UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

—————————

FORM 10-Q

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(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED ~~MARCH~~JUNE 3130, 2015



¨	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: 333-20277

PHL VARIABLE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)



Connecticut	06-1045829
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

One American Row, Hartford, Connecticut	06102-5056
(Address of principal executive offices)	(Zip Code)

(860) 403-5000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES þ NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer o	Non-accelerated filer þ	Smaller reporting company o
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

PHL Variable Insurance Company is a wholly-owned indirect subsidiary of The Phoenix Companies, Inc., and there is no market for the registrant’s common stock. As of ~~May~~August 147, 2015, there were 500 shares of the registrant’s common stock outstanding.

The registrant is filing this Quarterly Report on Form 10-Q with the reduced disclosure format permitted by General Instruction H(1)(a) and (b) of Form 10-Q.

Table of Contents

PHL VARIABLE INSURANCE COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~MARCH~~JUNE 3130, 2015

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	Page
Item 1.	Financial Statements (unaudited)	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5758
Item 4.	Controls and Procedures	5758
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	5960
Item 1A.	Risk Factors	5960
Item 6.	Exhibits	6062
Signature		6163

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

PHL VARIABLE INSURANCE COMPANY

Interim Unaudited Statements of ~~Income~~Operations and Comprehensive Income

	Three Months Ended March 31,
	Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014
REVENUES:
Premiums	$	35.05		$	24.87		$	8.5		$	7.5
Insurance and investment product fees	89.94			8988.03			179.3			177.3
Net investment income	4748.13			4042.0			95.4			82.0
Net realized gains (losses):
Total other-than-temporary impairment (“OTTI”) losses	(0.1		)	—			(0.2		)	—
Portion of OTTI losses recognized in other comprehensive income (“OCI”)	~~(0.1~~—		)	—			(0.1		)	—
Net OTTI losses recognized in earnings	(0.21		)	—			(0.3		)	—
Net realized gains (losses), excluding OTTI losses	(81.64		)	(~~35.~~1.9		)	(7.2		)	(37.0		)
Net realized gains (losses)	(81.83		)	(~~35.~~1.9		)	(7.5		)	(37.0		)
Total revenues	~~131~~144.25			96133.71			275.7			229.8
BENEFITS AND EXPENSES:
Policy benefits	99114.7			7284.19			214.4			157.0
Policy acquisition cost amortization	1520.58			1620.72			36.3			36.9
Other operating expenses	6534.47			2326.54			100.1			49.9
Total benefits and expenses	~~180~~170.62			~~112~~131.35			350.8			243.8
Income (loss) before income taxes	(4925.47		)	~~(15~~1.6		)	(75.1		)	(14.0		)
Income tax expense (benefit)	2(89.8		)	(05.46		)	(87.0		)	5.2
Net income (loss)	$	~~(52~~64.21	)	$	(154.20	)	$	11.9		$	(19.2	)
FEES PAID TO RELATED PARTIES (Note 12)
FEES PAID TO RELATED PARTIES (Note 11)
COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	~~(52~~64.21	)	$	(154.20	)	$	11.9		$	(19.2	)
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses), net of related offsets	1(33.73		)	1336.06			(31.6		)	49.6
Less: Income tax expense (benefit) related to:
Unrealized investment gains (losses), net of related offsets	3(14.03		)	146.49			(11.3		)	21.3
Other comprehensive income (loss), net of income taxes	(119.30		)	(129.47		)	(20.3		)	28.3
Comprehensive income (loss)	$	~~(53~~45.51	)	$	~~(16~~25.67	)	$	(8.4	)	$	9.1

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

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Interim Unaudited Balance Sheets

($ in millions, except share data)	~~March~~June 3130, 2015			December 31, 2014
ASSETS:
Available-for-sale debt securities, at fair value (amortized cost of $4,238.8 and $4,060.9)	$	4,458.2		$	4,221.8
Available-for-sale debt securities, at fair value (cost of $4,247.6 and $4,060.9)	$	4,326.7		$	4,221.8
Available-for-sale equity securities, at fair value (amortized cost of $28.4 and $28.4)	29.5			28.7
Available-for-sale equity securities, at fair value (cost of $27.0 and $28.4)	27.6			28.7
Short-term investments	6920.90			79.8
Limited partnerships and other investments	1213.84			12.5
Policy loans, at unpaid principal balances	6970.27			68.1
Derivative instruments	~~135~~99.41			157.5
Fair value investments	4738.13			46.7
Total investments	4,~~822~~595.18			4,615.1
Cash and cash equivalents	93307.96			162.3
Accrued investment income	3635.9			33.2
Reinsurance recoverable	~~502~~467.79			464.6
Deferred policy acquisition costs	~~423~~473.06			430.9
Deferred income taxes, net	1024.94			13.1
Receivable from related parties	20.57			5.5
Other assets	~~168~~419.56			158.3
Separate account assets	1,~~707~~625.91			1,757.5
Total assets	$	7,~~768~~950.46		$	7,640.5
LIABILITIES:
Policy liabilities and accruals	$	2,~~151~~120.25		$	2,067.0
Policyholder deposit funds	3,~~425~~554.86			3,306.9
Indebtedness due to affiliate	30.0			30.0
Payable to related parties	148.04			7.6
Other liabilities	~~189~~316.26			167.7
Separate account liabilities	1,~~707~~625.91			1,757.5
Total liabilities	7,~~518~~655.12			7,336.7
COMMITMENTS AND CONTINGENT LIABILITIES (Note 14)
COMMITMENTS AND CONTINGENT LIABILITIES (Note 13)
STOCKHOLDER’S EQUITY:
Common stock, $5,000 par value: 1,000 shares authorized; 500 shares issued	2.5			2.5
Additional paid-in capital	862.2			862.2
Accumulated other comprehensive income (loss)	2(16.73		)	4.0
Retained earnings (accumulated deficit)	(~~617~~553.10		)	(564.9		)
Total stockholder’s equity	~~250~~295.34			303.8
Total liabilities and stockholder’s equity	$	7,~~768~~950.46		$	7,640.5

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

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Interim Unaudited Statements of Cash Flows

	Three Months Ended March 31,
	Six Months Ended June 30,
($ in millions)	2015			2014
OPERATING ACTIVITIES:
Net income (loss)	$	~~(52~~11.29	)	$	(1519.2	)
Net realized gains / losses	87.85			3537.10
Policy acquisition costs deferred	(2454.92		)	(1638.93		)
Policy acquisition cost amortization	1536.53			1636.79
Interest credited	2550.98			2346.87
Equity in earnings of limited partnerships and other investments	(0.68		)	(01.83		)
Change in:
Accrued investment income	(68.63		)	(56.91		)
Deferred income taxes, net	~~(0.8~~—		)	(4.47		)
Reinsurance recoverable	(38.1		)	26.5
Current income taxes, net	(108.9		)	24.4
Policy liabilities and accruals	(45.7		)	(80.7		)
Reinsurance recoverable	(2.1		)	42.8
Due to/from related parties	9.4			(13.9		)
Policy liabilities and accruals	(98.3		)	(136.3		)
Other operating activities, net	16.3			17.7
Due to/from related parties	5.6			(9.8		)
Cash provided by (used for) operating activities	(93.0		)	(18.0		)
Other operating activities, net	26.6			(0.1		)
Cash provided by (used for) operating activities	(133.9		)	(28.0		)
INVESTING ACTIVITIES:
Purchases of:
Available-for-sale debt securities	(~~329~~661.58		)	(~~151~~375.46		)
Available-for-sale equity securities	—(1.2		)	—
Short-term investments	(~~159~~189.87		)	(~~209~~449.86		)
Derivative instruments	(1736.57		)	(1726.73		)
Fair value investments	—			—
Sales, repayments and maturities of:
Available-for-sale debt securities	~~174~~526.54			65138.13
Available-for-sale equity securities	—2.5			—
Short-term investments	~~169~~249.76			99340.98
Derivative instruments	1932.81			3042.13
Fair value investments	09.64			01.98
Contributions to limited partnerships and limited liability corporations	(01.1		)	(07.51		)
Distributions from limited partnerships and limited liability corporations	01.40			0.79
Policy loans, net	(01.5		)	(0.78		)
Other investing activities, net	2.1.0			(14.81		)
Cash provided by (used for) investing activities	(~~140~~70.30		)	(~~185~~337.28		)
FINANCING ACTIVITIES:
Policyholder deposits	254.8			230.4
Policyholder withdrawals	(163.8		)	(164.4		)
Net transfers (to) from separate accounts	73.9			97.1
Cash provided by (used for) financing activities	164.9			163.1
Change in cash and cash equivalents	(68.4		)	(40.1		)
Cash and cash equivalents, beginning of period	162.3			181.0
Cash and cash equivalents, end of period	$	93.9		$	140.9
Supplemental Disclosure of Cash Flow Information
Income taxes (paid) refunded	$	(21.9	)	$	14.5
Non-Cash Transactions During the Period
Investment exchanges	$	5.6		$	8.9

(Continued on next page)

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

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Interim Unaudited Statements of ~~Changes~~Cash ~~in Stockholder’s Equity~~Flows

	Three Months Ended March 31,
(Continued from previous page)	Six Months Ended June 30,
($ in millions)	2015			2014
COMMON STOCK:
FINANCING ACTIVITIES:
Balance, beginning of period	$	2.5		$	2.5
Policyholder deposits	532.2			483.3
Balance, end of period	$	2.5		$	2.5
Policyholder withdrawals	(324.9		)	(324.2		)
ADDITIONAL PAID-IN CAPITAL:
Net transfers (to) from separate accounts	141.9			180.6
Balance, beginning of period	$	862.2		$	847.2
Cash provided by (used for) financing activities	349.2			339.7
Capital contributions from parent	—			—
Change in cash and cash equivalents	145.3			(26.1		)
Balance, end of period	$	862.2		$	847.2
Cash and cash equivalents, beginning of period	162.3			181.0
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Cash and cash equivalents, end of period	$	307.6		$	154.9
Balance, beginning of period	$	4.0		$	(12.7	)
Supplemental Disclosure of Cash Flow Information
Other comprehensive income (loss)	(1.3		)	(1.4		)
Income taxes (paid) refunded	$	(21.9	)	$	14.5
Balance, end of period	$	2.7		$	(14.1	)
Non-Cash Transactions During the Period
RETAINED EARNINGS (ACCUMULATED DEFICIT):
Investment exchanges	$	19.3		$	8.9
Balance, beginning of period	$	(564.9	)	$	(455.6	)
Net income (loss)	(52.2		)	(15.2		)
Balance, end of period	$	(617.1	)	$	(470.8	)
TOTAL STOCKHOLDER’S EQUITY:
Balance, beginning of period	$	303.8		$	381.4
Change in stockholder’s equity	(53.5		)	(16.6		)
Balance, end of period	$	250.3		$	364.8

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

Table of Contents ~~PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial StatementsThree Months Ended March 31, 2015 and 2014~~

PHL VARIABLE INSURANCE COMPANY

Interim Unaudited Statements of Changes in Stockholder’s Equity



	Six Months Ended June 30,
($ in millions)	2015			2014
COMMON STOCK:
Balance, beginning of period	$	2.5		$	2.5
Balance, end of period	$	2.5		$	2.5

ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	862.2		$	847.2
Balance, end of period	$	862.2		$	847.2

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance, beginning of period	$	4.0		$	(12.7	)
Other comprehensive income (loss)	(20.3		)	28.3
Balance, end of period	$	(16.3	)	$	15.6

RETAINED EARNINGS (ACCUMULATED DEFICIT):
Balance, beginning of period	$	(564.9	)	$	(455.6	)
Net income (loss)	11.9			(19.2		)
Balance, end of period	$	(553.0	)	$	(474.8	)

TOTAL STOCKHOLDER’S EQUITY:
Balance, beginning of period	$	303.8		$	381.4
Change in stockholder’s equity	(8.4		)	9.1
Balance, end of period	$	295.4		$	390.5

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

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements

Three and Six Months Ended June 30, 2015 and 2014

1. Organization and Operations

PHL Variable Insurance Company (“we,” “our,” “us,” “PHL Variable” or the “Company”) is a life insurance company offering variable and fixed annuity and life insurance products. It is a wholly owned subsidiary of PM Holdings, Inc., and PM Holdings, Inc. is a wholly owned subsidiary of Phoenix Life Insurance Company (“Phoenix Life”), which is a wholly owned subsidiary of The Phoenix Companies, Inc. (“PNX” or “Phoenix”), a New York Stock Exchange listed company. Saybrus Partners, Inc. (“Saybrus”), an affiliate, provides dedicated life insurance and other consulting services to financial advisors in partner companies, as well as support for sales of our product line through independent distribution organizations.

~~2. Revision~~As a result of ~~Previously~~discussions ~~Reported~~with ~~Financial~~its ~~Statements~~regulators related to the execution of an intercompany reinsurance treaty between Phoenix Life and the Company during the second quarter of 2015, Phoenix announced its intention to de-stack its insurance company subsidiaries making the Company a subsidiary of the Phoenix holding company. See Note 15 to these interim unaudited financial statements regarding the de-stacking.

In the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the SEC on April 9, 2015 (the “2014 Form 10-K”), the Company revised its financial statements for all periods presented in connection with the restatement of the financial statements of the Company’s parent, Phoenix2. Basis The unaudited financial statements for the three month period ended March 31, 2014 contained in this Form 10-Q are presented on a revised basis, consistent with revised financial statements for the three month period ended March 31, 2014 contained in the 2014 Form 10-K. As discussed in the 2014 Form 10-K, the Company has revised its consolidated financial statements as of ~~and~~Presentation for the comparative three months ended March 31, 2014 to adjust for the impact of errors identified, including the recording of previously identified out-of-period errors that were previously determined not to be material individually, or in the aggregate, in the appropriate period. The Company concluded that these errors were not material individually or in the aggregate to PHL Variable. Consistent with its parent, Phoenix, the Company has classified the errors into two categories (i) UL Unlock and ~~(ii)~~Significant ~~Other~~Accounting ~~Adjustments.~~Policies

UL Unlock

In accordance with U.S. GAAP and our accounting policy, the Company performs an annual assumption review where management makes a determination of the best estimate assumptions to be used based on a comprehensive review of recent experience studies and industry trends each year. In 2013, the Company revised a number of assumptions, the most significant of which resulted in changes to expected premium persistency and incorporation of mortality improvement in its UL business. The incorporation of these changes resulted in manual updates to various models for which certain errors were subsequently identified in the course of performing analysis between the fourth quarter of 2014 and the prior period results. These errors related to inappropriate implementation of data used in the calculation and approximation of certain product features which then resulted in the incorrect calculation of the ultimate impact of the Unlock for the fourth quarter of 2013.

Other Adjustments

Amounts primarily relate to various out-of-period errors identified which were previously determined not to be material individually or in the aggregate. The Company considered the impacts of each of these errors, many of which were previously identified and subsequently recorded as out-of-period adjustments, as well as subsequently identified errors both individually and in the aggregate and concluded that none were significant for individual categorization herein.

The impact of the correction of these errors on the financial statements is presented in the tables within this Note below.

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 2. Revision of Previously Reported Financial Statements (continued)

($ in millions)	Statement of Income and Comprehensive IncomeFor the three months ended March 31, 2014
				Correction of errors
	Asreported			ULunlock			Otheradjustments			Asrevised
REVENUES:
Premiums	$	2.8		$	—		$	—		$	2.8
Insurance and investment product fees	88.8			—			0.2			89.0
Net investment income	40.0			—			—			40.0
Net realized gains (losses):
Total other-than-temporary impairment (“OTTI”) losses	—			—			—			—
Portion of OTTI losses recognized in other comprehensive income (“OCI”)	—			—			—			—
Net OTTI losses recognized in earnings	—			—			—			—
Net realized gains (losses), excluding OTTI losses	(33.9		)	—			(1.2		)	(35.1		)
Net realized gains (losses)	(33.9		)	—			(1.2		)	(35.1		)
Total revenues	97.7			—			(1.0		)	96.7
BENEFITS AND EXPENSES:
Policy benefits	76.1			(0.2		)	(3.8		)	72.1
Policy acquisition cost amortization	16.3			0.1			0.3			16.7
Other operating expenses	24.0			—			(0.5		)	23.5
Total benefits and expenses	116.4			(0.1		)	(4.0		)	112.3
Income (loss) before income taxes	(18.7		)	0.1			3.0			(15.6		)
Income tax expense (benefit)	(1.9		)	—			1.5			(0.4		)
Net income (loss)	$	(16.8	)	$	0.1		$	1.5		$	(15.2	)
COMPREHENSIVE INCOME (LOSS):
Net income (loss)	$	(16.8	)	$	0.1		$	1.5		$	(15.2	)
Other comprehensive income (loss) before income taxes:
Unrealized investment gains (losses), net of related offsets	11.1			0.3			1.6			13.0
Less: Income tax expense (benefit) related to:
Unrealized investment gains (losses), net of related offsets	14.0			—			0.4			14.4
Other comprehensive income (loss), net of income taxes	(2.9		)	0.3			1.2			(1.4		)
Comprehensive income (loss)	$	(19.7	)	$	0.4		$	2.7		$	(16.6	)

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 2. Revision of Previously Reported Financial Statements (continued)

($ in millions)	Statement of Cash FlowsFor the period ended March 31, 2014
	Asreported			Otheradjustments			Asrevised
OPERATING ACTIVITIES:
Net income (loss)	$	(16.8	)	$	1.6		$	(15.2	)
Net realized gains / losses	33.9			1.2			35.1
Policy acquisition costs deferred	(16.9		)	—			(16.9		)
Policy acquisition cost amortization	16.3			0.4			16.7
Interest credited	23.8			—			23.8
Equity in earnings of limited partnerships and other investments	(0.8		)	—			(0.8		)
Change in:
Accrued investment income	(5.9		)	—			(5.9		)
Deferred income taxes, net	(3.9		)	(0.5		)	(4.4		)
Reinsurance recoverable	28.3			(1.8		)	26.5
Policy liabilities and accruals	(78.3		)	(2.4		)	(80.7		)
Due to/from related parties	(13.9		)	—			(13.9		)
Other operating activities, net [1]	16.2			1.5			17.7
Cash provided by (used for) operating activities	(18.0		)	—			(18.0		)
INVESTING ACTIVITIES:
Purchases of:
Available-for-sale debt securities	(151.4		)	—			(151.4		)
Available-for-sale equity securities	—			—			—
Short-term investments	(209.8		)	—			(209.8		)
Derivative instruments	(17.7		)	—			(17.7		)
Fair value investments	—			—			—
Sales, repayments and maturities of:
Available-for-sale debt securities	65.1			—			65.1
Available-for-sale equity securities	—			—			—
Short-term investments	99.9			—			99.9
Derivative instruments	30.1			—			30.1
Fair value investments	0.9			—			0.9
Contributions to limited partnerships and limited liability corporations	(0.5		)	—			(0.5		)
Distributions from limited partnerships and limited liability corporations	0.7			—			0.7
Policy loans, net	(0.7		)	—			(0.7		)
Other investing activities, net	(1.8		)	—			(1.8		)
Cash provided by (used for) investing activities	(185.2		)	—			(185.2		)

(Continued on next page)

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 2. Revision of Previously Reported Financial Statements (continued)

(Continued from previous page)($ in millions)	Statement of Cash FlowsFor the period ended March 31, 2014
	Asreported			Otheradjustments		Asrevised
FINANCING ACTIVITIES:
Policyholder deposits	230.4			—		230.4
Policyholder withdrawals	(164.4		)	—		(164.4		)
Net transfers (to) from separate accounts	97.1			—		97.1
Cash provided by (used for) financing activities	163.1			—		163.1
Change in cash and cash equivalents	(40.1		)	—		(40.1		)
Cash and cash equivalents, beginning of period	181.0			—		181.0
Cash and cash equivalents, end of period	$	140.9		$	—	$	140.9
Supplemental Disclosure of Cash Flow Information
Income taxes (paid) refunded	$	14.5		$	—	$	14.5
Non-Cash Transactions During the Period
Investment exchanges	$	8.9		$	—	$	8.9

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 2. Revision of Previously Reported Financial Statements (continued)

($ in millions)	Statement of Changes in Stockholder's EquityFor the period ended March 31, 2014
	Asreported			Correctionof errors			Asrevised
COMMON STOCK:
Balance, beginning of period	$	2.5		$	—		$	2.5
Balance, end of period	$	2.5		$	—		$	2.5
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of period	$	847.2		$	—		$	847.2
Balance, end of period	$	847.2		$	—		$	847.2
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance, beginning of period	$	(11.9	)	$	(0.8	)	$	(12.7	)
Other comprehensive income (loss)	(2.9		)	1.5			(1.4		)
Balance, end of period	$	(14.8	)	$	0.7		$	(14.1	)
ACCUMULATED DEFICIT:
Balance, beginning of period	$	(465.3	)	$	9.7		$	(455.6	)
Net income (loss)	(16.8		)	1.6			(15.2		)
Balance, end of period	$	(482.1	)	$	11.3		$	(470.8	)
TOTAL STOCKHOLDER’S EQUITY:
Balance, beginning of period	$	372.5		$	8.9		$	381.4
Change in stockholder’s equity	(19.7		)	3.1			(16.6		)
Balance, end of period	$	352.8		$	12.0		$	364.8

3. Basis of Presentation and Significant Accounting Policies

We have prepared these interim unaudited financial statements in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), which differs materially from the accounting practices prescribed by various insurance regulatory authorities.

Certain prior year amounts have been reclassified to conform to the current year presentation. These interim unaudited financial statements include all adjustments (consisting primarily of accruals) considered necessary for the fair statement of the balance sheets, statements of ~~income~~operations and comprehensive income, statements of cash flows and statements of changes in stockholder’s equity for the interim periods. Certain financial information that is not required for interim reporting has been omitted. Financial results for the three and six months ended ~~March~~June 3130, 2015 are not necessarily indicative of full year results. ~~For the three months ended March 31, 2015, there were no out-of-period adjustments.~~ These interim unaudited financial statements should be read in conjunction with the financial statements for the year ended December 31, 2014 contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 (the “2014 Form 10-K”).

