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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 June 30, 2010
OR
     
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
(State or other jurisdiction of
incorporation or organization)
  20-0978027
(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 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 þ
     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 o   Accelerated filer o   Non-accelerated filer þ (Do not check if a smaller reporting company)   Smaller reporting company o
     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 August 10, 2010, the Registrant had 118,175,040 common voting shares outstanding, with a par value of $0.01 per share.
 
 

 


 

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 EX-10.1
 EX-10.7
 EX-10.16
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2

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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 and a prolonged low interest rate environment;
 
    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;
 
    the effects of implementation of the Dodd-Frank Wall Street Reform and Consumer Protection 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.

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PART I — Financial Information
Item 1.   Financial Statements
CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)
                 
    As of     As of  
    June 30, 2010     December 31, 2009  
    (Unaudited)          
 
ASSETS
 
Investments:
               
Available-for-sale securities:
               
Fixed maturities, at fair value (cost: $19,618.7 and $18,553.7, respectively)
  $ 20,612.2     $ 18,594.3  
Marketable equity securities, at fair value (cost: $52.6 and $52.6, respectively)
    43.9       36.7  
Trading securities:
               
Marketable equity securities, at fair value (cost: $157.3 and $165.9, respectively)
    141.0       154.1  
Mortgage loans, net
    1,340.3       1,201.7  
Policy loans
    72.3       73.9  
Investments in limited partnerships (includes $32.1 and $24.7 measured at fair value, respectively)
    136.9       110.2  
Other invested assets
    12.0       12.2  
 
           
Total investments
    22,358.6       20,183.1  
Cash and cash equivalents
    322.7       257.8  
Accrued investment income
    251.6       237.2  
Accounts receivable and other receivables
    81.9       70.1  
Reinsurance recoverables
    277.3       276.6  
Deferred policy acquisition costs
    199.0       250.4  
Goodwill
    27.3       26.3  
Current income taxes recoverable
          20.2  
Deferred income tax assets, net
          191.2  
Other assets
    74.0       84.5  
Separate account assets
    759.0       840.1  
 
           
Total assets
  $ 24,351.4     $ 22,437.5  
 
           
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Funds held under deposit contracts
  $ 19,825.7     $ 18,816.7  
Future policy benefits
    397.0       394.9  
Policy and contract claims
    120.7       125.6  
Unearned premiums
    14.0       12.1  
Other policyholders’ funds
    99.5       113.8  
Notes payable
    449.0       448.9  
Deferred income tax liabilities, net
    112.0        
Other liabilities
    231.7       252.1  
Separate account liabilities
    759.0       840.1  
 
           
Total liabilities
    22,008.6       21,004.2  
Commitments and contingencies (Note 10)
               
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued
           
Common stock, $0.01 par value; 750,000,000 shares authorized; 118,222,920 issued and 118,175,040 outstanding as of June 30, 2010; 92,729,455 issued and outstanding as of December 31, 2009
    1.2       0.9  
Additional paid-in capital
    1,449.5       1,165.7  
Retained earnings
    391.6       316.4  
Treasury stock, at cost; 47,880 and 0 shares as of June 30, 2010 and December 31, 2009, respectively
    (0.6 )      
Accumulated other comprehensive income (loss), net of taxes
    501.1       (49.7 )
 
           
Total stockholders’ equity
    2,342.8       1,433.3  
 
           
Total liabilities and stockholders’ equity
  $ 24,351.4     $ 22,437.5  
 
           
See accompanying notes.

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CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
                                 
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Revenues:
                               
Premiums
  $ 115.5     $ 116.8     $ 234.5     $ 236.3  
Net investment income
    297.1       283.1       584.0       545.8  
Policy fees, contract charges, and other
    41.8       40.7       82.3       80.3  
Net realized investment gains (losses):
                               
Total other-than-temporary impairment losses on securities
    (2.7 )     (72.2 )     (20.6 )     (123.8 )
Less: portion of losses recognized in other comprehensive income
    1.2       43.7       9.4       67.5  
 
                       
Net impairment losses recognized in earnings
    (1.5 )     (28.5 )     (11.2 )     (56.3 )
Other net realized investment gains (losses)
    (8.5 )     31.2       8.0       16.0  
 
                       
Total net realized investment gains (losses)
    (10.0 )     2.7       (3.2 )     (40.3 )
 
                       
Total revenues
    444.4       443.3       897.6       822.1  
 
Benefits and expenses:
                               
Policyholder benefits and claims
    83.3       82.1       169.5       176.5  
Interest credited
    221.5       213.1       440.0       408.7  
Other underwriting and operating expenses
    64.2       62.0       123.8       125.0  
Interest expense
    7.9       8.0       15.9       15.9  
Amortization of deferred policy acquisition costs
    17.0       11.9       32.4       22.6  
 
                       
Total benefits and expenses
    393.9       377.1       781.6       748.7  
Income from operations before income taxes
    50.5       66.2       116.0       73.4  
 
Provision (benefit) for income taxes:
                               
Current
    17.4       9.6       27.3       11.5  
Deferred
    (2.7 )     9.6       6.6       9.8  
 
                       
Total provision for income taxes
    14.7       19.2       33.9       21.3  
 
                       
Net income
  $ 35.8     $ 47.0     $ 82.1     $ 52.1  
 
                       
 
Net income per common share:
                               
Basic
  $ 0.26     $ 0.42     $ 0.61     $ 0.47  
Diluted
  $ 0.26     $ 0.42     $ 0.61     $ 0.47  
 
Weighted-average number of common shares outstanding:
                               
Basic
    137.019       111.622       134.035       111.622  
Diluted
    137.038       111.622       134.056       111.622  
 
                               
Cash dividends declared per common share
  $ 0.05           $ 0.05        
See accompanying notes.

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)
                                                 
                                    Accumulated        
            Additional             Treasury     Other     Total  
    Common     Paid-in     Retained     Stock,     Comprehensive     Stockholders'  
    Stock     Capital     Earnings     at Cost     Income (Loss)     Equity  
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 income, net of taxes:
                                               
Net income
                52.1                   52.1  
Other comprehensive income (net of taxes: $229.1)
                            425.4       425.4  
 
                                             
Total comprehensive income, net of taxes
                                            477.5  
 
                                   
Balances as of June 30, 2009
  $ 0.9     $ 1,165.5     $ 240.2     $     $ (642.9 )   $ 763.7  
 
                                   
 
                                               
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: $20.6)
    0.3       282.2                         282.5  
Comprehensive income, net of taxes:
                                               
Net income
                82.1                   82.1  
Other comprehensive income (net of taxes: $296.5)
                            550.8       550.8  
 
                                             
Total comprehensive income, net of taxes
                                            632.9  
Stock-based compensation
          1.6             (0.6 )           1.0  
Dividends declared
                (6.9 )                 (6.9 )
 
                                   
Balances as of June 30, 2010
  $ 1.2     $ 1,449.5     $ 391.6     $ (0.6 )   $ 501.1     $ 2,342.8  
 
                                   
See accompanying notes.

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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
                 
    For the Six Months Ended  
    June 30,  
    2010     2009  
Cash flows from operating activities
               
Net income
  $ 82.1     $ 52.1  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Net realized investment losses
    3.2       40.3  
Accretion and amortization of invested assets, net
    18.9       8.5  
Accrued interest on bonds
    (21.5 )     (16.6 )
Amortization and depreciation
    11.5       7.4  
Deferred income tax provision
    6.6       9.8  
Interest credited on deposit contracts
    440.0       408.7  
Mortality and expense charges and administrative fees
    (51.2 )     (50.2 )
Changes in:
               
Accrued investment income
    (14.4 )     (24.1 )
Deferred policy acquisition costs, net
    (35.1 )     (76.2 )
Other receivables
    2.8       (13.9 )
Future policy benefits
    2.1       2.2  
Policy and contract claims
    (4.9 )     (0.8 )
Current income taxes recoverable
    22.3       18.7  
Other assets and liabilities
    (27.0 )     (5.5 )
Other, net
    1.4       0.1  
 
           
Total adjustments
    354.7       308.4  
 
           
Net cash provided by operating activities
    436.8       360.5  
Cash flows from investing activities
               
Purchases of:
               
Fixed maturities and marketable equity securities
    (2,397.7 )     (2,110.7 )
Other invested assets and investments in limited partnerships
    (23.4 )     (19.3 )
Issuances of mortgage loans
    (179.6 )     (86.0 )
Issuances of policy loans
    (8.6 )     (8.9 )
Maturities, calls, paydowns, and other
    892.7       649.5  
Securities lending collateral returned, net
          59.6  
Sales of:
               
Fixed maturities and marketable equity securities
    441.7       138.4  
Other invested assets and investments in limited partnerships
    6.3       2.9  
Repayments of mortgage loans
    37.5       35.8  
Repayments of policy loans
    9.7       9.3  
Other, net
    (1.8 )     3.9  
 
           
Net cash used in investing activities
    (1,223.2 )     (1,325.5 )
Cash flows from financing activities
               
Policyholder account balances:
               
Deposits
    1,215.9       1,655.6  
Withdrawals
    (621.2 )     (671.4 )
Securities lending collateral paid, net
          (59.6 )
Proceeds from issuance of common stock
    282.5        
Cash dividends paid on common stock
    (6.9 )      
Acquisition of treasury stock
    (0.6 )      
Other, net
    (18.4 )     7.4  
 
           
Net cash provided by financing activities
    851.3       932.0  
 
           
Net increase (decrease) in cash and cash equivalents
    64.9       (33.0 )
Cash and cash equivalents at beginning of period
    257.8       468.0  
 
           
Cash and cash equivalents at end of period
  $ 322.7     $ 435.0  
 
           
Supplemental disclosures of cash flow information
               
Non-cash transactions during the period:
               
Investments in limited partnerships and capital obligations incurred
  $ 20.2     $ 9.2  
Bond exchanges
    72.7       27.4  
See accompanying notes.

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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 and six months ended June 30, 2009, this included reclassifications of $25.8 and $51.8, respectively, related to cost of insurance charges on universal life-type (UL) contracts from premium revenues to policy fees, contract charges and other revenues on the consolidated statements of income. These reclassifications did not change total revenues or amounts previously reported as other revenues that are now included in policy fees, contract charges and other.
     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. 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. Operating results for the three- and six-month periods ended June 30, 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 nine months. As a result, for the six months ended June 30, 2010, income from operations before income taxes increased $7.4. The impact on net income for the same 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 with 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

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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 it did not change the Company’s previous conclusions regarding its VIEs, which consist primarily of investments in limited partnerships.
     Based on the analysis of its investments in VIEs, the Company does not meet the definition of “primary beneficiary” for 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 $166.3 and $147.3 as of June 30, 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, Financial Services — Insurance (Topic 944) — How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments. This guidance clarifies that an insurer should only consider its ownership interests held within its general account when determining if it holds a controlling interest, thus excluding interests held in a separate account from the analysis. 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.
  ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
     In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310) — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This guidance requires increased disclosure about financing receivables, including credit risk exposures and the allowance for credit losses; however, it does not change how credit losses are measured or recognized. It requires, on a disaggregated basis, new disclosures regarding allowances for credit losses, the credit quality of financing receivables, and loan impairments. The Company is evaluating the new disclosure requirements to determine the extent to which they will impact its financial statements. The Company’s mortgage loans are considered financing receivables. The Company will include the required disclosures in its financial statements for the year ended December 31, 2010.
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 and diluted 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 that 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

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
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 the application of the treasury stock method.
     For the three and six months ended June 30, 2010, 1.750 stock options were excluded from the computation of diluted earnings per share, based on the application of the treasury stock method, because they were antidilutive.
     The following table presents information relating to the Company’s calculations of basic and diluted earnings per share:
                                 
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Numerator:
                               
Net income, as reported
  $ 35.8     $ 47.0     $ 82.1     $ 52.1  
 
                       
Denominator:
                               
Weighted-average common shares outstanding — basic
    137.019       111.622       134.035       111.622  
Add: Dilutive effect of restricted stock
    0.019             0.021        
 
                       
Weighted-average common shares outstanding — diluted
    137.038       111.622       134.056       111.622  
 
                       
Net income per common share:
                               
Basic
  $ 0.26     $ 0.42     $ 0.61     $ 0.47  
Diluted
  $ 0.26     $ 0.42     $ 0.61     $ 0.47  
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 June 30, 2010
                                       
Fixed maturities:
                                       
U.S. government and agencies
  $ 116.3     $ 6.7     $     $ 123.0     $ (0.1 )
State and political subdivisions
    482.7       7.0       (17.9 )     471.8       (0.7 )
Corporate securities
    13,426.8       987.4       (237.8 )     14,176.4       (25.5 )
Residential mortgage-backed securities
    3,667.7       195.5       (57.0 )     3,806.2       (42.2 )
Commercial mortgage-backed securities
    1,722.4       116.8       (9.7 )     1,829.5       (3.7 )
Other debt obligations
    202.8       17.0       (14.5 )     205.3       (3.9 )
 
                             
Total fixed maturities
    19,618.7       1,330.4       (336.9 )     20,612.2       (76.1 )
Marketable equity securities, available-for-sale
    52.6       0.2       (8.9 )     43.9        
 
                             
Total
  $ 19,671.3     $ 1,330.6     $ (345.8 )   $ 20,656.1     $ (76.1 )
 
                             
                                         
    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
    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 )
 
                             

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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 June 30, 2010
                                               
Fixed maturities:
                                               
State and political subdivisions
  $     $           $ 283.9     $ (17.9 )     43  
Corporate securities
    560.5       (45.1 )     104       1,567.2       (192.7 )     175  
Residential mortgage-backed securities
    50.6       (0.7 )     12       350.7       (56.3 )     58  
Commercial mortgage-backed securities
    6.6       (0.2 )     5       86.9       (9.5 )     22  
Other debt obligations
                      26.8       (14.5 )     7  
 
                                   
Total fixed maturities
  $ 617.7     $ (46.0 )     121     $ 2,315.5     $ (290.9 )     305  
Marketable equity securities, available-for-sale
                      22.9       (8.9 )     4  
 
                                   
Total
  $ 617.7     $ (46.0 )     121     $ 2,338.4     $ (299.8 )     309  
 
                                   
                                                 
    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 June 30, 2010 and December 31, 2009, the Company held below-investment-grade fixed maturities with fair values of $1,030.8 and $1,032.1, respectively, and amortized costs of $1,129.5 and $1,165.1, respectively. These holdings amounted to 5.0% and 5.6% of the Company’s investments in fixed maturities at fair value as of June 30, 2010 and December 31, 2009, respectively.
     The following table summarizes the amortized cost and fair value of fixed maturities as of June 30, 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.
                 
    Amortized     Fair  
    Cost     Value  
One year or less
  $ 706.4     $ 717.1  
Over one year through five years
    3,181.3       3,380.9  
Over five years through ten years
    5,008.8       5,403.3  
Over ten years
    5,193.8       5,328.6  
Residential mortgage-backed securities
    3,667.7       3,806.2  
Commercial mortgage-backed securities.
    1,722.4       1,829.5  
Other asset-backed securities
    138.3       146.6  
 
           
Total fixed maturities
  $ 19,618.7     $ 20,612.2  
 
           

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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     For the Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Fixed maturities
  $ 280.4     $ 263.6     $ 551.4     $ 514.4  
Marketable equity securities, available-for-sale
    1.1       1.3       1.7       1.7  
Marketable equity securities, trading
    0.8       0.6       1.5       1.2  
Mortgage loans
    20.9       16.1       39.7       32.1  
Policy loans
    1.1       1.1       2.2       2.2  
Investments in limited partnerships
    (2.6 )     4.1       (3.8 )     2.6  
Other
    0.7       1.1       1.8       1.3  
 
                       
Total investment income
    302.4       287.9       594.5       555.5  
Investment expenses
    (5.3 )     (4.8 )     (10.5 )     (9.7 )
 
                       
Net investment income
  $ 297.1     $ 283.1     $ 584.0     $ 545.8  
 
                       
     The following table summarizes the Company’s net realized investment gains (losses):
                                 
    For the Three Months Ended     For the Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Fixed maturities:
                               
Gross gains on sales
  $ 7.0     $ 5.8     $ 17.4     $ 6.2  
Gross losses on sales
    (0.2 )     (1.6 )     (1.3 )     (2.2 )
Other-than-temporary impairments
    (1.5 )     (28.5 )     (11.2 )     (56.3 )
Other(1)
    (0.1 )     3.6       2.2       (0.6 )
 
                       
Total fixed maturities
    5.2       (20.7 )     7.1       (52.9 )
Marketable equity securities, trading(2)
    (8.8 )     19.6       (1.2 )     4.3  
Other invested assets
    (4.8 )     0.1       (6.2 )     (1.5 )
Deferred policy acquisition costs adjustment
    (1.6 )     3.7       (2.9 )     9.8  
 
                       
Net realized investment gains (losses)
  $ (10.0 )   $ 2.7     $ (3.2 )   $ (40.3 )
 
                       
 
(1)   This includes gains (losses) on calls and redemptions. Also included are changes in the fair value of the Company’s convertible securities held as of period end totaling $(2.9), $(0.6), $3.0 and $3.0 for the three and six months ended June 30, 2010 and 2009, respectively.
 
