FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 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 September 30, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	2,007,013	$	4	$	2,007,017
Commercial mortgage-backed securities	—		838,657		—		838,657
Other asset-backed securities	—		346,425		589,638		936,063
U.S. government-related securities	894,031		455,162		—		1,349,193
States, municipals, and political subdivisions	—		1,416,722		4,275		1,420,997
Other government-related securities	—		81,111		20,005		101,116
Corporate bonds	205		19,690,497		148,503		19,839,205
Total fixed maturity securities - available-for-sale	894,236		24,835,587		762,425		26,492,248
Fixed maturity securities - trading
Residential mortgage-backed securities	—		386,861		—		386,861
Commercial mortgage-backed securities	—		184,932		—		184,932
Other asset-backed securities	—		81,627		74,062		155,689
U.S. government-related securities	308,928		247		—		309,175
States, municipals, and political subdivisions	—		276,449		—		276,449
Other government-related securities	—		59,077		—		59,077
Corporate bonds	—		1,723,539		115		1,723,654
Total fixed maturity securities - trading	308,928		2,712,732		74,177		3,095,837
Total fixed maturity securities	1,203,164		27,548,319		836,602		29,588,085
Equity securities	248,145		22,770		65,361		336,276
Other long-term investments (1)	21,645		66,817		45,559		134,021
Short-term investments	110,108		—		—		110,108
Total investments	1,583,062		27,637,906		947,522		30,168,490
Cash	79,566		—		—		79,566
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	8,895,947		—		—		8,895,947
Variable universal life	557,529		—		—		557,529
Total assets measured at fair value on a recurring basis	$	11,116,104	$	27,637,906	$	947,522	$	39,701,532
Liabilities:
Annuity account balances (2)	$	—	$	—	$	134,569	$	134,569
Other liabilities (1)	4,447		17,630		618,349		640,426
Total liabilities measured at fair value on a recurring basis	$	4,447	$	17,630	$	752,918	$	774,995

(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	1.6%
Par Value	$638.6 million
Weighted-average life	10.4 years

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

Investment grade credit rating	61.7%
Weighted-average market yield	4.3%
Weighted-average coupon	5.4%
Par Value	$238.3 million
Weighted-average stated maturity	6.4 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
	September 30, 2012		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	589,638	Discounted cash flow	Liquidity premium	0.56% - 1.66% (1.16%)
				Paydown rate	8.48% - 15.81% (10.36%)
Other government securities	20,005		Discounted cash flow	Spread over treasury	0.05%
Corporate bonds	148,613		Discounted cash flow	Spread over treasury	0.20% - 4.02% (0.77%)
Liabilities:
Embedded derivatives - GMWB(1)	$	179,273	Actuarial cash flow model	Mortality	57% of 1994 GMDB table
				Lapse	0% - 24%, depending on product/duration/funded status of guarantee
				Utilization	93% - 100%
				Nonperformance risk	0.31% - 1.60%
Annuity account balances(2)	134,569		Actuarial cash flow model	Asset earned rate	5.81%
				Expenses	$88 - $108 per policy
				Withdrawal rate	2.20%
				Mortality	64% of 1994 GMDB table
				Lapse	2.2% - 45.0%, depending on duration/surrender charge period
				Return on assets	1.50% - 1.85% depending on surrender charge period
				Nonperformance risk	0.31% - 1.60%

(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 September 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	584,641		45		11,462		—			(1,157		)	—		(5,200		)	—		—		—			(153		)	589,638		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—			—			4,275		—
Other government-related securities	20,020		—		—		—			(11		)	—		—			—		—		—			(4		)	20,005		—
Corporate bonds	172,145		—		5,349		—			(221		)	—		(2,090		)	—		—		(26,802		)	122			148,503		—
Total fixed maturity securities - available-for-sale	781,085		45		16,811		—			(1,389		)	—		(7,290		)	—		—		(26,802		)	(35		)	762,425		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	65,059		2,972		—		(148		)	—			7,208		(1,442		)	—		—		—			413			74,062		2,823
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	114		1		—		—			—			—		—			—		—		—			—			115		2
Total fixed maturity securities - trading	65,173		2,973		—		(148		)	—			7,208		(1,442		)	—		—		—			413			74,177		2,825
Total fixed maturity securities	846,258		3,018		16,811		(148		)	(1,389		)	7,208		(8,732		)	—		—		(26,802		)	378			836,602		2,825
Equity securities	69,795		8		—		—			(147		)	—		(4,295		)	—		—		—			—			65,361		—
Other long-term investments (1)	25,315		20,278		—		(34		)	—			—		—			—		—		—			—			45,559		20,244
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	941,368		23,304		16,811		(182		)	(1,536		)	7,208		(13,027		)	—		—		(26,802		)	378			947,522		23,069
Total assets measured at fair value on a recurring basis	$	941,368	$	23,304	$	16,811	$	(182	)	$	(1,536	)	$	7,208	$	(13,027	)	$	—	$	—	$	(26,802	)	$	378		$	947,522	$	23,069
Liabilities:
Annuity account balances (2)	$	134,597	$	—	$	—	$	5,766		$	—		$	—	$	—		$	217	$	6,011	$	—		$	—		$	134,569	$	—
Other liabilities (1)	516,587		11,016		—		112,779			—			—		—			—		—		—			—			618,350		(101,763		)
Total liabilities measured at fair value on a recurring basis	$	651,184	$	11,016	$	—	$	118,545		$	—		$	—	$	—		$	217	$	6,011	$	—		$	—		$	752,919	$	(101,763	)

