Item 1 Condensed Consolidated Balance Sheets (Unaudited) June 30, 2013 and December 31, 2012 Condensed Consolidated Statements of Income (Unaudited) Three and six months ended June 30, 2013 and 2012 Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and six months ended June 30, 2013 and 2012 Condensed Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, 2013 and 2012 Notes to Condensed Consolidated Financial Statements (Unaudited) 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 3 4 1 1A 2 5 6 Assets Fixed maturity securities: Available-for-sale at fair value (amortized cost of $19,757,321 and $19,559,432) Mortgage loans on real estate (net of allowances of $7,903 and $11,580) Policy loans Funds withheld at interest Short-term investments Other invested assets Total investments Cash and cash equivalents Accrued investment income Premiums receivable and other reinsurance balances Reinsurance ceded receivables Deferred policy acquisition costs Other assets Total assets Liabilities and Stockholders’ Equity Future policy benefits Interest-sensitive contract liabilities Other policy claims and benefits Other reinsurance balances Deferred income taxes Other liabilities Short-term debt Long-term debt Collateral finance facility Total liabilities Commitments and contingent liabilities (See Note 8) Stockholders’ Equity: Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at June 30, 2013 and December 31, 2012 Additional paid-in-capital Retained earnings Treasury stock, at cost - 8,170,066 and 5,210,427 shares Accumulated other comprehensive income Total stockholders’ equity Total liabilities and stockholders’ equity Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and Expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses Other operating expenses Interest expense Collateral finance facility expense Total benefits and expenses Income (loss) before income taxes Provision for income taxes Net income (loss) Earnings per share: Basic earnings per share Diluted earnings per share Dividends declared per share Comprehensive income (loss) Net income (loss) Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustments Change in net unrealized gains and losses on investments Change in other-than-temporary impairment losses on fixed maturity securities Changes in pension and other postretirement plan adjustments Total other comprehensive income (loss), net of tax Total comprehensive income (loss) Cash Flows from Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Change in operating assets and liabilities: Accrued investment income Premiums receivable and other reinsurance balances Deferred policy acquisition costs Reinsurance ceded receivable balances Future policy benefits, other policy claims and benefits, and other reinsurance balances Deferred income taxes Other assets and other liabilities, net Amortization of net investment premiums, discounts and other Investment related gains, net Gain on repurchase of collateral finance facility securities Excess tax benefits from share-based payment arrangement Other, net Net cash provided by operating activities Cash Flows from Investing Activities: Sales of fixed maturity securities available-for-sale Maturities of fixed maturity securities available-for-sale Purchases of fixed maturity securities available-for-sale Cash invested in mortgage loans Cash invested in policy loans Cash invested in funds withheld at interest Principal payments on mortgage loans on real estate Principal payments on policy loans Change in short-term investments Change in other invested assets Net cash used in investing activities Cash Flows from Financing Activities: Dividends to stockholders Repurchase of collateral finance facility securities Net change in short-term debt Purchases of treasury stock Excess tax benefits from share-based payment arrangement Exercise of stock options, net Change in cash collateral for derivatives and other arrangements Deposits on universal life and other investment type policies and contracts Withdrawals on universal life and other investment type policies and contracts Net cash used in financing activities Effect of exchange rate changes on cash Change in cash and cash equivalents Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Supplementary information: Cash paid for interest Cash paid for income taxes, net of refunds Earnings: Net income (loss) (numerator for basic and diluted calculations) Shares: Weighted average outstanding shares (denominator for basic calculation) Equivalent shares from outstanding stock options Denominator for diluted calculation Earnings per share: Basic Diluted Balance, December 31, 2012 Other comprehensive income (loss) before reclassifications Amounts reclassified from AOCI Net current-period other comprehensive income (loss) Balance, June 30, 2013 Balance, December 31, 2011 Change in component during the period Balance, June 30, 2012 Includes cash flow hedges. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges. Affected Line Item in Statement of Income Unrealized gains and losses on available-for-sale securities Gains and losses on cash flow hedge - interest rate swap Deferred policy acquisition costs attributed to unrealized gains and losses(1) Amortization of unrealized pension and postretirement benefits: Prior service cost(2) Actuarial gains/(losses)(2) Total reclassifications for the period This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2012 Annual Report for additional details. These AOCI components are included in the computation of the net periodic pension cost. See Note 9 – “Employee Benefit Plans” for additional details. Available-for-sale: Corporate securities Canadian and Canadian provincial governments Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. government and agencies State and political subdivisions Other foreign government, supranational and foreign government-sponsored enterprises Total fixed maturity securities Non-redeemable preferred stock Other equity securities Total equity securities Available-for-sale: Corporate securities Canadian and Canadian provincial governments Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. government and agencies State and political subdivisions Other foreign government, supranational and foreign government-sponsored enterprises Total fixed maturity securities Non-redeemable preferred stock Other equity securities Total equity securities Available-for-sale: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Asset and mortgage-backed securities Total Finance Industrial Utility Other Total Finance Industrial Utility Other Total Balance, beginning of period Initial impairments - credit loss OTTI recognized on securities not previously impaired Additional impairments - credit loss OTTI recognized on securities previously impaired Credit loss OTTI previously recognized on securities impaired to fair value during the period Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period Balance, end of period Balance, beginning of period Initial impairments -credit loss OTTI recognized on securities not previously impaired Additional impairments - credit loss OTTI recognized on securities previously impaired Credit loss OTTI previously recognized on securities impaired to fair value during the period Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period Balance, end of period Outstanding principal and interest balance(1) Carrying value, including accrued interest(2) Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest. Estimated fair value plus accrued interest. Contractually required payments (including interest) Cash flows expected to be collected(1) Fair value of investments acquired Represents undiscounted principal and interest cash flow expectations at the date of acquisition. Balance, beginning of period Investments purchased Accretion Disposals Reclassification from nonaccretable difference Balance, end of period Less than 20% 20% or more for less than six months 20% or more for six months or greater Total Investment grade securities: Corporate securities Canadian and Canadian provincial governments Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. government and agencies State and political subdivisions Other foreign government, supranational and foreign government-sponsored enterprises Total investment grade securities Non-investment grade securities: Corporate securities Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities Other foreign government, supranational