(2)   This includes $(7.4), $(2.7), $19.2 and $4.4 of gains (losses) for the three and six months ended June 30, 2010 and 2009, respectively, related to changes in fair value of trading securities held as of period end.
     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. 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;

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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 for bankruptcy, compared to 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 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.

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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 June 30, 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
  $ 137.6     $ (43.8 )   $ 103.4     $ (28.4 )
6 consecutive months or more
    187.6       (93.2 )     517.9       (229.5 )
 
                       
Total underwater by 20% or more
    325.2       (137.0 )     621.3       (257.9 )
All other underwater fixed maturities
    2,608.0       (199.9 )     5,398.1       (352.5 )
 
                       
Total underwater fixed maturities
  $ 2,933.2     $ (336.9 )   $ 6,019.4     $ (610.4 )
 
                       
 
                               
Marketable equity securities, available-for-sale
                               
Underwater by 20% or more:
                               
6 consecutive months or more
  $ 1.7     $ (4.4 )   $ 35.6     $ (15.9 )
 
                       
Total underwater by 20% or more
    1.7       (4.4 )     35.6       (15.9 )
All other underwater marketable equity securities, available-for-sale
    21.2       (4.5 )     0.7       (0.1 )
 
                       
Total underwater marketable equity securities, available-for-sale
  $ 22.9     $ (8.9 )   $ 36.3     $ (16.0 )
 
                       
          As of June 30, 2010 and December 31, 2009, investment grade securities totaled $38.2 and $136.9, respectively, which composed 41.0%, and 59.7%, respectively, of the gross unrealized losses on fixed maturities underwater by 20% or more for six months or more. 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 June 30, 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 the Company did not intend to sell these fixed maturities and it was not more likely than not that the Company 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 June 30, 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 issuers, 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     For the Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Balance, beginning of period
  $ 69.5     $ 86.1     $ 69.6     $ 73.0  
Increases recognized in the current period:
                               
For which an OTTI was not previously recognized
    0.5       11.1       6.5       21.3  
For which an OTTI was previously recognized
    0.9       2.2       2.4       10.6  
Decreases attributable to:
                               
Securities sold or paid down during the period
    (2.4 )     (7.6 )     (10.0 )     (7.7 )
Previously recognized credit losses on securities impaired during the period due to a change in intent to sell(1)
          (17.4 )           (22.8 )
 
                       
Balance, end of period
  $ 68.5     $ 74.4     $ 68.5     $ 74.4  
 
                       
 
(1)   Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security prior to recovery of its amortized cost.

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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 June 30, 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
  $ 123.0     $     $ 123.0     $        
State and political subdivisions
    471.8             464.2       7.6       0.0 %
Corporate securities
    14,176.4             13,268.4       908.0       4.2  
Residential mortgage-backed securities
    3,806.2             3,729.1       77.1       0.4  
Commercial mortgage-backed securities
    1,829.5             1,797.9       31.6       0.1  
Other debt obligations
    205.3             194.6       10.7       0.1  
 
                             
Total fixed maturities, available-for-sale
    20,612.2             19,577.2       1,035.0       4.8  
Marketable equity securities, available-for-sale
    43.9       42.1             1.8       0.0  
Marketable equity securities, trading
    141.0       140.3             0.7       0.0  
Investments in limited partnerships(1)
    32.1                   32.1       0.2  
Other invested assets
    5.2       2.7             2.5       0.0  
 
                             
Total investments
    20,834.4       185.1       19,577.2       1,072.1       5.0  
Separate account assets
    759.0       759.0                    
 
                             
Total
  $ 21,593.4     $ 944.1     $ 19,577.2     $ 1,072.1       5.0 %
 
                             

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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  
Investments in limited partnerships(1)
    24.7                   24.7       0.2  
Other invested assets
    6.7       2.1             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 %
 
                             
 
(1)   As of June 30, 2010 and December 31, 2009, this amount consisted of investments in private equity and hedge funds.
  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 June 30, 2010 and December 31, 2009, pricing services provided prices for 95.0% 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 process includes 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 June 30, 2010 and December 31, 2009, the Company had $893.0, or 4.3%, and $901.3, or 4.8%, of its fixed maturities invested in private placement securities, respectively, most of which are corporate securities. 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 $819.3, or 91.7%, and $819.8, or 91.0%, of these privately placed securities as Level 3 measurements, as of June 30, 2010 and December 31, 2009, respectively.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
     Corporate Securities
          As of June 30, 2010 and December 31, 2009, the fair value of the Company’s corporate securities classified as Level 2 measurements was $13,268.4 and $11,657.4, respectively. The following table presents additional information about the composition of the Level 2 corporate securities:
                                                 
    As of June 30, 2010     As of December 31, 2009  
            %     # of             %     # of  
    Amount     of Total     Securities     Amount     of Total     Securities  
Significant Security Sectors:
                                               
Industrials
  $ 2,400.9       18.1 %     212     $ 1,974.9       16.9 %     227  
Consumer staples
    2,003.9       15.1       141       1,731.0       14.8       150  
Utilities
    1,849.3       13.9       196       1,771.6       15.2       216  
Financials
    1,746.5       13.2       246       1,760.2       15.1       286  
 
                                               
Weighted-average coupon rate
    6.44 %                     6.55 %                
Weighted-average remaining years to contractual maturity
    12.5                       13.3                  
          Corporate securities classified as Level 2 measurements are priced by independent pricing services, who utilize evaluated pricing models. The significant inputs for security evaluations include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data, including market research publications. Because many corporate securities do not trade on a daily basis, evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations.
          As of June 30, 2010, 87.9% of the Level 3 corporate securities were privately placed securities. These securities were issued by entities primarily in the financial sector, 24.9%, the industrial sector, 22.8%, and the materials sector, 14.4%.
          As of December 31, 2009, 89.6% of the Level 3 corporate securities were privately placed securities. These securities were issued by entities primarily in the financial sector, 22.4%, the industrial sector, 22.7%, and the materials sector, 15.2%.
          The following table presents additional information about the quality of the Level 3 privately placed corporate securities:
                                           
            As of June 30, 2010     As of December 31, 2009  
            Fair     % of Total     Fair     % of Total  
NAIC Rating     Comparable Standard & Poor’s rating     Value     Fair Value     Value     Fair Value  
1
  AAA, AA, A   $ 163.9       20.5 %   $ 153.5       19.2 %
2
  BBB     555.1       69.6       557.4       69.8  
3 — 6
  BB & below     78.8       9.9       87.3       11.0  
 
                               
Total
          $ 797.8       100.0 %   $ 798.2       100.0 %
 
                               
          The valuation of these privately placed Level 3 corporate securities requires significant judgment due to the absence of quoted market prices, the inherent lack of liquidity and the duration of such assets. The fair values of these securities were determined using a discounted cash flow approach. The discount rate was based on the current Treasury curve, adjusted for credit and liquidity factors. The credit factor adjustment, which is based on credit spreads to the Treasury curve for similar securities, varies for each security based on its quality and industry or sector. The appropriate illiquidity adjustment is estimated based on illiquidity spreads observed in transactions involving similar securities. As of June 30, 2010, the range of illiquidity adjustments varied from 0 to 50 basis points.
     Residential Mortgage-backed Securities
          As of June 30, 2010 and December 31, 2009, the fair value of the Company’s residential mortgage-backed securities (RMBS) classified as Level 2 measurements was $3,729.1 and $3,285.9, respectively. These securities were primarily fixed-rate, with a weighted-average coupon rate of 5.27% and 5.36% as of June 30, 2010 and December 31, 2009, respectively.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
          Agency securities composed 87.2% and 84.7% of the Company’s Level 2 RMBS as of June 30, 2010 and December 31, 2009, respectively. The following table presents additional information about the composition of the Level 2 non-agency RMBS securities:
                                 
    As of     As of  
    June 30, 2010     December 31, 2009  
    Amount     % of Total     Amount     % of Total  
Standard & Poor’s equivalent rating:
                               
AAA
  $ 178.8       37.4 %   $ 200.8       39.9 %
AA through BBB
    102.8       21.5       140.2       27.8  
BB & below
    196.7       41.1       162.7       32.3  
 
                       
Total Non-agency RMBS
  $ 478.3       100.0 %   $ 503.7       100.0 %
 
Non-agency RMBS with super senior subordination
  $ 285.9       59.8 %   $ 300.3       59.6 %
          As of June 30, 2010 and December 31, 2009, the Company’s non-agency Level 2 RMBS had a weighted-average credit enhancement of 9.8%, and $191.1 and $191.3, or 40.0% and 38.0%, respectively, had an origination or vintage year of 2004 and prior.
          Level 2 RMBS securities are priced by independent pricing services, who utilize evaluated pricing models. The significant inputs for security evaluations include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and other reference data, including market research publications. Because many RMBS do not trade on a daily basis, evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, the pricing services use models and processes to develop prepayment and interest rate scenarios. The pricing services monitor market indicators, industry and economic events, and their models take into account market convention.
     Commercial Mortgage-backed Securities
          As of June 30, 2010 and December 31, 2009, the fair value of the Company’s commercial mortgage-backed securities (CMBS) classified as Level 2 measurements was $1,797.9 and $1,765.4, respectively. These were primarily non-agency securities, which composed 71.5% and 76.8% of Level 2 CMBS as of June 30, 2010 and December 31, 2009, respectively. The non-agency CMBS had an estimated weighted-average credit enhancement of 28.5% and 27.8% as of June 30, 2010 and December 31, 2009, respectively, and 93.0% and 92.4%, respectively, were in the most senior tranche.
          The Company’s Level 2 CMBS had a weighted-average coupon rate of 5.56% and 5.55% as of June 30, 2010 and December 31, 2009, respectively. As of June 30, 2010, 18.6% of the underlying collateral for these securities was located in New York, 13.6% was located in California, and 7.0% was located in Texas. The underlying collateral primarily consisted of shopping centers/retail and office buildings, comprising 33.5% and 31.2%, respectively, as of June 30, 2010.
          Level 2 CMBS securities are priced by independent pricing services, who utilize evaluated pricing models. The significant inputs for security evaluations include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, new issues, monthly payment information and other reference data, including market research publications. Because many CMBS do not trade on a daily basis, evaluated pricing applications apply available information through processes, such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing, to prepare evaluations.
  Marketable Equity Securities
          Marketable equity securities are primarily investments in common stock and certain nonredeemable preferred stocks and mutual fund assets, which consist of investments in publicly traded companies and actively traded mutual fund investments. The fair values of the Company’s marketable equity securities are based on quoted market prices in active markets for identical assets and are primarily classified as Level 1.
          The Company manages a trading portfolio of marketable equity securities, comprised mostly of investments in common stock. Certain nonredeemable preferred stock are reported as available-for-sale. Investment gains and losses on trading securities, including changes in fair value, are reported in the consolidated statements of income as net realized investment gains (losses). The

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
Company believes this presents its investment results for these securities on a basis that is consistent with management’s operating principles, as the Company considers changes in fair value on its marketable equity securities when evaluating its performance.
   Investments in Limited Partnerships
          Investments in limited partnerships recorded at fair value are investments in private equity and hedge funds. The Company utilizes the fair value option for these investments, regardless of ownership percentage, to standardize the related accounting and reporting.
          The fair value for the Company’s investments in private equity and hedge funds is based upon the Company’s proportionate interest in the underlying partnership or fund’s net asset value (NAV), which is deemed to approximate fair value. The Company is generally unable to liquidate these investments during the term of the partnership or fund, which range from five to twelve years. As such, the Company classifies these securities as Level 3 measurements.
   Other Invested Assets
          Other invested assets recorded at fair value primarily consist of life settlement investments, short-term investments and S&P 500 Index options. The carrying value of these assets approximates fair value.
   Separate Accounts
          Separate account assets are primarily invested in mutual funds with published NAVs, which are included in Level 1.
   Rollforward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
          The following table presents additional information about assets measured at fair value on a recurring basis and for which the Company has utilized significant unobservable inputs (Level 3) to determine fair value for the three and six months ended June 30, 2010:
                                                                         
                                            Unrealized Gain (Loss)              
                            Transfers In             Included in:              
    Balance as                     and/or                     Other     Realized     Balance as of  
    of April 1,                     (Out) of             Net     Comprehensive     Gains     June 30,  
    2010     Purchases     Sales     Level 3(1)     Other(3)     Income(2)     Income     (Losses)(2)     2010  
Types of Investments:
                                                                       
State and political subdivisions
  $ 7.4     $     $     $     $     $     $ 0.2     $     $ 7.6  
Corporate securities
    906.8       15.7             4.7       (35.9 )           14.4       2.3       908.0  
Residential mortgage-backed securities
    260.8       17.4             (202.6 )     0.7             0.8             77.1  
Commercial mortgage-backed securities
    23.1       10.1             (1.3 )     (1.0 )           0.7             31.6  
Other debt obligations
    10.8                         (0.2 )           0.2       (0.1 )     10.7  
 
                                                     
Total fixed maturities, available-for-sale
    1,208.9       43.2             (199.2 )     (36.4 )           16.3       2.2       1,035.0  
Marketable equity securities, available-for-sale
    1.8                                                 1.8  
Marketable equity securities, trading
    0.5                         0.1       0.1                   0.7  
Investments in limited partnerships
    25.2       8.6       (1.4 )           0.1       (1.1 )           0.7       32.1  
Other invested assets
    3.8                               (1.3 )                 2.5  
 
                                                     
Total Level 3
  $ 1,240.2     $ 51.8     $ (1.4 )   $ (199.2 )   $ (36.2 )   $ (2.3 )   $ 16.3     $ 2.9     $ 1,072.1  
 
                                                     
                                                                         
                                            Unrealized Gain (Loss)              
                            Transfers In             Included in:              
    Balance as                     and/or                     Other     Realized     Balance as of  
    of January 1,                     (Out) of             Net     Comprehensive     Gains     June 30,  
    2010     Purchases     Sales     Level 3(1)     Other(3)     Income(2)     Income     (Losses)(2)     2010  
Types of Investments:
                                                                       
State and political subdivisions
  $ 7.2     $     $     $     $     $     $ 0.4     $     $ 7.6  
Corporate securities
    891.2       31.7       (17.3 )     12.8       (38.4 )           27.4       0.6       908.0  
Residential mortgage-backed securities
    250.5       17.4             (194.6 )     1.4             2.4             77.1  
Commercial mortgage-backed securities
    24.0       10.1             (1.3 )     (2.8 )           1.6             31.6  
Other debt obligations
    10.6                         (0.5 )           0.7       (0.1 )     10.7  
 
                                                     
Total fixed maturities, available-for-sale
    1,183.5       59.2       (17.3 )     (183.1 )     (40.3 )           32.5       0.5       1,035.0  
Marketable equity securities, available-for-sale
    1.8                                                 1.8  
Marketable equity securities, trading
    0.3                         0.3       0.1                   0.7  
Investments in limited partnerships
    24.7       9.2       (2.4 )                 (0.2 )           0.8       32.1  
Other invested assets
    4.6             (0.3 )           (0.8 )     (1.1 )           0.1       2.5  
 
                                                     
Total Level 3
  $ 1,214.9     $ 68.4     $ (20.0 )   $ (183.1 )   $ (40.8 )   $ (1.2 )   $ 32.5     $ 1.4     $ 1,072.1  
 
                                                     

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
 
(1)   Transfers into and/or out of Level 3 are reported at the value as of the beginning of the period in which the transfer occurs. Gross transfers into Level 3 were $4.7 and $14.9 for the three and six months ended June 30, 2010, respectively. Gross transfers out of Level 3 were $(203.9) and $(198.0) for the three and six months ended June 30, 2010, respectively, as public market information on many of our RMBS securities became available and third party independent pricing services began to provide prices. Such securities are now classified as Level 2.
 
(2)   Realized and unrealized gains and losses for investments in limited partnerships are included in net investment income. All other realized and unrealized gains and losses are included in net realized investment gains (losses).
 
