UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

þ		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2005

JEFFERSON-PILOT CORPORATION

(Exact name of registrant as specified in its charter)

North Carolina		56-0896180
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
100 North Greene Street, Greensboro, North Carolina		27401
(Address of principal executive offices)		(Zip Code)

(336) 691-3000
(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 o

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

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

The number of shares of Jefferson-Pilot Corporation’s common stock outstanding at November 1, 2005 was 134,031,810.

 

 

JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES

INDEX

				- Page No. -
PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements
		Consolidated Condensed Balance Sheets - September 30, 2005 (Unaudited) and December 31, 2004			1
		Consolidated Unaudited Condensed Statements of Income - Three and Nine Months ended September 30, 2005 and 2004			2
		Consolidated Unaudited Condensed Statements of Cash Flows - Nine Months ended September 30, 2005 and 2004			3
		Notes to Consolidated Unaudited Condensed Financial Statements			4
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			44
Item 4.		Controls and Procedures			44
PART II — OTHER INFORMATION
Item 1.		Legal Proceedings			45
Item 2.		Changes in Securities, Use of Proceeds and Issuer Repurchase of Equity Securities			45
Item 6.		Exhibits			45
Signatures					46
Exhibit Index, followed by Exhibits					47

Item 1. Financial Statements

JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

(In Millions, Except Share Information)

		(Unaudited)				(Audited)
		September 30,				December 31,
		2005				2004
ASSETS
Investments:
Debt securities available-for-sale, at fair value (amortized cost $19,711 and $18,816)		$	20,258			$	19,725
Debt securities held-to-maturity, at amortized cost (fair value $2,206 and $2,514)			2,096				2,369
Equity securities available-for-sale, at fair value (cost $192 and $201)			593				650
Mortgage loans on real estate			3,912				3,667
Policy loans			836				839
Real estate			127				125
Other investments			238				193
Total investments			28,060				27,568
Cash and cash equivalents			14				87
Accrued investment income			355				342
Due from reinsurers			1,305				1,341
Deferred policy acquisition costs and value of business acquired			2,704				2,430
Goodwill			312				312
Other assets			660				652
Assets held in separate accounts			2,431				2,373
		$	35,841			$	35,105
LIABILITIES AND STOCKHOLDERS’ EQUITY
Policy liabilities:
Future policy benefits		$	3,133			$	3,096
Policyholder contract deposits			22,061				21,694
Policy and contract claims			189				232
Funding agreements			300				—
Other			1,222				1,144
Total policy liabilities			26,905				26,166
Commercial paper and revolving credit borrowings			224				188
Securities sold under repurchase agreements			500				468
Notes payable			600				600
Junior subordinated debentures			309				309
Income tax liabilities			532				620
Accounts payable, accruals and other liabilities			482				447
Liabilities related to separate accounts			2,431				2,373
Total liabilities			31,983				31,171
Commitments and contingent liabilities
Stockholders’ equity:
Common stock and paid in capital, par value $1.25 per share: authorized 350,000,000 shares; issued and outstanding 2005-134,010,974 shares; 2004-136,819,214 shares			168				180
Retained earnings			3,200				3,071
Accumulated other comprehensive income			490				683
Total stockholders’ equity			3,858				3,934
		$	35,841			$	35,105

See Notes to Consolidated Unaudited Condensed Financial Statements.

JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES

CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF INCOME

(In Millions, Except Per Share Information, Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Revenue
Premiums and other considerations		$	330			$	328			$	1,014			$	960
Universal life and investment product charges			194				179				585				544
Net investment income			429				406				1,262				1,226
Realized investment gains (losses)			(7	)			3				3				37
Communications sales			59				58				177				173
Broker-dealer concessions and other			34				28				98				94
Total revenue			1,039				1,002				3,139				3,034
Benefits and Expenses
Insurance and annuity benefits			581				575				1,719				1,701
Insurance commissions, net of deferrals			64				62				197				189
General and administrative expenses, net of deferrals			48				48				134				133
Insurance taxes, licenses and fees			21				16				64				53
Amortization of policy acquisition costs and value of business acquired			82				56				238				198
Interest expense			15				12				44				35
Communications operations			33				31				100				97
Total benefits and expenses			844				800				2,496				2,406
Income before income taxes and cumulative effect of change in accounting principle			195				202				643				628
Income taxes			64				68				214				211
Income before cumulative effect of change in accounting principle			131				134				429				417
Cumulative effect of change in accounting for long-duration contracts, net of taxes			—				—				—				(17	)
Net income		$	131			$	134			$	429			$	400
Per Share Information — Basic
Income before cumulative effect of change in accounting principle		$	0.97			$	0.98			$	3.17			$	3.01
Cumulative effect of change in accounting for long-duration contracts, net of taxes			—				—				—				(0.12	)
Net income		$	0.97			$	0.98			$	3.17			$	2.89
Per Share Information — Assuming Dilution
Income before cumulative effect of change in accounting principle		$	0.97			$	0.97			$	3.15			$	2.99
Cumulative effect of change in accounting for long-duration contracts, net of taxes			—				—				—				(0.12	)
Net income		$	0.97			$	0.97			$	3.15			$	2.87
Dividends declared per common share		$	0.418			$	0.380			$	1.215			$	1.090

See Notes to Consolidated Unaudited Condensed Financial Statements.

JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES

CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

		Nine Months Ended
		September 30,
		2005				2004
Cash Flows from Operating Activities		$	289			$	814
Cash Flows from Investing Activities
Securities and loans purchased, net			(814	)			(1,475	)
Other investing activities			(41	)			(128	)
Net cash used in investing activities			(855	)			(1,603	)
Cash Flows from Financing Activities
Policyholder contract deposits			2,151				2,154
Policyholder contract withdrawals			(1,719	)			(1,257	)
Funding agreements issuance			300				—
Net borrowings (repayments)			68				213
Net repurchase of common shares			(145	)			(226	)
Cash dividends paid			(165	)			(151	)
Other financing activities			3				9
Net cash provided by financing activities			493				742
Decrease in cash and cash equivalents			(73	)			(47	)
Cash and cash equivalents at beginning of period			87				72
Cash and cash equivalents at end of period		$	14			$	25
Supplemental Cash Flow Information
Income taxes paid (received)		$	188			$	30
Interest paid		$	59			$	42

See Notes to Consolidated Unaudited Condensed Financial Statements.

