4BGeneral

This Form 10-Q contains forward-looking statements. Forward-looking statements are statements not based on historical information and that relate to future operations, strategies, financial results or other developments. In particular, statements using verbs such as "expect," "anticipate," "believe," or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements which represent the Company's beliefs concerning future or projected levels of sales of its products, investment spreads or yields or the earnings or profitability of its activities. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation and others of which may relate to the Company specifically, such as credit rating, volatility and other risks associated with its investment portfolio and other factors. Readers should also consider other matters, including any risks and uncertainties discussed in documents filed by the Company and certain of its subsidiaries with the Securities and Exchange Commission.

Current Market Conditions

During the second and third quarters of 2009, the financial markets have shown some recovery from the turmoil experienced in the latter part of 2008 and early 2009. However, financial markets are still lower than benchmarks in 2008.

The S&P 500 Index is down by 9% at September 30, 2009 when compared to September 30, 2008. The average of the S&P 500 Index during the nine months ended September 30, 2009 is down by 32% when compared to the nine months ended September 30, 2008.

                                           September 30,
                          S&P 500 Index     2009     2008
                           Index close     1,057    1,166
                          Index average      900    1,324

While the Company has conservative investment policies and practices, the significant deterioration in the capital markets had an impact on the financial results for the nine-month period ended September 30, 2009.

Variable asset-based fees received by the Company fluctuate with changes in participant account balances. Participant account balances change due to cash flow and unrealized market gains and losses associated with changes in the United States equities market. Fee income decreased by $50 million, or 15%, to $276 million for the nine months ended September 30, 2009 when compared to 2008. The decrease is primarily related to lower variable fee income as a result of lower average account balances due to the weak performance of the U.S. equities market.

Although the U.S. equities market has recovered somewhat in recent months, market declines in the future could result in additional decreases in fee income as well as adjustments to the amortization of deferred policy acquisition and other costs.

During the nine months ended September 30, 2009, the Company recorded other-than-temporary impairments in the fair value of its fixed maturity investments in the amount of $8 million. A recovery in market liquidity and tightening of credit spreads have resulted in improved market values for the Company's fixed maturity and equity investments since December 31, 2008. The Company has recorded a decrease in gross unrealized losses of $703 million and an increase in gross unrealized gains of $424 million during the

nine months ended September 30, 2009. This resulted in a $563 million increase to accumulated other comprehensive income (loss), net of policyholder related amounts and deferred taxes. See Notes 6 and 9 to the accompanying condensed consolidated financial statements for a discussion of these and other investment losses.

The deterioration in the credit markets has not had a significant impact on the Company's sources of liquidity. The Company has met its operating requirements by maintaining appropriate liquidity in its investment portfolio and utilizing cash flows from operations. The Company's credit rating has remained stable. If necessary, the Company has continued access to a $50 million line of credit which currently has no amounts outstanding.

The U.S. government has implemented a number of initiatives to restore stability and provide liquidity to financial institutions and financial markets. The Company did not participate in any of these initiatives as liquidity has not become an issue and has remained adequate.

Discontinued Operations

On April 1, 2008, the Company and certain of its subsidiaries completed the sale of substantially all of their healthcare insurance business to a subsidiary of CIGNA Corporation ("CIGNA"). The business that was sold, formerly reported as the Company's Healthcare segment, was the vehicle through which it marketed and administered group life and health insurance to small, mid-sized and national employers. CIGNA acquired from the Company the stop loss, group life, group disability, group medical, group dental, group vision, group prescription drug coverage and group accidental death and dismemberment insurance business in the United States and the Company's supporting information technology infrastructure through a combination of 100% indemnity reinsurance agreements, renewal rights, related administrative service agreements and the acquisition of certain of the Company's subsidiaries. The Company retained a small portion of its healthcare business and reports it within its Individual Markets segment. The statements of income and balance sheets of the disposed business activities are presented as discontinued operations for all periods presented in the accompanying condensed consolidated financial statements.

As of September 30, 2008, the Company recognized a gain in the amount of $1,090 million ($684 million net of income taxes). Income from discontinued operations during the nine months ended September 30, 2008 includes charges in the amount of $101 million ($64 million net of income taxes) which represents costs associated with the sale.

Company Results of Operations

The following discussion addresses the Company's condensed consolidated results of operations for the three and nine-month periods ended September 30, 2009, compared with the same periods in 2008. The discussion should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2008 under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," to which the reader is directed for additional information.

