10.

FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance around fair value established a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following characteristics for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available. The Company's Level 1 assets and liabilities primarily include cash equivalents and certain short term investments, equity securities, and corporate securities that are traded in an active exchange market. Prices are obtained from readily available sources for market transactions involving identical assets or liabilities.

Level 2 – Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, and other market observable inputs. The Company's Level 2 assets and liabilities primarily include: fixed maturities (corporate public and private bonds, most government securities, certain asset-backed and mortgage-backed securities, etc.), and certain over-the-counter derivatives. Valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities or through the use of valuation methodologies using observable market inputs. Prices from services are validated through comparison to trade data and internal estimates of current fair value, generally developed using market observable inputs and economic indicators.

Level 3 – Fair value is based on at least one or more significant unobservable inputs for the asset or liability. These inputs reflect the Company's assumptions about the inputs market participants would use in pricing the asset or liability. The Company's Level 3 assets and liabilities primarily include: certain private fixed maturities and equity securities, certain manually priced public equity securities and fixed maturities, certain highly structured over-the-counter derivative contracts, and embedded derivatives resulting from certain products with guaranteed benefits. Prices are determined using valuation methodologies such as option pricing models, discounted cash flow models and other similar techniques. Non-binding broker quotes, which are utilized when pricing service information is not available, are reviewed for reasonableness based on the Company's understanding of the market, and are generally considered Level 3. Under certain conditions, based on its observations of transactions in active markets, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, the Company may choose to over-ride the third-party pricing information or quotes received and apply internally developed values to the related assets or liabilities. To the extent the internally developed valuations use significant unobservable inputs, they are classified as Level 3. As of December 31, 2011 and December 31, 2010 these over-rides on a net basis were not material.

Asset and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities measured at fair value on a recurring basis, as of the dates indicated.


	As of December 31, 2011
	Level 1		Level 2		Level 3		Netting (2)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government securities	$	—	$	86,035	$	—	$	—		$	86,035
State and municipal securities		—		100,075		—		—			100,075
Foreign government securities		—		134,810		—		—			134,810
Corporate securities		6,705		3,791,350		89,658		—			3,887,713
Asset-backed securities		—		128,821		48,563		—			177,384
Commercial mortgage-backed securities		—		491,757		—		—			491,757
Residential mortgage-backed securities		—		395,993		—		—			395,993

Sub-total		6,705		5,128,841		138,221		—			5,273,767
Trading account assets:
Asset-backed securities		—		31,571		—		—			31,571
Equity securities		6,804		—		203		—			7,007

Sub-total		6,804		31,571		203		—			38,578

Equity securities, available-for-sale		3,071		—		—		—			3,071
Short-term investments		227,235		10,366		—		—			237,601
Cash equivalents		8,112		—		—		—			8,112
Other long term investments - PFI		—		191,144		970		(40,012	)		152,102
Other long term investments - Unaffiliated		—		—		243		—			243
Reinsurance recoverable		—		—		1,747,757		—			1,747,757
Other assets		—		25,225		—		—			25,225

Sub-total excluding separate account assets		251,927		5,387,147		1,887,394		(40,012	)		7,486,456
Separate account assets (1)		1,039,821		41,902,937		—		—			42,942,758

Total assets	$	1,291,748	$	47,290,084	$	1,887,394	$	(40,012	)	$	50,429,214

Future policy benefits	$	—	$	—	$	1,783,595	$	—		$	1,783,595
Other liabilities		—		40,012		—		(40,012	)		—

Total liabilities	$	—	$	40,012	$	1,783,595	$	(40,012	)	$	1,783,595

(1)	Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts.

(2)	"Netting" amounts represent the impact of offsetting asset and liability positions held with the same counterparty.