11In the 2014 Form 10-K, the Company revised its financial statements for all periods presented in connection with the restatement of the financial statements of the Company’s parent, Phoenix. The unaudited financial statements for the three and six month periods ended June 30, 2014 contained in this Form 10-Q are presented on a revised basis, consistent with revised financial statements contained in the 2014 Form 10-K.

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 3. Basis of Presentation and Significant Accounting Policies (continued)

Use of estimates

In preparing these interim unaudited financial statements in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the interim unaudited financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are made in the determination of estimated gross profits (“EGPs”) used in the valuation and amortization of assets and liabilities associated with universal life and annuity contracts; policyholder liabilities and accruals; valuation of investments in debt and equity securities; limited partnerships and other investments; valuation of deferred tax assets; and accruals for contingent liabilities. Certain of these estimates are particularly sensitive to market conditions and/or volatility in the debt or equity markets which could have a material impact on the interim unaudited financial statements. We are also subject to estimates made by our ultimate parent company related to discount rates and other assumptions for our pension and other post-employment benefits liabilities; and accruals for contingent liabilities. Actual results could differ from these estimates.

~~Parent companies’ liquidity~~8

~~Management~~Table ~~targets a minimum risk based capital~~ of ~~225%.~~Contents ~~As of March 31, 2015,~~ PHL ~~Variable~~VARIABLE ~~had~~INSURANCE anCOMPANYNotes ~~estimated~~to ~~Company~~Interim ~~Action~~Unaudited ~~Level~~Financial ~~risk-based~~Statements ~~capital~~(continued) ratio of 122%, compared with 218% at December 31, 2014, reflecting its portion of litigation accruals recorded in the first quarter, unfavorable mortality and a lower admitted deferred tax asset resulting from the surplus decline2. ~~Phoenix~~Basis ~~is pursuing a number~~ of ~~capital~~Presentation ~~management actions, including a reinsurance treaty between the Company~~ and ~~Phoenix~~Significant ~~Life~~Accounting toPolicies optimize its statutory capital deployment. Phoenix is working to close the transaction in the second quarter. There can be no assurance that the regulators who must approve this transaction will either approve or approve with conditions acceptable to Phoenix. If the reinsurance treaty is not effected, which management does not anticipate, Phoenix may consider other options which could include capital contributions from Phoenix Life, the holding company, or third parties, or other actions.(continued)

In 2014 and 2013, The Phoenix Companies, Inc. made capital contributions of $15.0 million and $45.0 million, respectively, for our benefit. In 2013, we issued a $30.0 million surplus note which was purchased by The Phoenix Companies, Inc. We may need additional capital contributions from The Phoenix Companies, Inc. and/or Phoenix Life in order to maintain our target risk based capital of 225%.Liquidity

~~The~~Management ~~Phoenix~~targets ~~Companies,~~a ~~Inc.~~minimum isCompany aAction ~~holding~~Level ~~company~~risk-based ~~and~~capital ~~has~~ratio noof ~~operations~~225% of(Authorized ~~its~~Control ~~own.~~Level ~~Its~~ratio ~~ability~~of to450%). ~~pay~~As ~~interest~~of ~~and~~June 30, ~~principal~~2015, onPHL ~~outstanding~~Variable ~~debt~~had ~~obligations~~an ~~and~~estimated toCompany ~~pay~~Action ~~dividends~~Level torisk-based ~~shareholders~~capital ~~and~~ratio ~~corporate~~of ~~expenses~~201%, ~~depends~~compared ~~primarily~~with ~~upon~~122% ~~the~~at ~~surplus~~March 31, 2015 and ~~earnings~~218% ofat ~~Phoenix~~December 31, ~~Life~~2014. ~~and~~The ~~the~~change ~~ability~~in ofrisk-based ~~subsidiaries~~capital toreflects ~~pay~~the ~~dividends~~Company’s orportion toof ~~advance~~litigation oraccruals ~~repay~~recorded ~~funds.~~in ~~Payments~~the offirst ~~dividends~~quarter, ~~and~~unfavorable ~~advances~~mortality orin ~~repayment~~both ofquarters, ~~funds~~and bythe ~~Phoenix~~impact ~~Life~~of ~~are~~the ~~restricted~~reinsurance bytransaction in the ~~applicable~~second ~~laws~~quarter ~~and~~that ~~regulations,~~was ~~including~~designed ~~laws~~to ~~establishing~~optimize ~~minimum~~statutory ~~solvency~~capital ~~and~~deployment ~~liquidity~~between ~~thresholds~~Phoenix operating subsidiaries. ~~Changes~~In to2014 ~~these~~and ~~laws~~2013, ~~the~~The ~~application~~Phoenix orCompanies, ~~implementation~~Inc. ofmade ~~these~~capital ~~laws~~contributions byof ~~regulatory~~$15.0 ~~agencies~~million orand ~~the~~$45.0 ~~need~~million, respectively, for ~~significant~~our ~~additional~~benefit. ~~capital~~In ~~contributions~~2013, towe ~~insurance~~issued ~~subsidiaries,~~a ~~including~~$30.0 ~~the~~million ~~Company,~~surplus ~~could~~note ~~constrain~~which ~~the~~was ~~ability~~purchased ofby The Phoenix Companies, Inc. toWe ~~meet~~may ~~its~~need ~~debt~~additional ~~obligations and corporate expenses as well as make~~ capital contributions ~~for~~from ~~the~~The ~~benefit~~Phoenix ofCompanies, ~~the~~Inc. ~~Company~~in order to ~~support~~maintain ~~the~~our ~~Company’s~~target risk -based capital of 225%.

AsThe ofPhoenix ~~March 31~~Companies, ~~2015,~~Inc. ~~Phoenix~~is ~~Life~~a ~~had~~holding ancompany ~~estimated~~and ~~Company~~has ~~Action~~no ~~Level~~operations ~~risk-based~~of ~~capital~~its ~~ratio~~own. ofIts ~~288%,~~ability ~~compared~~to ~~with~~pay ainterest ~~ratio~~and inprincipal ~~excess~~on outstanding debt obligations and to pay dividends to shareholders and corporate expenses depends primarily upon the surplus and earnings of ~~300%~~Phoenix asLife and the ability of ~~December 31,~~subsidiaries ~~2014~~to pay dividends or to advance or repay funds. Payments of dividends and advances or repayment of funds by Phoenix Life ~~has~~are ~~made~~restricted aby ~~guarantee~~the ~~that~~applicable laws and regulations, including laws establishing minimum solvency and liquidity thresholds. Changes to these laws, the ~~Company’s~~application or implementation of these laws by regulatory agencies or the need for significant additional capital contributions to insurance subsidiaries, including the Company, could constrain the ability of The Phoenix Companies, Inc. to meet its debt obligations and ~~surplus~~corporate ~~will~~expenses beas ~~maintained~~well atas ~~Authorized~~make ~~Control~~capital ~~Level~~contributions ~~RBC~~for atthe ~~250%~~benefit ~~(125%~~of the Company ~~Action~~to ~~Level)~~support the Company’s risk-based capital.

~~The~~As a result of the execution of an intercompany reinsurance treaty between Phoenix ~~Companies~~Life and the Company during the second quarter of 2015, ~~Inc.~~Phoenix ~~and~~agreed it will not use any future dividends paid by Phoenix Life ~~have~~to meet the ~~capacity~~operating toneeds ~~provide~~of ~~additional~~PHL ~~capital~~Variable. As a result of the de-stacking, an existing commitment by Phoenix Life to keep the Company’s tocapital ~~support~~and ~~its~~surplus ~~risk~~at ~~based~~Authorized ~~capital~~Control ~~ratios~~Level ~~over~~RBC ~~the~~at 250% (125% Company Action Level) ~~and~~will ~~regulatory~~be ~~minimum ratios~~extinguished.

Adoption of new accounting standards

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the Financial Accounting Standards Board (the “FASB”) issued updated guidance that changes the criteria for reporting discontinued operations and introduces new financial statement disclosures. The new guidance is effective prospectively to new disposals and new classifications of disposal groups as held for sale that occur within annual periods beginning on or after December 15, 2014 and interim periods within those annual periods. This new guidance did not have any impact on the Company’s financial position, results of operations and financial statement disclosures.

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 3. Basis of Presentation and Significant Accounting Policies (continued)

Accounting for Troubled Debt Restructurings by Creditors

In January 2014, the FASB issued updated guidance for troubled debt restructurings clarifying when an in substance repossession or foreclosure occurs, and when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This new guidance did not have a material impact on the Company’s financial position, results of operations and financial statement disclosures.

Accounting for Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued updated guidance regarding investments in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for the low-income housing tax credit. Under the guidance, an entity is permitted to make an accounting policy election to amortize the initial cost of its investment in proportion to the tax credits and other tax benefits received and recognize the net investment performance in the statement of operations as a component of income tax expense (benefit) if certain conditions are met. The new guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This new guidance did not have a material impact on the Company’s financial position, results of operations and financial statement disclosures.

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements (continued)

2. Basis of Presentation and Significant Accounting Policies (continued)

Accounting standards not yet adopted

For information regarding additional accounting standards that the Company has not yet adopted, see the “Accounting Standards Not Yet Adopted” section of Note 3 of Notes to Financial Statements in the Company’s 2014 Form 10-K. There have been no changes other than as noted below.

Disclosures about Short-Duration Contracts

In May 2015, the FASB issued guidance which requires enhanced disclosure requirements for insurers relating to short-duration insurance contracts including claims and the unpaid claims liability rollforward to interim periods. For public business entities, the guidance is effective for annual reporting periods beginning after December 15, 2015 and interim periods within annual periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently assessing the impact of the guidance on its financial position, results of operations and financial statement disclosures.

Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)

In May 2015, the FASB issued guidance for investments measured at net asset value (“NAV”), as a practical expedient for fair value, to be excluded from the fair value hierarchy. The new guidance requires reporting entities to reconcile the fair value hierarchy disclosure to the balance sheet by disclosing the amount of investments measured using the practical expedient and to make certain disclosures about the nature and risks of those investments. If the NAV is actually at fair value, then a reporting entity would continue to include the investment in the fair value hierarchy and make all required fair value disclosures. For public business entities, the guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. The new guidance is retrospective to all periods presented and early adoption is permitted. The Company is currently assessing the impact of the guidance on its financial position, results of operations and financial statement disclosures.

Customer’s Accounting for Fees Paid in a Cloud Computing Agreement

In April 2015, the FASB issued new guidance on a customer’s accounting for fees paid in a cloud computing arrangement (“CCA”). Under the new guidance, customers will apply the same criteria as vendors to determine whether a CCA contains a software license or is solely a service contract. The new guidance provides guidance on which existing accounting model should be applied. For public business entities, the guidance is effective for annual reporting periods, including interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is currently assessing the impact of the guidance on its financial position, results of operations and financial statement disclosures.

Interest - Imputation of Interest (Simplifying the Presentation of Debt Issuance Costs)

In April 2015, the FASB issued guidance that changes the presentation of debt issuance costs in financial statements. Under the new guidance, a company would present debt issuance costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. The recognition and measurement of debt issuance costs is not affected by the new guidance. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, and should be applied retrospectively to all periods presented. Early adoption is allowed for all entities for financial statements that have not been previously issued. This guidance will not have any effect on the Company’s financial position or results of operations.

Significant accounting policies

Our significant accounting policies are presented in the notes to our financial statements for the year ended December 31, 2014 contained in the 2014 Form 10-K except for the following update to our expected future interest rate assumption as noted more fully below.

~~Deferred Policy Acquisition Costs~~10

InTable ~~the current quarter, the Company unlocked its assumption for expected future interest rates. This best estimate assumption reflects current yields and expected maturities~~ of ~~our~~Contents ~~fixed~~PHL ~~income~~VARIABLE ~~portfolio~~INSURANCE ~~combined~~COMPANYNotes ~~with expected reinvestment rates. The interest rates begin with prevailing rates but are assumed~~ to ~~revert~~Interim ~~back~~Unaudited toFinancial ~~the~~Statements ~~long-term~~(continued) ~~yield over the mean reversion period~~2. ~~The~~Basis ~~unlock~~of ~~impacted~~Presentation ~~DAC, certain additional policyholder liabilities for guaranteed benefits on variable annuity~~ and ~~universal~~Significant ~~life~~Accounting ~~contracts~~Policies ~~and the universal life PFBL. The result was a net benefit of approximately $0.3 million for the quarter ended March 31, 2015.~~(continued)

13Deferred Policy Acquisition Costs (“DAC”)

~~Table~~In the first quarter of ~~Contents~~2015, ~~PHL~~the ~~VARIABLE~~Company ~~INSURANCE~~unlocked ~~COMPANYNotes~~its assumption for expected future interest rates. This best estimate assumption reflects current yields and expected maturities of our fixed income portfolio combined with expected reinvestment rates. The interest rates begin with prevailing rates but are assumed to ~~Interim~~revert ~~Unaudited~~back ~~Financial~~to ~~Statements~~the ~~(continued)~~long-term 3yield over the mean reversion period. ~~Basis~~The ofunlock ~~Presentation~~impacted DAC, certain additional policyholder liabilities for guaranteed benefits on variable annuity and ~~Significant~~universal ~~Accounting~~life ~~Policies~~contracts and the universal life profits followed by losses (~~continued~~“PFBL”). The result was a net benefit of approximately $0.3 million recorded in the three months ended March 31, 2015.

The following table summarizes the current interest rate assumption as updated in the ~~current~~first ~~period~~quarter unlock:



Significant Assumption	Product	Explanation and Derivation

Interest rates and default rates	Fixed and Indexed Annuities Universal Life	Investment returns are based on the current yields and maturities of our fixed income portfolio combined with expected reinvestment rates from current market rates. Reinvestment rates are assumed to revert to long-term rates and long-term default rates over the mean reversion period. Contractually permitted future changes in credited rates are assumed to help support investment margins.

43. Reinsurance

Reinsurance recoverable includes balances due from reinsurers for paid and unpaid losses and is presented net of an allowance for uncollectable reinsurance. The reinsurance recoverable balance is $~~502~~467.79 million and $464.6 million as of ~~March~~June 3130, 2015 and December 31, 2014, respectively. Other reinsurance activity is shown below.

Direct Business and Reinsurance:	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014
Direct premiums	$	17.08		$	1718.51		$	34.8		$	35.6
Premiums ceded to non-affiliates [1]	(1412.03		)	(1413.74		)	(26.3		)	(28.1		)
Premiums	$	35.05		$	24.87		$	8.5		$	7.5
Direct policy benefits incurred	$	~~121~~72.37		$	3741.9		$	194.0		$	79.8
Policy benefits assumed from non-affiliates	~~0.2~~—			~~0.1~~—			0.2			0.1
Policy benefits ceded to:
Affiliates	(1412.90		)	—(5.0		)	(26.9		)	(5.0		)
Non-affiliates	(4110.32		)	(1921.34		)	(51.5		)	(40.7		)
Policy benefits ceded	(5622.2		)	(1926.34		)	(78.4		)	(45.7		)
Premiums paid to:
Affiliates	6.10			65.29			12.1			12.1
Non-affiliates	149.53			138.53			23.8			21.8
Premiums paid [2]	2015.63			1914.72			35.9			33.9
Policy benefits [3]	$	8565.98		$	3829.47		$	151.7		$	68.1

———————


[1]	Primarily represents premiums ceded to reinsurers related to term insurance policies.

[2] For universal life and variable universal life contracts, premiums paid to reinsurers are reflected within policy benefits. See Note 32 to these interim unaudited financial statements for additional information regarding significant accounting policies.

[3] Policy benefit amounts above exclude changes in reserves, interest credited to policyholders and other items, which total $1348.89 million and $3355.72 million, net of reinsurance, for the three months ended ~~March~~June 3130, 2015 and 2014, respectively, and $62.7 million and $88.9 million, net of reinsurance, for the six months ended June 30, 2015 and 2014, respectively.

We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to the Company. Since we bear the risk of nonpayment, on a quarterly basis we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. Based on our review of their financial statements, reputation in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance. At March 31, 2015, five major reinsurance companies, including our affiliate, Phoenix Life, account for approximately 73% of the reinsurance recoverable. Phoenix Life comprised approximately 16%, or $82.5 million, of this total reinsurance recoverable.11

14Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 3. Reinsurance (continued)

We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to the Company. Since we bear the risk of nonpayment, on a quarterly basis we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. Based on our review of their financial statements, reputation in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance. At June 30, 2015, five major reinsurance companies, including our affiliate, Phoenix Life, account for approximately 73% of the reinsurance recoverable. Phoenix Life comprised approximately 17%, or $78.5 million, of this total reinsurance recoverable.

Additionally, the Company entered into a modified coinsurance (“modco”) reinsurance agreement with Phoenix Life on June 30, 2015. Under the agreement Phoenix Life retroceded 80% of its assumed inforce Group Executive Ordinary (“GEO”) corporate-owned whole life insurance policies to the Company. See Note 11 to these interim unaudited financial statements for additional information regarding related party transactions.

4. Deferred Policy Acquisition Costs

The balances of and changes in deferred policy acquisition costs (“DAC”) as of and for the periods ended June 30, 2015 and 2014 are as follows:



Changes in Deferred Policy Acquisition Costs:	Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014

Balance, beginning of period	$	423.0		$	454.8		$	430.9		$	470.1
Policy acquisition costs deferred	29.3			21.4			54.2			38.3
Costs amortized to expenses:
Recurring costs	(17.5		)	(18.3		)	(32.8		)	(45.9		)
Assumption unlocking	—			—			(4.0		)	—
Realized investment gains (losses)	(3.3		)	(1.9		)	0.5			9.0
Offsets to net unrealized investment gains or losses included in AOCI	42.1			(14.5		)	24.8			(30.0		)
Balance, end of period	$	473.6		$	441.5		$	473.6		$	441.5

5. Sales Inducements

The balances of and changes in sales inducements as of and for the periods ended June 30, 2015 and 2014 are as follows:



Changes in Deferred Sales Inducement Activity:	Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014

Balance, beginning of period	$	78.6		$	75.6		$	78.9		$	76.9
Sales inducements deferred	4.3			5.4			9.6			7.5
Amortization charged to income	(2.9		)	(2.6		)	(4.8		)	(2.8		)
Offsets to net unrealized investment gains or losses included in AOCI	7.4			(2.9		)	3.7			(6.1		)
Balance, end of period	$	87.4		$	75.5		$	87.4		$	75.5

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements (continued)

56. ~~Deferred~~Investing ~~Policy Acquisition Costs~~Activities

The balances of and changes in deferred policy acquisition costs (“DAC”) as of and for the periods ended March 31, 2015 and 2014 are as follows:

Changes in Deferred Policy Acquisition Costs:	Three Months Ended March 31,
($ in millions)	2015			2014
Balance, beginning of period	$	430.9		$	470.1
Policy acquisition costs deferred	24.9			16.9
Costs amortized to expenses:
Recurring costs	(15.3		)	(27.6		)
Assumption unlocking	(4.0		)	—
Realized investment gains (losses)	3.8			10.9
Offsets to net unrealized investment gains or losses included in AOCI	(17.3		)	(15.5		)
Balance, end of period	$	423.0		$	454.8

6. Sales Inducements

The balances of and changes in sales inducements as of and for the periods ended March 31, 2015 and 2014 are as follows:

Changes in Deferred Sales Inducement Activity:	Three Months Ended March 31,
($ in millions)	2015			2014
Balance, beginning of period	$	78.9		$	76.9
Sales inducements deferred	5.3			2.1
Amortization charged to income	(1.9		)	(0.2		)
Offsets to net unrealized investment gains or losses included in AOCI	(3.7		)	(3.2		)
Balance, end of period	$	78.6		$	75.6

7. Investing Activities

Debt and equity securities

The following tables present the debt and equity securities available-for-sale by sector held at ~~March~~June 3130, 2015 and December 31, 2014, respectively. The unrealized loss amounts presented below include the non-credit loss component of OTTI losses. We classify these investments into various sectors in line with industry conventions.



Fair Value and Cost of Securities:	June 30, 2015
($ in millions)	Amortized Cost		Gross Unrealized Gains [1]		Gross Unrealized Losses [1]			Fair Value		OTTI Recognized in AOCI [2]

U.S. government and agency	$	89.1	$	6.2	$	—		$	95.3	$	—
State and political subdivision	234.6		11.1		(2.9		)	242.8		(0.2		)
Foreign government	74.8		4.6		(0.5		)	78.9		—
Corporate	3,062.4		93.7		(57.5		)	3,098.6		(1.5		)
Commercial mortgage-backed (“CMBS”)	237.1		17.4		(0.3		)	254.2		—
Residential mortgage-backed (“RMBS”)	321.5		12.3		(3.8		)	330.0		(8.5		)
Collateralized debt obligations (“CDO”) / collateralized loan obligations (“CLO”)	139.7		0.7		(1.0		)	139.4		(2.2		)
Other asset-backed (“ABS”)	88.4		3.2		(4.1		)	87.5		—
Available-for-sale debt securities	$	4,247.6	$	149.2	$	(70.1	)	$	4,326.7	$	(12.4	)
Available-for-sale equity securities	$	27.0	$	0.8	$	(0.2	)	$	27.6	$	—

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 7. Investing Activities (continued)

Fair Value and Cost of Securities:	March 31, 2015
($ in millions)	AmortizedCost		Gross Unrealized Gains [1]		Gross Unrealized Losses [1]			Fair Value		OTTI Recognized in AOCI [2]
U.S. government and agency	$	82.0	$	8.3	$	—		$	90.3	$	—
State and political subdivision	227.7		18.5		(1.5		)	244.7		(0.2		)
Foreign government	77.9		6.8		(0.3		)	84.4		—
Corporate	2,930.1		168.2		(22.6		)	3,075.7		(1.5		)
Commercial mortgage-backed (“CMBS”)	235.5		22.4		—			257.9		—
Residential mortgage-backed (“RMBS”)	502.7		21.4		(2.5		)	521.6		(8.5		)
Collateralized debt obligations (“CDO”) / collateralized loan obligations (“CLO”)	96.1		1.0		(0.6		)	96.5		(2.2		)
Other asset-backed (“ABS”)	86.8		4.1		(3.8		)	87.1		—
Available-for-sale debt securities	$	4,238.8	$	250.7	$	(31.3	)	$	4,458.2	$	(12.4	)
Available-for-sale equity securities	$	28.4	$	1.2	$	(0.1	)	$	29.5	$	—

———————


[1]	Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our balance sheets as a component of AOCI.

