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

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-33808

SYMETRA FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		20-0978027
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

777 108th Avenue NE, Suite 1200
Bellevue, Washington 98004
(Address of principal executive offices, including zip code)

(425) 256-8000
(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 o  No þ

     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):

     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 May 12, 2010, the Registrant had 118,086,019 common voting shares outstanding, with a par value of $0.01 per share.

 

 

TABLE OF CONTENTS

				Page
PART I — FINANCIAL INFORMATION
Item 1:		Financial Statements:
		Consolidated Balance Sheets			3
		Consolidated Statements of Income			4
		Consolidated Statements of Stockholders’ Equity			5
		Consolidated Statements of Cash Flows			6
		Condensed Notes to Consolidated Financial Statements			7
Item 2:		Management’s Discussion and Analysis of Financial Condition and Results of Operations			24
Item 3:		Quantitative and Qualitative Disclosures about Market Risk			54
Item 4:		Controls and Procedures			55
PART II — OTHER INFORMATION
Item 1:		Legal Proceedings			56
Item 1A:		Risk Factors			56
Item 2:		Unregistered Sales of Equity Securities and Use of Proceeds			56
Item 6:		Exhibits			57
Signatures					58
EX-10.14
EX-10.21
EX-10.22
EX-10.23
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-99.01

Forward-Looking Statements

          This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of current or historical facts included or referenced in this report that address activities, events or developments that we expect or anticipate will or may occur in the future, are forward-looking statements. The words “will,” “believe,” “intend,” “plan,” “expect,” “anticipate,” “project,” “estimate,” “predict” and similar expressions also are intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to Symetra Financial Corporation’s:

	•		estimates or projections of revenues, net income, net income per share, adjusted operating income, adjusted operating income per share, market share or other financial forecasts;
	•		trends in operations, financial performance and financial condition;
	•		financial and operating targets or plans; and
	•		business and growth strategy.

          These statements are based on certain assumptions and analyses made by Symetra in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate under the circumstances. Whether actual results and developments will conform to Symetra’s expectations and predictions is subject to a number of risks, uncertainties and contingencies that could cause actual results to differ materially from expectations, including, among others:

	•		general economic, market or business conditions, including further economic downturns or other adverse conditions in the global and domestic capital and credit markets;
	•		the availability of capital and financing;
	•		potential investment losses;
	•		the effects of fluctuations in interest rates;
	•		recorded reserves for future policy benefits and claims subsequently proving to be inadequate or inaccurate;
	•		deviations from assumptions used in setting prices for insurance and annuity products;
	•		market pricing and competitive trends related to insurance products and services;
	•		changes in amortization of deferred policy acquisition costs;
	•		financial strength or credit ratings downgrades;
	•		the continued availability and cost of reinsurance coverage;
	•		changes in laws or regulations, or their interpretation, including those that could increase Symetra’s business costs and required capital levels;
	•		the ability of subsidiaries to pay dividends to Symetra;
	•		the effects of implementation of the Patient Protection and Affordable Care Act; and
	•		the risks that are described in Item 1A—“Risk Factors” in this report and Symetra’s 2009 Annual Report on Form 10-K.

          Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Symetra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Symetra or its business or operations. Symetra assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

PART I — Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

		As of				As of
		March 31, 2010				December 31, 2009
		(In millions, except share and per share data)
		(Unaudited)
ASSETS
Investments:
Available-for-sale securities:
Fixed maturities, at fair value (cost: $18,978.4 and $18,553.7, respectively)		$	19,390.6			$	18,594.3
Marketable equity securities, at fair value (cost: $52.6 and $52.6, respectively)			37.6				36.7
Trading securities:
Marketable equity securities, at fair value (cost: $158.3 and $165.9, respectively)			151.0				154.1
Mortgage loans, net			1,228.0				1,201.7
Policy loans			73.4				73.9
Short-term investments			54.0				2.1
Investments in limited partnerships (includes $25.2 and $24.7 measured at fair value, respectively)			130.6				110.2
Other invested assets			9.1				10.1
Total investments			21,074.3				20,183.1
Cash and cash equivalents			389.3				257.8
Accrued investment income			247.5				237.2
Accounts receivable and other receivables			97.1				70.1
Reinsurance recoverables			277.9				276.6
Deferred policy acquisition costs			227.5				250.4
Goodwill			26.8				26.3
Current income taxes recoverable			19.6				20.2
Deferred income tax assets, net			69.1				191.2
Other assets			80.5				84.5
Separate account assets			854.1				840.1
Total assets		$	23,363.7			$	22,437.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Funds held under deposit contracts		$	19,222.9			$	18,816.7
Future policy benefits			395.8				394.9
Policy and contract claims			120.6				125.6
Unearned premiums			14.5				12.1
Other policyholders’ funds			108.6				113.8
Notes payable			448.9				448.9
Other liabilities			226.6				252.1
Separate account liabilities			854.1				840.1
Total liabilities			21,392.0				21,004.2
Commitments and contingencies (Note 9)
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 750,000,000 shares authorized; 118,086,019 and 92,729,455 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively			1.2				0.9
Additional paid-in capital			1,448.3				1,165.7
Retained earnings			362.7				316.4
Accumulated other comprehensive income (loss), net of taxes			159.5				(49.7	)
Total stockholders’ equity			1,971.7				1,433.3
Total liabilities and stockholders’ equity		$	23,363.7			$	22,437.5