	As of December 31, 2010
	Level 1		Level 2		Level 3		Netting (2)			Total
	(in thousands)
Fixed maturities, available-for-sale:
U.S. government securities	$	—	$	193,305	$	—	$	—		$	193,305
State and municipal securities		—		77,516		—		—			77,516
Foreign government securities		—		136,513		—		—			136,513
Corporate Securities		—		3,876,695		74,255		—			3,950,950
Asset-backed securities		—		160,113		53,857		—			213,970
Commercial mortgage-backed securities		—		490,569		—		—			490,569
Residential mortgage-backed securities		—		393,398		—		—			393,398

Sub-total		—		5,328,109		128,112		—			5,456,221
Trading account assets:
Asset backed securities		—		70,831		—		—			70,831
Equity Securities		8,774		—		—		—			8,774

Sub-total		8,774		70,831		—		—			79,605

Equity securities, available-for-sale		16,611		976		—		—			17,587
Short-term investments		228,383		—		—		—			228,383
Other long-term investments		—		91,757		—		(40,757	)		51,000
Reinsurance recoverable		—		—		186,735		—			186,735
Other assets		—		29,201		—		—			29,201

Sub-total excluding separate account assets		253,768		5,520,874		314,847		(40,757	)		6,048,732
Separate account assets (1)		1,488,369		46,786,974		—		—			48,275,343

Total assets	$	1,742,137	$	52,307,848	$	314,847	$	(40,757	)	$	54,324,075

Future policy benefits	$	—	$	—	$	164,283	$	—		$	164,283
Other liabilities		—		40,757		—		(40,757	)		—

Total liabilities	$	—	$	40,757	$	164,283	$	(40,757	)	$	164,283

(1)	Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts.

(2)	Netting" amounts represent the impact of offsetting asset and liability positions held with the same counterparty.

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below. Information regarding separate account assets is excluded as the risk associated with these assets is primarily borne by the Company's customers and policyholders.

Fixed Maturity Securities – The fair values of the Company's public fixed maturity securities are generally based on prices obtained from independent pricing services. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally receives prices from multiple pricing services for each security, but ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. To validate reasonableness, prices are reviewed by internal asset managers through comparison with directly observed recent market trades and internal estimates of current fair value, developed using market observable inputs and economic indicators. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service. If the pricing service updates the price to be more consistent in comparison to the presented market observations, the security remains within Level 2.

If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used, if available. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may over-ride the information from the pricing service or broker with an internally developed valuation. As of December 31, 2011 and December 31, 2010 over-rides on a net basis were not material. Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These estimates may use significant unobservable inputs, which reflect the Company's own assumptions about the inputs market participants would use in pricing the asset. Circumstances where observable market data are not available may include events such as market illiquidity and credit events related to the security. Pricing service over-rides, internally developed valuations and non-binding broker quotes are generally included in Level 3 in the fair value hierarchy.

The fair value of private fixed maturities, which are primarily comprised of investments in private placement securities, originated by internal private asset managers, are primarily determined using a discounted cash flow model. In certain cases these models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company's own assumptions about the inputs market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are not significant to the price of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.

Private fixed maturities also include debt investments in funds that, in addition to a stated coupon, pay a return based upon the results of the underlying portfolios. The fair values of these securities are determined by reference to the funds' net asset value ("NAV"). Since the NAV at which the funds trade can be observed by redemption and subscription transactions between third parties, the fair values of these investments have been reflected within Level 2 in the fair value hierarchy.

Trading Account Assets – Trading account assets consist primarily of asset-backed and equity securities whose fair values are determined consistent with similar instruments described under "Fixed Maturity Securities" and under "Equity Securities."

Equity Securities – Equity securities consist principally of investments in common, and non-redeemable preferred stock of publicly traded companies. The fair values of most publicly traded equity securities are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy. The fair values of preferred equity securities are based on prices obtained from independent pricing services. These prices are then validated for reasonableness against recently traded market prices. Accordingly, these securities are generally classified within Level 2 in the fair value hierarchy.

Derivative Instruments – Derivatives are recorded at fair value either as assets, within "Other long-term investments," or as liabilities, within "Other liabilities," except for embedded derivatives which are recorded with the associated host contract. The fair values of derivative contracts are determined based on quoted prices in active exchanges or through the use of valuation models. The fair values of derivative contracts can be affected by changes in interest rates, foreign exchange rates, credit spreads, market volatility, expected returns, non-performance risk liquidity and other factors. Liquidity valuation adjustments are made to reflect the cost of exiting significant risk positions, and consider the bid-ask, spread, maturity, complexity, and other specific attributes of the underlying derivative position

The majority of the Company's derivative positions are traded in the OTC derivative market and are classified within Level 2 in the fair value hierarchy. OTC derivatives classified within Level 2 are valued using models generally accepted in the financial services industry that use actively quoted or observable market input values from external market data providers, third-party pricing vendors and/or recent trading activity. The fair values of most OTC derivatives, including interest rate and cross currency swaps and single name credit default swaps are determined using discounted cash flow models. These models' key assumptions include the contractual terms of the respective contract, along with significant observable inputs, including interest rates, currency rates, credit spreads, equity prices, index dividend yields non-performance risk and volatility, and are classified as Level 2.