[2]

Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment. The table above presents the special category of AOCI for debt securities that are other-than-temporarily impaired when the impairment loss has been split between the credit loss component (in earnings) and the non-credit component (separate category of AOCI).



Fair Value and Cost of Securities:	December 31, 2014
($ in millions)	Amortized Cost		Gross Unrealized Gains [1]		Gross Unrealized Losses [1]			Fair Value		OTTI Recognized in AOCI [2]

U.S. government and agency	$	82.4	$	6.9	$	—		$	89.3	$	—
State and political subdivision	217.2		13.6		(1.6		)	229.2		(0.2		)
Foreign government	69.2		5.4		(0.8		)	73.8		—
Corporate	2,730.7		128.4		(27.2		)	2,831.9		(1.5		)
CMBS	236.2		19.4		—			255.6		—
RMBS	558.9		20.9		(3.4		)	576.4		(8.6		)
CDO/CLO	84.2		0.4		(1.1		)	83.5		(2.7		)
Other ABS	82.1		3.8		(3.8		)	82.1		—
Available-for-sale debt securities	$	4,060.9	$	198.8	$	(37.9	)	$	4,221.8	$	(13.0	)
Available-for-sale equity securities	$	28.4	$	0.6	$	(0.3	)	$	28.7	$	—

———————


[1]	Net unrealized investment gains and losses on securities classified as available-for-sale and certain other assets are included in our balance sheets as a component of AOCI.

[2]

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 76. Investing Activities (continued)

Maturities of Debt Securities:	~~March~~June 3130, 2015
($ in millions)	AmortizedCost		FairValue
Due in one year or less	$	5133.35	$	5133.98
Due after one year through five years	~~427~~398.90		~~449~~414.16
Due after five years through ten years	1,~~518~~471.82		1,~~592~~500.65
Due after ten years	1,~~319~~558.72		1,~~401~~566.57
CMBS/RMBS/ABS/CDO/CLO [1]	~~921~~786.17		~~963~~811.1
Total	$	4,~~238~~247.86	$	4,~~458~~326.27

———————


[1]	CMBS, RMBS, ABS, CDO and CLO are not listed separately in the table as each security does not have a single fixed maturity.

The maturities of debt securities, as of ~~March~~June 3130, 2015, are summarized in the table above by contractual maturity. Actual maturities may differ from contractual maturities as certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties, and we have the right to put or sell certain obligations back to the issuers.

The following table depicts the sources of available-for-sale investment proceeds and related investment gains (losses).

Sales of Available-for-Sale Securities:($ in millions)	~~Three~~Six Months Ended ~~March~~June 3130,
	2015			2014
Debt securities, available-for-sale
Proceeds from sales	$	~~118~~392.52		$	5.4
Proceeds from maturities/repayments	58134.67			54116.02
Gross investment gains from sales, prepayments and maturities	513.08			23.20
Gross investment losses from sales and maturities	(0.16		)	(01.82		)

Aging of Temporarily Impaired Securities:	~~March~~June 3130, 2015
($ in millions)	Less than 12 months					Greater than 12 months					Total
	FairValue		Unrealized Losses			FairValue		Unrealized Losses			FairValue		Unrealized Losses
Debt Securities
U.S. government and agency	$	—	$	—		$	—	$	—		$	—	$	—
State and political subdivision	745.08		(01.31		)	16.92		(1.28		)	2362.90		(12.59		)
Foreign government	619.79		(0.35		)	—		—			619.79		(0.35		)
Corporate	~~202~~1,056.89		(739.70		)	~~171~~172.06		(1418.95		)	~~373~~1,229.85		(2257.65		)
CMBS	120.71		—(0.3		)	—		—			120.71		—(0.3		)
RMBS	1136.87		—(0.6		)	7359.48		(23.52		)	8596.25		(23.58		)
CDO/CLO	1356.14		(0.15		)	2527.0		(0.5		)	3883.14		(01.60		)
Other ABS	26.34		—			7.41		(34.81		)	913.75		(34.81		)
Debt securities	~~245~~1,242.42		(842.40		)	~~293~~282.7		(2228.91		)	~~539.~~1,524.9		(3170.31		)
Equity securities	—		—			4.43		(0.12		)	4.43		(0.12		)
Total temporarily impaired securities	$	~~245~~1,242.42	$	(842.40	)	$	~~298~~287.10	$	(2328.03	)	$	~~543~~1,529.52	$	(3170.43	)
Below investment grade	$	5465.62	$	(3.2	)	$	2224.70	$	(3.5	)	$	7789.32	$	(6.7	)
Number of securities			85313					8992					~~174~~405

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Aging of Temporarily Impaired Securities:	December 31, 2014
($ in millions)	Less than 12 months					Greater than 12 months					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Debt Securities
U.S. government and agency	$	—	$	—		$	—	—			$	—	$	—
State and political subdivision	7.0		(0.4		)	18.7		(1.2		)	25.7		(1.6		)
Foreign government	11.3		(0.8		)	—		—			11.3		(0.8		)
Corporate	265.4		(8.8		)	273.1		(18.4		)	538.5		(27.2		)
CMBS	6.3		—			5.5		—			11.8		—
RMBS	4.6		(0.1		)	86.7		(3.3		)	91.3		(3.4		)
CDO/CLO	42.3		(0.4		)	30.2		(0.7		)	72.5		(1.1		)
Other ABS	5.8		—			7.5		(3.8		)	13.3		(3.8		)
Debt securities	342.7		(10.5		)	421.7		(27.4		)	764.4		(37.9		)
Equity securities	—		—			4.2		(0.3		)	4.2		(0.3		)
Total temporarily impaired securities	$	342.7	$	(10.5	)	$	425.9	$	(27.7	)	$	768.6	$	(38.2	)
Below investment grade	$	42.4	$	(2.4	)	$	17.1	$	(2.7	)	$	59.5	$	(5.1	)
Number of securities			121					127					248

Unrealized losses on below-investment-grade debt securities with a fair value depressed by more than 20% of amortized cost totaled $1.13 million at ~~March~~June 3130, 2015, of which $0.67 million was depressed by more than 20% of amortized cost for more than 12 months.

As of ~~March~~June 3130, 2015, available-for-sale securities in an unrealized loss position for over 12 months consisted of 8588 debt securities and 4 equity securities. These debt securities primarily relate to corporate securities and other ABS, which have depressed values due primarily to an increase in interest rates since the purchase of these securities. Unrealized losses were not recognized in earnings on these debt securities since the Company neither intends to sell the securities nor do we believe that it is more likely than not that it will be required to sell these securities before recovery of their amortized cost basis. Additionally, based on a security-by-security analysis, we expect to recover the entire amortized cost basis of these securities. In our evaluation of each security, management considers the actual recovery periods for these securities in previous periods of broad market declines. For securities with significant declines, individual security level analysis was performed, which considered any credit enhancements, expectations of defaults on underlying collateral and other available market data, including industry analyst reports and forecasts. Similarly, for equity securities in an unrealized loss position for greater than 12 months, management performed an analysis on a security-by-security basis. Although there may be sustained losses for greater than 12 months on these securities, additional information was obtained related to company performance which did not indicate that the additional losses were other-than-temporary.

Evaluating temporarily impaired available-for-sale securities

In management’s evaluation of temporarily impaired securities, many factors about individual issuers of securities, as well as our best judgment in determining the cause of a decline in the estimated fair value, are considered in the assessment of potential near-term recovery in the security’s value. Some of those considerations include, but are not limited to: (i) duration of time and extent to which the estimated fair value has been below cost or amortized cost; (ii) for debt securities, if the Company has the intent to sell or will more likely than not be required to sell a particular security before the decline in estimated fair value below amortized cost recovers; (iii) whether the issuer is experiencing significant financial difficulties and the potential for impairments of that issuer’s securities; (iv) pervasive issues across an entire industry sector/sub-sector; and (v) for structured securities, assessing any changes in the forecasted cash flows, the quality of underlying collateral, expectations of prepayment speeds, loss severity and payment priority of tranches held.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 76. Investing Activities (continued)

Other-than-temporary impairments

Management assessed all securities in an unrealized loss position in determining whether impairments were temporary or other-than-temporary. In reaching its conclusions, management exercised significant judgment and used a number of issuer-specific quantitative indicators and qualitative judgments to assess the probability of receiving a given security’s contractual cash flows. This included the issue’s implied yield to maturity, cumulative default rate based on rating, comparisons of issue-specific spreads to industry or sector spreads, specific trading activity in the issue and other market data such as recent debt tenders and upcoming refinancing requirements. Management also reviewed fundamentals such as issuer credit and liquidity metrics, business outlook and industry conditions. Management maintains a watch list of securities that is reviewed for impairments. Each security on the watch list was evaluated, analyzed and discussed, with the positive and negative factors weighed, in the ultimate determination of whether or not the security was other-than-temporarily impaired. For securities for which no OTTI was ultimately indicated at ~~March~~June 3130, 2015, management does not have the intention to sell, nor does it expect to be required to sell, these securities prior to their recovery. OTTIs recorded in earnings in the first ~~three~~six months of 2015 were immaterial.

The following table presents a roll-forward of pre-tax credit losses recognized in earnings related to available-for-sale debt securities for which a portion of the OTTI was recognized in OCI.

Credit Losses Recognized in Earnings on Available-for-Sale Debt Securitiesfor which a Portion of the OTTI Loss was Recognized in OCI:	Three Months Ended March 31,
Credit Losses Recognized in Earnings on Available-for-Sale DebtSecurities for which a Portion of the OTTI Loss was Recognized in OCI:	Three Months Ended June 30,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014
Balance, beginning of period	$	(1716.16	)	$	(1817.58	)	$	(17.1	)	$	(18.5	)
Add: Credit losses on securities not previously impaired [1]	—			—			—			—
Add: Credit losses on securities previously impaired [1]	—			—			—			—
Less: Credit losses on securities impaired due to intent to sell	—			—			—			—
Less: Credit losses on securities sold	~~0.5~~—			0.74			0.5			1.1
Less: Increases in cash flows expected on previously impaired securities	—			—			—			—
Balance, end of period	$	(16.6	)	$	(17.84	)	$	(16.6	)	$	(17.4	)

———————

[1] Additional credit losses on securities for which a portion of the OTTI loss was recognized in AOCI are included within net OTTI losses recognized in earnings on the statements of ~~income~~operations and comprehensive income.

Limited partnerships and other investments

Limited partnerships and other investments consist of private equity investments of $8.9 million and $8.4 million as of March 31, 2015 and December 31, 2014, respectively, and direct equity investments of $3.9 million and $4.1 million as of March 31, 2015 and December 31, 2014, respectively.



Limited Partnerships and Other Investments: ($ in millions)	June 30, 2015		December 31, 2014
Limited partnerships and other investments
Private equity funds	$	8.8	$	8.4
Mezzanine funds	0.2		—
Direct equity investments	4.4		4.1
Limited partnerships and other investments	$	13.4	$	12.5

Net investment income

Net investment income is comprised primarily of interest income, including amortization of premiums and accretion of discounts, based on yields which are changed due to expectations in projected cash flows, gains and losses on securities measured at fair value and earnings from investments accounted for under equity method accounting.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 76. Investing Activities (continued)

Sources of Net Investment Income:	Three Months Ended ~~March~~June 3130,					Six Months Ended June 30,
($ in millions)	2015			2014		2015			2014
Debt securities [1]	$	4749.32		$	3739.67	$	96.5		$	77.3
Equity securities	0.5			0.2		1.0			0.4
Limited partnerships and other investments	0.54			1.20		0.9			2.2
Policy loans	0.8			0.8		1.6			1.6
Fair value investments	(0.35		)	0.86		(0.2		)	1.4
Total investment income	4950.4			4042.63		99.8			82.9
Less: Investment expenses	2.31			0.63		4.4			0.9
Net investment income	$	4748.13		$	4042.0	$	95.4		$	82.0

———————


[1]	Includes net investment income on short-term investments.

Net realized gains (losses)

Sources and Types ofNet Realized Gains (Losses):	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014
Total other-than-temporary debt impairments	$	(0.1	)	$	—		$	(0.2	)	$	—
Portion of losses recognized in OCI	~~(0.1~~—		)	—			(0.1		)	—
Net debt impairments recognized in earnings	$	(0.21	)	$	—		$	(0.3	)	$	—
Debt security impairments:
U.S. government and agency	$	—		$	—		$	—		$	—
State and political subdivision	—			—			—			—
Foreign government	—			—			—			—
Corporate	—(0.2		)	—			(0.2		)	—
CMBS	—			—			—			—
RMBS	(0.21		)	—			(0.1		)	—
CDO/CLO	—			—			—			—
Other ABS	—			—			—			—
Net debt security impairments	(0.21		)	—			(0.3		)	—
Equity security impairments	—			—			—			—
Limited partnerships and other investment impairments	—			—			—			—
Impairment losses	(0.21		)	—			(0.3		)	—
Debt security transaction gains	58.08			20.28			13.8			3.0
Debt security transaction losses	(0.15		)	(0.84		)	(0.6		)	(1.2		)
Equity security transaction gains	—			—			—			—
Equity security transaction losses	—			—			—			—
Limited partnerships and other investment transaction gains	—			—			—			—
Limited partnerships and other investment transaction losses	—			—			—			—
Net transaction gains (losses)	48.93			10.4			13.2			1.8
Derivative instruments	(311.31		)	~~(23.6~~—		)	(14.4		)	(23.6		)
Embedded derivatives [1]	~~(10~~4.2		)	(122.93		)	(6.0		)	(15.2		)
Net realized gains (losses), excluding impairment losses	(81.64		)	(~~35.~~1.9		)	(7.2		)	(37.0		)
Net realized gains (losses), including impairment losses	$	(81.83	)	$	(~~35.~~1.9	)	$	(7.5	)	$	(37.0	)

———————

[1] Includes the change in fair value of embedded derivatives associated with fixed index annuity indexed crediting feature and variable annuity riders. See Note 87 to these interim unaudited financial statements for additional disclosures.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 76. Investing Activities (continued)

Unrealized gains (losses)

Sources of Changes inNet Unrealized Gains (Losses):	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014
Debt securities	$	58(140.53	)	$	62.06		$	(81.8	)	$	124.7
Equity securities	(0.85		)	—			0.3			—
Other investments	(0.12		)	—			(0.3		)	—
Net unrealized investment gains (losses)	$	59(141.20	)	$	62.06		$	(81.8	)	$	124.7
Net unrealized investment gains (losses)	$	59(141.20	)	$	62.06		$	(81.8	)	$	124.7
Applicable to DAC	17(42.31		)	1514.5			(24.8		)	30.0
Applicable to other actuarial offsets	40(65.26		)	3311.5			(25.4		)	45.1
Applicable to deferred income tax expense (benefit)	3(14.03		)	146.49			(11.3		)	21.3
Offsets to net unrealized investment gains (losses)	60(122.50		)	6332.49			(61.5		)	96.4
Net unrealized gains (losses) included in OCI	$	(119.30	)	$	(129.47	)	$	(20.3	)	$	28.3

Non-consolidated variable interest entities

The carrying value of our investments in non-consolidated variable interest entities (“VIEs”) (based upon sponsor values and financial statements of the individual entities) for which we are not the primary beneficiary was $168.25 million and $16.1 million as of ~~March~~June 3130, 2015 and December 31, 2014, respectively. The maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments of the Company. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. The Company has not provided nor intends to provide material financial support to these entities unless contractually required. We do not have the contractual option to redeem these limited partnership interests but receive distributions based on the liquidation of the underlying assets. The Company must generally request general partner consent to transfer or sell its fund interests. The Company performs ongoing qualitative analysis of its involvement with VIEs to determine if consolidation is required.

In addition, the Company makes passive investments in structured securities issued by VIEs, for which the Company is not the manager, which are included in CMBS, RMBS, CDO/CLO and other ABS within available-for-sale debt securities, and in fair value investments, in the balance sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the size of our investment relative to the structured securities issued by the VIE, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits, and the Company’s lack of power over the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of our investment.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 76. Investing Activities (continued)

Issuer and counterparty credit exposure

Credit exposure related to issuers and derivatives counterparties is inherent in investments and derivative contracts with positive fair value or asset balances. We manage credit risk through the analysis of the underlying obligors, issuers and transaction structures. We review our debt security portfolio regularly to monitor the performance of obligors and assess the stability of their credit ratings. We also manage credit risk through industry and issuer diversification and asset allocation. Included in fixed maturities are below-investment-grade assets totaling $~~226~~233.87 million and $186.8 million at ~~March~~June 3130, 2015 and December 31, 2014, respectively. Maximum exposure to an issuer or derivative counterparty is defined by quality ratings, with higher quality issuers having larger exposure limits. As of ~~March~~June 3130, 2015, we were exposed to the credit concentration risk of no issuers representing exposure greater than 10.0% of stockholder’s equity other than U.S. government and government agencies backed by the faith and credit of the U.S. government. We monitor credit exposures by actively monitoring dollar limits on transactions with specific counterparties. We have an overall limit on below-investment-grade rated issuer exposure. Additionally, the creditworthiness of counterparties is reviewed periodically. We generally use ISDA Master Agreements which include Credit Support Annexes which include collateral provisions to reduce counterparty credit exposures. To further mitigate the risk of loss on derivatives, we only enter into contracts in which the counterparty is a financial institution with a rating of A or higher from at least one Nationally Recognized Statistical Rating Organization.

As of ~~March~~June 3130, 2015, we held derivative assets, net of liabilities, with a fair value of $5844.38 million. Derivative credit exposure was diversified with 11 different counterparties. We also had investments of these issuers with a fair value of $7585.36 million as of ~~March~~June 3130, 2015. Our maximum amount of loss due to credit risk with these issuers was $~~133~~130.64 million as of ~~March~~June 3130, 2015. See Note 98 to these interim unaudited financial statements for additional information regarding derivatives.

87. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives

Separate accounts

Separate account products are those for which a separate investment and liability account is maintained on behalf of the policyholder. Investment objectives for these separate accounts vary by fund account type, as outlined in the applicable fund prospectus or separate account plan of operations. We have variable annuity and variable life insurance contracts that are classified as separate account products. The assets supporting these contracts are carried at fair value and are reported as separate account assets with an equivalent amount reported as separate account liabilities. Amounts assessed against the policyholder for mortality, administration and other services are included within revenue in fee income. ~~For the three months ended March 31, 2015 and 2014, there were no gains or losses on transfers of assets from the general account to a separate account.~~

Assets with fair value and carrying value of $2.78 billion and $2.6 billion at ~~March~~June 3130, 2015 and December 31, 2014, respectively, supporting fixed indexed annuities are maintained in accounts that are legally segregated from the other assets of the Company, but policyholders do not direct the investment of those assets and the investment performance does not pass through to the policyholders. These assets supporting fixed indexed annuity contracts are reported within the respective investment line items on the balance sheets.

Separate Account Investments of Account Balances of Variable Annuity Contractswith Insurance Guarantees:	~~March~~June 3130, 2015		December 31, 2014
($ in millions)
Debt securities	$	~~265~~253.52	$	276.0
Equity funds	1,~~264~~199.65		1,303.1
Other	3533.10		35.5
Total	$	1,~~565~~485.27	$	1,614.6

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 87. Separate Accounts, Death Benefits and Other Insurance Benefit Features and Embedded Product Derivatives (continued)

Death benefits and other insurance benefit features

Variable annuity guaranteed benefits

We establish policy benefit liabilities for minimum death and income benefit guarantees relating to certain annuity policies as follows:

•

Liabilities associated with the guaranteed minimum death benefit (“GMDB”) are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the expected life of the contract based on total expected assessments. The assumptions used for calculating the liabilities are generally consistent with those used for amortizing DAC.

•

Liabilities associated with the guaranteed minimum income benefit (“GMIB”) are determined by estimating the expected value of the income benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. The assumptions used for calculating such guaranteed income benefit liabilities are generally consistent with those used for amortizing DAC.

For variable annuities with GMDB and GMIB, reserves for these guarantees are calculated and recorded in policy liabilities and accruals on our balance sheets. Changes in the liability are recorded in policy benefits on our statements of ~~income~~operations and comprehensive income. We regularly evaluate estimates used and adjust the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised.

Changes in Guaranteed Insurance BenefitLiability Balances:	Three Months Ended ~~March~~June 3130, 2015						Six Months Ended June 30, 2015
($ in millions)	AnnuityGMDB			AnnuityGMIB			AnnuityGMDB			AnnuityGMIB
Balance, beginning of period	$	16.30		$	1614.40		$	16.3		$	16.4
Incurred	(0.45		)	(20.42		)	0.1			(2.2		)
Paid	(0.38		)	—			(1.1		)	—
Assumption unlocking	~~0.3~~—			—			0.3			—
Change due to net unrealized gains or losses included in AOCI	(0.1		)	—			—			—
Balance, end of period	$	1615.06		$	14.02		$	15.6		$	14.2

Changes in Guaranteed Insurance BenefitLiability Balances:	Three Months Ended ~~March~~June 3130, 2014						Six Months Ended June 30, 2014
($ in millions)	AnnuityGMDB			AnnuityGMIB			AnnuityGMDB			AnnuityGMIB
Balance, beginning of period	$	1716.06		$	9.52		$	17.0		$	9.5
Incurred	(0.14		)	(0.27		)	0.3			(0.9		)
Paid	(0.37		)	—			(1.0		)	—
Assumption unlocking	—			—			—			—
Change due to net unrealized gains or losses included in AOCI	—			~~(0.1~~—		)	—			(0.1		)
Balance, end of period	$	16.63		$	98.25		$	16.3		$	8.5

2320

For those guarantees of benefits that are payable in the event of death, the net amount at risk (“NAR”) is generally defined as the benefit payable in excess of the current account balance at our balance sheet date. We have entered into reinsurance agreements to reduce the net amount of risk on certain death benefits. Following are the major types of death benefits currently in force as defined in Note 8 to our financial statements in the 2014 Form 10-K:

GMDB and GMIB Benefits by Type:	~~March~~June 3130, 2015
($ in millions)	AccountValue		NARbeforeReinsurance		~~NARafter Reinsurance~~NARafterReinsurance		AverageAttained Ageof Annuitant
GMDB return of premium	$	~~604~~575.61	$	1.2	$	1.2	64
GMDB step up	1,~~170~~117.10		6067.85		714.98		6564
GMDB earnings enhancement benefit (“EEB”)	2927.02		—3.2		—3.2		65
GMDB greater of annual step up and roll up	2221.49		45.81		45.81		69
Total GMDB at March 31, 2015	1,826.1		$	66.8	$	13.9
Total GMDB at June 30, 2015	1,741.2		$	77.0	$	24.3
Less: General account value with GMDB	~~267~~261.17
Subtotal separate account liabilities with GMDB	1,~~559~~479.05
Separate account liabilities without GMDB	~~148~~145.96
Total separate account liabilities	$	1,~~707~~625.91
GMIB [1] at March 31, 2015	$	297.5					65
GMIB [1] at June 30, 2015	$	282.0					66
GMDB and GMIB Benefits by Type:	December 31, 2014
($ in millions)	AccountValue		NARbeforeReinsurance		~~NARafter Reinsurance~~NARafterReinsurance		AverageAttained Ageof Annuitant
GMDB return of premium	$	626.6	$	1.4	$	1.4	63
GMDB step up	1,200.7		65.7		10.6		64
GMDB earnings enhancement benefit (“EEB”)	29.1		—		—		65
GMDB greater of annual step up and roll up	22.7		4.8		4.8		69
Total GMDB at December 31, 2014	1,879.1		$	71.9	$	16.8
Less: General account value with GMDB	270.7
Subtotal separate account liabilities with GMDB	1,608.4
Separate account liabilities without GMDB	149.1
Total separate account liabilities	$	1,757.5
GMIB [1] at December 31, 2014	$	308.4					65

———————


[1]	Policies with a GMIB also have a GMDB, however these benefits are not additive. When a policy terminates due to death, any NAR related to GMIB is released. Similarly, when a policy goes into benefit status on a GMIB, its GMDB NAR is released.

