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EX-32.2 - EX-32.2 - REINSURANCE GROUP OF AMERICA INCc57927exv32w2.htm
EX-31.2 - EX-31.2 - REINSURANCE GROUP OF AMERICA INCc57927exv31w2.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2010
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of Registrant as specified in its charter)
     
MISSOURI
(State or other jurisdiction
of incorporation or organization)
  43-1627032
(IRS employer
identification number)
1370 Timberlake Manor Parkway
Chesterfield, Missouri 63017
(Address of principal executive offices)
(636) 736-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of April 30, 2010, 73,144,862 shares of the registrant’s common stock were outstanding.
 
 

 


 

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
             
Item       Page  
 
  PART I – FINANCIAL INFORMATION        
 
           
  Financial Statements        
 
           
 
  Condensed Consolidated Balance Sheets (Unaudited) March 31, 2010 and December 31, 2009     3  
 
           
 
  Condensed Consolidated Statements of Income (Unaudited) Three months ended March 31, 2010 and 2009     4  
 
           
 
  Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2010 and 2009     5  
 
           
 
  Notes to Condensed Consolidated Financial Statements (Unaudited)     6  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations     32  
 
           
  Quantitative and Qualitative Disclosure About Market Risk     64  
 
           
  Controls and Procedures     64  
 
           
 
  PART II – OTHER INFORMATION        
 
           
  Legal Proceedings     64  
 
           
  Risk Factors     65  
 
           
  Unregistered Sales of Equity Securities and Use of Proceeds     65  
 
           
  Exhibits     65  
 
           
 
  Signatures     66  
 
           
 
  Index to Exhibits     67  
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
                 
    March 31,     December 31,  
    2010     2009  
 
               
Assets
               
Fixed maturity securities:
               
Available-for-sale at fair value (amortized cost of $12,407,225 and $11,616,957 at March 31, 2010 and December 31, 2009, respectively)
  $ 12,775,342     $ 11,763,358  
Mortgage loans on real estate
    797,272       791,668  
Policy loans
    1,162,723       1,136,564  
Funds withheld at interest
    5,180,300       4,895,356  
Short-term investments
    79,160       121,060  
Other invested assets
    564,753       516,086  
 
           
Total investments
    20,559,550       19,224,092  
Cash and cash equivalents
    525,360       512,027  
Accrued investment income
    140,921       107,447  
Premiums receivable and other reinsurance balances
    880,372       850,096  
Reinsurance ceded receivables
    731,479       716,480  
Deferred policy acquisition costs
    3,624,846       3,698,972  
Other assets
    259,930       140,387  
 
           
Total assets
  $ 26,722,458     $ 25,249,501  
 
           
 
               
Liabilities and Stockholders’ Equity
               
Future policy benefits
  $ 8,540,298     $ 7,748,480  
Interest-sensitive contract liabilities
    7,550,168       7,666,002  
Other policy claims and benefits
    2,429,147       2,229,083  
Other reinsurance balances
    211,532       106,706  
Deferred income taxes
    818,331       613,222  
Other liabilities
    782,117       792,775  
Long-term debt
    1,216,140       1,216,052  
Collateral finance facility
    850,025       850,037  
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company
    159,266       159,217  
 
           
Total liabilities
    22,557,024       21,381,574  
 
               
Commitments and contingent liabilities (See Note 8)
               
 
               
Stockholders’ Equity:
               
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no shares issued or outstanding)
           
Common stock (par value $.01 per share; 140,000,000 shares authorized; shares issued: 73,363,523 at March 31, 2010 and December 31, 2009)
    734       734  
Warrants
    66,912       66,912  
Additional paid-in-capital
    1,469,807       1,463,101  
Retained earnings
    2,165,410       2,055,549  
Accumulated other comprehensive income:
               
Accumulated currency translation adjustment, net of income taxes
    237,549       210,878  
Unrealized appreciation of securities, net of income taxes
    252,905       104,457  
Pension and postretirement benefits, net of income taxes
    (16,066 )     (16,126 )
 
           
Total stockholders’ equity before treasury stock
    4,177,251       3,885,505  
Less treasury shares held of 260,634 and 373,861 at cost at March 31, 2010 and December 31, 2009, respectively
    (11,817 )     (17,578 )
 
           
Total stockholders’ equity
    4,165,434       3,867,927  
 
           
Total liabilities and stockholders’ equity
  $ 26,722,458     $ 25,249,501  
 
           
See accompanying notes to condensed consolidated financial statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                 
    Three months ended March 31,  
    2010     2009  
    (Dollars in thousands, except per share data)  
Revenues:
               
Net premiums
  $ 1,628,464     $ 1,346,047  
Investment income, net of related expenses
    304,258       223,196  
Investment related gains (losses), net:
               
Other-than-temporary impairments on fixed maturity securities
    (7,430 )     (34,395 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
    2,344        
Other investment related gains (losses), net
    136,271       (37,867 )
 
           
Total investment related gains (losses), net
    131,185       (72,262 )
Other revenues
    36,278       33,859  
 
           
Total revenues
    2,100,185       1,530,840  
 
           
 
               
Benefits and Expenses:
               
Claims and other policy benefits
    1,375,180       1,169,744  
Interest credited
    56,934       36,909  
Policy acquisition costs and other insurance expenses
    366,302       198,801  
Other operating expenses
    91,199       66,749  
Interest expense
    15,449       22,117  
Collateral finance facility expense
    1,806       2,314  
 
           
Total benefits and expenses
    1,906,870       1,496,634  
 
           
 
               
Income before income taxes
    193,315       34,206  
Provision for income taxes
    70,876       10,916  
 
           
Net income
  $ 122,439     $ 23,290  
 
           
 
               
Earnings per share:
               
Basic earnings per share
  $ 1.68     $ 0.32  
Diluted earnings per share
  $ 1.64     $ 0.32  
 
               
Dividends declared per share
  $ 0.12     $ 0.09  
See accompanying notes to condensed consolidated financial statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Three months ended March 31,  
    2010     2009  
    (Dollars in thousands)  
Cash Flows from Operating Activities:
               
Net income
  $ 122,439     $ 23,290  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Change in operating assets and liabilities:
               
Accrued investment income
    (33,508 )     (30,900 )
Premiums receivable and other reinsurance balances
    (42,145 )     (47,375 )
Deferred policy acquisition costs
    59,525       (26,277 )
Reinsurance ceded balances
    (14,999 )     (11,581 )
Future policy benefits, other policy claims and benefits, and other reinsurance balances
    1,054,030       384,229  
Deferred income taxes
    63,820       35,531  
Other assets and other liabilities, net
    (96,334 )     (1,633 )
Amortization of net investment premiums, discounts and other
    (16,833 )     (34,342 )
Investment related losses (gains), net
    (131,185 )     72,262  
Excess tax benefits from share-based payment arrangement
    (565 )     (1,442 )
Other, net
    (16,213 )     (9,277 )
 
           
Net cash provided by operating activities
    948,032       352,485  
 
               
Cash Flows from Investing Activities:
               
Sales of fixed maturity securities available-for-sale
    800,547       423,107  
Maturities of fixed maturity securities available-for-sale
    23,371       9,476  
Purchases of fixed maturity securities available-for-sale
    (1,504,410 )     (965,271 )
Cash invested in mortgage loans
    (12,730 )      
Cash invested in policy loans
    (28,571 )      
Cash invested in funds withheld at interest
    (60,636 )     (23,100 )
Principal payments on mortgage loans on real estate
    6,121       8,065  
Principal payments on policy loans
    2,412       15,684  
Change in short-term investments and other invested assets
    (2,431 )     772  
 
           
Net cash used in investing activities
    (776,327 )     (531,267 )
 
               
Cash Flows from Financing Activities:
               
Dividends to stockholders
    (8,784 )     (6,537 )
Purchases of treasury stock
    (718 )     (1,607 )
Excess tax benefits from share-based payment arrangement
    565       1,442  
Exercise of stock options, net
    5,762       250  
Change in securities sold under agreements to repurchase and cash collateral for derivative positions
    10,439       (52,955 )
Net withdrawals on universal life and other investment type policies and contracts
    (165,565 )     (44,496 )
 
           
Net cash used in financing activities
    (158,301 )     (103,903 )
Effect of exchange rate changes on cash
    (71 )     (6,176 )
 
           
Change in cash and cash equivalents
    13,333       (288,861 )
Cash and cash equivalents, beginning of period
    512,027       875,403  
 
           
Cash and cash equivalents, end of period
  $ 525,360     $ 586,542  
 
           
 
               
Supplementary information:
               
Cash paid for interest
  $ 12,780     $ 13,390  
Cash paid for income taxes, net of refunds
  $ 24,089     $ 3,847  
See accompanying notes to condensed consolidated financial statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2010 is not necessarily indicative of the results that may be expected for the year ending December 31, 2010. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying condensed consolidated financial statements through the date the financial statements were issued. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2009 Annual Report on Form 10-K (“2009 Annual Report”) filed with the Securities and Exchange Commission on March 2, 2010.
The accompanying unaudited condensed consolidated financial statements include the accounts of Reinsurance Group of America, Incorporated and its subsidiaries. All intercompany accounts and transactions have been eliminated. The Company has reclassified the presentation of certain prior-period information to conform to the current presentation.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share on net income (in thousands, except per share information):
                 
    Three months ended  
    March 31,  
    2010     2009  
Earnings:
               
Net income (numerator for basic and diluted calculations)
  $ 122,439     $ 23,290  
Shares:
               
Weighted average outstanding shares (denominator for basic calculation)
    73,046       72,710  
Equivalent shares from outstanding stock options
    1,532       174  
 
           
Denominator for diluted calculation
    74,578       72,884  
 
           
Earnings per share:
               
Basic
  $ 1.68     $ 0.32  
Diluted
  $ 1.64     $ 0.32  
The calculation of common equivalent shares does not include the impact of options or warrants having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three months ended March 31, 2010, approximately 0.7 million stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. For the three months ended March 31, 2009, approximately 1.5 million stock options and approximately 0.6 million performance contingent shares were excluded from the calculation.

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3. Comprehensive Income
The following table presents the components of the Company’s other comprehensive income (loss) (dollars in thousands):
                 
    Three months ended  
    March 31,     March 31,  
    2010     2009  
Net income
  $ 122,439     $ 23,290  
Other comprehensive income (loss), net of income tax:
               
Unrealized investment gains (losses), net of reclassification adjustment for gains (losses) included in net income
    149,972       (141,663 )
Reclassification adjustment for other-than-temporary impairments
    (1,524 )      
Currency translation adjustments
    26,671       (22,844 )
Unrealized pension and postretirement benefit adjustment
    60       202  
 
           
Comprehensive income (loss)
  $ 297,618     $ (141,015 )
 
           
The balance of and changes in each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2010 are as follows (dollars in thousands):
                                 
    Accumulated Other Comprehensive Income (Loss), Net of Income Tax  
    Accumulated     Unrealized              
    Currency     Appreciation     Pension and        
    Translation     (Depreciation)     Postretirement        
    Adjustments     of Securities     Benefits     Total  
Balance, December 31, 2009
  $ 210,878     $ 104,457     $ (16,126 )   $ 299,209  
Change in component during the period
    26,671       148,448       60       175,179  
 
                       
Balance, March 31, 2010
  $ 237,549     $ 252,905     $ (16,066 )   $ 474,388  
 
                       
4. Investments
The Company had total cash and invested assets of $21.1 billion and $19.7 billion at March 31, 2010 and December 31, 2009, respectively, as illustrated below (dollars in thousands):
                 
    March 31, 2010     December 31, 2009  
Fixed maturity securities, available-for-sale
  $ 12,775,342     $ 11,763,358  
Mortgage loans on real estate
    797,272       791,668  
Policy loans
    1,162,723       1,136,564  
Funds withheld at interest
    5,180,300       4,895,356  
Short-term investments
    79,160       121,060  
Other invested assets
    564,753       516,086  
Cash and cash equivalents
    525,360       512,027  
 
           
Total cash and invested assets
  $ 21,084,910     $ 19,736,119  
 
           
All investments held by the Company are monitored for conformance to the qualitative and quantitative limits prescribed by the applicable jurisdiction’s insurance laws and regulations. In addition, the operating companies’ boards of directors periodically review their respective investment portfolios. The Company’s investment strategy is to maintain a predominantly investment-grade, fixed maturity portfolio, to provide adequate liquidity for expected reinsurance obligations, and to maximize total return through prudent asset management. The Company’s asset/liability duration matching differs between operating segments. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years. The average duration for all the Company’s portfolios, when consolidated, ranges between eight and ten years.

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Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses consist of the following (dollars in thousands):
                 
    Three months ended  
    March 31,  
    2010     2009  
Fixed maturity securities available-for-sale
  $ 177,491     $ 139,181  
Mortgage loans on real estate
    12,207       11,577  
Policy loans
    19,843       16,412  
Funds withheld at interest
    91,181       50,462  
Short-term investments
    1,248       718  
Other invested assets
    8,511       9,197  
 
           
Investment revenue
    310,481       227,547  
Investment expense
    6,223       4,351  
 
           
Investment income, net of related expenses
  $ 304,258     $ 223,196  
 
           
Investment Related Gains (Losses), Net
Investment related gains (losses), net consist of the following (dollars in thousands):
                 
    Three months ended  
    March 31,  
    2010     2009  
Fixed maturities and equity securities available for sale:
               
Other-than-temporary impairment losses on fixed maturities
  $ (7,430 )   $ (34,395 )
Portion of loss recognized in accumulated other comprehensive income (before taxes)
    2,344        
 
           
Net other-than-temporary impairment losses on fixed maturities recognized in earnings
    (5,086 )     (34,395 )
Impairment losses on equity securities
    (22 )     (5,430 )
Gain on investment activity
    16,099       12,230  
Loss on investment activity
    (8,532 )     (19,649 )
Other impairment losses
    (1,230 )     (1,697 )
Derivatives and other, net
    129,956       (23,321 )
 
           
Net gains (losses)
  $ 131,185     $ (72,262 )
 
           
The net other-than-temporary impairment losses on fixed maturities recognized in earnings of $5.1 million in 2010 are primarily due to a decline in value of structured securities with exposure to commercial mortgages. The other-than-temporary impairments in 2009 were due to the turmoil in the U.S. and global financial markets which has resulted in bankruptcies, credit defaults, consolidations and government interventions. Those conditions had moderated considerably by the first quarter of 2010. The increase in derivative gains is primarily due to a decrease in the fair value of embedded derivative liabilities associated with modified coinsurance and funds withheld treaties.
During the three months ended March 31, 2010 and 2009, the Company sold fixed maturity securities and equity securities with fair values of $240.1 million and $108.4 million at losses of $8.5 million and $19.6 million, respectively, or at 96.6% and 84.7% of amortized cost, respectively. The Company generally does not engage in short-term buying and selling of securities.
Other-Than-Temporary Impairments
The Company has a process in place to identify fixed maturity and equity securities that could potentially have credit impairments that are other-than-temporary. This process involves monitoring market events that could impact issuers’ credit ratings, business climates, management changes, litigation and government actions and other similar factors. This process also involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.
The Company reviews all securities to determine whether an other-than-temporary decline in value exists and whether losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (1) the extent and length of time the fair value has been below cost; (2) the reasons for the decline in fair value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the Company’s intent to sell a security or whether it is more likely than not it will be required to sell the

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security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, its ability and intent to hold the security for a period of time that allows for the recovery in value. To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.
In April 2009, the Company adopted the amended general accounting principles for Investments as it relates to the recognition and presentation of other-than-temporary impairments. See Note 12 – “New Accounting Standards” for further discussion of the adoption. The amended recognition provisions apply only to fixed maturity securities classified as available-for-sale and held-to-maturity, while the presentation and disclosure requirements apply to both fixed maturity and equity securities.
Impairment losses on equity securities are recognized in net income. The way in which impairment losses on fixed maturity securities are recognized in the financial statements is dependent on the facts and circumstances related to the specific security. If the Company intends to sell a security or it is more likely than not that it would be required to sell a security before the recovery of its amortized cost, less any current period credit loss, it recognizes an other-than-temporary impairment in net income for the difference between amortized cost and fair value. If the Company does not expect to recover the amortized cost basis, it does not plan to sell the security and if it is not more likely than not that it would be required to sell a security before the recovery of its amortized cost, less any current period credit loss, the recognition of the other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in net income and the non-credit loss portion in accumulated other comprehensive income (“AOCI”).
For the three months ended March 31, 2010, the Company recognized $5.1 million of credit related losses in various mortgage-backed securities and to a lesser extent, U.S. corporate securities. The Company estimates the amount of the credit loss component of a fixed maturity security impairment as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The techniques and assumptions for establishing the best estimate cash flows vary depending on the type of security. The asset-backed securities’ cash flow estimates are based on security-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate fixed maturity security cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using security specific facts and circumstances including timing, security interests and loss severity.
The following tables set forth the amount of credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the other-than-temporary impairment loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):
         
    Three months ended  
    March 31, 2010  
Balance, beginning of period
  $ (47,905 )
Credit losses for which an other-than-temporary impairment was not previously recognized
    (1,572 )
Credit losses for which an other-than-temporary impairment was previously recognized
    (2,101 )
 
     
Balance, end of period
  $ (51,578 )
 
     
Fixed Maturities and Equity Securities Available-for-Sale
As mentioned above, the amended general accounting principles for Investments change how an entity recognizes an other-than-temporary impairment for a fixed maturity security by separating the other-than-temporary impairment loss between the amount representing the credit loss and the amount relating to other factors, if the Company does not have the intent to sell or it more likely than not will not be required to sell prior to recovery of the amortized cost less any current period credit loss. Credit losses are recognized in net income and losses relating to other non-credit factors are recognized in AOCI and included in unrealized losses in the 2010 table below. The following tables provide information relating to investments in fixed maturity securities and equity securities by sector as of March 31, 2010 and December 31, 2009 (dollars in thousands):

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                                            Other-than-  
                            Estimated             temporary  
    Amortized     Unrealized     Unrealized     Fair     % of     impairments  
    Cost     Gains     Losses     Value     Total     in AOCI  
March 31, 2010:
                                               
Available-for-sale:
                                               
U.S. corporate securities
  $ 4,132,546     $ 221,954     $ 111,592     $ 4,242,908       33.2 %   $  
Canadian and Canadian provincial governments
    2,095,683       423,386       23,233       2,495,836       19.5        
Residential mortgage-backed securities
    1,604,022       37,663       65,520       1,576,165       12.3       (7,271 )
Foreign corporate securities
    1,848,904       90,084       23,819       1,915,169       15.0        
Asset-backed securities
    516,924       12,224       70,484       458,664       3.6       (2,194 )
Commercial mortgage-backed securities
    1,222,346       41,599       139,209       1,124,736       8.8       (15,779 )
U.S. government and agencies
    437,464       1,148       6,710       431,902       3.4        
State and political subdivisions
    107,212       233       12,135       95,310       0.8        
Other foreign government securities
    442,124       2,605       10,077       434,652       3.4        
 
                                   
Total fixed maturity securities
  $ 12,407,225     $ 830,896     $ 462,779     $ 12,775,342       100.0 %   $ (25,244 )
 
                                   
 
                                               
Non-redeemable preferred stock
  $ 123,107     $ 3,167     $ 7,433     $ 118,841       68.6 %        
Other equity securities
    50,611       4,272       492       54,391       31.4          
 
                                     
Total equity securities
  $ 173,718     $ 7,439     $ 7,925     $ 173,232       100.0 %        
 
                                     
                                                 
                                            Other-than-  
                            Estimated             temporary  
    Amortized     Unrealized     Unrealized     Fair     % of     impairments  
    Cost     Gains     Losses     Value     Total     in AOCI  
December 31, 2009:
                                               
