FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

6 Months Ended

Jun. 30, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS

Schedule of assets and liabilities measured at fair value on a recurring basis

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,127,240	$	4	$	2,127,244
Commercial mortgage-backed securities	—		745,831		—		745,831
Other asset-backed securities	—		337,103		584,641		921,744
U.S. government-related securities	784,615		532,598		—		1,317,213
States, municipals, and political subdivisions	—		1,391,811		4,275		1,396,086
Other government-related securities	—		88,156		20,020		108,176
Corporate bonds	204		19,020,038		172,145		19,192,387
Total fixed maturity securities - available-for-sale	784,819		24,242,777		781,085		25,808,681
Fixed maturity securities - trading
Residential mortgage-backed securities	—		374,068		—		374,068
Commercial mortgage-backed securities	—		192,125		—		192,125
Other asset-backed securities	—		69,543		65,059		134,602
U.S. government-related securities	310,197		252		—		310,449
States, municipals, and political subdivisions	—		259,486		—		259,486
Other government-related securities	—		58,125		—		58,125
Corporate bonds	—		1,694,650		114		1,694,764
Total fixed maturity securities - trading	310,197		2,648,249		65,173		3,023,619
Total fixed maturity securities	1,095,016		26,891,026		846,258		28,832,300
Equity securities	222,303		21,930		69,795		314,028
Other long-term investments (1)	23,615		56,744		25,315		105,674
Short-term investments	88,348		—		—		88,348
Total investments	1,429,282		26,969,700		941,368		29,340,350
Cash	118,785		—		—		118,785
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	7,949,926		—		—		7,949,926
Variable universal life	530,630		—		—		530,630
Total assets measured at fair value on a recurring basis	$	10,028,623	$	26,969,700	$	941,368	$	37,939,691
Liabilities:
Annuity account balances (2)	$	—	$	—	$	134,597	$	134,597
Other liabilities (1)	17,424		15,817		516,587		549,828
Total liabilities measured at fair value on a recurring basis	$	17,424	$	15,817	$	651,184	$	684,425

(1)  Includes certain freestanding and embedded derivatives.

(2)  Represents liabilities related to equity indexed annuities.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2011:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,337,037	$	7	$	2,337,044
Commercial mortgage-backed securities	—		550,527		—		550,527
Other asset-backed securities	—		298,216		614,813		913,029
U.S. government-related securities	664,506		536,173		15,000		1,215,679
States, municipals, and political subdivisions	—		1,327,713		—		1,327,713
Other government-related securities	—		93,017		—		93,017
Corporate bonds	204		18,440,822		119,565		18,560,591
Total fixed maturity securities - available-for-sale	664,710		23,583,505		749,385		24,997,600
Fixed maturity securities - trading
Residential mortgage-backed securities	—		313,963		—		313,963
Commercial mortgage-backed securities	—		190,247		—		190,247
Other asset-backed securities	—		29,585		28,343		57,928
U.S. government-related securities	555,601		255		—		555,856
States, municipals, and political subdivisions	—		229,032		—		229,032
Other government-related securities	—		44,845		—		44,845
Corporate bonds	—		1,568,094		—		1,568,094
Total fixed maturity securities - trading	555,601		2,376,021		28,343		2,959,965
Total fixed maturity securities	1,220,311		25,959,526		777,728		27,957,565
Equity securities	211,023		11,310		70,080		292,413
Other long-term investments (1)	27,757		7,785		19,103		54,645
Short-term investments	101,470		—		—		101,470
Total investments	1,560,561		25,978,621		866,911		28,406,093
Cash	169,775		—		—		169,775
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	6,741,959		—		—		6,741,959
Variable universal life	502,617		—		—		502,617
Total assets measured at fair value on a recurring basis	$	8,974,912	$	25,978,621	$	866,911	$	35,820,444
Liabilities:
Annuity account balances (2)	$	—	$	—	$	136,462	$	136,462
Other liabilities (1)	2,727		15,370		437,613		455,710
Total liabilities measured at fair value on a recurring basis	$	2,727	$	15,370	$	574,075	$	592,172

(1)  Includes certain freestanding and embedded derivatives.

(2)  Represents liabilities related to equity indexed annuities.