2421

Fixed indexed annuity guaranteed benefits

Many of our fixed indexed annuities contain guaranteed benefits. We establish policy benefit liabilities for minimum death and minimum withdrawal benefit guarantees relating to these policies as follows:

•

Liabilities associated with the guaranteed minimum withdrawal benefit (“GMWB”) and Chronic Care guarantees are determined by estimating the value of the withdrawal benefits expected to be paid after the projected account value depletes and recognizing the value ratably over the accumulation period based on total expected assessments. Liabilities associated with the GMWB for the fixed indexed annuities differ from those contained on variable annuities in that the GMWB feature and the underlying contract, exclusive of the equity index crediting option, are fixed income instruments.


•	Liabilities associated with the GMDB are determined by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the expected life of the contract based on total expected assessments.

The assumptions used for calculating GMWB, GMDB and Chronic Care guarantees are generally consistent with those used for amortizing DAC. We regularly evaluate estimates used and adjust the additional liability balances, with a related charge or credit to benefit expense if actual experience or other evidence suggests that earlier assumptions should be revised. The GMWB, GMDB and Chronic Care guarantees on fixed indexed annuities are recorded in policy liabilities and accruals on our balance sheets.

Changes in GuaranteedLiability Balances:	Fixed Indexed AnnuityGMWB and GMDB
($ in millions)	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
	2015			2014			2015			2014
Balance, beginning of period	$	~~147~~171.03		$	85104.42		$	147.0		$	85.4
Incurred	1016.50			014.45			26.5			14.9
Paid	(0.1		)	(0.1		)	(0.2		)	(0.2		)
Assumption unlocking	—			—			—			—
Change due to net unrealized gains or losses included in AOCI	13(33.98		)	1816.5			(19.9		)	35.0
Balance, end of period	$	~~171~~153.34		$	~~104~~135.21		$	153.4		$	135.1

Universal life

Liabilities for universal life contracts in excess of the account balance, some of which contain secondary guarantees, are generally determined by estimating the expected value of benefits and expenses when claims are triggered and recognizing those benefits and expenses over the accumulation period based on total expected assessments. The assumptions used in estimating these liabilities are generally consistent with those used for amortizing DAC.

Changes in GuaranteedLiability Balances:	Universal LifeSecondary Guarantees
($ in millions)	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
	2015			2014			2015			2014
Balance, beginning of period	$	~~166~~170.34		$	~~145~~152.85		$	166.3		$	145.8
Incurred	9.30			7.8.5			18.3			16.3
Paid	(63.48		)	(1.93		)	(10.2		)	(3.2		)
Assumption unlocking	—			—			—			—
Change due to net unrealized gains or losses included in AOCI	1.(2.7		)	0.87			(1.5		)	1.5
Balance, end of period	$	~~170~~172.49		$	~~152~~160.54		$	172.9		$	160.4

2522

In addition, the universal life block of business has experience which produces profits in earlier periods followed by losses in later periods for which additional reserves are required to be held above the account value liability. These reserves are accrued ratably over historical and anticipated positive income to offset the future anticipated losses. The assumptions used in estimating these liabilities are generally consistent with those used for amortizing DAC.

Changes in AdditionalLiability Balances:	Universal LifeProfits Followed by Losses
($ in millions)	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
	2015			2014			2015			2014
Balance, beginning of period	$	~~366~~397.6		$	~~270~~300.3		$	366.6		$	270.3
Incurred	~~12.~~(1.8		)	1618.41			10.3			34.5
Assumption unlocking	~~(4.6~~—		)	—			(4.6		)	—
Change due to net unrealized gains or losses included in AOCI	23(25.52		)	13(8.63		)	(1.7		)	5.3
Balance, end of period	$	~~397~~370.6		$	~~300~~310.31		$	370.6		$	310.1

Embedded derivatives

Variable annuity embedded derivatives

Certain separate account variable products may contain a GMWB, guaranteed minimum accumulation benefit (“GMAB”) and/or combination (“COMBO”) rider as defined in Note 8 to our financial statements in the 2014 Form 10-K. These features are accounted for as embedded derivatives as described below.

Embedded Derivatives Non-Insurance Guaranteed Product Features:	~~March~~June 3130, 2015
($ in millions)	AccountValue		AverageAttained Ageof Annuitant
GMWB	$	~~453~~427.68	65
GMAB	~~290~~266.94		59
COMBO	5.20		6364
Balance, end of period	$	~~749~~699.72
Embedded Derivatives Non-Insurance Guaranteed Product Features:	December 31, 2014
($ in millions)	AccountValue		AverageAttained Ageof Annuitant
GMWB	$	471.3	65
GMAB	305.8		59
COMBO	6.9		64
Balance, end of period	$	784.0

The GMWB, GMAB and COMBO features represent embedded derivative liabilities in the variable annuity contracts that are required to be reported separately from the host variable annuity contract. These liabilities are recorded at fair value within policyholder deposit funds on the balance sheets with changes in fair value recorded in realized investment gains on the statements of ~~income~~operations and comprehensive income. The fair value of the GMWB, GMAB and COMBO obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior. As markets change, contracts mature and actual policyholder behavior emerges, these assumptions are continually evaluated and may from time to time be adjusted. Embedded derivative liabilities for GMWB, GMAB and COMBO are shown in the table below.

2623

Embedded Derivative Liabilities:($ in millions)	~~March~~June 3130, 2015			December 31, 2014
GMWB	$	94.01		$	6.9
GMAB	(0.78		)	(0.3		)
COMBO	(0.12		)	(0.2		)
Total variable annuity embedded derivative liabilities	$	83.21		$	6.4

There were no benefit payments made for the GMWB and GMAB in the three months ended ~~March~~June 3130, 2015 and 2014. We have established a risk management strategy under which we hedge our GMAB, GMWB and COMBO exposure using equity index options, equity index futures, equity index variance swaps, interest rate swaps and swaptions.

Fixed indexed annuity embedded derivatives

Fixed indexed annuities may also contain a variety of index-crediting options: policy credits that are calculated based on the performance of an outside equity market or other index over a specified term. These index options are embedded derivative liabilities that are required to be reported separately from the host contract. These index options are accounted for at fair value and recorded in policyholder ~~deposits~~deposit funds within the balance sheets with changes in fair value recorded in realized investment gains, in the statements of ~~income~~operations and comprehensive income. The fair value of these index options is calculated using the budget method. See Note 10 9 to these interim financial statements for additional information. Several additional inputs reflect our internally developed assumptions related to lapse rates and other policyholder behavior. The fair value of these embedded derivatives was $~~166~~172.93 million and $153.9 million as of ~~March~~June 3130, 2015 and December 31, 2014, respectively. In order to manage the risk associated with these equity indexed-crediting features, we hedge using equity index options. See Note 98 to these interim unaudited financial statements for additional information.

Embedded derivatives realized gains and losses

Changes in the fair value of embedded derivatives associated with variable annuity and fixed indexed annuity contracts are recorded as realized investment gains and losses within the statements of ~~income~~operations and comprehensive income. Embedded derivatives gains and (losses) recognized in earnings for the three and six months ended ~~March~~June 3130, 2015 are $4.2 million and $(6.0) million, respectively. Embedded derivatives gains and (losses) recognized in earnings for the three and six months ended June 30, 2014 are $(~~10.~~2.3) million and $(1215.92) million, respectively.

98. Derivative Instruments

We use derivative financial instruments, including options, futures and swaps as a means of hedging exposure to interest rate, equity price change, equity volatility and foreign currency risk. This includes ~~our~~ surplus ~~hedge~~hedging ~~which utilizes futures and options to hedge against declines in equity markets and the resulting statutory capital and surplus impact,~~ as well as hedging of our fixed indexed annuity (“FIA”) ~~separate~~exposure. ~~account~~From ~~hedge~~time ~~which~~to ~~uses~~time, ~~interest~~the ~~rate~~Company ~~swaptions~~uses toforward ~~hedge~~starting ~~against~~swaps ~~rising~~to lock-in interest rates on future bond purchases. We also use derivative instruments to economically hedge our exposure on living benefits offered on certain of our variable annuity products as well as index credits on our FIA products.

The Company seeks to enter into ~~over-the-counter (“OTC”)~~ derivative transactions pursuant to master agreements that provide for a netting of payments and receipts by counterparty. Counterparties or central clearinghouses may require cash to be posted as collateral or margin. As of ~~March~~June 3130, 2015 and December 31, 2014, $2032.81 million and $16.0 million, respectively, of cash and cash equivalents were held as collateral or margin by a third party related to our derivative transactions.

Our derivatives are not designated as hedges for accounting purposes.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 98. Derivative Instruments (continued)

Derivative Instruments:	Maturity	NotionalAmount		Fair Value as ~~ofMarch~~ofJune 3130, 2015
($ in millions)				Assets		Liabilities [1]
Interest rate swaps	2018 - 2035	$	~~149~~239.05	$	41.08	$	02.49
Variance swaps	2015 - 2017	0.9		—		9.04
Put options	2015 - 2022	~~677~~391.50		2520.17		—
Call options	2015 - ~~2019~~2020	2,~~169~~285.3		~~106~~76.35		6742.70
Total derivative instruments		$	2,996.7	$	135.4	$	77.1
Equity futures	2015	9.6		0.1		—
Total derivative instruments		$	2,926.3	$	99.1	$	54.3

———————


[1]	Derivative liabilities are included in other liabilities on the balance sheets.



Derivative Instruments:	Maturity	Notional Amount		Fair Value as of December 31, 2014
($ in millions)	Maturity	Notional Amount		Assets		Liabilities [1]

Interest rate swaps	2016 - 2029	$	114.0	$	9.7	$	1.9
Variance swaps	2015 - 2017	0.9		—		8.6
Swaptions	2024 - 2025	777.0		0.2		—
Put options	2015 - 2022	677.5		29.4		—
Call options	2015 - 2019	2,019.2		118.2		74.6
Equity futures	2015	2.9		—		0.5
Total derivative instruments		$	3,591.5	$	157.5	$	85.6

———————


[1]	Derivative liabilities are included in other liabilities on the balance sheets.

Derivative Instrument Gains (Losses) Recognized inRealized Investment Gains (Losses):	Three Months Ended ~~March~~June 3130,						Six Months Ended June 30,
($ in millions)	2015			2014			2015			2014
Interest rate swaps	$	2(4.73	)	$	51.08		$	(1.6	)	$	6.8
Variance swaps	(0.4		)	(0.64		)	(0.8		)	(1.0		)
Swaptions	~~(0.1~~—		)	(187.36		)	(0.1		)	(25.9		)
Put options	(4.3.5		)	(4.1		)	(7.8		)	(8.2		)
Call options	(12.49		)	(317.02		)	(4.3		)	14.2
Equity futures	~~0.2~~—			(2.6.9		)	0.2			(9.5		)
Embedded derivatives	~~(10~~4.2		)	(122.93		)	(6.0		)	(15.2		)
Total derivative instrument gains (losses) recognized in realized investment gains (losses)	$	(136.59	)	$	(362.53	)	$	(20.4	)	$	(38.8	)

2825

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 98. Derivative Instruments (continued)

Offsetting of Derivative Assets/Liabilities

The Company may enter into netting agreements with counterparties that permit the Company to offset receivables and payables with such counterparties. The following tables present the gross fair value amounts, the amounts offset and net position of derivative instruments eligible for offset in the Company’s balance sheets that are subject to an enforceable master netting arrangement upon certain termination events, irrespective of whether they are offset in the balance sheet.

Offsetting ofDerivative Assets/Liabilities:	~~March~~June 3130, 2015
($ in millions)	Grossamountsrecognized [1]			Grossamountsoffset in thebalance sheet		Net amountspresentedin thebalance sheet			Gross amounts not offsetin the balance sheet					Net amount
									Financialinstruments			Cash collateralpledged [2]
Total derivative assets	$	~~135~~99.41		$	—	$	~~135~~99.41		$	(7349.46	)	$	—	$	6249.05
Total derivative liabilities	$	(7754.13	)	$	—	$	(7754.13	)	$	7349.46		$	34.7	$	—
Offsetting ofDerivative Assets/Liabilities:	December 31, 2014
($ in millions)	Grossamountsrecognized [1]			Grossamountsoffset in thebalance sheet		Net amountspresentedin thebalance sheet			Gross amounts not offsetin the balance sheet					Net amount
									Financialinstruments			Cash collateralpledged [2]
Total derivative assets	$	157.5		$	—	$	157.5		$	(82.6	)	$	—	$	74.9
Total derivative liabilities	$	(85.6	)	$	—	$	(85.6	)	$	82.6		$	3.0	$	—

———————


[1]	Amounts include all derivative instruments, irrespective of whether there is a legally enforceable master netting arrangement in place.

[2] Cash collateral pledged with derivative counterparties is recorded within other assets on the balance sheets. The Company pledges cash collateral to offset certain individual derivative liability positions with certain counterparties. Cash collateral of $1727.14 million and $13.0 million as of ~~March~~June 3130, 2015 and December 31, 2014, respectively, that exceeds the net liability resulting from the aggregate derivative positions with a corresponding counterparty is excluded.

Contingent features

Derivative counterparty agreements may contain certain provisions that require our insurance companies’ financial strength rating to be above a certain threshold. If our financial strength ratings were to fall below a specified rating threshold, certain derivative counterparties could request immediate payment or demand immediate and ongoing full collateralization on derivative instruments in net liability positions, or trigger a termination of existing derivatives and/or future derivative transactions.

In certain derivative counterparty agreements, our financial strength ratings are below the specified threshold levels. However, the Company held no derivative instruments as of ~~March~~June 3130, 2015 in a net aggregate liability position payable to any counterparty (i.e., such derivative instruments have fair values in a net asset position payable to the Company if such holdings were liquidated).

109. Fair Value of Financial Instruments

ASC 820-10 defines and establishes the framework for measuring fair value. The framework is based on inputs that are used in the valuation and a fair value hierarchy based on the quality of those inputs. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

2926

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The input levels are defined as follows:


•	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 securities include highly liquid government bonds and exchange-traded equities.

•

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Examples of such instruments include government-backed mortgage products, certain collateralized mortgage and debt obligations and certain high-yield debt securities.

•

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs reflect management’s own assumptions about inputs in which market participants would use in pricing these types of assets or liabilities. Level 3 financial instruments include values which are determined using pricing models and third-party evaluation. Additionally, the determination of some fair value estimates utilizes significant management judgments or best estimates.

The following tables present the financial instruments carried at fair value on a recurring basis by ASC 820-10 valuation hierarchy (as described above). There were no financial instruments carried at fair value on a non-recurring basis as of ~~March~~June 3130, 2015 and December 31, 2014, respectively.

Fair Values of Financial Instruments by Level:	~~March~~June 3130, 2015
($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale debt securities
U.S. government and agency [1]	$	—	$	9.2	$	8186.1	$	9095.3
State and political subdivision	—		4339.52		~~201~~203.26		~~244~~242.78
Foreign government	—		7368.92		10.57		8478.49
Corporate	—		1,~~623~~635.23		1,~~452~~463.53		3,~~075~~098.76
CMBS	—		~~251~~245.03		68.9		~~257~~254.92
RMBS	—		~~363~~194.36		~~158~~135.34		~~521~~330.60
CDO/CLO	—		—		96139.54		96139.54
Other ABS	—		1516.98		7170.27		87.15
Total available-for-sale debt securities	—		2,~~380~~208.06		2,~~078~~118.21		4,~~458~~326.27
Available-for-sale equity securities	—		—		2927.56		2927.56
Short-term investments	6920.90		—		—		6920.90
Derivative assets	—0.1		~~135~~99.40		—		~~135~~99.41
Fair value investments	—		138.29		3329.94		4738.13
Separate account assets	1,~~707~~625.91		—		—		1,~~707~~625.91
Total assets	$	1,~~777~~645.82	$	2,~~528~~316.65	$	2,~~141~~175.61	$	6,~~448~~136.08
Liabilities
Derivative liabilities	$	—	$	7754.13	$	—	$	7754.13
Embedded derivatives	—		—		175.14		175.14
Total liabilities	$	—	$	7754.13	$	175.14	$	~~252~~229.27

———————


[1]	Level 3 includes securities whose underlying collateral is an obligation of a U.S. government entity.

There were no transfers of assets between Level 1 and Level 2 during the ~~three~~six months ended ~~March~~June 3130, 2015.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)



Fair Values of Financial Instruments by Level:	December 31, 2014
($ in millions)	Level 1		Level 2		Level 3		Total
Assets
Available-for-sale debt securities
U.S. government and agency [1]	$	—	$	9.1	$	80.2	$	89.3
State and political subdivision	—		35.9		193.3		229.2
Foreign government	—		57.7		16.1		73.8
Corporate	—		1,414.7		1,417.2		2,831.9
CMBS	—		191.0		64.6		255.6
RMBS	—		424.8		151.6		576.4
CDO/CLO	—		—		83.5		83.5
Other ABS	—		4.2		77.9		82.1
Total available-for-sale debt securities	—		2,137.4		2,084.4		4,221.8
Available-for-sale equity securities	—		—		28.7		28.7
Short-term investments	79.8		—		—		79.8
Derivative assets	—		157.5		—		157.5
Fair value investments	—		13.0		33.7		46.7
Separate account assets	1,757.5		—		—		1,757.5
Total assets	$	1,837.3	$	2,307.9	$	2,146.8	$	6,292.0
Liabilities
Derivative liabilities	$	0.5	$	85.1	$	—	$	85.6
Embedded derivatives	—		—		160.3		160.3
Total liabilities	$	0.5	$	85.1	$	160.3	$	245.9

———————


[1]	Level 3 includes securities whose underlying collateral is an obligation of a U.S. government entity.

There were no transfers of assets between Level 1 and Level 2 during the ~~three~~six months ended ~~March~~June 3130, 2014.

The following tables present corporates carried at fair value and on a recurring basis by sector.

Fair Values of Corporates by Level and Sector:

~~March~~June 3130, 2015

($ in millions)

Level 1

Level 2

Level 3

Total

Corporates

Consumer

—

~~227~~228.50

~~382~~356.02

~~609~~584.52

Energy

—

~~223~~232.74

~~160~~154.79

~~384~~387.43

Financial services

—

~~667~~656.53

~~309~~328.05

~~976~~984.58

Capital goods

—

~~142~~161.63

~~118~~122.73

~~261~~283.36

Transportation

—

3836.23

120.65

~~158~~156.8

Utilities

—

~~137~~139.69

~~243~~251.23

~~380~~391.82

Other

—

~~186~~181.1

~~118~~129.36

~~304~~310.47

Total corporates

—

1,~~623~~635.23

1,~~452~~463.53

3,~~075~~098.76

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)



Fair Values of Corporates by Level and Sector:	December 31, 2014
($ in millions)	Level 1		Level 2		Level 3		Total
Corporates
Consumer	$	—	$	219.9	$	362.6	$	582.5
Energy	—		181.6		163.1		344.7
Financial services	—		574.6		321.5		896.1
Capital goods	—		142.0		125.3		267.3
Transportation	—		30.5		114.9		145.4
Utilities	—		117.9		219.3		337.2
Other	—		148.2		110.5		258.7
Total corporates	$	—	$	1,414.7	$	1,417.2	$	2,831.9

Level 3 financial assets and liabilities

The following tables set forth a summary of changes in the fair value of our Level 3 financial assets and liabilities. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Transfers in and out of Level 3 occur at the beginning of each period. The securities which were transferred into Level 3 were due to decreased market observability of similar assets and/or changes to significant inputs, such as downgrades or price declines. Transfers out of Level 3 were due to increased market activity on comparable assets or observability of inputs.

