FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2013

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 March 31, 2013:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,717,906	$	4	$	1,717,910
Commercial mortgage-backed securities	—		916,155		—		916,155
Other asset-backed securities	—		385,893		560,668		946,561
U.S. government-related securities	988,675		218,377		—		1,207,052
State, municipalities, and political subdivisions	—		1,429,246		4,275		1,433,521
Other government-related securities	—		68,474		20,003		88,477
Corporate bonds	206		20,645,124		124,555		20,769,885
Total fixed maturity securities - available-for-sale	988,881		25,381,175		709,505		27,079,561
Fixed maturity securities - trading
Residential mortgage-backed securities	—		354,522		—		354,522
Commercial mortgage-backed securities	—		176,986		—		176,986
Other asset-backed securities	—		91,039		71,383		162,422
U.S. government-related securities	295,008		1,728		—		296,736
State, municipalities, and political subdivisions	—		283,842		—		283,842
Other government-related securities	—		63,728		—		63,728
Corporate bonds	—		1,624,840		5,112		1,629,952
Total fixed maturity securities - trading	295,008		2,596,685		76,495		2,968,188
Total fixed maturity securities	1,283,889		27,977,860		786,000		30,047,749
Equity securities	273,488		37,102		65,527		376,117
Other long-term investments (1)	39,960		42,518		70,404		152,882
Short-term investments	156,825		3,476		—		160,301
Total investments	1,754,162		28,060,956		921,931		30,737,049
Cash	171,443		—		—		171,443
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	10,670,833		—		—		10,670,833
Variable universal life	605,622		—		—		605,622
Total assets measured at fair value on a recurring basis	$	13,202,060	$	28,060,956	$	921,931	$	42,184,947
Liabilities:
Annuity account balances(2)	$	—	$	—	$	123,681	$	123,681
Other liabilities (1)	2,380		47,367		539,814		589,561
Total liabilities measured at fair value on a recurring basis	$	2,380	$	47,367	$	663,495	$	713,242

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to fixed 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, 2012:

	Level 1		Level 2		Level 3		Total
	(Dollars In Thousands)
Assets:
Fixed maturity securities - available-for-sale
Residential mortgage-backed securities	$	—	$	1,839,326	$	4	$	1,839,330
Commercial mortgage-backed securities	—		869,823		—		869,823
Other asset-backed securities	—		378,870		596,143		975,013
U.S. government-related securities	909,988		258,458		—		1,168,446
State, municipalities, and political subdivisions	—		1,439,378		4,275		1,443,653
Other government-related securities	—		80,767		20,011		100,778
Corporate bonds	207		20,197,528		167,892		20,365,627
Total fixed maturity securities - available-for-sale	910,195		25,064,150		788,325		26,762,670
Fixed maturity securities - trading
Residential mortgage-backed securities	—		357,803		—		357,803
Commercial mortgage-backed securities	—		171,073		—		171,073
Other asset-backed securities	—		87,395		70,535		157,930
U.S. government-related securities	304,704		1,169		—		305,873
State, municipalities, and political subdivisions	—		278,898		—		278,898
Other government-related securities	—		63,444		—		63,444
Corporate bonds	—		1,672,172		115		1,672,287
Total fixed maturity securities - trading	304,704		2,631,954		70,650		3,007,308
Total fixed maturity securities	1,214,899		27,696,104		858,975		29,769,978
Equity securities	273,072		35,116		65,527		373,715
Other long-term investments (1)	23,639		58,134		48,655		130,428
Short-term investments	214,295		2,492		—		216,787
Total investments	1,725,905		27,791,846		973,157		30,490,908
Cash	269,582		—		—		269,582
Other assets	—		—		—		—
Assets related to separate accounts
Variable annuity	9,601,417		—		—		9,601,417
Variable universal life	562,817		—		—		562,817
Total assets measured at fair value on a recurring basis	$	12,159,721	$	27,791,846	$	973,157	$	40,924,724
Liabilities:
Annuity account balances (2)	$	—	$	—	$	129,468	$	129,468
Other liabilities (1)	19,187		27,250		611,437		657,874
Total liabilities measured at fair value on a recurring basis	$	19,187	$	27,250	$	740,905	$	787,342

(1)Includes certain freestanding and embedded derivatives.