and foreign government-sponsored enterprises Total non-investment grade securities Total fixed maturity securities Non-redeemable preferred stock Other equity securities Total equity securities Investment grade securities: Corporate securities Canadian and Canadian provincial governments Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. government and agencies State and political subdivisions Other foreign government, supranational and foreign government-sponsored enterprises Total investment grade securities Non-investment grade securities: Corporate securities Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities Total non-investment grade securities Total fixed maturity securities Non-redeemable preferred stock Other equity securities Total equity securities sold several non-investment grade commercial mortgage-backed securities. Fixed maturity securities available-for-sale Mortgage loans on real estate Policy loans Funds withheld at interest Short-term investments Investment receivable Other invested assets Investment revenue Investment expense Investment income, net of related expenses Fixed maturities and equity securities available for sale: Other-than-temporary impairment losses on fixed maturities Portion of loss recognized in accumulated other comprehensive income (before taxes) Net other-than-temporary impairment losses on fixed maturities recognized in earnings Impairment losses on equity securities Gain on investment activity Loss on investment activity Other impairment losses and change in mortgage loan provision Derivatives and other, net Total investment related gains (losses), net The decrease in derivatives and other for the first nine months was primarily due to decreases in the fair value of free-standing interest rate swap derivatives due to the rising interest rate environment. Apartment Retail Office building Industrial Other commercial Total Pacific South Atlantic Mountain Middle Atlantic West North Central East North Central West South Central East South Central New England Total Due within five years Due after five years through ten years Due after ten years Total High investment grade Investment grade Average Watch list In or near default Total 31-60 days past due 61-90 days past due Greater than 90 days Total past due Current Total Mortgage loans: Evaluated individually for credit losses Evaluated collectively for credit losses Mortgage loans, gross of valuation allowances Valuation allowances: Specific for credit losses Non-specifically identified credit losses Total valuation allowances Mortgage loans, net of valuation allowances Balance, beginning of period Charge-offs Provision (release) Balance, end of period Balance, beginning of period Charge-offs Provision (release) Balance, end of period June 30, 2013: Impaired mortgage loans with no valuation allowance recorded Impaired mortgage loans with valuation allowance recorded Total impaired mortgage loans December 31, 2012: Impaired mortgage loans with no valuation allowance recorded Impaired mortgage loans with valuation allowance recorded Total impaired mortgage loans The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands): Impaired mortgage loans with no valuation allowance recorded Impaired mortgage loans with valuation allowance recorded Total Impaired mortgage loans with no valuation allowance recorded Impaired mortgage loans with valuation allowance recorded Total Equity securities Limited partnerships and real estate joint ventures Structured loans Derivatives Other Total other invested assets Derivatives not designated as hedging instruments: Interest rate swaps Interest rate options Financial futures Foreign currency forwards Consumer price index swaps Credit default swaps Equity options Synthetic guaranteed investment contracts Embedded derivatives in: Modified coinsurance or funds withheld arrangements Indexed annuity products Variable annuity products Total non-hedging derivatives Derivatives designated as hedging instruments: Interest rate swaps Foreign currency swaps Total hedging derivatives Total derivatives June 30, 2013: Derivative assets Derivative liabilities December 31, 2012: Derivative assets Derivative liabilities Accumulated other comprehensive income (loss), balance beginning of period Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges Amounts reclassified to investment income Accumulated other comprehensive income (loss), balance end of period Accumulated other comprehensive income (loss), balance beginning of period Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges Amounts reclassified to investment income Accumulated other comprehensive income (loss), balance end of period Derivatives in Cash Flow Hedging Relationships (Ineffective Portion and Amounts Excluded from Effectiveness Testing) Investment Related Gains (Losses) Type of NIFO Hedge(1) (2) Foreign currency swaps There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented. There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations. Type of Non-hedging Derivative Income Statement Location of Gain (Loss) Interest rate swaps Interest rate options Financial futures Foreign currency forwards CPI swaps Credit default swaps Equity options Embedded derivatives in: Modco or funds withheld arrangements Indexed annuity products Indexed annuity products Variable annuity products Total non-hedging derivatives Type of Non-hedging Derivative Income Statement Location of Gain (Loss) Interest rate swaps Interest rate options Financial futures Foreign currency forwards CPI swaps Credit default swaps Equity options Embedded derivatives in: Modco or funds withheld arrangements Indexed annuity products Indexed annuity products Variable annuity products Total non-hedging derivatives Rating Agency Designation of Referenced Credit Obligations(1) AAA/AA-/A+/A/A- Single name credit default swaps Credit default swaps referencing indices Subtotal BBB+/BBB/BBB- Single name credit default swaps Credit default swaps referencing indices Subtotal BB+ Single name credit default swaps Credit default swaps referencing indices Subtotal Total The rating agency designations are based on ratings from Standard and Poor’s (“S&P”). Assumes the value of the referenced credit obligations is zero. The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. Embedded derivatives in modco or funds withheld arrangements included in investment related gains After the associated amortization of DAC and taxes, the related amounts included in net income Embedded derivatives in variable annuity contracts included in investment related gains After the associated amortization of DAC and taxes, the related amounts included in net income Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses After the associated amortization of DAC and taxes, the related amounts included in net income counterparties to such financial instruments. As exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties. Estimated fair value of derivatives in net asset position Cash provided as collateral(1) Securities pledged to counterparties as collateral(2) Cash pledged from counterparties as collateral(3) Securities pledged from counterparties as collateral(4) Net credit exposure Margin account related to exchange-traded futures(5) Consists of receivable from counterparty, included in other assets. Included in other invested assets, primarily consists of U.S. Treasury securities. Included in cash and cash equivalents, with obligation to return cash collateral recorded in other liabilities. Consists of U.S. Treasury securities. Included in cash and cash equivalents. Company’s understanding of the market, and are generally considered Level 3. Under certain circumstances, based on its observations of transactions in active markets, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, the Company would apply internally developed valuation techniques to the related assets or liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs. Assets: Fixed maturity securities – available-for-sale: Corporate securities Canadian and Canadian provincial governments Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. government and agencies securities State and political subdivision securities Other foreign government supranational and foreign government-sponsored enterprises Total fixed maturity securities – available-for-sale Funds withheld at interest – embedded derivatives Cash equivalents Short-term investments Other