As more fully described in Note 3 to the accompanying condensed consolidated financial statements, during the first quarter of 2008, the liability for undistributed earnings on participating business decreased by $208 million in connection with a long-standing assumption reinsurance agreement under which the Company had reinsured a block of participating policies. In addition, the agreement also required the Company to perform an analysis as of March 31, 2008, to determine whether the policyholders were eligible for a special dividend. Based on the Company's analysis, it was determined that a special dividend was not required and, accordingly, the liability was released. On January 1, 2008, the Company began recognizing the net earnings on these policies in its net income.

Three months ended September 30, 2009 compared with the three months ended September 30, 2008

                                                             Three Months Ended September 30,
Income statement data (In millions)                                 2009                       2008
Revenues:
Premium income                                          $            176           $            163
Fee income                                                           102                        105
Net investment income                                                302                        269
Net realized gains (losses) on investments                             6                        (38 )
Total revenues                                                       586                        499
Benefits and expenses:
Policyholder benefits                                                390                        264
Operating expenses                                                   130                        115
Total benefits and expenses                                          520                        379
Income from continuing operations before income taxes                 66                        120
Income tax expense                                                    17                         40
Income from continuing operations                       $             49           $             80

Income from Continuing Operations

The Company's consolidated income from continuing operations decreased by $31 million, or 39%, to $49 million for the three months ended September 30, 2009 when compared to 2008. The decrease is primarily due to an $82 million ($53 million net of income taxes) reserve release on participating policies in 2008 partially offset by increases of $23 million (net of reserve adjustments and income taxes) in net realized gains (losses) on investments in 2009 compared to 2008.

Premium income increased by $13 million, or 8%, to $176 million for the three months ended September 30, 2009 when compared to 2008. This increase is primarily related to increased sales of the single premium whole life product in the Company's Individual Markets segment.

Net investment income increased by $33 million, or 12%, to $302 million for the three months ended September 30, 2009 when compared to 2008. The increase is primarily due to an $8 million increase in policy loan interest income in the Individual Markets segment, a $15 million increase in net investment income in 2009 due to increases in the general accounts in the Company's Retirement Services segment and a $6 million increase in net investment income in the Company's Other segment.

Net realized gains (losses) on investments increased by $44 million, or 116%, to $6 million during the three months ended September 30, 2009 when compared to 2008. The increase is due primarily to a $34 million write-down of a significant investment in the three months ended September 30, 2008.

Total benefits and expenses increased by $141 million, or 37%, to $520 million for the three months ended September 30, 2009 when compared to 2008. The increase is primarily due to an $82 million reserve release on participating policies in 2008 in addition to increased reserves and interest credited in the Company's Individual Markets segment.

Income tax expense for the three months ended September 30, 2008 has been restated as a result of a previous misstatement of deferred income taxes. Income tax expense increased by $7 million from the amount previously reported of $33 million for the three months ended September 30, 2008 due to this restatement. See Note 1 to the accompanying condensed consolidated financial statements for further discussion. Income tax expense decreased by $23 million to $17 million during the three months ended September 30, 2009 when compared to 2008 due to $54 million decrease in income from continuing operations before income taxes.

Nine months ended September 30, 2009 compared with the nine months ended September 30, 2008

                                                             Nine Months Ended September 30,
Income statement data (In millions)                                 2009                     2008
Revenues:
Premium income                                          $            439         $            417
Fee income                                                           276                      326
Net investment income                                                856                      805
Net realized gains (losses) on investments                            27                       (6 )
Total revenues                                                     1,598                    1,542
Benefits and expenses:
Policyholder benefits                                              1,026                      669
Operating expenses                                                   391                      403
Total benefits and expenses                                        1,417                    1,072
Income from continuing operations before income taxes                181                      470
Income tax expense                                                    50                       75
Income from continuing operations                       $            131         $            395

Income from Continuing Operations

The Company's consolidated income from continuing operations decreased by $264 million for the nine months ended September 30, 2009 when compared to 2008. The income from continuing operations of the Company's Other segment included a gain in the amount of $208 million as a result of the release of the liability associated with certain participating policies as discussed in Note 3 to the accompanying condensed consolidated financial statements and an $82 million ($53 million net of income taxes) reserve release on these policies in 2008.

