RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Standard Adopted on a Retrospective Basis

In October 2010, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that modified the definition of the types of costs incurred by insurance entities that could be capitalized in the acquisition of new and renewal contracts. The guidance impacts the timing of GAAP reported financial results, but has no impact on cash flows, statutory financial results or the ultimate profitability of the business.

The guidance specifies that an insurance entity shall only capitalize incremental direct costs related to the successful acquisition of new or renewal insurance contracts. The guidance also states that advertising costs should be included in deferred acquisition costs only if the capitalization criteria in the direct-response advertising guidance is met. The guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. As permitted by the guidance, we elected to apply the provisions on a retrospective basis. The guidance reduced the balance of deferred acquisition costs, its amortization and the amount of costs capitalized. We are able to defer most commission payments, plus other costs directly related to the production of new business. The change did not impact the balance of the present value of future profits. Therefore, in contrast to the reduction in amortization of deferred acquisition costs, there was no change in the amortization of the present value of future profits.

The adoption of ASU 2010-26 had the following impact on our consolidated balance sheet and consolidated statement of operations as of and for the three months ended March 31, 2012 (dollars in millions, except per share amounts):



	March 31, 2012
	Amounts prior to adoption of ASU 2010-26		Effect of adoption of ASU 2010-26			As reported
Deferred acquisition costs	$	1,580.4	$	(790.0	)	$	790.4
Income tax assets, net	525.0		294.9			819.9
Other assets	426.2		(23.9		)	402.3
Total assets	33,565.2		(519.0		)	33,046.2

Other liabilities	713.2		7.8			721.0
Total liabilities	28,355.4		7.8			28,363.2

Accumulated other comprehensive income	749.5		58.5			808.0
Retained earnings (accumulated deficit)	112.3		(585.3		)	(473.0		)
Total shareholders' equity	5,209.8		(526.8		)	4,683.0
Total liabilities and shareholders' equity	33,565.2		(519.0		)	33,046.2



	Three months ended
	March 31, 2012
	Amounts prior to adoption of ASU 2010-26		Effect of adoption of ASU 2010-26			As reported
Amortization	$	131.8	$	(45.2	)	$	86.6
Other operating costs and expenses	165.5		61.5			227.0
Total benefits and expenses	1,015.3		16.3			1,031.6
Income before income taxes	108.6		(16.3		)	92.3
Tax expense on period income	39.1		(5.9		)	33.2
Net income	69.5		(10.4		)	59.1

Earnings per common share:
Basic:
Net income	$	.29	$	(.04	)	$	.25
Diluted:
Net income	.25		(.04		)	.21

The adoption of ASU 2010-26 affected prior period information as follows (dollars in millions, except per share amounts):



	December 31, 2011
	As originally reported		Effect of adoption of ASU 2010-26			As adjusted
Deferred acquisition costs	$	1,418.1	$	(621.0	)	$	797.1
Income tax assets, net	630.5		234.9			865.4
Other assets	316.9		(24.7		)	292.2
Total assets	33,332.7		(410.8		)	32,921.9

Other liabilities	548.3		8.0			556.3
Total liabilities	28,300.1		8.0			28,308.1

Accumulated other comprehensive income	625.5		156.1			781.6
Retained earnings (accumulated deficit)	42.8		(574.9		)	(532.1		)
Total shareholders' equity	5,032.6		(418.8		)	4,613.8
Total liabilities and shareholders' equity	33,332.7		(410.8		)	32,921.9



	Three months ended
	March 31, 2011
	As originally reported		Effect of adoption of ASU 2010-26			As adjusted
Amortization	$	136.7	$	(41.8	)	$	94.9
Other operating costs and expenses	115.1		55.0			170.1
Total benefits and expenses	965.6		13.2			978.8
Income before income taxes	83.6		(13.2		)	70.4
Tax expense on period income	29.7		(4.7		)	25.0
Net income	53.9		(8.5		)	45.4