To reflect the market's perception of its own and the counterparty's non-performance risk, the Company incorporates additional spreads over London Interbank Offered Rate ("LIBOR") into the discount rate used in determining the fair value of OTC derivative assets and liabilities which are uncollateralized. The additional credit spread over LIBOR rates is determined taking into consideration publicly available information relating to the financial strength of the Company. The Company adjusts these credit spreads to remove any illiquidity risk premium, which is subject to a floor based on a percentage of the credit spread. Most OTC derivative contract inputs have bid and ask prices that are actively quoted or can be readily obtained from external market data providers. The Company's policy is to use mid-market pricing in determining its best estimate of fair value.

Derivatives classified as Level 3 include first-to-default credit basket swaps and other structured products. These derivatives are valued based upon models with some significant unobservable market inputs or inputs from less actively traded markets. The fair values of first-to-default credit basket swaps are derived from relevant observable inputs (e.g. individual credit default spreads, interest rates and recovery rates), and unobservable model-specific input values such as correlation between different credits within the same basket. Other structured options and derivatives are valued using simulation models such as the Monte Carlo and other techniques. Level 3 methodologies are validated through periodic comparison of the Company's fair values to broker-dealer values. As of December 31, 2011 and December 31, 2010, there were derivatives with the fair value of $970 thousand and $0 classified within Level 3, and all other derivatives were classified within Level 2. See Note 11 for more details on the fair value of derivative instruments by primary underlying.

Cash Equivalents and Short-Term Investments – Cash equivalents and short-term investments include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The remaining instruments in the short-term investments category are typically not traded in active markets; however, their fair values are based on market observable inputs and, accordingly, these investments have been classified within Level 2 in the fair value hierarchy.

Other Assets – Other assets carried at fair value include affiliated bonds within our legal entity whose fair value are determined consistent with similar securities described above under "Fixed Maturity Securities" managed by affiliated asset managers.

Reinsurance Recoverables – Reinsurance recoverables carried at fair value include the reinsurance of our living benefit guarantees on certain of our variable annuities. These guarantees are considered embedded derivatives and are described below in "Future Policy Benefits". The reinsurance agreements covering these guarantees are derivatives with fair value determined in the same manner as the embedded derivative guarantee.

Future Policy Benefits – The liability for future policy benefits includes general account liabilities for guarantees on variable annuity contracts, including GMAB, GMWB and GMIWB, accounted for as embedded derivatives. The fair values of the GMAB, GMWB and GMIWB liabilities are calculated as the present value of future expected benefit payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. This methodology could result in either a liability or asset balance, given changing capital market conditions and various policyholder behavior assumptions. Since there is no observable active market for the transfer of these obligations, the valuations are calculated using internally developed models with option pricing techniques. The models are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The determination of these risk premiums requires the use of management judgment.

The Company is also required to incorporate the market perceived risk of its own non-performance ("NPR") in the valuation of the embedded derivatives associated with its optional living benefit features. Since insurance liabilities are senior to debt, the Company believes that reflecting the financial strength ratings of the Company in the valuation of the liability or contra-liability appropriately takes into consideration the Company's own risk of non-performance. To reflect NPR, the Company incorporates an additional credit spread over LIBOR into the discount rate used in the valuations of the embedded derivatives associated with its optional living benefit features. The additional credit spread over LIBOR rates is determined taking into consideration publicly available information relating to the financial strength of the Company, as indicated by the credit spreads associated with funding agreements issued by an affiliated company. The Company adjusts these credit spreads to remove any illiquidity risk premium which is subject to a floor based on a percentage of the credit spread. The additional credit spread over LIBOR rates incorporated into the discount rate as of December 31, 2011 generally ranged from 150 to 250 basis points for the portion of the interest rate curve most relevant to these liabilities. This additional spread is applied at an individual contract level and only to individual living benefit contracts in a liability position and not to those in an contra-liability position.

