Deferred Policy Acquisition Costs

6 Months Ended

Jun. 30, 2011

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs:	Three Months Ended				Six Months Ended
($ in thousands)	June  30,				June  30,
	2011		2010		2011		2010
Policy acquisition costs deferred	$	31,155	$	(1,050)	$	67,616	$	2,068
Costs amortized to expenses:
Recurring costs		(28,928)		(42,418)		(67,823)		(82,092)
Realized investment gains (losses)		32		349		(125)		1,566
Offsets to net unrealized investment gains or losses included in   accumulated other comprehensive income(1)		(13,390)		(15,696)		(18,660)		(73,783)
Other		2,569		6,378		6,428		11,491
Change in deferred policy acquisition costs		(8,562)		(52,437)		(12,564)		(140,750)
Deferred policy acquisition costs, beginning of period		590,124		749,254		594,126		837,567
Deferred policy acquisition costs, end of period	$	581,562	$	696,817	$	581,562	$	696,817

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⁽¹⁾ An offset to deferred policy acquisition costs and accumulated other comprehensive income (“AOCI”) is recorded each period to the extent that, had unrealized holding gains or losses from securities classified as available-for-sale actually been realized, an adjustment to deferred policy acquisition costs amortized using gross profits or gross margins would result.

We amortize deferred policy acquisition costs based on the related policy’s classification. For universal life, variable universal life and accumulation annuities, deferred policy acquisition costs are amortized in proportion to EGPs.

The projection of EGPs requires the use of various assumptions, estimates and judgments about the future. Assumptions considered to be significant in the development of EGPs include separate account fund performance, surrender and lapse rates, interest margin, mortality, premium persistency, funding patterns, expenses and reinsurance costs and recoveries. These assumptions are reviewed on a regular basis and are based on our past experience, industry studies, regulatory requirements and estimates about the future.

We conduct a comprehensive assumption review on an annual basis, or as circumstances warrant. Upon completion of these assumption reviews, we revise our assumptions to reflect our current best estimate, thereby changing our estimate of EGPs in the deferred policy acquisition cost amortization models. The deferred policy acquisition cost asset is then adjusted with an offsetting benefit or charge to income to reflect such changes in the period of the revision, a process known as “unlocking.”

During the three and six months ended June 30, 2011 and 2010, it was determined that an unlocking was not warranted.