See accompanying notes.

CONSOLIDATED STATEMENTS OF INCOME

		For the Three Months Ended
		March 31,
		2010				2009
		(In millions, except per share data)
		(Unaudited)				(Unaudited)
Revenues:
Premiums		$	119.0			$	119.5
Net investment income			286.9				262.7
Policy fees, contract charges, and other			40.5				39.6
Net realized investment gains (losses):
Total other-than-temporary impairment losses on securities			(17.9	)			(51.6	)
Less: portion of losses recognized in other comprehensive income (loss)			8.2				23.8
Net impairment losses recognized in earnings			(9.7	)			(27.8	)
Other net realized investment gains (losses)			16.5				(15.2	)
Total net realized investment gains (losses)			6.8				(43.0	)
Total revenues			453.2				378.8
Benefits and expenses:
Policyholder benefits and claims			86.2				94.4
Interest credited			218.5				195.6
Other underwriting and operating expenses			59.6				63.0
Interest expense			8.0				7.9
Amortization of deferred policy acquisition costs			15.4				10.7
Total benefits and expenses			387.7				371.6
Income from operations before income taxes			65.5				7.2
Provision for income taxes:
Current			9.9				1.9
Deferred			9.3				0.2
Total provision for income taxes			19.2				2.1
Net income		$	46.3			$	5.1
Net income per common share:
Basic		$	0.35			$	0.05
Diluted		$	0.35			$	0.05
Weighted-average number of common shares outstanding:
Basic			131.018				111.622
Diluted			131.038				111.622

See accompanying notes.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

														Accumulated
						Additional								Other				Total
		Common				Paid-in				Retained				Comprehensive				Stockholders’
		Stock				Capital				Earnings				Income (Loss)				Equity
		(In millions)
		(Unaudited)
Balances as of January 1, 2009		$	0.9			$	1,165.5			$	172.4			$	(1,052.6	)		$	286.2
Cumulative effect adjustment — new accounting guidance (net of taxes: $(8.4))			—				—				15.7				(15.7	)			—
Comprehensive loss, net of taxes:
Net income			—				—				5.1				—				5.1
Other comprehensive loss (net of taxes: $(49.9))			—				—				—				(92.8	)			(92.8	)
Total comprehensive loss, net of taxes																			(87.7	)
Balances as of March 31, 2009		$	0.9			$	1,165.5			$	193.2			$	(1,161.1	)		$	198.5
Balances as of January 1, 2010		$	0.9			$	1,165.7			$	316.4			$	(49.7	)		$	1,433.3
Common stock issued (net of issuance costs: $20.4)			0.3				282.4				—				—				282.7
Comprehensive income, net of taxes:
Net income			—				—				46.3				—				46.3
Other comprehensive income (net of taxes: $112.7)			—				—				—				209.2				209.2
Total comprehensive income, net of taxes																			255.5
Stock-based compensation			—				0.2				—				—				0.2
Balances as of March 31, 2010		$	1.2			$	1,448.3			$	362.7			$	159.5			$	1,971.7

