The following discussion of the financial condition and results of operations of UTG, Inc. and its subsidiaries (collectively, the "Company") should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company and the related Notes thereto appearing in the Company's annual report on Form 10-K for the year ended December 31, 2011, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.

Cautionary Statement Regarding Forward-Looking Statements

Any forward-looking statement contained herein or in any other oral or written statement by the Company or any of its officers, directors or employees is qualified by the fact that actual results of the Company may differ materially from any such statement due to the following important factors, among other risks and uncertainties inherent in the Company's business:

        Prevailing interest rate levels, which may affect the ability of the
        Company to sell its products, the market value of the Company's
   1.   investments and the lapse ratio of the Company's policies,
        notwithstanding product design features intended to enhance persistency
        of the Company's products.

   2.   Changes in the federal income tax laws and regulations which may affect
        the relative tax advantages of the Company's products.

        Changes in the regulation of financial services, including bank sales
   3.   and underwriting of insurance products, which may affect the competitive
        environment for the Company's products.

        Other factors affecting the performance of the Company, including, but
        not limited to, market conduct claims, insurance industry insolvencies,
   4.   insurance regulatory initiatives and developments, stock market
        performance, an unfavorable outcome in pending litigation, and
        investment performance.

Overview

UTG, Inc., a Delaware corporation, is a life insurance holding company. The Company's dominant business is individual life insurance, which includes the servicing of existing insurance policies in force, the acquisition of other companies in the life insurance business and the administration and processing of life insurance business for other entities. The Company's focus for the future includes growing the administrative portion of the business.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company's critical accounting policies and the related estimates considered most significant by management are disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2011. Management has identified the accounting policies related to cost of insurance acquired, assumptions and judgments utilized in determining if declines in fair values of investments are other-than-temporary, and valuation methods for investments that are not actively traded as those, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Condensed Consolidated Financial Statements and this Management's Discussion and Analysis.

During the six months ended June 30, 2012, there were no additions to or changes in the critical accounting policies disclosed in the 2011 Form 10-K, except for recently adopted accounting standards discussed in Note 2 of the Notes to the Condensed Consolidated Financial Statements.

Results of Operations

(a) Revenues

The Company's premium and policy fee revenues, net of reinsurance, were approximately $2.6 million for the second quarter of 2012 (a decrease of less than one percent compared to the second quarter of 2011) and approximately $5.2 million for the six months ended June 30, 2012 (a decrease of 6% compared to the corresponding period ended in 2011). Unless the Company acquires a block of in-force business management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience.

The Company's primary source of new business production, which has been immaterial, comes from internal conservation efforts. Several of the customer service representatives of the Company are also licensed insurance agents, allowing them to offer other products within the Company's portfolio to existing customers. Additionally, efforts continue to be made in policy retention through more personal contact with the customer including telephone calls to discuss alternatives and reasons for a customer's request to surrender their policy.

Net investment income decreased approximately 56% when comparing 2012 and 2011 second quarter results and 21% when comparing the six months ended June 30, 2012 to the same period in 2011. The decrease in investment income for the six months ended June 30, 2012 and the second quarter ended 2012, in comparison to the same periods in 2011, is attributable to activity in the trading securities portfolio and the mortgage loan portfolio.

During the second quarter of 2012, the Company experienced a slight loss of income in the trading securities portfolio while during the second quarter of 2011, the Company recorded approximately $3 million in income from the trading securities investment portfolio. For the six months ended June 30, 2012 and 2011, the Company recognized investment income of approximately $2 million and $4.7 million, respectively, from the trading securities portfolio. The decrease in trading securities income in 2012, in comparison to 2011, is a result of a reallocation of the Company's investment portfolio beginning during the third quarter of 2011. Management made the decision to scale back the Company's trading securities investing activities and allocate additional funds to the fixed maturities investment portfolio, based upon adverse experience in the trading securities portfolio in the third quarter of 2011.

During 2012, the Company has seen a positive turn in earnings from the trading securities. Volatility as well as possible losses should be expected in the trading securities portfolio. Management's target return on the trading securities portfolio is 6% to 8%.

The Company received less income from mortgage loans, including discounted mortgage loans, during the second quarter of 2012 and the first six months of 2012 compared to the same periods in 2011. During the second quarter of 2012 and 2011, the Company received mortgage loan interest of approximately $1.2 million and $1.8 million, respectively. During the six months ended June 30, 2012 and 2011, the Company recorded mortgage loan interest of $2.8 million and $5.2 million, respectively, which mainly attributable to discounted mortgage loan activity. This decrease is due to fewer discounted mortgage loan settlements.