invested assets: Non-redeemable preferred stock Other equity securities Derivatives: Interest rate swaps Interest rate options Foreign currency forwards CPI swaps Credit default swaps Equity options Foreign currency swaps Other Total other invested assets Total Liabilities: Interest sensitive contract liabilities – embedded derivatives Other liabilities: Derivatives: Interest rate swaps Foreign currency forwards Credit default swaps Equity options Total Valuation Technique(s) Assets: State and political subdivision securities Corporate securities Funds withheld at interest- embedded derivatives Liabilities: Interest sensitive contract liabilities- embedded derivatives- indexed annuities Interest sensitive contract liabilities- embedded derivatives- variable annuities volatility Valuation Technique(s) Assets: State and political subdivision securities Corporate securities Short-term investments Funds withheld at interest- embedded derivatives Liabilities: Interest sensitive contract liabilities- embedded derivatives- indexed annuities Interest sensitive contract liabilities- embedded derivatives- variable annuities Fixed maturity securities - available-for-sale: Corporate securities U.S. government and agencies securities State and political subdivision securities Other foreign government, supranational and foreign government-sponsored enterprises Total fixed maturity securities Fixed maturity securities - available-for-sale: Corporate securities U.S. government and agencies securities State and political subdivision securities Other foreign government, supranational and foreign government-sponsored enterprises Total fixed maturity securities Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period. Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Fair value, beginning of period Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses Included in other comprehensive income Purchases(1) Sales(1) Settlements(1) Transfers into Level 3 Transfers out of Level 3 Fair value, end of period Included in earnings, net: Investment income, net of related expenses Investment related gains (losses), net Claims & other policy benefits Interest credited Policy acquisition costs and other insurance expenses The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.(Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JuneSeptember 30, 2013 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-11848MISSOURI 43-1627032 (State or other jurisdiction (IRS employer of incorporation or organization) identification number) Yes X NoYes X No Yes No XJulyOctober 31, 2013, 70,984,44970,586,106 shares of the registrant’s common stock were outstanding. Page PART I – FINANCIAL INFORMATION 3 4 5 6 7 50 84 84 PART II – OTHER INFORMATION 85 85 85 85 85 86 87 Item Page PART I – FINANCIAL INFORMATION 1 2 3 4 1 1A 2 6 June 30,
2013 December 31,
2012 (Dollars in thousands, except share data) $ 21,284,216 $ 22,291,614 2,377,246 2,300,587 1,245,252 1,278,175 5,777,395 5,594,182 38,601 288,082 1,035,809 1,159,543 31,758,519 32,912,183 973,619 1,259,892 233,153 201,344 1,314,004 1,356,087 585,555 620,901 3,453,513 3,619,274 472,258 390,757 $ 38,790,621 $ 40,360,438 $ 11,491,692 $ 11,372,856 12,991,981 13,353,502 3,316,727 3,160,250 254,815 233,630 1,839,909 2,120,501 584,488 742,249 120,000 — 1,815,533 1,815,253 487,556 652,010 32,902,701 33,450,251 — — 791 791 1,772,811 1,755,421 3,428,646 3,357,255 (496,462 ) (312,182 ) 1,182,134 2,108,902 5,887,920 6,910,187 $ 38,790,621 $ 40,360,438 September 30,
2013 December 31,
2012 (Dollars in thousands, except share data) Fixed maturity securities: Available-for-sale at fair value (amortized cost of $19,917,350 and $19,559,432) $ 21,289,108 $ 22,291,614 Mortgage loans on real estate (net of allowances of $7,669 and $11,580) 2,488,582 2,300,587 Policy loans 1,244,878 1,278,175 Funds withheld at interest 5,739,872 5,594,182 Short-term investments 44,192 288,082 Other invested assets 1,116,391 1,159,543 Total investments 31,923,023 32,912,183 Cash and cash equivalents 1,423,235 1,259,892 Accrued investment income 262,330 201,344 Premiums receivable and other reinsurance balances 1,252,610 1,356,087 Reinsurance ceded receivables 592,948 620,901 Deferred policy acquisition costs 3,533,932 3,619,274 Other assets 538,477 390,757 Total assets $ 39,526,555 $ 40,360,438 Liabilities and Stockholders’ Equity Future policy benefits $ 11,873,306 $ 11,372,856 Interest-sensitive contract liabilities 12,868,425 13,353,502 Other policy claims and benefits 3,440,371 3,160,250 Other reinsurance balances 264,023 233,630 Deferred income taxes 1,975,819 2,120,501 Other liabilities 510,079 742,249 Long-term debt 2,214,170 1,815,253 Collateral finance facility 484,712 652,010 Total liabilities 33,630,905 33,450,251 Commitments and contingent liabilities (See Note 8) Stockholders’ Equity: Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding — — Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at September 30, 2013 and December 31, 2012 791 791 Additional paid-in-capital 1,778,307 1,755,421 Retained earnings 3,544,632 3,357,255 Treasury stock, at cost - 8,594,734 and 5,210,427 shares (528,081 ) (312,182 ) Accumulated other comprehensive income 1,100,001 2,108,902 Total stockholders’ equity 5,895,650 6,910,187 Total liabilities and stockholders’ equity $ 39,526,555 $ 40,360,438 Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 Revenues: (Dollars in thousands, except per share data) $ 2,035,156 $ 1,950,661 $ 4,014,849 $ 3,814,143 444,234 328,334 869,365 669,274 (9,803 ) (1,959 ) (10,005 ) (9,566 ) (306 ) 162 (306 ) (7,059 ) 58,352 25,598 152,925 83,946 48,243 23,801 142,614 67,321 63,009 72,957 164,916 117,990 2,590,642 2,375,753 5,191,744 4,668,728 2,030,574 1,625,446 3,719,484 3,205,595 118,345 66,697 243,828 154,739 370,505 335,939 727,862 643,573 113,408 105,541 232,909 215,639 29,918 23,360 58,404 46,682 2,650 2,878 5,188 5,845 2,665,400 2,159,861 4,987,675 4,272,073 (74,758 ) 215,892 204,069 396,655 (25,146 ) 74,781 68,146 132,226 $ (49,612 ) $ 141,111 $ 135,923 $ 264,429 $ (0.69 ) $ 1.91 $ 1.86 $ 3.59 $ (0.69 ) $ 1.91 $ 1.85 $ 3.57 $ 0.24 $ 0.18 $ 0.48 $ 0.36 Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Revenues: (Dollars in thousands, except per share data) Net premiums $ 2,026,180 $ 1,912,746 $ 6,041,029 $ 5,726,889 Investment income, net of related expenses 369,366 396,781 1,238,731 1,066,055 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (391 ) (1,996 ) (10,396 ) (11,562 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income 59 (559 ) (247 ) (7,618 ) Other investment related gains (losses), net (76,133 ) 78,608 76,792 162,554 Total investment related gains (losses), net (76,465 ) 76,053 66,149 143,374 Other revenues 70,734 63,501 235,650 181,491 Total revenues 2,389,815 2,449,081 7,581,559 7,117,809 Claims and other policy benefits 1,714,899 1,662,625 5,434,383 4,868,220 Interest credited 59,939 130,341 303,767 285,080 Policy acquisition costs and other insurance expenses 268,081 318,106 995,943 961,679 Other operating expenses 111,672 103,786 344,581 319,425 Interest expense 30,831 29,749 89,235 76,431 Collateral finance facility expense 2,698 2,995 7,886 8,840 Total benefits and expenses 2,188,120 2,247,602 7,175,795 6,519,675 201,695 201,479 405,764 598,134 Provision for income taxes 63,740 57,004 131,886 189,230 Net income $ 137,955 $ 144,475 $ 273,878 $ 408,904 Earnings per share: Basic earnings per share $ 1.95 $ 1.96 $ 3.79 $ 5.55 Diluted earnings per share $ 1.93 $ 1.95 $ 3.76 $ 5.52 Dividends declared per share $ 0.30 $ 0.24 $ 0.78 $ 0.60 Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ (49,612 ) $ 141,111 $ 135,923 $ 264,429 (88,832 ) (16,865 ) (102,937 ) 7,215 (706,848 ) 203,156 (826,181 ) 167,741 199 (106 ) 650 4,588 875 1,211 1,700 1,501 (794,606 ) 187,396 (926,768 ) 181,045 $ (844,218 ) $ 328,507 $ (790,845 ) $ 445,474 Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Comprehensive income (loss) Net income $ 137,955 $ 144,475 $ 273,878 $ 408,904 Other comprehensive income (loss), net of tax: Change in foreign currency translation adjustments 27,139 36,248 (75,798 ) 43,463 Change in net unrealized gains and losses on investments (112,035 ) 315,501 (938,216 ) 483,242 Change in other-than-temporary impairment losses on fixed maturity securities 2,246 364 2,896 4,952 Changes in pension and other postretirement plan adjustments 517 336 2,217 1,837 Total other comprehensive income (loss), net of tax (82,133 ) 352,449 (1,008,901 ) 533,494 Total comprehensive income (loss) $ 55,822 $ 496,924 $ (735,023 ) $ 942,398 Six months ended June 30, 2013 2012 (Dollars in thousands) $ 135,923 $ 264,429 (35,457 ) (38,182 ) (5,100 ) (47,370 ) 104,002 (63,690 ) 64,814 (540 ) 806,172 755,790 69,071 (5,469 ) (165,129 ) 62,682 (43,662 ) (69,347 ) (142,614 ) (67,321 ) (46,506 ) — (2,420 ) 24 66,027 27,251 805,121 818,257 1,898,833 1,759,932 62,734 104,008 (2,487,016 ) (2,518,580 ) (244,939 ) (225,005 ) (17 ) (1,589 ) (60,156 ) (60,145 ) 150,098 46,313 32,940 11,752 241,136 35,989 (1,591 ) 62,541 (407,978 ) (784,784 ) (35,169 ) (26,524 ) (112,000 ) — 120,000 — (234,690 ) (6,924 ) 2,420 (24 ) 11,439 (651 ) (31,858 ) (15,096 ) 39,706 79,134 (397,033 ) (70,753 ) (637,185 ) (40,838 ) (46,231 ) 1,836 (286,273 ) (5,529 ) 1,259,892 962,870 $ 973,619 $ 957,341 $ 58,387 $ 49,094 $ 105,401 $ 40,735 Nine months ended September 30, 2013 2012 Cash Flows from Operating Activities: Net income $ 273,878 $ 408,904 Adjustments to reconcile net income to net cash provided by operating activities: Change in operating assets and liabilities: Accrued investment income (63,339 ) (60,684 ) Premiums receivable and other reinsurance balances 81,189 (102,447 ) Deferred policy acquisition costs 56,286 (70,107 ) Reinsurance ceded receivable balances 49,286 2,240 Future policy benefits, other policy claims and benefits, and other reinsurance balances 1,005,756 1,406,844 Deferred income taxes 276,372 (99,200 ) Other assets and other liabilities, net (293,106 ) 225,749 Amortization of net investment premiums, discounts and other (70,687 ) (61,644 ) Investment related gains, net (66,149 ) (143,374 ) Gain on repurchase of collateral finance facility securities (46,506 ) — Excess tax benefits from share-based payment arrangement (2,410 ) 262 Other, net 50,460 22,533 Net cash provided by operating activities 1,251,030 1,529,076 Cash Flows from Investing Activities: Sales of fixed maturity securities available-for-sale 2,838,099 3,970,569 Maturities of fixed maturity securities available-for-sale 118,951 122,405 Purchases of fixed maturity securities available-for-sale (3,496,639 ) (4,660,131 ) Cash invested in mortgage loans (467,429 ) (350,823 ) Cash invested in policy loans — (8,032 ) Cash invested in funds withheld at interest (70,753 ) (81,602 ) Principal payments on mortgage loans on real estate 262,226 85,921 Principal payments on policy loans 33,314 24,934 Purchase of a business, net of cash acquired of $9,709 (2,805 ) — Change in short-term investments 235,260 98,007 Change in other invested assets 35,341 (227,881 ) Net cash used in investing activities (514,435 ) (1,026,633 ) Cash Flows from Financing Activities: Dividends to stockholders (56,465 ) (44,220 ) Repurchase and repayment of collateral finance facility securities (119,255 ) — Proceeds from long-term debt issuance 398,492 400,000 Debt issuance costs (3,400 ) (6,255 ) Purchases of treasury stock (269,204 ) (6,924 ) Excess tax benefits from share-based payment arrangement 2,410 (262 ) Exercise of stock options, net 9,212 4,096 Change in cash collateral for derivatives and other arrangements (68,635 ) (62,896 ) Deposits on universal life and other investment type policies and contracts 120,250 89,458 Withdrawals on universal life and other investment type policies and contracts (550,122 ) (249,190 ) Net cash (used in) provided by financing activities (536,717 ) 123,807 Effect of exchange rate changes on cash (36,535 ) 14,610 Change in cash and cash equivalents 163,343 640,860 Cash and cash equivalents, beginning of period 1,259,892 962,870 Cash and cash equivalents, end of period $ 1,423,235 $ 1,603,730 Supplementary information: Cash paid for interest $ 75,003 $ 76,514 Cash paid for income taxes, net of refunds $ 100,429 $ 81,391 Business purchase information - See Note 12 - "Financing and Other Activities" Non-cash supplementary information - See Note 4 - "Investments" 1.1. Organization and Basis of Presentation sixnine months ended JuneSeptember 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. There were no subsequent events that would require disclosure or adjustments to the accompanying condensed consolidated financial statements through the date the financial statements were issued. These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries, all intercompany accounts and transactions have been eliminated. They should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K (“2012 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013.2.2. Earnings Per Share (loss) (in thousands, except per share information): Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ (49,612 ) $ 141,111 $ 135,923 $ 264,429 72,350 73,718 73,089 73,646 — 336 484 402 72,350 74,054 73,573 74,048 $ (0.69 ) $ 1.91 $ 1.86 $ 3.59 $ (0.69 ) $ 1.91 $ 1.85 $ 3.57 As a result of the net loss for the three months ended June 30, 2013, the Company was required to use basic weighted average common shares outstanding in the calculation of diluted loss per share, since the inclusion of shares for outstanding stock options of 0.4 million would have been antidilutive to the earnings (loss) per share calculations. In the absence of the losses, weighted average common shares outstanding and dilutive potential common shares would have totaled 72.8 million. Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Earnings: Net income (loss) (numerator for basic and diluted calculations) $ 137,955 $ 144,475 $ 273,878 $ 408,904 Shares: Weighted average outstanding shares (denominator for basic calculation) 70,865 73,776 72,342 73,690 Equivalent shares from outstanding stock options 526 362 498 388 Denominator for diluted calculation 71,391 74,138 72,840 74,078 Earnings per share: Basic $ 1.95 $ 1.96 $ 3.79 $ 5.55 Diluted $ 1.93 $ 1.95 $ 3.76 $ 5.52 JuneSeptember 30, 2013, no stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. For the three months ended JuneSeptember 30, 2012, approximately 1.80.7 million stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. Year-to-date amounts for equivalent shares from outstanding stock options and performance contingent shares are the weighted average of the individual quarterly amounts.3.3. Accumulated Other Comprehensive Income sixnine months ended JuneSeptember 30, 2013 and 2012 are as follows (dollars in thousands): Accumulated Other Comprehensive Income (Loss), Net of Income Tax Accumulated
Currency
Translation
Adjustments Unrealized
Appreciation
(Depreciation)
of Investments(1) Pension and
Postretirement
Benefits Total $ 267,475 $ 1,877,657 $ (36,230 ) $ 2,108,902 (102,937 ) (819,019 ) 206 (921,750 ) — (6,512 ) 1,494 (5,018 ) (102,937 ) (825,531 ) 1,700 (926,768 ) $ 164,538 $ 1,052,126 $ (34,530 ) $ 1,182,134 Accumulated Other Comprehensive Income (Loss), Net of Income Tax Accumulated
Currency
Translation
Adjustments Unrealized
Appreciation
(Depreciation)
of Investments(1) Pension and
Postretirement
Benefits Total $ 229,795 $ 1,419,318 $ (30,960 ) $ 1,618,153 7,215 172,329 1,501 181,045 $ 237,010 $ 1,591,647 $ (29,459 ) $ 1,799,198 Accumulated Other Comprehensive Income (Loss), Net of Income Tax Total Balance, December 31, 2012 $ 267,475 $ 1,877,657 $ (36,230 ) $ 2,108,902 Other comprehensive income (loss) before reclassifications (75,798 ) (936,847 ) (82 ) (1,012,727 ) Amounts reclassified to AOCI — 1,527 2,299 3,826 Net current-period other comprehensive income (loss) (75,798 ) (935,320 ) 2,217 (1,008,901 ) Balance, September 30, 2013 $ 191,677 $ 942,337 $ (34,013 ) $ 1,100,001 Accumulated Other Comprehensive Income (Loss), Net of Income Tax Total Balance, December 31, 2011 $ 229,795 $ 1,419,318 $ (30,960 ) $ 1,618,153 Change in component during the period 43,463 488,194 1,837 533,494 Balance, September 30, 2012 $ 273,258 $ 1,907,512 $ (29,123 ) $ 2,151,647 (1) reclassified out of AOCI reclassifications for the three and sixnine months ended JuneSeptember 30, 2013 (dollars in thousands): Amount Reclassified from AOCI Details about AOCI Components Three months ended
June 30, 2013 Six months ended