JEFFERSON-PILOT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED UNAUDITED CONDENSED
FINANCIAL STATEMENTS

1. Basis of Presentation

     The accompanying consolidated unaudited condensed financial statements of Jefferson-Pilot Corporation (with its subsidiaries, referred to as the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions for the Securities and Exchange Commission Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the notes to consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 should be referred to in connection with the reading of these interim consolidated unaudited condensed financial statements.

     In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Operating results for the nine-month period ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. Certain prior year amounts have been reclassified to conform to the current year presentation.

First Quarter Earnings

     In the first quarter of 2005, the Company’s net income was impacted by management actions and claims experience, which when taken together increased pretax earnings and net income by $49 and $32 and affects the comparability of earnings results. Management reduced the rates for non-guaranteed cost of insurance bonuses (partial refunds) on certain older UL-type life insurance products. These bonuses are paid to certain policyholders at specified policy anniversaries for continuing coverage. Consequently, we recognized an accrual release, which increased cost of insurance charge revenue by $13 pretax, and a related unlocking of expected gross profits, which reduced amortization of value of business acquired by $17 pretax. Additionally, the Company experienced strong earnings emergence from favorable claims and reserve development in its group insurance business, primarily in the Canada Life block (see Note 8), reducing insurance and annuity benefits by $25 pretax, partially offset by $5 pretax of additional amortization of deferred policy acquisition costs.

2. Significant Accounting Policies

Stock Based Compensation

     The Company accounts for stock incentive awards in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, and accordingly, recognizes no compensation expense for stock option awards to employees or directors when the option price is not less than the market value of the stock at the date of award. The Company recognizes expense utilizing the fair value method in accordance with Statement of Financial Accounting Standards (SFAS) No. 123 (SFAS 123), “Accounting for Stock-Based Compensation”, for stock options granted to non-employees, specifically agents.

     SFAS 123 requires the presentation of pro forma information as if the Company had accounted for its employee and director stock options under the fair value method of that Statement. The Company currently discloses the amortization of fair value of these grants over the normal vesting period for

participants, with acceleration at retirement. Beginning in 2006, expense will be recognized over the implicit service period. This will result in more front-ended expense recognition, including immediate recognition for participants already eligible for retirement at the grant date.

     The following is a reconciliation of reported net income and pro forma information as if the Company had adopted SFAS 123 for its employee and director stock option awards:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Net income, as reported		$	131			$	134			$	429			$	400
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes			1				1				3				6
Pro forma net income		$	130			$	133			$	426			$	394
Per Share — Basic
As reported		$	0.97			$	0.98			$	3.17			$	2.89
Pro forma			0.97				0.97				3.14				2.85
Per Share — Assuming Dilution
As reported		$	0.97			$	0.97			$	3.15			$	2.87
Pro forma			0.96				0.96				3.12				2.82

New Accounting Pronouncements

Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts

     In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (AcSEC) issued Statement of Position 05-1 (SOP 05-1), “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts”. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in Statement of Financial Accounting Standards (SFAS) No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments”. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier adoption encouraged. Retrospective application of SOP 05-1 to previously issued financial statements is not permitted. The Company is currently evaluating the impact of the adoption of this pronouncement on the Company’s consolidated financial condition and results of operations.

Accounting Changes and Error Corrections

     In June 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154 (SFAS 154), “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20, Accounting Changes, and FASB

Statement No. 3, Reporting Accounting Changes in Interim Financial Statements”. SFAS 154 requires retrospective application to prior periods’ financial statements for all voluntary changes in accounting principle, unless impracticable. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 31, 2005. SFAS 154 will have no immediate impact on our consolidated financial statements, though it will impact our presentation of future voluntary accounting changes, should such changes occur.

Share-Based Payment

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share Based Payment” (SFAS 123-R), which prescribes fair value expense recognition for stock options and is effective for interim and annual periods ending after June 15, 2005. In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that delays our required effective date of SFAS 123-R to January 1, 2006. In August 2005, the FASB issued FASB Staff Position (FSP) No. 123(R)-1, “Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FASB Statement No. 123(R)” (FSP 123R-1), which indefinitely defers the requirement of SFAS 123-R that a freestanding financial instrument originally subject to SFAS 123-R becomes subject to other applicable GAAP when the rights conveyed by the instrument to the holder are no longer dependent on the holder being an employee of the entity. In October 2005, the FASB issued FSP No. 123(R)-2, “Practical Accommodation to the Application of Grant Date as Defined in FASB Statement No. 123(R)” (FSP 123R-2), which allows the grant date of an award to be the date the award is approved in accordance with an entity’s corporate governance provisions, so long as the approved grant is communicated to employees within a relatively short time period from the date of approval, which is consistent with our current policy.

     As discussed above, the Company currently accounts for employee stock options using the intrinsic value method of APB 25, and related interpretations, and discloses the impact of the fair value method prescribed by SFAS 123 through footnote disclosure only. Under APB 25, the Company does not recognize any stock-based compensation expense for such stock options because all options granted have an exercise price equal to the market value of the underlying stock on the date of grant. The Company plans to adopt the provisions of SFAS 123-R under the modified prospective method on January 1, 2006. Under this method, the fair value of all employee stock options vesting on or after the adoption date will be included in the determination of net income. The fair value of stock options will be estimated using an appropriate fair value option-pricing model considering assumptions for dividend yield, expected volatility, risk-free interest rate, and expected life of the option. The fair value of the option grants will be amortized on a straight-line basis over the implicit service period of the employee, considering retirement eligibility. The adoption of SFAS 123-R will reduce our earnings per share somewhat similar to what is illustrated in our proforma disclosures discussed earlier. However, the implementation of more sophisticated modeling techniques may affect this impact.

Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003

     In May 2004, the FASB issued FASB Staff Position (FSP) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003”. In accordance with FSP 106-2, the Company remeasured its plan assets and Accumulated Postretirement Benefit Obligation (“APBO”) as of July 1, 2004 to account for the subsidy and other effects of the Act, which resulted in an immaterial reduction in postretirement benefit cost. The reduction in the APBO for the subsidy related to past service was insignificant.

The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments

     In March 2004, the Emerging Issues Task Force (EITF) of the FASB reached a consensus on Issue 03-1 (EITF 03-1), “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments”. This issue establishes impairment models for determining whether to record impairment losses associated with investments in certain equity and debt securities. In September 2004, the FASB issued FSP EITF 03-1-1, “Effective Date of Paragraphs 10–20 of EITF Issue No. 03-1, ‘The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, which indefinitely deferred the effective date of the other-than-temporary impairment provisions of EITF 03-1 related to interest rates and sector spreads until such time as the FASB issues further implementation guidance. The Company continues to monitor developments concerning this guidance and is currently unable to estimate the potential effects of implementing the impairment provisions of EITF 03-1 on the Company’s consolidated financial position or results of operations.

Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts

     In July 2003, AcSEC issued Statement of Position 03-1 (the SOP or SOP 03-01), “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts.” The SOP addresses: (i) separate account presentation; (ii) accounting for an insurance company’s proportionate interest in separate accounts; (iii) transfers of assets from the general account to a separate account; (iv) valuation of certain insurance liabilities and policy features such as guaranteed minimum death benefits and annuitization benefits; and (v) accounting for sales inducements. The SOP was effective January 1, 2004 and was adopted through an adjustment for the cumulative effect of a change in accounting principle originally amounting to $13. In September 2004, AcSEC issued Technical Practice Aids (the TPAs) addressing certain provisions of the SOP. As a result of this additional guidance, we restated our cumulative effect adjustment as of January 1, 2004 to record an additional $4 of expense. Our cumulative effect of $17 related primarily to the establishment of additional policy liabilities for secondary guarantees contained in our newer products and accounting for sales inducements resident in certain of our older policies. Please refer to Note 2 of the Consolidated Financial Statements included within our Form 10-K for greater detail and discussion.

3. Comprehensive Income

     The components of comprehensive income, net of related effects of DAC, VOBA and income taxes are summarized as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Net income, as reported		$	131			$	134			$	429			$	400
Change in unrealized gains (losses) on securities			(241	)			227				(187	)			(2	)
Change in minimum pension liability			1				—				(1	)			—
Change in the fair value of derivative financial instruments			1				3				(5	)			(1	)
Comprehensive income (loss)		$	(108	)		$	364			$	236			$	397

4. Income Per Share of Common Stock

     The following table sets forth the computation of earnings per share and earnings per share assuming dilution:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Numerators
Income before cumulative effect of change in accounting principle		$	131			$	134			$	429			$	417
Cumulative effect of change in accounting principle, net of taxes			—				—				—				(17	)
Net income		$	131			$	134			$	429			$	400
Denominators
Weighted average shares outstanding			134,392,449				136,485,685				135,377,203				138,470,054
Effect of dilutive securities:
Stock options			894,428				1,014,180				899,927				1,260,971
Weighted average shares outstanding - assuming dilution			135,286,877				137,499,865				136,277,130				139,731,025
Earnings Per Share — Basic
Income before cumulative effect of change in accounting principle		$	0.97			$	0.98			$	3.17			$	3.01
Cumulative effect of change in accounting principle, net of taxes			—				—				—				(0.12	)
Net income		$	0.97			$	0.98			$	3.17			$	2.89
Earnings Per Share — Assuming Dilution
Income before cumulative effect of change in accounting principle		$	0.97			$	0.97			$	3.15			$	2.99
Cumulative effect of change in accounting principle, net of taxes			—				—				—				(0.12	)
Net income		$	0.97			$	0.97			$	3.15			$	2.87

5. Policy Liabilities

     In June 2005, a life insurance subsidiary of the Company established a program for an unconsolidated special purpose entity, Jefferson Pilot Life Funding Trust I (the Trust), to sell up to $1 billion of medium-term notes through investment banks to commercial investors. The notes are backed by funding agreements issued by this subsidiary. The funding agreements are investment contracts that do not subject the subsidiary to mortality or morbidity risk. The medium-term notes issued by the Trust are exposed to all the risks and rewards of owning the funding agreements that collateralize them. The funding agreements issued to the Trust are classified as a component of policy liabilities within the consolidated balance sheets. As spread products, funding agreements generate profit to the extent that the rate of return on the investments earned exceeds the interest credited and other expenses. Funding agreements represent a product that can provide additional spread income on an opportunistic basis. Consequently, sales of funding agreements can vary widely from one reporting period to another.

     The subsidiary issued $300 of funding agreements in June 2005. The initial funding agreements were issued at a variable rate and provide for quarterly interest payments, indexed to the 3-month LIBOR plus 7 basis points, with principal due at maturity on June 2, 2008. Concurrent with this issuance, the subsidiary

executed an interest rate swap for a notional amount equal to the proceeds of the funding agreements. The swap qualifies for cash flow hedge accounting treatment and converts the variable rate of the funding agreements to a fixed rate of 4.28%.

6. Contingent Liabilities

     A life insurance subsidiary is a defendant in a proposed class action suit. The suit alleges that a predecessor company, decades ago, unfairly discriminated in the sale of small face amount life insurance policies. Management believes that the life company’s practices have complied with state insurance laws and intends to vigorously defend the claims asserted.

     In the normal course of business, the Company and its subsidiaries are parties to various lawsuits. Because of the considerable uncertainties that exist, the Company cannot predict the outcome of pending or future litigation. However, management believes that the resolution of pending legal proceedings will not have a material adverse effect on the Company’s financial position or liquidity, although it could have a material adverse effect on the results of operations for a specified period.