Should any of the factors change, such as the ability to acquire additional loans at such a large discount due to increased competition or insufficient supply, the ability of borrowers to settle loans mainly through refinancing, another decline in the overall economy, and other such factors, the performance of this type of investment could abruptly end, directly affecting future net income. While management believes the current portfolio would remain profitable in another downturn, with no source of new acquisitions of discounted loans, the future profit stream from this activity would be limited. Alternatively, should the Company need to look at fixed maturities for additional investment if discounted loans were no longer a viable option, the rate of return would be significantly lower given the low interest rate environment also resulting in substantially lower income.

The Company's investments are generally managed to match related insurance and policyholder liabilities. The comparison of investment return with insurance or investment product crediting rates establishes an interest spread. The Company monitors investment yields, and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads, ranging from 1% to 2%. Interest crediting rates on adjustable rate policies have been reduced to their guaranteed minimum rates, and as such, cannot lower them any further.

Policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary.

Therefore, it takes a full year from the time the change was determined for the full impact of such change to be realized. If interest rates decline in the future, the Company won't be able to lower rates and both net investment income and net income will be impacted negatively.

The Company had net realized investment gains of approximately $3.8 million and $100,000 for the second quarter of 2012 and 2011, respectively and approximately $11 million and $1.7 million for the six months ended June 30, 2012 and 2011, respectively. The increase in net realized gains in 2012, in comparison to 2011, is mainly attributable to the sale of bonds and certain real estate investments.

During 2012, the Company reported realized gains of approximately $9 million from the sale of bonds, primarily U.S. Treasury holdings. Additionally, realized gains of approximately $1.7 million were recognized from the sale of real estate.

During the fourth quarter of 2011 and first six months of 2012, the Company took advantage of the unusually high price spreads on U.S. government treasury securities relative to other types of bonds in the marketplace, by selling a majority of its U.S. treasury holdings. The Company has redeployed a majority of its excess cash balances into BBB and BB rated corporate debt issues.

Included in fixed maturity purchases, the Company purchased approximately $66,509,000 and $22,325,000 of BBB and BB rated corporate debt issues, respectively. These corporate debt issues have an average interest yield of 5.03%. Interest spreads on these investments are higher than historic trends and Management believes this is an opportunity to enhance yield and provide more recurring investment income. Lower rated bonds are viewed by the marketplace to inherently hold more default risk. The trade-off on this risk is a higher interest yield. Each investment is analyzed prior to acquisition to determine if Management is comfortable with the increased risk relative to the yield.

Management believes there are opportunities currently available in this area where certain corporate bond issues have been more harshly impacted by the marketplace than may really be justified. It is this type of bond Management is primarily searching for to invest in.

Management continues to view the Company's investment portfolio with utmost priority. Significant time has been spent internally researching the Company's risk and communicating with outside investment advisors about the current investment environment and ways to ensure preservation of capital and mitigate any losses. Management has put extensive efforts into evaluating the investment holdings. Additionally, members of the Company's board of directors and investment committee have been solicited for advice and provided with information. Management has reviewed the Company's entire portfolio on a security level basis to be sure all understand our holdings, potential risks and underlying credit supporting the investments. Management intends to continue its close monitoring of its bond holdings and other investments for additional deterioration or market condition changes. Future events may result in Management's determination certain current investment holdings may need to be sold which could result in gains or losses in future periods. Such future events could also result in other than temporary declines in value that could result in future period impairment losses.

There are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if impairment is other-than-temporary. These risks and uncertainties related to management's assessment of other than temporary declines in value include but are not limited to: the risk that Company's assessment of an issuer's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer; the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; the risk that fraudulent information could be provided to the Company's investment professionals who determine the fair value estimates.

Other income primarily represented revenues received relating to the performance of administrative work as a TPA for unaffiliated life insurance companies, which has remained consistent over the periods presented. The Company receives monthly fees based on policy in force counts and certain other activity indicators such as number of policies issued. Management remains committed to the pursuit of additional TPA clients and believes this area continues to show potential for growth.

(b) Expenses

Life benefits, claims and settlement expenses, net of reinsurance benefits and claims, increased approximately 13% in the sixth month period ended June, 30 2012 compared to the same period in 2011 and by approximately 12% for the second quarter 2012, compared to the same quarter in 2011 due to higher claims. Policy claims vary from period to period and therefore, fluctuations in mortality are to be expected and are not considered unusual by management.