(3)   Other is comprised of transactions such as pay downs, calls, amortization and redemptions.
          The following table presents additional information about assets measured at fair value on a recurring basis and for which the Company has utilized significant unobservable inputs (Level 3) to determine fair value for the three and six months ended June 30, 2009:
                                                                         
                                            Unrealized Gain (Loss)              
                            Transfers In             Included in:          
    Balance as                     and/or                     Other     Realized     Balance as of  
    of April 1,                     (Out) of             Net     Comprehensive     Gains     June 30,  
    2009     Purchases     Sales     Level 3(1)     Other(3)     Income(2)     Loss     (Losses)(2)     2009  
Types of Investments:
                                                                       
State and political subdivisions
  $ 6.5     $     $     $     $     $     $ 0.6     $     $ 7.1  
Corporate securities
    664.7       61.6       (0.1 )     (19.9 )     (23.0 )           66.9       (3.1 )     747.1  
Residential mortgage-backed securities
          56.9             4.4       (0.2 )                       61.1  
Commercial mortgage-backed securities
    22.6                         (0.6 )           1.1             23.1  
Other debt obligations
    12.9                         (0.3 )           0.1             12.7  
 
                                                     
Total fixed maturities, available-for-sale
    706.7       118.5       (0.1 )     (15.5 )     (24.1 )           68.7       (3.1 )     851.1  
Marketable equity securities, available-for-sale
    1.8                                                 1.8  
Marketable equity securities, trading
    0.1                               0.1                   0.2  
Investments in limited partnerships
    59.0             (2.2 )                 8.3             (1.9 )     63.2  
Other invested assets
    0.9                               0.3                   1.2  
 
                                                     
Total Level 3
  $ 768.5     $ 118.5     $ (2.3 )   $ (15.5 )   $ (24.1 )   $ 8.7     $ 68.7     $ (5.0 )   $ 917.5  
 
                                                     
                                                                         
                                            Unrealized Gain (Loss)              
                            Transfers In             Included in:            
    Balance as                     and/or                     Other     Realized     Balance as of  
    of January 1,                     (Out) of             Net     Comprehensive     Gains     June 30,  
    2009     Purchases     Sales     Level 3(1)     Other(3)     Income(2)     Loss     (Losses)(2)     2009  
Types of Investments:
                                                                       
State and political subdivisions
  $ 6.3     $     $     $     $     $     $ 0.8     $     $ 7.1  
Corporate securities
    631.6       113.8       (0.1 )     (23.7 )     (25.8 )           55.4       (4.1 )     747.1  
Residential mortgage-backed securities
          56.9             4.5       (0.3 )                       61.1  
Commercial mortgage-backed securities
    24.4                   (0.7 )     (1.6 )           1.0             23.1  
Other debt obligations
    12.0                         (0.8 )           1.5             12.7  
 
                                                     
Total fixed maturities, available-for-sale
    674.3       170.7       (0.1 )     (19.9 )     (28.5 )           58.7       (4.1 )     851.1  
Marketable equity securities, available-for-sale
                      5.2                   (3.4 )           1.8  
Marketable equity securities, trading
    0.2                                                 0.2  
Investments in limited partnerships
    56.3       2.4       (2.9 )                 9.2             (1.8 )     63.2  
Other invested assets
    2.4                               (1.2 )                 1.2  
 
                                                     
Total Level 3
  $ 733.2     $ 173.1     $ (3.0 )   $ (14.7 )   $ (28.5 )   $ 8.0     $ 55.3     $ (5.9 )   $ 917.5  
 
                                                     
 
(1)   Transfers into and/or out of Level 3 are reported at the value as of the beginning of the period in which the transfer occurs. Gross transfers into Level 3 were $4.4 and $9.7 for the three and six months ended June 30, 2009, respectively. Gross transfers out of Level 3 were $(19.9) and $(24.4) for the three and six months ended June 30, 2009, respectively.
 
(2)   Realized and unrealized gains and losses for investments in limited partnerships are included in net investment income. All other realized and unrealized gains and losses are included in net realized investment gains (losses).
 
(3)   Other is comprised of transactions such as pay downs, calls, amortization, and redemptions.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
          The following table summarizes the carrying or reported values and corresponding fair values of financial instruments subject to fair value disclosure requirements:
                                 
    As of June 30, 2010     As of December 31, 2009  
    Carrying             Carrying        
    Amount     Fair Value     Amount     Fair Value  
Financial assets:
                               
Fixed maturities
  $ 20,612.2     $ 20,612.2     $ 18,594.3     $ 18,594.3  
Marketable equity securities, available-for-sale
    43.9       43.9       36.7       36.7  
Marketable equity securities, trading
    141.0       141.0       154.1       154.1  
Mortgage loans
    1,340.3       1,360.6       1,201.7       1,190.1  
Investments in limited partnerships:
                               
Hedge funds and private equity funds
    32.1       32.1       24.7       24.7  
Affordable housing
    104.8       102.8       85.5       89.9  
Other invested assets
    12.0       12.0       12.2       12.2  
Cash and cash equivalents
    322.7       322.7       257.8       257.8  
Separate account assets
    759.0       759.0       840.1       840.1  
Financial liabilities:
                               
Funds held under deposit contracts:
                               
Deferred annuities
    8,121.8       8,017.3       7,212.1       7,128.2  
Immediate annuities
    6,732.9       7,211.9       6,724.4       6,937.8  
Notes payable:
                               
Capital Efficient Notes (CENts)
    149.8       127.2       149.8       118.5  
Senior notes
    299.2       302.7       299.1       276.8  
  Other Financial Instruments
          Cash and cash equivalents are reported at cost, which approximates fair value. Cash equivalents were $304.3 and $244.4 as of June 30, 2010 and December 31, 2009, respectively. As of June 30, 2010 and December 31, 2009, $300.5 and $223.8 of total cash equivalents, respectively, were held at a single highly rated financial institution.
          The fair values of the Company’s mortgage loans were measured by discounting the projected future cash flows using the current rate at which the loans would be made to borrowers with similar credit ratings and for the same maturities.
          Investments in limited partnerships associated with affordable housing projects and state tax credit funds are carried at amortized cost. Fair value was estimated based on the discounted cash flows over the remaining life of the tax credits.
          The Company estimates the fair values of funds held under deposit contracts related to investment-type contracts using an income approach based on the present value of the discounted cash flows. Cash flows were projected using best estimates for lapses, mortality and expenses, and discounted at a risk-free rate plus a nonperformance risk spread. The carrying value of this balance excludes $4,971.0 and $4,880.2 of liabilities related to insurance contracts as of June 30, 2010 and December 31, 2009, respectively.
          The fair values of the Company’s notes payable were based on quoted prices for similar instruments. The fair value measurement assumes that liabilities were transferred to a market participant of equal credit standing and without consideration for any optional redemption feature.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
6. Deferred Policy Acquisition Costs
          The following table provides a reconciliation of the beginning and ending balance for deferred policy acquisition costs:
                 
    For the Six        
    Months Ended     For the Year Ended  
    June 30, 2010     December 31, 2009  
Unamortized balance at beginning of period
  $ 325.7     $ 219.5  
Deferral of acquisition costs
    69.7       148.3  
Adjustments related to investment (gains) losses
    (2.2 )     9.3  
Amortization
    (32.4 )     (51.4 )
 
           
Unamortized balance at end of period
    360.8       325.7  
Accumulated effect of net unrealized investment gains
    (161.8 )     (75.3 )
 
           
Balance at end of period
  $ 199.0     $ 250.4  
 
           
7. Deferred Sales Inducements
          The following table provides a reconciliation of the beginning and ending balance for deferred sales inducements, which are included in other assets:
                 
    For the Six        
    Months Ended     For the Year Ended  
    June 30, 2010     December 31, 2009  
Unamortized balance at beginning of period
  $ 67.6     $ 33.0  
Capitalizations
    28.0       42.5  
Adjustments related to investment (gains) losses
    (0.7 )     2.4  
Amortization
    (8.3 )     (10.3 )
 
           
Unamortized balance at end of period
    86.6       67.6  
Accumulated effect of net unrealized investment gains
    (46.0 )     (18.4 )
 
           
Balance at end of period
  $ 40.6     $ 49.2  
 
           
8. Stockholders’ Equity
          The components of comprehensive income are as follows:
                                 
    For the Three Months Ended   For the Six Months Ended
    June 30,   June 30,
    2010   2009   2010   2009
Net income
  $ 35.8     $ 47.0     $ 82.1     $ 52.1  
Other comprehensive income, net of taxes:
                               
Changes in unrealized gains and losses on available-for-sale securities(1)
    380.0       561.3       624.9       448.7  
Reclassification adjustment for net realized investment (gains) losses included in net income(2)
    2.4       0.7       (3.7 )     31.6  
Adjustment for deferred policy acquisition costs and deferred sales inducements valuation allowance(3)
    (42.8 )     (16.3 )     (74.2 )     (11.9 )
Other-than-temporary-impairments on fixed maturities not related to credit losses(4)
    2.0       (27.5 )     3.8       (43.0 )
 
                               
Other comprehensive income
    341.6       518.2       550.8       425.4  
 
                               
Total comprehensive income
  $ 377.4     $ 565.2     $ 632.9     $ 477.5  
 
                               
 
(1)   Net of taxes of $204.5, $336.4, $302.2 and $241.6 for the three and six months ended June 30, 2010 and 2009, respectively.
 
(2)   Net of taxes of $1.3, $(2.0), $0.4 and $17.0 for the three and six months ended June 30, 2010 and 2009, respectively. For the three and six months ended June 30, 2010, $2.8 (net of taxes of $1.4) and $9.9 (net of taxes of $5.3) of the reclassification adjustment is related to losses previously classified as OTTI not related to credit losses. For the three and six months ended June 30, 2009, $0.9 (net of taxes of $0.4), of the reclassification adjustment is related to losses previously classified as OTTI not related to credit losses.
 
(3)   Net of taxes of $(23.0), $(39.9), $(8.8) and $(6.3) for the three and six months ended June 30, 2010 and 2009, respectively.
 
(4)   Net of taxes of $1.0, $2.0, $(14.8) and $(23.2) for the three months ended June 30, 2010 and 2009 and the six months ended June 30, 2010 and 2009, respectively.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
          The following table provides a reconciliation of changes in outstanding shares of common stock, in whole shares:
         
    Common Shares  
Balance at January 1, 2009
    92,646,295  
Restricted shares(1)
    83,160  
 
     
Balance at December 31, 2009
    92,729,455  
 
     
 
       
Balance at January 1, 2010
    92,729,455  
Common stock, issued in initial public offering
    25,259,510  
Restricted shares(1)
    233,955  
Treasury stock acquired(2)
    (47,880 )
 
     
Balance at June 30, 2010
    118,175,040  
 
     
 
(1)   Represents restricted shares issued pursuant to the Company’s Equity Plan.
 
(2)   Represents shares repurchased to satisfy employee income tax withholding, pursuant to the Company’s Equity Plan.
9. Stock-Based Compensation
          As of June 30, 2010, the Company has two share-based compensation plans: the Symetra Financial Corporation Equity Plan (amended and restated on August 11, 2010) (the “Equity Plan”) and the Symetra Financial Corporation Employee Stock Purchase Plan (amended and restated on May 11, 2010) (the “Stock Purchase Plan”). Under the Equity Plan, the Company is authorized to issue various types of share-based compensation to employees, directors and consultants. A total of 7.830 shares are authorized for issuance under the Equity Plan, and 5.763 equity instruments are available for future issuance as of June 30, 2010. The Stock Purchase Plan allows eligible employees to purchase shares of the Company’s common stock at a 15% discount from the market price. A total of 0.870 shares are authorized for issuance under this plan. As of June 30, 2010, no shares have been issued pursuant to the Stock Purchase plan, which began in August 2010.
     Compensation Cost
          The Company measures compensation cost for all stock awards at fair value on the date of grant and recognizes it over the service period for awards expected to vest. Restricted shares are valued based on the number of shares granted and the Company’s closing stock price on the grant date. Stock options are valued using the Black-Scholes valuation model. The Company recognizes such compensation cost as expense over the service period, net of estimated forfeitures, using the straight-line method. The estimation of equity awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differs from current estimates, the Company records such amounts as a cumulative adjustment in the period estimates are revised. Many factors are considered when estimating forfeitures, including types of awards, employee class and historical experiences.
          Share-based compensation expense, which is recorded in other operating expense, for the three and six months ended June 30, 2010 was $1.4 and $1.6, respectively. This included compensation expense of $1.2 for the three months ended June 30, 2010 related to the modification and accelerated vesting of certain restricted shares. No awards had been issued under the Equity Plan as of June 30, 2009.
     Restricted Stock Activity
     The Company issued 0.137 and 0.234 shares of restricted stock for the three and six months ended June 30, 2010, respectively. These awards vest on December 31, 2012. The weighted average fair value of restricted stock granted for the three and six months ended June 30, 2010 was $12.31 and $12.49 per share, respectively. The Company did not issue any restricted stock for the three and six months ended June 30, 2009.

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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 restricted stock activity for the six months ended June 30, 2010:
                 
    Number of     Weighted-Average  
    Shares     Fair Value  
Outstanding as of January 1, 2010
    0.083     $ 13.08  
Shares granted
    0.234     $ 12.49  
Shares vested
    (0.131 )   $ 12.40  
Shares forfeited
        $  
 
             
Outstanding at June 30, 2010
    0.186     $ 12.44  
 
             
  Stock Option Activity
          The Company issued 1.750 options for the three and six months ended June 30, 2010, with an exercise price of $28.00. These options vest at the end of the seven year service period and expire one year thereafter. The weighted average fair value of awards granted during the quarter was $3.04 per share. The Company did not issue any option awards for the three and six months ended June 30, 2009.
          The following table summarizes the weighted average assumptions used to value stock options issued:
         
    For the Three and Six Months  
    Ended June 30, 2010  
Expected term
  7.5 years 
Risk-free interest rate
    2.7 %
Dividend yield
    1.6 %
Volatility
    45.6 %
10. Commitments and Contingencies
  Investments in Limited Partnerships
          In March 2010, the Company invested in a new limited partnership interest related to federal affordable housing projects. The Company unconditionally committed to provide capital contributions totaling $25.0. As of June 30, 2010, the Company contributed $3.4 and is expected to contribute the remaining $21.6 by the end of 2012. The present value of these unfunded contributions is recorded in other liabilities.
  Litigation
          Because of the nature of its business, the Company is subject to legal actions filed or threatened in the ordinary course of its business operations. The Company does not expect that any such litigation, pending or threatened, as of June 30, 2010, will have a material adverse effect on its consolidated financial condition, future operating results or liquidity.
  Other Commitments
          As of June 30, 2010 and December 31, 2009, unfunded mortgage loan commitments were $40.0 and $4.5, respectively. The Company had no other material commitments or contingencies as of June 30, 2010 and December 31, 2009.

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
11. Segment Information
          The following tables present selected financial information by segment and reconcile segment pre-tax adjusted operating income (loss) to amounts reported in the consolidated statements of income.
                                                 
    For the Three Months Ended June 30, 2010  
            Retirement     Income                    
    Group     Services     Annuities     Individual     Other     Total  
Operating revenues:
                                               
Premiums
  $ 105.8     $     $     $ 9.7     $     $ 115.5  
Net investment income
    4.8       115.3       104.7       68.3       4.0       297.1  
Policy fees, contract charges, and other
    3.0       4.8       0.2       29.8       4.0       41.8  
Net investment losses on fixed index annuity (FIA) options
          (1.3 )                       (1.3 )
 
                                   
Total operating revenues
    113.6       118.8       104.9       107.8       8.0       453.1  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    67.4       0.6             15.3             83.3  
Interest credited
          70.4       92.9       59.1       (0.9 )     221.5  
Other underwriting and operating expenses
    26.0       13.6       5.2       13.4       6.0       64.2  
Interest expense
                            7.9       7.9  
Amortization of deferred policy acquisition costs
    2.0       13.6       0.4       1.0             17.0  
 
                                   
Total benefits and expenses
    95.4       98.2       98.5       88.8       13.0       393.9  
 
                                   
Segment pre-tax adjusted operating income (loss)
  $ 18.2     $ 20.6     $ 6.4     $ 19.0     $ (5.0 )   $ 59.2  
 
                                   
 
                                               
Operating revenues
  $ 113.6     $ 118.8     $ 104.9     $ 107.8     $ 8.0     $ 453.1  
Add: Net realized investment gains (losses), excluding FIA options
          2.6       (13.8 )     2.4       0.1       (8.7 )
 
                                   
Total revenues
    113.6       121.4       91.1       110.2       8.1       444.4  
Total benefits and expenses
    95.4       98.2       98.5       88.8       13.0       393.9  
 
                                   
Income (loss) before income taxes
  $ 18.2     $ 23.2     $ (7.4 )   $ 21.4     $ (4.9 )   $ 50.5  
 
                                   
                                                 
    For the Three Months Ended June 30, 2009  
            Retirement     Income                    
    Group     Services     Annuities     Individual     Other     Total  
Operating revenues:
                                               
Premiums
  $ 107.9     $     $     $ 8.9     $     $ 116.8  
Net investment income
    4.3       95.3       107.1       67.0       9.4       283.1  
Policy fees, contract charges, and other
    4.4       4.0       0.1       29.4       2.8       40.7  
Net investment gains on FIA options
          0.2                         0.2  
 
                                   
Total operating revenues
    116.6       99.5       107.2       105.3       12.2       440.8  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    71.3       (0.4 )           11.2             82.1  
Interest credited
          61.1       91.3       61.8       (1.1 )     213.1  
Other underwriting and operating expenses
    26.2       14.2       5.2       12.7       3.7       62.0  
Interest expense
                            8.0       8.0  
Amortization of deferred policy acquisition costs
    1.9       8.5       0.4       1.1             11.9  
 
                                   
Total benefits and expenses
    99.4       83.4       96.9       86.8       10.6       377.1  
 
                                   
Segment pre-tax adjusted operating income
  $ 17.2     $ 16.1     $ 10.3     $ 18.5     $ 1.6     $ 63.7  
 
                                   
 