7. Retirement Benefit Plans

     The following table illustrates the components of net periodic benefit cost for our pension plans:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Service cost		$	4			$	3			$	12			$	11
Interest cost			6				6				18				17
Expected return on plan assets			(8	)			(9	)			(24	)			(24	)
Amortization of net transition asset			—				—				—				(1	)
Amortization of prior service cost			—				1				—				1
Amortization of net (gain) loss			1				—				2				1
Net periodic benefit cost		$	3			$	1			$	8			$	5

     The Company expects to make contributions of $16 to $18 during 2005 related to nonqualified plans. Contributions of $2 and $15 were made during the three and nine months ended September 30, 2005.

8. Reinsurance Transaction

     In March 2004, the Company acquired (via a reinsurance transaction) substantially all of the in-force U.S. group life, disability and dental business of The Canada Life Assurance Company (Canada Life), an indirect subsidiary of Great-West Lifeco Inc.

     Upon closing, Canada Life ceded and the Company assumed approximately $400 of policy liabilities. The Company also received assets, primarily comprised of cash, in support of those liabilities. The deferred policy acquisition costs of $35 recorded in the transaction are being amortized over 15 years, subject to dynamic persistency adjustments, representing the premium-paying period of the blocks of policies acquired. An intangible asset of $25, attributable to the value of the distribution system acquired in the transaction, was recorded in other assets within the consolidated balance sheets and is being amortized over 30 years, representing the period over which the Company expects to earn premiums from new sales stemming from the added distribution capacity. The revenues and benefits and expenses associated with these blocks are

presented in the Company’s consolidated statements of income in a manner consistent with our accounting policies.

     Dynamic persistency adjustments from higher-than-expected shock lapsation on the Canada Life block increased DAC amortization during the three and nine months ended September 30, 2005 by $0.3 and $5.9 compared to no adjustments in the same periods of 2004.

9. Segment Reporting

     The Company has five reportable segments that are defined based on the nature of the products and services offered: Individual Products, Annuity and Investment Products (AIP), Benefit Partners, Communications, and Corporate and Other. The segments remain as we described in our Form 10-K for 2004. The following tables summarize certain financial information regarding the Company’s reportable segments:

		September 30,				December 31,
		2005				2004
Assets
Individual Products		$	19,438			$	18,776
AIP			10,834				10,504
Benefit Partners			1,887				1,839
Communications			222				223
Corporate and Other			3,460				3,763
Total assets		$	35,841			$	35,105

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Revenues
Individual Products		$	454			$	437			$	1,360			$	1,325
AIP			191				166				544				519
Benefit Partners			311				308				958				890
Communications			61				58				178				171
Corporate and Other			29				30				96				92
			1,046				999				3,136				2,997
Realized investment gains (losses), before taxes			(7	)			3				3				37
Total revenues		$	1,039			$	1,002			$	3,139			$	3,034
Total Reportable Segment Results and Reconciliation to Net Income
Individual Products		$	78			$	76			$	238			$	226
AIP			24				17				61				56
Benefit Partners			15				20				70				51
Communications			14				14				40				38
Corporate and Other			5				5				18				22
Total reportable segment results			136				132				427				393
Realized investment gains (losses), net of taxes			(5	)			2				2				24
Income before cumulative effect of change in accounting principle			131				134				429				417
Cumulative effect of change in accounting for long-duration contracts, net of taxes			—				—				—				(17	)
Net income		$	131			$	134			$	429			$	400

     Default charges paid to the Corporate and Other segment for Individual, AIP and Benefit Partners were $19, $9, and $2 for the nine months ended September 30, 2005, and $17, $10, and $1 for the nine months ended September 30, 2004.

10. Subsequent Event

     On October 10, 2005, Lincoln National Corporation (“LNC”) and the Company announced that they had entered into a definitive merger agreement. At closing, the Company’s shareholders will receive 1.0906 shares of LNC common stock or $55.96 in cash for each share of the Company’s common stock, subject to proration. The aggregate amount of cash to be paid to the Company’s shareholders will equal $1.8 billion. This transaction, which is subject to the approval of shareholders of both companies, regulatory approvals and customary closing conditions, is expected to close in the first quarter of 2006.

     On October 12, 2005, a proposed shareholder class action suit for damages was filed naming the Company and most of the individual members of its Board of Directors as defendants relating to the merger. The suit alleges a breach of fiduciary duty in entering into the proposed merger. Management believes its actions have been properly authorized and are in accordance with state law and intends to vigorously defend the claims asserted. The expected outcome of

this suit is not expected to have a material impact on the consolidated statements of income in any reporting period.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Management’s Discussion and Analysis of Financial Condition and Results of Operations analyzes the consolidated financial condition as of September 30, 2005 compared to December 31, 2004 and changes in financial position and results of operations for the three month and nine month periods ended September 30, 2005, as compared to the same periods of 2004, of Jefferson-Pilot Corporation and consolidated subsidiaries (JP or the Company which also may be referred to as we or us or our). The discussion supplements Management’s Discussion and Analysis in Form 10-K for the year ended December 31, 2004 (Form 10-K), and should be read in conjunction with the interim financial statements and notes contained herein. All dollar amounts are in millions except share and per share amounts.

Company Profile

Overview

     We have five reportable segments: Individual Products, Annuity and Investment Products (AIP), Benefit Partners, Communications, and Corporate and Other. See our Form 10-K for an overview of the Company and our reportable segments and a discussion of key drivers and trends in our businesses, supplemented by the discussion herein.

Proposed Merger

     On October 10, 2005, Lincoln National Corporation (LNC or Lincoln) and the Company announced that they had entered into a definitive merger agreement. At closing, the Company’s shareholders will receive 1.0906 shares of LNC common stock or $55.96 in cash for each share of the Company’s common stock, subject to proration. The aggregate amount of cash to be paid to the Company’s shareholders will equal $1.8 billion. This transaction, which is subject to the approval of shareholders of both companies, regulatory approvals and customary closing conditions, is expected to close in the first quarter of 2006.