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Three Months Ended
		March 31,
		2010				2009
		(In millions)
		(Unaudited)				(Unaudited)
Cash flows from operating activities
Net income		$	46.3			$	5.1
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment (gains) and losses			(6.8	)			43.0
Accretion and amortization of invested assets, net			8.8				5.4
Accrued interest on bonds			(11.5	)			(8.2	)
Amortization and depreciation			4.2				3.3
Deferred income tax provision			9.3				0.2
Interest credited on deposit contracts			218.5				195.6
Mortality and expense charges and administrative fees			(25.4	)			(25.1	)
Changes in:
Accrued investment income			(10.3	)			(17.7	)
Deferred policy acquisition costs, net			(14.1	)			(48.1	)
Other receivables			0.2				2.0
Future policy benefits			0.9				(0.1	)
Policy and contract claims			(5.0	)			(8.6	)
Current income taxes recoverable			0.6				2.2
Other assets and liabilities			(6.3	)			19.4
Other, net			0.2				(0.2	)
Total adjustments			163.3				163.1
Net cash provided by operating activities			209.6				168.2
Cash flows from investing activities
Purchases of:
Fixed maturities and marketable equity securities			(1,024.8	)			(1,305.3	)
Other invested assets and investments in limited partnerships			(8.9	)			(2.4	)
Issuances of mortgage loans			(45.8	)			(39.0	)
Issuances of policy loans			(4.7	)			(5.2	)
Maturities, calls, paydowns, and other			387.5				308.6
Securities lending collateral returned, net			—				10.4
Sales of:
Fixed maturities and marketable equity securities			176.4				29.7
Other invested assets and investments in limited partnerships			4.9				0.5
Repayments of mortgage loans			18.8				17.2
Repayments of policy loans			4.8				5.3
Net (increase) decrease in short-term investments			(51.9	)			2.8
Purchases of property, equipment, and leasehold improvements			(0.4	)			(0.3	)
Net cash used in investing activities			(544.1	)			(977.7	)
Cash flows from financing activities
Policyholder account balances:
Deposits		$	495.3			$	1,016.9
Withdrawals			(295.2	)			(301.8	)
Securities lending collateral paid, net			—				(10.4	)
Proceeds from issuance of common stock			282.7				—
Other, net			(16.8	)			(42.6	)
Net cash provided by financing activities			466.0				662.1
Net increase (decrease) in cash and cash equivalents			131.5				(147.4	)
Cash and cash equivalents at beginning of period			257.8				468.0
Cash and cash equivalents at end of period		$	389.3			$	320.6
Supplemental disclosures of cash flow information
Non-cash transactions during the period:
Investments in limited partnerships and capital obligations incurred			18.6				1.0
Bond exchanges			6.0				21.7

See accompanying notes.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

1. Description of Business

          Symetra Financial Corporation is a Delaware corporation that, through its subsidiaries, offers group and individual insurance products and retirement products, including annuities marketed through benefits consultants, financial institutions and independent agents and advisors in all states and the District of Columbia. The Company’s principal products include medical stop-loss insurance, fixed and variable deferred annuities, single premium immediate annuities and individual life insurance. The accompanying interim financial statements include, on a consolidated basis, the accounts of Symetra Financial Corporation and its subsidiaries, which are collectively referred to as “Symetra Financial” or “the Company.”

          On January 27, 2010, the Company completed an initial public offering (IPO) of its common stock at an offering price of $12.00 per share. The IPO included 25.260 newly issued shares of common stock sold by the Company, and 9.700 existing shares of common stock sold by selling stockholders. The Company received net proceeds from the offering of $282.5. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

2. Summary of Significant Accounting Policies

     Basis of Presentation and Use of Estimates

          The interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP), including the rules and regulations of the Securities and Exchange Commission (SEC), for interim reporting. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that may affect the amounts reported in the interim consolidated financial statements and accompanying notes. These interim consolidated financial statements are unaudited but in management’s opinion include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation.

          The interim consolidated financial statements include the accounts of Symetra Financial Corporation and its subsidiaries that are wholly owned, directly or indirectly. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior year financial information to conform to the current period presentation. For the three months ended March 31, 2009, this included a $26.0 reclassification of cost of insurance charges on universal life-type contracts from premium revenues to policy fees, contract charges and other revenues on the consolidated statements of income. This reclassification did not change total revenues or amounts previously reported as other revenues that are now included in policy fees, contract charges and other.

          The consolidated balance sheet as of December 31, 2009 was derived from audited consolidated financial statements as of that date but certain information and footnotes required by GAAP for complete financial statements have been excluded. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC. Operating results for the three-month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the twelve months ended December 31, 2010.

          During the first quarter of 2010, the Company revised its estimate for bonus interest reserves on one of its universal life products. This bonus interest is not earned by the contractholder if the policy’s credited rate is equal to the guaranteed minimum. Due to the negative impact the low interest rate environment has had on investment yields, the credited interest rate is being adjusted downward to the guaranteed minimum rate over the next year. As a result, for the three months ended March 31, 2010, income from operations before income taxes increased $7.4. The impact on net income for the period was $4.8, or $0.03 per share of common stock.

     Adoption of New Accounting Pronouncements

     ASC 810-10 (formerly SFAS No. 167), Amendments to FASB Interpretation No. 46(R)

          In June 2009, the FASB issued SFAS No. 167 (ASC 810-10), Amendments to FASB Interpretation No. 46(R), which provides guidance for determining whether an entity is a variable interest entity (VIE); assessing which enterprise, if any, has a controlling financial interest in a VIE; and providing additional disclosures about involvement in such entities. This guidance changed the basis for determining the primary beneficiary of a VIE from a quantitative analysis to a primarily qualitative analysis and requires

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

reassessment of this determination at each reporting period. The Company adopted this guidance on January 1, 2010, and adoption of this guidance did not change the Company’s previous conclusions regarding its VIEs, which consist of its investments in limited partnerships.

