened across the maturity spectrum and severely impacted financial bonds, particularly A-rated and BBB-rated bank and insurance company bonds. Presidential carefully examines each issue where the market value has fallen below 70% of book value to determine if the bonds are not-other-than-temporarily impaired. Consistent with the Company's OTTI (Other than Temporarily Impaired) Policy as discussed above, the Company will recognize a write-down of book value to current market value, if warranted.

One of the Insurance Company's Limited Partnership investments has assets of approximately $9 million located at the prime brokerage unit of Lehman Brothers International (Europe) ("LBIE"), located in the United Kingdom. Since September 2008 when Lehman Brothers filed for bankruptcy, the assets were frozen and the claims to such assets are subject to the resolution of the bankruptcy proceedings. Due to the complexities surrounding the LBIE proceeding, we are unable, at this time, to determine the level, if any, of impairments the Limited Partnership may incur.

U.S. Treasury Obligations and Direct Obligations of U.S. Agencies: The 2008 net unrealized loss was $3,841,000 on a fair value of $27,780,000. Approximately $1.7 million of this loss represented a bond position in the Westchester County NY Industrial Development Agency (IDA), Series 2003. This position is secured by a pledge of the rental payments from a 9-story parking garage to the Westchester County IDA. There is also additional security provided by a leasehold mortgage on this property and a one-year debt service reserve fund. This bond had also been wrapped by bond insurance provided by ACA, a bond insurer that went bankrupt at the end of 2007. The bonds are current on principal and interest payments from the cash flow provided by the garage and are rated "2 "(investment-grade) by the SVO Office of the NAIC.

Corporate Bonds: The predominant investment category for the Company's investments is the "Corporate Bond" Category (including Public Utilities), which totaled $2.089 billion at December 31, 2008. The unrealized losses increased from $55 million at December 31, 2007 to $311.2 million at December 31, 2008.
The 5 largest loss positions consisted of the following holdings: Prudential Insurance Co. 8.30% due July 1, 2025 ($8.1 million); Motorola, Inc. 7 ½% due May 15, 2025 ($6.1 million), American General Institutional Capital 7.57% due December 1, 2045 ($6.0 million), Nationwide Financial 6.60% due April 15, 2034 ($5.9 million) and Limited Brands 5 ¼% due November 1, 2014 ($5.9 million). The Prudential and Nationwide Insurance bonds are A-rated, long term bonds in major . . .