Level 3 Financial Assets:	Three Months Ended ~~March~~June 3130, 2015
($ in millions)	Balance,beginningof ~~beginning of~~ period		Purchases		Sales			~~Transfers~~TransfersintoLevel ~~into Level~~ 3		~~Transfers~~Transfersout ~~out~~ofLevel ~~of Level~~ 3			~~Realized and unrealized gains~~ Realizedandunrealizedgains(losses) included ininincome ~~income~~ [1]			~~Unrealized gains~~ Unrealizedgains(losses)includedin ~~included in~~ OCI			Total
Assets
Available-for-sale debt securities
U.S. government and agency [2]	$	8081.21	$	—	$	(0.49	)	$	—	$	—		$	—		$	15.39		$	8186.1
State and political subdivision	~~193~~201.32		610.7		(01.80		)	—		~~(2.1~~—		)	—			4(7.13		)	~~201~~203.26
Foreign government	1610.15		—		—			~~0.3~~—		~~(6.5~~—		)	—			0.62			10.57
Corporate	1,~~417~~452.25		~~113~~85.09		(3040.75		)	1838.83		(9216.82		)	0.41			26(56.68		)	1,~~452~~463.53
CMBS	~~64.~~6.9		—4.1		—(0.1		)	—		(572.70		)	—			—			68.9
RMBS	~~151~~158.63		0.32		(410.83		)	~~12.0~~—		—(12.2		)	~~(0.1~~—		)	(0.76		)	~~158~~135.34
CDO/CLO	8396.5		1743.09		(50.45		)	—		—			~~0.2~~—			1(0.25		)	96139.54
Other ABS	7771.92		—4.5		(02.90		)	—		(51.96		)	—			0.(1.4		)	7170.27
Total available-for-sale debt securities	2,~~084~~078.42		~~137~~149.03		(4355.03		)	3138.13		(~~165~~32.0		)	0.51			33(60.25		)	2,~~078~~118.21
Available-for-sale equity securities	2829.75		—1.2		—(2.5		)	—		—			—			(0.86		)	2927.56
Fair value investments	33.79		~~0.1~~—		(04.76		)	—		—			0.81			—			3329.94
Total assets	$	2,~~146~~141.86	$	~~137~~150.15	$	(4362.74	)	$	3138.13	$	(~~165~~32.0	)	$	10.32		$	34(61.01	)	$	2,~~141~~175.61

———————


[1]	Reflected in realized investment gains and losses for all assets except fair value investments which are included in net investment income.


[2]	Includes securities whose underlying collateral is an obligation of a U.S. government entity.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)

Level 3 Financial Assets:	Three Months Ended ~~March~~June 3130, 2014
($ in millions)	Balance,beginningof ~~beginning of~~ period		Purchases		Sales			~~Transfers~~TransfersintoLevel ~~into Level~~ 3		~~Transfers~~Transfersout ~~out~~ofLevel ~~of Level~~ 3			~~Realized and unrealized gains~~ Realizedandunrealizedgains(losses) included ininincome ~~income~~ [1]			~~Unrealized gains~~ Unrealizedgains(losses)includedin ~~included in~~ OCI			Total
Assets
Available-for-sale debt securities
U.S. government and agency [2]	$	5865.8	$	~~7.9~~—	$	(2.18	)	$	—	$	—		$	—		$	1.23		$	6564.83
State and political subdivision	~~133~~137.8		14.36		(0.45		)	—		—			—			32.17			~~137~~144.86
Foreign government	3.34		—		—			—		—			—			0.1			3.45
Corporate	1,~~091~~122.93		8123.89		(1520.12		)	—2.5		(622.97		)	—			267.64			1,~~122~~133.32
CMBS	316.94		—		(03.26		)	—		~~(25.5~~—		)	—			0.21			62.49
RMBS	~~176~~171.14		0.3		(65.08		)	—		—(4.5		)	(0.21		)	0.83			~~171~~161.46
CDO/CLO	7086.92		1822.0		(211.89		)	—		—			~~0.5~~—			(0.46		)	8696.29
Other ABS	8278.39		—		(24.97		)	—		—			~~0.1~~—			(0.65		)	7874.97
Total available-for-sale debt securities	1,~~649~~672.02		~~109~~50.38		(2949.5		)	—2.5		(887.42		)	(0.81		)	3113.0			1,~~672~~681.27
Available-for-sale equity securities	~~11.2~~—		—		—			—		—			—			(11.29		)	—11.9
Fair value investments	35.62		—		(0.78		)	—		—			0.32			—			3534.26
Total assets	$	1,~~695~~707.84	$	~~109~~50.38	$	(3050.23	)	$	—2.5	$	(887.42	)	$	10.1		$	1924.89		$	1,~~707~~728.42

———————


[1]	Reflected in realized investment gains and losses for all assets except fair value investments which are included in net investment income.


[2]	Includes securities whose underlying collateral is an obligation of a U.S. government entity.

Level 3 Financial Liabilities:	Embedded Derivative Liabilities
Level 3 Financial Assets:	Six Months Ended June 30, 2015
($ in millions)	~~Three Months Ended March 31~~Balance,beginningof period		Purchases		Sales			TransfersintoLevel 3		Transfersout ofLevel 3			Realizedandunrealizedgains(losses)included inincome [1]			Unrealizedgains(losses)includedin OCI			Total
	2015		2014
Assets
Balance, beginning of period	$	160.3	$	87.8
Available-for-sale debt securities
Net purchases/(sales)	4.6		8.2
U.S. government and agency [2]	$	80.2	$	7.9	$	(1.4	)	$	—	$	—		$	—		$	(0.6	)	$	86.1
Transfers into Level 3	—		—
State and political subdivision	193.3		17.0		(1.8		)	—		(2.1		)	—			(2.8		)	203.6
Transfers out of Level 3	—		—
Foreign government	16.1		—		—			0.3		(6.5		)	—			0.8			10.7
Realized (gains) losses	10.2		12.9
Corporate	1,417.2		193.2		(56.5		)	26.5		(103.2		)	0.3			(14.2		)	1,463.3
Balance, end of period	$	175.1	$	108.9
CMBS	64.6		4.1		(0.2		)	—		(58.3		)	—			(1.3		)	8.9
RMBS	151.6		0.5		(15.3		)	—		—			(0.1		)	(1.3		)	135.4
CDO/CLO	83.5		60.9		(5.8		)	—		—			0.2			0.6			139.4
Other ABS	77.9		4.5		(2.9		)	—		(7.1		)	—			(1.7		)	70.7
Total available-for-sale debt securities	2,084.4		288.1		(83.9		)	26.8		(177.2		)	0.4			(20.5		)	2,118.1
Available-for-sale equity securities	28.7		1.2		(2.5		)	—		—			—			0.2			27.6
Fair value investments	33.7		0.1		(5.1		)	—		—			0.7			—			29.4
Total assets	$	2,146.8	$	289.4	$	(91.5	)	$	26.8	$	(177.2	)	$	1.1		$	(20.3	)	$	2,175.1

33———————

~~Table~~[1] ofReflected ~~Contents~~in ~~PHL~~realized ~~VARIABLE~~investment ~~INSURANCE~~gains ~~COMPANYNotes~~and tolosses ~~Interim~~for ~~Unaudited~~all ~~Financial~~assets ~~Statements~~except ~~(continued)~~fair ~~10.~~value ~~Fair~~investments ~~Value~~which ofare ~~Financial~~included ~~Instruments~~in ~~(continued)~~net investment income.


[2]	Includes securities whose underlying collateral is an obligation of a U.S. government entity.

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements (continued)

9. Fair Value of Financial Instruments (continued)



Level 3 Financial Assets:	Six Months Ended June 30, 2014
($ in millions)	Balance, beginning of period		Purchases		Sales			Transfers into Level 3		Transfers out of Level 3			Realized and unrealized gains (losses) included in income [1]		Unrealized gains (losses) included in OCI			Total
Assets
Available-for-sale debt securities
U.S. government and agency [2]	$	58.8	$	7.9	$	(4.8	)	$	—	$	—		$	—	$	2.4		$	64.3
State and political subdivision	133.8		5.9		(0.9		)	—		—			—		5.8			144.6
Foreign government	3.3		—		—			—		—			—		0.2			3.5
Corporate	1,091.9		104.6		(31.3		)	2.4		(65.5		)	—		31.1			1,133.2
CMBS	31.9		—		(3.9		)	—		(25.5		)	—		0.4			2.9
RMBS	176.1		0.6		(10.5		)	—		(4.3		)	0.2		(0.5		)	161.6
CDO/CLO	70.9		34.9		(8.6		)	—		—			0.5		(0.8		)	96.9
Other ABS	82.3		—		(7.4		)	—		—			0.1		(0.3		)	74.7
Total available-for-sale debt securities	1,649.0		153.9		(67.4		)	2.4		(95.3		)	0.8		38.3			1,681.7
Available-for-sale equity securities	11.2		—		—			—		—			—		0.7			11.9
Fair value investments	35.6		—		(1.4		)	—		—			0.4		—			34.6
Total assets	$	1,695.8	$	153.9	$	(68.8	)	$	2.4	$	(95.3	)	$	1.2	$	39.0		$	1,728.2

———————


[1]	Reflected in realized investment gains and losses for all assets except fair value investments which are included in net investment income.


[2]	Includes securities whose underlying collateral is an obligation of a U.S. government entity.



Level 3 Financial Liabilities:	Embedded Derivative Liabilities
($ in millions)	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015		2014

Balance, beginning of period	$	175.1		$	108.9	$	160.3	$	87.8
Net purchases / settlements	4.5			6.9		9.1		15.1
Transfers into Level 3	—			—		—		—
Transfers out of Level 3	—			—		—		—
Realized (gains) losses	(4.2		)	2.3		6.0		15.2
Balance, end of period	$	175.4		$	118.1	$	175.4	$	118.1

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements (continued)

9. Fair Value of Financial Instruments (continued)

Significant unobservable inputs used in the fair value measurement of Level 3 assets are yield, prepayment rate, default rate and recovery rate. Keeping other inputs unchanged, an increase in yield, default rate or prepayment rate would decrease the fair value of the asset while an increase in recovery rate would result in an increase to the fair value of the asset. Yields are a function of the underlying U.S. Treasury rates and asset spreads, and changes in default and recovery rates are dependent on overall market conditions.

The following tables present quantitative estimates about unobservable inputs used in the fair value measurement of significant categories of internally priced assets.

Level 3 Assets: [1]	~~March~~June 3130, 2015
($ in millions)	FairValue		ValuationTechnique(s)	UnobservableInput	Range (Weighted Average)
U.S. government and agency	$	8186.1	Discounted cash flow	Yield	0.9192% - 3.3789% (2.4686%)
State and political subdivision	$	8894.36	Discounted cash flow	Yield	2.0325% - 4.2575% (3.0156%)
Corporate	$	1,~~186~~160.49	Discounted cash flow	Yield	0.8592% - 67.5631% (3.0651%)
Other ABS	$	9.63	Discounted cash flow	Yield	1.6164% - 23.6005% (31.8086%)
Fair value investments	$	1.0	Discounted cash flow	Default rate	0.1816%
				Recovery rate	44.00%

———————


[1]	Excludes Level 3 assets which are valued based upon non-binding independent third-party valuations or third-party price information for which unobservable inputs are not reasonably available to us.

Level 3 Assets: [1]	December 31, 2014
($ in millions)	FairValue		ValuationTechnique(s)	UnobservableInput	Range (Weighted Average)
U.S. government and agency	$	80.2	Discounted cash flow	Yield	1.02% - 3.64% (2.75%)
State and political subdivision	$	65.9	Discounted cash flow	Yield	2.34% - 4.50% (3.33%)
Corporate	$	1,053.3	Discounted cash flow	Yield	0.93% - 6.88% (3.35%)
Other ABS	$	9.8	Discounted cash flow	Yield	1.83% - 3.01% (2.01%)
Fair value investments	$	1.0	Discounted cash flow	Default rate	0.17%
				Recovery rate	44.00%

———————


[1]	Excludes Level 3 assets which are valued based upon non-binding independent third-party valuations or third-party price information for which unobservable inputs are not reasonably available to us.

3432

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)

Significant unobservable inputs used in the fair value measurement of variable annuity (“VA”) GMAB and GMWB type liabilities are equity volatility, swap curve, mortality and lapse rates and an adjustment for non-performance risk. Keeping other inputs unchanged, an increase in the equity volatility would increase the fair value of the liability while an increase in the swap curve or credit standing adjustment (“CSA”) would result in a decrease to the fair value of the liability. The impact of changes in mortality and lapse rates are dependent on overall market conditions. The fair value of fixed indexed annuity and indexed universal life embedded derivative related to index credits is calculated using the swap curve, future option budget, mortality and lapse rates, as well as an adjustment for non-performance risk. Keeping other inputs unchanged, an increase in any of these significant unobservable inputs would result in a decrease of the fixed indexed annuity embedded derivative liability.

The following tables present quantitative estimates about unobservable inputs used in the fair value measurement of internally priced liabilities.

Level 3 Liabilities:	~~March~~June 3130, 2015
($ in millions)	~~Fair Value~~FairValue		~~Valuation Technique~~ValuationTechnique(s)	~~Unobservable Input~~UnobservableInput	Range
Embedded derivatives (VA / FIA)	$	166.9	Budget method	Swap curve	0.31% - 2.27%
Embedded derivatives (FIA)	$	172.3	Budget method	Swap curve	0.31% - 2.80%
				Mortality rate	105% or 97 % 2012 IAM basic tablewith scale G2
				Lapse rate	0.04% - 46.44%
				CSA	3.1932%
Embedded derivatives(GMAB / GMWB / COMBO)	$	83.21	Risk neutral stochastic valuation methodology	Volatility surface	8.5816% - 5061.7232%
				Swap curve	0.2225% - 23.4402%
				Mortality rate	105% 2012 IAM basic table with scale G2
				Lapse rate	0.00% - 40.00%
				CSA	3.1932%

Level 3 Liabilities:	December 31, 2014
($ in millions)	~~Fair Value~~FairValue		~~Valuation Technique~~ValuationTechnique(s)	~~Unobservable Input~~UnobservableInput	Range
Embedded derivatives (VA / FIA)	$	153.9	Budget method	Swap curve	0.24% - 2.55%
Embedded derivatives (FIA)	$	153.9	Budget method	Swap curve	0.24% - 2.55%
				Mortality rate	105% or 97% 2012 IAM basic table with scale G2
				Lapse rate	0.04% - 46.44%
				CSA	3.08%
Embedded derivatives(GMAB / GMWB / COMBO)	$	6.4	Risk neutral stochastic valuation methodology	Volatility surface	9.89% - 67.34%
				Swap curve	0.21% - 2.76%
				Mortality rate	105% 2012 IAM basic table with scale G2
				Lapse rate	0.00% - 40.00%
				CSA	3.08%

3533

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)

Level 3 Assets and Liabilities by Pricing Source:	~~March~~June 3130, 2015
($ in millions)	Internal [1]		External [2]		Total
Assets
Available-for-sale debt securities
U.S. government and agency [3]	$	8186.1	$	—	$	8186.1
State and political subdivision	8894.36		~~112~~109.90		~~201~~203.26
Foreign government	—		10.57		10.57
Corporate	1,~~186~~160.49		~~266~~302.14		1,~~452~~463.53
CMBS	—		68.9		68.9
RMBS	—		~~158~~135.34		~~158~~135.34
CDO/CLO	—		96139.54		96139.54
Other ABS	9.63		61.64		7170.27
Total available-for-sale debt securities	1,~~365~~350.49		~~712~~767.82		2,~~078~~118.21
Available-for-sale equity securities	—		2927.56		2927.56
Fair value investments	1.0		3228.94		3329.94
Total assets	$	1,~~366~~351.49	$	~~775~~823.2	$	2,~~141~~175.61
Liabilities
Embedded derivatives	$	175.14	$	—	$	175.14
Total liabilities	$	175.14	$	—	$	175.14

———————


[1]	Represents valuations reflecting both internally-derived and market inputs, as well as third-party information or quotes.


[2]	Represents unadjusted prices from independent pricing services, third-party financial statements and independent indicative broker quotes where pricing inputs are not readily available.


[3]	Includes securities whose underlying collateral is an obligation of a U.S. government entity.



Level 3 Assets and Liabilities by Pricing Source:	December 31, 2014
($ in millions)	Internal [1]		External [2]		Total
Assets
Available-for-sale debt securities
U.S. government and agency [3]	$	80.2	$	—	$	80.2
State and political subdivision	65.9		127.4		193.3
Foreign government	—		16.1		16.1
Corporate	1,053.3		363.9		1,417.2
CMBS	—		64.6		64.6
RMBS	—		151.6		151.6
CDO/CLO	—		83.5		83.5
Other ABS	9.8		68.1		77.9
Total available-for-sale debt securities	1,209.2		875.2		2,084.4
Available-for-sale equity securities	—		28.7		28.7
Fair value investments	1.0		32.7		33.7
Total assets	$	1,210.2	$	936.6	$	2,146.8
Liabilities
Embedded derivatives	$	160.3	$	—	$	160.3
Total liabilities	$	160.3	$	—	$	160.3

———————


[1]	Represents valuations reflecting both internally-derived and market inputs, as well as third-party information or quotes.


[2]	Represents unadjusted prices from independent pricing services, third-party financial statements and independent indicative broker quotes where pricing inputs are not readily available.


[3]	Includes securities whose underlying collateral is an obligation of a U.S. government entity.

3634

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 109. Fair Value of Financial Instruments (continued)

Financial instruments not carried at fair value

The Company is required by U.S. GAAP to disclose the fair value of certain financial instruments including those that are not carried at fair value. The following table discloses the Company’s financial instruments where the carrying amounts and fair values differ:

Carrying Amounts and Fair Valuesof Financial Instruments:	Fair ValueHierarchyLevel	~~March~~June 3130, 2015				December 31, 2014
($ in millions)		CarryingValue		FairValue		CarryingValue		FairValue
Financial assets:
Policy loans	Level 3	$	6970.27	$	6870.72	$	68.1	$	67.6
Cash and cash equivalents	Level 1	$	93.9	$	93.9	$	162.3	$	162.3
Financial liabilities:
Investment contracts	Level 3	$	3,~~425~~554.86	$	3,~~427~~555.5	$	3,306.9	$	3,308.6
Surplus notes	Level 3	$	30.0	$	30.0	$	30.0	$	30.0

1110. Income Taxes

It is our general policy to estimate taxes for interim periods based on estimated annual effective tax rates which are derived, in part, from expected annual pre-tax income. However, the change in the deferred income tax asset balances, income tax benefit and expense and related valuation allowance for the three and six months ended ~~March~~June 3130, 2015 have been computed based on the first ~~three~~six months of 2015 as a discrete period.

The tax ~~expense~~benefit of $289.8 million for the three months ended ~~March~~June 3130, 2015 is comprised of a $390.6 million current tax ~~expense~~benefit and a $0.8 million deferred tax ~~benefit~~expense. The ~~deferred~~ tax benefit ~~results~~of ~~from~~$87.0 million for the ~~application~~six ofmonths ~~the~~ended ~~intraperiod~~June 30, ~~tax~~2015 ~~allocation~~is ~~rules~~attributable ~~that~~to ~~allow~~current ~~for~~tax benefits, primarily from the ~~benefitting~~tax ofbenefit aon ~~current~~the ~~year~~ceding ~~loss~~commission inassociated ~~continuing~~with ~~operations~~the ~~when~~intercompany anreinsurance ~~increase~~transaction. See Note 11 to these consolidated interim unaudited financial statements. Of the ~~valuation~~current ~~allowance~~tax isbenefit, ~~not~~$0.8 ~~required~~million ~~due~~is toa result of the ~~existence~~conclusion of ~~current~~the ~~year~~2011 ~~income~~and ~~reported~~2012 ~~elsewhere~~IRS inaudit. ~~the~~The ~~financial~~remaining ~~statements (e~~$86.~~g.,~~2 ~~discontinued~~million ~~operations,~~current ~~other~~tax ~~comprehensive~~benefit ~~income)~~represents a benefit on our six month ended taxable loss.

We recorded a deferred tax asset, net of deferred tax liabilities and valuation allowances, of $1024.94 million as of ~~March~~June 3130, 2015. Consistent with prior periods, itwe ishave ~~considered~~recorded ~~appropriate to recognize~~ a full valuation allowance against all categories of net deferred tax assets other than gross unrealized losses on available-for-sale debt securities, due to the significant negative evidence of historical cumulative U.S. GAAP losses and the uncertainty of consistent future U.S. GAAP earnings.

We have concluded that a valuation allowance on the deferred tax assets attributable to available-for-sale debt securities with gross unrealized losses was not required due to our ability and intent to hold these securities until recovery of fair value or contractual maturity, thereby avoiding realization of ~~tax~~taxable ~~basis~~ capital losses. This conclusion is consistent with prior periods.

Consistent with the above, for the three and six months ended ~~March~~June 3130, 2015, we recognized ana ~~increase~~net decrease in the valuation allowance of $2283.90 million and $60.0 ~~Accounting~~million, ~~guidance~~respectively. ~~requires~~In ~~that~~accordance ~~changes~~with the intraperiod tax allocation rules, the change in the valuation allowance behas been allocated to various financial statement components of income or loss. The net deferred tax assets ~~decreased~~increased by $213.25 million for the three months ended ~~March~~June 3130, 2015, which was attributable to available-for-sale debt securities with gross unrealized losses. The net deferred tax assets increased by $11.3 million for the six months ended June 30, 2015, which also was attributable to available-for-sale debt securities with gross unrealized losses.

The Company is included in Phoenix’s consolidated, combined, unitary or separate income tax returns in the U.S. federal, various state and foreign jurisdictions. In the second quarter of 2015, the IRS concluded their IRS audit of tax years 2011 and 2012, resulting in a benefit of $0.8 million. The Company is no longer subject to U.S. federal income tax examinations by tax authorities for years before ~~2011~~2013.

3735

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 1110. Income Taxes (continued)

Based upon the timing and status of our current examinations by taxing authorities, we do not believe that it is reasonably possible that any changes to the balance of unrecognized tax benefits occurring within the next 12 months will result in a significant change to the results of operations, financial condition or liquidity. In addition, we do not anticipate that there will be additional payments made or refunds received within the next 12 months with respect to the years under audit. We do not anticipate any increases to the existing unrecognized tax benefits that would have a significant impact on the financial position of the Company.

1211. Related Party Transactions

The amounts included in the following discussion are gross expenses, before deferrals for policy acquisition costs.

Service ~~agreement~~agreements

The Company has entered into an agreement with Phoenix Life to provide substantially all general insurance expenses related to the Company, including rent and employee benefit plan expenses. Expenses are allocated to the Company using specific identification or activity-based costing. The expenses allocated to us were $2363.92 million and $1918.04 million for the three months ended ~~March~~June 3130, 2015 and 2014, respectively., ~~Amounts~~and ~~payable to Phoenix Life were~~ $887.21 million and $437.4 million asfor ofthe ~~March~~six months ended June 3130, 2015 and ~~December 31,~~ 2014, respectively.