          Based on the analysis of its investments in VIEs, the Company does not meet the definition of “primary beneficiary” of any of these VIEs as it lacks the power to direct the activities of its VIEs, and therefore has not consolidated these entities. The maximum exposure to loss as a result of the Company’s involvement in its VIEs, which includes unfunded commitments, was $170.3 and $147.3 as of March 31, 2010 and December 31, 2009, respectively.

     ASU 2010-6, Improving Disclosures about Fair Value Measurement

          In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurement. The guidance in this ASU requires additional disclosures about an entity’s fair value measurements, including information about inputs to Level 2 measurements, gross transfers into and out of Levels 1 and 2, and information about activity for Level 3 measurements on a gross basis. It also clarifies the level of disaggregation required for existing fair value disclosures. The Company adopted this guidance on January 1, 2010, except for the provisions regarding activity for Level 3 measurements presented on a gross basis, which will be adopted on January 1, 2011, as provided for in the guidance. See Note 5 for the Company’s disclosures related to fair value measurements.

     Accounting Pronouncements Not Yet Adopted

     ASU 2010-15, How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments

          In April 2010, the FASB issued ASU 2010-15, How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments. The guidance in this ASU clarifies that an insurer should only consider its ownership interests held within its general account when determining if an entity holds a controlling interest, and thus, excluding interests held in a separate account. It does not change the guidance for consolidating investments when the general account holds a controlling interest. The Company will adopt this guidance on January 1, 2011, which will not change the Company’s current practice of excluding ownership interests held in its separate account from its consolidation analysis.

3. Earnings Per Share

          Basic earnings per share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period, adjusted for the potential issuance of common stock, if dilutive.

          The outstanding warrants, exercisable for 18.976 common shares, are considered participating securities or potential common stock securities that are included in weighted-average common shares outstanding for purposes of computing basic earnings per share using the two-class method. The warrants are considered participating securities or potential common stock securities because the terms of the agreements entitle the holders to receive any dividends declared on the common stock concurrently with the holders of outstanding shares of common stock, on a one-to-one basis.

          The Company has issued restricted stock to certain employees, which are subject to service vesting conditions. These shares are included in the computation of earnings per share, weighted for the portion of the period the shares were outstanding. Certain of the restricted shares are considered participating securities because the terms of the agreements entitle the holders to receive any dividends declared on the common stock concurrently with the holders of outstanding shares of common stock, on a one-to-one basis. Participating restricted stock is included in basic and diluted earnings per share based on the application of the two-class method. Non-participating restricted stock is included in diluted earnings per share based on application of the treasury stock method.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The following table presents information relating to the Company’s calculations of basic and diluted earnings per share:

		For the Three Months Ended
		March 31,
		2010				2009
Numerator:
Net income, as reported		$	46.3			$	5.1
Denominator:
Weighted-average common shares outstanding — basic			131.018				111.622
Add: Dilutive effect of restricted stock			0.020				—
Weighted-average common shares outstanding — diluted			131.038				111.622
Net income per common share:
Basic		$	0.35			$	0.05
Diluted		$	0.35			$	0.05

4. Investments

          The following tables summarize the Company’s available-for-sale fixed maturities and marketable equity securities. The other-than-temporary impairments (OTTI) in accumulated other comprehensive income (loss) (AOCI) represent the amount of cumulative non-credit OTTI losses transferred to, or recorded in, AOCI for securities that also had a credit-related impairment.

		Cost or				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair				OTTI in
		Cost				Gains				Losses				Value				AOCI
As of March 31, 2010
Fixed maturities:
U.S. government and agencies		$	41.6			$	2.5			$	—			$	44.1			$	(0.1	)
State and political subdivisions			516.5				3.5				(30.1	)			489.9				(0.6	)
Corporate securities			12,863.4				597.8				(262.4	)			13,198.8				(26.3	)
Residential mortgage-backed securities			3,607.8				120.4				(78.9	)			3,649.3				(44.5	)
Commercial mortgage-backed securities			1,711.9				79.0				(16.1	)			1,774.8				(3.9	)
Other debt obligations(1)			237.2				13.3				(16.8	)			233.7				(3.8	)
Total fixed maturities			18,978.4				816.5				(404.3	)			19,390.6				(79.2	)
Marketable equity securities, available-for-sale			52.6				0.1				(15.1	)			37.6				—
Total		$	19,031.0			$	816.6			$	(419.4	)		$	19,428.2			$	(79.2	)