Schedule of inputs for available-for-sale ABSs classified as Level 3

Investment grade credit rating	100.0%
Weighted-average yield	1.1%
Par Value	$643.8 million
Weighted-average life	12.0 years

Schedule of weighted-average inputs for bonds and securities classified as Level 3

Investment grade credit rating	66.7%
Weighted-average market yield	4.4%
Weighted-average coupon	5.4%
Par Value	$265.4 million
Weighted-average stated maturity	6.1 years

Schedule of valuation method for material financial instruments included in Level 3, as well as the unobservable inputs used in the valuation of those financial instruments

	Fair Value
	As of		Valuation	Unobservable	Range
	June 30, 2012		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Asset-backed securities(1)	$	584,641	Discounted cash flow	Liquidity premium	0.55 - 1.67% (1.15%)
				Paydown rate	7.22 - 12.46% (9.52%)
Other government securities	20,020		Discounted cash flow	Spread over treasury	0.05%
Corporate bonds	107,254		Discounted cash flow	Spread over treasury	0.20 - 4.35% (0.92%)
Liabilities:
Embedded derivatives - GMWB(1)	$	182,262	Actuarial cash flow model	Mortality	58% of 1994 GMDB table
				Lapse	0% - 16%, depending on product/duration/fundedness of guarantee
				Utilization	92% - 100%
				Nonperformance risk	0.71% - 1.93%
Annuity account balances(2)	134,597		Actuarial cash flow model	Asset earned rate	5.89%
				Expenses	$78 - $93 per policy
				Withdrawal rate	2.20%
				Mortality	65% of 1994 GMDB table
				Lapse	2.2% - 55.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85 % depending on surrender charge period
				Nonperformance risk	0.71% - 1.93%

(1)The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.

(2)Represents liabilities related to equity indexed annuities.

Schedule of reconciliation of the beginning and ending balances for fair value measurements, for which the Company has used significant unobservable inputs (Level 3)

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended June 30, 2012, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	4	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	587,613		—		4,026		—			(6,969		)	—		—			—		—		—		(29		)	584,641		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—		—			4,275		—
Other government-related securities	20,006		—		18		—			—			—		—			—		—		—		(4		)	20,020		—
Corporate bonds	137,940		—		1,666		—			(683		)	—		(1,956		)	—		—		35,058		120			172,145		—
Total fixed maturity securities - available-for-sale	749,838		—		5,710		—			(7,652		)	—		(1,956		)	—		—		35,058		87			781,085		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	54,961		32		—		(588		)	—			13,342		(3,266		)	—		—		—		578			65,059		(555		)
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	1		—		—		—			—			—		—			—		—		113		—			114		—
Total fixed maturity securities - trading	54,962		32		—		(588		)	—			13,342		(3,266		)	—		—		113		578			65,173		(555		)
Total fixed maturity securities	804,800		32		5,710		(588		)	(7,652		)	13,342		(5,222		)	—		—		35,171		665			846,258		(555		)
Equity securities	70,719		—		25		—			(949		)	—		—			—		—		—		—			69,795		—
Other long-term investments (1)	32,176		600		—		(7,461		)	—			—		—			—		—		—		—			25,315		(6,861		)
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	907,695		632		5,735		(8,049		)	(8,601		)	13,342		(5,222		)	—		—		35,171		665			941,368		(7,416		)
Total assets measured at fair value on a recurring basis	$	907,695	$	632	$	5,735	$	(8,049	)	$	(8,601	)	$	13,342	$	(5,222	)	$	—	$	—	$	35,171	$	665		$	941,368	$	(7,416	)
Liabilities:
Annuity account balances (2)	$	137,238	$	—	$	—	$	1,143		$	—		$	—	$	—		$	103	$	3,887	$	—	$	—		$	134,597	$	—
Other liabilities (1)	389,812		8,748		—		135,523			—			—		—			—		—		—		—			516,587		(126,775		)
Total liabilities measured at fair value on a recurring basis	$	527,050	$	8,748	$	—	$	136,666		$	—		$	—	$	—		$	103	$	3,887	$	—	$	—		$	651,184	$	(126,775	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended June 30, 2011, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	19	$	—	$	—	$	—		$	—		$	—	$	(12	)	$	—	$	—	$	—	$	—		$	7	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	639,407		1,786		1,751		(2,133		)	(3,050		)	109,148		(109,148		)	—		—		—		(15		)	637,746		—
U.S. government-related securities	15,084		—		—		—			(87		)	—		—			—		—		—		3			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	64,871		—		1,471		—			(287		)	40,000		(764		)	—		—		12,698		—			117,989		—
Total fixed maturity securities - available-for-sale	719,381		1,786		3,222		(2,133		)	(3,424		)	149,148		(109,924		)	—		—		12,698		(12		)	770,742		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	41,713		329		—		(457		)	—			3,792		(5,060		)	—		—		—		776			41,093		(128		)
U.S. government-related securities	3,384		130		—		—			—			—		—			—		—		—		(2		)	3,512		130
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		—		—		—			—			—		—			—		—		42,041		—			42,041		374
Total fixed maturity securities - trading	45,097		459		—		(457		)	—			3,792		(5,060		)	—		—		42,041		774			86,646		376
Total fixed maturity securities	764,478		2,245		3,222		(2,590		)	(3,424		)	152,940		(114,984		)	—		—		54,739		762			857,388		376
Equity securities	69,038		49		—		—			(745		)	1,962		(49		)	—		—		21		—			70,276		—
Other long-term investments (1)	32,372		1,781		—		(372		)	—			—		—			—		—		—		—			33,781		1,409
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	865,888		4,075		3,222		(2,962		)	(4,169		)	154,902		(115,033		)	—		—		54,760		762			961,445		1,785
Total assets measured at fair value on a recurring basis	$	865,888	$	4,075	$	3,222	$	(2,962	)	$	(4,169	)	$	154,902	$	(115,033	)	$	—	$	—	$	54,760	$	762		$	961,445	$	1,785
Liabilities:
Annuity account balances (2)	$	143,020	$	—	$	—	$	2,104		$	—		$	—	$	—		$	135	$	2,789	$	—	$	—		$	142,470	$	—
Other liabilities (1)	178,386		960		—		38,101			—			—		1,868			—		—		—		—			213,659		(37,141		)
Total liabilities measured at fair value on a recurring basis	$	321,406	$	960	$	—	$	40,205		$	—		$	—	$	1,868		$	135	$	2,789	$	—	$	—		$	356,129	$	(37,141	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the six months ended June 30, 2012, for which the Company has used significant unobservable inputs (Level 3):