Other significant inputs to the valuation models for the embedded derivatives associated with the optional living benefit features of the Company's variable annuity products include capital market assumptions, such as interest rate and implied volatility assumptions, as well as various policyholder behavior assumptions that are actuarially determined, including lapse rates, benefit utilization rates, mortality rates and withdrawal rates. These assumptions are reviewed at least annually, and updated based upon historical experience and give consideration to any observable market data, including market transactions such as acquisitions and reinsurance transactions. Since many of the assumptions utilized in the valuation of the embedded derivatives associated with the Company's optional living benefit features are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level 3 in the fair value hierarchy.

Significant declines in interest rates and the impact of equity market declines on account values in 2011 drove increases in the embedded derivative liabilities associated with the optional living benefit features of the Company's variable annuity products as of December 31, 2011. These factors, as well as widening of the spreads used in valuing non-performance risk NPR, also drove offsetting increases in the adjustment to incorporate the market-perceived risk of non-performance in the valuation of the embedded derivative. As of December 31, 2011, the fair value of the embedded derivatives associated with the optional living benefit features, before the adjustment for NPR, was a net liability of $4,162 million. This net liability was comprised of $4,188 million of individual living benefit contracts in a liability position net of $26 million of individual living benefit contracts in a contra-liability position. At December 31, 2011, our adjustment for NPR resulted in a $2,378 million cumulative decrease to the embedded derivative liability. As described in Note 5, the Company uses affiliated reinsurance as part of its risk and capital management strategies for certain of these optional living benefit features. As a result, the increases in these embedded derivative liabilities are largely offset by corresponding increases in reinsurance recoverable associated with the affiliated reinsurance agreements.

Transfers between Levels 1 and 2 – During the year ended December 31, 2011, there were no material transfers between Level 1 and Level 2.

Changes in Level 3 assets and liabilities – The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2011, as well as the portion of gains or losses included in income for the year ended December 31, 2011 attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2011.


	Year Ended December 31, 2011
	Fixed Maturities Available-For- Sale - Corporate Securities			Fixed Maturities Available- For-Sale - Asset Backed Securities			Equity Securities - Available- For-Sale			Other Long- Term Investments - PFI			Reinsurance Recoverable		Other Trading Securities - Equity			Other Long Term Investments- Unaffiliated
	(in thousands)
Fair value, beginning of period assets/(liabilities)	$	74,255		$	53,857		$	—		$	—		$	186,735	$	—		$	—
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		46			—			—			(1,285	)		1,348,271		—			—
Asset management fees and other income		—			—			—			—			—		(27	)		(19	)
Included in other comprehensive income (loss)		5,472			206			1			—			—		—			—
Net investment income		4,579			430			—			—			—		—			—
Sales		—			—			(747	)		—			—		—			—
Purchases		8,702			—			—			—			212,751		—			262
Settlements		(5,356	)		(5,930	)		—			—			—		—			—
Transfers into Level 3 (1)		51,135			—			976			2,255			—		—			—
Transfers out of Level 3 (1)		(49,175	)		—			—			—			—		—			—
Other (3)		—			—			(230	)		—			—		230			—

Fair value, end of period assets/(liabilities)	$	89,658		$	48,563		$	—		$	970		$	1,747,757	$	203		$	243


Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	—		$	—		$	—		$	(1,311	)	$	1,356,358	$	—		$	—
Asset administration fees and other income	$	—		$	—		$	—		$	—		$	—	$	(27	)	$	(19	)
Included in other comprehensive income (loss)	$	15,215		$	247		$	1		$	—		$	—	$	—		$	—


	Year Ended December 31, 2011
	Future Policy Benefits
	(in thousands)
Fair value, beginning of period assets/(liabilities)	$	(164,283	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		(1,396,276	)
Purchases		—
Sales		—
Issuances		(223,036	)
Settlements		—
Transfers into Level 3 (1)		—
Transfers out of Level 3 (1)		—

Fair Value, end of period	$	(1,783,595	)


Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	(1,403,609	)
Interest credited to policyholders' account balances	$	—
Included in other comprehensive income (loss)	$	—

(1)	Transfers into or out of Level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.