The Company also provides payment processing services for policy-related transactions and commissions on behalf of Phoenix Life and Phoenix Life and Annuity. We do not charge any fees for these services.

Reinsurance agreements

The Company cedes risk associated with certain universal life contracts and the associated riders to Phoenix Life. The reinsurance transaction between the Company and Phoenix Life is structured as a coinsurance agreement.

Effective June 30, 2015, the Company entered into a modco reinsurance agreement with Phoenix Life. The reinsurance agreement was entered into to optimize the statutory capital deployment of the operating subsidiaries of Phoenix. This agreement provides that Phoenix Life will retrocede, and the Company will reinsure, 80% of the inforce GEO corporate-owned whole life insurance policies assumed by Phoenix Life from a third-party. Under modco, the assets, which are equal to the statutory reserves held for the reinsured policies, and liabilities associated with the assumed business are retained by Phoenix Life, and the Company will receive the economic risks and rewards related to the assumed business through modco adjustments. As of June 30, 2015, the assets and insurance liabilities associated with the assumed business were $827.2 million and $811.1 million, respectively. The Company, having the right of offset, has offset the modco asset and liability. Under the agreement, the Company will pay $162.1 million to Phoenix Life in the form of an initial ceding commission, which was payable at June 30, 2015.

At June 30, 2015, the Company deferred the cost of acquiring the reinsurance of $146.0 million, primarily representing the initial ceding commission. The loss will be amortized into income over the life of the underlying business in accordance with the Company’s accounting policy for reinsurance of long-duration life insurance products.

See Note 4 in Part II, Item 8 “Financial Statements and Supplementary Data,” of the 2014 Form 10-K for additional information on related party transactions.

Underwriting agreements

1851 Securities Inc. (“1851”), a wholly owned subsidiary of PM Holdings, Inc., is the principal underwriter of the Company’s variable life insurance policies and variable annuity contracts. Phoenix Life reimburses 1851 for commissions incurred on our behalf and we in turn reimburse Phoenix Life. Commissions incurred were $1.6 million and $1.67 million for the three months ended ~~March~~June 3130, 2015 and 2014, respectively, and $3.2 million and $3.3 million for the six months ended June 30, 2015 and 2014, respectively.

Table of Contents

PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements (continued)

11. Related Party Transactions (continued)

Sales agreements

~~Phoenix~~Saybrus, ~~Life~~a ~~pays~~majority-owned ~~commissions~~subsidiary toof ~~producers~~Phoenix, ~~who~~provides ~~sell our non-registered~~ life insurance and annuity ~~products~~wholesaling services. Commissions paid byto ~~Phoenix~~Saybrus ~~Life~~were on$3.9 ~~our~~million ~~behalf~~and ~~were~~ $223.0 million for the three months ended June 30, 2015 and 2014, respectively, and $7.2 million and $165.16 million for the ~~three~~six months ended ~~March~~June 3130, 2015 and 2014, respectively. ~~Amounts~~Commission amounts payable to ~~Phoenix~~Saybrus ~~Life~~ were $10.43 million and $20.19 million as of ~~March~~June 3130, 2015 and December 31, 2014, respectively.

Saybrus Equity Services, Inc. (“Saybrus Equity”), a ~~majority-~~wholly owned subsidiary of ~~Phoenix,~~Saybrus provides wholesaling services to various third party distributors and affiliates of variable life insurance and ~~annuity~~variable ~~wholesaling services~~annuities. Commissions paid toby Saybrus ~~were~~Equity ~~$3.3~~on ~~million~~our ~~and~~behalf ~~$2.6~~were ~~million~~immaterial ~~for~~as ~~the~~of ~~three months ended March~~June 3130, 2015 and 2014, respectively. Commission amounts payable to Saybrus Equity were ~~$1.4~~immaterial ~~million and $0.9 million~~ as of ~~March~~June 3130, 2015 and December 31, 2014, respectively.

Saybrus Equity Services, Inc. (“Saybrus Equity”), a wholly owned subsidiary of Saybrus provides wholesaling services to various third party distributors and affiliates of variable life insurance and variable annuities. Commissions paid by Saybrus Equity on our behalf were immaterial as of March 31, 2015 and 2014, respectively. Commission amounts payable to Saybrus Equity were immaterial as of March 31, 2015 and December 31, 2014, respectively.

Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 12. Related Party Transactions (continued)

Processing service agreements

We provide payment processing services for Phoenix Life, wherein we receive deposits on Phoenix Life annuity contracts, and forward those payments to Phoenix Life. In connection with this service, we had a net amount due to Phoenix Life of $0.6 million as of March 31, 2015 and a net amount due from Phoenix Life of $4.5 million as of December 31, 2014. We do not charge any fees for this service.

We also provide payment processing services for Phoenix Life and Annuity Company (“Phoenix Life and Annuity”), a wholly owned indirect subsidiary of Phoenix Life, wherein we receive deposits on certain Phoenix Life and Annuity annuity contracts, and forward those payments to Phoenix Life and Annuity. In connection with this service, we had amounts due from Phoenix Life and Annuity of $0.2 million and $0.9 million as of March 31, 2015 and December 31, 2014, respectively. We do not charge any fees for this service.

Indebtedness due to affiliate

PHL Variable issued $30.0 million of surplus notes on December 30, 2013 which were purchased by Phoenix. The notes are due on December 30, 2043. Interest is paid annually at a rate of 10.5% and requires the prior approval of the Insurance Commissioner of the State of Connecticut. Payments may be made only out of surplus funds as defined under applicable law and regulations of the State of Connecticut. Upon approval by the Insurance Commissioner, the notes may be redeemed at any time, either in whole or in part, at a redemption price of 100% plus accrued interest to the date set for the redemption. Connecticut Law provides that the notes are not part of the legal liabilities of PHL Variable. The Company incurred interest expense of $0.8 million and $0.8 million related to these notes for the three months ended ~~March~~June 3130, 2015 and 2014, respectively.

~~13. Accumulated Other Comprehensive Income (Loss)~~37

~~Changes~~Table inof ~~each~~Contents ~~component~~PHL ofVARIABLE ~~AOCI~~INSURANCE ~~attributable~~COMPANYNotes to ~~the~~Interim ~~Company~~Unaudited ~~for~~Financial ~~the~~Statements ~~periods ended March 31, 2015 and 2014 are as follows below~~ (~~net of tax~~continued):

Accumulated Other Comprehensive Income (Loss):($ in millions)	NetUnrealized Gains / (Losses) on Investments whereCredit-related OTTI was Recognized			NetUnrealized Gains / (Losses) on All Other Investments [1]			Total
Balance as of December 31, 2013	$	3.0		$	(15.7	)	$	(12.7	)
Change in component during the period before reclassifications	1.1			(1.6		)	(0.5		)
Amounts reclassified from AOCI	(0.6		)	(0.3		)	(0.9		)
Balance as of March 31, 2014	$	3.5		$	(17.6	)	$	(14.1	)
Balance as of December 31, 2014	$	4.4		$	(0.4	)	$	4.0
Change in component during the period before reclassifications	(2.2		)	4.0			1.8
Amounts reclassified from AOCI	(0.1		)	(3.0		)	(3.1		)
Balance as of March 31, 2015	$	2.1		$	0.6		$	2.7

12. Accumulated Other Comprehensive Income (Loss)

Changes in each component of AOCI attributable to the Company for the periods ended June 30, 2015 and 2014 are as follows below (net of tax):



Accumulated Other Comprehensive Income (Loss): ($ in millions)	Net Unrealized Gains / (Losses) on Investments where Credit-related OTTI was Recognized [1]			Net Unrealized Gains / (Losses) on All Other Investments [1]			Total

Balance as of March 31, 2015	$	2.1		$	0.6		$	2.7
Change in component during the period before reclassifications	(0.1		)	(13.6		)	(13.7		)
Amounts reclassified from AOCI	—			(5.3		)	(5.3		)
Balance as of June 30, 2015	$	2.0		$	(18.3	)	$	(16.3	)

Balance as of March 31, 2014	$	3.5		$	(17.6	)	$	(14.1	)
Change in component during the period before reclassifications	0.2			29.8			30.0
Amounts reclassified from AOCI	(0.2		)	(0.1		)	(0.3		)
Balance as of June 30, 2014	$	3.5		$	12.1		$	15.6

Balance as of December 31, 2014	$	4.4		$	(0.4	)	$	4.0
Change in component during the period before reclassifications	(2.3		)	(9.6		)	(11.9		)
Amounts reclassified from AOCI	(0.1		)	(8.3		)	(8.4		)
Balance as of June 30, 2015	$	2.0		$	(18.3	)	$	(16.3	)

Balance as of December 31, 2013	$	3.0		$	(15.7	)	$	(12.7	)
Change in component during the period before reclassifications	1.3			28.2			29.5
Amounts reclassified from AOCI	(0.8		)	(0.4		)	(1.2		)
Balance as of June 30, 2014	$	3.5		$	12.1		$	15.6

———————

[1] See Note 76 to these interim unaudited financial statements for additional information regarding offsets to net unrealized investment gains and losses which include policyholder dividend obligation, DAC and other actuarial offsets, and deferred income tax expense (benefit).

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 1312. Accumulated Other Comprehensive Income (Loss) (continued)

Reclassifications from AOCI consist of the following:

AOCI	Amounts ~~Reclassified~~Reclassifiedfrom ~~from~~ AOCI				~~Affected Line Item in theStatements of Income andComprehensive Income~~				Affected Line Item in theStatements of Operations andComprehensive Income
($ in millions)	Three Months Ended ~~March~~June 3130,				Six Months Ended June 30,
	2015		2014		2015		2014
Net unrealized gains / (losses) on investments where credit-related OTTI was recognized:
Available-for-sale securities	$	~~0.2~~—	$	1.0.2	~~Net realized capital gains (losses)~~$	0.2	$	1.2	Net realized capital gains (losses)
	0.2		1.0		Total before income taxes
	—		0.2		0.2		1.2		Total before income taxes
	0.1		0.4		Income tax expense (benefit)
	—		—		0.1		0.4		Income tax expense (benefit)
	$	~~0.1~~—	$	0.62	~~Net income (loss)~~$	0.1	$	0.8	Net income (loss)
Net unrealized gains / (losses) on all other investments:
Available-for-sale securities	$	48.52	$	0.42	~~Net realized capital gains (losses)~~$	12.7	$	0.6	Net realized capital gains (losses)
	4.5		0.4		Total before income taxes
	8.2		0.2		12.7		0.6		Total before income taxes
	1.5		0.1		Income tax expense (benefit)
	2.9		0.1		4.4		0.2		Income tax expense (benefit)
	$	35.03	$	0.31	~~Net income (loss)~~$	8.3	$	0.4	Net income (loss)
Total amounts reclassified from AOCI	$	35.13	$	0.93	~~Net income (loss)~~$	8.4	$	1.2	Net income (loss)

1413. Contingent Liabilities

Litigation and arbitration

The Company is regularly involved in litigation and arbitration, both as a defendant and as a plaintiff. The litigation and arbitration naming the Company as a defendant ordinarily involves our activities as an insurer, employer, investor, investment advisor or taxpayer.

It is not feasible to predict or determine the ultimate outcome of all legal or arbitration proceedings or to provide reasonable ranges of potential losses. Management of the Company believes that the ultimate outcome of our litigation and arbitration matters are not likely, either individually or in the aggregate, to have a material adverse effect on the financial condition of the Company beyond the amounts already reported in these financial statements. However, given the large or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation and arbitration, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the results of operations or cash flows in particular quarterly or annual periods.

SEC Cease-and-Desist Order

Phoenix and the Company are subject to a Securities and Exchange Commission (the “SEC”) Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order which was approved by the SEC in March 2014 (the “March 2014 Order”) and was subsequently amended by an amended SEC administrative order approved by the SEC in August 2014 (the March 2014 Order, as amended, the “Amended Order”). The Amended Order and the March 2014 Order (collectively, the ”“Orders”), directed Phoenix and the Company to cease and desist from committing or causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder and Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 thereunder. Phoenix and the Company remain subject to these obligations. Pursuant to the Orders, Phoenix and the Company were required to file certain periodic SEC reports in accordance with the timetables set forth in the Orders. All of such filings have been made. Phoenix and the Company paid civil monetary penalties to the SEC in the aggregate amount of $1.1 million pursuant to the terms of the Orders in 2014.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 1413. Contingent Liabilities (continued)

Cases Brought by Policy Investors

On August 2, 2012, Lima LS PLC filed a complaint against Phoenix, Phoenix Life, the Company, James D. Wehr, Philip K. Polkinghorn, Edward W. Cassidy, Dona D. Young and other unnamed defendants in the United States District Court for the District of Connecticut (Case No. CV12-01122). On July 1, 2013, the defendants’ motion to dismiss the complaint was granted in part and denied in part. Thereafter, on July 31, 2013, the plaintiff served an amended complaint against the same defendants, with the exception that Mr. Cassidy was dropped as a defendant. The plaintiffs allege that Phoenix Life and the Company promoted certain policy sales knowing that the policies would ultimately be owned by investors and then challenging the validity of these policies or denying claims submitted on these policies. Plaintiffs are seeking damages, including punitive and treble damages, attorneys’ fees and a declaratory judgment. We believe we have meritorious defenses against this lawsuit and we intend to vigorously defend against these claims. The outcome of this litigation and any potential losses are uncertain.

Cost of Insurance Cases

On November 18, 2011, Martin Fleisher and another plaintiff (the “Fleisher Litigation”), on behalf of themselves and others similarly situated, filed suit against Phoenix Life in the United States District Court for the Southern District of New York (C.A. No. 1:11-cv-08405-CM-JCF (U.S. Dist. Ct; S.D.N.Y.)) challenging cost of insurance (“COI”) rate adjustments implemented by Phoenix Life in 2010 and 2011, ~~which Phoenix Life maintains were based on policy language permitting such adjustments. By order dated July 12, 2013, two separate classes were certified~~ in ~~the~~certain ~~Fleisher~~universal ~~Litigation;~~life byinsurance ~~subsequent order dated August 26, 2013, the court decertified one of the classes~~policies. The complaint seeks damages for breach of contract. The class certified ~~in the court’s July 12, 2013 order, as limited~~ by the court’s ~~August 26, 2013 order,~~ is limited to holders of Phoenix Life policies issued in New York subject to New York law and subject to Phoenix Life’s 2011 COI rate adjustment. By order dated April 29, 2014, the court denied Martin Fleisher’s motion for summary judgment in the Fleisher Litigation in its entirety, while granting in part and denying in part Phoenix Life’s motion for summary judgment.

The Company, ~~a subsidiary of Phoenix Life,~~ has been named as a defendant in six actions challenging its COI rate adjustments in certain universal life insurance policies implemented concurrently with the Phoenix Life adjustments. Phoenix Life and the Company are referred to as the “Phoenix Life Companies.” Five cases have been brought against the Company, while one case has been brought against the Company and Phoenix Life. These six cases, only one of which is styled as a class action, have been brought by (1) Tiger Capital LLC (C.A. No. 1:12-cv- 02939-CM-JCF; U.S. Dist. Ct; S.D.N.Y., complaint filed on March 14, 2012; the “Tiger Capital Litigation”); (2-5) U.S. Bank National Association, as securities intermediary for Lima Acquisition LP ((2: C.A. No. 1:12-cv-06811-CM-JCF; U.S. Dist. Ct; S.D.N.Y., complaint filed on November 16, 2011; 3: C.A. No. 1:13-cv-01580-CM-JCF; U.S. Dist. Ct; S.D.N.Y., complaint filed on March 8, 2013; collectively, the “U.S. Bank N.Y. Litigations”); (4: C.A. No. 3:14-cv-00555-WWE; U.S. Dist. Ct; D. Conn., complaint originally filed on March 6, 2013, in the District of Delaware and transferred by order dated April 22, 2014, to the District of Connecticut; and 5: C.A. No. 3:14-cv-01398-WWE, U.S. Dist. Ct; D. Conn., complaint filed on September 23, 2014, and amended on October 16, 2014, to add Phoenix Life as a defendant, and consolidated with No. 3:14-cv-00555-WWE (collectively the “U.S. Bank Conn. Litigations”)); and (6) SPRR LLC (C.A. No. 1:14-cv-8714-CM; U.S. Dist. Ct.; S.D.N.Y., complaint filed on October 31, 2014; the “SPRR Litigation”). SPRR LLC filed suit against the Company, on behalf of itself and others similarly situated, challenging COI rate adjustments implemented by the Company in 2011.

The Tiger Capital Litigation and the two U.S. Bank N.Y. Litigations were assigned to the same judge as the Fleisher Litigation~~, and discovery in these four actions has concluded~~. By orders in both U.S. Bank N.Y. Litigations dated May 23, 2014, the court denied U.S. Bank’s motions for summary judgment in their entirety, while granting in part and denying in part the Company’s motions for summary judgment. U.S. Bank moved for reconsideration of the court’s summary judgment decisions in the U.S. Bank N.Y. Litigations, which the court denied by orders dated June 4, 2014. By order in the Tiger Capital Litigation dated July 23, 2014, the court denied Tiger Capital’s motion for summary judgment in its entirety, while granting in part and denying in part the Company’s motion for summary judgment. Plaintiff in the Tiger Capital Litigation seeks damages for breach of contract. Plaintiff in the U.S. Bank N.Y. Litigations and the U.S. Bank Conn. Litigations seeks damages and attorneys’ fees for breach of contract and other common law and statutory claims. The plaintiff in the SPRR Litigation, which has been reassigned to the same judge as the Fleisher Litigation, Tiger Capital Litigation and the two U.S. Bank N.Y. Litigations, seeks damages for breach of contract for a nationwide class of policyholders.

The ~~Fleisher~~Phoenix ~~Litigation~~Life isCompanies ~~scheduled~~reached ~~for~~a ~~trial~~definitive ~~commencing~~agreement ~~June 15,~~to ~~2015~~settle a COI case, the Tiger Capital Litigation (Tiger Capital LLC (C.A. No. 1:12-cv-02939-CM-JCF; U.S. ~~Bank~~Dist. Ct; S.D.N.Y.)) ~~Litigations~~on ~~are~~a ~~scheduled~~basis ~~for~~that ~~trial~~will ~~commencing~~not have a material impact on the Company’s financial statements. On June 293, 2015, ~~and~~the parties to the Tiger Capital Litigation isadvised ~~scheduled~~the ~~for~~court ~~trial~~of ~~commencing~~the ~~July 13~~settlement, ~~2015~~which includes Tiger Capital, LLC’s participation in the class Settlement described below.

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Table of Contents PHL VARIABLE INSURANCE COMPANYNotes to Interim Unaudited Financial Statements (continued) 1413. Contingent Liabilities (continued)

The Phoenix Life ~~and the Company (together, the “Life~~ Companies”) reached an agreement as of April 30, 2015, memorialized in a formal settlement agreement executed on May 29, 2015, with SPRR, LLC, Martin Fleisher, as trustee of the Michael Moss Irrevocable Life Insurance Trust II, and Jonathan Berck, as trustee of the John L. Loeb, Jr. Insurance Trust (collectively, the SPRR Litigation and the Fleisher Litigation plaintiffs referred to as the “Plaintiffs”), to resolve the Fleisher Litigation and SPRR Litigation (the “Settlement”). A motion for preliminary approval of the Settlement was filed with the United States District Court for the Southern District of New York on May 29, ~~both~~2015. On June 3, 2015, the court granted preliminary approval of the Settlement, ordered notice be given to class ~~actions~~members, and set a hearing on September 9, 2015 to address, among other things, final approval of the Settlement. The proposed ~~settlement~~Settlement class consists of all policyholders that were subject to the 2010 or 2011 COI rate adjustments (collectively, the “Settlement Class”), including the policies within the above-named COI cases, and will be structured to allow members of the Settlement Class to opt out of the ~~settlement (the “~~Settlement”). The Phoenix Life Companies will establish a Settlement fund, which may be reduced proportionally for any opt-outs, and will pay a class counsel fee if the Settlement is approved. The Phoenix Life Companies will be released by all participating members of the Settlement Class, and the COI rate adjustment for policies participating in the Settlement Class will remain in effect. The Phoenix Life Companies agreed to pay a total of $48.5 million, as reduced for any opt-outs, in connection with the Settlement. The Phoenix Life Companies agreed not to impose additional increases to COI rates on policies participating in the Settlement Class through the end of 2020, and not to challenge the validity of policies participating in the Settlement Class for lack of insurable interest or misrepresentations in the policy applications. The Settlement is subject to certain conditions and final court approval is intended to resolve all pending COI cases, other than for policyholders who opt-out of the Settlement. ~~The~~Under ~~agreement~~the ~~requires~~Settlement, ~~that~~policyholders awho ~~formal~~are ~~settlement~~members ~~agreement~~of ~~will be filed with~~ the ~~United~~Settlement ~~States~~Class, ~~District~~including ~~Court~~those ~~for~~which ~~the~~have ~~Southern~~filed ~~District~~individual ofactions ~~New~~relating ~~York and will be subject~~ to ~~certain~~COI ~~conditions~~rate ~~and~~adjustments, ~~court~~may ~~approval.~~opt Inout ~~connection~~of ~~with~~ the Settlement, ~~the~~and ~~Company~~separately ~~incurred~~litigate atheir ~~charge of $36~~claims.4 ~~million~~The inopt-out ~~the~~period ~~first~~expired ~~quarter~~on ofJuly 17, 2015. ~~Under~~Opt-out ~~the~~notices ~~settlement, policyholders who are class members, including those which~~ have ~~filed~~been ~~individual~~received ~~actions~~by ~~relating~~the toPhoenix ~~COI~~Life ~~rate adjustments~~Companies, ~~may~~including ~~opt~~from ~~out~~U.S. ofBank, ~~the~~a ~~settlement~~party ~~and~~to ~~separately~~four ~~litigate~~COI ~~their claims~~cases. The Phoenix Life Companies are currently unable to estimate the ~~extent~~damages tothat ~~which~~ policyholders ~~may~~who opt out of the ~~settlement~~Settlement ~~or the damages which they~~ may or may not collect in litigation against the Phoenix Life Companies. There can be no assurance that the ultimate cost ~~will~~to ~~be $36.4 million. Depending on~~ the ~~results~~Company ofwill ~~any~~not ~~opt outs and the resultant litigation and/or negotiation the ultimate cost could~~ be ~~more~~higher or ~~less~~lower than $36.4 million.

