4. Investing Activities (Tables)

6 Months Ended

Jun. 30, 2012

Notes to Financial Statements

Fair Value and Cost of Securities

Fair Value and Cost of Securities:	June 30, 2012
($ in thousands)			Gross		Gross				OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in AOCI(1)
U.S. government and agency	$	203,205	$	13,686	$	(373)	$	216,518	$	--
State and political subdivision		99,773		11,351		(487)		110,637		--
Foreign government		44,423		4,255		(62)		48,616		--
Corporate		1,462,223		114,901		(39,180)		1,537,944		(1,505)
Commercial mortgage-backed (“CMBS”)		261,834		18,862		(2,556)		278,140		(650)
Residential mortgage-backed (“RMBS”)		525,183		18,718		(18,013)		525,888		(21,660)
CDO/CLO		71,211		1,398		(10,088)		62,521		(6,132)
Other asset-backed		129,549		3,959		(570)		132,938		--
Available-for-sale debt securities	$	2,797,401	$	187,130	$	(71,329)	$	2,913,202	$	(29,947)

———————

⁽¹⁾ Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.

Fair Value and Cost of Securities:	December 31, 2011
($ in thousands)			Gross		Gross				OTTI
	Amortized		Unrealized		Unrealized		Fair		Recognized
	Cost		Gains		Losses		Value		in AOCI(1)
U.S. government and agency	$	163,132	$	12,653	$	(457)	$	175,328	$	--
State and political subdivision		77,323		5,518		(444)		82,397		--
Foreign government		30,473		1,825		(421)		31,877		--
Corporate		1,169,209		83,310		(44,142)		1,208,377		(1,505)
CMBS		281,616		12,283		(3,944)		289,955		(5,131)
RMBS		562,186		14,106		(22,773)		553,519		(20,396)
CDO/CLO		77,456		1,240		(10,680)		68,016		(6,220)
Other asset-backed		135,435		2,333		(845)		136,923		--
Available-for-sale debt securities	$	2,496,830	$	133,268	$	(83,706)	$	2,546,392	$	(33,252)

———————

⁽¹⁾ Represents the amount of non-credit OTTI losses recognized in AOCI excluding net unrealized gains or losses subsequent to the date of impairment.

Aging of Temporarily Impaired Securities

Aging of Temporarily Impaired	As of June 30, 2012
Debt Securities:	Less than 12 months				Greater than 12 months				Total
($ in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt Securities
U.S. government and agency	$	--	$	--	$	3,569	$	(373)	$	3,569	$	(373)
State and political subdivision		6,691		(88)		930		(399)		7,621		(487)
Foreign government		1,647		(62)		--		--		1,647		(62)
Corporate		83,037		(3,276)		70,481		(35,904)		153,518		(39,180)
CMBS		5,927		(79)		18,061		(2,477)		23,988		(2,556)
RMBS		20,125		(1,467)		111,135		(16,546)		131,260		(18,013)
CDO/CLO		6,475		(185)		35,962		(9,903)		42,437		(10,088)
Other asset-backed		8,714		(123)		6,469		(447)		15,183		(570)
Total temporarily impaired securities	$	132,616	$	(5,280)	$	246,607	$	(66,049)	$	379,223	$	(71,329)
Below investment grade	$	32,903	$	(1,993)	$	64,113	$	(44,034)	$	97,016	$	(46,027)
Number of securities				81				168				249

Aging of Temporarily Impaired	As of December 31, 2011
Debt Securities:	Less than 12 months				Greater than 12 months				Total
($ in thousands)	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Debt Securities
U.S. government and agency	$	--	$	--	$	3,485	$	(457)	$	3,485	$	(457)
State and political subdivision		15,419		(28)		913		(416)		16,332		(444)
Foreign government		7,231		(421)		--		--		7,231		(421)
Corporate		113,623		(3,707)		74,192		(40,435)		187,815		(44,142)
CMBS		59,478		(1,240)		6,924		(2,704)		66,402		(3,944)
RMBS		74,575		(2,809)		106,890		(19,964)		181,465		(22,773)
CDO/CLO		3,735		(110)		40,638		(10,570)		44,373		(10,680)
Other asset-backed		22,944		(190)		15,194		(655)		38,138		(845)
Total temporarily impaired securities	$	297,005	$	(8,505)	$	248,236	$	(75,201)	$	545,241	$	(83,706)
Below investment grade	$	26,187	$	(1,515)	$	76,237	$	(49,711)	$	102,424	$	(51,226)
Number of securities				193				180				373

Maturities of debt securities

Maturities of Debt Securities:	June 30, 2012				December 31, 2011
($ in thousands)	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due in one year or less	$	173,875	$	174,512	$	111,027	$	111,279
Due after one year through five years		304,940		323,357		268,596		284,081
Due after five years through ten years		761,612		814,554		572,731		604,800
Due after ten years		569,197		601,292		487,783		497,819
CMBS/RMBS/ABS/CDO/CLO		987,777		999,487		1,056,693		1,048,413
Total	$	2,797,401	$	2,913,202	$	2,496,830	$	2,546,392