                                               
Operating revenues
  $ 116.6     $ 99.5     $ 107.2     $ 105.3     $ 12.2     $ 440.8  
Add: Net realized investment gains (losses), excluding FIA options
    (1.3 )     (5.1 )     12.8       0.4       (4.3 )     2.5  
 
                                   
Total revenues
    115.3       94.4       120.0       105.7       7.9       443.3  
Total benefits and expenses
    99.4       83.4       96.9       86.8       10.6       377.1  
 
                                   
Income (loss) before income taxes
  $ 15.9     $ 11.0     $ 23.1     $ 18.9     $ (2.7 )   $ 66.2  
 
                                   

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
                                                 
    For the Six Months Ended June 30, 2010  
            Retirement     Income                    
    Group     Services     Annuities     Individual     Other     Total  
Operating revenues:
                                               
Premiums
  $ 214.6     $     $     $ 19.9     $     $ 234.5  
Net investment income
    9.4       223.1       208.7       134.4       8.4       584.0  
Policy fees, contract charges, and other
    5.9       9.6       0.4       58.9       7.5       82.3  
Net investment losses on FIA options
          (1.2 )                       (1.2 )
 
                                   
Total operating revenues
    229.9       231.5       209.1       213.2       15.9       899.6  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    142.4       0.7             26.4             169.5  
Interest credited
          138.9       184.9       117.6       (1.4 )     440.0  
Other underwriting and operating expenses
    49.7       27.2       10.5       26.1       10.3       123.8  
Interest expense
                            15.9       15.9  
Amortization of deferred policy acquisition costs
    3.9       26.8       0.9       0.8             32.4  
 
                                   
Total benefits and expenses
    196.0       193.6       196.3       170.9       24.8       781.6  
 
                                   
Segment pre-tax adjusted operating income (loss)
  $ 33.9     $ 37.9     $ 12.8     $ 42.3     $ (8.9 )   $ 118.0  
 
                                   
 
                                               
Operating revenues
  $ 229.9     $ 231.5     $ 209.1     $ 213.2     $ 15.9     $ 899.6  
Add: Net realized investment gains (losses), excluding FIA options
    (0.2 )     5.6       (9.1 )     2.6       (0.9 )     (2.0 )
 
                                   
Total revenues
    229.7       237.1       200.0       215.8       15.0       897.6  
Total benefits and expenses
    196.0       193.6       196.3       170.9       24.8       781.6  
 
                                   
Income (loss) before income taxes
  $ 33.7     $ 43.5     $ 3.7     $ 44.9     $ (9.8 )   $ 116.0  
 
                                   
 
                                               
As of June 30, 2010:
                                               
Total assets
  $ 249.6     $ 9,482.2     $ 6,952.5     $ 5,430.5     $ 2,236.6     $ 24,351.4  
                                                 
    For the Six Months Ended June 30, 2009  
            Retirement     Income                    
    Group     Services     Annuities     Individual     Other     Total  
Operating revenues:
                                               
Premiums
  $ 217.6     $     $     $ 18.7     $     $ 236.3  
Net investment income
    8.8       178.3       213.4       131.1       14.2       545.8  
Policy fees, contract charges, and other
    8.5       7.8       0.3       58.6       5.1       80.3  
Net investment losses on FIA options
          (1.2 )                       (1.2 )
 
                                   
Total operating revenues
    234.9       184.9       213.7       208.4       19.3       861.2  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    148.2       (0.9 )           29.2             176.5  
Interest credited
          116.7       178.0       115.7       (1.7 )     408.7  
Other underwriting and operating expenses
    54.1       27.7       10.2       26.2       6.8       125.0  
Interest expense
                            15.9       15.9  
Amortization of deferred policy acquisition costs
    3.9       16.3       0.8       1.6             22.6  
 
                                   
Total benefits and expenses
    206.2       159.8       189.0       172.7       21.0       748.7  
 
                                   
Segment pre-tax adjusted operating income (loss)
  $ 28.7     $ 25.1     $ 24.7     $ 35.7     $ (1.7 )   $ 112.5  
 
                                   
 
                                               
Operating revenues
  $ 234.9     $ 184.9     $ 213.7     $ 208.4     $ 19.3     $ 861.2  
Add: Net realized investment losses, excluding FIA options
    (1.4 )     (17.2 )     (11.2 )     (4.4 )     (4.9 )     (39.1 )
 
                                   
Total revenues
    233.5       167.7       202.5       204.0       14.4       822.1  
Total benefits and expenses
    206.2       159.8       189.0       172.7       21.0       748.7  
 
                                   
Income (loss) before income taxes
  $ 27.3     $ 7.9     $ 13.5     $ 31.3     $ (6.6 )   $ 73.4  
 
                                   
 
                                               
As of June 30, 2009:
                                               
Total assets
  $ 289.5     $ 7,617.7     $ 6,296.4     $ 4,911.9     $ 1,997.9     $ 21,113.4  

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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)
12. Subsequent Events
          On August 11, 2010, the Company declared a dividend of $0.05 per common share, or approximately $6.9 in total, to shareholders and warrant holders of record as of August 25, 2010. The dividend will be paid on or about September 8, 2010.

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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
          Unless the context otherwise requires, references in this report on Form 10-Q to “Symetra” refer to Symetra Financial Corporation on a stand-alone, non-consolidated basis. References to “we,” “our,” “us” and “the Company” are to Symetra Financial Corporation together with its subsidiaries.
          This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed under “Forward-Looking Statements.” You should read the following discussion in conjunction with the unaudited interim consolidated financial statements and accompanying condensed notes included in Item 1 — “Financial Statements” included in this Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC on March 8, 2010 (“2009 10-K”), as well as our current reports on Form 8-K and other publicly available information. Our fiscal year ends on December 31 of each calendar year.
          Management considers certain non-GAAP financial measures, including adjusted operating income, adjusted book value, adjusted book value per common share, adjusted book value per common share, as converted, and operating ROAE to be useful to investors in evaluating our financial performance and condition. These measures have been reconciled to their most comparable GAAP financial measures. For a definition of these non-GAAP measures, see “— Use of non-GAAP Financial Measures.”
          All amounts, except per share data, are in millions unless otherwise stated.
Overview
          We are a financial services company in the life insurance industry focused on profitable growth in selected group health, retirement, life insurance and employee benefits markets. Our operations date back to 1957 and many of our agency and distribution relationships have been in place for decades.
Our Operations
          We conduct our business through five segments, four of which are operating:
    Group. We offer medical stop-loss insurance, limited benefit medical plans, group life insurance, accidental death and dismemberment insurance and disability income insurance mainly to employer groups of 50 to 5,000 individuals. In addition to our insurance products, we offer managing general underwriting services.
    Retirement Services. We offer fixed and variable deferred annuities, including tax sheltered annuities, individual retirement accounts, or IRAs, and group annuities to qualified retirement plans, including Section 401(k), 403(b) and 457 plans.
    Income Annuities. We offer single premium immediate annuities, or SPIAs, for customers seeking a reliable source of retirement income and structured settlement annuities to fund third-party personal injury settlements. In addition, we offer funding services options to existing structured settlement clients.
    Individual. We offer a wide array of term and universal life insurance as well as bank-owned life insurance, or BOLI.
    Other. This segment consists of unallocated corporate income, composed primarily of investment income on unallocated surplus, returns from our investments in limited partnerships, unallocated corporate expenses, interest expense on debt, tax credits from our tax preferred affordable housing investments, the results of small, non-insurance businesses that are managed outside of our operating segments, and inter-segment elimination entries.
Current Outlook
          The pace of improvement in capital and credit markets slowed and in some areas retreated during the second quarter. During the quarter, equity markets became volatile and the major indexes dropped; treasury yields declined; the tight fixed income spreads widened slightly to partially offset the decline in treasury yields; and new bond issuances were sporadic.

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          The prolonged low interest rate environment and tight credit spreads have been a challenge for our various asset-based businesses as demand for investments with the necessary yields and quality that meet our investment requirements, and which we believe have an attractive risk-return profile, continues to exceed supply. As a result, we continue to find it challenging to fully invest our cash, specifically in our Retirement Services and our surplus portfolios. The overall yield on our portfolio dropped as we generally reinvested in assets with lower yields than we were earning previously.
          Despite widespread concerns regarding commercial real estate lending, we believe our high quality mortgage loan portfolio and commercial mortgage-backed securities (CMBS) have significant credit enhancement and will continue to generate strong cash flows. While we do not anticipate being immune to commercial real estate losses, given the structure of our mortgage loan and CMBS portfolios, we believe our strategies in this area, including disciplined underwriting, will minimize our exposure to future losses. In fact, we are prudently increasing our investments in mortgage loans in our Income Annuities segment to improve our interest spread.
          On June 7, 2010, we announced Tom Marra as president and chief executive officer. We intend to leverage Mr. Marra’s industry experience and leadership as we continue to concentrate on our strategic objectives of:
  —    developing new distribution partnerships, especially with financial institutions and financial planners;
 
  —    adding additional products with existing partners;
 
  —    expanding our less interest-rate sensitive products, including life insurance in the Individual and Group segments, while maintaining our solid position in fixed deferred and income annuities;
 
  —    developing transparent products that capitalize on favorable demographic trends such as the need for retirement savings, life insurance and employers’ need to provide affordable health care to employees; and
 
  —    disciplined balance sheet management.
          However, the success of these and other strategies may be affected by the factors discussed in Item 1A — “Risk Factors” and other factors as discussed herein.
Critical Accounting Policies and Estimates
          The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the unaudited interim consolidated financial statements. The following accounting policies are those we consider to be particularly critical to understanding our financial statements because their application places the most significant demands on our ability to judge the effect of inherently uncertain matters on our financial results:
    Valuation of investments at fair value;
    The evaluation of OTTI of investments;
    The balance, recoverability and amortization of deferred policy acquisition costs;
    The liabilities for funds held under deposit contracts, future policy benefits, and policy and contract claims; and
    The recoverability of deferred tax assets.
          In applying the Company’s accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company’s businesses and operations. For all of these policies, we caution that future events rarely develop exactly as forecast, and our best estimates may require adjustment.
          There have been no material changes to the above critical accounting estimates, which are described in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” and Note 2 of the notes to the audited financial statements included in the 2009 10-K.
New Accounting Standards
          For a discussion of recently adopted and not yet adopted accounting pronouncements, see Note 2 in the accompanying unaudited interim consolidated financial statements.

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Sources of Revenues and Expenses
          Our primary sources of revenues from our insurance operations are premiums and net investment income. Our primary sources of expenses from our insurance operations are policyholder benefits and claims, interest credited to policyholder reserves and account balances and general business and operating expenses, net of deferred policy acquisition costs (DAC). We also generate net realized investment gains (losses) on sales or impairment of our investments and changes in fair value of our equity trading portfolio.
          Each of our four operating segments maintains its own portfolio of invested assets, which are centrally managed. The net investment income and net realized investment gains (losses) are reported in the segment in which they occur. We also allocate surplus net investment income to each segment using a risk-based capital formula. The unallocated portion of net investment income is reported in our Other segment. In addition, we allocate certain corporate expenses to each operating segment using multiple factors, including employee headcount, allocated investments, account values and time study results.
     Revenues
     Premiums
          Premiums consist primarily of premiums from our group life and health and individual life insurance products.
     Net investment income
          Net investment income represents the income earned on our investments, net of investment expenses, including gains or losses from changes in the fair value of our investments in limited partnerships, primarily private equity and hedge funds.
     Policy fees, contract charges and other
          Policy fees, contract charges and other includes mortality expense, surrender and other administrative charges to policyholders, revenues from our non-insurance businesses, reinsurance allowance fees, and cost of insurance (COI) charges on our universal life insurance and BOLI policies.
     Net realized investment gains (losses)
          Net realized investment gains (losses) mainly consists of realized gains (losses) from sales of our investments, realized losses from investment impairments and changes in fair value of our trading portfolio and fixed index annuity (FIA) options.
     Benefits and Expenses
     Policyholder benefits and claims
          Policyholder benefits and claims consist of benefits paid and reserve activity on group life and health and individual life products. In addition, in accordance with the purchase method of accounting (referred to as PGAAP), we record, as a reduction of this expense, PGAAP reserve amortization related to our BOLI policies. PGAAP reserve amortization related to our fixed deferred annuities was recorded in this line item until it was fully amortized as of September 30, 2009.
     Interest credited
          Interest credited represents interest credited to policyholder reserves and contractholder general account balances.
     Other underwriting and operating expenses
          Other underwriting and operating expenses represent non-deferrable costs related to the acquisition and ongoing maintenance of insurance and investment contracts, including certain non-deferrable commissions, policy issuance expenses and other general operating costs.

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     Interest expense
          Interest expense primarily includes interest on corporate debt, the impact of interest rate hedging activities and amortization of debt issuance costs.
     Amortization of deferred policy acquisition costs
          We defer as assets certain costs, generally commissions, distribution costs and other underwriting costs, that vary with, and are primarily related to, the production of new and renewal business. Amortization of previously capitalized DAC is recorded as an expense.
Use of non-GAAP Financial Measures
          Certain tables and related disclosures in this report include non-GAAP financial measures. We believe these measures provide useful information to investors in evaluating our financial performance or condition. In addition, our management and board of directors use these measures to gauge the historical performance of our operations and for business planning purposes. In the tables below, we present these measures and provide reconciliations to the nearest GAAP financial measure. In the following paragraphs, we provide definitions of these non-GAAP measures and explain how we believe investors will find them useful, how we use them, what their limitations are, and how we compensate for such limitations.
                 
    As of     As of  
    June 30,     December 31,  
    2010     2009  
Total stockholders’ equity
  $ 2,342.8     $ 1,433.3  
Less: AOCI
    501.1       (49.7 )
 
           
Adjusted book value*
    1,841.7       1,483.0  
Add: Assumed proceeds from exercise of warrants
    218.1       218.1  
 
           
Adjusted book value, as converted*
  $ 2,059.8     $ 1,701.1  
 
           
 
               
Book value per common share
  $ 17.08     $ 12.83  
 
           
 
               
Adjusted book value per common share*
  $ 15.58     $ 15.99  
 
           
 
               
Adjusted book value per common share, as converted*
  $ 15.02     $ 15.23  
 
           
                 
    For the Twelve Months Ended
    June 30,   December 31,
    2010   2009
Return on stockholders’ equity, ROE
    9.9 %     15.4 %
Average stockholders’ equity
  $ 1,598.4     $ 832.4  
 
               
Operating return on average equity, or ROAE*
    9.6 %     10.5 %
Average adjusted book value*
  $ 1,598.8     $ 1,407.8  
 
*   Represents non-GAAP measures.
     Adjusted Operating Income
          Adjusted operating income is a non-GAAP measure of our performance. Adjusted operating income consists of net income, less after-tax net realized investment gains (losses), plus after-tax net investment gains (losses) on our FIA options.
          Net income is the most directly comparable GAAP measure to adjusted operating income. Net income for any period presents the results of our insurance operations, as well as our net realized investment gains (losses). We consider investment income generated by our invested assets to be part of the results of our insurance operations because they are acquired and generally held to maturity to generate income that we use to meet our obligations. Conversely, we do not consider the activities reported through net realized investment gains (losses), with the exception of our FIA options, to be reflective of the performance of our insurance operations, as discussed below.

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          We believe investors find it useful to review a measure of the results of our insurance operations separate from the net realized gain and loss activity attributable to most of our investment portfolio because it assists an investor in determining whether our insurance-related revenues, composed primarily of premiums; net investment income; and policy fees, contract charges and other, have been sufficient to generate operating earnings after meeting our insurance-related obligations, composed primarily of claims paid to policyholders, investment returns credited to policyholder accounts, and other operating costs.
          In presenting adjusted operating income, we are excluding after-tax net realized investment gains (losses). Even though these gains and losses recur in most periods, the timing and amount are driven by investment decisions and external economic developments unrelated to our management of the insurance and underwriting aspects of our business. Thus, because our insurance operations are not dependent on the following, we exclude from adjusted operating income the following items which are recorded in after-tax net realized investment gains (losses):
    OTTI related to available-for-sale securities, which depend on the timing and severity of market credit cycles and management judgments regarding recoverability;
    Net gains (losses) on changes in fair value of our trading securities, which depend on equity market performance and broader market conditions; and
    Net realized gains (losses) on sales of securities, which are subject to our discretion and influenced by market opportunities.
          The one exception to the exclusion of net realized investment gains (losses) is the gains (losses) on our FIA options in our Retirement Services segment. Each year, we use the realized gains from our FIA options, similar to the way we use investment income, to meet our obligations associated with our FIA product, which credits interest to policyholder accounts based on equity market performance.
          In addition to using adjusted operating income to evaluate our insurance operations, our management and board of directors have other uses for this measure, including managing our insurance liabilities and assessing achievement of our financial plan. For instance, we use adjusted operating income to help determine the renewal interest rates we can afford to credit to policyholders. We also develop a financial plan that includes our expectation of adjusted operating income. We review our achievement of our financial plan by understanding variances between actual and planned adjusted operating income. We use this information to make decisions on how to manage our consolidated insurance operations, including making decisions regarding expense budgets, product prices and the purchase of tax-advantaged affordable housing limited partnerships.
          Adjusted operating income is not a substitute for net income determined in accordance with GAAP. The adjustments made to derive adjusted operating income are important to understanding our overall results from operations and, if evaluated without proper context, adjusted operating income possesses material limitations. As an example, we could produce a low level of net income in a given period, despite strong operating performance, if in that period we generate significant net realized losses from our investment portfolio. We could also produce a high level of net income in a given period, despite poor operating performance, if in that period we generate significant net realized gains from our investment portfolio. As an example of another limitation of adjusted operating income, it does not include the decrease in cash flows expected to be collected as a result of credit loss OTTI. Further, it includes changes to net investment income as a result of OTTI, which are not directly related to our insurance operations, and does not adjust for any negative impact to cash flows that we may experience in future periods as a result of such changes in net investment income. Therefore, our management and board of directors also separately review net realized investment gains (losses) and analyses of our net investment income, including impacts related to OTTI write-downs, in connection with their review of our investment portfolio. In addition, our management and board of directors examine net income as part of their review of our overall financial results. For a reconciliation of adjusted operating income to net income, see “— Results of Operations” below.
     Adjusted Book Value, Adjusted Book Value per Common Share and Adjusted Book Value per Common Share, as Converted
     Adjusted book value
          Adjusted book value is a non-GAAP financial measure of our financial condition. Adjusted book value consists of stockholders’ equity, less accumulated other comprehensive income (loss), or AOCI.
          Stockholders’ equity is the most directly comparable GAAP measure to adjusted book value. AOCI, which is primarily composed of the net unrealized gains (losses) on our fixed maturities, net of taxes, is a component of stockholders’ equity.

