3. INVESTMENTS

Fixed Maturities and Equity Securities

The following tables provide information relating to fixed maturities and equity securities (excluding investments classified as trading) as of the dates indicated:


	March 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI (3)
	(in thousands)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	149,297	$	10,750	$	573	$	159,474	$	—
Obligations of U.S. states and their political subdivisions		48,337		6,150		38		54,449		—
Foreign government bonds		42,413		6,981		4		49,390		—
Public utilities		652,365		57,197		3,751		705,811		—
All other corporate securities		3,167,411		244,726		6,747		3,405,390		(616	)
Asset-backed securities (1)		361,392		18,725		18,098		362,019		(24,304	)
Commercial mortgage-backed securities		482,534		40,167		5		522,696		—
Residential mortgage-backed securities (2)		309,759		24,190		321		333,628		(1,244	)

Total fixed maturities, available-for-sale	$	5,213,508	$	408,886	$	29,537	$	5,592,857	$	(26,164	)

Equity securities, available-for-sale
Common Stocks:
Public utilities	$	90	$	4	$	37	$	57
Industrial, miscellaneous & other		12,100		530		1,253		11,377
Non-redeemable preferred stocks		2,236		58		—		2,294

Total equity securities, available-for-sale	$	14,426	$	592	$	1,290	$	13,728

(1)	Includes credit tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans, and other asset types.

(2)	Includes publicly traded agency pass-through securities and collateralized mortgage obligations.

(3)

Represents the amount of other-than-temporary impairment losses in "Accumulated other comprehensive income (loss)," or "AOCI," which were not included in earnings. Amount excludes $10 million of net unrealized gains (losses) on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.


	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI (3)
	(in thousands)
Fixed maturities, available-for-sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	144,083	$	14,321	$	4	$	158,400	$	—
Obligations of U.S. states and their political subdivisions		43,830		5,808		—		49,638		—
Foreign government bonds		47,910		6,615		4		54,521		—
Public utilities		589,574		63,283		1,497		651,360		—
All other corporate securities		3,145,363		252,186		6,956		3,390,593		(1,285	)
Asset-backed securities (1)		376,505		19,235		22,495		373,245		(27,122	)
Commercial mortgage-backed securities		505,310		37,015		2		542,323		—
Residential mortgage-backed securities (2)		298,831		25,550		337		324,044		(1,296	)

Total fixed maturities, available-for-sale	$	5,151,406	$	424,013	$	31,295	$	5,544,124	$	(29,703	)

Equity securities available-for-sale
Common Stocks:
Public utilities	$	90	$	5	$	23	$	71
Industrial, miscellaneous & other		7,100		597		1,742		5,956
Non-redeemable preferred stocks		2,437		6		201		2,242

Total equity securities, available-for-sale	$	9,627	$	608	$	1,966	$	8,269

(1)	Includes credit tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans, and other asset types.

(2)	Includes publicly traded agency pass-through securities and collateralized mortgage obligations.

(3)	Represents the amount of other-than-temporary impairment losses in AOCI which were not included in earnings. Amount excludes $11 million of net unrealized gains (losses) on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.

The amortized cost and fair value of fixed maturities by contractual maturities at March 31, 2012, are as follows:


	Available-for-Sale
	Amortized Cost		Fair Value
	(in thousands)
Due in one year or less	$	696,989	$	724,078
Due after one year through five years		1,459,103		1,575,750
Due after five years through ten years		1,177,531		1,286,087
Due after ten years		726,200		788,599
Asset-backed securities		361,392		362,019
Commercial mortgage-backed securities		482,534		522,696
Residential mortgage-backed securities		309,759		333,628

Total	$	5,213,508	$	5,592,857

Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed, and residential mortgage-backed securities are shown separately in the table above, as they are not due at a single maturity date.