																													Total
																													Gains (losses)
			Total				Total																						included in
			Realized and Unrealized				Realized and Unrealized																						Earnings
			Gains				Losses																						related to
					Included in					Included in																			Instruments
					Other					Other												Transfers							still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of					Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3		Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	7	$	—	$	—	$	—		$	—		$	—	$	(3	)	$	—	$	—	$	—	$	—		$	4	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	614,813		294		4,519		—			(20,898		)	—		(13,850		)	—		—		—		(237		)	584,641		—
U.S. government-related securities	15,000		—		—		—			(1		)	—		(15,000		)	—		—		—		1			—		—
States, municipals, and political subdivisions	—		—		—		—			—			4,275		—			—		—		—		—			4,275		—
Other government-related securities	—		—		18		—			(16		)	20,023		—			—		—		—		(5		)	20,020		—
Corporate bonds	119,565		—		1,849		—			(1,910		)	4		(2,095		)	—		—		54,612		120			172,145		—
Total fixed maturity securities - available-for-sale	749,385		294		6,386		—			(22,825		)	24,302		(30,948		)	—		—		54,612		(121		)	781,085		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		478		—		(757		)	—			41,047		(5,074		)	—		—		—		1,022			65,059		(278		)
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		—		—		—			—			1		—			—		—		113		—			114		—
Total fixed maturity securities - trading	28,343		478		—		(757		)	—			41,048		(5,074		)	—		—		113		1,022			65,173		(278		)
Total fixed maturity securities	777,728		772		6,386		(757		)	(22,825		)	65,350		(36,022		)	—		—		54,725		901			846,258		(278		)
Equity securities	70,080		—		661		—			(950		)	4		—			—		—		—		—			69,795		—
Other long-term investments (1)	19,103		13,673		—		(7,461		)	—			—		—			—		—		—		—			25,315		6,212
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		14,445		7,047		(8,218		)	(23,775		)	65,354		(36,022		)	—		—		54,725		901			941,368		5,934
Total assets measured at fair value on a recurring basis	$	866,911	$	14,445	$	7,047	$	(8,218	)	$	(23,775	)	$	65,354	$	(36,022	)	$	—	$	—	$	54,725	$	901		$	941,368	$	5,934
Liabilities:
Annuity account balances (2)	$	136,462	$	—	$	—	$	4,217		$	—		$	—	$	—		$	428	$	6,510	$	—	$	—		$	134,597	$	—
Other liabilities (1)	437,613		56,549		—		135,523			—			—		—			—		—		—		—			516,587		(78,974		)
Total liabilities measured at fair value on a recurring basis	$	574,075	$	56,549	$	—	$	139,740		$	—		$	—	$	—		$	428	$	6,510	$	—	$	—		$	651,184	$	(78,974	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the six months ended June 30, 2011, for which the Company has used significant unobservable inputs (Level 3):