June 30, 2013 $ 13,510 $ 23,858 Investment related gains (losses), net 201 506 Investment income (13,283 ) (14,831 ) 428 9,533 Total before tax (87 ) (3,021 ) Tax expense $ 341 $ 6,512 Net of tax $ (213 ) $ (307 ) (968 ) (1,991 ) (1,181 ) (2,298 ) Total before tax 413 804 Tax benefit $ (768 ) $ (1,494 ) Net of tax $ (427 ) $ 5,018 Net of tax Amount Reclassified from AOCI Details about AOCI Components Three months ended September 30, 2013 Nine months ended September 30, 2013 Affected Line Item in Statement of Income Unrealized gains and losses on available-for-sale securities $ (12,736 ) $ 11,122 Investment related gains (losses), net Gains and losses on cash flow hedge - interest rate swap 291 796 Investment income (602 ) (15,433 ) (13,047 ) (3,515 ) Total before tax 5,009 1,988 Tax expense $ (8,038 ) $ (1,527 ) Net of tax Amortization of unrealized pension and postretirement benefits: $ (152 ) $ (459 ) (1,087 ) (3,078 ) (1,239 ) (3,537 ) Total before tax 434 1,238 Tax benefit $ (805 ) $ (2,299 ) Net of tax Total reclassifications for the period $ (8,843 ) $ (3,826 ) Net of tax (1) (2) 4.4. Investments JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013: Amortized
Cost Unrealized
Gains Unrealized
Losses Estimated Fair
Value % of
Total Other-than-
temporary
impairments
in AOCI $ 11,346,144 $ 648,955 $ 191,618 $ 11,803,481 55.4 % $ — 2,633,388 901,567 9,162 3,525,793 16.6 — 1,015,155 53,581 13,768 1,054,968 5.0 (241 ) 789,849 18,998 18,537 790,310 3.7 (2,259 ) 1,564,924 110,294 36,586 1,638,632 7.7 (5,125 ) 394,026 21,417 2,453 412,990 1.9 — 278,148 25,513 11,850 291,811 1.4 — 1,735,687 51,165 20,621 1,766,231 8.3 — $ 19,757,321 $ 1,831,490 $ 304,595 $ 21,284,216 100.0 % $ (7,625 ) $ 85,483 $ 6,722 $ 1,747 $ 90,458 56.4 % 74,273 — 4,392 69,881 43.6 $ 159,756 $ 6,722 $ 6,139 $ 160,339 100.0 % December 31, 2012: Amortized
Cost Unrealized
Gains Unrealized
Losses Estimated Fair
Value % of
Total Other-than-
temporary
impairments
in AOCI $ 11,333,431 $ 1,085,973 $ 39,333 $ 12,380,071 55.5 % $ — 2,676,777 1,372,731 174 4,049,334 18.2 — 969,267 76,520 3,723 1,042,064 4.7 (241 ) 700,455 19,898 28,798 691,555 3.1 (2,259 ) 1,608,376 142,369 51,842 1,698,903 7.6 (6,125 ) 231,256 33,958 24 265,190 1.2 — 270,086 38,058 5,646 302,498 1.4 — 1,769,784 94,929 2,714 1,861,999 8.3 — $ 19,559,432 $ 2,864,436 $ 132,254 $ 22,291,614 100.0 % $ (8,625 ) $ 68,469 $ 6,542 $ 170 $ 74,841 33.6 % 148,577 416 1,134 147,859 66.4 $ 217,046 $ 6,958 $ 1,304 $ 222,700 100.0 % September 30, 2013: Amortized Unrealized Unrealized Estimated Fair % of Other-than-
temporary impairments Cost Gains Losses Value Total in AOCI Available-for-sale: Corporate securities $ 11,505,673 $ 637,691 $ 208,802 $ 11,934,562 56.1 % $ — Canadian and Canadian provincial governments 2,719,147 785,840 13,831 3,491,156 16.4 — Residential mortgage-backed securities 922,581 44,948 15,691 951,838 4.5 (300 ) Asset-backed securities 883,495 19,264 17,481 885,278 4.1 (2,259 ) Commercial mortgage-backed securities 1,371,473 102,207 20,566 1,453,114 6.8 (1,609 ) U.S. government and agencies 413,254 20,412 2,819 430,847 2.0 — State and political subdivisions 288,757 22,626 13,654 297,729 1.4 — Other foreign government, supranational and foreign government-sponsored enterprises 1,812,970 50,246 18,632 1,844,584 8.7 — Total fixed maturity securities $ 19,917,350 $ 1,683,234 $ 311,476 $ 21,289,108 100.0 % $ (4,168 ) Non-redeemable preferred stock $ 80,985 $ 5,187 $ 3,333 $ 82,839 56.4 % Other equity securities 68,123 — 4,052 64,071 43.6 Total equity securities $ 149,108 $ 5,187 $ 7,385 $ 146,910 100.0 % December 31, 2012: Amortized Unrealized Unrealized Estimated Fair % of Other-than-
temporary impairments Cost Gains Losses Value Total in AOCI Available-for-sale: Corporate securities $ 11,333,431 $ 1,085,973 $ 39,333 $ 12,380,071 55.5 % $ — Canadian and Canadian provincial governments 2,676,777 1,372,731 174 4,049,334 18.2 — Residential mortgage-backed securities 969,267 76,520 3,723 1,042,064 4.7 (241 ) Asset-backed securities 700,455 19,898 28,798 691,555 3.1 (2,259 ) Commercial mortgage-backed securities 1,608,376 142,369 51,842 1,698,903 7.6 (6,125 ) U.S. government and agencies 231,256 33,958 24 265,190 1.2 — State and political subdivisions 270,086 38,058 5,646 302,498 1.4 — Other foreign government, supranational and foreign government-sponsored enterprises 1,769,784 94,929 2,714 1,861,999 8.3 — Total fixed maturity securities $ 19,559,432 $ 2,864,436 $ 132,254 $ 22,291,614 100.0 % $ (8,625 ) Non-redeemable preferred stock $ 68,469 $ 6,542 $ 170 $ 74,841 33.6 % Other equity securities 148,577 416 1,134 147,859 66.4 Total equity securities $ 217,046 $ 6,958 $ 1,304 $ 222,700 100.0 % $32.9$53.8 million and $16.9$16.9 million, and an estimated fair value of $33.9$54.5 million and $17.0$17.0 million, as of JuneSeptember 30, 2013 and December 31, 2012 respectively. The pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets as of JuneSeptember 30, 2013, and are included in other invested assets in the condensed consolidated balance sheets as of December 31, 2012. Securities with an amortized cost of $8,046.9$7,954.6 million and $7,549.0$7,549.0 million, and an estimated fair value of $8,377.6$8,260.6 million and $7,913.8$7,913.8 million, as of JuneSeptember 30, 2013 and December 31, 2012, respectively, were held in trust to satisfy collateral requirements under certain third-party reinsurance treaties.$91.5$92.2 million and $95.6$95.6 million, as of JuneSeptember 30, 2013 and December 31, 2012, respectively. The collateral is held in separate custodial accounts and is not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of JuneSeptember 30, 2013 and December 31, 2012, none of the collateral had been sold or re-pledged.JuneSeptember 30, 2013, the Company held securities with a fair value of $1,231.6$1,238.5 million that were guaranteed or issued by the Canadian province of Ontario and $1,516.3$1,479.4 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity. As of December 31, 2012, the Company held securities with a fair value of $1,400.0$1,400.0 million that were guaranteed or issued by the Canadian province of Ontario and $1,785.0$1,785.0 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity.JuneSeptember 30, 2013 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date. At JuneSeptember 30, 2013, the contractual maturities of investments in fixed maturity securities were as follows (dollars in thousands): Amortized
Cost Fair
Value $ 426,022 $ 432,495 3,613,328 3,773,306 6,893,971 7,127,743 5,454,072 6,466,762 3,369,928 3,483,910 $ 19,757,321 $ 21,284,216 Available-for-sale: Due in one year or less $ 416,152 $ 421,874 Due after one year through five years 3,712,227 3,890,251 Due after five years through ten years 6,800,712 7,027,350 Due after ten years 5,810,710 6,659,403 Asset and mortgage-backed securities 3,177,549 3,290,230 Total $ 19,917,350 $ 21,289,108 JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013: Amortized Cost Estimated
Fair Value % of Total $ 3,636,121 $ 3,770,773 32.0 % 5,914,051 6,138,234 52.0 1,768,696 1,867,151 15.8 27,276 27,323 0.2 $ 11,346,144 $ 11,803,481 100.0 % December 31, 2012: Amortized Cost Estimated Fair
Value % of Total $ 3,619,455 $ 3,900,152 31.5 % 5,881,967 6,443,846 52.0 1,799,658 2,002,611 16.2 32,351 33,462 0.3 $ 11,333,431 $ 12,380,071 100.0 % September 30, 2013: Estimated Amortized Cost Fair Value % of Total Finance $ 3,728,120 $ 3,870,583 32.4 % Industrial 5,926,283 6,125,796 51.3 Utility 1,829,273 1,916,477 16.1 Other 21,997 21,706 0.2 Total $ 11,505,673 $ 11,934,562 100.0 % December 31, 2012: Estimated Amortized Cost Fair Value % of Total Finance $ 3,619,455 $ 3,900,152 31.5 % Industrial 5,881,967 6,443,846 52.0 Utility 1,799,658 2,002,611 16.2 Other 32,351 33,462 0.3 Total $ 11,333,431 $ 12,380,071 100.0 % Three months ended June 30, 2013 2012 $ 14,773 $ 62,236 — 60 — 161 (1,449 ) (8,288 ) — (8,266 ) $ 13,324 $ 45,903 Six months ended June 30, 2013 2012 $ 16,675 $ 63,947 — 1,962 — 8,881 (1,449 ) (19,669 ) (1,902 ) (9,218 ) $ 13,324 $ 45,903 Three months ended September 30, 2012 Balance, beginning of period $ 13,324 $ 45,903 Initial impairments - credit loss OTTI recognized on securities not previously impaired — — Additional impairments - credit loss OTTI recognized on securities previously impaired 134 1,306 Credit loss OTTI previously recognized on securities impaired to fair value during the period — (2,622 ) Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period (1,762 ) (20,725 ) Balance, end of period $ 11,696 $ 23,862 Nine months ended September 30, 2013 2012 Balance, beginning of period $ 16,675 $ 63,947 Initial impairments - credit loss OTTI recognized on securities not previously impaired — 1,962 Additional impairments - credit loss OTTI recognized on securities previously impaired 134 10,187 Credit loss OTTI previously recognized on