Complaints to state insurance departments regarding the Company’s COI rate adjustments have also prompted regulatory inquiries or investigations in several states, with two of such states (California and Wisconsin) issuing letters directing the Company to take remedial action in response to complaints by a single policyholder. The Company disagrees with both states’ positions. On March 23, 2015, an Administrative Law Judge (“ALJ”) in Wisconsin ordered PHL Variable to pay restitution to current and former owners of seven policies and imposed a fine on PHL Variable which, in a total amount, does not have a material impact on PHL Variable’s financial position (Office of the Commissioner of Insurance Case No. 13- C35362). PHL Variable disagrees with the ALJ’s determination and has appealed the order.

For any cases or regulatory directives not resolved by the Settlement, Phoenix Life and the Company believe that they have meritorious defenses against all of these lawsuits and regulatory directives and intend to vigorously defend against them, including by appeal if necessary. For any matters not resolved by the Settlement, the outcome is uncertain and any potential losses cannot be reasonably estimated.

Regulatory matters

State regulatory bodies, the SEC, the Financial Industry Regulatory Authority (“FINRA”), the Internal Revenue Service (“IRS”) and other regulatory bodies regularly make inquiries of us and, from time to time, conduct examinations or investigations concerning our compliance with laws and regulations related to, among other things, our insurance and broker-dealer subsidiaries, securities offerings and registered products. We endeavor to respond to such inquiries in an appropriate way and to take corrective action if warranted. Further, Phoenix is providing to the SEC certain information and documentation regarding the restatements of its prior period financial statements and the staff of the SEC has indicated to Phoenix that the matter remains subject to further investigation and potential further regulatory action. We cannot predict the outcome of any of such investigations or actions related to these or other matters.

Regulatory actions may be difficult to assess or quantify. The nature and magnitude of their outcomes may remain unknown for substantial periods of time. It is not feasible to predict or determine the ultimate outcome of all pending inquiries, investigations, legal proceedings and other regulatory actions, or to provide reasonable ranges of potential losses. Based on current information, we believe that the outcomes of our regulatory matters are not likely, either individually or in the aggregate, to have a material adverse effect on our financial condition. However, given the inherent unpredictability of regulatory matters, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on our financial statements in particular quarterly or annual periods.

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PHL VARIABLE INSURANCE COMPANY

Notes to Interim Unaudited Financial Statements

Three and Six Months Ended June 30, 2015 and 2014

14. Other Commitments

As part of its normal investment activities, the Company enters into agreements to fund limited partnerships and other investments that make debt and equity investments. As of June 30, 2015, the Company had unfunded commitments of $1.6 million under such agreements. See Note 6 to these consolidated interim unaudited financial statements for additional information on limited partnerships and other investments.

In addition, the Company enters into agreements to purchase private placement investments. At June 30, 2015, the Company had open commitments of $72.7 million under such agreements which are expected to be funded by July 15, 2016.

15. Subsequent Events

De-stacking of Phoenix’s Life Companies

On July 28, 2015, Phoenix completed the de-stacking of its life subsidiaries through an extraordinary dividend of PHL Variable, American Phoenix Life and Reassurance and Phoenix Life and Annuity Company from Phoenix Life to Phoenix, effective July 1, 2015 and based on the June 30, 2015 statutory carrying value of Phoenix’s three subsidiaries.

Rating Agency Actions

On July 9, 2015, Standard & Poor's Ratings Services placed its ‘B-’long-term counterparty credit rating on Phoenix and its ‘B+’ long-term counterparty credit and financial strength ratings on the Company on CreditWatch with negative implications. They also placed its ‘B+’ long-term counterparty credit and financial strength ratings on Phoenix Life on CreditWatch with developing implications. We expect them to resolve all ratings by the end of the third quarter.

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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

The discussion in this Quarterly Report on Form 10-Q may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We intend for these forward-looking statements to be covered by the safe harbor provisions of the federal securities laws relating to forward-looking statements. These forward-looking statements include statements relating to trends in, or representing management’s beliefs about our future transactions, strategies, operations and financial results and often contain words such as “will,” “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “is targeting,” “may,” “should” and other similar words or expressions. Forward-looking statements are made based upon management’s current expectations and beliefs concerning trends and future developments and their potential effects on us. They are not guarantees of future performance. Our actual business, financial condition or results of operations may differ materially from those suggested by forward-looking statements as a result of risks and uncertainties which include, among others: (A) risks related to the restatements of our and Phoenix’s prior period financial statements, failure to file timely periodic reports with the SEC and our internal control over financial reporting, which include (i) the presence of material weaknesses in our internal control over financial reporting, the potential failure to remediate material weaknesses in our internal control over financial reporting and that other material weaknesses may be identified in the future, which would adversely affect the accuracy and timing of our financial reporting; (ii) the extraordinary processes undertaken to effect the restatements of our prior period financial statements, including the Company and Phoenix restatements, may not have been adequate to identify and correct all errors in our prior period financial statements and, as a result, we may discover additional errors and our financial statements remain subject to the risk of future restatement; (iii) the outcome of litigation and claims as well as regulatory examinations, investigations, proceedings and orders arising out of the restatements of our prior period financial statements by the Company and Phoenix and the failure by the Company and Phoenix to have filed certain previously delayed SEC reports on a timely basis; (iv) further downgrades or withdrawals of our financial strength credit ratings, which could increase policy surrenders and withdrawals, adversely affect our relationships with distributors, reduce new sales, limit our ability to trade in derivatives and increase our costs of, or reduce our access to, future borrowings; (v) our inability to hedge our positions due to our inability to replace hedges as a result of our credit rating; (vi) the incurrence of significant expenses, (audit fees and consulting fees related to the restatements of our prior period financial statements); (vii) diversion of management and other human resources from the operation of our business; (viii) risks associated with the restatements of our ~~period~~prior period financial statements by the Company and Phoenix and the Company’s ability to amend and update its existing registration statements filed under the Securities Act and the Investment Company Act of 1940, as amended (the “Investment Company Act”), as well as risks associated with Phoenix Life’s ability to amend and update its existing registration statements filed under the Securities Act and the Investment Company Act; (ix) risks associated with ongoing compliance obligations of Phoenix and the Company under the SEC’s Cease-and-Desist Order, dated March 21, 2014, as amended by the Amended Cease-and-Desist Order, dated August 1, 2014; (x) risk that the filing of single, multi-period comprehensive Annual Reports on Form 10-K to effect a restatement of our prior period financial statements by the Company and Phoenix did not satisfy our filing obligations and that we may be required to file additional reports to effect such restatements; and (x) risks associated with our and Phoenix Life’s failure to file certain reports with state regulatory authorities; (B) risks related to our business, which include (i) unfavorable general economic developments including, but not limited to, specific related factors such as the performance of the debt and equity markets; (ii) the potential adverse effect of interest rate fluctuations on our business and results of operations; (iii) the potential adverse effect of legal actions and proceedings inherent in our business on our results of operations, financial position, business or reputation; (iv) the impact on our results of operations and financial condition of any required increase in our reserves for future policyholder benefits and claims if such reserves prove to be inadequate; (v) the possibility that mortality rates, persistency rates, funding levels or other factors may differ significantly from our assumptions used in pricing products; (vi) the effect of guaranteed benefits within our products; (vii) potential exposure to unidentified or unanticipated risk that could adversely affect our businesses or result in losses; (viii) the consequences related to variations in the amount of our statutory capital could adversely affect our business; (ix) the possibility that we may not be successful in our efforts to implement a business plan focused on new market segments; (x) changes in our investment valuations based on changes in our valuation methodologies, estimations and assumptions; (xi) the availability, pricing and terms of reinsurance coverage generally and the inability or unwillingness of our reinsurers to meet their obligations to us specifically; (xii) our ability to attract and retain key personnel in a competitive environment and while delayed in our SEC reporting obligations; (xiii) our dependence on third parties to maintain critical business and administrative functions; (xiv) the strong competition we face in our business from banks, insurance companies and other financial services firms; (xv) the possibility that we may not have sufficient capital resources available to fund our operations and capital needs; (xvi) changes in tax law and policy may affect us directly or indirectly through the cost of, the demand for or profitability of our products or services; (~~xvi~~xvii) the possibility that federal and state regulation may increase our cost of doing business, impose additional reserve or capital requirements, levy financial assessments or constrain our operating and financial flexibility; (~~xvii~~xviii) regulatory actions or examinations may harm our business; and (~~xviii~~xix) changes in accounting standards; and (C) other risks and uncertainties described herein or in any of our filings with the SEC. Certain other factors which may impact our business, financial condition or results of operations or which may cause actual results to differ from such forward-looking statements are discussed or included in our periodic reports filed with the SEC and are available on our website at www.phoenixwm.com under “Investor Relations.” You are urged to carefully consider all such factors. We do not undertake or plan to update or revise forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections, or other circumstances occurring after the date of this Form 10-Q, even if such results changes or circumstances make it clear that any forward-looking information will not be realized. If we make any future public statements or disclosures which modify or impact any of the forward-looking statements contained in or accompanying this Form 10-Q, such statements or disclosures will be deemed to modify or supersede such statements in this Form 10-Q.

MANAGEMENT’S ~~NARRATIVE~~DISCUSSION ~~ANALYSIS~~AND ~~OF THE RESULTS OF OPERATIONS~~ANALYSIS

This section reviews our financial condition as of ~~March~~June 3130, 2015 as compared with December 31, 2014; our results of operations for the three and six months ended ~~March~~June 3130, 2015 and 2014; and, where appropriate, factors that may affect our future financial performance. This discussion should be read in conjunction with the interim unaudited financial statements and notes contained in this filing as well as in conjunction with our audited financial statements for the year ended December 31, 2014 in the 2014 Form 10-K. We define increases or decreases greater than or equal to 200% as “NM” or not meaningful.

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Executive Overview

Business

We provide life insurance and annuity products through independent agents and financial advisors. Our policyholder base includes both affluent and middle market consumers, with our more recent business concentrated in the middle market. Most of our life insurance in force is permanent life insurance (universal life and variable universal life) insuring one or more lives. Our annuity products include fixed and variable annuities with a variety of death benefit and guaranteed living benefit options.

For the first ~~three~~six months of 2015, 98% of PHL Variable product sales, as defined by total annuity deposits and total life premium, were annuities, and 9495% of those sales were fixed indexed annuities.

Saybrus Partners, Inc. (“Saybrus”), an affiliate, provides dedicated life insurance and other consulting services to financial advisors in partner companies, as well as support for sales of Phoenix’s product line through independent distribution organizations.

During the second quarter of 2015, the Company executed an intercompany reinsurance treaty with Phoenix Life. As a result of discussions with its regulators related to the treaty, Phoenix announced its intention to de-stack its insurance company subsidiaries by July 31, 2015.

Earnings Drivers

Our profitability is driven by interaction of the following elements:

•

Fees on life and annuity products consist primarily of: (i) cost of insurance (“COI”) charges, which are based on the difference between policy face amounts and the account values (referred to as the net amount at risk or “NAR”); (ii) asset-based fees (including mortality and expense charges for variable annuities) which are calculated as a percentage of assets under management within our separate accounts; (iii) premium-based fees to cover premium taxes and renewal commissions; and (iv) surrender charges.

•

Policy benefits include death claims net of reinsurance cash flows, including ceded premiums and recoverables, interest credited to policyholders and changes in policy liabilities and accruals. Certain universal life reserves are based on management’s assumptions about future COI fees and interest margins which, in turn, are affected by future premium payments, surrenders, lapses and mortality rates. Actual experience can vary significantly from these assumptions, resulting in greater or lesser changes in reserves. In addition, we regularly review and reset our assumptions in light of actual experience, which can result in material changes to these reserves. For fixed indexed annuities, policy benefits include the change in the liability associated with guaranteed minimum withdrawal benefits. Certain of our variable annuity contracts include guaranteed minimum death and income benefits. The change in the liability associated with these guarantees is included in policy benefits. The value of these liabilities is sensitive to changes in equity markets, equity market volatility and interest rates, as well as subject to management assumptions regarding future surrenders, rider utilization rates and mortality.

In addition, the universal life block of business has experience which produces profits in earlier periods followed by losses in later periods for which an additional liability is required to be held above the account value liability. These reserves for future losses are determined by accruing ratably over historical and anticipated positive income. The assumptions used in estimating these liabilities are subject to the same variability and risk, and these factors can vary significantly from period to period, particularly the impact from changes in interest rates.


•	Interest margins consist of net investment income earned on universal life, fixed indexed annuities and other policyholder funds, gains on options purchased to fund index credits less the interest or index credits applied to policyholders on those funds. Interest margins also include investment income on assets supporting the Company’s surplus.


•	Non-deferred operating expenses are expenses related to servicing policies, premium taxes, reinsurance allowances, non-deferrable acquisition expenses and commissions and general overhead, including professional fees and outside consulting and legal services. They also include pension and other benefit costs which involve significant estimates and assumptions.

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•

Deferred policy acquisition cost (“DAC”) amortization is based on the amount of expenses deferred, actual results in each quarter and management’s assumptions about the future performance of the business. The amount of future profit or margin is dependent principally on investment returns in our separate accounts, interest and default rates, reinsurance costs and recoveries, mortality, surrender rates, premium persistency and expenses. These factors enter into management’s estimates of gross profits or margins, which generally are used to amortize DAC. Actual equity market movements, net investment income in excess of amounts credited to policyholders, claims payments and other key factors can vary significantly from our assumptions, resulting in a change in estimated gross profits or margins, and a change in amortization, with a resulting impact to income. In addition, we regularly review and reset our assumptions in light of actual experience (or “unlock”), which can result in material changes in amortization for the period of the unlock.

•

Net realized gains or losses related to investments and hedging programs include transaction gains and losses, other-than-temporary impairments (“OTTIs”) and changes in the value of certain derivatives and embedded derivatives. Certain of our variable and fixed annuity contracts include guaranteed minimum withdrawal and accumulation benefits which are classified as embedded derivatives. The fair value of the embedded derivative liability is calculated using significant management estimates, including: (i) the expected value of index credits on the next policy anniversary dates; (ii) the interest rate used to project the future growth in the contract liability; (iii) the discount rate used to discount future benefit payments, which includes an adjustment for our credit worthiness; and (iv) the expected costs of annual call options that will be purchased in the future to fund index credits beyond the next policy anniversary. These factors can vary significantly from period to period.

•

Income tax expense/benefit consists of both current and deferred tax provisions. The computation of these amounts is a function of pre-tax income and the application of relevant tax law and generally accepted accounting principles in the United States (“U.S. GAAP”) accounting guidance. In assessing the realizability of our deferred tax assets, we make significant judgments with respect to projections of future taxable income, the identification of prudent and feasible tax planning strategies and the reversal pattern of the Company’s book-to-tax differences that are temporary in nature. We also consider the expiration dates and amounts of carryforwards related to net operating losses, capital losses, foreign tax credits and general business tax credits. We have recorded a valuation allowance against a significant portion of our deferred tax assets based upon our conclusion that there is insufficient objective positive evidence to overcome the significant negative evidence from our cumulative losses in recent years. This assessment could change in the future, resulting in a release of the valuation allowance and a benefit to income.

Under U.S. GAAP, premiums and deposits for variable life, universal life and annuity products are not immediately recorded as revenues. For certain investment options of variable products, deposits are reflected on our balance sheets as an increase in liabilities. Premiums and deposits for universal life, fixed annuities and certain investment options of variable annuities are reflected on our balance sheets as an increase in policyholder deposit funds. Premiums and deposits for other products are reflected on our balance sheets as an increase in policy liabilities and accruals.

Recent Trends in Earnings Drivers

• Net realized gains or losses. Net realized gains, excluding OTTI, have been driven primarily by realized gains or losses on both the embedded policy derivatives associated with the fixed indexed annuity and variable annuity guarantees, and the derivative investments that are used to hedge these businesses. The changes in the fair value of the policy embedded derivatives and the derivative investments are driven by changes in the capital markets, including interest rates, market volatility, and overall market levels, as well as changes in actual and projected policyholder behavior. InContinued ~~2014,~~decreases ~~there~~in ~~were~~interest ~~realized~~rates ~~losses~~and onother ~~the~~market ~~embedded derivatives~~factors, ~~while~~as ~~there~~well ~~were~~as ~~gains~~the oncontinued growth in the ~~variable~~fixed indexed annuity ~~embedded~~business, ~~derivatives~~have ~~and~~resulted in losses on the ~~fixed~~policy ~~indexed annuity~~ embedded ~~derivative~~derivatives in ~~2013. In~~ 2014, and the ~~losses~~first onthree ~~the~~months ~~embedded~~of ~~derivatives~~2015, ~~were~~however ~~primarily~~with ~~driven~~interest byrates increasing during the ~~continued~~three ~~decline~~months ofended ~~interest~~June ~~rates~~30, ~~and~~2015 ~~increased~~there ~~volatility~~were ingains on the ~~equity~~embedded ~~markets~~derivatives.

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•	Policy benefits. The most significant drivers of policy benefits expense are claims incurred in the period net of reinsurance, changes in the liability for profits followed by losses on the universal life business, and changes in liabilities associated with guaranteed benefits. Recent trends in these drivers are as follows:

◦ On an annual basis, mortality has overall remained relatively stable for the last couple of years. ~~Our long-term assumptions for improved mortality have resulted in benefits through the unlocks in recent periods.~~ Mortality was worse than expected, and worse than recent historical periods, for both the three and six months ended ~~March~~June 3130, 2015 and, as a result, there are losses from mortality that are higher than in recent periods. Our long-term assumptions for improved mortality are supported by improved mortality observed over longer periods.

◦ The liability for profits followed by losses (“PFBL”), excluding the impact of unlocking, continues to increase during the periods in which we expect to have gross profits on the business. This long-term liability is sensitive to projected future interest rates, most notably the expected yield on invested assets, as well as differences between actual and expected mortality and policyholder behavior. InWhile ~~addition,~~ the liability ~~also~~has continued to increase each period, the liability did not increase significantly for the three months ended ~~March~~June 3130, 2015, due primarily to ~~continued~~increases ~~decreases~~ in interest rates, ~~and~~for ~~higher~~the ~~than~~quarter. ~~expected~~The ~~mortality~~liability has increased for the ~~quarter~~six months ended June 30, 2015 however not by as much as recent historical periods given the increase in interest rates.

◦ Changes in the liabilities associated with guaranteed benefits are impacted by differences between actual and expected mortality and policyholder behavior, as well as market changes and investment results, and changes in long-term assumptions made as part of an assumption review and unlock. The most significant driver of changes in liabilities associated with guaranteed benefits are in the fixed indexed annuity business as this business continues to grow. In periods where there are significant realized gains or losses on the investments that are used to hedge this business, there are generally increases or decreases, respectively, in the accrual. The liability accrual was more significant in the three months ended ~~March~~June 3130, 2015 compared to the three months ended ~~March~~June 3130, 2014 when there was a more significant benefit from the realized losses on investments.

• Other operating expenses. Other operating expenses have remained at elevated levels and have significantly impacted our earnings. These expenses are driven primarily by higher professional fees, including audit, outside consulting and legal services due to the preparation of financial statements and remediation efforts. Audit, other professional fees and outside consulting and legal services continue to be a significant driver of other operating expenses for the Company. In addition, in connection with the Settlement ~~agreement~~Agreement reached to resolve the Cost of Insurance Cases, the Company recorded an accrual in the amount of $36.4 million in the ~~three~~six months ended ~~March~~June 3130, 2015.

• Deferred policy acquisition cost amortization. Policy acquisition cost amortization can fluctuate significantly between periods. The most significant drivers of the changes in policy acquisition cost amortization are differences between actual and expected mortality and policyholder behavior, market changes and investment results, and changes in long-term assumptions made as part of an assumption review and unlock. In periods where there are significant realized gains or losses on the investments that are used to hedge this business, there are generally increases or decreases, respectively, in amortization. ~~Worse~~In ~~than~~addition, ~~expected mortality for~~ the ~~three~~relative ~~months~~presence ~~ended~~or ~~March~~absence ~~31,~~of ~~2015~~profits ~~resulted~~ in ~~less~~portions ~~amortization~~of ~~than in recent periods in~~ the universal life ~~business.~~block ~~Realized~~of ~~losses on the derivatives that are used to hedge the fixed indexed annuity~~ business ~~provided~~has ~~benefits~~driven tofluctuations in amortization ~~both~~between ~~for~~ the ~~three~~quarterly ~~months ended March 31, 2015 and 2014, with more significant benefits for the three months ended March 31, 2014 as a result of more significant realized losses on investments~~periods.

• Income taxes. The effective tax rate for ~~March~~the 31six months ended June 30, 2015 and 2014 was (5115.7)8% and 2(37.61%), respectively. The ~~primary~~principal ~~drivers~~cause of the ~~differences~~difference between the effective tax rate and the U.S. tax statutory rate of 35.0% infor ~~both~~the ~~years~~six months ended June 30, 2015 was ~~the~~a ~~increase~~decrease in the valuation allowance on the pre-tax loss. The principal cause of the difference between the effective tax rate and the ~~dividends~~U.S. ~~received~~tax ~~deduction~~statutory rate of 35.0% for the six months ended June 30, 2014 was an increase in the valuation allowance on the pre-tax loss.

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Strategy and Outlook

Since 2009, we have pursued a strategy focused on balance sheet strength, policyholder service, operational efficiency and profitable growth. Within the growth portion of the strategy, we shifted our target market to middle market and mass affluent families and individuals planning for or living in retirement and focused the majority of our efforts on building and distributing a competitive portfolio of fixed indexed annuity products. On a smaller scale, we developed life insurance products for the same target market. Our ultimate parent company established a distribution company to sell Phoenix products through independent marketing organizations and producers and provide consulting services to partner firms in support of policies written by companies other than Phoenix. These efforts have produced a firm foundation for continued growth, even as our business remains sensitive to general economic conditions and capital market trends including equity markets and interest rates.