Available-for-sale:
                                               
U.S. corporate securities
  $ 3,689,797     $ 180,635     $ 147,384     $ 3,723,048       31.7 %   $  
Canadian and Canadian provincial governments
    1,984,475       394,498       25,746       2,353,227       20.0        
Residential mortgage-backed securities
    1,494,021       32,538       70,015       1,456,544       12.4       (7,018 )
Foreign corporate securities
    1,627,806       77,340       33,398       1,671,748       14.2        
Asset-backed securities
    522,760       9,307       80,131       451,936       3.8       (2,194 )
Commercial mortgage-backed securities
    1,177,621       20,670       169,427       1,028,864       8.7       (13,690 )
U.S. government and agencies
    540,001       1,085       15,027       526,059       4.5        
State and political subdivisions
    107,233       273       17,744       89,762       0.8        
Other foreign government securities
    473,243       2,198       13,271       462,170       3.9        
 
                                   
Total fixed maturity securities
  $ 11,616,957     $ 718,544     $ 572,143     $ 11,763,358       100.0 %   $ (22,902 )
 
                                   
 
                                               
Non-redeemable preferred stock
    123,648       1,878       12,328       113,198       66.0          
Other equity securities
    58,008       760       409       58,359       34.0          
 
                                     
Total equity securities
  $ 181,656     $ 2,638     $ 12,737     $ 171,557       100.0 %        
 
                                   
As of March 31, 2010, the Company held securities with a fair value of $422.3 million that were issued by the Federal National Mortgage Corporation, $819.8 million that were issued by the Canadian province of Ontario and $719.0 million in one entity that were guaranteed by the Canadian province of Quebec, all of which exceeded 10% of consolidated stockholders’ equity. As of December 31, 2009, the Company held securities with a fair value of $448.3 million issued by the Federal National Mortgage Corporation, $482.6 million that were issued by the United States Treasury, $895.7 million that were issued by the Canadian province of Ontario, and $679.9 million in one entity that were guaranteed by the Canadian province of Quebec, all of which exceeded 10% of consolidated stockholders’ equity.
The amortized cost and estimated fair value of fixed maturity securities available-for-sale at March 31, 2010 are shown by contractual maturity for all securities except certain U.S. government agency securities, which are distributed by maturity year based on the Company’s estimate of the rate of future prepayments of principal over the remaining lives of the securities. These estimates are derived from prepayment rates experienced at the interest rate levels projected for the applicable underlying collateral and can be expected to vary from actual experience. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. At March 31, 2010, the contractual maturities of investments in fixed maturity securities were as follows (dollars in thousands):

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    Amortized     Fair  
    Cost     Value  
Available-for-sale:
               
Due in one year or less
  $ 256,711     $ 260,786  
Due after one year through five years
    1,528,198       1,573,067  
Due after five year through ten years
    3,028,423       3,162,215  
Due after ten years
    4,250,600       4,619,708  
Asset and mortgage-backed securities
    3,343,293       3,159,566  
 
           
Total
  $ 12,407,225     $ 12,775,342  
 
           
The table below depicts the major industry types and weighted average credit ratings, which comprise the U.S. and foreign corporate fixed maturity holdings at (dollars in thousands):
                                 
            Estimated             Average Credit  
    Amortized Cost     Fair Value     % of Total     Ratings  
March 31, 2010:
                               
Finance
  $ 1,568,318     $ 1,567,535       25.4 %     A-  
Industrial
    1,913,964       1,999,558       32.5     BBB+
Foreign (1)
    1,848,904       1,915,170       31.1       A+  
Utility
    646,393       671,572       10.9     BBB+
Other
    3,871       4,242       0.1       A+  
 
                       
Total
  $ 5,981,450     $ 6,158,077       100.0 %     A-  
 
                       
                                 
            Estimated             Average Credit  
    Amortized Cost     Fair Value     % of Total     Ratings  
December 31, 2009:
                               
Finance
  $ 1,411,464     $ 1,358,925       25.2 %     A-  
Industrial
    1,670,610       1,735,522       32.2     BBB+
Foreign (1)
    1,627,352       1,671,090       30.9       A  
Utility
    603,958       624,710       11.6     BBB+
Other
    4,219       4,549       0.1       A  
 
                       
Total
  $ 5,317,603     $ 5,394,796       100.0 %     A-  
 
                       
 
(1)   Includes U.S. dollar-denominated debt obligations of foreign obligors and other foreign investments.
At March 31, 2010 and December 31, 2009, the Company had $470.7 million and $584.9 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. These securities are concentrated, calculated as a percentage of gross unrealized losses, as follows:

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    March 31,     December 31,  
    2010     2009  
Sector:
               
U.S. corporate securities
    25 %     26 %
Canadian and Canada provincial governments
    5       4  
Residential mortgage-backed securities
    14       12  
Foreign corporate securities
    5       7  
Asset-backed securities
    15       14  
Commercial mortgage-backed securities
    30       29  
State and political subdivisions
    3       3  
U.S. government and agencies
    1       3  
Other foreign government securities
    2       2  
 
           
Total
    100 %     100 %
 
           
 
               
Industry:
               
Finance
    20 %     25 %
Asset-backed
    15       13  
Industrial
    8       7  
Mortgage-backed
    44       41  
Government
    11       12  
Utility
    2       2  
 
           
Total
    100 %     100 %
 
           
The following table presents total gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,167 and 1,316 fixed maturity securities and equity securities as of March 31, 2010 and December 31, 2009, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
                                                 
    March 31, 2010     December 31, 2009  
            Gross                     Gross        
    Number of     Unrealized             Number of     Unrealized        
    Securities     Losses     % of Total     Securities     Losses     % of Total  
Less than 20%
    1,024     $ 203,624       43.3 %     1,112     $ 254,075       43.4 %
20% or more for less than six months
    24       61,413       13.0       38       69,322       11.9  
20% or more for six months or greater
    119       205,667       43.7       166       261,483       44.7  
 
                                   
Total
    1,167     $ 470,704       100.0 %     1,316     $ 584,880       100.0 %
 
                                   
As of March 31, 2010 and December 31, 2009, respectively, 64.5% and 71.4% of these securities were investment grade and 43.3% and 43.4% had fair values that were less than 20% below cost. The amount of the unrealized loss on these securities was primarily attributable to a widening of credit default spreads, since the time securities were purchased.
While all of these securities are monitored for potential impairment, the Company believes due to fluctuating market conditions and liquidity concerns, and the relatively high levels of price volatility, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to an issuer. The Company’s determination of whether a decline in value is other-than-temporary includes the Company’s analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as a potential indicator of credit deterioration.
The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for the 1,167 and 1,316 fixed maturity securities and equity securities that have estimated fair values below amortized cost as of March 31, 2010 and December 31, 2009, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related market value has remained below amortized cost.

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    Less than 12 months     12 months or greater     Total  
            Gross             Gross             Gross  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
March 31, 2010:
                                               
Investment grade securities:
                                               
U.S. corporate securities
  $ 507,724     $ 28,141     $ 498,597     $ 60,018     $ 1,006,321     $ 88,159  
Canadian and Canadian provincial governments
    482,084       12,395       150,267       10,838       632,351       23,233  
Residential mortgage-backed securities
    464,045       22,821       162,036       15,268       626,081       38,089  
Foreign corporate securities
    362,369       1,646       212,686       18,818       575,055       20,464  
Asset-backed securities
    20,808       24       135,204       44,549       156,012       44,573  
Commercial mortgage-backed securities
    85,112       7,873       263,683       48,237       348,795       56,110  
U.S. government and agencies
    375,085       6,710                   375,085       6,710  
State and political subdivisions
    29,277       1,860       50,302       8,909       79,579       10,769  
Other foreign government securities
    229,374       4,683       68,072       5,394       297,446       10,077  
 
                                   
Total investment grade securities
    2,555,878       86,153       1,540,847       212,031       4,096,725       298,184  
 
                                   
 
                                               
Non-investment grade securities:
                                               
U.S. corporate securities
    12,292       8,243       151,348       15,190       163,640       23,433  
Asset-backed securities
    8,161       3,953       33,548       21,958       41,709       25,911  
Foreign corporate securities
                635       3,355       635       3,355  
Residential mortgage-backed securities
    11,430       1,307       73,570       26,124       85,000       27,431  
Commercial mortgage-backed securities
                55,656       83,099       55,656       83,099  
State and political subdivisions
                6,730       1,366       6,730       1,366  
 
                                   
Total non-investment grade securities
    31,883       13,503       321,487       151,092       353,370       164,595  
 
                                   
Total fixed maturity securities
  $ 2,587,761     $ 99,656     $ 1,862,334     $ 363,123     $ 4,450,095     $ 462,779  
 
                                   
 
                                               
Non-redeemable preferred stock
  $ 19,547     $ 499     $ 46,903     $ 6,934     $ 66,450     $ 7,433  
Other equity securities
    625             7,658       492       8,283       492  
 
                                   
Total equity securities
  $ 20,172     $ 499     $ 54,561     $ 7,426     $ 74,733     $ 7,925  
 
                                   
 
                                               
Total number of securities in an unrealized loss position
    539               628               1,167          
 
                                         
                                                 
    Less than 12 months     12 months or greater     Total  
            Gross             Gross             Gross  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
    Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
December 31, 2009:
                                               
Investment grade securities:
                                               
U.S. corporate securities
  $ 373,049     $ 27,625     $ 679,908     $ 89,711     $ 1,052,957     $ 117,336  
Canadian and Canadian provincial governments
    494,718       15,374       135,315       10,372       630,033       25,746  
Residential mortgage-backed securities
    402,642       23,671       197,320       20,185       599,962       43,856  
Foreign corporate securities
    362,406       5,262       182,300       24,693       544,706       29,955  
Asset-backed securities
    48,651       1,927       166,603       57,262       215,254       59,189  
Commercial mortgage-backed securities
    177,360       10,312       425,793       79,297       603,153       89,609  
U.S. government and agencies
    496,514       15,027                   496,514       15,027  
State and political subdivisions
    34,612       3,397       40,945       11,437       75,557       14,834  
Other foreign government securities
    240,216       8,370       30,321       4,901       270,537       13,271  
 
                                   
Total investment grade securities
    2,630,168       110,965       1,858,505       297,858       4,488,673       408,823  
 
                                   
 
                                               
Non-investment grade securities:
                                               
U.S. corporate securities
    35,477       11,293       168,375       18,755       203,852       30,048  
Asset-backed securities
    6,738       3,256       24,408       17,686       31,146       20,942  
Foreign corporate securities
    1,755       17       3,771       3,426       5,526       3,443  
Residential mortgage-backed securities
    10,657       1,909       66,756       24,250       77,413       26,159  
Commercial mortgage-backed securities
                57,179       79,818       57,179       79,818  
State and political subdivisions
                5,170       2,910       5,170       2,910  
 
                                   
Total non-investment grade securities
    54,627       16,475       325,659       146,845       380,286       163,320  
 
                                   
Total fixed maturity securities
  $ 2,684,795     $ 127,440     $ 2,184,164     $ 444,703     $ 4,868,959     $ 572,143  
 
                                   
 
                                               
Non-redeemable preferred stock
  $ 8,320     $ 1,263     $ 68,037     $ 11,065     $ 76,357     $ 12,328  
Other equity securities
    5       15       7,950       394       7,955       409  
 
                                   
Total equity securities
  $ 8,325     $ 1,278     $ 75,987     $ 11,459     $ 84,312     $ 12,737  
 
                                   
 
                                               
Total number of securities in an unrealized loss position
    582               734               1,316          
 
                                         

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As of March 31, 2010, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. However, as facts and circumstances change, the Company may sell fixed maturity securities in the ordinary course of managing its portfolio to meet diversification, credit quality, asset-liability management and liquidity profile. As of March 31, 2010, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, from time to time if facts and circumstances change, the Company may sell equity securities in the ordinary course of managing its portfolio to meet diversification, credit quality and liquidity profile.
5. Derivative Instruments
The following table presents the notional amounts and fair value of derivative instruments (dollars in thousands):
                                                 
    March 31, 2010     December 31, 2009  
    Notional     Carrying Value/Fair Value     Notional     Carrying Value/Fair Value  
    Amount     Assets     Liabilities     Amount     Assets     Liabilities  
Derivatives not designated as hedging instruments:
                                               
Interest rate swaps(1)
  $ 1,484,840     $ 20,678     $ 41,986     $ 1,388,570     $ 17,962     $ 47,061  
Financial futures(1)
    249,379                   200,436              
Foreign currency forwards(1)
    40,500       1,370             40,500       2,200        
Consumer Price index (“CPI”) swaps(1)
    126,390       1,892             124,034       1,631        
Credit default swaps(1)
    317,500       2,553       922       367,500       2,363       249  
Embedded derivatives in:
                                               
Modified coinsurance or funds withheld arrangements(2)
                311,859                   434,494  
Indexed annuity products(3)
          67,911       577,955             68,873       584,906  
Variable annuity products(3)
                16,577                   23,748  
 
                                   
Total non-hedging derivatives
    2,218,609       94,404       949,299       2,121,040       93,029       1,090,458  
 
                                   
 
                                               
Derivatives designated as hedging instruments:
                                               
Interest rate swaps(1)
    21,783             1,000       21,783             677  
Foreign currency swaps(1)
    226,715             16,458       226,715             9,008  
 
                                   
Total hedging derivatives
    248,498             17,458       248,498             9,685  
 
                                   
 
                                               
Total derivatives
  $ 2,467,107     $ 94,404     $ 966,757     $ 2,369,538     $ 93,029     $ 1,100,143  
 
                                   
 
(1)   Carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value.
 
(2)   Embedded liability is included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value.
 
(3)   Embedded liability is included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. Embedded asset is included on the condensed consolidated balance sheets in reinsurance ceded receivables.
Accounting for Derivative Instruments and Hedging Activities
As of March 31, 2010 and December 31, 2009, the Company held interest rate swaps that were designated and qualified as fair value hedges of interest rate risk. As of March 31, 2010 and December 31, 2009, the Company held foreign currency swaps that were designated and qualified as fair value hedges of a portion of its net investment in its foreign operations. Gains of $50.0 million related to foreign currency swaps terminated in the second quarter of 2009 continue to be reflected in AOCI. As of March 31, 2010 and December 31, 2009, the Company also had derivative instruments that were not designated as hedging instruments. See Note 2 – “Summary of Significant Accounting Policies” of the Company’s 2009 annual report on Form 10-K for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. The Company does not enter into derivative instruments for speculative purposes. Derivative instruments are carried at fair value and generally require an insignificant amount of cash at inception of the contract.
Fair Value Hedges
The Company designates and reports certain interest rate swaps that convert fixed rate investments to floating rate investments as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and

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Hedging. The gain or loss on the hedged item attributable to the hedged benchmark interest rate and the offsetting gain or loss on the related interest rate swaps for the three months ended March 31, 2010 and 2009 were (dollars in thousands):
                                         
Type of Fair   Derivative Gain     Hedge Gain (Loss)             Hedged Item Gain     Hedged Item Gain  
Value Hedge   (Loss) Location     Recognized     Hedged Item     (Loss) Location     (Loss) Recognized  
For the three months ended March 31, 2010:                                
 
                                       
Interest rate swaps
  Investment income   $ (323 )   Fixed rate fixed
maturity securities
  Investment related
gains (losses), net
  $ 454  
 
                                       
For the three months ended March 31, 2009:                                
 
                                       
Interest rate swaps
  Investment income   $ 483     Fixed rate fixed
maturity securities
  Investment related
gains (losses), net
  $ (521 )
The Company’s investment related gains (losses), net representing the ineffective portion of all fair value hedges was immaterial for the three months ended March 31, 2010 and 2009.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. There were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency swaps to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following tables illustrate the Company’s net investments in foreign operations (“NIFO”) hedges for the three months ended March 31, 2010 and 2009 (dollars in thousands):
                                     
            Location of Gain     Gain (Loss)     Income Statement      
    Derivative Gain     (Loss) Reclassified     Reclassified from     Location of Gain   Ineffective Gain  
Type of NIFO Hedge   (Loss) in OCI     From AOCI     AOCI into income     (Loss)   (Loss) in Income  
For the three months ended March 31, 2010:                            
 
                                   
Foreign currency swaps
  $ (8,080 )   None   $     Investment income   $  
 
                                   
For the three months ended March 31, 2009:                            
 
                                   
Foreign currency swaps
  $ 8,136     None   $     Investment income   $  
The Company measures ineffectiveness on the foreign currency swaps based upon the change in forward rates. There was no ineffectiveness recorded in the periods presented herein.
The Company’s other comprehensive income for the three months ended March 31, 2010 and 2009, include gains (losses) of $(8.1) million and $8.1 million, respectively, related to foreign currency swaps used to hedge its net investment in its foreign operations. The cumulative foreign currency translation gain recorded in accumulated other comprehensive income related to these hedges was $32.4 million and $40.5 million at March 31, 2010 and December 31, 2009, respectively. When net investments in foreign operations are sold or substantially liquidated, the amounts in accumulated other comprehensive income are reclassified to the consolidated statements of income. A pro rata portion will be reclassified upon partial sale of the net investments in foreign operations.
Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging
The Company uses various other derivative instruments for risk management purposes that either do not qualify for hedge accounting treatment or have not currently been qualified by the Company for hedge accounting treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), in the consolidated statements of income, except where otherwise noted. For the three months ended March 31, 2010 and 2009, the Company recognized investment related gains (losses) of $466.7 million and $(20.2) million, respectively, related to derivatives that do not qualify or have not been qualified for hedge accounting.