securities impaired to fair value during the period (1,449 ) (22,291 ) Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period (3,664 ) (29,943 ) Balance, end of period $ 11,696 $ 23,862 In the third quarter of 2012, the Company began purchasing certain structured securities that had experienced deterioration in credit quality since their issuance. June 30, 2013 December 31, 2012 $ 178,911 $ 108,831 $ 132,985 $ 84,765 September 30, 2013 December 31, 2012 $ 186,379 $ 108,831 $ 135,862 $ 84,765 (1) (2) six months ended June 30, 2013periods, as of their acquisition dates (dollars in thousands). At Date of Acquisition $ 109,931 88,422 58,471 Nine months ended September 30, 2013 2012 Contractually required payments (including interest) $ 126,869 $ 50,268 101,205 42,316 Fair value of investments acquired 66,880 30,853 (1) sixnine months ended JuneSeptember 30, 2013 and 2012 (dollars in thousands): Three months ended June 30, 2013 Six months ended June 30, 2013 $ 59,915 $ 39,239 7,885 29,951 (1,879 ) (3,822 ) (832 ) (832 ) 1,180 1,733 $ 66,269 $ 66,269 Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Balance, beginning of period $ 66,269 $ — $ 39,239 $ — Investments purchased 4,374 11,463 34,325 11,463 Accretion (1,952 ) (6 ) (5,774 ) (6 ) Disposals — — (832 ) — Reclassification from nonaccretable difference 1,388 — 3,121 — Balance, end of period $ 70,079 $ 11,457 $ 70,079 $ 11,457 1,3941,397 and 567 fixed maturity and equity securities as of JuneSeptember 30, 2013 and December 31, 2012, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands): June 30, 2013 December 31, 2012 Gross
Unrealized
Losses % of Total Gross
Unrealized
Losses % of Total $ 267,765 86.2% $ 54,951 41.2% 5,629 1.8 734 0.5 37,340 12.0 77,873 58.3 $ 310,734 100.0% $ 133,558 100.0% September 30, 2013 December 31, 2012 % of Total % of Total Less than 20% $ 286,594 89.9 % $ 54,951 41.2 % 20% or more for less than six months 6,325 2.0 734 0.5 20% or more for six months or greater 25,942 8.1 77,873 58.3 Total $ 318,861 100.0 % $ 133,558 100.0 % The Company continues to consider declines in value as a potential indicator of credit deterioration. However, the Company believes that due to fluctuating market conditions and an extended period of economic uncertainty, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to a fixed maturity security since it may not have an impact on the ability of the issuer to service all scheduled payments and the Company’s evaluation of the recoverability of all contractual cash flows or the ability to recover an amount at least equal to amortized cost. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.1,3941,397 and 567 fixed maturity and equity securities that have estimated fair values below amortized cost as of JuneSeptember 30, 2013 and December 31, 2012, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost. Less than 12 months 12 months or greater Total June 30, 2013: Estimated
Fair Value Gross
Unrealized
Losses Estimated
Fair Value Gross
Unrealized
Losses Estimated
Fair Value Gross
Unrealized
Losses $ 3,229,715 $ 161,032 $ 89,098 $ 12,531 $ 3,318,813 $ 173,563 138,843 9,162 — — 138,843 9,162 210,336 9,553 14,822 2,643 225,158 12,196 220,912 4,719 51,673 5,567 272,585 10,286 227,712 9,172 18,893 6,455 246,605 15,627 191,973 2,344 4,037 109 196,010 2,453 97,877 6,351 11,402 5,499 109,279 11,850 657,957 19,787 5,698 721 663,655 20,508 4,975,325 222,120 195,623 33,525 5,170,948 255,645 366,159 11,452 40,425 6,603 406,584 18,055 53,715 1,007 2,359 565 56,074 1,572 25,233 376 30,434 7,875 55,667 8,251 19,324 198 43,879 20,761 63,203 20,959 952 113 — — 952 113 465,383 13,146 117,097 35,804 582,480 48,950 $ 5,440,708 $ 235,266 $ 312,720 $ 69,329 $ 5,753,428 $ 304,595 $ 30,787 $ 1,745 $ 1 $ 2 $ 30,788 $ 1,747 69,881 4,392 — — 69,881 4,392 $ 100,668 $ 6,137 $ 1 $ 2 $ 100,669 $ 6,139 Less than 12 months 12 months or greater Total December 31, 2012: Estimated
Fair Value Gross
Unrealized
Losses Estimated
Fair Value Gross
Unrealized
Losses Estimated
Fair Value Gross
Unrealized
Losses $ 786,203 $ 13,276 $ 108,187 $ 17,386 $ 894,390 $ 30,662 12,349 174 — — 12,349 174 22,288 97 19,394 3,199 41,682 3,296 59,119 449 96,179 9,508 155,298 9,957 89,507 797 29,181 7,974 118,688 8,771 7,272 24 — — 7,272 24 20,602 1,514 11,736 4,132 32,338 5,646 244,817 1,953 7,435 761 252,252 2,714 1,242,157 18,284 272,112 42,960 1,514,269 61,244 181,168 3,170 39,123 5,501 220,291 8,671 15,199 80 2,633 347 17,832 427 3,421 26 31,938 18,815 35,359 18,841 3,317 764 68,405 42,307 71,722 43,071 203,105 4,040 142,099 66,970 345,204 71,010 $ 1,445,262 $ 22,324 $ 414,211 $ 109,930 $ 1,859,473 $ 132,254 $ 5,577 $ 52 $ 5,679 $ 118 $ 11,256 $ 170 85,374 1,134 — — 85,374 1,134 $ 90,951 $ 1,186 $ 5,679 $ 118 $ 96,630 $ 1,304 Less than 12 months 12 months or greater Total Gross Gross Gross September 30, 2013: Estimated Unrealized Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses Fair Value Losses Investment grade securities: Corporate securities $ 3,158,429 $ 168,659 $ 130,027 $ 20,031 $ 3,288,456 $ 188,690 Canadian and Canadian provincial governments 140,648 12,530 6,898 1,301 147,546 13,831 Residential mortgage-backed securities 207,602 11,909 18,997 2,257 226,599 14,166 Asset-backed securities 270,863 4,602 53,786 5,571 324,649 10,173 Commercial mortgage-backed securities 188,153 6,565 22,435 5,968 210,588 12,533 U.S. government and agencies 72,032 2,658 3,958 161 75,990 2,819 State and political subdivisions 95,935 8,776 14,981 4,878 110,916 13,654 Other foreign government, supranational and foreign government-sponsored enterprises 644,427 17,479 10,589 1,153 655,016 18,632 Total investment grade securities 4,778,089 233,178 261,671 41,320 5,039,760 274,498 Corporate securities 311,613 12,155 42,024 7,957 353,637 20,112 Residential mortgage-backed securities 53,633 1,068 2,254 457 55,887 1,525 Asset-backed securities 29,043 467 30,901 6,841 59,944 7,308 Commercial mortgage-backed securities 971 25 10,905 8,008 11,876 8,033 Total non-investment grade securities 395,260 13,715 86,084 23,263 481,344 36,978 Total fixed maturity securities $ 5,173,349 $ 246,893 $ 347,755 $ 64,583 $ 5,521,104 $ 311,476 Non-redeemable preferred stock $ 42,338 $ 3,331 $ 1 $ 2 $ 42,339 $ 3,333 Other equity securities 47,151 2,619 17,028 1,433 64,179 4,052 Total equity securities $ 89,489 $ 5,950 $ 17,029 $ 1,435 $ 106,518 $ 7,385 Less than 12 months 12 months or greater Total Gross Gross Gross December 31, 2012: Estimated Unrealized Estimated Unrealized Estimated Unrealized Fair Value Losses Fair Value Losses Fair Value Losses Investment grade securities: Corporate securities $ 786,203 $ 13,276 $ 108,187 $ 17,386 $ 894,390 $ 30,662 Canadian and Canadian provincial governments 12,349 174 — — 12,349 174 Residential mortgage-backed securities 22,288 97 19,394 3,199 41,682 3,296 Asset-backed securities 59,119 449 96,179 9,508 155,298 9,957 Commercial mortgage-backed securities 89,507 797 29,181 7,974 118,688 8,771 U.S. government and agencies 7,272 24 — — 7,272 24 State and political subdivisions 20,602 1,514 11,736 4,132 32,338 5,646 Other foreign government, supranational and foreign government-sponsored enterprises 244,817 1,953 7,435 761 252,252 2,714 Total investment grade securities 1,242,157 18,284 272,112 42,960 1,514,269 61,244 Corporate securities 181,168 3,170 39,123 5,501 220,291 8,671 Residential mortgage-backed securities 15,199 80 2,633 347 17,832 427 Asset-backed securities 3,421 26 31,938 18,815 35,359 18,841 Commercial mortgage-backed securities 3,317 764 68,405 42,307 71,722 43,071 Total non-investment grade securities 203,105 4,040 142,099 66,970 345,204 71,010 Total fixed maturity securities $ 1,445,262 $ 22,324 $ 414,211 $ 109,930 $ 1,859,473 $ 132,254 Non-redeemable preferred stock $ 5,577 $ 52 $ 5,679 $ 118 $ 11,256 $ 170 Other equity securities 85,374 1,134 — — 85,374 1,134 Total equity securities $ 90,951 $ 1,186 $ 5,679 $ 118 $ 96,630 $ 1,304 JuneSeptember 30, 2013, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. As of JuneSeptember 30, 2013, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality, asset-liability management and liquidity guidelines.asset and mortgage-backedhigh-yield corporate securities and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, includinginterest rate movements during the impactfirst nine months of lower real estate valuations.2013. As of JuneSeptember 30, 2013 and December 31, 2012, approximately $29.2$20.1 million and $61.5$8.7 million, respectively, of gross unrealized losses were associated with non-investment grade corporate securities. Unrealized losses on non-investment grade securities related to asset and mortgage-backed securities decreased significantly during 2013 driven principally by commercial mortgage-backed securities. As of September 30, 2013 and December 31, 2012, approximately $15.3 million and $61.5 million, respectively, of gross unrealized losses greater than 12 months waswere associated with non-investment grade asset and mortgage-backed securities. This classDuring the first nine months of 2013, commercial mortgage-backed securities was evaluated based on actualbenefited from improvement in delinquency rates and projected collateral losses relative to the securities’ positions in the respective securitization trusts and security specific expectations of cash flows. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ 240,590 $ 193,388 $ 479,834 $ 384,806 28,362 16,000 56,605 30,966 15,450 16,334 33,360 33,117 159,212 62,992 296,471 178,006 422 781 1,235 1,769 — 36,752 — 36,752 13,379 11,356 27,301 22,679 457,415 337,603 894,806 688,095 (13,181 ) (9,269 ) (25,441 ) (18,821 ) $ 444,234 $ 328,334 $ 869,365 $ 669,274 Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Fixed maturity securities available-for-sale $ 243,938 $ 221,212 $ 723,772 $ 633,110 Mortgage loans on real estate 33,013 26,938 89,618 67,258 Policy loans 15,743 16,519 49,103 49,637 Funds withheld at interest 80,024 127,855 376,495 305,861 Short-term investments 374 960 1,609 3,027 Investment receivable — — — — Other invested assets 9,411 13,117 36,712 35,803 Investment revenue 382,503 406,601 1,277,309 1,094,696 Investment expense (13,137 ) (9,820 ) (38,578 ) (28,641 ) Investment income, net of related expenses $ 369,366 $ 396,781 $ 1,238,731 $ 1,066,055 Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ (9,803 ) $ (1,959 ) $ (10,005 ) $ (9,566 ) (306 ) 162 (306 ) (7,059 ) (10,109 ) (1,797 ) (10,311 ) (16,625 ) — (2,186 ) — (3,025 ) 26,845 26,593 48,525 48,905 (6,760 ) (8,918 ) (17,972 ) (16,422 ) 125 1,762 (1,501 ) (4,081 ) 38,142 8,347 123,873 58,569 $ 48,243 $ 23,801 $ 142,614 $ 67,321 The net other-than-temporary impairment losses on fixed maturity securities recognized in earnings were $10.1 million and $1.8 million for the three months ended June 30, 2013 and 2012, and $10.3 million and $16.6 million for the first six months Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Fixed maturities and equity securities available for sale: Other-than-temporary impairment losses on fixed maturities $ (391 ) $ (1,996 ) $ (10,396 ) $ (11,562 ) Portion of loss recognized in accumulated other comprehensive income (before taxes) 59 (559 ) (247 ) (7,618 ) Net other-than-temporary impairment losses on fixed maturities recognized in earnings (332 ) (2,555 ) (10,643 ) (19,180 ) Impairment losses on equity securities — — — (3,025 ) Gain on investment activity 21,560 53,173 70,085 102,078 Loss on investment activity (30,434 ) (6,668 ) (48,406 ) (23,090 ) Other impairment losses and change in mortgage loan provision 233 (10,301 ) (1,268 ) (14,382 ) Derivatives and other, net (67,492 ) 42,404 56,381 100,973 Total investment related gains (losses), net $ (76,465 ) $ 76,053 $ 66,149 $ 143,374 secondthird quarter and first sixnine months of 2013 were primarily due to the decision to sell certain subordinated commercial mortgage-backed securities. The other-than-temporary impairments in the first sixnine months of 2012 were primarily due to a decline in value of structured securities with exposure to commercial mortgages and general credit deterioration in select corporate and foreign securities. The increasedecrease in derivatives and other in 2013 isthe third quarter was primarily due to an increasea decrease in the fair value of embedded derivatives.JuneSeptember 30, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $257.6$410.4 million and $153.5$220.5 million at losses of $6.8$30.4 million and $8.9$6.7 million, respectively. During the sixnine months ended JuneSeptember 30, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $461.9$872.2 million and $401.6$622.1 million at losses of $18.0$48.4 million and $16.4$23.1 million, respectively. The Company generally does not engage in short-term buying and selling of securities.$87.5$87.5 million as of JuneSeptember 30, 2013 and December 31, 2012, which was equal to the fair value in both periods. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.JuneSeptember 30, 2013 the Company had pledged securities with an amortized cost of $292.1$292.4 million and an estimated fair value of $307.7$307.0 million, and in return the Company received securities with an estimated fair value of $338.0 million.$347.5 million. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2$290.2 million and an estimated fair value of $305.9$305.9 million, and in return the Company received securities with an estimated fair value of $342.0 million.$342.0 million.7.5%7.8% and 7.0% of the Company’s total investments as of JuneSeptember 30, 2013 and December 31, 2012.2012. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, and light industrial facilities. Loan-to-value ratios at the time of loan approval are 75% or less. The distribution of mortgage loans, gross of valuation allowances, by property type is as follows as of JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands): June 30, 2013 December 31, 2012 Recorded
Investment % of Total Recorded
Investment % of Total $ 220,117 9.2% $ 229,266 9.9% 747,282 31.3 669,958 29.0 841,842 35.3 825,406 35.7 450,140 18.9 455,682 19.7 125,768 5.3 131,855 5.7 $ 2,385,149 100.0% $ 2,312,167 100.0% September 30, 2013 December 31, 2012 % of Total Recorded
Investment % of Total Apartment $ 290,678 11.7 % $ 229,266 9.9 % Retail 796,144 31.9 669,958 29.0 Office building 854,870 34.2 825,406 35.7 Industrial 444,186 17.8 455,682 19.7 Other commercial 110,373 4.4 131,855 5.7 Total $ 2,496,251 100.0 % $ 2,312,167 100.0 % JuneSeptember 30, 2013 and December 31, 2012, the Company’s mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands): June 30, 2013 December 31, 2012 Recorded
Investment % of Total Recorded
Investment % of Total $ 636,084 26.7% $ 593,589 25.7% 507,010 21.3 477,068 20.5 257,130 10.8 233,174 10.1 276,799 11.6 300,475 13.0 174,764 7.3 168,063 7.3 222,991 9.2 224,122 9.7 158,666 6.7 161,451 7.0 61,966 2.6 62,789 2.7 89,739 3.8 91,436 4.0 $ 2,385,149 100.0% $ 2,312,167 100.0% September 30, 2013 December 31, 2012 % of Total % of Total Pacific $ 658,054 26.4 % $ 593,589 25.7 % South Atlantic 581,781 23.3 477,068 20.5 Mountain 260,794 10.4 233,174 10.1 Middle Atlantic 269,602 10.8 300,475 13.0 West North Central 181,937 7.3 168,063 7.3 East North Central 239,997 9.6 224,122 9.7 West South Central 155,061 6.2 161,451 7.0 East South Central 67,155 2.7 62,789 2.7 New England 81,870 3.3 91,436 4.0 Total $ 2,496,251 100.0 % $ 2,312,167 100.0 % JuneSeptember 30, 2013 and December 31, 2012 are as follows (dollars in thousands): June 30, 2013 December 31, 2012 Recorded
Investment % of Total Recorded
Investment % of Total $ 1,066,678 44.7% $ 1,187,387 51.3% 875,596 36.7 776,655 33.6 442,875 18.6 348,125 15.1 $ 2,385,149 100.0% $ 2,312,167 100.0% September 30, 2013 December 31, 2012 % of Total % of Total Due within five years $ 1,024,065 41.0 % $ 1,187,387 51.3 % Due after five years through ten years 963,479 38.6 776,655 33.6 Due after ten years 508,707 20.4 348,125 15.1 Total $ 2,496,251 100.0 % $ 2,312,167 100.0 % JuneSeptember 30, 2013 and December 31, 2012 is as follows (dollars in thousands): June 30, 2013 December 31, 2012 Internal credit risk grade: Recorded
Investment % of Total Recorded