The following table depicts the sources of fixed maturity proceeds, equity security proceeds, and related investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:


	Three Months Ended March 31,
	2012			2011
	(in thousands)
Fixed maturities, available-for-sale
Proceeds from sales	$	39,139		$	23,304
Proceeds from maturities/repayments		196,505			185,003
Gross investment gains from sales, prepayments and maturities		971			4,275
Gross investment losses from sales and maturities		(116	)		(40	)
Equity securities, available-for-sale
Proceeds from sales	$	—		$	—
Proceeds from maturities/repayments		—			—
Gross investment gains from sales		—			—
Gross investment losses from sales		—			—

Fixed maturity and equity security impairments
Net writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings (1)	$	(566	)	$	(2,435	)
Writedowns for other-than-temporary impairment losses on equity securities		(201	)		(1,357	)

(1)	Excludes the portion of other-than-temporary impairments recorded in "Other comprehensive income (loss)," representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.

As discussed in Note 2, a portion of certain other-than-temporary impairment ("OTTI") losses on fixed maturity securities are recognized in "Other comprehensive income (loss)" ("OCI"). For these securities, the net amount recognized in earnings ("credit loss impairments") represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

Credit losses recognized in earnings on fixed maturity securities held by the Company for which a portion of the OTTI loss was recognized in OCI


	Three Months Ended
	March 31, 2012			March 31, 2011
	(in thousands)
Balance, beginning of period	$	31,507		$	36,820
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(1,692	)		(1,693	)
Credit loss impairments previously recognized on securities impaired to fair value during the period (1)		(3,127	)		—
Credit loss impairment recognized in the current period on securities not previously impaired		—			85
Additional credit loss impairments recognized in the current period on securities previously impaired		521			1,956
Increases due to the passage of time on previously recorded credit losses		460			313
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(109	)		(595	)

Balance, end of period	$	27,560		$	36,886

(1)	Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security's amortized cost.

Trading Account Assets

The following table sets forth the composition of trading account assets, at fair value as of the dates indicated:


	March 31, 2012				December 31, 2011
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in thousands)
Fixed maturities:
Asset-backed securities	$	16,732	$	17,398	$	16,597	$	17,419
Commercial mortgage-backed securities		4,986		5,033		4,978		5,062

Total fixed maturities		21,718		22,431		21,575		22,481
Equity securities (1)		3,135		3,461		3,135		3,362

Total trading account assets	$	24,853	$	25,892	$	24,710	$	25,843

(1)	Included in equity securities are perpetual preferred stock securities that have characteristics of both debt and equity securities.

The net change in unrealized gains (losses) from trading account assets still held at period end, recorded within "Other income" was ($0.1) million and ($0.2) million during the three months ended March 31, 2012 and 2011, respectively.

Commercial Mortgage and Other Loans

The Company's commercial mortgage and other loans are comprised as follows as of the dates indicated:


	March 31, 2012						December 31, 2011
	Amount (in thousands)			% of Total			Amount (in thousands)			% of Total
Commercial mortgage and other loans by property type:
Industrial	$	250,853			17.5	%	$	261,699			18.4	%
Retail		462,828			32.3			453,352			31.9
Apartments/Multi-Family		221,039			15.4			218,524			15.4
Office		223,117			15.6			223,587			15.8
Hospitality		61,570			4.3			61,910			4.4
Other		96,909			6.8			97,383			6.9

Total commercial mortgage loans by property type		1,316,316			91.9			1,316,455			92.8
Agricultural property loans		116,257			8.1			102,850			7.2

Total commercial mortgage and agricultural loans by property type		1,432,573			100.0	%		1,419,305			100.0	%

Valuation allowance		(12,713	)					(12,813	)

Total net commercial and agricultural mortgage loans by property type	$	1,419,860					$	1,406,492

The commercial mortgage and agricultural loans are geographically dispersed throughout the United States with the largest concentrations in California (20%), New Jersey (12%) and Texas (9%) at March 31, 2012.

Activity in the allowance for losses for all commercial mortgage and other loans, as of the dates indicated, is as follows:


	March 31, 2012			December 31, 2011
	(in thousands)
Allowance for losses, beginning of year	$	12,813			$	21,428
Addition to / (release of) allowance of losses		(100	)			(8,615	)

Allowance for losses, end of year (1)	$	12,713			$	12,813

(1)	Agricultural loans represent $0.4 million and $0.4 million of the ending allowance at March 31, 2012 and December 31, 2011, respectively.