Commissions and amortization of deferred policy acquisition costs decreased approximately 34% in the six month period ended June 30, 2012 compared to the same period in 2011 and by approximately 40% for the second quarter 2012, compared to the same quarter in 2011. The majority of this number is driven by a financial reinsurance agreement. The earnings on the block of business covered by this agreement are utilized to re-pay the original borrowed amount.

The commission allowance reported each period from this agreement represents the net earnings on the identified policies covered by the agreement in each reporting period. As financial reinsurance, all financial results relating to this block of business are utilized to repay the outstanding borrowed amount from the reinsurer. Securities are specifically identified and segregated in a trust account relative to this arrangement. Should a gain or loss occur on one of these identified securities in the trust account, the results are included in the calculation of the current period financial results of the treaty with the reinsurer. While the agreement may result in variances in this line item, this arrangement has no material impact on net income. A liability for the original ceding commission was established at the origination of the agreement and is amortized through this line item as earnings on the block of business are realized. Another significant factor is attributable to the Company paying fewer commissions since the Company writes very little new business and renewal premiums on existing business continue to decline. Most of the Company's agent agreements contained vesting provisions, which provide for continued compensation payments to agents upon their termination subject to certain minimums and often limited to a specific period of time. Another factor is attributable to normal amortization of the deferred policy acquisition costs asset. The Company reviews the recoverability of the asset based on current trends and known events compared to the assumptions used in the establishment of the original asset. No impairments were recorded in any of the periods presented.

Net amortization of cost of insurance acquired decreased approximately 7% in the six month period ended June 30, 2012 compared to the same period in 2011 and by approximately 7% for the second quarter 2012 compared to the same quarter in 2011. Cost of insurance acquired is amortized with interest in relation to expected future profits, including direct charge-offs for any excess of the unamortized asset over the projected future profits. The Company utilizes a 12% discount rate on the remaining unamortized business. The interest rates may vary due to risk analysis performed at the time of acquisition on the business acquired. The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised.

Amortization of cost of insurance acquired is particularly sensitive to changes in interest rate spreads and persistency of certain blocks of insurance in-force. This expense is expected to decrease, unless the Company acquires a new block of business.

Operating expenses increased approximately 28% in the six month period ended June 30, 2012 in comparison to the same period in 2011 and by approximately 17% for the second quarter 2012 in comparison to the same quarter in 2011. The increase in 2012 expenses, in comparison to 2011, is primarily attributable to an increase in legal expenses, charitable contributions and new aircraft use agreement.

The Company's legal expenses increased approximately $250,000 when comparing the six month period ended June 30, 2012 to the same period in 2011 and by approximately $42,000 when comparing the second quarter of 2012 to the second quarter of 2011. The increase in legal expenses is primarily attributable to the merger of American Capitol and the ACAP dissenters' lawsuit.

The Company's charitable contributions increased by approximately 47% when comparing the six month period ended June 30, 2012 to the same period in 2011. Charitable contributions decreased by approximately 57% when comparing the second quarter 2012 to the same quarter in 2011. Charitable contributions are expected to vary from quarter to quarter and year to year depending on the earnings of the Company.

Additionally, in August 2011, the Company entered into a new agreement relating to the use of an aircraft. This agreement resulted in increased expenses of approximately $25,000 per month, beginning in January 2012.

Management continues to place significant emphasis on expense monitoring and cost containment. Maintaining administrative efficiencies directly impacts net income.

Interest expense increased approximately 10% in the first six months of 2012 compared to the same period in 2011. The increase in interest expense during 2012 is mainly attributable to interest from the long-term debt and increased use of lines of credit. Interest expense increased less than 1% when comparing the second quarter of 2012 to the same quarter in 2011.

(c) Net Income/Loss

The Company reported net income attributable to common shareholders' of approximately $6.7 million during the six month period ended June 30, 2012, an increase of approximately 44% in comparison to the same period in 2011. Second quarter 2012 net income was $1.4 million, an increase of approximately 15% in comparison to the second quarter of 2011. The increase in net income is mainly attributable to realized gains on bonds sold, which was partially offset by an increase in operating expenses.

Future earnings will be significantly negatively impacted should earnings from these one-time items not be realizable in a future period. While management believes there remain additional investments with such one-time earnings, when or if realized remains uncertain.

Financial Condition

Total shareholders' equity increased by less than 1% as of June 30, 2012 compared to December 31, 2011. Retained earnings increased by approximately 53% as of June 30, 2012. The increase in retained earnings is attributable to the current year earnings of the Company. The increase in retained earnings was offset by a decrease of approximately 55% in accumulated other comprehensive income. The decrease in accumulated other comprehensive income is due to the change in the unrealized values on investments.