(2)Represents liabilities related to fixed indexed annuities.

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
	March 31, 2013		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	560,668	Discounted cash flow	Liquidity premium	1.00% - 1.69% (1.14%)
				Paydown rate	10.08% - 14.64% (12.47%)
Other government-related securities	20,003		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	129,667		Discounted cash flow	Spread over treasury	0.97% - 7.75% (2.67%)
Liabilities:
Embedded derivatives - GMWB(1)	$	88,739	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	0.13% - 1.29%
Annuity account balances(2)	123,681		Actuarial cash flow model	Asset earned rate	5.81%
				Expenses	$88 - $108 per policy
				Withdrawal rate	2.20%
				Mortality	57% 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	0.13% - 1.29%

(1)	The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.
(2)	Represents liabilities related to fixed indexed annuities.

	Fair Value
	As of		Valuation	Unobservable	Range
	December 31, 2012		Technique	Input	(Weighted Average)
	(Dollars In Thousands)
Assets:
Other asset-backed securities	$	596,143	Discounted cash flow	Liquidity premium	0.72% - 1.68% (1.29%)
				Paydown rate	8.51% - 18.10% (11.40%)
Other government-related securities	20,011		Discounted cash flow	Spread over treasury	(0.30%)
Corporate bonds	168,007		Discounted cash flow	Spread over treasury	0.92% - 7.75% (3.34%)
Liabilities:
Embedded derivatives - GMWB(1)	$	169,041	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	0.09% - 1.34%
Annuity account balances(2)	129,468		Actuarial cash flow model	Asset earned rate	5.81%
				Expenses	$88 - $108 per policy
				Withdrawal rate	2.20%
				Mortality	57% 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	0.09% - 1.34%

(1)	The fair value for the GMWB embedded derivative is presented as a net liability. Excludes modified coinsurance arrangements.
(2)	Represents liabilities related to fixed 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 March 31, 2013, 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	596,143		—		12		—			(27,548		)	—		(9,009		)	—		—		1,227		(157		)	560,668		—
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals, and political subdivisions	4,275		—		—		—			—			—		—			—		—		—		—			4,275		—
Other government-related securities	20,011		—		—		—			(3		)	—		—			—		—		—		(5		)	20,003		—
Corporate bonds	167,892		—		930		—			(2,364		)	—		(42,071		)	—		—		—		168			124,555		—
Total fixed maturity securities - available-for-sale	788,325		—		942		—			(29,915		)	—		(51,080		)	—		—		1,227		6			709,505		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	70,535		3,408		—		(259		)	—			—		(2,823		)	—		—		—		522			71,383		3,255
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	115		1		—		—			—			—		(17		)	—		—		5,013		—			5,112		29
Total fixed maturity securities - trading	70,650		3,409		—		(259		)	—			—		(2,840		)	—		—		5,013		522			76,495		3,284
Total fixed maturity securities	858,975		3,409		942		(259		)	(29,915		)	—		(53,920		)	—		—		6,240		528			786,000		3,284
Equity securities	65,527		—		—		—			—			—		—			—		—		—		—			65,527		—
Other long-term investments(1)	48,655		25,618		—		(3,869		)	—			—		—			—		—		—		—			70,404		21,749
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	973,157		29,027		942		(4,128		)	(29,915		)	—		(53,920		)	—		—		6,240		528			921,931		25,033
Total assets measured at fair value on a recurring basis	$	973,157	$	29,027	$	942	$	(4,128	)	$	(29,915	)	$	—	$	(53,920	)	$	—	$	—	$	6,240	$	528		$	921,931	$	25,033
Liabilities:
Annuity account balances(2)	$	129,468	$	—	$	—	$	(2,000	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	123,681	$	—
Other liabilities(1)	611,437		84,546		—		(12,923		)	—			—		—			—		—		—		—			539,814		71,623
Total liabilities measured at fair value on a recurring basis	$	740,905	$	84,546	$	—	$	(14,923	)	$	—		$	—	$	—		$	136	$	7,923	$	—	$	—		$	663,495	$	71,623