We believe there is significant demand for our products among middle market and mass affluent households, which have a variety of financial planning needs, such as tax-deferred savings, safety of principal, guaranteed income during retirement, income replacement and death benefits. The current low interest rate environment provides limited opportunities for consumers to protect principal and generate predictable income. Our fixed indexed annuity products are positioned favorably vis-à-vis traditional investments such as conventional fixed annuities and bank certificates of deposits since they offer principal protection, lifetime income options and earnings potential tied to stock market indices.

Recent trends in the life insurance industry may affect our mortality, policy persistency and premium persistency for certain blocks of in force business. Deviations in experience from our assumptions have had, and could continue to have, an adverse effect on the profitability of certain universal life products. Most of our current products permit us to increase charges and adjust crediting rates during the life of the policy or contract (subject to guarantees in the policies and contracts). We have made, and may in the future make, such adjustments.

Each year we perform a comprehensive assumption review or an unlocking where we revise our assumptions to reflect the results of recent experience studies, thereby changing our estimate of estimated gross profits (“EGPs”) in the DAC and unearned revenue amortization models, as well as projections within the death benefit and other insurance benefit reserving models.

Phoenix plans to de-stack its insurance company subsidiaries in the third quarter of 2015. As a result, the Company will be a direct subsidiary of The Phoenix Companies, Inc. Phoenix believes it has adequate capital resources to meet the Company’s currently anticipated capital needs.

Impact of New Accounting Standards

See Note 32 to our interim unaudited financial statements in this Form 10-Q for a discussion of new accounting standards.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our interim unaudited financial statements, which have been prepared in accordance with U.S. GAAP. In preparing these interim unaudited financial statements in conformity with U.S. GAAP, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the interim unaudited financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates and assumptions are made in the determination of estimated gross profits (“EGPs”) used in the valuation and amortization of assets and liabilities associated with universal life and annuity contracts; policyholder liabilities and accruals; valuation of investments in debt and equity securities; limited partnerships and other investments; valuation of deferred tax assets; and accruals for contingent liabilities. Actual results could differ from these estimates.

A complete description of our critical accounting estimates is set forth in the 2014 Form 10-K. Management believes that those critical accounting estimates as set forth in the 2014 Form 10-K, and the update related to the current period unlock as described below, are important to understanding our financial condition and financial statements.

In the current quarter, the Company unlocked its assumption for expected future interest rates. This best estimate assumption reflects current yields and expected maturities of our fixed income portfolio combined with expected reinvestment rates. The interest rates begin with prevailing rates but are assumed to revert back to the long-term yield over the mean reversion period. The unlock impacted DAC, certain additional policyholder liabilities for guaranteed benefits on variable annuity and universal life contracts and the universal life PFBL. The result was a net benefit of approximately $0.3 million for the quarter ended March 31, 2015.

See Note 3 to our interim unaudited financial statements in this Form 10-Q for additional information related to the unlock.

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In the first quarter of 2015, the Company unlocked its assumption for expected future interest rates. This best estimate assumption reflects current yields and expected maturities of our fixed income portfolio combined with expected reinvestment rates. The interest rates begin with prevailing rates but are assumed to revert back to the long-term yield over the mean reversion period. The unlock impacted DAC, certain additional policyholder liabilities for guaranteed benefits on variable annuity and universal life contracts and the universal life PFBL. The result was a net benefit of approximately $0.3 million recorded in the three months ended March 31, 2015.

See Note 2 to our interim unaudited financial statements in this Form 10-Q for additional information related to the unlock.

Results of Operations

Summary Financial Data:($ in millions)	Three Months Ended ~~March~~June 3130,						Increase (decrease) andpercentage change
	2015			2014			2015 vs. 2014
REVENUES:
Premiums	$	35.05		$	24.87		$	0.28		717	%
Insurance and investment product fees	89.94			8988.03			01.91			1	%
Net investment income	4748.13			4042.0			76.13			1815	%
Net realized gains (losses):
Total OTTI losses	(0.1		)	—			(0.1		)	—	%
Portion of OTTI losses recognized in other comprehensive income (“OCI”)	~~(0.1~~—		)	—			~~(0.1~~—		)	—	%
Net OTTI losses recognized in earnings	(0.21		)	—			(0.21		)	—	%
Net realized gains (losses), excluding OTTI losses	(81.64		)	(~~35.~~1.9		)	263.53			~~(75~~174	%)
Net realized gains (losses)	(81.83		)	(~~35.~~1.9		)	~~26.~~3.2			~~(75~~168	%)
Total revenues	~~131~~144.25			96133.71			3411.54			369	%
BENEFITS AND EXPENSES:
Policy benefits	99114.7			7284.19			2729.68			3835	%
Policy acquisition cost amortization	1520.58			1620.72			(10.26		)	(73	%)
Other operating expenses	6534.47			2326.54			418.93			~~178~~31	%
Total benefits and expenses	~~180~~170.62			~~112~~131.35			6838.37			6129	%
Income (loss) before income taxes	(4925.47		)	~~(15~~1.6		)	(3327.83		)	NM
Income tax expense (benefit)	2(89.8		)	(05.46		)	3(95.24		)	NM
Net income (loss)	$	~~(52~~64.21	)	$	(154.20	)	$	~~(37~~68.01	)	NM

Analysis of Results of Operations

Three months ended ~~March~~June 3130, 2015 compared to the three months ended ~~March~~June 3130, 2014

The increase in net ~~loss~~income of $3768.01 million for the three months ended ~~March~~June 3130, 2015 compared to the three months ended ~~March~~June 3130, 2014 is primarily due to the following items:

• ~~Policy~~Income ~~benefits~~tax ~~expense~~benefit increased by $2795.64 million for the three months ended ~~March~~June 3130, 2015 compared to the three months ended ~~March~~June 3130, 2014. ~~primarily~~The ~~driven~~primary bydriver of the ~~following:~~increase was the current tax benefit on the ceding commission associated with the new intercompany reinsurance agreement with Phoenix Life.

◦ An increase in net death claims resulting from unfavorable mortality for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Net death claims increased $33.5 million for the three months ended March 31, 2015. While mortality was unfavorable for three months ended March 31, 2015, our long-term assumptions for improved mortality have resulted in benefits through the unlocks in recent periods.

◦ An increase of $10.1 million in the guaranteed liability for the fixed indexed annuity GMWB and GMDB for the three months ended March 31, 2015 was driven by the absence of the benefit that was experienced in the three months ended March 31, 2014 as a result of the realized losses on the swaptions that are used to hedge this business. Realized losses on the derivative investments generally positively impact the guaranteed benefit liabilities.

• Other operating expenses increased $41.9 million for the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The increase in other operating expenses is driven primarily by an accrual of $36.4 million recorded in the three months ended March 31, 2015 in connection with the Settlement agreement reached to resolve the Cost of Insurance Cases. In addition, there was an increase in the amount of audit fees and other professional services fees that are being allocated to the Company.

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•Partially ~~Income~~offsetting ~~tax expense increased by $3.2 million for~~ the three months ended March 31, 2015 compared to the three months ended March 31, 2014. The current period income tax expense includes $3.6 million of current tax expense less a deferred tax benefit of $0.8 million resulting from the application of intraperiod tax allocation rules. These rules allow for the benefitting of current year losses when an increase toin ~~valuation~~net ~~allowance is not required due to the existence of current year~~ income ~~reported~~are ~~elsewhere in~~ the ~~financial statements.~~following:

~~Partially~~• ~~offsetting~~Policy benefits expense increased $29.8 million for the ~~increase~~three inmonths ~~net~~ended ~~loss~~June ~~are~~30, 2015 compared to the three months ended June 30, 2014 primarily driven by the following:

•◦ ~~Realized~~An ~~losses~~increase ~~decreased~~in bynet ~~$26.3~~death ~~million~~claims resulting from unfavorable mortality for the three months ended ~~March~~June 3130, 2015 compared to the three months ended ~~March~~June 3130, 2014. ~~During~~Net ~~the~~death ~~three~~claims ~~months~~increased ~~ended~~$41.5 ~~March~~million ~~31,~~for ~~2014,~~ the ~~expiration~~three ofmonths ~~swaption~~ended ~~contracts~~June ~~resulted~~30, ~~in more significant losses in that period~~2015. ~~Excluding~~While ~~swaptions,~~mortality ~~the~~was ~~derivative~~unfavorable ~~losses~~for ~~are~~three ~~relatively~~months ~~consistent~~ended ~~given~~June ~~the~~30, ~~impact~~2015, ofour ~~changes~~long-term inassumptions ~~interest~~are ~~rates,~~supported ~~equity~~by ~~markets,~~mortality ~~and~~improvements ~~volatility~~observed inover ~~the~~longer ~~quarter~~periods.

•◦ ~~Net~~A ~~investment~~decrease ~~income~~in ~~increased~~the change in profits followed by losses reserve of $719.19 million for the three months ended ~~March~~June 3130, 2015 compared to the three months ended ~~March~~June 3130, 2014. ~~The~~During ~~increase~~the inthree ~~net~~months ~~investment~~ended ~~income~~June is30, ~~driven~~2015, the reserve decreased by $1.8 million primarily driven by ~~continued~~increasing ~~sales~~interest ofrates during this period. During the ~~fixed~~three ~~indexed~~months ~~annuity~~ended ~~business~~June ~~resulting~~30, in2014, ~~higher~~the ~~invested~~reserve ~~asset~~increased ~~levels~~by ~~while~~$18.1 ~~the~~million ~~yield~~primarily ~~has~~driven ~~remained~~by ~~relatively~~decreasing ~~stable~~interest rates and better than expected mortality during that period.


•	Other operating expenses increased $8.3 million for the three months ended June 30, 2015 compared to the three months ended June 30, 2014. The increase in other operating expenses is driven primarily by an increase in the amount of professional services fees, outside consulting and legal expenses that are being allocated to the Company in accordance with expense sharing agreements.



Summary Financial Data: ($ in millions)	Six Months Ended June 30,						Increase (decrease) and percentage change
	2015			2014			2014 vs. 2013
REVENUES:
Premiums	$	8.5		$	7.5		$	1.0		13	%
Insurance and investment product fees	179.3			177.3			2.0			1	%
Net investment income	95.4			82.0			13.4			16	%
Net realized gains (losses):
Total OTTI losses	(0.2		)	—			(0.2		)	—	%
Portion of OTTI losses recognized in OCI	(0.1		)	—			(0.1		)	—	%
Net OTTI losses recognized in earnings	(0.3		)	—			(0.3		)	—	%
Net realized gains (losses), excluding OTTI losses	(7.2		)	(37.0		)	29.8			81	%
Net realized gains (losses)	(7.5		)	(37.0		)	29.5			80	%
Total revenues	275.7			229.8			45.9			20	%

BENEFITS AND EXPENSES:
Policy benefits	214.4			157.0			57.4			37	%
Policy acquisition cost amortization	36.3			36.9			(0.6		)	(2	%)
Other operating expenses	100.1			49.9			50.2			101	%
Total benefits and expenses	350.8			243.8			107.0			44	%
Income (loss) before income taxes	(75.1		)	(14.0		)	(61.1		)	NM
Income tax expense (benefit)	(87.0		)	5.2			(92.2		)	NM
Net income (loss)	$	11.9		$	(19.2	)	$	31.1		162	%

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Six months ended June 30, 2015 compared to the six months ended June 30, 2014

The increase in net income of $31.1 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 is primarily due to the following items:

•

Realized losses decreased by $29.5 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. During the six months ended June 30, 2014, the expiration of swaption contracts resulted in more significant losses in that period. Excluding swaptions, the derivative losses are relatively consistent with gains on the embedded derivatives associated with the fixed indexed annuity and variable annuity guarantees due to increasing interest rates during the six months ended June 30, 2015.


•	Net investment income increased $13.4 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The increase in net investment income is driven primarily by continued sales of the fixed indexed annuity business resulting in higher invested asset levels while the yield has remained relatively stable.


•	Income tax benefit increased by $92.2 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The primary driver of the increase was the current tax benefit on the ceding commission associated with the new intercompany reinsurance agreement with Phoenix Life.

Partially offsetting the increase in net income are the following items:


•	Policy benefits expense increased $57.4 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014 primarily driven by the following:

◦

An increase in net death claims resulting from unfavorable mortality for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. Net death claims increased $74.6 million for the six months ended June 30, 2015. While mortality was unfavorable for six months ended June 30, 2015, our long-term assumptions are supported by mortality improvements observed over longer periods.

◦

An increase of $11.6 million in the guaranteed liability for the fixed indexed annuity GMWB and GMDB for the six months ended June 30, 2015 driven by the absence of the benefit that was experienced in the six months ended June 30, 2014 as a result of the realized losses on the swaptions that are used to hedge this business. Realized losses on the derivative investments generally positively impact the guaranteed benefit liabilities.

◦

A decrease in the the change in profits followed by losses reserve of $28.8 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. During the six months ended June 30, 2015, the reserve increased by $5.7 million primarily driven by increasing interest rates and worse than expected mortality in the universal life business during this period. During the six months ended June 30, 2014, the reserve increased by $34.5 million primarily driven by decreasing interest rates and better than expected mortality during that period.

•

Other operating expenses increased $50.2 million for the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The increase in other operating expenses is driven primarily by an accrual of $36.4 million recorded in the six months ended June 30, 2015 in connection with the Settlement agreement reached to resolve the Cost of Insurance Cases. In addition, there was an increase in the amount of professional services fees, outside consulting and legal expenses that are being allocated to the Company.

Debt and Equity Securities

We invest in a variety of debt and equity securities. We classify these investments into various sectors using industry conventions; however, our classifications may differ from similarly titled classifications of other companies. We classify debt securities into investment grade and below-investment-grade securities based on ratings prescribed by the National Association of Insurance Commissioners (“NAIC”). In a majority of cases, these classifications will coincide with ratings assigned by one or more Nationally Recognized Statistical Rating Organizations (“NRSROs”); however, for certain structured securities, the NAIC designations may differ from NRSRO designations based on the amortized cost of the securities in our portfolio.

Our available-for-sale debt securities portfolio consists primarily of investment grade publicly traded and privately placed corporate bonds, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and other asset-backed securities (“ABS”). As of March 31, 2015, our available-for-sale equity securities include $29.2 million of perpetual preferred securities, of which $7.0 million was below-investment-grade. As of March 31, 2015, our available-for-sale debt securities, with a fair value of $4,458.2 million, represented 92.5% of total investments.50

Available-for-Sale Debt Securities Ratings by Percentage:		March 31, 2015
($ in millions)NAIC Rating	S&P EquivalentDesignation	FairValue		% ofFairValue		AmortizedCost		% ofAmortizedCost
1	AAA/AA/A	$	2,589.9	58.1	%	$	2,440.2	57.6	%
2	BBB	1,641.5		36.8	%	1,571.5		37.1	%
	Total investment grade	4,231.4		94.9	%	4,011.7		94.7	%
3	BB	163.5		3.7	%	163.0		3.8	%
4	B	61.6		1.4	%	62.6		1.5	%
5	CCC and lower	0.6		—	%	0.6		—	%
6	In or near default	1.1		—	%	0.9		—	%
	Total available-for-sale debt securities	$	4,458.2	100.0	%	$	4,238.8	100.0	%

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Available-for-Sale Debt Securities by Type:	March 31, 2015
($ in millions)					Unrealized Gains (Losses)
	FairValue		AmortizedCost		GrossGains		GrossLosses			Net
U.S. government and agency	$	90.3	$	82.0	$	8.3	$	—		$	8.3
State and political subdivision	244.7		227.7		18.5		(1.5		)	17.0
Foreign government	84.4		77.9		6.8		(0.3		)	6.5
Corporate	3,075.7		2,930.1		168.2		(22.6		)	145.6
CMBS	257.9		235.5		22.4		—			22.4
RMBS	521.6		502.7		21.4		(2.5		)	18.9
Collateralized debt obligations (“CDO”) / collateralized loan obligations (“CLO”)	96.5		96.1		1.0		(0.6		)	0.4
Other ABS	87.1		86.8		4.1		(3.8		)	0.3
Total available-for-sale debt securities	$	4,458.2	$	4,238.8	$	250.7	$	(31.3	)	$	219.4

Our available-for-sale debt securities portfolio consists primarily of investment grade publicly traded and privately placed corporate bonds, residential mortgage-backed securities (“RMBS”), commercial mortgage-backed securities (“CMBS”) and other asset-backed securities (“ABS”). As of June 30, 2015, our available-for-sale equity securities include $27.3 million of perpetual preferred securities, of which $8.1 million was below-investment-grade. As of June 30, 2015, our available-for-sale debt securities, with a fair value of $4,326.7 million, represented 94.1% of total investments.

We manage credit risk through industry and issuer diversification. Maximum exposure to an issuer is defined by quality ratings, with higher quality issuers having larger exposure limits. Our investment approach emphasizes a high level of industry diversification. The top five industry holdings as of March 31, 2015 in our available-for-sale debt and short-term investment portfolio were banking (7.0%), electric utilities (7.5%), oil/oil services and equipment (6.8%), diversified financial services (5.0%) and real estate investment trusts (3.9%).



Available-for-Sale Debt Securities Ratings by Percentage:		June 30, 2015
($ in millions) NAIC Rating	S&P Equivalent Designation	Fair Value		% of Fair Value		Amortized Cost		% of Amortized Cost

1	AAA/AA/A	$	2,424.1	56.0	%	$	2,356.6	55.5	%
2	BBB	1,668.9		38.6	%	1,655.9		39.0	%
	Total investment grade	4,093.0		94.6	%	4,012.5		94.5	%
3	BB	153.7		3.6	%	154.4		3.6	%
4	B	70.5		1.6	%	71.5		1.7	%
5	CCC and lower	8.4		0.2	%	8.3		0.2	%
6	In or near default	1.1		—	%	0.9		—	%
	Total available-for-sale debt securities	$	4,326.7	100.0	%	$	4,247.6	100.0	%



Available-for-Sale Debt Securities by Type:	June 30, 2015
($ in millions)					Unrealized Gains (Losses)
	Fair Value		Amortized Cost		Gross Gains		Gross Losses			Net

U.S. government and agency	$	95.3	$	89.1	$	6.2	$	—		$	6.2
State and political subdivision	242.8		234.6		11.1		(2.9		)	8.2
Foreign government	78.9		74.8		4.6		(0.5		)	4.1
Corporate	3,098.6		3,062.4		93.7		(57.5		)	36.2
CMBS	254.2		237.1		17.4		(0.3		)	17.1
RMBS	330.0		321.5		12.3		(3.8		)	8.5
Collateralized debt obligations (“CDO”) / collateralized loan obligations (“CLO”)	139.4		139.7		0.7		(1.0		)	(0.3		)
Other ABS	87.5		88.4		3.2		(4.1		)	(0.9		)
Total available-for-sale debt securities	$	4,326.7	$	4,247.6	$	149.2	$	(70.1	)	$	79.1

We manage credit risk through industry and issuer diversification. Maximum exposure to an issuer is defined by quality ratings, with higher quality issuers having larger exposure limits. Our investment approach emphasizes a high level of industry diversification. The top five industry holdings as of June 30, 2015 in our available-for-sale debt and short-term investment portfolio were electric utilities (8.0%), oil/oil services and equipment (7.2%), banking (7.0%), diversified financial services (5.3%) and real estate investment trusts (4.2%).

Residential Mortgage-Backed Securities

We invest directly in RMBS. To the extent these assets deteriorate in credit quality and decline in value for an extended period, we may realize impairment losses. When making investment decisions, we have been focused on identifying those securities that could withstand significant increases in delinquencies and foreclosures in the underlying mortgage pools before incurring a loss of principal.

Most of our RMBS portfolio is highly rated. At March 31, 2015, 97.6% of the total residential portfolio was rated investment grade. We hold $46.0 million of RMBS investments backed by prime rated mortgages, $63.1 million backed by Alt-A mortgages and $42.5 million backed by sub-prime mortgages, which combined amount to 3.1% of our total investments. The majority of our prime, Alt-A, and sub-prime exposure is investment grade, with 82% rated NAIC-1 and 9% rated NAIC-2. We have employed a disciplined approach in the analysis and monitoring of our mortgage-backed securities. Our approach involves a monthly review of each security. Underlying mortgage data is obtained from the security’s trustee and analyzed for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows. RMBS impairments for the three months ended March 31, 2015 totaled $0.1 million from prime rated mortgages.51

Residential Mortgage-Backed Securities:
($ in millions)	March 31, 2015
							NAIC Rating
							1		2		3		4		5		6
	AmortizedCost [1]		FairValue [1]		% InvestedAssets [2]		AAA/AA/A		BBB		BB		B		CCC andBelow		In orNearDefault
Collateral
Agency	$	377.0	$	388.7	7.9	%	100.0	%	—	%	—	%	—	%	—	%	—	%
Prime	43.7		46.0		0.9	%	72.5	%	17.4	%	7.6	%	2.5	%	—	%	—	%
Alt-A	60.8		63.1		1.3	%	80.4	%	10.0	%	9.6	%	—	%	—	%	—	%
Sub-prime	39.9		42.5		0.9	%	95.3	%	—	%	4.7	%	—	%	—	%	—	%
Total	$	521.4	$	540.3	11.0	%	95.0	%	2.6	%	2.2	%	0.2	%	—	%	—	%

Table of Contents

Most of our RMBS portfolio is highly rated. At June 30, 2015, 97.0% of the total residential portfolio was rated investment grade. We hold $37.8 million of RMBS investments backed by prime rated mortgages, $60.7 million backed by Alt-A mortgages and $41.9 million backed by sub-prime mortgages, which combined amount to 2.9% of our total investments. The majority of our prime, Alt-A, and sub-prime exposure is investment grade, with 85% rated NAIC-1 and 7% rated NAIC-2. We have employed a disciplined approach in the analysis and monitoring of our mortgage-backed securities. Our approach involves a monthly review of each security. Underlying mortgage data is obtained from the security’s trustee and analyzed for performance trends. A security-specific stress analysis is performed using the most recent trustee information. This analysis forms the basis for our determination of whether the security will pay in accordance with the contractual cash flows. RMBS impairments as of June 30, 2015 totaled $0.1 million from prime rated mortgages.



Residential Mortgage-Backed Securities:
($ in millions)	June 30, 2015
		NAIC Rating
		1	2	3

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