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          We purchase fixed maturities with durations and cash flows that match our estimate of when our insurance liabilities and other obligations will come due. We typically expect to hold our fixed maturities to maturity, using the principal and interest cash flows to pay our obligations over time. Since we expect to collect the contractual cash flows on these fixed maturities, we do not expect to realize the unrealized gains (losses) that are included in our AOCI balance as of any particular date. AOCI primarily fluctuates based on changes in the fair value of our fixed maturities, which is driven by factors outside of our control, including the impact of credit market conditions and the movement of interest rates and credit spreads. These fluctuations do not reflect any change in the cash flows we expect to receive. As an example, an increase in the fair value of our fixed maturities improved AOCI by $550.8 to a $501.1 gain as of June 30, 2010, from a $49.7 loss as of December 31, 2009, due to bond market improvements and tightening of interest spreads. This contributed to a related increase in stockholders’ equity over the same period of $909.5, or 63%; however, this increase did not impact our estimates regarding collection of cash flows on the underlying fixed maturities.
          We believe investors find it useful if we present them with a financial measure that removes from stockholders’ equity these temporary and unrealized changes in the fair values of our investments, and the related effects on AOCI. By evaluating our adjusted book value, an investor can assess our financial condition based on our general practice of holding our fixed investments to maturity. For example, we believe it is important that an investor not assume that an increase in stockholders’ equity driven by unrealized gains means our company has grown in value and, alternatively, it is important that an investor not assume that a decrease in stockholders’ equity driven by unrealized losses means our company’s value has decreased.
          In addition to using adjusted book value to evaluate our financial condition, our management and board of directors have other uses for this measure, including reviewing debt levels as a percentage of adjusted book value to monitor compliance with revolving credit facility covenants and helping to maintain and improve our ratings from rating agencies. Our management also compares adjusted book value to regulatory capital to assess our ability to maintain regulatory capital ratios and ratings. Finally, our board of directors uses adjusted book value as a basis to measure the success of our company over historical periods and reviews management’s financial plans with consideration to adjusted book value.
          Adjusted book value is not a substitute for stockholders’ equity determined in accordance with GAAP and considering adjusted book value on its own would present material limitations to an analysis of our financial condition. For example, AOCI may deteriorate due to higher interest rates, credit spreads and issues specific to particular investments. By not considering the size of gross unrealized losses within AOCI, an investor may fail to appreciate the size of potential losses or the amount of potential gains based on the fair value of our fixed maturities. As a result, when evaluating our financial condition, we compensate for these limitations by also considering stockholders’ equity and the unrealized gains (losses) on invested assets, which are provided in our investment disclosures (see “— Investments” for further information).
          Adjusted book value should not be considered a substitute for stockholders’ equity. For a reconciliation of adjusted book value to stockholders’ equity, see above.
     Adjusted book value per common share
          Adjusted book value per common share is a non-GAAP financial measure of our financial condition. Adjusted book value per common share is calculated as adjusted book value, divided by outstanding common shares. This measure does not include the 18.976 shares subject to outstanding warrants for all periods presented because the warrant holders only participate in dividends and would not be entitled to proceeds in the event of a liquidation or winding down of our company should such event precede the exercise of the outstanding warrants.
          Book value per common share is the most directly comparable GAAP measure to adjusted book value per common share. Book value per common share is calculated as stockholders’ equity divided by the sum of our common shares outstanding and shares issuable pursuant to outstanding warrants.
          We believe investors find it useful if we present them with adjusted book value (discussed above), a financial measure that removes AOCI from stockholders’ equity, and then translate it into another measure, adjusted book value per common share, that allows the investor to understand the value of its investment on the adjusted book value basis. By evaluating this measure, an investor will be able to assess its proportionate stake in our adjusted book value as of the dates presented, and the change in such measure over time, based on our practice of holding our fixed maturities to maturity. In addition, this measure allows an investor to understand the value of its investment based on current shares outstanding because it represents our future share count in the event that the outstanding warrants are not exercised before they expire.

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          In addition to using adjusted book value to evaluate our financial condition on a per common share basis, our management and board of directors use this measure to assess the cost of obtaining new equity capital and to compare the value and the change in value over time of our common shares to that of our peer companies. For example, our board of directors takes into account the expected market price of our common shares relative to adjusted book value per common share when considering raising new equity capital.
          Adjusted book value per common share is not a substitute for book value per common share determined in accordance with GAAP and only considering adjusted book value per common share on its own would present material limitations similar to those discussed above with respect to adjusted book value.
          Adjusted book value per common share should not be considered a substitute for book value per common share. For a reconciliation of adjusted book value per common share to book value per common share, see above.
     Adjusted book value per common share, as converted
          Adjusted book value per common share, as converted, is a non-GAAP financial measure of our financial condition and gives effect to the exercise of our outstanding warrants. Adjusted book value per common share, as converted, is calculated as adjusted book value plus the assumed proceeds from the warrants, divided by the sum of outstanding common shares and shares subject to outstanding warrants. Our shares issuable pursuant to outstanding warrants were 18.976 for all periods presented.
          Book value per common share is the most directly comparable GAAP measure to adjusted book value per share, as converted. Book value per common share is calculated as stockholders’ equity divided by the sum of our common shares outstanding and shares issuable pursuant to our outstanding warrants.
          We believe investors find it useful if we present them with adjusted book value (discussed above), a financial measure that removes AOCI from stockholders’ equity and then translate it into another measure, adjusted book value per common share, as converted, which gives effect to the exercise of our outstanding warrants. By evaluating this measure, an investor will be able to assess its proportionate stake in our adjusted book value for the periods presented, on a fully diluted basis. We believe it is most meaningful for investors to compare this measure to adjusted book value per common share as this will allow the investor to understand the dilutive effect if the warrant holders exercise our outstanding warrants.
          As discussed above, our management and board of directors use adjusted book value per common share to compare the value of a share of our common stock to that of our peer companies, and also to measure the cost of new equity capital. To further this analysis, our management and board of directors also make these comparisons and judgments after taking into account the potential dilutive effect of the exercise of our outstanding warrants.
          Adjusted book value per common share, as converted, is not a substitute for book value per common share determined in accordance with GAAP and only considering adjusted book value per common share, as converted, on its own would present material limitations similar to those discussed above with respect to adjusted book value.
          Adjusted book value per common share, as converted, should not be considered a substitute for book value per common share. For a reconciliation of adjusted book value per common share, as converted, to book value per common share, see above.
     Operating ROAE
          Operating return on average equity, or operating ROAE, is a non-GAAP measure of our performance. Operating ROAE consists of adjusted operating income for the most recent four quarters, divided by average adjusted book value, both of which are non-GAAP measures as described above. We measure average adjusted book value by averaging adjusted book value for the most recent five quarters.
          Return on stockholders’ equity, or ROE, is the most directly comparable GAAP measure. Return on stockholders’ equity is calculated as net income for the most recent four quarters, for such period divided by the average stockholders’ equity for the most recent five quarters.
          As discussed above under “— Adjusted operating income,” we believe investors find it useful to review the results of our insurance operations separate from the gain and loss activity attributable to most of our investment portfolio because it highlights

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trends in the performance of our insurance operations. In addition, as discussed above under “— Adjusted Book Value, Adjusted Book Value per Common Share and Adjusted Book Value per Common Share, as Converted,” we believe investors find it useful if we present them with a financial measure that removes from stockholders’ equity the temporary and unrealized changes in the fair values of our investments, and the related effects on AOCI, because we do not expect to realize the unrealized gains (losses) that are included in our AOCI balance as of any particular date. By referring to operating ROAE, an investor can form a judgment as to how effectively our management uses funds invested by our stockholders to generate adjusted operating income growth. Thus, we present operating ROAE for a period to measure the rate of return produced by our adjusted operating income in such period based on our average adjusted book value for such period.
          In addition to using operating ROAE to evaluate how effectively our management uses funds invested in our company, our management and board of directors have additional uses for operating ROAE. These include comparing our operating ROAE to those of our peer companies, comparing our operating ROAE against our target return objectives, and determining if our insurance and annuity products are priced to achieve our long-term targets.
          However, because operating ROAE excludes realized and unrealized gains (losses) on our investment portfolio, it has material limitations as a financial measure of performance and should not be considered on its own. As an example, we could produce a high operating ROAE in a given period, despite poor net income, if in that period we generated significant net realized losses from our investment portfolio. To compensate for such limitations, we also consider ROE to assess financial performance and return on total equity.
          Operating ROAE should not be considered a substitute for ROE. The numerator and denominator of operating ROAE have been reconciled to net income and stockholders’ equity, respectively, their most comparable GAAP financial measures, see above.

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Results of Operations
Total Company
          The following discussion should be read in conjunction with our unaudited interim consolidated financial statements and the related condensed notes. Set forth below is a summary of our consolidated financial results. The variances noted in the total company and segment tables should be interpreted as increases or (decreases), respectively.
                                                 
    For the Three Months     QTD     For the Six Months     YTD  
    Ended June 30,     Variance (%)     Ended June 30,     Variance (%)  
    2010     2009     2010 vs. 2009     2010     2009     2010 vs. 2009  
Revenues:
                                               
Premiums
  $ 115.5     $ 116.8       (1.1 )%   $ 234.5     $ 236.3       (0.8 )%
Net investment income
    297.1       283.1       4.9       584.0       545.8       7.0  
Policy fees, contract charges, and other
    41.8       40.7       2.7       82.3       80.3       2.5  
Net realized investment gains (losses):
                                               
Net impairment losses recognized in earnings
    (1.5 )     (28.5 )     94.7       (11.2 )     (56.3 )     80.1  
Other net realized investment gains (losses)
    (8.5 )     31.2       *       8.0       16.0       (50.0 )
 
                                       
Total net realized investment gains (losses)
    (10.0 )     2.7       *       (3.2 )     (40.3 )     92.1  
 
                                       
Total revenues
    444.4       443.3       0.2       897.6       822.1       9.2  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    83.3       82.1       1.5       169.5       176.5       (4.0 )
Interest credited
    221.5       213.1       3.9       440.0       408.7       7.7  
Other underwriting and operating expenses
    64.2       62.0       3.5       123.8       125.0       (1.0 )
Interest expense
    7.9       8.0       (1.3 )     15.9       15.9        
Amortization of deferred policy acquisition costs
    17.0       11.9       42.9       32.4       22.6       43.4  
 
                                       
Total benefits and expenses
    393.9       377.1       4.5       781.6       748.7       4.4  
 
                                       
Income from operations before income taxes
    50.5       66.2       (23.7 )     116.0       73.4       58.0  
 
                                               
Provision for income taxes:
                                               
Current
    17.4       9.6       81.3       27.3       11.5       *  
Deferred
    (2.7 )     9.6       *       6.6       9.8       (32.7 )
 
                                       
Total provision for income taxes:
    14.7       19.2       (23.4 )     33.9       21.3       59.2  
 
                                       
Net income
  $ 35.8     $ 47.0       (23.8 )   $ 82.1     $ 52.1       57.6  
 
                                       
 
                                               
Net income per common share(1):
                                               
Basic
  $ 0.26     $ 0.42       (38.1 )   $ 0.61     $ 0.47       29.8  
 
                                       
Diluted
  $ 0.26     $ 0.42       (38.1 )   $ 0.61     $ 0.47       29.8  
 
                                       
 
                                               
Weighted-average common shares outstanding:
                                               
Basic
    137.019       111.622       *       134.035       111.622       *  
 
                                       
Diluted
    137.038       111.622       *       134.056       111.622       *  
 
                                       
 
                                               
Non-GAAP Financial Measures(2):
                                               
Adjusted operating income
  $ 41.5     $ 45.3       (8.4 )%   $ 83.4     $ 77.5       7.6 %
 
                                       
 
                                               
Reconciliation to net income:
                                               
Net income
  $ 35.8     $ 47.0       (23.8 )   $ 82.1     $ 52.1       57.6  
Less: Net realized investment gains (losses) (net of taxes of $(3.4), $0.9, $(1.1) and $(14.1))
    (6.6 )     1.8       *       (2.1 )     (26.2 )     92.0  
Add: Net investment gains (losses) on FIA options (net of taxes of $(0.4), $0.1, $(0.4) and $(0.4))
    (0.9 )     0.1       *       (0.8 )     (0.8 )      
 
                                       
Adjusted operating income
  $ 41.5     $ 45.3       (8.4 )%   $ 83.4     $ 77.5       7.6 %
 
                                       
 
*   Represents percentage variances that are not meaningful or are explained through the discussion of other variances.
 
(1)   For further information on the calculation of basic and diluted net income per common share, see Note 3 to the accompanying unaudited interim financial statements.
 
(2)   For a definition and discussion of the uses and limitations of this non-GAAP measure and other metrics used in our analysis, see “— Use of non-GAAP Financial Measures” above.

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Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
     Summary of Results
          Net income decreased $11.2 as a result of a decrease in adjusted operating income and net realized investment losses in the current quarter, versus net realized gains in the prior year. Adjusted operating income decreased $3.8, primarily driven by a lower interest spread on reserves in Income Annuities and a reduction in private equity and hedge fund income. These unfavorable drivers were partially offset by an increased investment margin in our Retirement Services segment and an improved loss ratio in our Group segment.
          Net realized investment gains and losses decreased $12.7, to a $10.0 loss from a $2.7 gain. This was primarily driven by a decline in our equity portfolio during the second quarter of 2010, though these losses were offset by a reduction in impairments. Our equity portfolio produced $8.8 of losses in the second quarter of 2010 compared to gains of $19.6 for the same period of 2009, a $28.4 reduction. Impairments were $1.5 for the second quarter 2010 compared to $28.5 for the second quarter 2009, a $27.0 improvement. For further discussion of our investment results and portfolio, including a discussion of our impairment charges, refer to “— Investments” below.
          The provision for income taxes decreased $4.5 primarily due to lower income from operations before income taxes during the three months ended June 30, 2010, compared to the same period in 2009. Our effective tax rate, which was essentially flat, was 29.1% and 29.0%, for the three months ended June 30, 2010 and 2009, respectively.
          Further discussion of adjusted operating income drivers described above:
          Our Group segment’s loss ratio improved to 63.8% for the three months ended June 30, 2010 compared to 66.1% for the same period in 2009, driving the $1.0 increase in pre-tax adjusted operating income. Rate increases on medical stop-loss policy renewals drove this improvement.
          Our Retirement Services segment’s investment margin increased $10.7 as a result of a $1.5 billion increase in our fixed annuity account values and an increase in the interest spread. Strong sales of fixed deferred annuity products over the past year drove the increased account values. Partially offsetting the increase in the investment margin was a $5.1 increase in DAC amortization on a growing DAC balance.
          Our Income Annuities segment’s interest spread decreased to 0.49% for the three months ended June 30, 2010 compared to 0.62% for the same period in 2009, decreasing pre-tax adjusted operating income $2.2. This was driven by reduced investment yields, the result of changes in prepayment speeds on mortgage-backed securities and the negative impacts of prepayments and maturities leading to reinvestment in lower yielding assets. To help address this situation, we are prudently increasing our investments in mortgage loans which generate relatively higher yields. In addition to the decreased interest spread, we experienced mortality losses of $1.8 in the current quarter compared to losses of $0.5 for the same period of 2009.
          Our Other segment’s results were negatively impacted by a $6.9 reduction in investment income from investments in private equity and hedge funds. We began liquidating our hedge fund holdings in the second half of 2009 with minimal holdings remaining as of June 30, 2010. In addition, included in our Other segment’s current period results were charges of $1.3 related to our CEO transition.
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
     Summary of Results
          Net income increased $30.0 as a result of an increase in adjusted operating income and lower net realized investment losses. Adjusted operating income increased $5.9, which was primarily due to an increase in the investment margin in our Retirement Services segment, an increase in the universal life (UL) margin in our Individual segment, and improvement in our Group segment’s loss ratio. The loss ratio, improved to 66.4% for the six months ended June 30, 2010, compared to 68.1% for the same period in 2009. These favorable drivers were partially offset by a decrease in the investment margin and mortality losses in our Income Annuities segment, an increase in DAC amortization in our Retirement Services segment, and decreased gains on our private equity and hedge fund investments in our Other segment.