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Interest Rate Swaps
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). With an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional principal amount. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date.
Financial Futures
Exchange-traded equity futures are used primarily to economically hedge liabilities embedded in certain variable annuity products assumed by the Company. With exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the relevant stock indices, and to post variation margin on a daily basis in an amount equal to the difference between the daily estimated fair values of those contracts. The Company enters into exchange-traded equity futures with regulated futures commission merchants that are members of the exchange.
Foreign Currency Swaps
Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company also uses foreign currency swaps to economically hedge the foreign currency risk associated with certain of its net investments in foreign operations.
Foreign Currency Forwards
Foreign currency forwards are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date.
CPI Swaps
CPI swaps are used by the Company primarily to economically hedge liabilities embedded in certain insurance products assumed by the Company whose value is directly affected by changes in a designated benchmark consumer price index. With a CPI swap transaction, the Company agrees with another party to exchange the actual amount of inflation realized over a specified period of time for a fixed amount of inflation determined at inception. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date. Most of these swaps will require a single payment to be made by one counterparty at the maturity date of the swap.
Credit Default Swaps
The Company invests in credit default swaps to diversify its credit risk exposure in certain portfolios. These credit default swaps are over-the-counter instruments in which the Company receives payments at specified intervals to insure credit risk on a portfolio of 125 U.S. investment-grade securities. Generally, if a credit event, as defined by the contract, occurs, the contract will require the swap to be settled gross by the delivery of par quantities or value of the referenced investment securities equal to the specified swap notional amount in exchange for the payment of cash amounts by the Company equal to the par value of the investment security surrendered.
The Company also purchases credit default swaps to reduce its risk against a drop in bond prices due to credit concerns of certain bond issuers. If a credit event, as defined by the contract, occurs, the Company is able to put the bond back to the counterparty at par.
Embedded Derivatives
The Company has certain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance or funds withheld basis. Additionally, the Company reinsures equity-indexed annuity and variable annuity contracts with benefits that are considered embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and

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guaranteed minimum income benefits. The related gains (losses) for the three months ended March 31, 2010 and 2009 are reflected in the following table (dollars in thousands):
                 
    Three months ended  
    March 31,  
    2010     2009  
Embedded derivatives in modified coinsurance or funds withheld arrangements and variable annuity contracts included in investment related gains (losses)
  $ 129,806     $ (5,212 )
After the associated amortization of DAC and taxes, the related amounts included in net income
    20,579       (27,079 )
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses
    11,728       21,696  
After the associated amortization of DAC and taxes, the related amounts included in net income
    (1,232 )     11,195  
Non-hedging Derivatives
A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s income statement for the three months ended March 31, 2010 and 2009 is as follows (dollars in thousands):
                         
            Gain (Loss) for the Three Months Ended  
            March 31,  
Type of Non-hedging Derivative   Income Statement Location of Gain (Loss)     2010     2009  
Interest rate swaps
  Investment related gains (losses), net   $ 11,341     $ (38,864 )
Financial futures
  Investment related gains (losses), net     (11,745 )     22,311  
Foreign currency forwards
  Investment related gains (losses), net     (829 )     (2,042 )
CPI swaps
  Investment related gains (losses), net     924       310  
Credit default swaps
  Investment related gains (losses), net     776       (1,911 )
Embedded derivatives in:
                       
Modified coinsurance or funds withheld arrangements
  Investment related gains (losses), net     122,635       (40,425 )
Indexed annuity products
  Policy acquisition costs and other insurance expenses     (1,435 )     (2,657 )
Indexed annuity products
  Interest credited     13,163       24,353  
Variable annuity products
  Investment related gains (losses), net     7,171       35,213  
 
                   
Total non-hedging derivatives
          $ 142,001     $ (3,712 )
 
                   
Credit Risk
The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date. The credit exposure of the Company’s derivative transactions is represented by the fair value of contracts after consideration of any collateral received with a net positive fair value at the reporting date.
The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. As exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.
The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that vary depending on the posting party’s financial strength ratings. Additionally, a decrease in the Company’s financial strength rating to a specified level results in potential settlement of the derivative positions under the Company’s agreements with its counterparties. As of March 31, 2010 and December 31, 2009, the Company had pledged collateral to counterparties on swaps of $5.6 million and $16.0 million, respectively. The receivable or payable related to cash collateral is included in other assets or other liabilities, net in the condensed consolidated balance sheets. From time to time, the Company has both accepted and posted collateral consisting of various securities. As of March 31, 2010, the Company posted a U.S. Treasury security as collateral to a counterparty with a book value and market value of $14.8 million and $14.5 million, respectively, which is included in other invested assets. There were no securities posted as collateral at December 31, 2009. There were no securities held as collateral as of March 31, 2010 and December 31, 2009. In addition, the Company has exchange-traded futures, which require the maintenance of a margin account. As of March 31, 2010 and December 31, 2009, the Company pledged collateral of $20.6 million and $17.1 million, respectively, which is included in cash and cash equivalents.

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6. Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments at March 31, 2010 and December 31, 2009. Fair values have been determined by using available market information and the valuation techniques described below. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation techniques may have a material effect on the estimated fair value amounts (dollars in thousands):
                                 
    March 31, 2010     December 31, 2009  
            Estimated Fair             Estimated Fair  
    Carrying Value     Value     Carrying Value     Value  
Assets:
                               
Fixed maturity securities
  $ 12,775,342     $ 12,775,342     $ 11,763,358     $ 11,763,358  
Mortgage loans on real estate
    797,272       815,932       791,668       792,331  
Policy loans
    1,162,723       1,162,723       1,136,564       1,136,564  
Funds withheld at interest
    5,180,300       5,394,043       4,895,356       5,201,569  
Short-term investments
    79,160       79,160       121,060       121,060  
Other invested assets
    564,753       558,045       516,086       509,618  
Cash and cash equivalents
    525,360       525,360       512,027       512,027  
Accrued investment income
    140,921       140,921       107,447       107,447  
Reinsurance ceded receivables
    101,128       92,561       106,396       173,309  
Liabilities:
                               
Interest-sensitive contract liabilities
  $ 5,726,400     $ 5,464,928     $ 5,929,134     $ 6,196,420  
Long-term and short-term debt
    1,216,140       1,230,679       1,216,052       1,180,712  
Collateral finance facility
    850,025       514,250       850,037       510,000  
Company-obligated mandatorily redeemable preferred securities
    159,266       210,998       159,217       205,655  
Publicly traded fixed maturity securities are valued based upon quoted market prices or estimates from independent pricing services, independent broker quotes and pricing matrices. Private placement fixed maturity securities are valued based on the credit quality and duration of marketable securities deemed comparable by the Company’s investment advisor, which may be of another issuer. The fair value of mortgage loans on real estate is estimated using discounted cash flows. Policy loans typically carry an interest rate that is adjusted annually based on a market index and therefore carrying value approximates fair value. The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in the agreement. When funds withheld are specifically identified in the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the short-term maturities of these instruments. Common and preferred equity investments and derivative financial instruments included in other invested assets are reflected at fair value on the condensed consolidated balance sheets based primarily on quoted market prices, while limited partnership interests are carried at cost. The fair value of limited partnerships is based on net asset values. The carrying value for accrued investment income approximates fair value.
The carrying and fair values of interest-sensitive contract liabilities reflected in the table above exclude contracts with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities and related reinsurance ceded receivables is based on the cash surrender value of the liabilities, adjusted for recapture fees. The fair value of the Company’s long-term debt is estimated based on either quoted market prices or quoted market prices for the debt of corporations with similar credit quality. The fair values of the Company’s collateral finance facility and company-obligated mandatorily redeemable preferred securities are estimated using discounted cash flows.
General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In accordance with these principles, valuation techniques utilized by management for invested assets and embedded derivatives reported at fair value are generally categorized into three types:
Market Approach. Market approach valuation techniques use prices and other relevant information from market transactions involving identical or comparable assets or liabilities. Valuation techniques consistent with the market approach include comparables and matrix pricing. Comparables use market multiples, which might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering both quantitative and qualitative factors specific to the measurement. Matrix pricing is a mathematical technique used principally

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to value certain securities without relying exclusively on quoted prices for the specific securities but comparing the securities to benchmark or comparable securities.
Income Approach. Income approach valuation techniques convert future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. These techniques rely on current expectations of future amounts. Examples of income approach valuation techniques include present value techniques, option-pricing models and binomial or lattice models that incorporate present value techniques.
Cost Approach. Cost approach valuation techniques are based upon the amount that, at present, would be required to replace the service capacity of an asset, or the current replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset is determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility.
The three approaches described above are consistent with generally accepted valuation techniques. While all three approaches are not applicable to all assets or liabilities reported at fair value, where appropriate and possible, one or more valuation techniques may be used. The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required. The Company performs regular analysis and review of the various techniques utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also utilizes information from third parties, such as pricing services and brokers, to assist in determining fair values for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s financial statements. The Company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, initial and ongoing review of third party pricing services and techniques, review of pricing trends and monitoring of recent trade information. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.
For invested assets reported at fair value, when available, fair values are based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on the market valuation techniques described above, primarily a combination of the market approach, including matrix pricing and the income approach. The assumptions and inputs used by management in applying these techniques include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and assumptions regarding liquidity and future cash flows.
The significant inputs to the market standard valuation techniques for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market.
When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent with what other market participants would use when pricing such securities.
The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings.
For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a market standard technique, which includes an estimate of future equity option purchases and an adjustment for the Company’s own credit risk that takes into consideration the Company’s financial strength rating, also commonly referred to as a claims paying rating. The capital market inputs to the model, such as equity indexes, equity volatility, interest rates and the Company’s credit adjustment, are generally observable. However, the valuation models also use inputs requiring certain actuarial assumptions such as future interest margins, policyholder behavior, including future equity participation rates, and explicit risk margins related to non-capital market inputs, that are generally not observable and may require use of significant management judgment. Changes in interest rates, equity indices,

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equity volatility, the Company’s own credit risk, and actuarial assumptions regarding policyholder behavior may result in significant fluctuations in the value of embedded derivatives liabilities associated with equity-indexed annuity reinsurance treaties.
The fair value of embedded derivatives associated with funds withheld reinsurance treaties is determined based upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld at interest asset. The fair value of the underlying assets is generally based on market observable inputs using market standard valuation techniques. However, the valuation also requires certain significant inputs based on actuarial assumptions about policyholder behavior, which are generally not observable.
For the quarter ended March 31, 2010, the application of market standard valuation techniques applied to similar assets and liabilities has been consistent.
General accounting principles for Fair Value Measurements and Disclosures also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1    Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities include investment securities and derivative contracts that are traded in exchange markets.
 
Level 2    Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. The Company’s Level 2 assets and liabilities include investment securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using market standard valuation techniques. This category primarily includes U.S. and foreign corporate securities, Canadian and Canadian provincial government securities, and residential and commercial mortgage-backed securities, among others. Level 2 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 analytical reviews and assessment of current market activity.
 
Level 3    Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using market standard valuation techniques described above. When observable inputs are not available, the market standard techniques for determining the estimated fair value of certain securities that trade infrequently, and therefore have little transparency, rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation and cannot be supported by reference to market activity. Even though unobservable, management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities. For the Company’s invested assets, this category generally includes U.S. and foreign corporate securities (primarily private placements), asset-backed securities (including those with exposure to subprime mortgages), and to a lesser extent, certain residential and commercial mortgage-backed securities, among others. Prices are determined using valuation methodologies such as 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 circumstances, 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 would apply internally developed valuation techniques to the related assets or liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs associated with actuarial assumptions regarding policyholder behavior. Embedded derivatives are reported with the host instruments on the condensed consolidated balance sheet.
When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest priority level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

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Assets and liabilities measured at fair value on a recurring basis as of March 31, 2010 and December 31, 2009 are summarized below (dollars in thousands).
                                 
March 31, 2010:           Fair Value Measurements Using:  
    Total     Level 1     Level 2     Level 3  
Assets:
                               
Fixed maturity securities — available-for-sale:
                               
U.S. corporate securities
  $ 4,242,908     $     $ 3,494,390     $ 748,518  
Canadian and Canadian provincial governments
    2,495,836             2,495,836        
Residential mortgage-backed securities
    1,576,165             1,365,550       210,615  
Foreign corporate securities
    1,915,169       6,361       1,828,049       80,759  
Asset-backed securities
    458,664             252,444       206,220  
Commercial mortgage-backed securities
    1,124,736             1,007,027       117,709  
U.S. government and agencies securities
    431,902       422,468       9,434        
State and political subdivision securities
    95,310       8,434       75,390       11,486  
Other foreign government securities
    434,652       1,727       430,751       2,174  
 
                       
Total fixed maturity securities — available-for-sale
    12,775,342       438,990       10,958,871       1,377,481  
Funds withheld at interest — embedded derivatives
    (311,859 )                 (311,859 )
Short-term investments
    3,376       3,376              
Other invested assets — non-redeemable preferred stock
    118,841       90,701       24,042       4,098  
Other invested assets — other equity securities
    54,391       19,579       21,976       12,836  
Other invested assets — derivatives
    26,493             26,493        
Other invested assets — collateral
    14,471       14,471              
Reinsurance ceded receivable — embedded derivatives
    67,911                   67,911  
 
                       
Total
  $ 12,748,966     $ 567,117     $ 11,031,382     $ 1,150,467  
 
                       
 
                               
Liabilities:
                               
Interest sensitive contract liabilities — embedded derivatives
  $ (594,532 )   $     $     $ (594,532 )
Other liabilities — derivatives
    (60,366 )           (60,366 )      
 
                       
Total
  $ (654,898 )   $     $ (60,366 )   $ (594,532 )
 
                       
                                 
December 31, 2009:           Fair Value Measurements Using:  
    Total     Level 1     Level 2     Level 3  
Assets:
                               
Fixed maturity securities — available-for-sale:
                               
U.S. corporate securities
  $ 3,723,048     $     $ 2,901,535     $ 821,513  
Canadian and Canadian provincial governments
    2,353,227             2,353,227        
Residential mortgage-backed securities
    1,456,544             1,312,087       144,457  
Foreign corporate securities
    1,671,748       5,447       1,450,923       215,378  
Asset-backed securities
    451,936             189,169       262,767  
Commercial mortgage-backed securities
    1,028,864             699,304       329,560  
U.S. government and agencies securities
    526,059       517,929       8,130        
State and political subdivision securities
    89,762       6,251       71,431       12,080  
Other foreign government securities
    462,170       1,079       443,788       17,303  
 
                       
Total fixed maturity securities — available-for-sale
    11,763,358       530,706       9,429,594       1,803,058  
Funds withheld at interest — embedded derivatives
    (434,494 )                 (434,494 )
Short-term investments
    12,937       2,714       9,780       443  
Other invested assets — non-redeemable preferred stock
    113,198       85,016       21,407       6,775  
Other invested assets — other equity securities
    58,359       17,523       30,400       10,436  
Other invested assets — derivatives
    24,156             24,156        
Reinsurance ceded receivable — embedded derivatives
    68,873                   68,873  
 
                       
Total
  $ 11,606,387     $ 635,959     $ 9,515,337     $ 1,455,091  
 
                       
 
                               
Liabilities:
                               
Interest sensitive contract liabilities — embedded derivatives
  $ (608,654 )   $     $     $ (608,654 )
Other liabilities — derivatives
    (56,995 )           (56,995 )      
 
                       
Total
  $ (665,649 )   $     $ (56,995 )   $ (608,654 )
 
                       

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As of March 31, 2010 and December 31, 2009, respectively, the Company classified approximately 10.8% and 15.3% of its fixed maturity securities in the Level 3 category. These securities primarily consist of private placement corporate securities with an inactive trading market. Additionally, the Company has included asset-backed securities with sub-prime exposure in the Level 3 category due to the current market uncertainty associated with these securities and the Company’s utilization of information from third parties for the valuation of these securities. Other invested assets – derivatives and other liabilities – derivatives include amounts with fair values included in Level 2 at March 31, 2010 and December 31, 2009. See Note 5 – “Derivative Instruments” for additional information regarding these derivatives.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2010 and 2009 (dollars in thousands).
                                                 
            Total gains/losses                    
            (realized/unrealized) included in:     Purchases,              
    Balance             Other     issuances     Transfers in     Balance  
For the three months ended   January 1,     Earnings,     comprehensive     and     and/or out of     March 31,  
March 31, 2010:   2010     net     income     disposals     Level 3 (1)     2010  
Assets:
                                               
Fixed maturity securities — available-for-sale:
                                               
U.S. corporate securities
  $ 821,513     $ 2,109     $ 16,120     $ (3,658 )   $ (87,566 )   $ 748,518  
Residential mortgage-backed securities
    144,457       (1,170 )     521       18,561       48,246       210,615  
Foreign corporate securities
    215,378       1       1,057       (2,594 )     (133,083 )     80,759  
Asset-backed securities
    262,767       63       10,437       (8,013 )     (59,034 )     206,220  
Commercial mortgage-backed securities
    329,560       466       (943 )     4,363       (215,737 )     117,709  
State and political subdivision securities
    12,080       8       1,278       (20 )     (1,860 )     11,486  
Other foreign government securities
    17,303       1       (5 )     (2,846 )     (12,279 )     2,174  
 
                                   
Sub-total
    1,803,058       1,478       28,465       5,793       (461,313 )     1,377,481  
Funds withheld at interest — embedded derivatives
    (434,494 )     122,635                         (311,859 )
Short-term investments
    443                   (270 )     (173 )      
Other invested assets — non-redeemable preferred stock
    6,775       (1 )     (118 )     (2,146 )     (412 )     4,098  
Other invested assets — other equity securities
    10,436             1,775       625             12,836  
Reinsurance ceded receivable — embedded derivatives
    68,873       (1,133 )           171             67,911  
 
                                   
Total
  $ 1,455,091     $ 122,979     $ 30,122     $ 4,173     $ (461,898 )   $ 1,150,467  
 
                                   
 
                                               
Liabilities:
                                               
Interest sensitive contract liabilities — embedded derivatives
  $ (608,654 )   $ 19,815     $     $ (5,693 )   $     $ (594,532 )
 
                                   
Total
  $ (608,654 )   $ 19,815     $     $ (5,693 )   $     $ (594,532 )
 
                                   
 
(1)   The Company’s policy is to recognize transfers into and out of levels within the fair value hierarchy at the beginning of the quarter in which the actual event or change in circumstances that caused the transfer occurs. Transfers from Level 2 into Level 3 are due to a lack of observable market data for these securities. In addition, in accordance with company policy when the ratings of certain asset classes fall below investment grade, they are transferred to Level 3. Transfers out of Level 3 into Level 2 are due to an increase in observable market data. Transfers from Level 3 to Level 2 also occur when the underlying inputs are evaluated and determined to be market observable. Transfers between Level 1 and Level 2 were not significant for the three months ended March 31, 2010.