		Cost or				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair				OTTI in
		Cost					Gains			Losses				Value				AOCI
As of December 31, 2009
Fixed maturities:
U.S. government and agencies		$	41.6			$	2.4			$	(0.1	)		$	43.9			$	(0.1	)
State and political subdivisions			518.4				1.9				(37.3	)			483.0				(1.3	)
Corporate securities			12,454.8				487.5				(393.7	)			12,548.6				(32.8	)
Residential mortgage-backed securities			3,532.1				105.3				(101.0	)			3,536.4				(39.9	)
Commercial mortgage-backed securities			1,805.6				44.5				(60.7	)			1,789.4				(4.0	)
Other debt obligations(1)			201.2				9.4				(17.6	)			193.0				(3.8	)
Total fixed maturities			18,553.7				651.0				(610.4	)			18,594.3				(81.9	)
Marketable equity securities, available-for-sale			52.6				0.1				(16.0	)			36.7				—
Total		$	18,606.3			$	651.1			$	(626.4	)		$	18,631.0			$	(81.9	)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The following tables summarize gross unrealized losses and fair values of the Company’s available-for-sale investments. For fixed maturities, gross unrealized losses include the portion of OTTI recorded in AOCI. The tables are aggregated by investment category and present separately those securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.

		Less Than 12 Months												12 Months or More
						Gross												Gross
		Fair				Unrealized				# of				Fair				Unrealized				# of
		Value				Losses				Securities				Value				Losses				Securities
As of March 31, 2010
Fixed maturities:
State and political subdivisions		$	38.3			$	(0.9	)			10			$	307.0			$	(29.2	)			50
Corporate securities			1,347.3				(25.7	)			125				2,120.4				(236.7	)			227
Residential mortgage-backed securities			390.3				(3.3	)			26				376.3				(75.6	)			60
Commercial mortgage-backed securities			42.4				(0.5	)			11				269.3				(15.6	)			33
Other debt obligations			—				—				—				28.5				(16.8	)			8
Total fixed maturities		$	1,818.3			$	(30.4	)			172			$	3,101.5			$	(373.9	)			378
Marketable equity securities, available-for-sale			—				—				—				37.1				(15.1	)			5
Total		$	1,818.3			$	(30.4	)			172			$	3,138.6			$	(389.0	)			383

		Less Than 12 Months												12 Months or More
						Gross												Gross
		Fair				Unrealized				# of				Fair				Unrealized				# of
		Value				Losses				Securities				Value				Losses				Securities
As of December 31, 2009
Fixed maturities:
U.S. government and agencies		$	2.2			$	(0.1	)			1			$	—			$	—				—
State and political subdivisions			67.7				(1.9	)			18				299.7				(35.4	)			49
Corporate securities			1,404.0				(33.4	)			151				2,504.0				(360.3	)			291
Residential mortgage-backed securities			579.9				(9.4	)			30				404.6				(91.6	)			65
Commercial mortgage-backed securities			94.9				(1.4	)			11				622.8				(59.3	)			44
Other debt obligations			11.4				(0.2	)			3				28.2				(17.4	)			8
Total fixed maturities		$	2,160.1			$	(46.4	)			214			$	3,859.3			$	(564.0	)			457
Marketable equity securities, available-for-sale			—				—				—				36.3				(16.0	)			5
Total		$	2,160.1			$	(46.4	)			214			$	3,895.6			$	(580.0	)			462

          Based on National Association of Insurance Commissioners (NAIC) ratings, as of March 31, 2010 and December 31, 2009, the Company held below-investment-grade fixed maturities with fair values of $1,080.1 and $1,032.1, respectively, and amortized costs of $1,169.3 and $1,165.1. These holdings amounted to 5.6% of the Company’s investments in fixed maturities at fair value as of both March 31, 2010 and December 31, 2009.

          The following table summarizes the amortized cost and fair value of fixed maturities as of March 31, 2010, by contractual years to maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

		Cost or
		Amortized				Fair
		Cost				Value
One year or less		$	688.7			$	701.1
Over one year through five years			3,010.3				3,177.4
Over five years through ten years			4,563.7				4,790.9
Over ten years			5,225.5				5,122.4
Residential mortgage-backed securities			3,607.8				3,649.3
Commercial mortgage-backed securities			1,711.9				1,774.8
Other asset-backed securities			170.5				174.7
Total fixed maturities		$	18,978.4			$	19,390.6

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The following table summarizes the Company’s net investment income:

		For the Three Months Ended
		March 31,
		2010				2009
Fixed maturities		$	271.0			$	250.8
Marketable equity securities, available-for-sale			0.6				0.4
Marketable equity securities, trading			0.7				0.6
Mortgage loans			18.8				16.0
Policy loans			1.1				1.1
Investments in limited partnerships			(1.2	)			(1.5	)
Other			1.1				0.2
Total investment income			292.1				267.6
Investment expenses			(5.2	)			(4.9	)
Net investment income		$	286.9			$	262.7

          The following table summarizes the Company’s net realized investment gains (losses):

		For the Three Months Ended
		March 31,
		2010				2009
Fixed maturities:
Gross gains on sales		$	10.4			$	0.5
Gross losses on sales			(1.1	)			(0.6	)
Other-than-temporary impairments			(9.7	)			(27.8	)
Other(1)			2.3				(4.3	)
Total fixed maturities			1.9				(32.2	)
Marketable equity securities, trading(2)			7.6				(15.3	)
Other invested assets			(1.4	)			(1.6	)
Deferred policy acquisition costs adjustment			(1.3	)			6.1
Net realized investment gains (losses)		$	6.8			$	(43.0	)

     Other-Than-Temporary Impairments

          The Company’s review of investment securities for OTTI includes both quantitative and qualitative criteria. Quantitative criteria include the length of time and amount that each security is in an unrealized loss position (i.e., is underwater) and, for fixed maturities, whether expected future cash flows indicate a credit loss exists.

          While all securities are monitored for impairment, the Company’s experience indicates that securities for which the cost or amortized cost exceeds fair value by less than 20% do not represent a significant risk of impairment and, often, fair values recover over time as the factors that caused the declines improve. If the estimated fair value has declined and remained below cost or amortized cost by 20% or more, the Company further analyzes the decrease in fair value to determine whether it is an other-than-temporary decline in value. To make this determination for each security, the Company considers, among other factors:

	•		Extent and duration of the decline in fair value below cost or amortized cost;
	•		The financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations, earnings potential or compliance with terms and covenants of the security;
	•		Changes in the financial condition of the security’s underlying collateral;
	•		Any downgrades of the security by a rating agency;

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

	•		Any reduction or elimination of dividends or nonpayment of scheduled interest payments;
	•		Other indications that a credit loss has occurred; and
	•		The Company’s intent to sell a fixed maturity or whether it is more likely than not the Company will be required to sell the fixed maturity prior to recovery of its amortized cost, considering any regulatory developments and the Company’s liquidity needs.

          For fixed maturities, if the Company determines that the present value of the cash flows expected to be collected is less than the amortized cost of the security (i.e., a credit loss exists), the Company concludes that an OTTI has occurred. In order to determine the amount of the credit loss, the Company calculates the recovery value by performing a discounted cash flow analysis based on the current expectations of future cash flows it expects to recover. The discount rate is the effective interest rate implicit in the underlying fixed maturity. The effective interest rate is the original yield for corporate securities, or current yield for mortgage-backed securities.

     Determination of Credit Losses on Corporate Securities

          To determine the recovery value, credit loss and intent to sell for a corporate security, the Company performs an analysis related to the underlying issuer including, but not limited to, the following:

	•		Fundamentals of the issuer to determine what the Company would recover if the issuer were to file bankruptcy versus the price at which the market is trading;
	•		Fundamentals of the industry in which the issuer operates;
	•		Earnings multiples for the given industry or sector of the industry that the underlying issuer operates within, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation;
	•		Expected cash flows of the issuer;
	•		Expectations regarding defaults and recovery rates;
	•		Changes to the rating of the security by a rating agency; and
	•		Additional market information.

     Determination of Credit Losses on Mortgage-backed Securities

          To determine the recovery value, credit loss and intent to sell for a mortgage-backed security, including residential, commercial and other asset-backed securities, the Company performs an analysis related to the underlying issuer including, but not limited to, the following:

	•		Discounted cash flow analysis based on the current and future cash flows the Company expects to recover;
	•		Level of creditworthiness;
	•		Delinquency ratios and loan-to-value ratios;
	•		Average cumulative collateral loss, vintage year and level of subordination;
	•		Susceptibility to fair value fluctuations due to changes in the interest rate environment;
	•		Susceptibility to reinvestment risk in cases where market yields are lower than the book yield earned;
	•		Susceptibility to reinvestment risk in cases where market yields are higher than the book yields earned and the Company’s expectation of the sale of such security; and
	•		Susceptibility to variability of prepayments.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The following table presents the severity and duration of the gross unrealized losses on the Company’s underwater available-for-sale securities:

		As of March 31, 2010								As of December 31, 2009
						Gross								Gross
		Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses
Fixed maturities
Underwater by 20% or more:
Less than 6 consecutive months		$	71.5			$	(19.4	)		$	103.4			$	(28.4	)
6 consecutive months or more			309.8				(131.9	)			517.9				(229.5	)
Total underwater by 20% or more			381.3				(151.3	)			621.3				(257.9	)
All other underwater fixed maturities			4,538.5				(253.0	)			5,398.1				(352.5	)
Total underwater fixed maturities		$	4,919.8			$	(404.3	)		$	6,019.4			$	(610.4	)
Marketable equity securities, available-for-sale
Underwater by 20% or more:
6 consecutive months or more		$	16.3			$	(10.2	)		$	35.6			$	(15.9	)
Total underwater by 20% or more			16.3				(10.2	)			35.6				(15.9	)
All other underwater marketable equity securities, available-for-sale			20.8				(4.9	)			0.7				(0.1	)
Total underwater marketable equity securities, available-for-sale		$	37.1			$	(15.1	)		$	36.3			$	(16.0	)

          As of March 31, 2010, $70.3, or 53.3%, of the gross unrealized losses on fixed maturities in an unrealized loss position by 20% or more for a period of six months or more were investment-grade securities. Unrealized losses on investment-grade securities are principally related to changes in interest rates or changes in the issuer and the sector-related credit spreads since the securities were acquired.

          The Company reviewed its investments in fixed maturities with unrealized losses as of March 31, 2010 in accordance with its impairment policy. The Company’s evaluation determined, after the recognition of other-than-temporary impairments, that the remaining declines in fair value were temporary, as it did not intend to sell these fixed maturities and it was not more likely than not that it will be required to sell the fixed maturities before recovery of amortized cost. This conclusion is supported by the Company’s spread analysis, cash flow modeling and expected continuation of contractually required principal and interest payments.

          As of March 31, 2010, the Company did not intend to sell its underwater available-for-sale marketable equity securities, primarily consisting of non-redeemable preferred stock, and it had the intent and ability to hold them until recovery. Based on this analysis, including an evaluation of the near term prospects of the issuer, the Company concluded that the declines in fair value of these securities were temporary.

          Changes in the amount of credit-related OTTI recognized in net income where the portion related to other factors was recognized in other comprehensive income (loss) were as follows:

		For the Three Months Ended
		March 31,
		2010				2009
Balance, beginning of period		$	69.6			$	73.0
Increases recognized in the current period:
For which an OTTI was not previously recognized			6.0				10.2
For which an OTTI was previously recognized			1.5				8.4
Decreases attributable to:
Securities sold or paid down during the period			(7.6	)			(0.1	)
Previously recognized credit losses on securities impaired during the period due to a change in intent to sell(1)			—				(5.4	)
Balance, end of period		$	69.5			$	86.1

5. Fair Value of Financial Instruments

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize its use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

          The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest-level input that is significant to the fair value measurement. The Company’s financial assets recorded at fair value on the consolidated balance sheets are categorized as follows:

	•		Level 1 — Unadjusted quoted prices in active markets for identical instruments. This level primarily consists of exchange-traded marketable equity securities and actively traded mutual fund investments.
	•		Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable. This level includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. All significant inputs are observable, derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the market place. Financial instruments in this category primarily include certain public and private corporate fixed maturities, government or agency securities and certain mortgage-backed securities.
	•		Level 3 — Instruments whose significant value drivers are unobservable. This comprises financial instruments for which fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on or corroborated by readily available market information. In limited circumstances, this category may also utilize non-binding broker quotes. This category primarily consists of certain less liquid fixed maturities, including corporate private placement securities, investments in private equity and hedge funds and trading securities where the Company cannot corroborate the significant valuation inputs with market observable data.

          The following tables present the financial instruments carried at fair value under the valuation hierarchy described above for assets accounted for at fair value on a recurring basis. The Company has no financial liabilities accounted for at fair value on a recurring basis:

		As of March 31, 2010
		Fair Value				Level 1				Level 2				Level 3				Level 3 Percent
Types of Investments
Fixed maturities, available-for-sale:
U.S. government and agencies		$	44.1			$	—			$	44.1			$	—				—
State and political subdivisions			489.9				—				482.5				7.4				0.0	%
Corporate securities			13,198.8				—				12,292.0				906.8				4.4
Residential mortgage-backed securities			3,649.3				—				3,388.5				260.8				1.3
Commercial mortgage-backed securities			1,774.8				—				1,751.7				23.1				0.1
Other debt obligations			233.7				—				222.9				10.8				0.1
Total fixed maturities, available-for-sale			19,390.6				—				18,181.7				1,208.9				5.9
Marketable equity securities, available-for-sale			37.6				35.8				—				1.8				0.0
Marketable equity securities, trading			151.0				150.5				—				0.5				0.0
Short-term investments			54.0				2.0				52.0				—				—
Investments in limited partnerships(1)			25.2				—				—				25.2				0.1
Other invested assets			3.8				—				—				3.8				0.0
Total investments			19,662.2				188.3				18,233.7				1,240.2				6.0
Separate account assets			854.1				854.1				—				—				—
Total		$	20,516.3			$	1,042.4			$	18,233.7			$	1,240.2				6.0	%