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          Net realized investment losses decreased $37.1, or 92.1%, to $3.2 from $40.3. This is primarily driven by a reduction in impairments, which were $11.2 for the six months ended June 30, 2010, versus $56.3 for the same period in 2009, an improvement of $45.1. Partially offsetting the improvement in impairments was a decline in the performance of our equity portfolio, which produced losses of $1.2 for the six months ended June 30, 2010, versus gains of $4.3 for the same period in 2009, a decrease of $5.5. For further discussion of our investment results and portfolio, including a discussion of our impairment charges, refer to “— Investments” below.
          The provision for income taxes increased $12.6 primarily due to higher income from operations before income taxes during the six months ended June 30, 2010, compared to the same period in 2009. Our effective tax rate, which was essentially flat, was 29.2% and 29.0%, for the six months ended June 30, 2010 and 2009, respectively.
          Further discussion of adjusted operating income drivers described above:
          Our Retirement Services segment’s investment margin increased $22.6 on an increase in our fixed account values of $1.5 billion, and an increase in interest spreads. Spreads improved as we lowered crediting rates due to the low interest rate environment and lowered average cash balances. Partially offsetting the increase in the investment margin was a $10.5 increase in DAC amortization on a growing DAC balance.
          Our Income Annuities segment’s interest spread decreased to 0.45% for the six months ended June 30, 2010 compared to 0.61% for the same period in 2009, decreasing pre-tax adjusted operating income $4.6. This was driven by reduced investment yields, the result of changes in prepayment speeds on mortgage-backed securities and the negative impacts of prepayments and maturities leading to reinvestment in lower yielding assets. In addition, we experienced mortality losses of $1.9 in the first half of 2010, compared to mortality gains of $3.8 for the same period of 2009.
          Our Individual segment’s UL margin increased $6.5. This was driven primarily by the first quarter release of bonus interest reserve and decreased amortization of deferred acquisition costs as the credited interest rate on one of our universal life products is being adjusted downward to the guaranteed minimum over the next nine months.
          Our Other segment’s results were negatively impacted by a $6.8 decrease in private equity and hedge funds income, as discussed in the quarterly results above.
Segment Operating Results
          The results of operations and selected operating metrics for our five segments (Group, Retirement Services, Income Annuities, Individual and Other) for the three and six months ended June 30, 2010 and 2009 are set forth in the following respective sections.
Group
          The following table sets forth the results of operations relating to our Group segment:
                                                 
    For the Three Months     QTD     For the Six Months     YTD  
    Ended June 30,     Variance (%)     Ended June 30,     Variance (%)  
    2010     2009     2010 vs. 2009     2010     2009     2010 vs. 2009  
Operating revenues:
                                               
Premiums
  $ 105.8     $ 107.9       (1.9 )%   $ 214.6     $ 217.6       (1.4 )%
Net investment income
    4.8       4.3       11.6       9.4       8.8       6.8  
Policy fees, contract charges, and other
    3.0       4.4       (31.8 )     5.9       8.5       (30.6 )
 
                                       
Total operating revenues
    113.6       116.6       (2.6 )     229.9       234.9       (2.1 )
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    67.4       71.3       (5.5 )     142.4       148.2       (3.9 )
Other underwriting and operating expenses
    26.0       26.2       (0.8 )     49.7       54.1       (8.1 )
Amortization of deferred policy acquisition costs
    2.0       1.9       5.3       3.9       3.9        
 
                                       
Total benefits and expenses
    95.4       99.4       (4.0 )     196.0       206.2       (4.9 )
 
                                       
Segment pre-tax adjusted operating income
  $ 18.2     $ 17.2       5.8 %   $ 33.9     $ 28.7       18.1 %
 
                                       

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     The following table sets forth selected historical operating metrics relating to our Group segment as of, or for the three and six months ended:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Group loss ratio(1)
    63.8 %     66.1 %     66.4 %     68.1 %
Expense ratio(2)
    25.4 %     23.9 %     24.3 %     24.3 %
 
                       
Combined ratio(3)
    89.2 %     90.0 %     90.7 %     92.4 %
 
                       
Medical stop-loss — loss ratio(4)
    65.4 %     67.7 %     67.8 %     69.7 %
Total sales(5)
  $ 20.6     $ 14.0     $ 62.0     $ 50.8  
 
(1)   Group loss ratio represents policyholder benefits and claims incurred divided by premiums earned.
 
(2)   Expense ratio is equal to other underwriting and operating expenses of our insurance operations and amortization of DAC divided by premiums earned.
 
(3)   Combined ratio is equal to the sum of the loss ratio and the expense ratio.
 
(4)   Medical stop-loss — loss ratio represents medical stop-loss policyholder benefits and incurred claims divided by medical stop-loss premiums earned.
 
(5)   Total sales represents annualized first-year premiums.
Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income increased $1.0, primarily the result of an improved loss ratio on a slightly smaller block of business. For second quarter 2010, the loss ratio was 63.8%, down from 66.1% for the same period in 2009. We experienced fewer medical stop-loss claims as a function of better underwriting results.
          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Operating Revenues
          Policy fees, contract charges, and other decreased $1.4 primarily due to a reduction in revenue from our third party administrator, which was sold in the third quarter of 2009. This reduction in revenue was fully offset by a corresponding reduction in operating expenses.
     Benefits and Expenses
          The slight reduction in other underwriting and operating expenses was the result of the sale of our third party administrator, as noted above, partially offset by an increase in the expense ratio. Commissions increased $1.5 due mainly to commission adjustments during the three months ended June 30, 2010, including annual producer profit bonus estimates and other commission adjustments.
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income increased $5.2 primarily the result of an improved loss ratio on a slightly smaller block of business, as discussed above. For the six months ended June 30, 2010, the loss ratio was 66.4%, down from 68.1% for the same period in 2009. We have seen our loss ratio come down closer to target levels as a result of pricing action taken on 2010 policy year renewals.

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          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Benefits and Expenses
          The $4.4 decrease in other underwriting and operating expenses was due in part to decreased distribution expenses driven by lower incentive compensation expense and lower distribution employee headcounts. In addition, $3.3 of the decrease was attributable to a reduction in expenses as a result of the sale of our third party administrator described above.
Retirement Services
          The following table sets forth the results of operations relating to our Retirement Services segment:
                                                 
    Three Months     QTD     Six Months     YTD  
    Ended June 30,     Variance (%)     Ended June 30,     Variance (%)  
    2010     2009     2010 vs. 2009     2010     2009     2010 vs. 2009  
Operating revenues:
                                               
Net investment income
  $ 115.3     $ 95.3       21.0 %   $ 223.1     $ 178.3       25.1 %
Policy fees, contract charges, and other
    4.8       4.0       20.0       9.6       7.8       23.1  
Net investment gains (losses) on FIA options
    (1.3 )     0.2       *       (1.2 )     (1.2 )      
 
                                       
Total operating revenues
    118.8       99.5       19.4       231.5       184.9       25.2  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    0.6       (0.4 )     *       0.7       (0.9 )     *  
Interest credited
    70.4       61.1       15.2       138.9       116.7       19.0  
Other underwriting and operating expenses
    13.6       14.2       (4.2 )     27.2       27.7       (1.8 )
Amortization of deferred policy acquisition costs
    13.6       8.5       60.0       26.8       16.3       64.4  
 
                                       
Total benefits and expenses
    98.2       83.4       17.7       193.6       159.8       21.2  
 
                                       
Segment pre-tax adjusted operating income
  $ 20.6     $ 16.1       28.0 %   $ 37.9     $ 25.1       51.0 %
 
                                       
 
*   Represents percentage variances that are not meaningful or are explained through the discussion of other variances.
     The following table sets forth selected historical operating metrics relating to our Retirement Services segment as of, or for the three months ended:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Account values — Fixed annuities
  $ 8,574.0     $ 7,025.6                  
Account values — Variable annuities
    682.3       664.1                  
Interest spread on average account values(1)
    1.97 %     1.82 %     1.91 %     1.73 %
Total sales(2)
  $ 623.9     $ 568.5     $ 1,001.4     $ 1,479.6  
 
(1)   Interest spread is the difference between net investment yield earned and the credited interest rate to policyholders. The investment yield is the approximate yield on invested assets in the general account attributed to the segment. The credited interest rate is the approximate rate credited on policyholder fixed account values within the segment. Interest credited is subject to contractual terms, including minimum guarantees. Interest spread tends to move gradually over time to reflect market interest rate movements and may reflect actions by management to respond to competitive pressures and profit targets.
 
(2)   Total sales represent deposits for new policies.

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Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income increased $4.5 driven by an increase of $10.7 in the investment margin from a higher interest spread on record high account values driven by strong sales in 2009 and 2010. Our interest spread increased mainly due to decreased credited rates reflecting the low interest rate environment and more effective investment of cash in the second quarter of 2010 compared to the second quarter of 2009. This was partially offset by a $5.1 increase in DAC amortization on a growing DAC balance.
          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Operating Revenues
          Net investment income increased $20.0, which was driven by a $1.4 billion increase in average invested assets. Further growth of net investment income was limited as fixed deferred annuity sales during a tight credit market have resulted in us carrying higher levels of cash than during normal economic periods.
          Net investment gains (losses) on FIA options decreased $1.5 with losses of $1.3 in the second quarter of 2010 compared to gains of $0.2 for the same period in 2009. The S&P 500 index decreased 11.9% in the second quarter of 2010, as compared to a 15.2% increase in the second quarter of 2009.
     Benefits and Expenses
          Interest credited increased $9.3 primarily due to a 23% increase in average account value driven by strong sales of fixed deferred annuity products in 2009 and 2010.
          Amortization of DAC increased $5.1, which was primarily driven by a growing block of business and corresponding growth in our DAC asset from strong sales.
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income increased $12.8 driven by an increase of $22.6 in the investment margin from a higher interest spread on record high account values. This was partially offset by a $10.5 increase in DAC amortization.
          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Operating Revenues
          Net investment income increased $44.8, which was driven by a $1.6 billion increase in average invested assets. Further growth of net investment income was limited as fixed deferred annuity sales during a tight credit market have resulted in us carrying higher levels of cash than during normal economic periods, which earn lower yields.
     Benefits and Expenses
          Interest credited increased $22.2 primarily due to a 31% increase in average account value driven by strong sales of fixed deferred annuity products in 2009 and 2010.
          Amortization of DAC increased $10.5, which was primarily driven by a growing block of business and corresponding growth in our DAC asset from strong sales.

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Income Annuities
          The following table sets forth the results of operations relating to our Income Annuities segment:
                                                 
    Three Months             Six Months        
    Ended June 30,     Variance (%)     Ended June 30,     Variance (%)  
    2010     2009     2010 vs. 2009     2010     2009     2010 vs. 2009  
Operating revenues:
                                               
Net investment income
  $ 104.7     $ 107.1       (2.2 )%   $ 208.7     $ 213.4       (2.2 )%
Policy fees, contract charges, and other
    0.2       0.1       *       0.4       0.3       33.3  
 
                                       
Total operating revenues
    104.9       107.2       (2.1 )     209.1       213.7       (2.2 )
 
                                               
Benefits and expenses:
                                               
Interest credited
    92.9       91.3       1.8       184.9       178.0       3.9  
Other underwriting and operating expenses
    5.2       5.2             10.5       10.2       2.9  
Amortization of deferred policy acquisition costs
    0.4       0.4             0.9       0.8       12.5  
 
                                       
Total benefits and expenses
    98.5       96.9       1.7       196.3       189.0       3.9  
 
                                       
Segment pre-tax adjusted operating income
  $ 6.4     $ 10.3       (37.9 )%   $ 12.8     $ 24.7       (48.2 )%
 
                                       
 
*   Represents percentage variances that are not meaningful or are explained through the discussion of other variances.
          The following table sets forth selected historical operating metrics relating to our Income Annuities segment as of, or for the three months ended:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Reserves(1)
  $ 6,716.8     $ 6,722.6                  
Interest spread on reserves(2)
    0.49 %     0.62 %     0.45 %     0.61 %
Mortality gains (losses)(3)
  $ (1.8 )   $ (0.5 )   $ (1.9 )   $ 3.8  
Prepayment speed adjustment on mortgage-backed securities(4)
    (0.1 )     1.8       (0.3 )     2.5  
Total sales(5)
    67.8       56.9       134.1       97.3  
 
(1)   Reserves represent the present value of future income annuity benefits and assumed expenses, discounted by the assumed interest rate. This metric represents the amount of our in-force book of business.
 
(2)   Interest spread is the difference between net investment yield earned and the credited interest rate on policyholder reserves. The investment yield is the approximate yield on invested assets, excluding equities, in the general account attributed to the segment. The credited interest rate is the approximate rate credited on policyholder reserves and excludes the gains and losses from funding services and mortality.
 
(3)   Mortality gains (losses) represent the difference between actual and expected reserves released on death of our life contingent annuities.
 
(4)   Prepayment speed adjustment on mortgage-backed securities is the impact to net investment income due to the change in prepayment speeds on the underlying collateral of mortgage-backed securities.
 
(5)   Sales represent deposits for new policies.
Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income decreased $3.9 due to a lower interest spread driven by reduced investment yields. Investment yields were negatively impacted by changes in payment speeds on mortgage-backed securities, the negative impacts of prepayments, and the reinvestment of prepayments and maturities in lower yielding assets. To help address this situation, we prudently increased our originations of mortgage loans, generating relatively higher yields. In addition, we experienced mortality losses of $1.8 in the current quarter compared with losses of $0.5 in the second quarter of 2009.

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          Reserves, while relatively stable, fell slightly as benefit payments exceeded deposits and interest credited. Income Annuities sales are up 19.2% over the second quarter of 2009, driven by an increase in sales of structured settlements.
          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Operating Revenues
          Net investment income decreased $2.4 primarily driven by a reduction in our return on invested assets. Yields decreased to 6.02% from 6.13%, which was primarily due to reduced investment yields, the result of changes in payment speeds on mortgage-backed securities and the negative impacts of prepayments and the reinvestment of prepayments and maturities in lower yielding assets.
     Benefits and Expenses
          Interest credited increased $1.6 primarily driven by a $1.3 fluctuation in our mortality experience. We experienced mortality losses of $1.8 in the second quarter of 2010 versus $0.5 in the second quarter of 2009. In addition, we had a $0.9 decrease in gains from funding services’ activities.
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income decreased $11.9 due to mortality losses of $1.9 for the six months ended June 30, 2010 compared to gains of $3.8 for the same period in 2009, and a lower interest spread driven by lower yields on our invested assets. In addition, we had a $2.2 decrease in gains from funding services’ activities.
          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Operating Revenues
          Net investment income decreased $4.7 primarily driven by a reduction in our return on invested assets. Yields decreased to 5.99% from 6.11%, which was primarily due to reduced investment yields, as discussed in the quarterly analysis above.
     Benefits and Expenses
          Interest credited increased $6.9 primarily driven by a $5.7 fluctuation in our mortality experience as we experienced unusually high mortality gains of $3.8 in the first half of 2009 versus mortality losses of $1.9 in the first half of 2010. The gains from the first quarter of 2009 were highest we experienced over the past five years, while current period mortality losses were below average historic levels.

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Individual
          The following table sets forth the results of operations relating to our Individual segment:
                                                 
    Three Months             Six Months        
    Ended June 30,     Variance (%)     Ended June 30,     Variance (%)  
    2010     2009     2010 vs. 2009     2010     2009     2010 vs. 2009  
Operating revenues:
                                               
Premiums
  $ 9.7     $ 8.9       9.0 %   $ 19.9     $ 18.7       6.4 %
Net investment income
    68.3       67.0       1.9       134.4       131.1       2.5  
Policy fees, contract charges, and other
    29.8       29.4       1.4       58.9       58.6       0.5  
 
                                       
Total operating revenues
    107.8       105.3       2.4       213.2       208.4       2.3  
 
                                               
Benefits and expenses:
                                               
Policyholder benefits and claims
    15.3       11.2       36.6       26.4       29.2       (9.6 )
Interest credited
    59.1       61.8       (4.4 )     117.6       115.7       1.6  
Other underwriting and operating expenses
    13.4       12.7       5.5       26.1       26.2       (0.4 )
Amortization of deferred policy acquisition costs
    1.0       1.1       (9.1 )     0.8       1.6       (50.0 )
 
                                       
Total benefits and expenses
    88.8       86.8       2.3       170.9       172.7       (1.0 )
 
                                       
Segment pre-tax adjusted operating income
  $ 19.0     $ 18.5       2.7 %   $ 42.3     $ 35.7       18.5 %
 
                                       
 
*   Represents percentage variances that are not meaningful or are explained through the discussion of other variances.
          The following table sets forth selected historical operating metrics relating to our Individual segment as of, or for the three months ended:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Insurance in force(1)
  $ 49,912.3     $ 50,475.8                  
Mortality ratio(2)
    79.5 %     79.0 %     81.3 %     80.6 %
BOLI account value(3)
  $ 3,886.0     $ 3,741.2                  
UL account value(3)
    588.9       580.0                  
BOLI ROA(4)
    1.28 %     1.24 %     1.17 %     1.29 %
UL interest spread(5)
    1.59 %     1.26 %     1.47 %     1.22 %
Total sales, excluding BOLI(6)
  $ 2.4     $ 2.4     $ 5.2     $ 4.9  
BOLI sales(7)
                2.7       2.5  
 
(1)   Insurance in force represents dollar face amounts of policies.
 