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            Total gains/losses                    
            (realized/unrealized) included in:     Purchases,              
    Balance             Other     issuances     Transfers in     Balance  
    January 1,     Earnings,     comprehensive     and     and/or out of     March 31,  
    2009     net     income     disposals     Level 3     2009  
For the three months ended March 31, 2009:
                                               
Assets:
                                               
Fixed maturity securities – available-for-sale:
                                               
U.S. corporate securities
  $ 816,285     $ (18,420 )   $ (4,442 )   $ 24,207     $ (11,073 )   $ 806,557  
Canadian and Canadian provincial
                                               
governments
    9,965             (38 )     3,918       (9,062 )     4,783  
Residential mortgage-backed securities
    30,424       (6,564 )     20,143       4,310       30,614       78,927  
Foreign corporate securities
    176,608       (1,672 )     (4,692 )     94,741       10,352       275,337  
Asset-backed securities
    231,869       (10,688 )     4,891       16,583       5,387       248,042  
Commercial mortgage-backed securities
    59,041       (89 )     (2,094 )     (583 )     (4,300 )     51,975  
State and political subdivision securities
    32,487       9       (3,574 )     (100 )           28,822  
Other foreign government securities
    105,439       872       (1,771 )     (4,156 )     (12,761 )     87,623  
 
                                   
Sub-total
    1,462,118       (36,552 )     8,423       138,920       9,157       1,582,066  
Funds withheld at interest – embedded derivatives
    (512,888 )     (40,425 )                       (553,313 )
Short-term investments
    352       (566 )     635       1,284             1,705  
Other invested assets – non-redeemable preferred stock
    5,393       (4,904 )     4,483       (749 )     70       4,293  
Other invested assets – other equity securities
    12,056       (867 )     (90 )     1,827       116       13,042  
Reinsurance ceded receivable – embedded derivatives
    66,716       (1,630 )           (3,542 )           61,544  
 
                                   
Total
  $ 1,033,747     $ (84,944 )   $ 13,451     $ 137,740     $ 9,343     $ 1,109,337  
 
                                   
 
                                               
Liabilities:
                                               
Interest sensitive contract liabilities – embedded derivatives
  $ (807,431 )   $ 57,805     $     $ 15,762     $     $ (733,864 )
 
                                   
Total
  $ (807,431 )   $ 57,805     $     $ 15,762     $     $ (733,864 )
 
                                   
The tables below summarize gains and losses due to changes in fair value, including both realized and unrealized gains and losses, recorded in earnings for Level 3 assets and liabilities for the three months ended March 31, 2010 and 2009 (dollars in thousands).
                                                 
                                    Policy        
                                    acquisition        
    Investment                             costs and        
    income, net     Investment     Claims &             other        
    of related     related gains     other policy     Interest     insurance        
    expenses     (losses), net     benefits     credited     expenses     Total  
For the three months ended March 31, 2010:
                                               
Assets:
                                               
Fixed maturity securities – available-for-sale
                                               
U.S. corporate securities
  $ 143     $ 1,966     $     $     $     $ 2,109  
Residential mortgage-backed securities
    401       (1,571 )                       (1,170 )
Foreign corporate securities
    79       (78 )                       1  
Asset-backed securities
    536       (473 )                       63  
Commercial mortgage-backed securities
    660       (194 )                       466  
State and political subdivision securities
    12       (4 )                       8  
Other foreign government securities
    1                               1  
 
                                   
Sub-total
    1,832       (354 )                       1,478  
Funds withheld at interest – embedded derivatives
          122,635                         122,635  
Other invested assets – non-redeemable preferred stock
    (1 )                             (1 )
Reinsurance ceded receivable – embedded derivatives
                            (1,133 )     (1,133 )
 
                                   
Total
  $ 1,831     $ 122,281     $     $     $ (1,133 )   $ 122,979  
 
                                   
 
                                               
Liabilities:
                                               
Interest sensitive contract liabilities – embedded derivatives
  $     $ 7,171     $ 457     $ 12,187     $     $ 19,815  
 
                                   
Total
  $     $ 7,171     $ 457     $ 12,187     $     $ 19,815  
 
                                   

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Table of Contents

                                                 
                                    Policy        
                                    acquisition        
    Investment                             costs and        
    income, net     Investment     Claims &             other        
    of related     related gains     other policy     Interest     insurance        
    expenses     (losses), net     benefits     credited     expenses     Total  
For the three months ended March 31, 2009:                                    
Assets:
                                               
Fixed maturity securities – available-for-sale
                                               
U.S. corporate securities
  $ 270     $ (18,690 )   $     $     $     $ (18,420 )
Residential mortgage-backed securities
    73       (6,637 )                       (6,564 )
Foreign corporate securities
    42       (1,714 )                       (1,672 )
Asset-backed securities
    1,101       (11,789 )                       (10,688 )
Commercial mortgage-backed securities
    (89 )                             (89 )
State and political subdivision securities
    8       1                         9  
Other foreign government securities
    (84 )     956                         872  
                                     
Sub-total
    1,321       (37,873 )                       (36,552 )
Funds withheld at interest – embedded derivatives
          (40,425 )                       (40,425 )
Short-term investments
    7       (573 )                       (566 )
Other invested assets – non-redeemable preferred stock
    (63 )     (4,841 )                       (4,904 )
Other invested assets – other equity securities
    (445 )     (422 )                       (867 )
Reinsurance ceded receivable – embedded derivatives
                            (1,630 )     (1,630 )
                                     
Total
  $ 820     $ (84,134 )   $     $     $ (1,630 )   $ (84,944 )
                                     
 
                                               
Liabilities:
                                               
Interest sensitive contract liabilities – embedded derivatives
  $     $ 35,213     $ (1,567 )   $ 24,159     $     $ 57,805  
                                     
Total
  $     $ 35,213     $ (1,567 )   $ 24,159     $     $ 57,805  
                                     
The tables below summarize changes in unrealized gains or losses recorded in earnings for the three months ended March 31, 2010 and 2009 for Level 3 assets and liabilities that were still held at March 31, 2010 and 2009 (dollars in thousands).
                                                 
                                    Policy        
                                    Acquisition        
    Investment                             costs and        
    income, net     Investment     Claims &             other        
    of related     related gains     other policy     Interest     insurance        
    expenses     (losses), net     benefits     credited     expenses     Total  
For the three months ended March 31, 2010:                                    
Assets:
                                               
Fixed maturity securities – available-for-sale:
                                               
U.S. corporate securities
  $ 122     $ (585 )   $     $     $     $ (463 )
Residential mortgage-backed securities
    342       (2,035 )                       (1,693 )
Foreign corporate securities
    34                               34  
Asset-backed securities
    525                               525  
Commercial mortgage-backed securities
    641       (2,466 )                       (1,825 )
State and political subdivision securities
    12                               12  
Other foreign government securities
    1                               1  
 
                                   
Sub-total
    1,677       (5,086 )                       (3,409 )
Funds withheld at interest – embedded derivatives
          122,635                         122,635  
Other invested assets – non-redeemable preferred stock
    (1 )                             (1 )
Reinsurance ceded receivable – embedded derivatives
                            659       659  
 
                                   
Total
  $ 1,676     $ 117,549     $     $     $ 659     $ 119,884  
 
                                   
 
                                               
Liabilities:
                                               
Interest sensitive contract liabilities – embedded derivatives
  $     $ 7,171     $ (18 )   $ 2,689     $     $ 9,842  
 
                                   
Total
  $     $ 7,171     $ (18 )   $ 2,689     $     $ 9,842  
 
                                   

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Table of Contents

                                                 
                                    Policy        
                                    acquisition        
    Investment                             costs and        
    income, net     Investment     Claims &             other        
    of related     related gains     other policy     Interest     insurance        
    expenses     (losses), net     benefits     credited     expenses     Total  
For the three months ended March 31, 2009:
                                               
Assets:
                                               
Fixed maturity securities – available-for-sale:
                                               
U.S. corporate securities
  $ 267     $ (12,809 )   $     $     $     $ (12,542 )
Residential mortgage-backed securities
    73       (7,225 )                       (7,152 )
Foreign corporate securities
    41       (976 )                       (935 )
Asset-backed securities
    1,096       (13,384 )                       (12,288 )
Commercial mortgage-backed securities
    (89 )                             (89 )
State and political subdivision securities
    8                               8  
Other foreign government securities
    (58 )                             (58 )
 
                                   
Sub-total
    1,338       (34,394 )                       (33,056 )
Funds withheld at interest – embedded derivatives
          (40,425 )                       (40,425 )
Short-term investments
    7       (408 )                       (401 )
Other invested assets – non-redeemable preferred stock
    (63 )     (3,858 )                       (3,921 )
Other invested assets –other equity securities
    (445 )     (425 )                       (870 )
Reinsurance ceded receivable – embedded derivatives
                            492       492  
 
                                   
Total
  $ 837     $ (79,510 )   $     $     $ 492     $ (78,181 )
 
                                   
 
                                               
Liabilities:
                                               
Interest sensitive contract liabilities – embedded derivatives
  $     $ 35,213     $ (3,329 )   $ 16,413     $     $ 48,297  
 
                                   
Total
  $     $ 35,213     $ (3,329 )   $ 16,413     $     $ 48,297  
 
                                   
7. Segment Information
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the 2009 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets. Investment income is allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.
The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses are credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses. Information related to total revenues, income (loss) before income taxes, and total assets of the Company for each reportable segment are summarized below (dollars in thousands).
                 
    Three months ended March 31,  
    2010     2009  
Total revenues:
               
U.S.
  $ 1,286,591     $ 902,276  
Canada
    252,771       169,804  
Europe & South Africa
    226,781       180,687  
Asia Pacific
    309,856       262,587  
Corporate and Other
    24,186       15,486  
 
           
Total
  $ 2,100,185     $ 1,530,840  
 
           
                 
    Three months ended March 31,  
    2010     2009  
Income (loss) before income taxes:
               
U.S.
  $ 131,572     $ 12,849  
Canada
    18,973       16,186  
Europe & South Africa
    10,657       8,535  
Asia Pacific
    26,445       3,573  
Corporate and Other
    5,668       (6,937 )
 
           
Total
  $ 193,315     $ 34,206  
 
           

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    March 31, 2010     December 31, 2009  
Total Assets:
               
U.S.
  $ 16,223,153     $ 15,569,263  
Canada
    3,171,589       3,026,515  
Europe & South Africa
    1,437,959       1,400,580  
Asia Pacific
    2,173,002       2,060,425  
Corporate and Other
    3,716,755       3,192,718  
 
           
Total
  $ 26,722,458     $ 25,249,501  
 
           
8. Commitments and Contingent Liabilities
The Company had commitments to fund investments in limited partnerships and private placement investments in the amount of $76.2 million and $28.3 million, respectively, at March 31, 2010. The Company had commitments to fund investments in limited partnerships, commercial mortgage loans and private placement investments in the amount of $86.6 million, $12.6 million and $7.0 million, respectively, at December 31, 2009. The Company anticipates that the majority of its current commitments will be invested over the next five years; however, contractually these commitments could become due at the request of the counterparties. Investments in limited partnerships are carried at cost and included in other invested assets in the condensed consolidated balance sheets.
A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated. The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. However, if such material litigation did arise, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s condensed consolidated financial position and/or net income in a particular reporting period.
The Company has obtained letters of credit, issued by banks, in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. At March 31, 2010 and December 31, 2009, there were approximately $19.9 million and $21.4 million, respectively, of outstanding bank letters of credit in favor of third parties. Additionally, the Company utilizes letters of credit to secure reserve credits when it retrocedes business to its subsidiaries, including Parkway Reinsurance Company, RGA Americas Reinsurance Company, Ltd., RGA Reinsurance Company (Barbados) Ltd. and RGA Atlantic Reinsurance Company, Ltd. The Company cedes business to its affiliates to help reduce the amount of regulatory capital required in certain jurisdictions, such as the U.S. and the United Kingdom. The capital required to support the business in the affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of March 31, 2010 and December 31, 2009, $581.6 million and $617.5 million, respectively, in letters of credit from various banks were outstanding, backing reinsurance between the various subsidiaries of the Company. The Company maintains a syndicated revolving credit facility with an overall capacity of $750.0 million, which is scheduled to mature in September 2012. The Company may borrow cash and may obtain letters of credit in multiple currencies under this facility. As of March 31, 2010, the Company had $337.0 million in issued, but undrawn, letters of credit under this facility, which is included in the total above. Applicable letter of credit fees and fees payable for the credit facility depend upon the Company’s senior unsecured long-term debt rating. The Company also maintains a $200.0 million letter of credit facility which is scheduled to mature in September 2019. This letter of credit is expected to be fully utilized though 2016 and then amortize to zero by 2019. As of March 31, 2010, the Company had $200.0 million in issued, but undrawn, letters of credit under this facility, which is included in the total above. Letter of credit fees for this facility are fixed for the term of the facility. Fees associated with the Company’s other letters of credit are not fixed for periods in excess of one year and are based on the Company’s ratings and the general availability of these instruments in the marketplace.
RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain credit facilities, reinsurance treaties and office lease obligations, whereby if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. In limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party, totaled $328.7 million and $330.3 million as of March 31, 2010 and December 31, 2009, respectively, and are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to trust preferred securities and credit facilities provide additional security to third parties should a

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subsidiary fail to make principal and/or interest payments when due. As of March 31, 2010, RGA’s exposure related to these guarantees was $159.3 million.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.
9. Income Tax
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the three months ended March 31, 2010 is as follows (dollars in thousands):
                 
            Unrecognized Tax Benefits That, If  
    Total Unrecognized     Recognized, Would Affect The  
    Tax Benefits     Effective Tax Rate  
Balance at January 1, 2010
  $ 221,040     $ 17,332  
Additions for tax positions of prior years
           
Reductions for tax positions of prior years
    (42,628 )      
Additions for tax positions of current year
    989       989  
Reductions for tax positions of current year
           
Settlements with tax authorities
           
 
           
Balance at March 31, 2010
  $ 179,401     $ 18,321  
 
           
During the first quarter of 2010, the Company reduced its accrual for uncertain tax positions that are timing in nature and have no impact on the Company’s effective tax rate by approximately $47.7 million, including after-tax interest. The Company also increased its uncertain tax positions that would impact the effective tax rate by approximately $1.0 million.
10. Employee Benefit Plans
The components of net periodic benefit costs were as follows (dollars in thousands):
                                 
    Pension Benefits     Other Benefits  
    Three months ended March 31,     Three months ended March 31,  
    2010     2009     2010     2009  
Net periodic benefit cost:
                               
Service cost
  $ 1,086     $ 912     $ 149     $ 158  
Interest Cost
    913       745       169       159  
Expected return on plan assets
    (486 )     (547 )            
Amortization of prior service cost
    7       7              
Amortization of prior actuarial gain (loss)
    439       125       5       23  
 
                       
Total
  $ 1,959     $ 1,242     $ 323     $ 340  
 
                       
The Company made no pension contributions in the first quarter of 2010 but expects to make total pension contributions of $2.1 million in 2010.
11. Equity Based Compensation
Equity compensation expense was $6.6 million and $3.5 million in the first quarter of 2010 and 2009, respectively. In the first quarter of 2010, the Company granted 0.5 million stock options at $47.10 weighted average per share and 0.3 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 10,600 shares of common stock. As of March 31, 2010, 1.9 million share options at $38.82 weighted average per share were vested and exercisable with a remaining weighted average exercise period of 3.7 years. As of March 31, 2010, the total compensation cost of non-vested awards not yet recognized in the financial statements was $29.1 million. It is estimated that these costs will vest over a weighted average period of 2.8 years.
12. New Accounting Standards
In June 2009, the Financial Accounting Standards Board (“FASB”) issued “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles”. Effective July 1, 2009, FASB Accounting Standards Codification™ (“Codification”) has become the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission for public companies.

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This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted Codification on September 30, 2009 and has updated all disclosures to reference Codification herein.
Changes to the general accounting principles are established by the FASB in the form of accounting standards updates to the FASB’s Codification. Accounting standards updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s condensed consolidated financial statements.
Consolidation and Business Combinations
In February 2010, the FASB amended the general accounting principles for Consolidation as it relates to the assessment of a variable interest entity for potential consolidation. The amendment defers the effective date of the Consolidation amendment made in June 2009 for certain variable interest entities. This update also clarifies how a related party’s interest should be considered when evaluating variable interests. The amendment is effective for fiscal years and interim periods beginning after January 31, 2010. The adoption of this amendment is not expected to have an impact on the Company’s condensed consolidated financial statements.
In January 2010, the FASB amended the general accounting principles for Consolidation as it relates to decreases in ownership of a subsidiary. This amendment clarifies the scope of the decrease in ownership provisions. This amendment also requires additional disclosures about the deconsolidation of a subsidiary or derecognition of a group of assets. The amendment is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption of this amendment did not have an impact on the Company’s condensed consolidated financial statements.
In June 2009, the FASB amended the general accounting principles for Consolidation as it relates to the assessment of a variable interest entity for potential consolidation. This amendment also requires additional disclosures to provide transparent information regarding the involvement in a variable interest entity. The amendment is effective for fiscal years and interim periods beginning after November 15, 2009. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
In December 2007, the FASB amended the general accounting principles for Business Combinations. This amendment establishes principles and requirements for how an acquirer recognizes and measures certain items in a business combination, as well as disclosures about the nature and financial effects of a business combination. The FASB also amended the general accounting principles for Consolidation as it relates to noncontrolling interests in consolidated financial statements. This amendment establishes accounting and reporting standards surrounding noncontrolling interest, or minority interests, which are the portions of equity in a subsidiary not attributable, directly or indirectly, to a parent. The amendments are effective for fiscal years beginning on or after December 15, 2008 and apply prospectively to business combinations. Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied. The adoption of these amendments did not have a material impact on the Company’s condensed consolidated financial statements.
Investments
In April 2009, the FASB amended the general accounting principles for Investments as it relates to the recognition and presentation of other-than-temporary impairments. This amendment updates the other-than-temporary impairment guidance for fixed maturity securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments (“OTTI”) on fixed maturity and equity securities in the financial statements. The recognition provisions apply only to fixed maturity securities classified as available-for-sale and held-to-maturity, while the presentation and disclosure requirements apply to both fixed maturity and equity securities. An impaired fixed maturity security will be considered other-than-temporarily impaired if the Company has the intent to sell or it more likely than not will be required to sell prior to recovery of the amortized cost. If the holder of a fixed maturity security does not expect recovery of the entire cost basis, even if there is no intention to sell the security, an OTTI has occurred. This amendment also changes how an entity recognizes an OTTI for a fixed maturity security by separating the loss between the amount representing the credit loss and the amount relating to other factors, if the Company does not have the intent to sell or it more likely than not will not be required to sell prior to recovery of the amortized cost less any current period credit loss. Credit losses will be recognized in net income and losses relating to other factors will be recognized in accumulated other comprehensive income (“AOCI”). If the Company has the intent to sell or it more likely than not will be required to sell before its recovery of amortized cost less any current period credit loss, the entire OTTI will be recognized in net income. This amendment is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of this amendment resulted in a net after-tax increase to retained earnings and a decrease to accumulated other comprehensive income of $4.4 million, as of April 1, 2009. The required disclosures are provided in Note 4 — “Investments”.

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In January 2009, the FASB amended the general accounting principles for Investments as it relates to determining other-than-temporary impairments on purchased beneficial interests and beneficial interests that continue to be held by a transferor in securitized financial assets. The primary effect of this amendment was to remove the requirement that a holder attempt to determine the underlying cash flows on an asset-backed security based on the assumptions that a market participant would make in determining the current fair value of the instrument. Instead, the focus has been placed on determining the estimated cash flows as determined by the holder for all sources including its own comprehensive credit analysis. The provisions of this amendment were required to be applied prospectively for interim periods and fiscal years ending after December 15, 2008. The adoption of this amendment did not have a significant impact on how the Company values its structured investment securities.
Transfers and Servicing
In June 2009, the FASB amended the general accounting principles for Transfers and Servicing as it relates to the transfers of financial assets. This amendment also requires additional disclosures to address concerns regarding the transparency of transfers of financial assets. The amendment is effective for fiscal years and interim periods beginning after November 15, 2009. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
In February 2008, the FASB amended the general accounting principles for Transfers and Servicing as it relates to the accounting for transfers of financial assets and repurchase financing transactions. This amendment provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. The amendment is effective prospectively for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
Derivatives and Hedging
In March 2010, the FASB amended the general accounting principles for Derivatives and Hedging as it relates to embedded derivatives. This amendment clarifies the scope exception for embedded credit derivative features related to the transfer of credit risk in the form of subordination of a financial instrument to another. The amendment is effective for financial statements issued for fiscal years and interim periods beginning after June 15, 2010. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements.
In March 2008, the FASB amended the general accounting principles for Derivatives and Hedging as it relates to the disclosures about derivative instruments and hedging activities. This amendment requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. The amendment is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted this amendment in the first quarter of 2009. The required disclosures are provided in Note 5 — “Derivative Instruments”.
Fair Value Measurements and Disclosures
In January 2010, the FASB amended the general accounting principles for Fair Value Measurements and Disclosures as it relates to the disclosures about fair value measurements. This amendment requires new disclosures about the transfers in and out of Level 1 and 2 measurements and also enhances disclosures about the activity within the Level 3 measurements. It also clarifies the required level of disaggregation and the disclosures regarding valuation techniques and inputs to fair value measurements. The amendment is effective for interim and annual reporting periods beginning after December 15, 2009, except for the enhanced Level 3 disclosures. Those disclosures are effective for interim and annual reporting periods beginning after December 15, 2010. The Company adopted the effective portions of this amendment in the first quarter of 2010 and is evaluating the impact of the enhanced Level 3 disclosures. The required disclosures are provided in Note 6 — “Fair Value of Financial Instruments”.
In September 2009, the FASB amended the general accounting principles for Fair Value Measurements and Disclosures as it relates to the fair value measurement of investments in certain entities that calculate net asset value per share. This amendment allows the fair value of certain investments to be measured on the basis of the net asset value. It also requires disclosure, by major category type, of the attributes of those investments, such as the nature of any restrictions on redemption, any unfunded commitments, and the investment strategies of the investees. The amendment is effective for