Premium income increased by $22 million, or 5%, to $439 million for the nine months ended September 30, 2009 when compared to 2008. This increase is primarily related to increased sales of the single premium whole life product in the Company's Individual Markets segment partially offset by a decrease of reinsurance activity in the Company's Other segment.

Fee income decreased by $50 million, or 15%, to $276 million for the nine months ended September 30, 2009 when compared to 2008. The decrease is primarily related to lower variable fee income as a result of lower average account balances due to the weak performance of the U.S. equities market.

Net investment income increased by $51 million, or 6%, to $856 million for the nine months ended September 30, 2009 when compared to 2008. The increase is primarily due to an $18 million increase in policy loan interest income in the Individual Markets segment in addition to a $26 million increase in net investment income in 2009 due to increases in general account assets in the Company's Retirement Services segment.

Net realized gains on investments increased by $33 million to $27 million during the nine months ended September 30, 2009 when compared to 2008. The increase is due primarily to the aforementioned $34 million write-down of a significant investment in 2008.

Excluding the impact of the aforementioned $290 million decrease in policy reserves in 2008 related to the participating policy liabilities, benefits and expenses increased by $55 million, or 4%, for the nine months ended September 30, 2009 when compared to 2008. The increase is primarily due to increased reserves and interest credited of $55 million in the Company's Individual Markets segment.

Income tax expense for the nine months ended September 30, 2008 has been restated as a result of a previous misstatement of deferred income taxes. Income tax expense increased by $30 million from the amount previously reported of $45 million for the nine months ended September 30, 2008 due to this restatement. See Note 1 to the accompanying condensed consolidated financial statements for further discussion. Income tax expense decreased by $25 million to $50 million during the nine months ended

September 30, 2009 when compared to 2008 due to the $81 million decrease in income from continuing operations, excluding the aforementioned $208 million gain in 2008 which was taxed in previous years.

The segment information below discusses the reasons for these changes.

Segment Results

The Company has three business segments: Individual Markets, Retirement Services and Other. The Individual Markets segment distributes life insurance and individual annuity products to both individuals and businesses through various distribution channels. Life insurance products in-force include participating and non-participating term life, whole life, universal life and variable universal life. The Retirement Services segment provides full service bundled and unbundled employer-sponsored defined contribution/defined benefit products as well as comprehensive administrative and record-keeping services for financial institutions. Defined contribution plans provide for benefits based upon the value of contributions to, and investment returns on, an individual's account. The Company's Other segment includes corporate items not directly allocated to any of its other business segments, interest expense on long-term debt and the activities of a wholly-owned subsidiary whose sole business is the assumption of a certain block of term life insurance from an affiliated company.

Individual Markets Results of Operations

Three months ended September 30, 2009 compared with the three months ended
September 30, 2008

The following is a summary of certain financial data of the Company's Individual
Markets segment:


                                                              Three Months Ended September 30,
Income statement data (In millions)                                  2009                        2008
Revenues:
Premium income                                          $             142           $             128
Fee income                                                             12                          12
Net investment income                                                 185                         173
Net realized gains (losses) on investments                             (8 )                       (23 )
Total revenues                                                        331                         290
Benefits and expenses:
Policyholder benefits                                                 286                         256
Operating expenses                                                     22                          19
Total benefits and expenses                                           308                         275
Income from continuing operations before income taxes                  23                          15
Income tax expense                                                      7                           5
Income from continuing operations                       $              16           $              10

The following is a summary of the Individual Markets segment policies and participant accounts at September 30, 2009 and June 30, 2009:

(In thousands) September 30, 2009 June 30, 2009 Policies and Participant Accounts 520 525

Income from continuing operations for the Individual Markets segment increased by $6 million, or 60%, to $16 million during the three months ended September 30, 2009 when compared to 2008.

Premium income increased by $14 million, or 11%, to $142 million for the three months ended September 30, 2009 when compared to 2008. The increase is primarily related to sales in the single premium whole life product marketed through banks which increased by $37 million partially offset by decreases in term insurance products.

Net investment income increased by $12 million, or 7%, to $185 million for the three months ended September 30, 2009 when compared to 2008. The increase is primarily due to an $8 million increase in policy loan interest income.

Net realized losses on investments decreased by $15 million, or 65%, to $8 million for the three months ended September 30, 2009 when compared to 2008. The increase is due primarily to a $17 million write-down of a significant investment in the three months ended September 30, 2008.

