6. DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED

On January 1, 2012, the Company adopted ASU No. 2010-26—Financial Services—Insurance—Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. For more information on how this Updated impacted our accounting policies related to deferred acquisition costs, refer to the Accounting Pronouncements Recently Adopted section of Note 2, Summary of Significant Accounting Policies. The Company retrospectively adopted this Update, which resulted in several adjustments to the Company’s balance sheet on the date of adoption and income statements for periods prior to January 1, 2012. The Update primarily resulted in a reduction in its deferred acquisition cost asset as well as a decrease in the amortization associated with those deferred costs. There was also a reduction in the level of costs the Company defers. As part of the Company’s retrospective adoption of this Update, a cumulative effect adjustment was recorded as of January 1, 2010 which was the earliest period presented. The cumulative effect adjustment resulted in a decrease of $469.6 million in retained earnings, a decrease of $0.3 million in accumulated other comprehensive income, and an overall decrease of $469.9 million in total shareowner’s equity.

The chart shown below summarizes the effect of the adjustments on the Company’s 2011 consolidated balance sheet (only balances impacted by the Update are presented):

	As of December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Assets:
Deferred policy acquisition costs and value of business acquired	$	4,011,936	$	3,223,220	$	(788,716	)

Total assets	$	52,791,899	$	52,003,183	$	(788,716	)

Liabilities:
Deferred income taxes	$	1,573,764	$	1,293,996	$	(279,768	)

Total liabilities	$	47,405,601	$	47,125,833	$	(279,768	)

Equity:
Retained earnings	$	2,984,466	$	2,456,293	$	(528,173	)
Accumulated other comprehensive income (loss):
Net unrealized gain (losses) on investments, net of income tax	1,076,854		1,096,079		19,225

Total equity	$	5,386,298	$	4,877,350	$	(508,948	)

Total liabilities and shareowner’s equity	$	52,791,899	$	52,003,183	$	(788,716	)

The charts shown below summarize the effect of the adjustments on the Company’s income statement for the years ended December 31, 2011 and 2010 (only balances impacted by the Update are presented).

	For The Year Ended December 31, 2011
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	300,450	$	249,520	$	(50,930	)
Other operating expenses	373,964		461,570		87,606
Total benefits and expenses	2,896,634		2,933,310		36,676

Income before income tax	511,951		475,275		(36,676		)

Income tax (benefit) expense	164,517		151,519		(12,998		)

Net income	$	347,434	$	323,756	$	(23,678	)

	For The Year Ended December 31, 2010
	As originally				Effect of
	reported		As adjusted		Change
	(Dollars In Thousands)
Expenses:
Amortization of deferred policy acquisition costs and value of business acquired	$	189,255	$	144,496	$	(44,759	)
Other operating expenses	284,070		382,920		98,850
Total benefits and expenses	2,549,717		2,603,808		54,091

Income before income tax	387,267		333,176		(54,091		)

Income tax (benefit) expense	129,029		109,865		(19,164		)

Net income	$	258,238	$	223,311	$	(34,927	)

The charts shown below summarize the effect of the adjustments on the Company’s cash flow statement for the years ended December 31, 2011 and 2010 (only balances impacted by the Update are presented).

	For The Year Ended December 31, 2011
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	347,434		$	323,756		$	(23,678	)
Amortization of deferred policy acquisition costs and value of business acquired	300,450			249,520			(50,930		)
Capitalization of deferred policy acquisition costs	(442,638		)	(355,033		)	87,605
Deferred income tax	120,262			107,265			(12,997		)
Change to net cash (used in) provided by operating activities	$	325,508		$	325,508		$	—

	For The Year Ended December 31, 2010
	As
	originally						Effect of
	reported			As adjusted			Change
	(Dollars In Thousands)
Cash flows from operating activities
Net income	$	258,238		$	223,311		$	(34,927	)
Amortization of deferred policy acquisition costs and value of business acquired	189,255			144,496			(44,759		)
Capitalization of deferred policy acquisition costs	(446,560		)	(348,730		)	97,830
Deferred income tax	85,483			66,682			(18,801		)
Other, net	(47,319		)	(46,662		)	657
Change to net cash (used in) provided by operating activities	$	39,097		$	39,097		$	—

Deferred policy acquisition costs

The balances and changes in DAC are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	2,291,613		$	2,182,085
Capitalization of commissions, sales, and issue expenses	311,959			355,033
Amortization	(105,447		)	(159,329		)
Change in unrealized investment gains and losses	(90,599		)	(86,176		)
Balance, end of period	$	2,407,526		$	2,291,613

Value of business acquired

The balances and changes in VOBA are as follows:

	As of December 31,
	2012			2011
	(Dollars In Thousands)
Balance, beginning of period	$	931,607		$	881,324
Acquisitions	—			137,418
Amortization	(86,736		)	(90,192		)
Change in unrealized gains and losses	(27,041		)	3,057
Balance, end of period	$	817,830		$	931,607

The expected amortization of VOBA for the next five years is as follows:

	Expected
Years	Amortization
	(Dollars In Thousands)
2013	$	71,285
2014	63,386
2015	55,618
2016	50,957
2017	43,753