(2)   Mortality ratio represents actual mortality experience as a percentage of industry mortality ratio benchmark. This benchmark is an expected level of claims derived by applying our current in force business to the Society of Actuaries 1990-95 Basic Select and Ultimate Mortality Table.
 
(3)   BOLI account value and UL account value represent our liability to our policyholders.
 
(4)   BOLI ROA is a measure of the gross margin on our BOLI book of business. This metric is calculated as the difference between our BOLI revenue earnings rate and our BOLI policy benefits rate. The revenue earnings rate is calculated as revenues divided by average invested assets. The policy benefits rate is calculated as total policy benefits divided by average account value. The policy benefits used in this metric do not include expenses.
 
(5)   UL interest spread is the difference between net investment yield earned and the credited interest rate to policyholders. The investment yield is the approximate yield on invested assets in the general account attributed to the UL policies. The credited interest rate is the approximate rate credited on UL policyholder fixed account values. Interest credited to UL policyholders’ account values is subject to contractual terms, including minimum guarantees. Interest credited tends to move gradually over time to reflect actions by management to respond to competitive pressures and profit targets. The credited rate to policyholders for the six months ended June 30, 2010 was adjusted to exclude a bonus interest reserve release. Without this adjustment the UL interest spread would have been 3.49%.
 
(6)   Total sales, excluding BOLI represents annualized first year premiums, and 10% of single premium new deposits.
 
(7)   BOLI sales represent 10% of new BOLI total deposits.

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Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income remained relatively flat quarter-over-quarter. This slight $0.5 increase was primarily due to an increase in premiums and an increase in BOLI ROA, which was partially offset by an increase in other underwriting and operating expenses.
Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
     Summary of Results
          Segment pre-tax adjusted operating income increased $6.6 due to a $6.5 increase in the gross margin on our UL products, and a decrease in DAC amortization. The increase in the UL gross margin is related to a 2010 first quarter credited rate reduction, discussed in further detail below.
          In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.
     Benefits and Expenses
          Due to the continued low interest rate environment, the credited interest rate on a universal life product is being adjusted downward to the guaranteed minimum rate over the next nine months. For these policies, bonus interest is not earned if the credited rate is equal to the guaranteed minimum. As a result, during the first quarter of 2010, we released bonus interest reserves recorded in policyholder benefits and claims, which was reflected in the $6.5 increase in UL gross margin.
Other
          The following table sets forth the results of operations relating to our Other segment:
                                                 
    Three Months             Six Months        
    Ended June 30,     Variance (%)     Ended June 30,     Variance (%)  
    2010     2009     2010 vs. 2009     2010     2009     2010 vs. 2009  
Operating revenues:
                                               
Net investment income
  $ 4.0     $ 9.4       (57.4 )%   $ 8.4     $ 14.2       (40.8 )%
Policy fees, contract charges, and other
    4.0       2.8       42.9       7.5       5.1       47.1  
 
                                       
Total operating revenues
    8.0       12.2       (34.4 )     15.9       19.3       (17.6 )
 
                                               
Benefits and expenses:
                                               
Interest credited
    (0.9 )     (1.1 )     18.2       (1.4 )     (1.7 )     17.6  
Other underwriting and operating expenses
    6.0       3.7       62.2       10.3       6.8       51.5  
Interest expense
    7.9       8.0       (1.3 )     15.9       15.9        
 
                                       
Total benefits and expenses
    13.0       10.6       22.6       24.8       21.0       18.1  
 
                                       
Segment pre-tax adjusted operating loss
  $ (5.0 )   $ 1.6       *     $ (8.9 )   $ (1.7 )     *  
 
                                       
Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009
     Summary of Results
          Our Other segment reported pre-tax adjusted operating losses of $5.0 for the second quarter of 2010 compared with gains of $1.6 for the same period in 2009 due to a decrease in private equity and hedge funds income, the result of liquidating our hedge fund holdings. We began liquidating our hedge fund holdings in the second half of 2009, with minimal holdings remaining as of June 30, 2010. Also contributing to the current period loss were charges totaling $1.3 related to our CEO transition.

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Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009
     Summary of Results
          Our Other segment reported pre-tax adjusted operating losses of $8.9 and $1.7, for the six months ended June 30, 2010 and 2009, respectively. This was due to a decrease in private equity and hedge funds income, the result of liquidating our hedge fund holdings, primarily in the second half of 2009. Also contributing to the current period loss were charges totaling $1.3 related to our CEO transition.
Investments
          Our investment portfolio is structured with the objective of supporting the expected cash flows of our liabilities and to produce stable returns over the long term. The composition of our portfolio reflects our asset management philosophy of protecting principal and receiving appropriate reward for credit risk. Our investment portfolio mix as of June 30, 2010, consisted in large part of high quality fixed maturities and commercial mortgage loans, as well as a smaller allocation of high yield fixed maturities, marketable equity securities, investments in limited partnerships (which includes affordable housing, private equity and hedge funds) and other investments. We believe that prudent levels of investments in marketable equity securities within our investment portfolio offer enhanced long term, after-tax total returns to support a portion of our longest duration liabilities.
          The following table presents the composition of our investment portfolio:
                                 
    As of June 30, 2010     As of December 31, 2009  
    Amount     % of Total     Amount     % of Total  
Types of Investments   (Dollars in Millions)  
Fixed maturities, available-for-sale:
                               
Public
  $ 19,719.2       88.2 %   $ 17,693.0       87.6 %
Private
    893.0       4.0       901.3       4.5  
Marketable equity securities, available-for-sale(1)
    43.9       0.2       36.7       0.2  
Marketable equity securities, trading(2)
    141.0       0.6       154.1       0.7  
Mortgage loans, net
    1,340.3       6.0       1,201.7       6.0  
Policy loans
    72.3       0.3       73.9       0.4  
Investments in limited partnerships(3)
                               
Private equity and hedge funds
    32.1       0.1       24.7       0.1  
Affordable housing projects
    104.8       0.5       85.5       0.4  
Other invested assets
    12.0       0.1       12.2       0.1  
 
                       
Total
  $ 22,358.6       100.0 %   $ 20,183.1       100.0 %
 
                       
 
(1)   Amount primarily represents non-redeemable preferred stock.
 
(2)   Amount represents investments in common stock.
 
(3)   Investments in private equity and hedge funds are carried at fair value, while our investments in affordable housing projects and state tax credits are carried at amortized cost. In 2009, we submitted liquidation notices to all of our hedge fund partnerships. As of June 30, 2010, our remaining investment in hedge funds was $3.6.
          The increase in invested assets during the first six months of 2010 is primarily due to a net increase in the fair value of our fixed maturities, and portfolio growth generated by sales of fixed deferred annuities and net proceeds from our IPO. As of June 30, 2010, the fair value of our fixed maturities increased $952.9 from a $40.6 net unrealized gain as of December 31, 2009 to a $993.5 net unrealized gain as of June 30, 2010. The equity markets rallied in March and April of 2010 driven by receding concerns over Europe; however, those worries returned in May and June leading to increased volatility, increased investor skepticism, and a weakening of the equity markets.

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Investment Returns
     Net Investment Income
          Return on invested assets is an important element of our financial results. The following table sets forth the income yield and net investment income, excluding realized investment gains (losses) for each major investment category:
                                 
    Three Months Ended     Three Months Ended  
    June 30, 2010     June 30, 2009  
    Yield(1)     Amount     Yield(1)     Amount  
            (Dollars in millions)          
Types of Investments
                               
Fixed maturities, available-for-sale
    5.79 %   $ 280.4       5.97 %   $ 263.6  
Marketable equity securities, available-for-sale
    8.46       1.1       10.16       1.3  
Marketable equity securities, trading
    2.05       0.8       1.57       0.6  
Mortgage loans, net
    6.47       20.9       6.28       16.1  
Policy loans
    5.94       1.1       5.83       1.1  
Investments in limited partnerships:
                               
Private equity and hedge funds
    (4.74 )     (0.4 )     36.60       6.5  
Affordable housing(2)
    (6.62 )     (2.2 )     (9.18 )     (2.4 )
Other income producing assets(3)
    0.70       0.7       0.78       1.1  
 
                       
Gross investment income before investment expenses
    5.62       302.4       5.85       287.9  
Investment expenses
    (0.10 )     (5.3 )     (0.10 )     (4.8 )
 
                       
Net investment income
    5.52 %   $ 297.1       5.75 %   $ 283.1  
 
                       
 
(1)   Yields are determined based on monthly averages calculated using beginning and end-of-period balances. Yields are based on carrying values except for fixed maturities and equity securities. Yields for fixed maturities are based on amortized cost. Yields for equity securities are based on cost.
 
(2)   The negative yield from affordable housing investments is offset by U.S. federal income tax benefits. The resulting impact to net income was $1.3 and $0.9 for the three months ended June 30, 2010 and 2009, respectively.
 
(3)   Other income producing assets includes income from other invested assets, short-term investments and cash and cash equivalents.
          For the three months ended June 30, 2010, net investment income increased 4.9% compared to the same period in 2009, driven by an increase in invested assets on strong sales of our fixed deferred annuities in 2009 and 2010. This was partially offset by a decrease in net investment yields, which decreased to 5.52% in 2010 from 5.75% in 2009. The reduction in yields was primarily driven by lower yields on recent purchases of fixed maturities and negative impacts from prepayments of higher yielding mortgage-backed securities. The low interest rate environment is driving down the overall yields on our fixed maturities. Also contributing to decreased investment income is a $6.9 decrease in private equity and hedge funds income, with losses of $0.4 in the second quarter of 2010 compared with gains of $6.5 in the second quarter of 2009, primarily the result of the ongoing liquidation of our hedge fund holdings.
          For the three months ended June 30, 2010, and 2009 the Company had an average cash balance of $301.2 and $448.0, respectively. Carrying these higher cash balances limited our growth in net investment income as these cash balances provided an average yield of below 50 basis points (bp) for both periods.

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    Six Months Ended     Six Months Ended  
    June 30, 2010     June 30, 2009  
    Yield(1)     Amount     Yield(1)     Amount  
            (Dollars in millions)          
Types of Investments
                               
Fixed maturities, available-for-sale
    5.77 %   $ 551.4       5.94 %   $ 514.4  
Marketable equity securities, available-for-sale
    6.44       1.7       6.44       1.7  
Marketable equity securities, trading
    1.86       1.5       1.57       1.2  
Mortgage loans, net
    6.31       39.7       6.31       32.1  
Policy loans
    5.96       2.2       5.79       2.2  
Investments in limited partnerships:
                               
Private equity and hedge funds
    3.55       0.5       20.82       7.3  
Affordable housing(2)
    (6.84 )     (4.3 )     (9.09 )     (4.7 )
Other income producing assets(3)
    0.82       1.8       0.47       1.3  
 
                       
Gross investment income before investment expenses
    5.60       594.5       5.75       555.5  
Investment expenses
    (0.10 )     (10.5 )     (0.10 )     (9.7 )
 
                       
Net investment income
    5.50 %   $ 584.0       5.65 %   $ 545.8  
 
                       
 
(1)   Yields are determined based on monthly averages calculated using beginning and end-of-period balances. Yields are based on carrying values except for fixed maturities and equity securities. Yields for fixed maturities are based on amortized cost. Yields for equity securities are based on cost.
 
(2)   The negative yield from affordable housing investments is offset by U.S. federal income tax benefits. The resulting impact to net income was $2.8 and $1.8 for the six months ended June 30, 2010 and 2009, respectively.
 
(3)   Other income producing assets includes income from other invested assets, short-term investments and cash and cash equivalents.
          For the six months ended June 30, 2010, net investment income increased 7.0% compared to the same period in 2009, driven by an increase in invested assets on strong sales of our fixed deferred annuities in 2009 and 2010. This was partially offset by a decrease in net investment yields, which decreased to 5.50% in 2010 from 5.65% in 2009. The reduction in yields was primarily driven by lower yields on recent purchases of fixed maturities, and negative impacts from prepayments of higher yielding mortgage-backed securities. In addition, investment income decreased due to a $6.8 decrease in private equity and hedge funds income, with gains of $0.5 compared to $7.3 for the six months ended June 30, 2010 and 2009, respectively, primarily the result of the ongoing liquidation of our hedge fund holdings.
          The increase in our net investment income was limited as a result of us carrying higher levels of cash. Our higher cash balances were the result of cash from sales of our products and our IPO proceeds during a tight credit market. For the six months ended June 30, 2010 and 2009, the Company had an average cash balance of $334.8 and $440.4, respectively. Carrying these higher cash balances limited our growth in net investment income as these average cash balances provided an average yield of below 50 bp for both periods.
     Net Realized Investment Gains (Losses)
          In the second quarter 2010, market volatility returned and caused net losses on our trading securities, as compared to net gains in the second quarter of 2009, as illustrated in the following table. Despite this regression in the equity markets, total net realized losses improved for the six months ended June 30, 2010 when compared to the same period in 2009, due to a reduction in impairments.

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          The following table sets forth the detail of our net realized investment gains (losses) before taxes:
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009  
Gross realized gains on sales of fixed maturities
    7.0       5.8       17.4       6.2  
Gross realized losses on sales of fixed maturities
    (0.2 )     (1.6 )     (1.3 )     (2.2 )
 
Impairments:
                               
Public fixed maturities(1)
    (1.4 )     (10.2 )     (3.8 )     (27.9 )
Private fixed maturities
          (3.2 )     (5.1 )     (4.1 )
 
                       
Total credit-related
    (1.4 )     (13.4 )     (8.9 )     (32.0 )
Other
    (0.1 )     (15.1 )     (2.3 )     (24.3 )
 
                       
Total impairments
    (1.5 )     (28.5 )     (11.2 )     (56.3 )
 
                               
Net gains (losses) on trading securities
    (8.8 )     19.6       (1.2 )     4.3  
 
                               
Other net investment gains (losses)(2):
                               
Other gross gains
    4.6       8.0       8.4       15.2  
Other gross losses
    (11.1 )     (0.6 )     (15.3 )     (7.5 )
 
                       
Net realized investment gains (losses) before taxes
  $ (10.0 )   $ 2.7     $ (3.2 )   $ (40.3 )
 
                       
 
(1)   Public fixed maturities includes publicly traded securities and highly marketable private placements for which there is an actively traded market.
 