(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 September 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	$	7	$	—	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—	$	—		$	7	$	—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		9,434		—			9,434		—
Other asset-backed securities	637,746		—		1,478		—			(40,295		)	—		—			—		—		—		(88		)	598,841		—
U.S. government-related securities	15,000		—		—		—			(3		)	—		—			—		—		—		3			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	117,989		—		3,388		—			(100		)	—		(675		)	—		—		—		—			120,602		—
Total fixed maturity securities - available-for-sale	770,742		—		4,866		—			(40,398		)	—		(675		)	—		—		9,434		(85		)	743,884		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	41,093		28		—		(918		)	—			—		(14,590		)	—		—		—		650			26,263		(734		)
U.S. government-related securities	3,512		—		—		(60		)	—			—		—			—		—		—		(2		)	3,450		(60		)
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	42,041		—		—		(825		)	—			—		(71		)	—		—		—		81			41,226		(825		)
Total fixed maturity securities - trading	86,646		28		—		(1,803		)	—			—		(14,661		)	—		—		—		729			70,939		(1,619		)
Total fixed maturity securities	857,388		28		4,866		(1,803		)	(40,398		)	—		(15,336		)	—		—		9,434		644			814,823		(1,619		)
Equity securities	70,276		—		—		—			(305		)	—		—			—		—		—		—			69,971		—
Other long-term investments (1)	33,781		235		—		(19,229		)	—			—		—			—		—		—		—			14,787		(18,994		)
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	961,445		263		4,866		(21,032		)	(40,703		)	—		(15,336		)	—		—		9,434		644			899,581		(20,613		)
Total assets measured at fair value on a recurring basis	$	961,445	$	263	$	4,866	$	(21,032	)	$	(40,703	)	$	—	$	(15,336	)	$	—	$	—	$	9,434	$	644		$	899,581	$	(20,613	)
Liabilities:
Annuity account balances (2)	$	142,470	$	—	$	—	$	22		$	—		$	—	$	—		$	161	$	3,508	$	—	$	—		$	139,145	$	—
Other liabilities (1)	213,659		4,299		—		241,429			—			—		805			—		—		—		—			449,984		(237,130		)
Total liabilities measured at fair value on a recurring basis	$	356,129	$	4,299	$	—	$	241,451		$	—		$	—	$	805		$	161	$	3,508	$	—	$	—		$	589,129	$	(237,130	)