Investments represent approximately 76% and 61% of total assets at June 30, 2012 and December 31, 2011, respectively. Accordingly, investments are the largest asset group of the Company. The Company's insurance subsidiaries are regulated by insurance statutes and regulations as to the type of investments that they are permitted to make and the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, the majority of the Company's investment portfolio is invested in a diverse set of securities.

As of June 30, 2012, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets, shareholders' equity or results from operations. To provide additional flexibility and liquidity, the Company has identified all fixed maturity securities as "investments held for sale". Investments held for sale are carried at market, with changes in market value charged directly to shareholders' equity.

In April 2012, the Company received the necessary approvals and completed the merger of its two 100% owned insurance subsidiaries, with American Capitol Insurance Company being merged into Universal Guaranty Life Insurance Company.

This transaction was done to provide the Company with additional administrative efficiencies and cost savings related to maintaining separate legal entities.

Liquidity and Capital Resources

The Company has three principal needs for cash - the insurance companies' contractual obligations to policyholders, the payment of operating expenses and debt service. Cash and cash equivalents as a percentage of total assets were approximately 4% and 19% as of June 30, 2012, and December 31, 2011, respectively. Fixed maturities as a percentage of total assets were approximately 38% and 29% as of June 30, 2012 and December 31, 2011, respectively.

The Company currently has access to funds for operating liquidity. UTG has a $5,000,000 revolving credit note with First Tennessee Bank National Association.

The revolving credit note was increased at renewal, during 2011, to provide for additional operating liquidity and flexibility for current operations. On April 6, 2011, UTG Avalon was extended a credit note from First National Bank of Tennessee for $5,000,000. UG is a member of the FHLB which allows UG access to credit. UG's current line of credit with the FHLB is $15,000,000. At June 30, 2012, the Company had $6,075,000 of outstanding borrowings attributable to the lines of credit.

Future policy benefits are primarily long-term in nature and therefore, the Company's investments are predominantly in long-term fixed maturity investments such as bonds and mortgage loans which provide sufficient return to cover these obligations.

Many of the Company's products contain surrender charges and other features which reward persistency and penalize the early withdrawal of funds. With respect to such products, surrender charges are generally sufficient to cover the Company's unamortized deferred policy acquisition costs with respect to the policy being surrendered.

Net cash provided by (used in) operating activities was $(4,273,933) and $2,545,816 for the six months ending June 30, 2012 and 2011, respectively.

Net cash used in investing activities was $(62,102,530) and $(2,718,514) for the six month period ending June 30, 2012 and 2011, respectively. During the first six months of 2012, more emphasis was placed on the sale of U.S. treasury holdings and re-deploying the cash through the purchase of BBB and BB rated corporate bonds.

Net cash provided by (used in) financing activities was $(899,400) and $3,158,137 for the six month period ending June 30, 2012 and 2011, respectively.

At June 30, 2012, the Company had $9,591,220 of debt outstanding. At December 31, 2011, the Company had $9,531,645 of debt outstanding. The debt is primarily attributable to the acquisition of ACAP at the end of 2006 and the borrowings on the line of credit to purchase investments.

UTG is a holding company that has no day-to-day operations of its own. Funds required to meet its expenses, generally costs associated with maintaining the company in good standing with states in which it does business and the servicing of its debt, are primarily provided by its subsidiaries. On a parent only basis, UTG's cash flow is dependent on management fees received from its insurance subsidiaries, stockholder dividends from its subsidiaries and earnings received on cash balances. At June 30, 2012, substantially all of the consolidated shareholders equity represents net assets of its subsidiaries. The Company's insurance subsidiaries have maintained adequate statutory capital and surplus. The payment of cash dividends to shareholders by UTG is not legally restricted. However, the state insurance department regulates insurance company dividend payments where the company is domiciled. No dividends were paid to shareholders in 2011 or the first six months of 2012.

UG is an Ohio domiciled insurance company, which requires notification within five business days to the insurance commissioner following the declaration of any ordinary dividend and at least ten calendar days prior to payment of such dividend. Ordinary dividends are defined as the greater of: a) prior year statutory net income or b) 10% of statutory capital and surplus. For the year ended December 31, 2011, UG had statutory net income of $582,217. At December 31, 2011 UG's statutory capital and surplus amounted to $33,167,222.

Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. During the first six months of 2012, UG paid UTG ordinary dividends of $384,722. In July 2012, UG paid a dividend of $1,602,000 to UTG. UTG used this dividend to pay off a portion of its long-term debt and line of credit.

Management believes the overall sources of liquidity available will be sufficient to satisfy the Company's financial obligations.