     On October 12, 2005, a proposed shareholder class action suit for damages was filed naming the Company and most of the individual members of its Board of Directors as defendants relating to the merger. The suit alleges a breach of fiduciary duty in entering into the proposed merger. Management believes its actions have been properly authorized and are in accordance with state law and intends to vigorously defend the claims asserted. The expected outcome of this suit is not expected to have a material impact on the consolidated statements of income in any reporting period.

Segment Revenues

     Our segments’ revenues as a percentage of total revenues, excluding realized gains and losses, were as follows:

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Individual Products			43	%			44	%			43	%			44	%
AIP			18	%			17	%			17	%			17	%
Benefit Partners			30	%			30	%			31	%			30	%
Communications			6	%			6	%			6	%			6	%
Corporate and Other			3	%			3	%			3	%			3	%

Critical Accounting Policies and Estimates

     Our Form 10-K described the accounting policies that are critical to the understanding of our results of operations and our financial position for which management uses significant judgments and estimates concerning future results or other developments, including the likelihood, timing or amount of one or more future events. They relate to deferred acquisition costs (DAC), value of business acquired (VOBA), unearned revenue reserves, assumptions and judgments utilized in determining if declines in fair values of investments are other-than-temporary, valuation methods for infrequently traded securities and private placements, policy liabilities, pension plans, goodwill and accruals relating to legal and administrative proceedings. These policies were applied in a consistent manner during the first nine months of 2005.

Results of Operations

     The following tables illustrate our results before and after the cumulative effect of change in accounting principle:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2005				2004				Change				2005				2004				Change
Consolidated Summary of Income
Income before realized gains (losses) and cumulative effect of change in accounting principle		$	135.6			$	131.6				3.0	%		$	427.1			$	393.0				8.7	%
Realized investment gains (losses), net of taxes			(4.7	)			2.2				(313.6	)%			1.8				24.1				(92.5	)%
Income before cumulative effect of change in accounting principle		$	130.9			$	133.8				(2.2	)%		$	428.9			$	417.1				2.8	%
Cumulative effect of change in accounting principle for long duration contracts, net of taxes			—				—								—				(16.6	)			(100.0	)%
Net income		$	130.9			$	133.8				(2.2	)%		$	428.9			$	400.5				7.1	%
Consolidated Earnings Per Share
Assuming dilution:
Income before realized gains (losses) and cumulative effect of change in accounting principle		$	1.00			$	0.96				4.2	%		$	3.13			$	2.81				11.4	%
Realized investment gains (losses), net of taxes			(0.03	)			0.01				(400.0	)%			0.02				0.18				(88.9	)%
Income before cumulative effect of change in accounting principle			0.97				0.97				0.0	%			3.15				2.99				5.4	%
Cumulative effect of change in accounting principle, net of taxes			—				—								—				(0.12	)			(100.0	)%
Net income		$	0.97			$	0.97				0.0	%		$	3.15			$	2.87				9.8	%

		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2005				2004				2005				2004
Average number of shares outstanding - assuming dilution			135,286,877				137,499,865				136,277,130				139,731,025

     Earnings growth in Individual, AIP and Communications was offset by declines in Benefit Partners and Corporate and Other and by realized investment losses, resulting in a decrease to net income for the third quarter of 2005 versus the same quarter of the prior year. The increase in income before cumulative effect of change in accounting principle for the first nine months reflected earnings growth in all segments except Corporate and Other, partially offset by lower realized investment gains. Individual Products benefited from an increase in interest margin, higher product charge revenue for the quarter and first nine months, and favorable mortality in the quarter. Year-to-date results also included the effect of management actions taken during the first quarter to reduce non-guaranteed bonuses on certain older universal life products. AIP’s results increased for the quarter and first nine months of 2005 due to higher investment spreads, including a favorable change in the fair value of option liabilities related to equity-indexed annuities, partially offset by higher DAC amortization and lower incremental investment income above base (which includes mortgage loan acceleration fees, accelerated accretion of discount on mortgage-backed securities, and income on purchased beneficial interests). Benefit Partners results for the quarter were unfavorably impacted by adverse long-term disability and life experience. Communications achieved earnings growth on higher advertising revenues and expense reductions. Corporate and Other results were lower in the quarter and first nine months of 2005 primarily due to the impact of higher short-term interest rates and realized investment losses from an increase in security impairments.

     Effective January 1, 2004, the Company adopted SOP 03-1, which relates to secondary guarantees and other benefit features. The implementation of this new standard created both a cumulative effect upon adoption as well as a reduction to ongoing net income. Refer to Note 2 to the Consolidated Unaudited Condensed Financial Statements (interim financial statements).

     Earnings per share growth was more favorable than the growth in absolute earnings due to share repurchases of 836,500 in the quarter and 3,175,500 in the first nine months of 2005.

Results by Business Segment

     Throughout this Form 10-Q, “reportable segment results” is defined as net income before realized investment gains and losses (and cumulative effect of change in accounting principle, if applicable). Reportable segment results is a non-GAAP measure. We believe reportable segment results provides relevant and useful information to investors, as it represents the basis on which we assess the performance of our business segments. We deem reportable segment results to be a meaningful measure for this purpose because, except for losses from other-than-temporary impairments, realized investment gains and losses occur primarily at our sole discretion. Note that reportable segment results as described above may not be comparable to similarly titled measures reported by other companies.

     We assess profitability by business segment and measure other operating statistics as detailed in the separate segment discussions that follow. We determine reportable segments in a manner consistent with the way we make operating decisions and assess performance. Sales are one of the statistics we use to track performance. Our sales, which are primarily of long-duration contracts in the Individual Products and AIP segments, have little immediate impact on revenues for these two segments as described in the segment discussions below.