The following tables set forth the allowance for credit losses and the recorded investment in commercial mortgage and agricultural loans, as of the dates indicated:


	March 31, 2012		December 31, 2011
	Total Loans
	(in thousands)
Allowance for Credit Losses:
Ending balance: individually evaluated for impairment (1)	$	5,631	$	5,743
Ending balance: collectively evaluated for impairment (2)		7,082		7,070

Total ending balance	$	12,713	$	12,813

Recorded Investment: (3)
Ending balance: individually evaluated for impairment (1)	$	17,706	$	17,849
Ending balance: collectively evaluated for impairment (2)		1,414,867		1,401,456

Total ending balance, gross of reserves	$	1,432,573	$	1,419,305

(1)	There were no agricultural loans individually evaluated for impairments at March 31, 2012 and December 31, 2011.

(2)	Agricultural loans collectively evaluated for impairment had a recorded investment of $116 million and $103 million and related allowance of $0.4 million at March 31, 2012 and December 31, 2011, respectively.

(3)	Recorded investment reflects the balance sheet carrying value gross of related allowance.

Impaired loans include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected. Impaired commercial mortgage and other loans identified in management's specific review of probable loan losses and the related allowance for losses, as of March 31, 2012 and December 31, 2011 had a recorded investment and unpaid principal balance of $17.7 million and $17.8 million and related allowance of $5.6 million and $5.7 million, respectively, primarily related to the hospitality and other property types. At both March 31, 2012 and December 31, 2011, the Company held no impaired agricultural loans. Net investment income recognized on these loans totaled $0.1 million for the three months ended March 31, 2012, and $0.5 million for the year ended December 31, 2011.

Impaired commercial mortgage and other loans with no allowance for losses are loans in which the fair value of the collateral or the net present value of the loans' expected future cash flows equals or exceeds the recorded investment. As of March 31, 2012 and December 31, 2011, the Company held no such loans. See Note 2 for information regarding the Company's accounting policies for non-performing loans.

As described in Note 2 loan-to-value and debt service coverage ratios are measures commonly used to assess the quality of commercial mortgage and other loans. As of both March 31, 2012 and December 31, 2011, 93% of the $1.4 billion recorded investment had a loan-to-value ratio of less than 80%. As of March 31, 2012 and December 31, 2011, 97% and 95%, respectively, of the recorded investment had a debt service coverage ratio of 1.0X or greater. As of March 31, 2012, approximately $54 million or 4% of the recorded investment had a loan-to-value ratio greater than 100% or debt service coverage ratio less than 1.0X reflecting loans where the mortgage amount exceeds the collateral value or where current debt payments are greater than income from property operations; none of which related to agricultural loans. As of December 31, 2011, approximately $72 million or 5% of the recorded investment had a loan-to-value ratio greater than 100% or debt service coverage ratio less than 1.0X; none of which related to agricultural loans.

As of both March 31, 2012 and December 31, 2011, all commercial mortgage and other loans were in current status, with the exception of $1.6 million at December 31, 2011, that were classified as past due, primarily related to other property types. As of March 31, 2012 and December 31, 2011, $19.4 million and $22.6 million, respectively, of commercial mortgage and other loans, were in non-accrual status based upon the recorded investment gross of allowance for credit losses, primarily related to hospitality and other property types. See Note 2 for further discussion regarding nonaccrual status loans. The Company defines current in its aging of past due commercial mortgage and agricultural loans as less than 30 days past due.

For the three months ended March 31, 2012, there were no commercial mortgage and other loans sold or acquired.

Commercial mortgage and other loans are occasionally restructured in a troubled debt restructuring. These restructurings generally include one or more of the following: full or partial payoffs outside of the original contract terms: changes to interest rates; extensions of maturity; or additions or modifications to covenants. Additionally, the Company may accept assets in full or partial satisfaction of the debt as part of a troubled debt restructuring. When restructurings occur, they are evaluated individually to determine whether the restructuring or modification constitutes a "troubled debt restructuring" as defined by authoritative accounting guidance. The Company's outstanding investment related to commercial mortgage and other loans that have been restructured in a troubled debt restructuring is not material.