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interim and annual reporting periods ending after December 15, 2009. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
In August 2009, the FASB amended the general accounting principles for Fair Value Measurements and Disclosures as it relates to measuring liabilities at fair value. This amendment provides guidance for measuring liabilities at fair value when a quoted price in an active market for the identical liability is not available. It also clarifies that the inclusion of a separate input, used in the fair value measurement, relating to the existence of a restriction that prevents the transfer of a liability is not necessary. The amendment is effective for interim and annual reporting beginning after issuance. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
In April 2009, the FASB amended the general accounting principles for Fair Value Measurements and Disclosures as it relates to determining fair value when the volume and level of activity for asset or liability have significantly decreased and identifying transactions that are not orderly. This amendment provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased in relation to normal market activity for the asset or liability and clarifies that the use of multiple valuation techniques may be appropriate. It also provides additional guidance on circumstances that may indicate a transaction is not orderly. Further, it requires additional disclosures about fair value measurements in annual and interim reporting periods. This amendment is effective prospectively for interim and annual reporting periods ending after June 15, 2009. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements. The required disclosures are provided in Note 6 — “Fair Value of Financial Instruments”.
In October 2008, the FASB amended the general accounting principles for Fair Value Measurements and Disclosures as it relates to determining the fair value of a financial asset when the market for that asset is not active. This amendment clarifies the application of fair value in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The amendment was effective upon issuance on October 10, 2008, including prior periods for which financial statements had not been issued. The Company did not consider it necessary to change any valuation techniques as a result of the amendment. The Company also adopted an amendment that delayed the effective date of fair value measurement for certain nonfinancial assets and liabilities that are recorded at fair value on a nonrecurring basis. The effective date was delayed until January 1, 2009 and impacts balance sheet items including nonfinancial assets and liabilities in a business combination and the impairment testing of goodwill and long-lived assets. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
Compensation
In April 2010, the FASB amended the general accounting principles for Compensation as it relates to stock compensation. This amendment clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, such an award should not be classified as a liability if it otherwise qualifies as equity. The amendment is effective for fiscal years and interim periods beginning after December 15, 2010. The adoption of this amendment is not expected to have an impact on the Company’s condensed consolidated financial statements.
In December 2008, the FASB amended the general accounting principles for Compensation as it relates to employers disclosures about postretirement benefit plan assets. This amendment provides guidance for disclosure of the types of assets and associated risks in retirement plans. The new disclosures are designed to provide additional insight into the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period, significant concentrations of risk within plan assets and how investment decisions are made, including factors necessary to understanding investment policies and strategies. The disclosures about plan assets required by this amendment is effective for financial statements with fiscal years ending after December 15, 2009. The adoption of this amendment did not have a material impact on the Company’s condensed consolidated financial statements.
Debt
In October 2009, the FASB amended the general accounting principles for Debt as it relates to the accounting for own-share lending arrangements entered into in contemplation of a convertible debt issuance or other financing. This amendment provides accounting and disclosure guidance for own-share lending arrangements issued in contemplation of convertible debt

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issuance. The amendment is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption of this amendment did not have an impact on the Company’s condensed consolidated financial statements.
Equity
In January 2010, the FASB amended the general accounting principles for Equity as it relates to distributions to shareholders with components of stock and cash. This amendment clarifies that the stock portion of a distribution to shareholders, which allows them to elect to receive cash or stock with a limitation on the total amount of cash that shareholders can receive, is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. The amendment is effective for fiscal years and interim periods beginning after December 15, 2009. The adoption of this amendment did not have an impact on the Company’s condensed consolidated financial statements.
13. Business Acquisition
Effective January 1, 2010, the Company completed its acquisition of ReliaStar Life Insurance Company’s U.S. and Canadian group life, accident and health reinsurance business. ReliaStar was a subsidiary of ING Groep N.V. The acquisition was structured as an indemnity coinsurance agreement. The acquisition resulted in an intangible asset of $129 million, which is reported in other assets in the condensed consolidated balance sheets. The acquisition is expected to enhance the Company’s expertise and product offerings in the North American market, but is expected to contribute less than five percent to the Company’s consolidated assets, liabilities and income in 2010.

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ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking and Cautionary Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.
Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate and operate reinsurance business that the Company acquires, (22) regulatory action that may be taken by state Departments of Insurance with respect to the Company, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (26) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and (27) other risks and uncertainties described in this document and in the Company’s other filings with the Securities and Exchange Commission (“SEC”).
Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and the cautionary statements described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A – “Risk Factors” in the 2009 Annual Report.
Overview
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. RGA and its subsidiaries (collectively, the “Company”) are primarily engaged in the life reinsurance business, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or surrenders of underlying policies, deaths of policyholders, and the exercise of recapture options by ceding companies.

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The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties, income earned on invested assets, and fees earned from financial reinsurance transactions. The Company believes that industry trends have not changed materially from those discussed in its 2009 Annual Report.
The Company’s long-term profitability primarily depends on the volume and amount of death claims incurred and its ability to adequately price the risks it assumes. While death claims are reasonably predictable over a period of years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. The maximum amount of coverage the Company retains per life is $8.0 million. Claims in excess of this retention amount are retroceded to retrocessionaires; however, the Company remains fully liable to the ceding company for the entire amount of risk it assumes. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.
The Company measures performance based on income or loss before income taxes for each of its five segments. The Company’s U.S., Canada, Europe & South Africa and Asia Pacific operations provide traditional life reinsurance to clients. The Company’s U.S. operations also provide long-term care, annuity and financial reinsurance products. The Company also provides insurers with critical illness reinsurance in its Canada, Europe & South Africa and Asia Pacific operations. Asia Pacific operations also provide financial reinsurance. The Corporate and Other segment results include among other things, the corporate investment activity, general corporate expenses, interest expense of RGA, operations of RGA Technology Partners, Inc., a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry, investment income and expense associated with the Company’s collateral finance facility and the provision for income taxes.
The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses are credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
Results of Operations
Consolidated
Consolidated income before income taxes increased $159.1 million, or 465.1% for the first quarter of 2010, as compared to the same period in 2009. The increase was primarily due to a decrease in investment impairments and a favorable change in the value of embedded derivatives within the U.S. segment due to the impact of tightening credit spreads in the U.S. debt markets. Also contributing to the favorable results were increased net premiums and investment income. Foreign currency fluctuations relative to the prior year favorably affected income before income taxes by approximately $10.8 million for the first quarter of 2010, as compared to the same period in 2009.
The Company recognizes in consolidated income, changes in the value of embedded derivatives on modified coinsurance or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable annuity products. The change in the value of embedded derivatives related to reinsurance treaties written on a modified coinsurance or funds withheld basis are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, had a favorable effect on income before income taxes of $38.7 million for the first quarter of 2010, as compared to the same period in 2009. Changes in risk free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, affected income before income taxes favorably by $3.2 million in the first quarter of 2010, as compared to the same period in 2009. The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, affected income before income taxes favorably by $34.6 million in the first quarter of 2010, as compared to the same period in 2009.
The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in an increase of approximately $76.5 million in consolidated income before income taxes in the first quarter of 2010, as compared to the same period in 2009. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.

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Consolidated net premiums increased $282.4 million, or 21.0%, for the three months ended March 31, 2010, as compared to the same period in 2009, due to growth in life reinsurance in force and foreign currency fluctuations. Foreign currency fluctuations favorably affected net premiums by approximately $104.0 million for the first quarter of 2010, as compared to the same period in 2009. Consolidated assumed life insurance in force increased to $2,363.1 billion as of March 31, 2010 from $2,121.3 billion as of March 31, 2009 due to new business production and favorable foreign currency fluctuations. The Company added new business production, measured by face amount of insurance in force, of $78.8 billion and $85.2 billion during the first quarter of 2010 and 2009, respectively. Management believes industry consolidation and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced.
Consolidated investment income, net of related expenses, increased $81.1 million, or 36.3%, for the three months ended March 31, 2010, as compared to the same period in 2009, primarily due in part to market value changes related to the Company’s funds withheld at interest investment associated with the reinsurance of certain EIAs, which are substantially offset by a corresponding change in interest credited to policyholder account balances resulting in a negligible effect on net income. The first quarter increase in investment income also reflects a larger average invested asset base and a higher effective investment portfolio yield. Average invested assets at amortized cost at March 31, 2010 totaled $15.1 billion, a 17.9% increase over March 31, 2009. The average yield earned on investments, excluding funds withheld, increased to 5.84%, for the first quarter of 2010 from 5.57% for the first quarter of 2009. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments.
Total investment related gains (losses), net improved by $203.4 million, for the three months ended March 31, 2010, as compared to the same period in 2009. The improvement for the first quarter is primarily due to favorable changes in the embedded derivatives related to reinsurance treaties written on a modified coinsurance or funds withheld basis and guaranteed minimum living benefits of $135.0 million and a decrease in investment impairments, net of non-credit adjustments, of $29.3 million, partially offset by an increase in net hedging losses related to the liabilities associated with guaranteed minimum living benefits of $14.5 million. See Note 4 – “Investments” and Note 5 – “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives. Investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.
The effective tax rate on a consolidated basis was 36.7% and 31.9% for the first quarter of 2010 and 2009, respectively. The 2010 effective tax rate was affected by a tax accrual of approximately $5.0 million related to extender provisions that the U.S. Congress failed to pass prior to the end of the quarter. It is widely expected that the U.S. Congress will pass the extender package during 2010, at which time the Company will reverse this accrual. The 2009 effective tax rate was affected by the earnings of our non-US subsidiaries in which the Company is permanently reinvested whose statutory tax rates are less than the U.S. statutory tax rate.
Critical Accounting Policies
The Company’s accounting policies are described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the 2009 Annual Report. The Company believes its most critical accounting policies include the capitalization and amortization of deferred acquisition costs (“DAC”); the establishment of liabilities for future policy benefits, other policy claims and benefits, including incurred but not reported claims; the valuation of fixed maturity investments and investment impairments, if any; embedded derivatives; accounting for income taxes; and the establishment of arbitration or litigation reserves. The balances of these accounts require extensive use of assumptions and estimates, particularly related to the future performance of the underlying business.
Additionally, for each of the Company’s reinsurance contracts, it must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the Company is subject or features that delay the timely reimbursement of claims. If the Company determines that the possibility of a significant loss from insurance risk will occur only under remote circumstances, it records the contract under a deposit method of accounting with the net amount receivable or payable reflected in premiums receivable and other reinsurance balances or other reinsurance liabilities on the condensed consolidated balance sheets. Fees earned on the contracts are reflected as other revenues, as opposed to net premiums, on the condensed consolidated statements of income.
Differences in experience compared with the assumptions and estimates utilized in the justification of the recoverability of DAC, in establishing reserves for future policy benefits and claim liabilities, or in the determination of other-than-temporary

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impairments to investment securities can have a material effect on the Company’s results of operations and financial condition.
Deferred Acquisition Costs (“DAC”)
Costs of acquiring new business, which vary with and are primarily related to the production of new business, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. DAC amounts reflect the Company’s expectations about the future experience of the business in force and include commissions and allowances as well as certain costs of policy issuance and underwriting. Some of the factors that can affect the carrying value of DAC include mortality assumptions, interest spreads and policy lapse rates. For traditional life and related coverages, the Company performs periodic tests to determine that DAC remains recoverable at all times, including at issue, and the cumulative amortization is re-estimated and, if necessary, adjusted by a cumulative charge to current operations. For its asset-intensive business, the Company updates the estimated gross profits with actual gross profits each reporting period, resulting in an increase or decrease to DAC to reflect the difference in the actual gross profits versus the previously estimated gross profits.
Liabilities for Future Policy Benefits and Other Policy Liabilities
Liabilities for future policy benefits under long-term life insurance policies (policy reserves) are computed based upon expected investment yields, mortality and withdrawal (lapse) rates, and other assumptions, including a provision for adverse deviation from expected claim levels. The Company primarily relies on its own valuation and administration systems to establish policy reserves. The policy reserves the Company establishes may differ from those established by the ceding companies due to the use of different mortality and other assumptions. However, the Company relies upon its ceding company clients to provide accurate data, including policy-level information, premiums and claims, which is the primary information used to establish reserves. The Company’s administration departments work directly with its clients to help ensure information is submitted by them in accordance with the reinsurance contracts. Additionally, the Company performs periodic audits of the information provided by ceding companies. The Company establishes reserves for processing backlogs with a goal of clearing all backlogs within a ninety-day period. The backlogs are usually due to data errors the Company discovers or computer file compatibility issues, since much of the data reported to the Company is in electronic format and is uploaded to its computer systems.
The Company periodically reviews actual historical experience and relative anticipated experience compared to the assumptions used to establish aggregate policy reserves. Further, the Company establishes premium deficiency reserves if actual and anticipated experience indicates that existing aggregate policy reserves, together with the present value of future gross premiums, are not sufficient to cover the present value of future benefits, settlement and maintenance costs and to recover unamortized acquisition costs. The premium deficiency reserve is established through a charge to income, as well as a reduction to unamortized acquisition costs and, to the extent there are no unamortized acquisition costs, an increase to future policy benefits. Because of the many assumptions and estimates used in establishing reserves and the long-term nature of the Company’s reinsurance contracts, the reserving process, while based on actuarial science, is inherently uncertain. If the Company’s assumptions, particularly on mortality, are inaccurate, its reserves may be inadequate to pay claims and there could be a material adverse effect on its results of operations and financial condition.
Other policy claims and benefits include claims payable for incurred but not reported losses, which are determined using case-basis estimates and lag studies of past experience. These estimates are periodically reviewed and any adjustments to such estimates, if necessary, are reflected in current operations. The time lag from the date of the claim or death to the date when the ceding company reports the claim to the Company can be several months and can vary significantly by ceding company and business segment. The Company updates its analysis of incurred but not reported claims, including lag studies, on a periodic basis and adjusts its claim liabilities accordingly. The adjustments in a given period are generally not significant relative to the overall policy liabilities.
Valuation of Fixed Maturity Securities
The Company primarily invests in fixed maturity securities, including bonds and redeemable preferred stocks. These securities are classified as available-for-sale and accordingly are carried at fair value on the condensed consolidated balance sheets. The difference between amortized cost and fair value is reflected as an unrealized gain or loss, less applicable deferred taxes as well as related adjustments to deferred acquisition costs, if applicable, in accumulated other comprehensive income (“AOCI”) in stockholders’ equity. The determinations of fair value may require extensive use of assumptions and inputs. In addition, other-than-temporary impairment losses related to non-credit factors are recognized in AOCI.
The Company performs regular analysis and review of the various techniques, assumptions and inputs utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also utilizes information from third parties, such as pricing services and brokers,

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to assist in determining fair values for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s financial statements. The Company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, initial and ongoing review of third party pricing services and techniques, review of pricing trends and monitoring of recent trade information. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.
When available, fair values are based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market standard valuation techniques, primarily a combination of a market approach, including matrix pricing and an income approach. The assumptions and inputs used by management in applying these techniques include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and assumptions regarding liquidity and future cash flows.
The significant inputs to the market standard valuation techniques for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market.
When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are consistent with what other market participants would use when pricing such securities.
The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings.
Additionally, the Company evaluates its intent to sell fixed maturity securities and whether it is more likely than not that it will be required to sell fixed maturity securities, along with factors such as the financial condition of the issuer, payment performance, the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, and various other factors. Securities, based on management’s judgments, with an other-than-temporary impairment in value are written down to management’s estimate of fair value.
Valuation of Embedded Derivatives
The Company reinsures certain annuity products that contain terms that are deemed to be embedded derivatives, primarily EIAs and variable annuities with guaranteed minimum benefits. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated under the general accounting principles for Derivatives and Hedging. If the instrument would not be accounted for in its entirety at fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and reported separately. Such embedded derivatives are carried on the condensed consolidated balance sheets at fair value with the host contract.
The valuation of the various embedded derivatives requires complex calculations based on actuarial and capital market inputs assumptions related to estimates of future cash flows. Such assumptions include, but are not limited to, assumptions regarding equity market performance, equity market volatility, interest rates, credit spreads, benefits and related contract charges, mortality, lapses, withdrawals, benefit selections and non-performance risk. These assumptions have a significant impact on the value of the embedded derivatives. For example, independent future decreases in equity market returns, future decreases in interest rates and future increases in equity market volatilities would increase the value of the embedded liability derivative associated with guaranteed minimum withdrawal benefits on variable annuities, resulting in an increase in investment related losses. See “Market Risk” disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.
Additionally, reinsurance treaties written on a modified coinsurance or funds withheld basis are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. The majority of the Company’s funds

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withheld at interest balances are associated with its reinsurance of annuity contracts, the majority of which are subject to the general accounting principles for Derivatives and Hedging related to embedded derivatives. Management believes the embedded derivative feature in each of these reinsurance treaties is similar to a total return swap on the assets held by the ceding companies. The valuation of these embedded derivatives is sensitive to the credit spread environment. Decreases or increases in credit spreads result in an increase or decrease in value of the embedded derivative and therefore an increase in investment related gains or losses, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the U.S. Asset-Intensive Segment for additional information.
Income Taxes
Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for federal, state and foreign income taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. The Company has significant deferred tax assets related to net operating and capital losses. Most of the Company’s exposure related to its deferred tax assets are within legal entities that file a consolidated United States federal income tax return. The Company has projected its ability to utilize its net operating losses and has determined that all of these losses are expected to be utilized prior to their expiration. The Company has also done analysis of its capital losses and has determined that sufficient unrealized capital gains exist within its investment portfolios that should offset any capital loss realized. It is also the Company’s intention to hold all unrealized loss securities until maturity or until their market value recovers.
The Company will establish a valuation allowance when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:
(i)   future taxable income exclusive of reversing temporary differences and carryforwards;
 
(ii)   future reversals of existing taxable temporary differences;
 
(iii)   taxable income in prior carryback years; and
 
(iv)   tax planning strategies.
The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when the ultimate deductibility of certain items is challenged by taxing authorities, when it becomes clear that certain items will not be challenged, or when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events such as changes in tax legislation could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the condensed consolidated financial statements in the period these changes occur.
Arbitration and Litigation Reserves
The Company at times is a party to various litigation and arbitrations. The Company cannot predict or determine the ultimate outcome of any pending litigation or arbitrations or even provide useful ranges of potential losses. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated. However, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s consolidated financial position and/or net income in a particular reporting period.
Further discussion and analysis of the results for 2010 compared to 2009 are presented by segment.

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U.S. Operations
U.S. operations consist of two major sub-segments: Traditional and Non-Traditional. The Traditional sub-segment primarily specializes in mortality-risk reinsurance. The Non-Traditional sub-segment consists of Asset-Intensive and Financial Reinsurance.
                                 