(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

(3)	Other primarily represents reclasses of certain assets between reporting categories.

Transfers – As a part of an ongoing monitoring assessment of pricing inputs to ensure appropriateness of the level classification in the fair value hierarchy the Company may reassign level classification from time to time. As a result of such a review, in the first quarter of 2011, it was determined that the pricing inputs for perpetual preferred stocks provided by third party pricing services were primarily based on non-binding broker quotes which could not always be verified against directly observable market information. Consequently, perpetual preferred stocks were transferred into Level 3 within the fair value hierarchy. This represents the majority of the transfers into Level 3 for Equity Securities Available-for-Sale. Other transfers into Level 3 were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes (that could not be validated) when previously, information from third party pricing services (that could be validated) was utilized. Transfers out of Level 3 were primarily due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company was able to validate.

The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2010, as well as the portion of gains or losses included in income for the year ended December 31, 2010 attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2010.


	Year Ended December 31, 2010
	Fixed Maturities Available-For-Sale - Corporate Securities			Fixed Maturities Available-For- Sale - Foreign Government Bonds			Fixed Maturities Available-For-Sale - Asset-Backed Securities			Reinsurance Recoverable
	(in thousands)
Fair value, beginning of period assets/(liabilities)	$	63,634		$	1,219		$	43,794		$	40,351
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		1,083			—			(1,247	)		(43,339	)
Included in other comprehensive income (loss)		3,072			(12	)		(963	)		—
Net investment income		4,195			(1	)		17			—
Purchases, sales, issuances and settlements		(10,830	)		—			29,676			189,723
Transfers into Level 3 (1)		13,101			—			—			—
Transfers out of Level 3 (1)		—			(1,206	)		(17,420	)		—

Fair value, end of period assets/(liabilities)	$	74,255		$	—		$	53,857		$	186,735


Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	—		$	—		$	(654	)	$	(40,069	)
Asset management fees and other income	$	—		$	—		$	—		$	—
Included in other comprehensive income (loss)	$	3,773		$	(13	)	$	(963	)	$	—


	Year Ended December 31, 2010
	Future Policy Benefits			Other Liabilities
	(in thousands)
Fair value, beginning of period assets/(liabilities)	$	(10,874	)	$	(53	)
Total gains (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		45,258			53
Purchases, sales, issuances and settlements		(198,667	)		—
Transfers into Level 3 (1)		—			—
Transfers out of Level 3 (1)		—			—

Fair value, end of period assets/(liabilities)	$	(164,283	)	$	—


Unrealized gains (losses) for the period relating to Level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	42,759		$	—
Interest credited to policyholders' account balances	$	—		$	—
Included in other comprehensive income (loss)	$	—		$	—

(1)	Transfers into or out of level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.

(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

Transfers – Transfers out of Level 3 for Fixed Maturities Available-for-Sale – Asset-Backed Securities includes $17.4 million for the year ended December 31, 2010 resulting from the Company's conclusion that the market for asset-backed securities collateralized by sub-prime mortgages has been becoming increasingly active, as evidenced by orderly transactions. The pricing received from independent pricing services could be validated by the Company, as discussed in detail above. Other transfers out of Level 3 were typically due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company was able to validate. Transfers into Level 3 were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes (that could not be validated) when previously, information from third party pricing services (that could be validated) was utilized.

The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ending December 31, 2009, as well as the portion of gains or losses included in income for twelve months ended December 31, 2009 attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2009.


	Year Ended December 31, 2009
	Fixed Maturities Available-For- Sale - Foreign Government Bonds			Fixed Maturities Available- For-Sale - Corporate Securities			Fixed Maturities Available- For-Sale - Asset- Backed Securities			Reinsurance Recoverable			Other Liabilities (3)
	(in thousands)
Fair value, beginning of period	$	977		$	68,559		$	21,188		$	2,110,146		$	(1,496	)
Total gains (losses) (realized/unrealized)
Included in earnings:
Realized investment gains (losses), net		—			(449	)		(5,173	)		(2,162,496	)		1,443
Included in other comprehensive income (loss)		243			(8,063	)		17,767			—			—
Net investment income		(1	)		3,637			156			—			—
Purchases, sales, issuances, and settlements		—			(963	)		(1,411	)		92,701			—
Transfers into (out of) level 3 (1)		—			913			11,267			—			—