Policyholder benefits increased by $30 million, or 12%, to $286 million during the three months ended September 30, 2009 when compared to 2008. The increase is primarily related to an increase in reserves related to the increased premium on the whole life product as mentioned above.

Income tax expense for the three months ended September 30, 2008 has been restated as a result of a previous misstatement of deferred income taxes. Income tax expense increased by $4 million from the amount previously reported of $1 million for the three months ended September 30, 2008 due to this restatement. See Note 1 to the accompanying condensed consolidated financial statements for further discussion. Income tax expense increased by $2 million to $7 million during the three months ended September 30, 2009 when compared to 2008 due to the $8 million increase in income from continuing operations before income taxes.

Nine months ended September 30, 2009 compared with the nine months ended September 30, 2008

The following is a summary of certain financial data of the Company's Individual Markets segment:

                                                               Nine Months Ended September 30,
Income statement data (In millions)                                  2009                        2008
Revenues:
Premium income                                          $             336           $             306
Fee income                                                             34                          40
Net investment income                                                 532                         517
Net realized gains (losses) on investments                              5                          (4 )
Total revenues                                                        907                         859
Benefits and expenses:
Policyholder benefits                                                 744                         689
Operating expenses                                                     72                          70
Total benefits and expenses                                           816                         759
Income from continuing operations before income taxes                  91                         100
Income tax expense                                                     28                          31
Income from continuing operations                       $              63           $              69

The following is a summary of the Individual Markets segment policies and participant accounts at September 30, 2009 and 2008:

September 30, (In thousands) 2009 2008 Policies and Participant Accounts 520 536

Income from continuing operations for the Individual Markets segment decreased by $6 million, or 9%, to $63 million during the nine months ended September 30, 2009 when compared to 2008.

Premium income increased by $30 million, or 10%, to $336 million for the nine months ended September 30, 2009 when compared to 2008. The increase is primarily related to sales in the single premium whole life product marketed through banks which increased by $62 million partially offset by decreases in term insurance products.

Fee income decreased by $6 million, or 15%, to $34 million for the nine months ended September 30, 2009 when compared to 2008. The decrease is primarily related to lower variable fee income as a result of lower average account balances due to the weak performance of the U.S. equities market during the first half of 2009.

Net investment income increased by $15 million, or 3%, to $532 million for the nine months ended September 30, 2009 when compared to 2008. The increase is primarily due to an $18 million increase in policy loan interest income.

Net realized gains on investments increased by $9 million, or 225%, to $5 million for the nine months ended September 30, 2009 when compared to 2008. The increase is due primarily to a $17 million write-down of a significant investment in the three months ended September 30, 2008 partially offset by increased losses on sales of fixed maturity investments in the nine months ended September 30, 2009.

Policyholder benefits increased by $55 million, or 8%, to $744 million during the nine months ended September 30, 2009 when compared to 2008. The increase is primarily related to an increase in reserves related to the increased premium on the whole life product as mentioned above, in addition to $12 million increase in interest credited on participating policies as a result of higher crediting rates.

Income tax expense for the nine months ended September 30, 2008 has been restated as a result of a previous misstatement of deferred income taxes. Income tax expense increased by $15 million from the amount previously reported of $16 million for the nine months ended September 30, 2008 due to this restatement. See Note 1 to the accompanying condensed consolidated financial statements for further discussion. Income tax expense decreased by $3 million to $28 million during the nine months ended September 30, 2009 when compared to 2008 due to the $9 million decrease in income from continuing operations before income taxes.

Retirement Services Results of Operations

Three months ended September 30, 2009 compared with the three months ended
September 30, 2008

The following is a summary of certain financial data of the Company's Retirement
Services segment:


                                                             Three Months Ended September 30,
Income statement data (In millions)                                 2009                       2008
Revenues:
Premium income                                          $              -           $              -
Fee income                                                            89                         92
Net investment income                                                102                         87
Net realized gains (losses) on investments                            14                        (15 )
Total revenues                                                       205                        164
Benefits and expenses:
Policyholder benefits                                                 58                         57
Operating expenses                                                    90                         77
Total benefits and expenses                                          148                        134
Income from continuing operations before income taxes                 57                         30
Income tax expense                                                    15                          7
Income from continuing operations                       $             42           $             23

The following is a summary of the Retirement Services segment policies and . . .