            Non-Traditional        
For the three months ended March 31, 2010                   Financial     Total  
(dollars in thousands)   Traditional     Asset-Intensive     Reinsurance     U.S.  
Revenues:
                               
Net premiums
  $ 902,961     $ 11,877     $     $ 914,838  
Investment income (loss), net of related expenses
    113,461       96,367       (51 )     209,777  
Investment related gains (losses), net:
                               
Other-than-temporary impairments on fixed maturity securities
          (29 )           (29 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
          (506 )           (506 )
Other investment related gains (losses), net
    2,848       133,131       (9 )     135,970  
     
Total investment related gains (losses), net
    2,848       132,596       (9 )     135,435  
Other revenues
    598       20,893       5,050       26,541  
     
Total revenues
    1,019,868       261,733       4,990       1,286,591  
     
 
                               
Benefits and expenses:
                               
Claims and other policy benefits
    789,775       9,610             799,385  
Interest credited
    16,636       40,284             56,920  
Policy acquisition costs and other insurance expenses
    128,773       144,088       526       273,387  
Other operating expenses
    20,859       3,189       1,279       25,327  
     
Total benefits and expenses
    956,043       197,171       1,805       1,155,019  
     
 
                               
Income before income taxes
  $ 63,825     $ 64,562     $ 3,185     $ 131,572  
     
                                 
            Non-Traditional        
For the three months ended March 31, 2009                   Financial     Total  
(dollars in thousands)   Traditional     Asset-Intensive     Reinsurance     U.S.  
Revenues:
                               
Net premiums
  $ 786,748     $ 1,709     $     $ 788,457  
Investment income (loss), net of related expenses
    102,561       55,827       (65 )     158,323  
Investment related gains (losses), net:
                               
Other-than-temporary impairments on fixed maturity securities
    (22,565 )     (3,852 )     (60 )     (26,477 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
                       
Other investment related gains (losses), net
    (15,663 )     (24,720 )     92       (40,291 )
     
Total investment related gains (losses), net
    (38,228 )     (28,572 )     32       (66,768 )
Other revenues
    570       15,123       6,571       22,264  
     
Total revenues
    851,651       44,087       6,538       902,276  
     
 
                               
Benefits and expenses:
                               
Claims and other policy benefits
    695,932       1,274             697,206  
Interest credited
    15,233       21,628             36,861  
Policy acquisition costs and other insurance expenses
    91,533       45,309       338       137,180  
Other operating expenses
    14,603       2,898       679       18,180  
     
Total benefits and expenses
    817,301       71,109       1,017       889,427  
     
 
                               
Income (loss) before income taxes
  $ 34,350     $ (27,022 )   $ 5,521     $ 12,849  
     
Income before income taxes for the U.S. operations segment increased by $118.7 million for the three months ended March 31, 2010, as compared to the same period in 2009. The increase in income before income taxes in the first quarter of 2010 can primarily be attributed in part to the impact of changes in credit spreads on the fair value of embedded derivatives associated with treaties written on a modified coinsurance or funds withheld basis. Decreases or increases in credit spreads result in an increase or decrease in value of the embedded derivative, and therefore, an increase or decrease in investment

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related gains or losses, respectively. In addition, the increase in income in the first quarter of 2010 reflects a decrease in investment impairments compared to the first quarter of 2009, as well as a general increase in investment income compared to the same period in 2009. See the discussion of “Investments” in the “Liquidity and Capital Resources” section of Management’s Discussion and Analysis for additional information on impairment losses.
Traditional Reinsurance
The U.S. Traditional sub-segment provides life reinsurance to domestic clients for a variety of life and health products through yearly renewable term, coinsurance and modified coinsurance agreements. These reinsurance arrangements may involve either facultative or automatic agreements. This sub-segment added new individual life business production, measured by face amount of insurance in force, of $40.6 billion and $35.5 billion during the first three months of 2010 and 2009, respectively. Management believes industry consolidation and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced.
Income before income taxes for the U.S. Traditional sub-segment increased by $29.5 million, or 85.8%, for the three months ended March 31, 2010, as compared to the same period in 2009. The increase in the first quarter was primarily due to a $41.1 million increase in net investment related gains and income generated from the newly acquired group life and health business as compared to the same period in 2009.
Net premiums for the U.S. Traditional sub-segment increased $116.2 million, or 14.8%, for the three months ended March 31, 2010, as compared to the same period in 2009. The increase in net premiums was driven primarily by growth of total U.S. Traditional business in force. Most notably was the acquisition of ReliaStar Life Insurance Company’s group life and health reinsurance business, which contributed $70.6 million of premium, primarily group health, in the first quarter of 2010. At March 31, 2010, total face amount of life insurance for the U.S. Traditional sub-segment was $1,313.0 billion compared to $1,280.3 billion at March 31, 2009.
Net investment income increased $10.9 million, or 10.6%, for the three months ended March 31, 2010, as compared to the same period in 2009, primarily due to growth in the invested asset base. Investment related gains increased $41.1 million, for the three months ended March 31, 2010, as compared to the same period in 2009. The increase in investment related gains year over year was largely due to a higher level of investment impairments recognized in 2009, combined with improvement in net other investment related gains of $2.8 million in the first quarter of 2010 compared to $15.7 million of net other investment related losses for the same period in 2009.
Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were 87.5% and 88.5% for the first quarter of 2010 and 2009, respectively. The Company’s experience indicates that claims flow is typically higher in the first quarter due to seasonality of death claims as more people die in winter months than other months of the year. This combined with lower premium flows in the first quarter typically leads to a higher claim ratio in the first quarter compared to other quarters during the year. While the loss ratio improved year over year, claims were still higher than expected in the first quarter of 2010. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods.
Interest credited expense increased $1.4 million, or 9.2%, for the three months ended March 31, 2010, as compared to the same period in 2009. The increase was driven primarily by a treaty with a minor increase in asset base and a constant credited loan rate of 5.6%. Also contributing to the increase was the addition of a new treaty during the three months ended March 31, 2010. Interest credited in this sub-segment relates to amounts credited on cash value products which also have a significant mortality component.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 14.3% and 11.6% for the first quarter of 2010 and 2009, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to period.
Other operating expenses increased $6.3 million, or 42.8%, for the three months ended March 31, 2010, as compared to the same period in 2009. Other operating expenses, as a percentage of net premiums were 2.3% and 1.9% for the first quarter of 2010 and 2009, respectively. The increase is primarily due to costs associated with the addition of group life and health business in 2010 which contributed approximately $4.8 million to the increase.

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Asset-Intensive Reinsurance
The U.S. Asset-Intensive sub-segment assumes primarily investment risk within underlying annuities and corporate-owned life insurance policies. Most of these agreements are coinsurance, coinsurance with funds withheld or modified coinsurance whereby the Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities.
Impact of certain derivatives:
Income for the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modified coinsurance (“Modco”) basis or funds withheld basis, as well as embedded derivatives associated with the Company’s reinsurance of equity-indexed annuities and variable annuities with guaranteed minimum benefit riders. The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented.
                 
    For the three months ended  
    March 31,  
(dollars in thousands)   2010     2009  
Revenues:
               
Total revenues
  $ 261,733     $ 44,087  
Less:
               
Embedded derivatives — Modco/Funds withheld treaties
    122,635       (40,425 )
Guaranteed minimum benefit riders and related free standing derivatives
    9,376       22,905  
 
           
Revenues before certain derivatives
    129,722       61,607  
 
           
 
               
Benefits and expenses:
               
Total benefits and expenses
    197,171       71,109  
Less:
               
Embedded derivatives — Modco/Funds withheld treaties
    84,666       (39,668 )
Guaranteed minimum benefit riders and related free standing derivatives
    4,681       38,392  
Equity-indexed annuities
    (5,548 )     (2,347 )
 
           
Benefits and expenses before certain derivatives
    113,372       74,732  
 
           
 
               
Income (loss) before income taxes:
               
Income (loss) before income taxes
    64,562       (27,022 )
Less:
               
Embedded derivatives — Modco/Funds withheld treaties
    37,969       (757 )
Guaranteed minimum benefit riders and related free standing derivatives
    4,695       (15,487 )
Equity-indexed annuities
    5,548       2,347  
 
           
Income (loss) before income taxes and certain derivatives
    16,350       (13,125 )
 
           
Modco/Funds Withheld Treaties- Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modified coinsurance or funds withheld basis, allowing for deferred acquisition expenses. Changes in the fair value of the embedded derivative are driven by changes in investment credit spreads, including the Company’s own credit spread. Generally, an increase in investment credit spreads, ignoring changes in the Company’s own credit spread, will have a negative impact on the fair value of the embedded derivative (decrease in income).
In the first quarter of 2010, the change in fair value of the embedded derivative increased revenues by $122.6 million, partially offset by the related deferred acquisition expenses of $84.7 million, for a positive pre-tax income impact of $38.0 million, primarily due to a decrease in investment credit spreads. During the first quarter of 2009, the change in fair value of the embedded derivative decreased revenues by $40.4 million, partially offset by the related deferred acquisition expenses of $39.7 million, for a negative pre-tax income impact of $0.8 million, primarily due to a decrease in investment credit spreads.
Guaranteed Minimum Benefit Riders- Represents the impact related to guaranteed minimum benefits associated with the Company’s reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives purchased by the Company to hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in expenses. In the first quarter of 2010, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, was $9.4 million and deferred acquisition expenses were $4.7 million for a positive pre-tax income impact of $4.7 million. In the first quarter of 2009, the change in the fair value of the guaranteed minimum benefits after allowing for

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changes in the associated hedge instruments was $22.9 million and deferred acquisition expenses were $38.4 million for a pre-tax income impact of negative $15.5 million.
Equity-Indexed Annuities- Represents the impact of changes in the risk-free rate on the calculation of the fair value of embedded derivative liabilities associated with EIAs, after adjustments for related deferred acquisition expenses and retrocession. In the first quarter of 2010 and 2009, expenses decreased $5.5 million and $2.3 million, respectively.
The changes in derivatives discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.
Discussion and analysis before certain derivatives:
In the first quarter of 2010, income before taxes and certain derivatives increased by $29.5 million primarily due to improvement in the broader U.S. financial markets and related favorable impacts on the underlying annuity account values. Also contributing to the positive variance was an increase in capital gains in both the funds withheld and coinsurance portfolios. These investment gains increased approximately $14.2 million in 2010 before deferred acquisition costs. Higher fee income earned on the variable annuity transactions also contributed to the increased income in 2010.
The increase in revenue before certain derivatives of $68.1 million in the first quarter of 2010 was driven by changes in investment income related to equity options held in a funds withheld portfolio associated with equity-indexed annuity treaties. Increases and decreases in investment income related to equity options were mostly offset by corresponding increases and decreases in interest credited expense. Also affecting revenue were capital gains in both the funds withheld and coinsurance portfolios which increased approximately $14.2 million in 2010 before deferred acquisition costs.
The average invested asset base supporting this sub-segment increased to $5.3 billion in the first quarter of 2010 from $5.1 billion in the first quarter of 2009. The growth in the asset base was driven primarily by new business written on existing equity-indexed treaties. As of March 31, 2010, $3.8 billion of the invested assets were funds withheld at interest, of which 94.5% is associated with one client.
The increase in benefits and expenses before certain derivatives of $38.6 million in the first quarter of 2010 was primarily due to a change in the interest credited expense related to equity option income on funds withheld equity-indexed annuity treaties. This change was mostly offset by a corresponding change in investment income.
Financial Reinsurance
The U.S. Financial Reinsurance sub-segment income consists primarily of net fees earned on financial reinsurance transactions. The majority of the financial reinsurance risks are assumed by the U.S. segment and retroceded to other insurance companies or brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses. Fees earned on brokered business are reflected in other revenues.
Income before income taxes decreased $2.3 million, or 42.3%, for the three months ended March 31, 2010, as compared to the same period in 2009. The decrease in the first quarter of 2010 was primarily related to the absence of a one time fee received at inception of a new treaty signed in the first quarter of 2009. At March 31, 2010 and 2009, the amount of reinsurance provided, as measured by pre-tax statutory surplus, was $1.1 billion and $0.5 billion, respectively. These pre-tax statutory surplus amounts include all business assumed or brokered by the Company in the U.S. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.
Canada Operations
The Company conducts reinsurance business in Canada through RGA Life Reinsurance Company of Canada (“RGA Canada”), a wholly-owned subsidiary. RGA Canada assists clients with capital management activity and mortality and morbidity risk management, and is primarily engaged in traditional individual life reinsurance, as well as creditor, critical illness, and group life and health reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance.

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    For the three months ended  
    March 31,  
(dollars in thousands)   2010     2009  
Revenues:
               
Net premiums
  $ 208,650     $ 138,056  
Investment income, net of related expenses
    40,228       30,360  
Investment related gains (losses), net:
               
Other-than-temporary impairments on fixed maturity securities
          (32 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
           
Other investment related gains (losses), net
    3,850       (277 )
 
           
Total investment related gains (losses), net
    3,850       (309 )
Other revenues
    43       1,697  
 
           
Total revenues
    252,771       169,804  
 
           
 
               
Benefits and expenses:
               
Claims and other policy benefits
    172,516       115,635  
Interest credited
          48  
Policy acquisition costs and other insurance expenses
    54,441       33,067  
Other operating expenses
    6,841       4,868  
 
           
Total benefits and expenses
    233,798       153,618  
 
           
 
               
Income before income taxes
  $ 18,973     $ 16,186  
 
           
Income before income taxes increased by $2.8 million, or 17.2%, for the three months ended March 31, 2010, as compared to the same period in 2009. In the first three months of 2010, a stronger Canadian dollar resulted in an increase in income before income taxes of $1.9 million. In addition, the increase in income in the first quarter of 2010 was due to an increase of $4.2 million in net investment related gains, offset by adverse mortality experience compared to the prior year.
Net premiums increased $70.6 million, or 51.1%, for the three months ended March 31, 2010, as compared to the same period in 2009. An increase in premiums from creditor treaties contributed $27.1 million, excluding foreign exchange impact, in the first three months of 2010. Creditor and group life and health premiums represented 40.6% and 28.3% of net premiums for the first quarter of 2010 and 2009, respectively. In addition, a stronger Canadian dollar contributed to an increase in net premiums of approximately $33.6 million in the first quarter of 2010 compared to 2009. On a Canadian dollar basis, net premiums increased approximately 26.8% for the first quarter of 2010 compared to 2009, primarily due to the increase in creditor business discussed above. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period.
Net investment income increased $9.9 million, or 32.5%, for the three months ended March 31, 2010, as compared to the same period in 2009. A stronger Canadian dollar resulted in an increase in net investment income of approximately $4.6 million in the first quarter of 2010 compared to 2009. Investment income and investment related gains and losses are allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. The increase in investment income, excluding the impact of foreign exchange, was mainly the result of an increase in the allocated asset base due to growth in the underlying business volume.
Loss ratios for this segment were 82.7% and 83.8% for the first quarter of 2010 and 2009, respectively. The loss ratios on creditor reinsurance business are normally lower than traditional reinsurance, while allowances on that business are normally higher as a percentage of premiums. Loss ratios for creditor business were 41.2% for the first quarter of both 2010 and 2009. Excluding creditor business, the loss ratios for this segment were 106.8% and 99.4% for the first quarter of 2010 and 2009, respectively. The higher loss ratio in 2010 was primarily the result of adverse mortality experience compared to the prior year. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year mortality costs to fund claims in the later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. Claims and other policy benefits, as a percentage of net premiums and investment income were 69.3% and 68.7% in the first quarter of 2010 and 2009, respectively.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 26.1% and 24.0% for the first quarter of 2010 and 2009, respectively. Policy and acquisition costs and other insurance expenses as a percentage of net

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premiums for creditor business were 50.8% and 54.4% for the first quarter of 2010 and 2009, respectively. Excluding foreign exchange and creditor business, policy acquisition costs and other insurance expenses as a percentage of net premiums were 11.7% and 12.8% for the first quarter of 2010 and 2009, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels and product mix. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.
Other operating expenses increased by $2.0 million, or 40.5% for the three months ended March 31, 2010, as compared to the same period in 2009. A stronger Canadian dollar contributed approximately $0.9 million to the increase in operating expenses in the first quarter of 2010. Other operating expenses as a percentage of net premiums were 3.3% and 3.5% for the first quarter of 2010 and 2009, respectively.
Europe & South Africa Operations
The Europe & South Africa segment has operations in France, Germany, India, Italy, Mexico, the Netherlands, Poland, Spain, South Africa and the United Kingdom (“UK”). The segment provides life reinsurance for a variety of products through yearly renewable term and coinsurance agreements, and reinsurance of critical illness coverage and to a lesser extent, the reinsurance of longevity risk on payout annuities. Reinsurance agreements may be either facultative or automatic agreements covering primarily individual risks and in some markets, group risks.
                 
    For the three months ended  
    March 31,  
(dollars in thousands)   2010     2009  
Revenues:
               
Net premiums
  $ 217,652     $ 173,256  
Investment income, net of related expenses
    7,832       6,749  
Investment related gains (losses), net:
               
Other-than-temporary impairments on fixed maturity securities
          (763 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
           
Other investment related gains (losses), net
    459       1,185  
 
           
Total investment related gains (losses), net
    459       422  
Other revenues
    838       260  
 
           
Total revenues
    226,781       180,687  
 
           
 
               
Benefits and expenses:
               
Claims and other policy benefits
    180,016       144,218  
Policy acquisition costs and other insurance expenses
    13,398       10,817  
Other operating expenses
    22,710       17,117  
 
           
Total benefits and expenses
    216,124       172,152  
 
           
 
               
Income before income taxes
  $ 10,657     $ 8,535  
 
           
Income before income taxes increased by $2.1 million, or 24.9%, for the three months ended March 31, 2010, as compared to the same period in 2009. Favorable foreign currency exchange fluctuations contributed to an increase to income before income taxes totaling approximately $0.3 million for the first quarter of 2010. The increase in income before income taxes for the first quarter was primarily due to favorable claims experience, mainly in the UK.
Net premiums increased $44.4 million, or 25.6%, for the three months ended March 31, 2010, as compared to the same period in 2009. During 2010, there was a favorable foreign currency exchange fluctuation, particularly with the British pound, the euro and the South African rand strengthening against the U.S. dollar when compared to the same periods in 2009, which increased net premiums by approximately $20.1 million in the first quarter of 2010 as compared to the same period in 2009. In addition, net premiums increased as a result of new business from both new and existing treaties including a $12.0 million increase associated with reinsurance of longevity risk in the UK.
A significant portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled $55.9 million and $46.3 million in the first quarter of 2010 and 2009, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.

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Net investment income increased $1.1 million, or 16.0%, for the three months ended March 31, 2010, as compared to the same period in 2009. This increase can be primarily attributed to growth in the invested asset base. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Loss ratios for this segment were 82.7% and 83.2% for the first quarter of 2010 and 2009, respectively. The decrease in loss ratio for the first quarter of 2010 was due to favorable claims experience, primarily in the UK. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business.
Policy acquisition costs and other insurance expenses as a percentage of net premiums was 6.2% for the first quarter of 2010 and 2009. These percentages may fluctuate due to timing of client company reporting, variations in the mixture of business being reinsured and the relative maturity of the business. In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.
Other operating expenses increased $5.6 million, or 32.7%, for the three months ended March 31, 2010, as compared to the same period in 2009. Other operating expenses as a percentage of net premiums totaled 10.4% and 9.9% for the first quarter of 2010 and 2009, respectively. This increase was due to higher costs associated with maintaining and supporting the segment’s increase in business over the past several years and the Company’s recent expansion into central Europe. The Company believes that sustained growth in net premiums should lessen the burden of start-up expenses and expansion costs over time.
Asia Pacific Operations
The Asia Pacific segment has operations in Australia, Hong Kong, Japan, Malaysia, Singapore, New Zealand, South Korea, Taiwan and mainland China. The principal types of reinsurance for this segment are life, critical illness, disability income, superannuation, and financial reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and in addition, offer life and disability insurance coverage. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.
                 
    For the three months ended  
    March 31,  
(dollars in thousands)   2010     2009  
Revenues:
               
Net premiums
  $ 285,818     $ 243,728  
Investment income, net of related expenses
    17,264       12,697  
Investment related gains (losses), net:
               
Other-than-temporary impairments on fixed maturity securities
          (1,922 )
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income
           
Other investment related gains (losses), net
    587       (1,645 )
 
           
Total investment related gains (losses), net
    587       (3,567 )
Other revenues
    6,187       9,729  
 
           
Total revenues
    309,856       262,587  
 
           
 
               
Benefits and expenses:
               
Claims and other policy benefits
    223,096       212,414  
Policy acquisition costs and other insurance expenses
    37,930       30,429  
Other operating expenses
    22,385       16,171  
 
           
Total benefits and expenses
    283,411       259,014  
 
           
 
               
Income before income taxes
  $ 26,445     $ 3,573  
 
           
Income before income taxes increased by $22.9 million, for the three months ended March 31, 2010, as compared to the same period in 2009. Favorable results, primarily due to lower than expected claims and other policy benefits in New Zealand and Hong Kong, contributed to the increase in income before income taxes for the first quarter of 2010 compared to the same period in 2009. Additionally, foreign currency exchange fluctuations resulted in an increase to income before income taxes totaling approximately $3.7 million for the first quarter of 2010.