     The following table illustrates our results before and after realized investment gains and losses, and reconciles reportable segment results to net income, the most directly comparable GAAP financial measure:

Results by Reportable Segment

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2005				2004				Change				2005				2004				Change
Individual Products		$	77.5			$	75.2				3.1	%		$	237.7			$	225.5				5.4	%
AIP			24.0				17.6				36.4	%			61.2				56.4				8.5	%
Benefit Partners			15.0				19.7				(23.9	)%			70.1				50.8				38.0	%
Communications			13.9				13.5				3.0	%			39.9				37.8				5.6	%
Corporate and Other			5.2				5.6				(7.1	)%			18.2				22.5				(19.1	)%
Total reportable segment results			135.6				131.6				3.0	%			427.1				393.0				8.7	%
Realized investment gains (losses), net of taxes			(4.7	)			2.2				(313.6	)%			1.8				24.1				(92.5	)%
Net income before cumulative effect of change in accounting principle			130.9				133.8				(2.2	)%			428.9				417.1				2.8	%
Cumulative effect of change in accounting principle			—				—								—				(16.6	)			(100.0	)%
Net income		$	130.9			$	133.8				(2.2	)%		$	428.9			$	400.5				7.1	%

Segment Assets

     We assign invested assets backing insurance liabilities to our segments in relation to policyholder funds and reserves. We assign net DAC and VOBA, reinsurance receivables and communications assets to the respective segments where those assets originate. We also assign invested assets to back capital allocated to each segment in relation to our philosophy for managing business risks, reflecting appropriate conservatism. We assign the remainder of invested and other assets, including all defaulted securities, to the Corporate and Other segment. Segment assets as of September 30 were as follows:

		September 30,
		2005				2004
Individual Products		$	19,438			$	18,484
AIP			10,834				10,479
Benefit Partners			1,887				1,797
Communications			222				219
Corporate and Other			3,460				3,667
Total assets		$	35,841			$	34,646

Individual Products

     The Individual Products segment markets individual life insurance policies primarily through independent general agents, independent national account marketing firms, and agency building general agents. We also sell products through home service agents, broker/dealers, banks and other strategic alliances.

     Reportable segment results⁽¹⁾ for Individual Products were as follows:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2005				2004				Change				2005				2004				Change
UL-Type Products:
Net investment income		$	188.4			$	185.2				1.7	%		$	560.1			$	553.8				1.1	%
Interest credited to policyholders			(128.4	)			(127.8	)			(0.5	)%			(382.4	)			(378.9	)			(0.9	)%
Interest margin			60.0				57.4				4.5	%			177.7				174.9				1.6	%
Product charge revenue:
Cost of insurance charges			145.3				137.0				6.1	%			442.3				405.4				9.1	%
Expense charges			40.1				30.8				30.2	%			115.0				106.0				8.5	%
Surrender charges			7.9				9.7				(18.6	)%			24.9				30.3				(17.8	)%
Total product charge revenue			193.3				177.5				8.9	%			582.2				541.7				7.5	%
Death benefits and other insurance benefits			(80.4	)			(85.8	)			6.3	%			(255.4	)			(239.0	)			(6.9	)%
Expenses excluding amortization of DAC and VOBA			(24.1	)			(23.6	)			(2.1	)%			(65.6	)			(70.6	)			7.1	%
Amortization of DAC and VOBA			(51.6	)			(34.3	)			(50.4	)%			(142.9	)			(131.8	)			(8.4	)%
Miscellaneous income (expense)			(0.3	)			(0.1	)			(200.0	)%			(0.5	)			(0.5	)			0.0	%
UL-type product income before taxes			96.9				91.1				6.4	%			295.5				274.7				7.6	%
Traditional Products:
Premiums and other considerations			37.3				37.2				0.3	%			109.1				115.3				(5.4	)%
Net investment income			36.1				37.7				(4.2	)%			109.4				114.8				(4.7	)%
Benefits			(42.1	)			(41.8	)			(0.7	)%			(123.7	)			(130.1	)			4.9	%
Expenses excluding amortization of DAC and VOBA			(7.1	)			(6.0	)			(18.3	)%			(20.8	)			(19.8	)			(5.1	)%
Amortization of DAC and VOBA			(4.3	)			(4.3	)			0.0	%			(11.0	)			(11.9	)			7.6	%
Traditional product income before taxes			19.9				22.8				(12.7	)%			63.0				68.3				(7.8	)%
Reportable segment results before income taxes(1)			116.8				113.9				2.5	%			358.5				343.0				4.5	%
Income taxes			(39.3	)			(38.7	)			(1.6	)%			(120.8	)			(117.5	)			(2.8	)%
Reportable segment results(1)		$	77.5			$	75.2				3.1	%		$	237.7			$	225.5				5.4	%

     The following table summarizes key data for Individual Products that we believe are important drivers and indicators of future profitability:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2005				2004				Change				2005				2004				Change
Annualized life insurance premium sales:
Individual Markets excluding Community Banks and BOLI		$	80			$	48				66.7	%		$	201			$	148				35.8	%
Community Banks and BOLI		$	1			$	2				(50.0	)%		$	1			$	6				(83.3	)%
Average UL policyholder fund balances		$	11,647			$	11,138				4.6	%		$	11,528			$	11,073				4.1	%
Average VUL separate account assets			1,731				1,525				13.5	%			1,689				1,515				11.5	%
		$	13,378			$	12,663				5.6	%		$	13,217			$	12,588				5.0	%
Average face amount of insurance in force :
Total		$	166,892			$	165,527				0.8	%		$	166,410			$	165,770				0.4	%
UL-type contracts		$	129,640			$	126,789				2.2	%		$	129,018			$	126,575				1.9	%
Average assets		$	19,300			$	18,384				5.0	%		$	19,078			$	18,169				5.0	%

     Sales from our Individual Markets, excluding Community Banks and bank-owned life insurance (BOLI), increased for the quarter and year-to-date compared to the 2004 periods due to product, distribution and service initiatives. Sales in the third quarter of 2005 included several large cases totaling approximately $15 that we do not view as recurring in nature.

     For the first nine months of 2005 and 2004, approximately 55% and 58% of life insurance sales were attributable to products with secondary guarantee benefits. These products were priced considering interest, mortality, withdrawal and termination (lapse) assumptions that are specific to the nature, marketing focus and funding pattern for each product. The lapse assumptions that we use for pricing are based on multi-scenario modeling techniques and are lower than the assumptions we use for non-guaranteed products, particularly when the secondary guarantee option is “in the money”. Since secondary guarantee UL policies are relatively new to the marketplace, credible experience has yet to emerge regarding policy and premium persistency; however, our assumptions represent our best estimate of future experience. See the Capital Resources section for discussion of statutory-basis reserving methodologies for these types of products.

