CONSOLIDATED FINANCIAL STATEMENTS (unaudited):

Consolidated Balance Sheets (unaudited)

1

Consolidated Statements of Operations and Comprehensive Income (unaudited).

2

Consolidated Statements of Cash Flows (unaudited)

3

Notes to Consolidated Financial Statements (unaudited)

4

September 30,
2006

December 31,
2005

ASSETS

Bonds at fair value (amortized cost of $4,390,949 and $4,208,011)

$

4,564,943

$

4,370,469

Equity securities at fair value (cost of $54,517 and $54,370)

54,534

54,370

Short-term investments

68,253

133,283

Variable interest entities’ bonds at fair value (amortized cost of $1,128,563 and $1,155,832)

1,129,170

1,155,992

Variable interest entities’ guaranteed investments contracts at fair value (amortized cost approximates fair value)

945,294

1,021,791

Variable interest entities’ short-term investment portfolio

24,229

2,674

Total investment portfolio

6,786,423

6,738,579

Assets acquired in refinancing transactions:

Bonds at fair value (amortized cost of $48,887 and $65,865)

48,402

68,421

Securitized loans

250,634

296,965

Other

59,072

102,487

Total assets acquired in refinancing transactions

358,108

467,873

Total investments

7,144,531

7,206,452

Cash

85,208

10,376

Deferred acquisition costs

342,727

335,129

Prepaid reinsurance premiums

947,877

865,192

Reinsurance recoverable on unpaid losses

36,304

36,339

Other assets

1,276,333

1,162,562

TOTAL ASSETS

$

9,832,980

$

9,616,050

LIABILITIES, MINORITY INTEREST AND SHAREHOLDER’S EQUITY

Deferred premium revenue

$

2,543,750

$

2,380,600

Losses and loss adjustment expenses

220,507

205,718

Variable interest entities’ debt

2,852,851

2,708,773

Deferred federal income taxes

275,785

238,342

Notes payable to affiliate

342,871

463,575

Surplus notes

108,850

108,850

Minority interest

85,260

254,123

Accrued expenses and other liabilities

320,564

353,643

TOTAL LIABILITIES AND MINORITY INTEREST

6,750,438

6,713,624

COMMITMENTS AND CONTINGENCIES

Preferred stock (5,000.1 and 0 shares authorized; 0 shared issued and outstanding; par value of $1,000 per share)

Common stock (400 shares authorized; issued and outstanding; par value of $37,500 per share)

15,000

15,000

Additional paid-in capital—common

841,117

841,828

Accumulated other comprehensive income (net of deferred income taxes of $61,943 and $58,198)

115,008

108,082

Accumulated earnings

2,111,417

1,937,516

TOTAL SHAREHOLDER’S EQUITY

3,082,542

2,902,426

TOTAL LIABILITIES, MINORITY INTEREST AND SHAREHOLDER’S EQUITY

$

9,832,980

$

9,616,050