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

		As of December 31, 2009
		Fair Value				Level 1				Level 2				Level 3				Level 3 Percent
Types of Investments
Fixed maturities, available-for-sale:
U.S. government and agencies		$	43.9			$	—			$	43.9			$	—				—
State and political subdivisions			483.0				—				475.8				7.2				0.0	%
Corporate securities			12,548.6				—				11,657.4				891.2				4.5
Residential mortgage-backed securities			3,536.4				—				3,285.9				250.5				1.3
Commercial mortgage-backed securities			1,789.4				—				1,765.4				24.0				0.1
Other debt obligations			193.0				—				182.4				10.6				0.1
Total fixed maturities, available-for-sale			18,594.3				—				17,410.8				1,183.5				6.0
Marketable equity securities, available-for-sale			36.7				34.9				—				1.8				0.0
Marketable equity securities, trading			154.1				153.8				—				0.3				0.0
Short-term investments			2.1				2.1				—				—				—
Investments in limited partnerships(1)			24.7				—				—				24.7				0.2
Other invested assets			4.6				—				—				4.6				0.0
Total investments			18,816.5				190.8				17,410.8				1,214.9				6.2
Separate account assets			840.1				840.1				—				—				—
Total		$	19,656.6			$	1,030.9			$	17,410.8			$	1,214.9				6.2	%

     Fixed Maturities

          The vast majority of the Company’s fixed maturities have been classified as Level 2 measurements. To make this assessment, the Company determines whether the market for a security is active and if significant pricing inputs are observable. The Company predominantly utilizes third party independent pricing services to assist management in determining the fair value of its fixed maturity securities. As of March 31, 2010 and December 31, 2009, pricing services provided prices for 93.8% and 93.6% of the Company’s fixed maturities, respectively. Prices received from the pricing services are not adjusted and multiple prices for these securities are not obtained. The pricing services provide prices where observable inputs are available. If sufficient objectively verifiable information about a security’s valuation is not available, the pricing services will not provide a valuation for the security until they are able to obtain such information.

          The Company analyzes the prices received from the pricing services to ensure that they represent a reasonable estimate of fair value and to gain assurance on the overall reasonableness and consistent application of input assumptions, valuation methodologies and compliance with accounting standards for fair value determination. This analysis is performed through various processes including evaluation of pricing methodologies and inputs, analytical reviews of certain prices between reporting periods, and back-testing of selected sales activity to determine whether there are any significant differences between the market price used to value the security prior to sale and the actual sales prices.

          In situations where the Company is unable to obtain sufficient market-observable information upon which to estimate the fair value of a particular security, fair values are determined using internal pricing models that typically utilize significant, unobservable market inputs or inputs that are difficult to corroborate with observable market data. Such measurements are classified as Level 3, and typically include private placements and other securities that the pricing services are unable to price. As of March 31, 2010 and December 31, 2009, the Company had $914.1, or 4.7%, and $901.3, or 4.8%, of its fixed maturities invested in private placement securities, respectively. The use of significant unobservable inputs in determining the fair value of the Company’s investments in private placement securities resulted in the classification of $825.6, or 90.3%, and $819.8, or 91.0%, of these privately placed securities as Level 3 measurements, as of March 31, 2010 and December 31, 2009, respectively.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

     Corporate Securities

          As of March 31, 2010 and December 31, 2009, the fair value of the Company’s corporate securities classified as Level 2 measurements was $12,292.0 and $11,657.4, respectively. The following table presents additional information about the composition of the Level 2 corporate securities:

		As of												As of
		March 31, 2010												December 31, 2009
						%				# of								%				# of
		Amount				of Total				Securities				Amount				of Total				Securities
Significant Security Sectors:
Industrials		$	2,179.8				17.7	%			209			$	1,974.9				16.9	%			227
Utilities			1,838.5				15.0				196				1,771.6				15.2				216
Financials			1,807.8				14.7				231				1,760.2				15.1				286
Consumer staples			1,782.5				14.5				135				1,731.0				14.8				150
Weighted-average coupon rate			6.5	%											6.5	%
Weighted-average remaining years to contractual maturity			13.0												13.3