Credit Losses Recognized in Earnings on Debt Securities

Credit Losses Recognized in Earnings on Debt Securities for	Three Months Ended				Six Months Ended
which a Portion of the OTTI Loss was Recognized in OCI:	June 30,				June 30,
($ in thousands)	2012		2011		2012		2011
Balance, beginning of period	$	(19,223)	$	(16,871)	$	(18,614)	$	(17,335)
Add: Credit losses on securities not previously impaired(1)		--		(277)		(374)		(527)
Add: Credit losses on securities previously impaired(1)		(549)		(100)		(784)		(344)
Less: Credit losses on securities impaired due to intent to sell		--		--		--		--
Less: Credit losses on securities sold		88		--		88		958
Less: Increases in cash flows expected on previously     impaired securities		--		--		--		--
Balance, end of period	$	(19,684)	$	(17,248)	$	(19,684)	$	(17,248)

———————

(1) Additional credit losses on securities for which a portion of the OTTI loss was recognized in AOCI are included within net OTTI losses recognized in earnings on the statements of comprehensive income.

Sources of Net Investment Income

Sources of Net Investment Income:	Three Months Ended				Six Months Ended
($ in thousands)	June 30,				June 30,
	2012		2011		2012		2011
Debt securities	$	31,471	$	23,390	$	61,066	$	43,832
Policy loans		805		773		1,587		1,493
Limited partnerships and other investments		759		388		923		588
Fair value option investments		(48)		146		48		420
Cash and cash equivalents		--		1		--		5
Total investment income		32,987		24,698		63,624		46,338
Less: Investment expenses		189		467		564		709
Net investment income	$	32,798	$	24,231	$	63,060	$	45,629

Sources and Types of Net Realized Investment Gains (Losses)

Sources and Types of	Three Months Ended				Six Months Ended
Net Realized Investment Gains (Losses):	June 30,				June 30,
($ in thousands)	2012		2011		2012		2011
Total other-than temporary debt impairment losses	$	(3,003)	$	(782)	$	(4,089)	$	(1,662)
Portion of loss recognized in OCI		2,390		346		2,817		732
Net debt impairment losses recognized in earnings	$	(613)	$	(436)	$	(1,272)	$	(930)
Debt security impairments:
U.S. government and agency	$	--	$	--	$	--	$	--
State and political subdivision		--		--		--		--
Foreign government		--		--		--		--
Corporate		--		--		--		(250)
CMBS		--		--		(88)		--
RMBS		(549)		(377)		(1,070)		(621)
CDO/CLO		(26)		--		(26)		--
Other asset-backed		(38)		(59)		(88)		(59)
Net debt security impairments		(613)		(436)		(1,272)		(930)
Limited partnerships and other investment impairments		--		--		--		--
Impairment losses		(613)		(436)		(1,272)		(930)
Debt security transaction gains(1)		151		1,596		258		2,227
Debt security transaction losses(1)		(36)		(260)		(84)		(585)
Limited partnerships and other investment transaction gains		--		--		--		--
Limited partnerships and other investment transaction losses		--		--		--		--
Net transaction gains		115		1,336		174		1,642
Derivative instruments		5,848		1,470		(17,680)		(11,871)
Embedded derivatives(2)		(12,394)		(4,559)		3,962		4,508
Net realized investment losses, excluding impairment losses		(6,431)		(1,753)		(13,544)		(5,721)
Net realized investment losses, including impairment losses	$	(7,044)	$	(2,189)	$	(14,816)	$	(6,651)

———————

⁽¹⁾ Proceeds from the sale of available-for-sale debt securities were $79,105 thousand and $104,410 thousand for the three months ended June 30, 2012 and 2011, respectively. Proceeds from the sale of available-for-sale debt securities were $80,796 thousand and $202,691 thousand for the six months ended June 30, 2012 and 2011, respectively.

⁽²⁾ Includes the change in fair value of embedded derivatives associated with variable annuity GMWB, GMAB, GPAF and COMBO riders. See Note 5 to these financial statements for additional disclosures.

Sources of Changes in Net Unrealized Investment Gains (Losses)

Sources of Changes in	Three Months Ended				Six Months Ended
Net Unrealized Investment Gains (Losses):	June 30,				June 30,
($ in thousands)	2012		2011		2012		2011
Debt securities	$	45,860	$	16,845	$	66,239	$	30,416
Other investments		(48)		163		(8)		270
Net unrealized investment gains	$	45,812	$	17,008	$	66,231	$	30,686
Net unrealized investment gains	$	45,812	$	17,008	$	66,231	$	30,686
Applicable deferred policy acquisition cost		18,445		11,436		27,183		16,113
Applicable deferred income tax expense (benefit)		9,578		(6,299)		13,666		(549)
Offsets to net unrealized investment gains		28,023		5,137		40,849		15,564
Net unrealized investment gains included in OCI	$	17,789	$	11,871	$	25,382	$	15,122