     Interest margin on UL-type products increased 4.5% and 1.6% for the third quarter and year-to-date on fund balance growth of 4.6% and 4.1%. In the third quarter and first nine months, interest income of $1.8 and $5.3 in 2005 compared to $1.4 and $2.3 in 2004 was reflected within income taxes for certain tax-favored investments, favorably impacting the effective tax rate rather than interest margin. As discussed further below, the lower investment yield was primarily due to the general interest rate environment. We actively manage interest spreads on our fixed UL-type products in response to changes in investment yields by adjusting the rates credited to policyholder fund balances (up or down), while considering product pricing targets, policyholder value, and competitive conditions. The investment spread statistics that follow include the tax impact of benefits from certain securities discussed above that are reflected in income tax expense. The average investment spread on fixed UL products decreased 2 basis points to 1.89% for the third quarter,

and increased 2 basis points to 1.89% for the first nine months of 2005, compared to the comparable 2004 periods. Reductions in our crediting rates partially offset the reduction in investment yields for the third quarter and exceeded the reduction in investment yields year-to-date compared to the equivalent 2004 periods. Our ability to manage interest-crediting rates on fixed UL-type products is limited by minimum guaranteed rates provided in policyholder contracts. Therefore, continued low general market interest rates likely will impact future profitability as the investment of cash flows at current interest rates reduces our average portfolio yield. For the third quarter of 2005 and 2004, our average crediting rates were approximately 36 and 42 basis points in excess of our average minimum guaranteed rates (spread-to-guarantee), including 58% of our average UL policyholder fund balances that were already at their minimum guaranteed rates for both periods. Additionally, the spread-to-guarantee presented above was revised, effective January 1, 2005, to include the effect of non-guaranteed interest bonuses that management has the discretion to reduce. A large portion of the remaining spread-to-guarantee relates to products that are currently being marketed, sales of which could be negatively impacted if we reduced crediting rates further.

     The increases in product charge revenue for the third quarter and first nine months of 2005 were due to higher sales, continued growth and aging of our insurance blocks and a management action in the first quarter of 2005 to reduce non-guaranteed cost of insurance bonuses (partial refunds) on certain older UL-type life products. Cost of insurance charges (COIs) grew 6.1% for the quarter and 9.1% for the first nine months of 2005. The year-to-date increase was favorably impacted by $12.7 in the first quarter associated with the reduction in certain non-guaranteed COI bonus rates. These bonuses are paid to certain policyholders at specified policy anniversaries for continuing persistency. This reduction in bonus rates favorably impacts quarterly COI charges by approximately $1.5, through lower refunds of COIs, on a comparative basis. Excluding the impact of lower COI bonuses, COIs grew 5.0% and 5.2% for the third quarter and year-to-date from an increase in the average age of our insureds (this contributes to increased death benefits as well), timing of reinsurance premiums which vary with the proportion of new business issued exceeding retention limits, and growth in face amount of UL-type policies. Products issued in recent years are designed to generate a higher proportion of their revenues from expense charges. We defer expense charges received in excess of ultimate annual expense charges and amortize them into income relative to future estimated gross profits. In the third quarter of 2005 and 2004, we updated longer-term assumptions in estimated gross profits for certain insurance blocks (discussed further below) resulting in a $1.0 increase and a $3.7 decrease in amortization of unearned expense charges. Additionally, the adoption of new accounting guidance for secondary guarantee insurance products in the third quarter of 2004 decreased amortization of unearned expense charges by $3.0. For the first nine months of 2005 and 2004, unlocking adjustments reduced amortization of unearned expense charges by $0.6 and $6.8. Excluding the impact of these amortization adjustments, expense charges increased over 2004 for the quarter and the first nine months due to the impact of higher sales and changes in product mix. Surrenders of policies subject to a surrender charge decreased in 2005 for the quarter and year-to-date resulting in lower surrender charge income compared to the same periods of 2004.

     UL-type death benefits decreased $1.3 compared to the prior year quarter but increased $5.0 over the first nine months of 2004 as favorable mortality in the second and third quarters of 2005 did not offset the unfavorable mortality experienced in the first quarter. UL-type death benefits, net of reinsurance, per thousand dollars of average net face amount at risk (average face amount of insurance in force net of reinsurance and reduced by average policyholder fund balances) were $0.61 and $1.91 for the third quarter and first nine months of 2005 compared to $0.63 and $1.90 in the 2004 periods. Business growth and aging of our blocks will continue to contribute to increasing levels of UL-type death benefits. While over the long term death benefits should emerge within actuarial expectations, the level of death benefits will fluctuate from period to period. Other UL-type insurance benefits decreased $4.1 and increased $11.4 over the prior year quarter and first nine months, primarily due to growth in reserves related to secondary guarantees and other benefit features, with the third quarter comparison reflecting the impact of new accounting guidance for secondary guarantee insurance products adopted in the third quarter of 2004 that increased other UL-type insurance benefits for that quarter by $8.7. Growth in reserves related to secondary guarantees year-to-

date was due to higher sales of policies with these features and an increase in the amount of projected benefits that are attributable to the secondary guarantee benefit feature.

     The traditional block was impacted by the issuance of a supplementary contract that increased premiums and other considerations and benefits by $1.8. Excluding the impact of this transaction, traditional premiums and other considerations declined from the third quarter and first nine months of 2004, which is consistent with recent trends and reflects customer preferences for UL-type products. Net investment income from our traditional blocks declined period over period due to a decline in investment yields and the decreasing size of the block.

     Policy benefits on traditional business include death benefits, dividends, surrenders and changes in reserves, with the most significant being death benefits. Policy benefits as a percentage of premiums and other considerations were 112.9% and 113.4% in the third quarter and first nine months of 2005 compared to 112.4% and 112.8% in the 2004 periods.