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Net premiums increased $42.1 million, or 17.3%, for the three months ended March 31, 2010, as compared to the same period in 2009. Premiums in the first quarter of 2010 increased by $44.4 million, collectively, in Australia, South East Asia, Asia, Korea and Taiwan and were partially offset by decreased premiums of $2.4 million in Japan and Hong Kong, as compared to the same period in 2009. The net increase in net premiums described above was almost entirely due to local currencies strengthening against the U.S. dollar.
Foreign currencies in certain significant markets, particularly the Australian dollar, New Zealand dollar, Korean won and Taiwanese dollar, have strengthened against the U.S. dollar during 2010 compared to 2009. The overall effect of changes in Asia Pacific segment currencies was an increase in net premiums of approximately $50.3 million for the first quarter of 2010.
A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the Asia Pacific operations is offered primarily in South Korea, Australia and Hong Kong. Net premiums earned from this coverage totaled $39.4 million and $54.2 million in the first quarter of 2010 and 2009, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period.
Net investment income increased $4.6 million, or 36.0%, for the three months ended March 31, 2010, as compared to the same period in 2009. This increase can be primarily attributed to growth in the invested asset base. Also contributing to the increase was a favorable change in foreign currency exchange fluctuations of $1.5 million. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Other revenues decreased by $3.5 million, or 36.4%, for the three months ended March 31, 2010, as compared to the same period in 2009. The primary source of other revenues is fees from financial reinsurance treaties in Japan. The decrease in the first quarter of 2010 was primarily related to the absence of a fee received at inception of a new treaty signed in the first quarter of 2009. At March 31, 2010 and 2009, the amount of financial reinsurance assumed from client companies, as measured by pre-tax statutory surplus, was $0.4 billion and $0.6 billion, respectively. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.
Loss ratios for this segment were 78.1% and 87.2% for the first quarter of 2010 and 2009, respectively. The decrease in the loss ratio for the first quarter of 2010 compared to 2009 is primarily attributable to lower claims and other policy benefits in New Zealand and Hong Kong in 2010 compared to 2009. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business. Loss ratios will fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 13.3% and 12.5% for the first quarter of 2010 and 2009, respectively. The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does fluctuate periodically due to timing of client company reporting and variations in the mixture of business.
Other operating expenses increased $6.2 million, or 38.4%, for the three months ended March 31, 2010, as compared to the same period in 2009. Other operating expenses as a percentage of net premiums totaled 7.8% and 6.6% for the first quarter of 2010 and 2009. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.
Corporate and Other
Corporate and Other revenues include investment income from invested assets not allocated to support segment operations and undeployed proceeds from the Company’s capital raising efforts, in addition to unallocated investment related gains and losses. Corporate expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance expenses line item, unallocated overhead and executive costs, and interest expense related to debt and trust preferred securities. Additionally, Corporate and Other includes results from, among others, RGA Technology Partners, Inc., a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry and the investment income and expense associated with the Company’s collateral finance facility.

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    For the three months ended  
    March 31,  
(dollars in thousands)   2010     2009  
Revenues:
               
Net premiums
  $ 1,506     $ 2,550  
Investment income, net of related expenses
    29,157       15,067  
Investment related gains (losses), net:
               
Other-than-temporary impairments on fixed maturity securities
    (7,401 )     (5,201 )
Other-than-temporary impairments on fixed maturity securities transferred
               
to (from) accumulated other comprehensive income
    2,850        
Other investment related gains (losses), net
    (4,595 )     3,161  
 
           
Total investment related gains (losses), net
    (9,146 )     (2,040 )
Other revenues
    2,669       (91 )
 
           
Total revenues
    24,186       15,486  
 
           
 
               
Benefits and expenses:
               
Claims and other policy benefits
    167       271  
Interest credited
    14        
Policy acquisition costs and other insurance expenses (income)
    (12,854 )     (12,692 )
Other operating expenses
    13,936       10,413  
Interest expenses
    15,449       22,117  
Collateral finance facility expense
    1,806       2,314  
 
           
Total benefits and expenses
    18,518       22,423  
 
           
 
               
Income (loss) before income taxes
  $ 5,668     $ (6,937 )
 
           
Income before income taxes increased by $12.6 million, for the three months ended March 31, 2010, as compared to the same period in 2009. The increase for the first quarter is primarily due to a $14.1 million increase in net investment income and a $6.7 million decrease in interest expense partially offset by a $7.1 million increase in investment related losses.
Total revenues increased by $8.7 million, or 56.2%, for the three months ended March 31, 2010, as compared to the same period in 2009. The increase was largely due to an increase in net investment income partially offset by increased investment related losses. The increase in investment income is largely due to an increase in invested assets, related to the issuance of $400.0 million of senior notes in the fourth quarter of 2009, and a higher effective investment yield.
Total benefits and expenses decreased by $3.9 million, or 17.4%, for the three months ended March 31, 2010, as compared to the same period in 2009. The decrease for the first quarter was primarily due to decreased interest expense of $6.7 million due to lower interest provisions for income taxes related to uncertain tax positions slightly offset by increased interest expense on the aforementioned senior notes issued in 2009. Also offsetting the decrease in total benefits and expenses was a $3.5 million increase in other expenses, primarily due to increased compensation.
Liquidity and Capital Resources
Current Market Environment
The U.S. and global financial markets have improved significantly since the first quarter of 2009. Throughout the first quarter of 2009, the capital and credit markets experienced extreme volatility and disruption. This environment was driven by, among other things, heightened concerns over conditions in the U.S. housing and mortgage markets, the availability and cost of credit, the health of U.S. and global financial institutions, a decline in business and consumer confidence and increased unemployment. Turmoil in the U.S. and global financial markets resulted in bankruptcies, credit defaults, consolidations and government interventions.
Results of operations in first quarter of 2010 reflect a favorable change in the value of embedded derivatives as credit spreads tightened significantly since the first quarter of 2009. Gross unrealized losses in the Company’s fixed maturity and equity securities available-for-sale have improved from $1,552.8 million at March 31, 2009 to $470.7 million at March 31, 2010. Likewise, gross unrealized gains have also improved.
The Company continues to be in a position to hold its investment securities until recovery, provided it remains comfortable with the credit of the issuer. The Company does not rely on short-term funding or commercial paper, and therefore, to date, it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future. The Company has selectively reduced its exposure to distressed security issuers through security sales. Although management believes the

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Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.
The Holding Company
RGA is a holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid by RGA to its shareholders and interest payments on its indebtedness. The primary sources of RGA’s liquidity include proceeds from its capital raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with two operating subsidiaries, and dividends from operating subsidiaries. As the Company continues its expansion efforts, RGA will continue to be dependent on these sources of liquidity.
The Company believes that it has sufficient liquidity to fund its cash needs under various scenarios that include the potential risk of the early recapture of a reinsurance treaty by the ceding company and significantly higher than expected death claims. Historically, the Company has generated positive net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, capital securities or common equity and, if necessary, the sale of invested assets.
Cash Flows
The Company’s net cash flows provided by operating activities for the three months ended March 31, 2010 and 2009 were $948.0 million and $352.5 million, respectively. Cash flows from operating activities are affected by the timing of premiums received, claims paid, and working capital changes. The $595.5 million net increase in operating cash flows during the three months of 2010 compared to the same period in 2009 was primarily a result of cash inflows related to premiums and investment income increasing and cash outflows related to claims, acquisition costs, income taxes and other operating expenses decreasing. Cash from premiums and investment income increased $261.0 million and $78.4 million, respectively, while operating cash outlays decreased by $256.1 million for the current month period. The Company believes the short-term cash requirements of its business operations will be sufficiently met by the positive cash flows generated. Additionally, the Company believes it maintains a high quality fixed maturity portfolio that can be sold, if necessary, to meet the Company’s short- and long-term obligations.
Net cash used in investing activities for the three months ended March 31, 2010 and 2009 was $776.3 million and $531.3 million, respectively. The sales and purchases of fixed maturity securities are related to the management of the Company’s investment portfolios and the investment of excess cash generated by operating and financing activities.
Net cash used in financing activities for the three months ended March 31, 2010 and 2009 was $158.3 million and $103.9 million, respectively. The increase in cash used in financing activities is primarily due to payments under investment type contracts. The increase in cash used in financing activities was partially offset by a $63.4 million increase in the cash collateral received under derivative contracts due to a change in the value of the underlying derivatives.
Debt and Preferred Securities
As of March 31, 2010 and December 31, 2009, the Company had $1,216.1 million in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements.
The Company maintains three revolving credit facilities, including a syndicated credit facility with an overall capacity of $750.0 million that expires in September 2012. The Company may borrow cash and may obtain letters of credit in multiple currencies under this facility. As of March 31, 2010, the Company had no cash borrowings outstanding and $337.0 million in issued, but undrawn, letters of credit under this facility. The Company’s other credit facilities consist of a £15.0 million credit facility that expires in May 2011, and an A$50.0 million Australian credit facility that expires in March 2011, with no outstanding balances as of March 31, 2010.
As of March 31, 2010, the average interest rate on all long-term and short-term debt outstanding, excluding the Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company (“Trust Preferred Securities”), was 6.38%. Interest is expensed on the face amount, or $225 million, of the Trust Preferred Securities at a rate of 5.75%.
Based on the historic cash flows and the current financial results of the Company, management believes RGA’s cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months.
Collateral Finance Facility
In June 2006, RGA’s subsidiary, Timberlake Financial, L.L.C. (“Timberlake Financial”), issued $850.0 million of Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance Company (“RGA Reinsurance”). Proceeds

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from the notes, along with a $112.8 million direct investment by the Company, were deposited into a series of trust accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. Interest on the notes will accrue at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly. The payment of interest and principal on the notes is insured by a monoline insurance company through a financial guaranty insurance policy. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries. Timberlake Financial will rely primarily upon the receipt of interest and principal payments on a surplus note and dividend payments from its wholly-owned subsidiary, Timberlake Reinsurance Company II (“Timberlake Re”), a South Carolina captive insurance company, to make payments of interest and principal on the notes. The ability of Timberlake Re to make interest and principal payments on the surplus note and dividend payments to Timberlake Financial is contingent upon South Carolina regulatory approval, the return on Timberlake Re’s investment assets and the performance of specified term life insurance policies with guaranteed level premiums retroceded by RGA’s subsidiary, RGA Reinsurance, to Timberlake Re.
Asset / Liability Management
The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.
The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.
The Company’s liquidity position (cash and cash equivalents and short-term investments) was $604.5 million and $633.1 million at March 31, 2010 and December 31, 2009, respectively. The decrease in the Company’s liquidity position from December 31, 2009 is primarily due to the timing of investment activity. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.
The Company periodically sells investment securities under agreements to repurchase the same securities. These arrangements are used for purposes of short-term financing. There were no securities subject to these agreements outstanding at March 31, 2010 or December 31, 2009. The Company also occasionally enters into arrangements to purchase securities under agreements to resell the same securities. Amounts outstanding, if any, are reported in cash and cash equivalents. These agreements are primarily used as yield enhancement alternatives to other cash equivalent investments. There were no agreements outstanding at March 31, 2010 or December 31, 2009.
RGA Reinsurance is a member of the Federal Home Loan Bank of Des Moines (“FHLB”) and holds $19.6 million in common stock of the FHLB, which is included in other invested assets on the Company’s condensed consolidated balance sheets. RGA Reinsurance occasionally enters into traditional funding agreements with the FHLB, but had no outstanding traditional funding agreements with the FHLB at March 31, 2010 and December 31, 2009.
In addition, RGA Reinsurance has also entered into funding agreements with the FHLB under guaranteed investment contracts whereby RGA Reinsurance has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on RGA Reinsurance’s commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize RGA Reinsurance’s obligations under the funding agreements. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB’s recovery is limited to the amount of RGA Reinsurance’s liability under the outstanding funding agreements. The amount of the Company’s liability for the funding agreements with the FHLB under guaranteed investment contracts was $199.3 million and $399.3 million at March 31, 2010 and December 31, 2009, respectively, which is included in interest sensitive contract liabilities. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities and commercial mortgage loans.
Investments
The Company had total cash and invested assets of $21.1 billion and $19.7 billion at March 31, 2010 and December 31, 2009, respectively, as illustrated below (dollars in thousands):

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    March 31, 2010     December 31, 2009  
Fixed maturity securities, available-for-sale
  $ 12,775,342     $ 11,763,358  
Mortgage loans on real estate
    797,272       791,668  
Policy loans
    1,162,723       1,136,564  
Funds withheld at interest
    5,180,300       4,895,356  
Short-term investments
    79,160       121,060  
Other invested assets
    564,753       516,086  
Cash and cash equivalents
    525,360       512,027  
 
           
Total cash and invested assets
  $ 21,084,910     $ 19,736,119  
 
           
The following table presents consolidated average invested assets at amortized cost, net investment income and investment yield, excluding funds withheld. Funds withheld assets are primarily associated with the reinsurance of annuity contracts on which the Company earns a spread. Fluctuations in the yield on funds withheld assets are generally offset by a corresponding adjustment to the interest credited on the liabilities (dollars in thousands).
                         
    Three months ended March 31,  
                    Increase/  
    2010     2009     (Decrease)  
Average invested assets at amortized cost
  $ 15,062,452     $ 12,776,598       17.9 %
Net investment income
    215,295       174,300       23.5 %
Investment yield (ratio of net investment income to average invested assets)
    5.84 %     5.57 %   27 bps
Investment yield increased for the three months ended March 31, 2010 due primarily to an in force transaction which contributed additional investment income for the quarter. All investments held by RGA and its subsidiaries are monitored for conformance to the qualitative and quantitative limits prescribed by the applicable jurisdiction’s insurance laws and regulations. In addition, the operating companies’ boards of directors periodically review their respective investment portfolios. The Company’s investment strategy is to maintain a predominantly investment-grade, fixed maturity portfolio, to provide adequate liquidity for expected reinsurance obligations, and to maximize total return through prudent asset management. The Company’s asset/liability duration matching differs between operating segments. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years. The average duration for all the Company’s portfolios, when consolidated, ranges between eight and ten years. See Note 4 — “Investments” in the Notes to Consolidated Financial Statements of the 2009 Annual Report for additional information regarding the Company’s investments.
Fixed Maturities and Equity Securities Available-for-Sale
The following tables provide information relating to investments in fixed maturity securities and equity securities by sector as of March 31, 2010 and December 31, 2009 (dollars in thousands):
                                                 
                                            Other-than-  
                            Estimated             temporary  
    Amortized     Unrealized     Unrealized     Fair     % of     impairments  
    Cost     Gains     Losses     Value     Total     in AOCI  
March 31, 2010:
                                               
Available-for-sale:
                                               
U.S. corporate securities
  $ 4,132,546     $ 221,954     $ 111,592     $ 4,242,908       33.2 %   $  
Canadian and Canadian provincial governments
    2,095,683       423,386       23,233       2,495,836       19.5        
Residential mortgage-backed securities
    1,604,022       37,663       65,520       1,576,165       12.3       (7,271 )
Foreign corporate securities
    1,848,904       90,084       23,819       1,915,169       15.0        
Asset-backed securities
    516,924       12,224       70,484       458,664       3.6       (2,194 )
Commercial mortgage-backed securities
    1,222,346       41,599       139,209       1,124,736       8.8       (15,779 )
U.S. government and agencies
    437,464       1,148       6,710       431,902       3.4        
State and political subdivisions
    107,212       233       12,135       95,310       0.8        
Other foreign government securities
    442,124       2,605       10,077       434,652       3.4        
 
                                   
Total fixed maturity securities
  $ 12,407,225     $ 830,896     $ 462,779     $ 12,775,342       100.0 %   $ (25,244 )
 
                                   
 
                                               
Non-redeemable preferred stock
  $ 123,107     $ 3,167     $ 7,433     $ 118,841       68.6 %        
Other equity securities
    50,611       4,272       492       54,391       31.4          
 
                                     
Total equity securities
  $ 173,718     $ 7,439     $ 7,925     $ 173,232       100.0 %        
 
                                   

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                                            Other-than-  
                            Estimated             temporary  
    Amortized     Unrealized     Unrealized     Fair     % of     impairments  
    Cost     Gains     Losses     Value     Total     in AOCI  
December 31, 2009:
                                               
Available-for-sale:
                                               
U.S. corporate securities
  $ 3,689,797     $ 180,635     $ 147,384     $ 3,723,048       31.7 %   $  
Canadian and Canadian provincial governments
    1,984,475       394,498       25,746       2,353,227       20.0        
Residential mortgage-backed securities
    1,494,021       32,538       70,015       1,456,544       12.4       (7,018 )
Foreign corporate securities
    1,627,806       77,340       33,398       1,671,748       14.2        
Asset-backed securities
    522,760       9,307       80,131       451,936       3.8       (2,194 )
Commercial mortgage-backed securities
    1,177,621       20,670       169,427       1,028,864       8.7       (13,690 )
U.S. government and agencies
    540,001       1,085       15,027       526,059       4.5        
State and political subdivisions
    107,233       273       17,744       89,762       0.8        
Other foreign government securities
    473,243       2,198       13,271       462,170       3.9        
 
                                   
Total fixed maturity securities
  $ 11,616,957     $ 718,544     $ 572,143     $ 11,763,358       100.0 %   $ (22,902 )
 
                                   
 
                                               
Non-redeemable preferred stock
  $ 123,648     $ 1,878     $ 12,328     $ 113,198       66.0          
Other equity securities
    58,008       760       409       58,359       34.0          
 
                                     
Total equity securities
  $ 181,656     $ 2,638     $ 12,737     $ 171,557       100.0 %        
 
                                   
The Company’s fixed maturity securities are invested primarily in U.S. and foreign corporate bonds, mortgage- and asset-backed securities, and Canadian government securities. As of March 31, 2010 and December 31, 2009, approximately 94.6% and 94.8%, respectively, of the Company’s consolidated investment portfolio of fixed maturity securities was investment grade.
Important factors in the selection of investments include diversification, quality, yield, total rate of return potential and call protection. The relative importance of these factors is determined by market conditions and the underlying product or portfolio characteristics. Cash equivalents are invested in high-grade money market instruments. The largest asset class in which fixed maturities were invested was in corporate securities, which represented approximately 48.2% of fixed maturity securities as of March 31, 2010, compared to 45.9% at December 31, 2009. The table below shows the major industry types and weighted average credit ratings, which comprise the U.S. and foreign corporate fixed maturity holdings at (dollars in thousands):
                                 
            Estimated             Average Credit  
    Amortized Cost     Fair Value     % of Total     Ratings  
March 31, 2010:
                               
Finance
  $ 1,568,318     $ 1,567,535       25.4 %   A-
Industrial
    1,913,964       1,999,558       32.5     BBB+
Foreign (1)
    1,848,904       1,915,170       31.1     A+
Utility
    646,393       671,572       10.9     BBB+
Other
    3,871       4,242       0.1     A+
 
                       
Total
  $ 5,981,450     $ 6,158,077       100.0 %   A-
 
                       
                                 
            Estimated             Average Credit  
    Amortized Cost     Fair Value     % of Total     Ratings  
December 31, 2009:
                               
Finance
  $ 1,411,464     $ 1,358,925       25.2 %   A-
Industrial
    1,670,610       1,735,522       32.2     BBB+
Foreign (1)
    1,627,352       1,671,090       30.9     A
Utility
    603,958       624,710       11.6     BBB+
Other
    4,219       4,549       0.1     A
 
                       
Total
  $ 5,317,603     $ 5,394,796       100.0 %   A-
 
                       
 
(1)   Includes U.S. dollar-denominated debt obligations of foreign obligors and other foreign investments.