(2)   This primarily consists of changes in fair value on derivatives instruments, gains (losses) on calls and redemptions, and the impact of net realized investment gains (losses) on DAC and deferred sales inducements.
     Impairments
          We monitor our investments for indicators of possible credit-related impairments, with a focus on securities that represent a significant risk of impairment, primarily securities for which the fair value has declined below amortized cost by 20% or more for a period of six months or more, or for which we have concerns about the creditworthiness of the issuer based on qualitative information. When evaluating a security for possible impairment, we consider several factors, which are described in more detail in Note 4 to the accompanying unaudited interim consolidated financial statements.
          Impairments for the three months ended June 30, 2010 and 2009 were $1.5 and $28.5, respectively. This decrease was primarily attributable to reduced credit concerns as credit-related impairments decreased $12.0. Impairments for the six months ended June 30, 2010 and 2009 were $11.2 and $56.3, respectively. This decrease was largely due to improved bond markets and reduced credit concerns as credit-related impairments decreased $23.1. For those issuers in which we recorded an impairment, we had remaining holdings with an amortized cost of $184.7 and a fair value of $178.5 as of June 30, 2010.
     Fixed Maturity Securities
     Fixed maturities represented approximately 92% of invested assets as of both June 30, 2010 and December 31, 2009. As of June 30, 2010, publicly traded and privately placed fixed maturities represented 95.7% and 4.3%, respectively, of our total fixed maturity portfolio at fair value. We invest in privately placed fixed maturities to enhance the overall value of the portfolio, increase diversification and obtain higher yields than can ordinarily be obtained with comparable public market securities.
          Fixed Maturity Securities Credit Quality
          The Securities Valuation Office, or SVO, of the NAIC, evaluates the investments of insurers for regulatory reporting purposes and assigns fixed maturities to one of the six categories called “NAIC Designations.” NAIC designations of “1” or “2” include fixed maturities considered investment grade, which generally include securities rated BBB- or higher by Standard & Poor’s. NAIC designations of “3” through “6” are referred to as below investment grade, which generally include securities rated BB+ or lower by Standard & Poor’s. As a result of time lags between the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the fixed maturities portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis. As of June 30, 2010 and December 31, 2009, 11 securities with an

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amortized cost of $93.2 and a fair value of $94.8, and 14 securities with an amortized cost of $99.1 and a fair value of $101.9, respectively, were categorized based on expected NAIC designations, pending receipt of SVO ratings.
          The following table presents our fixed maturities by NAIC designation and S&P equivalent credit ratings, as well as the percentage of total fixed maturities, based upon fair value that each designation comprises:
                                                         
            As of June 30, 2010     As of December 31, 2009  
            Amortized     Fair     % of Total     Amortized     Fair     % of Total  
NAIC     S&P Equivalent   Cost     Value     Fair Value     Cost     Value     Fair Value  
1    
AAA, AA, A
  $ 11,413.7     $ 12,116.4       58.8 %   $ 10,917.3     $ 11,031.3       59.3 %
2    
BBB
    7,075.5       7,465.0       36.2       6,471.3       6,530.9       35.1  
       
 
                                   
       
Total investment grade
    18,489.2       19,581.4       95.0       17,388.6       17,562.2       94.4  
       
 
                                               
3    
BB
    692.1       642.0       3.1       717.9       641.3       3.5  
4    
B
    296.6       264.6       1.3       251.0       219.2       1.2  
5    
CCC & lower
    110.2       105.4       0.5       128.0       113.5       0.6  
6    
In or near default
    30.6       18.8       0.1       68.2       58.1       0.3  
       
 
                                   
       
Total below investment grade
    1,129.5       1,030.8       5.0       1,165.1       1,032.1       5.6  
       
 
                                   
Total  
 
  $ 19,618.7     $ 20,612.2       100.0 %   $ 18,553.7     $ 18,594.3       100.0 %
       
 
                                   
          As of June 30, 2010 and December 31, 2009, securities with an amortized cost of $834.0 and $898.2, and fair value of $888.7 and $925.8, respectively, had no rating from a nationally recognized securities rating agency. We derived the equivalent S&P credit quality rating for these securities based on the securities’ NAIC rating designation.
          For securities where we recorded a credit-related OTTI, the amortized cost as of June 30, 2010 and December 31, 2009 in the table above represents management’s estimated recovery value, based on our best estimate of discounted cash flows for the security. As of June 30, 2010 and December 31, 2009, we did not have the intent to sell these securities or consider it more likely than not that we would be required to sell the securities prior to recovery of their amortized cost. Furthermore, based upon our cash flow modeling and the expected continuation of contractually required principal and interest payments, we considered these securities to be temporarily impaired as of June 30, 2010 and December 31, 2009.
          Below investment grade securities comprised 5.0% and 5.6% of our fixed maturities portfolio as of June 30, 2010 and December 31, 2009, respectively. Most of these securities were corporate securities that were purchased while classified as below investment grade, high yield investments. We had NAIC 5 and 6 designated securities with gross unrealized losses of $24.4 as of June 30, 2010, of which $20.7, or 84.8%, related to two issuers. These issuers are current on their contractual payments and our analysis supports the recoverability of amortized cost.
          Certain of our fixed maturities are supported by guarantees from monoline bond insurers. As of June 30, 2010, fixed maturities with monoline guarantees had an amortized cost of $556.0 and a fair value of $550.0, with gross unrealized losses of $20.5. As of December 31, 2009, fixed maturities with monoline guarantees had an amortized cost of $599.7 and a fair value of $559.8, with gross unrealized losses of $45.2. The majority of these securities were municipal bonds.
          The credit ratings of our fixed maturities set forth in the table above reflect, where applicable, the guarantees provided by monoline bond insurers. As of June 30, 2010, $521.8, or 94.9%, of the fair value of fixed maturities supported by guarantees from monoline bond insurers had investment grade credit ratings both when including and excluding the effect of the monoline insurance.

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     Fixed Maturity Securities and Unrealized Gains and Losses by Security Sector
          The following table sets forth the fair value of our fixed maturities by sector, as well as the associated gross unrealized gains and losses and the percentage of total fixed maturities that each sector comprises as of the dates indicated:
                                                 
    As of June 30, 2010  
                                            Other-than-  
    Cost or     Gross     Gross             % of     Temporary  
    Amortized     Unrealized     Unrealized     Fair     Total Fair     Impairments  
    Cost     Gains     Losses     Value     Value     in AOCI  
Security Sector
                                               
Corporate Securities:
                                               
Consumer discretionary
  $ 1,386.7     $ 84.9     $ (14.6 )   $ 1,457.0       7.1 %   $ (2.4 )
Consumer staples
    1,912.0       179.7       (7.7 )     2,084.0       10.1       (1.4 )
Energy
    662.3       48.6       (8.3 )     702.6       3.4        
Financials
    2,034.2       68.7       (130.1 )     1,972.8       9.6       (4.7 )
Health care
    1,073.0       111.2       (1.6 )     1,182.6       5.7       (1.9 )
Industrials
    2,370.0       224.2       (7.0 )     2,587.2       12.6       (0.8 )
Information technology
    367.6       40.4       (1.3 )     406.7       2.0        
Materials
    1,117.5       72.5       (27.4 )     1,162.6       5.6       (8.4 )
Telecommunication services
    608.0       35.0       (13.4 )     629.6       3.1       (1.1 )
Utilities
    1,822.4       121.1       (20.2 )     1,923.3       9.3       (0.4 )
Other
    73.1       1.1       (6.2 )     68.0       0.3       (4.4 )
 
                                   
Total corporate securities
    13,426.8       987.4       (237.8 )     14,176.4       68.8       (25.5 )
U.S. government and agencies
    116.3       6.7             123.0       0.6       (0.1 )
State and political subdivisions
    482.7       7.0       (17.9 )     471.8       2.3       (0.7 )
Residential mortgage-backed securities:
                                               
Agency
    3,141.2       187.7       (1.0 )     3,327.9       16.1        
Non-agency:
                                               
Prime
    397.4       4.5       (46.2 )     355.7       1.7       (33.7 )
Alt-A
    129.1       3.3       (9.8 )     122.6       0.6       (8.5 )
 
                                   
Total residential mortgage-backed securities
    3,667.7       195.5       (57.0 )     3,806.2       18.4       (42.2 )
Commercial mortgage-backed securities
    1,722.4       116.8       (9.7 )     1,829.5       8.9       (3.7 )
Other debt obligations
    202.8       17.0       (14.5 )     205.3       1.0       (3.9 )
 
                                   
Total
  $ 19,618.7     $ 1,330.4     $ (336.9 )   $ 20,612.2       100.0 %   $ (76.1 )
 
                                   
          During the six months ended June 30, 2010 we increased our investments in corporate securities with cash generated from sales, primarily fixed deferred annuities, and the proceeds from our IPO. We have purchased new issues of investment grade corporate securities with a focus on obtaining appropriate yields to match our policyholder liabilities while retaining quality.
          Our fixed maturities holdings are diversified by industry and issuer. The portfolio does not have significant exposure to any single issuer. As of June 30, 2010 and December 31, 2009, the fair value of our ten largest holdings of corporate securities was $1,283.8 and $1,138.3, or approximately 9.1% for both periods. The fair value of our largest exposure to a single issuer of corporate securities was $151.1, or 1.1%, and $141.9, or 1.1%, of our investments in corporate securities, as of June 30, 2010 and December 31, 2009, respectively. As of June 30, 2010, we had no direct exposure to the sovereign and local debt of Portugal, Ireland, Italy, Greece, and Spain; our exposure to companies that may be associated with the April 2010 oil spill in the Gulf of Mexico consists of fixed maturity securities with a fair value of $69.6 and an amortized cost of $81.8; and we had municipal bond holdings with a fair value of $513.0 and an amortized cost of $499.8.

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    As of December 31, 2009  
                                            Other-than-  
    Cost or     Gross     Gross             % of     Temporary  
    Amortized     Unrealized     Unrealized     Fair     Total Fair     Impairments  
    Cost     Gains     Losses     Value     Value     in AOCI  
Security Sector
                                               
Corporate Securities:
                                               
Consumer discretionary
  $ 1,093.3     $ 41.9     $ (29.6 )   $ 1,105.6       5.9 %   $ (7.9 )
Consumer staples
    1,736.6       84.7       (17.6 )     1,803.7       9.7       (1.4 )
Energy
    651.4       28.3       (8.8 )     670.9       3.6        
Financials
    2,122.9       39.8       (193.2 )     1,969.5       10.6       (5.8 )
Health care
    861.1       59.1       (4.1 )     916.1       4.9       (1.9 )
Industrials
    2,091.7       92.6       (28.1 )     2,156.2       11.6       (1.4 )
Information technology
    357.2       27.9       (0.3 )     384.8       2.1        
Materials
    1,111.7       39.1       (49.0 )     1,101.8       5.9       (12.7 )
Telecommunication services
    583.4       21.3       (16.7 )     588.0       3.2       (1.2 )
Utilities
    1,837.5       52.4       (46.3 )     1,843.6       9.9       (0.5 )
Other
    8.0       0.4             8.4       0.1        
 
                                   
Total corporate securities
    12,454.8       487.5       (393.7 )     12,548.6       67.5       (32.8 )
U.S. government and agencies
    41.6       2.4       (0.1 )     43.9       0.2       (0.1 )
State and political subdivisions
    518.4       1.9       (37.3 )     483.0       2.6       (1.3 )
Residential mortgage-backed securities:
                                               
Agency
    2,936.8       102.6       (6.7 )     3,032.7       16.3        
Non-agency:
                                               
Prime
    449.8       0.6       (72.4 )     378.0       2.0       (31.7 )
Alt-A
    145.3       2.1       (21.9 )     125.5       0.7       (8.2 )
Subprime
    0.2                   0.2              
 
                                   
Total residential mortgage-backed securities
    3,532.1       105.3       (101.0 )     3,536.4       19.0       (39.9 )
Commercial mortgage-backed securities
    1,805.6       44.5       (60.7 )     1,789.4       9.7       (4.0 )
Other debt obligations
    201.2       9.4       (17.6 )     193.0       1.0       (3.8 )
 
                                   
Total
  $ 18,553.7     $ 651.0     $ (610.4 )   $ 18,594.3       100.0 %   $ (81.9 )
 
                                   
     Fixed Maturity Securities by Contractual Maturity Date
          As of June 30, 2010 and December 31, 2009, approximately 27% and 29% of the fair value of our fixed maturity portfolio was held in mortgaged-backed securities, and 26% and 27% of our portfolio was due after ten years, which we consider to be longer duration assets. Fixed maturities in these categories primarily back long duration reserves in our Income Annuities segment, which can exceed a period of 30 years. As of June 30, 2010 and December 31, 2009, approximately 79% and 82%, respectively, of the gross unrealized losses on our investment portfolio related to these longer duration assets, which are more sensitive to interest rate fluctuations and credit spreads.
     Residential Mortgage-Backed Securities (RMBS)
          We classify our investments in RMBS as agency, prime, Alt-A, and subprime. Agency RMBS are guaranteed or otherwise supported by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association. Prime RMBS are loans to the most credit-worthy customers with high quality credit profiles.

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     The following table sets forth the fair value of the Company’s investment in agency, prime, Alt-A, and subprime RMBS and the percentage of total invested assets they represent:
                                 
    As of June 30, 2010     As of December 31, 2009  
            % of Total             % of Total  
    Fair Value     Invested Assets     Fair Value     Invested Assets  
Agency
  $ 3,327.9       14.9 %   $ 3,032.7       15.0 %
Non-agency:
                               
Prime
    355.7       1.6       378.0       1.9  
Alt-A
    122.6       0.5       125.5       0.6  
Subprime
                0.2        
 
                       
Subtotal non-agency
    478.3       2.1       503.7       2.5  
 
                       
Total
  $ 3,806.2       17.0 %   $ 3,536.4       17.5 %
 
                       
          We classified certain non-agency RMBS securities as Alt-A because we viewed each security to have overall collateral credit quality between prime and subprime, based on a review of the characteristics of their underlying mortgage loan pools, such as credit scores and financial ratios.
          The following table sets forth the total fair value, and amortized cost of our non-agency RMBS by credit quality and year of origination (vintage). There were nine securities with a total amortized cost of $96.0 that were rated below investment grade by either Moody’s, S&P or Fitch, while the others rated them investment grade.
                                                         
    As of June 30, 2010        
    Highest Rating Agency Rating        
                                                    Total as of  
                                    BB and             December 31,  
Vintage   AAA     AA     A     BBB     Below     Total     2009  
2007
  $     $     $     $     $ 66.3     $ 66.3     $ 91.0  
2006
          1.4             24.6       126.6       152.6       177.0  
2005
    0.5       9.2       11.7       59.1       28.3       108.8       113.6  
2004 & prior
    183.6       14.5                   0.7       198.8       213.7  
 
                                         
Total amortized cost
  $ 184.1     $ 25.1     $ 11.7     $ 83.7     $ 221.9     $ 526.5     $ 595.3  
 
                                         
Total unrealized losses
    (5.3 )     (6.5 )           (11.2 )     (25.2 )     (48.2 )     (91.6 )
 
                                         
Total fair value
  $ 178.8     $ 18.6     $ 11.7     $ 72.5     $ 196.7     $ 478.3     $ 503.7  
 
                                         
          On a fair value basis as of June 30, 2010, our Alt-A portfolio was 86.0% fixed rate collateral and 14.0% hybrid adjustable rate mortgages, or ARM, with no exposure to option ARM mortgages. Generally, fixed rate mortgages have performed better with lower delinquencies and defaults on the underlying collateral than both option ARMs and hybrid ARMs in the current economic environment. As of June 30, 2010 and December 31, 2009, respectively, $62.2 or 50.7% and $73.9 or 58.9% of the total Alt-A portfolio had an S&P equivalent credit rating of AAA.
          As of June 30, 2010, our Alt-A, prime and total non-agency RMBS had an estimated weighted-average credit enhancement of 13.9%, 8.5% and 9.8%, respectively. Credit enhancement refers to the weighted-average percentage of the outstanding capital structure that is subordinate in the priority of cash flows and absorbs losses first. As of June 30, 2010 and December 31, 2009, 59.8% and 59.6%, respectively, of the fair value of our RMBS had super senior subordination. The super senior class has priority over all principal and interest cash flows and will not experience any loss of principal until lower levels are written down to zero. Therefore, the majority of our RMBS investments have less exposure to defaults and delinquencies in the underlying collateral than if we held the more subordinated classes.
     Commercial Mortgage-Backed Securities (CMBS)
          The following table sets forth the fair value of our investment in CMBS and the percentage of total invested assets they represent:
                                 
    As of June 30, 2010     As of December 31, 2009  
            % of Total             % of Total  
    Fair Value     Invested Assets     Fair Value     Invested Assets  
Agency
  $ 538.9       2.4 %   $ 425.6       2.1 %
Non-agency
    1,290.6       5.8       1,363.8       6.8  
 
                       
Total
  $ 1,829.5       8.2 %   $ 1,789.4       8.9 %
 
                       

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     There have been disruptions in the CMBS market that continued in the first six months of 2010 due to weakness in commercial real estate market fundamentals, and previously reduced underwriting standards by some originators of commercial mortgage loans within the more recent vintage years (2006 through 2008). This has reduced market liquidity and availability of capital, increased market belief that default rates will increase, and increased spreads and the repricing of risk. However, as discussed below, the quality of our CMBS portfolio, which is predominately in the most senior tranche of the structure type, has a weighted-average estimated credit enhancement of 28.5% on the entire portfolio, as of June 30, 2010, which is significant in a deep commercial real estate downturn during which expected losses may increase substantially. As of June 30, 2010, on an amortized cost basis, 97.2% of our entire CMBS portfolio were rated AAA, 1.4% were rated AA or A, and 1.4% were rated B and below.
     The following table sets forth the total fair value, and amortized cost of our non-agency CMBS by credit quality and year of origination (vintage). There were 12 securities having a fair value of $286.3 and an amortized cost of $277.4 that were rated A by S&P, while Moody’s and/or Fitch rated them AAA.
                                                         
    As of June 30, 2010        
    Highest Rating Agency Rating     As of  
                                    BB and             December 31,  
Vintage   AAA     AA     A     BBB     Below     Total     2009  
2008
  $ 47.8     $ 18.3     $     $     $     $ 66.1     $ 66.0  
2007
    449.6                         1.3       450.9       471.0  
2006
    136.3                         11.3       147.6       148.0  
2005
    292.7                               292.7       311.4  
2004 & prior
    241.6             5.8             10.7       258.1       391.9  
 
                                         
Total amortized cost
  $ 1,168.0     $ 18.3     $ 5.8     $     $ 23.3     $ 1,215.4     $ 1,388.3  
 
                                         
Total unrealized gains (losses)
    83.1       (2.8 )     (0.4 )           (4.7 )     75.2       (24.5 )
 
                                         
Total fair value
  $ 1,251.1     $ 15.5     $ 5.4     $     $ 18.6     $ 1,290.6