																														Total
																														Gains (losses)
			Total				Total																							included in
			Realized and Unrealized				Realized and Unrealized																							Earnings
			Gains				Losses																							related to
					Included in					Included in																				Instruments
					Other					Other												Transfers								still held at
	Beginning		Included in		Comprehensive		Included in			Comprehensive												in/out of						Ending		the Reporting
	Balance		Earnings		Income		Earnings			Income			Purchases		Sales			Issuances		Settlements		Level 3			Other			Balance		Date
	(Dollars In Thousands)
Assets:
Fixed maturity securities available-for-sale
Residential mortgage-backed securities	$	20	$	—	$	12	$	(4	)	$	—		$	—	$	(12	)	$	—	$	—	$	(9	)	$	—		$	7	$	—
Commercial mortgage-backed securities	19,901		—		147		—			—			—		(102		)	—		—		(19,946		)	—			—		—
Other asset-backed securities	641,129		1,786		2,158		(2,133		)	(5,146		)	118,598		(118,598		)	—		—		—			(48		)	637,746		—
U.S. government-related securities	15,109		—		—		—			(115		)	—		—			—		—		—			6			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	64,996		—		1,485		—			(956		)	40,000		(2,121		)	—		—		14,585			—			117,989		—
Total fixed maturity securities - available-for-sale	741,155		1,786		3,802		(2,137		)	(6,217		)	158,598		(120,833		)	—		—		(5,370		)	(42		)	770,742		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	59,925		1,152		—		(1,313		)	—			3,792		(23,952		)	—		—		—			1,489			41,093		71
U.S. government-related securities	3,442		130		—		(56		)	—			—		—			—		—		—			(4		)	3,512		74
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	—		—		—		—			—			—		—			—		—		42,041			—			42,041		374
Total fixed maturity securities - trading	63,367		1,282		—		(1,369		)	—			3,792		(23,952		)	—		—		42,041			1,485			86,646		519
Total fixed maturity securities	804,522		3,068		3,802		(3,506		)	(6,217		)	162,390		(144,785		)	—		—		36,671			1,443			857,388		519
Equity securities	66,592		49		445		—			(745		)	3,963		(49		)	—		—		21			—			70,276		—
Other long-term investments (1)	31,765		3,195		—		(1,179		)	—			—		—			—		—		—			—			33,781		2,016
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	902,879		6,312		4,247		(4,685		)	(6,962		)	166,353		(144,834		)	—		—		36,692			1,443			961,445		2,535
Total assets measured at fair value on a recurring basis	$	902,879	$	6,312	$	4,247	$	(4,685	)	$	(6,962	)	$	166,353	$	(144,834	)	$	—	$	—	$	36,692		$	1,443		$	961,445	$	2,535
Liabilities:
Annuity account balances (2)	$	143,264	$	—	$	—	$	4,235		$	—		$	—	$	—		$	314	$	5,343	$	—		$	—		$	142,470	$	—
Other liabilities (1)	190,529		20,308		—		45,306			—			—		1,868			—		—		—			—			213,659		(24,998		)
Total liabilities measured at fair value on a recurring basis	$	333,793	$	20,308	$	—	$	49,541		$	—		$	—	$	1,868		$	314	$	5,343	$	—		$	—		$	356,129	$	(24,998	)

(1)Represents certain freestanding and embedded derivatives.

(2)Represents liabilities related to equity indexed annuities.

Schedule of the carrying amounts and estimated fair value of the Company's financial instruments

		As of
		June 30, 2012				December 31, 2011
	Carrying	Carrying				Carrying
	Amounts	Amounts		Fair Values		Amounts		Fair Values
		(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	5,203,999	$	6,116,756	$	5,351,902	$	6,247,959
Policy loans	3	870,775		870,775		879,819		879,819
Liabilities:
Stable value product account balances	3	$	2,676,312	$	2,716,435	$	2,769,510	$	2,855,614
Annuity account balances	3	10,774,666		10,467,208		10,946,848		10,767,892
Mortgage loan backed certificates	3	—		—		19,755		19,893
Non-recourse funding obligations	3	1,156,900		1,078,664		1,248,600		1,060,275