     Individual expenses (including the net deferral and amortization of DAC and VOBA) were as follows:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2005				2004				Change				2005				2004				Change
Commissions		$	98.7			$	68.8				(43.5	)%		$	259.7			$	198.2				(31.0	)%
General and administrative – acquisition related			24.3				19.2				(26.6	)%			63.0				57.2				(10.1	)%
General and administrative – maintenance related			12.6				10.2				(23.5	)%			33.0				32.4				(1.9	)%
Taxes, licenses and fees			12.9				9.6				(34.4	)%			36.6				31.9				(14.7	)%
Total commissions and expenses incurred			148.5				107.8				(37.8	)%			392.3				319.7				(22.7	)%
Less commissions and expenses capitalized			(117.3	)			(78.2	)			50.0	%			(305.9	)			(229.3	)			33.4	%
Expenses excluding amortization of DAC and VOBA			31.2				29.6				(5.4	)%			86.4				90.4				4.4	%
Amortization of DAC and VOBA			55.9				38.6				(44.8	)%			153.9				143.7				(7.1	)%
Total expense		$	87.1			$	68.2				(27.7	)%		$	240.3			$	234.1				(2.6	)%

     Expenses excluding amortization of DAC and VOBA increased in the third quarter compared to 2004 due to the non-capitalized portion of higher marketing and distribution expenses, including start-up expenses associated with entry into a new market segment, and higher state income taxes. Expenses excluding amortization of DAC and VOBA decreased in the first nine months from the 2004 period due to higher capitalization of commission expenses and general and administrative expenses. The expense amounts we capitalize as DAC include first-year commissions and deferrable acquisition expenses. Gross commissions and acquisition-related expenses increased from higher sales resulting in a higher proportion of such expenses being capitalized. Taxes, licenses and fees increased for the third quarter and first nine months due to higher premium volumes in 2005 and state income tax accrual reductions of $1.7 and $4.8 recognized in the third quarter and first nine months of 2004. During the third quarter of 2005, we adjusted our assumptions for mortality and persistency on certain blocks of business resulting in an unlocking adjustment that reduced DAC amortization by $1.4. DAC amortization was increased by $1.7 for true-ups related to

favorable mortality experience and excess investment income. In the third quarter of 2004, we adjusted our assumptions for interest spreads, mortality and lapsation on certain blocks of business, resulting in a $13.8 reduction in DAC amortization. Additionally, the adoption of new accounting guidance for secondary guarantee products in the third quarter of 2004 changed the pattern of expected gross profits for the related products, resulting in a $7.5 decrease to amortization for the quarter and first nine months. On a year-to-date basis, unlocking adjustments reduced DAC amortization by $20.3 in 2005 and $27.4 in 2004. The unlocking adjustments in 2005 include the effect of the COI bonus accrual release in the first quarter, which reduced amortization of DAC and VOBA for UL-type products by $16.5. These adjustments to DAC amortization are partially offset by corresponding adjustments to unearned expense charges discussed above. Excluding unlocking adjustments, amortization of DAC and VOBA decreased period over period as the impact of growth in our UL-type insurance blocks was offset by the effect of favorable persistency and accounting for secondary guarantee benefit features, which extends the term of estimated gross profits and thereby reduces the rate of amortization.

     The growth in average Individual Products assets in 2005 was primarily due to growth in UL policyholder fund balances and market values of separate account assets, partially offset by declines in assets supporting our traditional block of business.

     Our financial and operating risks for this segment include failure to achieve pricing assumptions for interest margins, mortality, withdrawals and expenses; variances between actual and underlying assumptions of estimated gross profits, increased lapses when interest rates rise, particularly in fixed interest UL-type products subject to low or no surrender charges; increased lapses for $2 billion of UL policyholder fund balances sold to community banks that are serviced by two marketing organizations and are generally not subject to surrender charges; changes in taxation or other regulatory changes related to our products and competing offerings, such as the recent proposals affecting taxation of life insurance and competing products; changes in generally accepted or statutory accounting principles (such as the AXXX actuarial guideline discussed in Capital Resources); and the possible effects of litigation or regulatory matters. We discuss these risks in more detail in the Critical Accounting Policies and Estimates, Capital Resources, Liquidity, and Market Risk Exposures sections of our Form 10-K.

Annuity and Investment Products

     Annuity and Investment Products (AIP) are marketed through most of the distribution channels discussed in Individual Products above as well as through financial institutions, investment professionals and annuity marketing organizations. Jefferson Pilot Securities Corporation (JPSC), our registered non-clearing broker/dealer, markets primarily variable life insurance written by our insurance subsidiaries and other carriers, and also sells other securities and mutual funds.

     Reportable segment results ⁽¹⁾ for AIP were as follows:

		Three Months Ended												Nine Months Ended
		September 30,												September 30,
		2005				2004				Change				2005				2004				Change
Investment product charges and premiums		$	3.2			$	3.4				(5.9	)%		$	9.2			$	9.0				2.2	%
Net investment income			157.2				137.2				14.6	%			442.8				425.4				4.1	%
Broker-dealer concessions and other			31.1				25.6				21.5	%			92.4				84.5				9.3	%
Total revenue			191.5				166.2				15.2	%			544.4				518.9				4.9	%
Policy benefits (including interest credited)			104.8				100.3				(4.5	)%			300.4				307.6				2.3	%
Insurance expenses			21.0				14.6				(43.8	)%			63.3				45.4				(39.4	)%
Broker-dealer expenses			29.2				24.6				(18.7	)%			87.7				80.0				(9.6	)%
Total benefits and expenses			155.0				139.5				(11.1	)%			451.4				433.0				(4.2	)%
Reportable segment results before income taxes (1)			36.5				26.7				36.7	%			93.0				85.9				8.3	%
Income taxes			12.5				9.1				(37.4	)%			31.8				29.5				(7.8	)%
Reportable segment results (1)		$	24.0			$	17.6				36.4	%		$	61.2			$	56.4				8.5	%