(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 nine months ended September 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		339		15,981		—			(22,055		)	—		(19,050		)	—		—		—		(390		)	589,638		—
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		—			(27		)	20,023		—			—		—		—		(9		)	20,005		—
Corporate bonds	119,565		—		7,198		—			(2,131		)	4		(4,185		)	—		—		27,810		242			148,503		—
Total fixed maturity securities - available-for-sale	749,385		339		23,197		—			(24,214		)	24,302		(38,238		)	—		—		27,810		(156		)	762,425		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		3,450		—		(905		)	—			48,255		(6,516		)	—		—		—		1,435			74,062		2,545
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		1		—		—			—			1		—			—		—		113		—			115		10
Total fixed maturity securities - trading	28,343		3,451		—		(905		)	—			48,256		(6,516		)	—		—		113		1,435			74,177		2,555
Total fixed maturity securities	777,728		3,790		23,197		(905		)	(24,214		)	72,558		(44,754		)	—		—		27,923		1,279			836,602		2,555
Equity securities	70,080		8		661		—			(1,097		)	4		(4,295		)	—		—		—		—			65,361		—
Other long-term investments (1)	19,103		33,951		—		(7,495		)	—			—		—			—		—		—		—			45,559		26,456
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		37,749		23,858		(8,400		)	(25,311		)	72,562		(49,049		)	—		—		27,923		1,279			947,522		29,011
Total assets measured at fair value on a recurring basis	$	866,911	$	37,749	$	23,858	$	(8,400	)	$	(25,311	)	$	72,562	$	(49,049	)	$	—	$	—	$	27,923	$	1,279		$	947,522	$	29,011
Liabilities:
Annuity account balances (2)	$	136,462	$	—	$	—	$	9,983		$	—		$	—	$	—		$	645	$	12,521	$	—	$	—		$	134,569	$	—
Other liabilities (1)	437,613		67,565		—		248,302			—			—		—			—		—		—		—			618,350		(180,737		)
Total liabilities measured at fair value on a recurring basis	$	574,075	$	67,565	$	—	$	258,285		$	—		$	—	$	—		$	645	$	12,521	$	—	$	—		$	752,919	$	(180,737	)

(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 nine months ended September 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		—			—			—		(103		)	—		—		(10,511		)	—			9,434		—
Other asset-backed securities	641,129		1,786		3,637		(2,133		)	(45,441		)	118,598		(118,598		)	—		—		—			(137		)	598,841		—
U.S. government-related securities	15,109		—		—		—			(119		)	—		—			—		—		—			10			15,000		—
States, municipals, and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	64,996		—		4,873		—			(1,055		)	40,000		(2,797		)	—		—		14,585			—			120,602		—
Total fixed maturity securities - available-for-sale	741,155		1,786		8,669		(2,137		)	(46,615		)	158,598		(121,510		)	—		—		4,065			(127		)	743,884		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Other asset-backed securities	59,925		1,180		—		(2,230		)	—			3,793		(38,543		)	—		—		—			2,138			26,263		(656		)
U.S. government-related securities	3,442		130		—		(117		)	—			—		—			—		—		—			(5		)	3,450		14
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—			—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—			—			—		—
Corporate bonds	—		—		—		(825		)	—			—		(71		)	—		—		42,041			81			41,226		(451		)
Total fixed maturity securities - trading	63,367		1,310		—		(3,172		)	—			3,793		(38,614		)	—		—		42,041			2,214			70,939		(1,093		)
Total fixed maturity securities	804,522		3,096		8,669		(5,309		)	(46,615		)	162,391		(160,124		)	—		—		46,106			2,087			814,823		(1,093		)
Equity securities	66,592		49		445		—			(1,049		)	3,962		(49		)	—		—		21			—			69,971		—
Other long-term investments (1)	31,765		3,430		—		(20,408		)	—			—		—			—		—		—			—			14,787		(16,978		)
Short-term investments	—		—		—		—			—			—		—			—		—		—			—			—		—
Total investments	902,879		6,575		9,114		(25,717		)	(47,664		)	166,353		(160,173		)	—		—		46,127			2,087			899,581		(18,071		)
Total assets measured at fair value on a recurring basis	$	902,879	$	6,575	$	9,114	$	(25,717	)	$	(47,664	)	$	166,353	$	(160,173	)	$	—	$	—	$	46,127		$	2,087		$	899,581	$	(18,071	)
Liabilities:
Annuity account balances (2)	$	143,264	$	—	$	—	$	4,257		$	—		$	—	$	—		$	475	$	8,851	$	—		$	—		$	139,145	$	—
Other liabilities (1)	190,529		24,607		—		286,735			—			—		2,673			—		—		—			—			449,984		(262,128		)
Total liabilities measured at fair value on a recurring basis	$	333,793	$	24,607	$	—	$	290,992		$	—		$	—	$	2,673		$	475	$	8,851	$	—		$	—		$	589,129	$	(262,128	)

(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
		September 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	$	5,094,080	$	5,991,084	$	5,351,902	$	6,247,959
Policy loans	3	869,607		869,607		879,819		879,819
Liabilities:
Stable value product account balances	3	$	2,328,237	$	2,357,076	$	2,769,510	$	2,855,614
Annuity account balances	3	10,751,652		10,454,664		10,946,848		10,767,892
Mortgage loan backed certificates	3	—		—		19,755		19,893
Non-recourse funding obligations	3	1,156,900		1,067,427		1,248,600		1,060,275