Fair value, end of period of period assets/(liabilities)	$	1,219		$	63,634		$	43,794		$	40,351		$	(53	)


Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	—		$	(433	)	$	(4,894	)	$	(2,092,458	)	$	1,444
Asset management fees and other income	$	—		$	—		$	—		$	—		$	—
Included in other comprehensive income (loss)	$	243		$	(8,025	)	$	17,767		$	—		$	—


	Year Ended December 31, 2009
	Future Policy Benefits
	(in thousands)
Fair value, beginning of period of period assets/(liabilities)	$	(2,111,241	)
Total gains (losses) (realized/unrealized)
Included in earnings:
Realized investment gains (losses), net		2,195,856
Interest Credited to Policyholder Account Balances (SA Only)		—
Purchases, sales, issuances, and settlements		(95,489	)
Transfers into (out of) level 3 (1)		—

Fair value, end of period of period assets/(liabilities)	$	(10,874	)


Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	2,125,409
Interest credited to policyholder account	$	—
Included in other comprehensive income (loss)	$	—

(1)	Transfers into or out of level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs.

(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

(3)	Derivative instruments classified as Other Long-term Investments at December 31, 2008 were reclassified Other Liabilities at December 31, 2009 as they were in a net liability position.

Transfers – Transfers into Level 3 for Fixed Maturities Available-for-Sale – Asset-Backed include $14.4 million for the year ended December 31, 2009, resulting from the Company's conclusion that the market for asset-backed securities collateralized by sub-prime mortgages was an inactive market, as discussed in detail above. In addition to these sub-prime securities, transfers into Level 3 for Fixed Maturities Available-for-Sale – Corporate Securities and Asset-Backed Securities included transfers resulting from the use of unobservable inputs within valuation methodologies and the use of broker quotes (that could not be validated) when previously, information from third party pricing services (that could be validated) or models with observable inputs were utilized.

Transfers out of level 3 for Fixed Maturities Available-for-Sale – Asset-Backed Securities and – Corporate Securities were primarily due to the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company was able to validate.

Transfers out of level 3 for Separate Account Assets were primarily due to the reclassification of the underlying investment within the mutual funds as these funds had less exposure to Level 3 securities since the funds switched to vendor prices.

Fair Value of Financial Instruments – The Company is required to disclose the fair value of certain financial instruments including those that are not carried at fair value. For the following financial instruments the carrying amount equals or approximates fair value: fixed maturities classified as available-for-sale, trading account assets, equity securities, policy loans, short-term investments, cash and cash equivalents and separate accounts.

The following table discloses the Company's financial instruments where the carrying amounts and fair values may differ:


	December 31, 2011				December 31, 2010
	Carrying value		Fair value		Carrying value		Fair value
	(in thousands)
Assets:
Commercial mortgage and other loans	$	449,359	$	490,151	$	431,432	$	465,099
Liabilities:
Investment Contracts - Policyholders' Account Balances	$	66,176	$	66,659	$	58,549	$	58,679
Short-Term and Long-Term Debt	$	627,803	$	655,218	$	805,054	$	846,169

The fair values presented above for those financial instruments where the carrying amounts and fair values may differ have been determined by using available market information and by applying market valuation methodologies, as described in more detail below.

Commercial mortgage and other loans

The fair value of commercial mortgage and other loans is primarily based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate adjusted for the current market spread for similar quality loans.

Investment Contracts – Policyholders' Account Balances

Only the portion of policyholders' account balances related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table above. For payout annuities and other similar contracts without life contingencies, fair values are derived using discounted projected cash flows based on interest rates that are representative of the Company's financial strength ratings, and hence reflects the Company's own non-performance risk.

Short-Term and Long-Term Debt

The fair value of short-term and long-term debt is generally determined by either prices obtained from independent pricing services, which are validated by the Company, or discounted cash flow models. These fair values consider the Company's own non-performance risk. Discounted cash flow models predominately use market observable inputs such as the borrowing rates currently available to the Company for debt and financial instruments with similar terms and remaining maturities. For commercial paper issuances and other debt with a maturity of less than 90 days, the carrying value approximates fair value.