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the three months ended March 31, 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		493		—			(13,929		)	—		(13,850		)	—		—		—		(208		)	587,613		—
U.S. government-related securities	15,000		—		—		—			(1		)	—		(15,000		)	—		—		—		1			—		—
States, municipals, and political subdivisions	—		—		—		—			—			4,275		—			—		—		—		—			4,275		—
Other government-related securities	—		—		—		—			(16		)	20,023		—			—		—		—		(1		)	20,006		—
Corporate bonds	119,565		—		183		—			(1,227		)	4		(139		)	—		—		19,554		—			137,940		—
Total fixed maturity securities - available-for-sale	749,385		294		676		—			(15,173		)	24,302		(28,992		)	—		—		19,554		(208		)	749,838		—
Fixed maturity securities - trading
Residential mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Commercial mortgage-backed securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Other asset-backed securities	28,343		446		—		(169		)	—			27,705		(1,808		)	—		—		—		444			54,961		277
U.S. government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
States, municipals and political subdivisions	—		—		—		—			—			—		—			—		—		—		—			—		—
Other government-related securities	—		—		—		—			—			—		—			—		—		—		—			—		—
Corporate bonds	—		—		—		—			—			1		—			—		—		—		—			1		—
Total fixed maturity securities - trading	28,343		446		—		(169		)	—			27,706		(1,808		)	—		—		—		444			54,962		277
Total fixed maturity securities	777,728		740		676		(169		)	(15,173		)	52,008		(30,800		)	—		—		19,554		236			804,800		277
Equity securities	70,080		—		636		—			(1		)	4		—			—		—		—		—			70,719		—
Other long-term investments(1)	19,103		13,073		—		—			—			—		—			—		—		—		—			32,176		13,073
Short-term investments	—		—		—		—			—			—		—			—		—		—		—			—		—
Total investments	866,911		13,813		1,312		(169		)	(15,174		)	52,012		(30,800		)	—		—		19,554		236			907,695		13,350
Total assets measured at fair value on a recurring basis	$	866,911	$	13,813	$	1,312	$	(169	)	$	(15,174	)	$	52,012	$	(30,800	)	$	—	$	—	$	19,554	$	236		$	907,695	$	13,350
Liabilities:
Annuity account balances(2)	$	136,462	$	—	$	—	$	(3,074	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	137,238	$	—
Other liabilities(1)	437,613		56,496		—		(8,695		)	—			—		—			—		—		—		—			389,812		47,801
Total liabilities measured at fair value on a recurring basis	$	574,075	$	56,496	$	—	$	(11,769	)	$	—		$	—	$	—		$	325	$	2,623	$	—	$	—		$	527,050	$	47,801

(1)  Represents certain freestanding and embedded derivatives.

(2)  Represents liabilities related to fixed indexed annuities.

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

		As of
		March 31, 2013				December 31, 2012
	Fair Value	Carrying				Carrying
	Level	Amounts		Fair Values		Amounts		Fair Values
	(Dollars In Thousands)
Assets:
Mortgage loans on real estate	3	$	4,834,342	$	5,558,696	$	4,948,625	$	5,723,579
Policy loans	3	862,202		862,202		865,391		865,391
Fixed maturities, held-to-maturity(1)	3	315,000		334,579		300,000		319,163
Liabilities:
Stable value product account balances	3	$	2,544,609	$	2,572,367	$	2,510,559	$	2,534,094
Annuity account balances	3	10,524,393		10,142,020		10,658,463		10,525,702
Debt:
Non-recourse funding obligations(2)	3	$	1,456,900	$	1,495,469	$	1,446,900	$	1,357,290

Except as noted below, fair values were estimated using quoted market prices.

(1) Security purchased from unconsolidated subsidiary, Red Mountain LLC.

(2) Of this carrying amount $315 million, fair value of $359.6 million, as of March 31, 2013, and $300 million, fair value of $297.6 million, as of December 31, 2012,  relates to non-recourse funding obligations issued by Golden Gate V.