Earnings per common share:
Basic:
Net income	$	.21	$	(.03	)	$	.18
Diluted:
Net income	.19		(.03		)	.16



	Three months ended
	March 31, 2011
	As originally reported			Effect of adoption of ASU 2010-26			As adjusted
Cash flows from operating activities:
Deferrable policy acquisition costs	$	(109.4	)	$	56.2		$	(53.2	)
Other operating costs	(124.7		)	(56.2		)	(180.9		)
Net cash used by operating activities	155.3			—			155.3

Deferred acquisition costs represent incremental direct costs related to the successful acquisition of new or renewal insurance contracts. For universal life or investment products, we amortize these costs in relation to the estimated gross profits using the interest rate credited to the underlying policies. For other products, we amortize these costs in relation to future anticipated premium revenue using the projected investment earnings rate.

When we realize a gain or loss on investments backing our universal life or investment-type products, we adjust the amortization to reflect the change in estimated gross profits from the products due to the gain or loss realized and the effect on future investment yields. We also adjust deferred acquisition costs for the change in amortization that would have been recorded if our fixed maturity securities, available for sale, had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. We limit the total adjustment related to the impact of unrealized losses to the total of costs capitalized plus interest related to insurance policies issued in a particular year. We include the impact of this adjustment in accumulated other comprehensive income (loss) within shareholders' equity.

We regularly evaluate the recoverability of the unamortized balance of the deferred acquisition costs. We consider estimated future gross profits or future premiums, expected mortality or morbidity, interest earned and credited rates, persistency and expenses in determining whether the balance is recoverable. If we determine a portion of the unamortized balance is not recoverable, it is charged to amortization expense. In certain cases, the unamortized balance of the deferred acquisition costs may not be deficient in the aggregate, but our estimates of future earnings indicate that profits would be recognized in early periods and losses in later periods. In this case, we increase the amortization of the deferred acquisition costs over the period of profits, by an amount necessary to offset losses that are expected to be recognized in the later years.

Changes in deferred acquisition costs were as follows (dollars in millions):



	Three months ended
	March 31,
	2012			2011
Balance, beginning of period	$	797.1		$	999.6
Additions	46.2			53.2
Amortization	(56.8		)	(56.8		)
Amounts related to fair value adjustment of fixed maturities, available for sale	3.9			(6.7		)
Balance, end of period	$	790.4		$	989.3

Adopted Accounting Standards

In June 2011, the FASB issued authoritative guidance to increase the prominence of items reported in other comprehensive income by eliminating the option to present components of other comprehensive income as part of the statement of changes in shareholders' equity. Such guidance requires that all non-owner changes in shareholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income and the total of comprehensive income. The guidance was applied retrospectively and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this guidance resulted in a change in the presentation of our financial statements but did not have any impact on our financial condition, operating results or cash flows. In December 2011, the FASB issued authoritative guidance to defer the requirement to present reclassification adjustments out of accumulated other comprehensive income to net income on the face of the financial statements. All other aspects of the original guidance are still effective.

In May 2011, the FASB issued authoritative guidance which clarifies or updates requirements for measuring fair value and for disclosing information about fair value measurements. The guidance clarifies: (i) the application of the highest and best use and valuation premise concepts; (ii) measuring the fair value of an instrument classified in a reporting entity's shareholders' equity; and (iii) disclosure of quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy. The guidance changes certain requirements for measuring fair value or disclosing information about fair value measurements including: (i) measuring the fair value of financial instruments that are managed within a portfolio; (ii) application of premiums and discounts in a fair value measurement; and (iii) additional disclosures about fair value measurements. Such additional disclosures include a description of the valuation process used for measuring Level 3 instruments and the sensitivity of the Level 3 fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. The guidance was effective prospectively for interim and annual periods beginning after December 15, 2011. Refer to the note to our consolidated financial statements entitled "Fair Value Measurements" for additional disclosures required by this guidance. The adoption of this guidance expanded our disclosures, but did not have a material impact on our financial condition, operating results or cash flows.