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The National Association of Insurance Commissioners (“NAIC”) assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their annual statements. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).
The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at March 31, 2010 and December 31, 2009 was as follows (dollars in thousands):
                                                     
                March 31, 2010                     December 31, 2009        
NAIC   Rating Agency           Estimated                     Estimated        
Designation   Designation   Amortized Cost     Fair Value     % of Total     Amortized Cost     Fair Value     % of Total  
1  
AAA/AA/A
  $ 9,011,559     $ 9,420,912       73.8 %   $ 8,457,812     $ 8,716,920       74.1 %
2  
BBB
    2,561,843       2,658,713       20.8       2,401,885       2,433,144       20.7  
3  
BB
    472,151       417,253       3.3       455,539       381,242       3.3  
4  
B
    253,930       185,177       1.4       210,252       145,206       1.2  
5  
CCC and lower
    94,537       77,652       0.6       75,486       70,165       0.6  
6  
In or near default
    13,205       15,635       0.1       15,983       16,681       0.1  
   
 
                                   
   
Total
  $ 12,407,225     $ 12,775,342       100.0 %   $ 11,616,957     $ 11,763,358       100.0 %
   
 
                                   
The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at March 31, 2010 and December 31, 2009 (dollars in thousands):
                                 
    March 31, 2010     December 31, 2009  
            Estimated             Estimated  
    Amortized Cost     Fair Value     Amortized Cost     Fair Value  
Residential mortgage-backed securities:
                               
Agency
  $ 744,920     $ 776,013     $ 771,787     $ 797,354  
Non-agency
    859,102       800,152       722,234       659,190  
 
                       
Total residential mortgage-backed securities
    1,604,022       1,576,165       1,494,021       1,456,544  
Commercial mortgage-backed securities
    1,222,346       1,124,736       1,177,621       1,028,864  
Asset-backed securities
    516,924       458,664       522,760       451,936  
 
                       
Total
  $ 3,343,292     $ 3,159,565     $ 3,194,402     $ 2,937,344  
 
                       
The residential mortgage-backed securities include agency-issued pass-through securities, collateralized mortgage obligations, a majority of which are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. As of March 31, 2010 and December 31, 2009, the weighted average credit rating was “AA+”. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments. In addition, mortgage-backed securities face default risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.
As of March 31, 2010 and December 31, 2009, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling $1,733.3 million and $1,655.0 million, and estimated fair values of $1,581.1 million and $1,439.1 million, respectively. Those amounts include exposure to commercial mortgage-backed securities held directly in the Company’s investment portfolios within fixed maturity securities, as well as securities held by ceding companies that support the Company’s funds withheld at interest investment. The securities are highly rated with weighted average S&P credit ratings of approximately “AA-” at March 31, 2010 and “AA” at December 31, 2009. Approximately 60.2% and 65.1%, based on estimated fair value, were classified in the “AAA” category at March 31, 2010 and December 31, 2009, respectively. The Company recorded $2.5 million in other-than-temporary impairments in its direct investments in commercial mortgage-backed securities during the first quarter of 2010. The Company did not record any other-than-temporary impairments in its direct investments in commercial mortgage-backed securities during the first quarter of 2009.

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The following tables summarize the securities by rating and underwriting year at March 31, 2010 and December 31, 2009 (dollars in thousands):
                                                 
    AAA     AA     A  
March 31, 2010:           Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 341,086     $ 355,236     $ 65,565     $ 58,017     $ 93,514     $ 77,147  
2006
    300,956       304,161       51,473       52,184       42,014       39,485  
2007
    234,037       239,009       6,025       5,390       85,344       81,240  
2008
    28,933       31,935       37,924       37,720              
2009
    15,927       16,567       3,091       3,237              
2010
    4,747       4,982                          
 
                                   
Total
  $ 925,686     $ 951,890     $ 164,078     $ 156,548     $ 220,872     $ 197,872  
 
                                   
                                                 
    BBB     Below Investment Grade     Total  
            Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 59,286     $ 45,313     $ 33,199     $ 24,247     $ 592,650     $ 559,960  
2006
    34,491       26,875       53,854       27,475       482,788       450,180  
2007
    86,316       78,408       131,458       60,346       543,180       464,393  
2008
                24,064       12,160       90,921       81,815  
2009
                            19,018       19,804  
2010
                            4,747       4,982  
 
                                   
Total
  $ 180,093     $ 150,596     $ 242,575     $ 124,228     $ 1,733,304     $ 1,581,134  
 
                                   
                                                 
    AAA     AA     A  
December 31, 2009:           Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 398,619     $ 403,551     $ 57,602     $ 51,754     $ 75,449     $ 55,124  
2006
    292,369       280,475       41,649       34,854       41,128       34,859  
2007
    223,827       216,853       6,922       2,267       64,860       56,996  
2008
    19,050       19,790       29,211       26,617              
2009
    16,638       16,422       1,485       1,532              
 
                                   
Total
  $ 950,503     $ 937,091     $ 136,869     $ 117,024     $ 181,437     $ 146,979  
 
                                   
                                                 
    BBB     Below Investment Grade     Total  
            Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 47,616     $ 33,986     $ 28,298     $ 19,457     $ 607,584     $ 563,872  
2006
    26,257       19,091       47,951       22,392       449,354       391,671  
2007
    82,460       68,428       128,193       62,440       506,262       406,984  
2008
                25,384       12,204       73,645       58,611  
2009
                            18,123       17,954  
 
                                   
Total
  $ 156,333     $ 121,505     $ 229,826     $ 116,493     $ 1,654,968     $ 1,439,092  
 
                                   
Asset-backed securities include credit card and automobile receivables, subprime securities, home equity loans, manufactured housing bonds and collateralized debt obligations. The Company’s asset-backed securities are diversified by issuer and contain both floating and fixed rate securities and had a weighted average credit rating of “AA-” at March 31, 2010 and “AA” at December 31, 2009. The Company owns floating rate securities that represent approximately 16.9% and 19.0% of the total fixed maturity securities at March 31, 2010 and December 31, 2009, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the condensed consolidated balance sheets as collateral finance facility. In addition to the risks associated with floating rate

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securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ priority in the issuer’s capital structure, the adequacy of and ability to realize proceeds from collateral, and the potential for prepayments. Credit risks include consumer or corporate credits such as credit card holders, equipment lessees, and corporate obligors. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.
As of March 31, 2010 and December 31, 2009, the Company held investments in securities with subprime mortgage exposure with amortized costs totaling $165.8 million and $164.6 million, and estimated fair values of $107.0 million and $104.3 million, respectively. Those amounts include exposure to subprime mortgages through securities held directly in the Company’s investment portfolios within asset-backed securities, as well as securities backing the Company’s funds withheld at interest investment. The weighted average S&P credit ratings on these securities was approximately “BBB+” at March 31, 2010 and December 31, 2009. Historically, these securities have been highly rated, however, in recent years have been downgraded by rating agencies, although the weighted average rating remains investment-grade. Additionally, the Company has largely avoided directly investing in securities originated since the second half of 2005, which management believes was a period of lessened underwriting quality. While ratings and vintage year are important factors to consider, the tranche seniority and evaluation of forecasted future losses within a tranche is critical to the valuation of these types of securities. The Company did not record any other-than-temporary impairments in its subprime portfolio during the first quarter of 2010. During the first quarter of 2009, the Company recorded $13.4 million of other-than-temporary impairments in its subprime portfolio due primarily to the increased likelihood that some or all of the remaining scheduled principal and interest payments on select securities will not be received. The following tables summarize the securities by rating and underwriting year at March 31, 2010 and December 31, 2009 (dollars in thousands):
                                                 
    AAA     AA     A  
March 31, 2010:           Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 18,571     $ 15,912     $ 37,696     $ 31,245     $ 17,036     $ 10,433  
2006
                                   
2007
                                   
2008
                                   
2009
                                   
2010
                                   
 
                                   
Total
  $ 18,571     $ 15,912     $ 37,696     $ 31,245     $ 17,036     $ 10,433  
 
                                   
                                                 
    BBB     Below Investment Grade     Total  
            Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 18,129     $ 10,355     $ 53,236     $ 27,433     $ 144,668     $ 95,378  
2006
    4,985       1,493       4,566       2,756       9,551       4,249  
2007
                11,542       7,415       11,542       7,415  
2008
                                   
2009
                                   
2010
                                   
 
                                   
Total
  $ 23,114     $ 11,848     $ 69,344     $ 37,604     $ 165,761     $ 107,042  
 
                                   

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    AAA     AA     A  
December 31, 2009:           Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 22,816     $ 18,780     $ 39,873     $ 33,014     $ 17,017     $ 9,779  
2006
                                   
2007
                                   
2008
                                   
2009
                                   
 
                                   
Total
  $ 22,816     $ 18,780     $ 39,873     $ 33,014     $ 17,017     $ 9,779  
 
                                   
                                                 
    BBB     Below Investment Grade     Total  
            Estimated             Estimated             Estimated  
Underwriting Year   Amortized Cost     Fair Value     Amortized Cost     Fair Value     Amortized Cost     Fair Value  
2005 & Prior
  $ 24,394     $ 12,593     $ 39,203     $ 18,686     $ 143,303     $ 92,852  
2006
    4,985       1,507       4,566       2,563       9,551       4,070  
2007
                11,709       7,372       11,709       7,372  
2008
                                   
2009
                                   
 
                                   
Total
  $ 29,379     $ 14,100     $ 55,478     $ 28,621     $ 164,563     $ 104,294  
 
                                   
Alternative residential mortgage loans (“Alt-A”) are a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime. At March 31, 2010 and December 31, 2009, the Company’s Alt-A mortgage-backed securities had an amortized cost of $165.4 million and $176.6 million, respectively, with an unrealized loss of $11.9 million and $21.9 million, respectively. As of March 31, 2010 and December 31, 2009, 57.2% and 56.4%, respectively, of the Alt-A securities were rated “AA-” or better. This amount includes securities directly held by the Company and securities backing the Company’s funds withheld at interest investment. The Company recorded $0.5 million, and $5.6 million in other-than-temporary impairments in the first quarter of 2010 and 2009, respectively, in its Alt-A portfolio due primarily to the increased likelihood that some or all of the remaining scheduled principal and interest payments on select securities would not be received.
At March 31, 2010 and December 31, 2009, the Company’s fixed maturity and funds withheld portfolios included approximately $620.3 million and $601.8 million, respectively, in estimated fair value, of securities that are insured by various financial guarantors, or less than five percent of consolidated investments. The securities are diversified between municipal bonds and asset-backed securities with well diversified collateral pools. The Company held investment-grade securities issued by financial guarantors totaling $8.3 million in amortized cost at March 31, 2010 and December 31, 2009.
The Company does not invest in the common equity securities of Fannie Mae and Freddie Mac, both government sponsored entities; however, as of March 31, 2010 and December 31, 2009, the Company held in its general portfolio $41.0 million, amortized cost in direct exposure in the form of senior unsecured agency and preferred securities. Additionally, as of March 31, 2010 and December 31, 2009, the portfolios held by the Company’s ceding companies that support its funds withheld asset contain approximately $527.2 million and $543.6 million, respectively, in amortized cost of unsecured agency bond holdings and no equity exposure. As of March 31, 2010 and December 31, 2009, indirect exposure in the form of secured, structured mortgaged securities issued by Fannie Mae and Freddie Mac totaled approximately $0.8 billion and $0.9 billion, respectively, in amortized cost across the Company’s general and funds withheld portfolios. Including the funds withheld portfolios, the Company’s direct holdings in the form of preferred securities had a total book value of $0.7 million at March 31, 2010 and December 31, 2009, respectively.
The Company monitors its fixed maturity securities and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market conditions and industry sector, current intent and ability to hold securities and various other subjective factors. Based on management’s judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. The Company recorded $6.3 million and $41.5 million in other-than-temporary investment impairments in the first quarter of 2010 and 2009, respectively. The other-than-temporary impairment losses on Subprime / Alt-A / Other structured securities recognized in earnings of $4.5

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million in 2010 are primarily due to a decline in value of structured securities with exposure to commercial mortgages. The impairments in 2009 were due primarily to the turmoil in the U.S. and global financial markets which has resulted in bankruptcies, credit defaults, consolidations and government interventions. The table below summarizes other-than-temporary impairments for the first quarter of 2010 and 2009 (dollars in thousands).
                 
    Three Months Ended  
Asset Class   March 31, 2010     March 31, 2009  
Subprime / Alt-A / Other structured securities
  $ 4,502     $ 20,609  
Corporate / Other fixed maturity securities
    585       13,785  
Equity securities
    21       5,431  
Other
    1,230       1,697  
 
           
Total
  $ 6,338     $ 41,522  
 
           
During the three months ended March 31, 2010 and 2009, the Company sold fixed maturity securities and equity securities with fair values of $240.1 million and $108.4 million at losses of $8.5 million and $19.6 million, respectively, or at 96.6% and 84.7% of amortized cost, respectively.
At March 31, 2010 and December 31, 2009, the Company had $470.7 million and $584.9 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. These securities are concentrated, calculated as a percentage of gross unrealized losses, as follows:
                 
    March 31,     December 31,  
    2010     2009  
Sector:
               
U.S. corporate securities
    25 %     26 %
Canadian and Canada provincial governments
    5       4  
Residential mortgage-backed securities
    14       12  
Foreign corporate securities
    5       7  
Asset-backed securities
    15       14  
Commercial mortgage-backed securities
    30       29  
State and political subdivisions
    3       3  
U.S. government and agencies
    1       3  
Other foreign government securities
    2       2  
 
           
Total
    100 %     100 %
 
           
 
               
Industry:
               
Finance
    20 %     25 %
Asset-backed
    15       13  
Industrial
    8       7  
Mortgage-backed
    44       41  
Government
    11       12  
Utility
    2       2  
 
           
Total
    100 %     100 %
 
           
The following table presents total gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,167 and 1,316 fixed maturity securities and equity securities as of March 31, 2010 and December 31, 2009, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
                                                 
    March 31, 2010     December 31, 2009  
            Gross                     Gross        
    Number of     Unrealized             Number of     Unrealized        
    Securities     Losses     % of Total     Securities     Losses     % of Total  
Less than 20%
    1,024     $ 203,624       43.3 %     1,112     $ 254,075       43.4 %
20% or more for less than six months
    24       61,413       13.0       38       69,322       11.9  
20% or more for six months or greater
    119       205,667       43.7       166       261,483       44.7  
 
                                   
Total
    1,167     $ 470,704       100.0 %     1,316     $ 584,880       100.0 %
 
                                   

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As of March 31, 2010 and December 31, 2009, respectively, 64.5% and 71.4% of these securities were investment grade and 43.3% and 43.4% had fair values that were less than 20% below cost. The amount of the unrealized loss on these securities was primarily attributable to a widening of credit default spreads, since the time securities were purchased.
While all of these securities are monitored for potential impairment, the Company believes due to fluctuating market conditions and liquidity concerns, and the relatively high levels of price volatility, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to an issuer. The Company’s determination of whether a decline in value is other-than-temporary involves the Company’s analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as a potential indicator of credit deterioration.
The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for the 1,167 and 1,316 fixed maturity securities and equity securities that have estimated fair values below amortized cost as of March 31, 2010 and December 31, 2009, respectively(dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related market value has remained below amortized cost.
                                                 
    Less than 12 months     12 months or greater     Total  
            Gross             Gross             Gross  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
March 31, 2010:   Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Investment grade securities:
                                               
U.S. corporate securities
  $ 507,724     $ 28,141     $ 498,597     $ 60,018     $ 1,006,321     $ 88,159  
Canadian and Canadian provincial governments
    482,084       12,395       150,267       10,838       632,351       23,233  
Residential mortgage-backed securities
    464,045       22,821       162,036       15,268       626,081       38,089  
Foreign corporate securities
    362,369       1,646       212,686       18,818       575,055       20,464  
Asset-backed securities
    20,808       24       135,204       44,549       156,012       44,573  
Commercial mortgage-backed securities
    85,112       7,873       263,683       48,237       348,795       56,110  
U.S. government and agencies
    375,085       6,710                   375,085       6,710  
State and political subdivisions
    29,277       1,860       50,302       8,909       79,579       10,769  
Other foreign government securities
    229,374       4,683       68,072       5,394       297,446       10,077  
 
                                   
Total investment grade securities
    2,555,878       86,153       1,540,847       212,031       4,096,725       298,184  
 
                                   
 
                                               
Non-investment grade securities:
                                               
U.S. corporate securities
    12,292       8,243       151,348       15,190       163,640       23,433  
Asset-backed securities
    8,161       3,953       33,548       21,958       41,709       25,911  
Foreign corporate securities
                635       3,355       635       3,355  
Residential mortgage-backed securities
    11,430       1,307       73,570       26,124       85,000       27,431  
Commercial mortgage-backed securities
                55,656       83,099       55,656       83,099  
State and political subdivisions
                6,730       1,366       6,730       1,366  
 
                                   
Total non-investment grade securities
    31,883       13,503       321,487       151,092       353,370       164,595  
 
                                   
Total fixed maturity securities
  $ 2,587,761     $ 99,656     $ 1,862,334     $ 363,123     $ 4,450,095     $ 462,779  
 
                                   
 
                                               
Non-redeemable preferred stock
  $ 19,547     $ 499     $ 46,903     $ 6,934     $ 66,450     $ 7,433  
Other equity securities
    625             7,658       492       8,283       492  
 
                                   
Total equity securities
  $ 20,172     $ 499     $ 54,561     $ 7,426     $ 74,733     $ 7,925  
 
                                   
 
                                               
Total number of securities in an unrealized loss position
    539               628               1,167          
 
                                         

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    Less than 12 months     12 months or greater     Total  
            Gross             Gross             Gross  
    Estimated     Unrealized     Estimated     Unrealized     Estimated     Unrealized  
December 31, 2009:   Fair Value     Losses     Fair Value     Losses     Fair Value     Losses  
Investment grade securities:
                                               
U.S. corporate securities
  $ 373,049     $ 27,625     $ 679,908     $ 89,711     $ 1,052,957     $ 117,336  
Canadian and Canadian provincial governments
    494,718       15,374       135,315       10,372       630,033       25,746  
Residential mortgage-backed securities
    402,642       23,671       197,320       20,185       599,962       43,856  
Foreign corporate securities
    362,406       5,262       182,300       24,693       544,706       29,955  
Asset-backed securities
    48,651       1,927       166,603       57,262       215,254       59,189  
Commercial mortgage-backed securities
    177,360       10,312       425,793       79,297       603,153       89,609  
U.S. government and agencies
    496,514       15,027                   496,514       15,027  
State and political subdivisions
    34,612       3,397       40,945       11,437       75,557       14,834  
Other foreign government securities
    240,216       8,370       30,321       4,901       270,537       13,271  
 
                                   
Total investment grade securities
    2,630,168       110,965       1,858,505       297,858       4,488,673       408,823  
 
                                   
 
                                               
Non-investment grade securities:
                                               
U.S. corporate securities
    35,477       11,293       168,375       18,755       203,852       30,048  
Asset-backed securities
    6,738       3,256       24,408       17,686       31,146       20,942  
Foreign corporate securities
    1,755       17       3,771       3,426       5,526       3,443  
Residential mortgage-backed securities
    10,657       1,909       66,756       24,250       77,413       26,159  
Commercial mortgage-backed securities
                57,179