As of March 31, 2012, the additional funds the Company has committed to provide to borrowers involved in a troubled debt restructuring is not material.

Net Investment Income

Net investment income for the three months ended March 31, 2012 and 2011 was from the following sources:


	Three Months Ended March 31,
	2012			2011
	(in thousands)
Fixed maturities, available-for-sale	$	67,881		$	77,533
Equity securities, available-for-sale		8			136
Trading account assets		318			270
Commercial mortgage and other loans		21,087			19,656
Policy loans		14,098			13,851
Short-term investments and cash equivalents		319			358
Other long-term investments		2,657			4,007

Gross investment income		106,368			115,811
Less: investment expenses		(4,511	)		(4,527	)

Net investment income	$	101,857		$	111,284

Realized Investment Gains (Losses), Net

Realized investment gains (losses), net, for the three months ended March 31, 2012 and 2011 were from the following sources:


	Three Months Ended March 31,
	2012			2011
	(in thousands)
Fixed maturities	$	289		$	1,800
Equity securities		(201	)		(1,357	)
Commercial mortgage and other loans		101			441
Joint ventures and limited partnerships		—			—
Derivatives		(18,681	)		25,840
Other		18			—

Realized investment gains (losses), net	$	(18,474	)	$	26,724

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains and losses on securities classified as "available-for-sale" and certain other long-term investments and other assets are included in the Company's Unaudited Interim Consolidated Statements of Financial Position as a component of AOCI. Changes in these amounts include reclassification adjustments to exclude from "Other comprehensive income (loss)" those items that are included as part of "Net income" for a period that had been part of "Other comprehensive income (loss)" in earlier periods. The amounts for the periods indicated below, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other net unrealized investment gains and losses, are as follows:

Net Unrealized Investment Gains and Losses on Fixed Maturity Securities on which an OTTI loss has been recognized


	Net Unrealized Gains (Losses) on Investments			Deferred Policy Acquisition Costs and Other Costs			Policy Holder Account Balances			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2011	$	(18,648	)	$	10,187		$	(2,936	)	$	3,989		$	(7,408	)
Net investment gains (losses) on investments arising during the period		849			—			—			(297	)		552
Reclassification adjustment for (gains) losses included in net income		1,700			—			—			(595	)		1,105
Reclassification adjustment for OTTI losses excluded from net income(1)		(106	)		—			—			37			(69	)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs		—			(1,061	)		—			371			(690	)
Impact of net unrealized investment (gains) losses on Policyholders' account balance		—			—			(29	)		10			(19	)

Balance, March 31, 2012	$	(16,205	)	$	9,126		$	(2,965	)	$	3,515		$	(6,529	)

(1)	Represents "transfers in" related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.

All Other Net Unrealized Investment Gains and Losses in AOCI


	Net Unrealized Gains (Losses) on Investments(1)			Deferred Policy Acquisition Costs and Other Costs			Policy Holder Account Balances			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in thousands)
Balance, December 31, 2011	$	443,636		$	(179,520	)	$	75,345		$	(118,562	)	$	220,899
Net investment gains (losses) on investments arising during the period		(14,869	)		—			—			5,204			(9,665	)
Reclassification adjustment for (gains) losses included in net income		(1,788	)		—			—			626			(1,162	)
Reclassification adjustment for OTTI losses excluded from net income(2)		106			—			—			(37	)		69
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs		—			10,939			—			(4,005	)		6,934
Impact of net unrealized investment (gains) losses on policyholders' account balances		—			—			(710	)		249			(461	)

Balance, March 31, 2012	$	427,085		$	(168,581	)	$	74,635		$	(116,525	)	$	216,614

(1)	Includes cash flow hedges. See Note 5 for information on cash flow hedges.

(2)	Represents "transfers out" related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.

The table below presents net unrealized gains (losses) on investments by asset as of the dates indicated:


	March 31, 2012			December 31, 2011
	(in thousands)
Fixed maturity securities on which an OTTI loss has been recognized	$	(16,205	)	$	(18,648	)
Fixed maturity securities, available-for-sale - all other		395,554			411,366
Equity securities, available-for-sale		(698	)		(1,359	)
Derivatives designated as cash flow hedges (1)		583			2,523
Other investments		31,646			31,107

Net unrealized gains (losses) on investments	$	410,880		$	424,989

(1)	See Note 5 for more information on cash flow hedges.

Duration of Gross Unrealized Loss Positions for Fixed Maturities

The following table shows the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturity securities have been in a continuous unrealized loss position, as of the dates indicated:


	March 31, 2012
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	26,789	$	573	$	—	$	—	$	26,789	$	573
Obligations of U.S. states and their political subdivisions		2,432		38		—		—		2,432		38
Foreign government bonds		96		4		—		—		96		4
Corporate securities		387,912		8,918		16,995		1,580		404,907		10,498
Asset-backed securities		12,851		115		65,679		17,983		78,530		18,098
Commercial mortgage-backed securities		3,464		4		946		1		4,410		5
Residential mortgage-backed securities		21,504		185		4,509		136		26,013		321

Total	$	455,048	$	9,837	$	88,129	$	19,700	$	543,177	$	29,537


	December 31, 2011
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	4,696	$	4	$	—	$	—	$	4,696	$	4
Obligations of U.S. states and their political subdivisions		—		—		—		—		—		—
Foreign government bonds		96		4		—		—		96		4
Corporate securities		196,766		6,060		13,355		2,393		210,121		8,453
Asset-backed securities		57,956		389		69,641		22,106		127,597		22,495
Commercial mortgage-backed securities		563		—		1,051		2		1,614		2
Residential mortgage-backed securities		4,706		213		4,022		124		8,728		337

Total	$	264,783	$	6,670	$	88,069	$	24,625	$	352,852	$	31,295

The gross unrealized losses at March 31, 2012 and December 31, 2011 are composed of $17 million and $10 million, respectively, related to high or highest quality securities based on National Association of Insurance Commissioners, or "NAIC", or equivalent rating and $13 million and $21 million, respectively, related to other than high or highest quality securities based on NAIC or equivalent rating. At March 31, 2012, $18 million of the gross unrealized losses represented declines in value of greater than 20%, none of which had been in that position for less than six months, as compared to $22 million at December 31, 2011 that represented declines in value of greater than 20%, $3 million of which had been in that position for less than six months. At March 31, 2012 and December 31, 2011, the $20 million and $25 million respectively, of gross unrealized losses of twelve months or more were concentrated in asset-backed securities. In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for other-than-temporary impairments for these securities was not warranted at March 31, 2012 and December 31, 2011. These conclusions are based on a detailed analysis of the underlying credit and cash flows on each security. The gross unrealized losses are primarily attributable to credit spread widening and increased liquidity discounts. At March 31, 2012, the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before the anticipated recovery of its remaining amortized cost basis.

Duration of Gross Unrealized Loss Positions for Equity Securities

The following table shows the fair value and gross unrealized losses aggregated by length of time that individual equity securities have been in a continuous unrealized loss position, as of the following dates:


	March 31, 2012
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Equity securities, available-for-sale	$	8,311	$	1,290	$	—	$	—	$	8,311	$	1,290


	December 31, 2011
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(in thousands)
Equity securities, available-for-sale	$	3,016	$	1,966	$	—	$	—	$	3,016	$	1,966

At March 31, 2012, $1 million of the gross unrealized losses represented declines in value of greater than 20%, all of which have been in that position for less than six months. At December 31, 2011, $2 million of the gross unrealized losses represented declines in value of greater than 20%, $1.4 million of which had been in that position for less than six months. In accordance with its policy described in Note 2, the Company concluded that an adjustment for other-than-temporary impairments for these equity securities was not warranted at March 31, 2012 or December 31, 2011.