Investment % of Total $ 1,475,089 61.8% $ 1,235,605 53.5% 694,476 29.1 834,494 36.1 127,967 5.4 132,607 5.7 53,831 2.3 76,463 3.3 33,786 1.4 32,998 1.4 $ 2,385,149 100.0% $ 2,312,167 100.0% September 30, 2013 December 31, 2012 Internal credit risk grade: % of Total % of Total High investment grade $ 1,556,974 62.4 % $ 1,235,605 53.5 % Investment grade 754,369 30.2 834,494 36.1 Average 106,912 4.3 132,607 5.7 Watch list 49,173 2.0 76,463 3.3 In or near default 28,823 1.1 32,998 1.4 Total $ 2,496,251 100.0 % $ 2,312,167 100.0 % JuneSeptember 30, 2013 and December 31, 2012 is as follows (dollars in thousands): June 30, 2013 December 31, 2012 $ 20,563 $ 7,504 — — 7,930 16,886 28,493 24,390 2,356,656 2,287,777 $ 2,385,149 $ 2,312,167 September 30, 2013 December 31, 2012 $ — $ 7,504 — — 3,046 16,886 3,046 24,390 2,493,205 2,287,777 $ 2,496,251 $ 2,312,167 evaluation of credit loss,measuring impairment, and the related valuation allowances by typeas of credit loss, atSeptember 30, 2013 and December 31, 2012 (dollars in thousands): June 30, 2013 December 31, 2012 $ 37,617 $ 39,956 2,347,532 2,272,211 2,385,149 2,312,167 4,738 6,980 3,165 4,600 7,903 11,580 $ 2,377,246 $ 2,300,587 September 30, 2013 December 31, 2012 Mortgage loans: Individually measured for impairment $ 32,624 $ 39,956 Collectively measured for impairment 2,463,627 2,272,211 Mortgage loans, gross of valuation allowances 2,496,251 2,312,167 Valuation allowances: Individually measured for impairment 4,691 6,980 Collectively measured for impairment 2,978 4,600 Total valuation allowances 7,669 11,580 $ 2,488,582 $ 2,300,587 sixnine months ended JuneSeptember 30, 2013 and 2012 is as follows (dollars in thousands): Three months ended June 30, 2013 2012 $ 9,924 $ 14,650 (1,296 ) (1,876 ) (725 ) (1,763 ) $ 7,903 $ 11,011 Six months ended June 30, 2013 2012 $ 11,580 $ 11,793 (2,148 ) (4,069 ) (1,529 ) 3,287 $ 7,903 $ 11,011 Three months ended September 30, 2013 2012 Balance, beginning of period $ 7,903 $ 11,011 Charge-offs — (526 ) Provision (release) (234 ) 2,848 Balance, end of period $ 7,669 $ 13,333 Nine months ended September 30, 2013 2012 Balance, beginning of period $ 11,580 $ 11,793 Charge-offs (2,148 ) (4,595 ) Provision (release) (1,763 ) 6,135 Balance, end of period $ 7,669 $ 13,333 JuneSeptember 30, 2013 and December 31, 2012 is as follows (dollars in thousands): Unpaid
Principal
Balance Recorded
Investment Related
Allowance Carrying
Value $ 16,714 $ 16,104 $ — $ 16,104 21,582 21,513 4,738 16,775 $ 38,296 $ 37,617 $ 4,738 $ 32,879 $ 13,039 $ 12,496 $ — $ 12,496 27,527 27,460 6,980 20,480 $ 40,566 $ 39,956 $ 6,980 $ 32,976 Three months ended June 30, 2013 2012 Average
Investment(1) Interest
Income Average
Investment(1) Interest
Income $ 15,181 $ 49 $ 10,585 $ 28 24,211 294 41,747 410 $ 39,392 $ 343 $ 52,332 $ 438 Six months ended June 30, 2013 2012 Average
Investment(1) Interest
Income Average
Investment(1) Interest
Income $ 14,286 $ 184 $ 17,555 $ 197 25,294 534 37,634 718 $ 39,580 $ 718 $ 55,189 $ 915 September 30, 2013: Impaired mortgage loans with no valuation allowance recorded $ 11,762 $ 11,157 $ — $ 11,157 Impaired mortgage loans with valuation allowance recorded 21,536 21,467 4,691 16,776 Total impaired mortgage loans $ 33,298 $ 32,624 $ 4,691 $ 27,933 December 31, 2012: Impaired mortgage loans with no valuation allowance recorded $ 13,039 $ 12,496 $ — $ 12,496 Impaired mortgage loans with valuation allowance recorded 27,527 27,460 6,980 20,480 Total impaired mortgage loans $ 40,566 $ 39,956 $ 6,980 $ 32,976 The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands): Three months ended September 30, 2013 2012 Impaired mortgage loans with no valuation allowance recorded $ 13,631 $ 349 $ 11,054 $ 109 21,490 266 35,047 461 Total $ 35,121 $ 615 $ 46,101 $ 570 Nine months ended September 30, 2013 2012 Impaired mortgage loans with no valuation allowance recorded $ 13,504 $ 533 $ 16,312 $ 305 24,337 801 36,178 1,180 Total $ 37,841 $ 1,334 $ 52,490 $ 1,485 sixnine months ended JuneSeptember 30, 2013 and 2012. The Company had $7.9$3.0 million and $16.9$16.9 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at JuneSeptember 30, 2013 and December 31, 2012, respectively.JuneSeptember 30, 2013 and December 31, 2012, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. As policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.18.2%18.0% and 17.0% of the Company’s total investments as of JuneSeptember 30, 2013 and December 31, 2012, respectively. As of JuneSeptember 30, 2013 and December 31, 2012, approximately 70.8%70.0% and 69.7%, respectively, of the Company’s funds withheld at interest balance, net of embedded derivatives, was associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed to the Company from the ceding company. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance.(“FHLB”("FHLB") common stock (included in other), investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate account assets (included in other), and real estate held-for-investment (included in other). Other invested assets represented approximately 3.3% and 3.5% of the Company’s total investments as of Juneboth September 30, 2013 and December 31, 2012 respectively.. Carrying values of these assets as of JuneSeptember 30, 2013 and December 31, 2012 are as follows (dollars in thousands): June 30, 2013 December 31, 2012 $ 160,339 $ 222,700 423,790 356,419 245,734 306,497 118,791 168,208 87,155 105,719 $ 1,035,809 $ 1,159,543 September 30, 2013 December 31, 2012 Equity securities $ 146,910 $ 222,700 Limited partnerships and real estate joint ventures 417,761 356,419 Structured loans 245,404 306,497 Derivatives 87,421 168,208 Other 218,895 105,719 Total other invested assets $ 1,116,391 $ 1,159,543 Fixed maturity securities - available for sale: Corporate securities $ 2,585,095 $ 2,606,816 Asset-backed securities 137,251 138,918 Commercial mortgage-backed securities 703,313 704,065 U.S. Government and agencies securities 240,952 256,168 State and political subdivision securities 27,297 27,555 Other foreign government, supranational, and foreign government-sponsored enterprises 56,776 55,437 Total fixed maturity securities - available for sale 3,750,684 3,788,959 Mortgage loans on real estate 1,009,454 1,021,661 Short-term investments 101,428 101,338 Cash and cash equivalents 501,593 501,593 Accrued interest 43,739 43,739 Total $ 5,406,898 $ 5,457,290 5.5. Derivative Instruments JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands): June 30, 2013 December 31, 2012 Notional
Amount Carrying Value/Fair Value Notional
Amount Carrying Value/Fair Value Assets Liabilities Assets Liabilities $ 1,531,811 $ 54,742 $ 16,971 $ 2,195,059 $ 123,085 $ 17,867 240,000 8,073 — — — — 110,328 — — 127,877 — — 83,387 148 9,484 74,400 1,017 2,105 74,840 234 257 85,135 1,446 — 709,700 3,975 6,632 714,000 2,228 5,922 727,641 61,102 — 696,776 62,514 — 3,469,027 — — 2,018,073 — — — — 108,473 — — 243,177 — — 793,586 — — 740,256 — — 84,982 — — 172,105 6,946,734 128,274 1,020,385 5,911,320 190,290 1,181,432 50,349 — 5,058 57,275 344 786 729,890 18,298 2,498 629,512 — 27,398 780,239 18,298 7,556 686,787 344 28,184 $ 7,726,973 $ 146,572 $ 1,027,941 $ 6,598,107 $ 190,634 $ 1,209,616 September 30, 2013 December 31, 2012 Notional Carrying Value/Fair Value Notional Carrying Value/Fair Value Amount Assets Liabilities Amount Assets Liabilities Derivatives not designated as hedging instruments: Interest rate swaps $ 1,510,467 $ 45,280 $ 15,694 $ 2,195,059 $ 123,085 $ 17,867 Interest rate options 240,000 5,699 — — — — Financial futures 84,192 — — 127,877 — — Foreign currency forwards 79,618 — 8,928 74,400 1,017 2,105 Consumer price index swaps 76,306 131 19 85,135 1,446 — Credit default swaps 689,700 5,744 3,810 714,000 2,228 5,922 Equity options 704,402 43,621 — 696,776 62,514 — Synthetic guaranteed investment contracts 3,978,244 — — 2,018,073 — — Embedded derivatives in: Modified coinsurance or funds withheld arrangements — — 175,933 — — 243,177 Indexed annuity products — — 760,746 — — 740,256 Variable annuity products — — 65,153 — — 172,105 Total non-hedging derivatives 7,362,929 100,475 1,030,283 5,911,320 190,290 1,181,432 Derivatives designated as hedging instruments: Interest rate swaps 51,335 — 2,770 57,275 344 786 Foreign currency swaps 780,274 9,344 4,325 629,512 — 27,398 Total hedging derivatives 831,609 9,344 7,095 686,787 344 28,184 Total derivatives $ 8,194,538 $ 109,819 $ 1,037,378 $ 6,598,107 $ 190,634 $ 1,209,616 “Investments”"Investments" for information regarding the Company’s securities borrowing and repurchase/reverse repurchase programs. See “Embedded Derivatives” below for information regarding the Company’s bifurcated embedded derivatives.JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands): Gross Amounts Not
Offset in the Balance Sheet Gross Amounts
Recognized Gross Amounts
Offset in the
Balance Sheet Net Amounts
Presented in the
Balance Sheet Financial
Instruments Cash Collateral
Pledged/
Received Net Amount $ 146,572 $ (27,781 ) $ 118,791 $ (17,010 ) $ (89,829 ) $ 11,952 40,900 (27,781 ) 13,119 (2,722 ) (6,950 ) 3,447 $ 190,634 $ (22,426 ) $ 168,208 $ (22,458 ) $ (136,414 ) $ 9,336 54,078 (22,426 ) 31,652 (1,565 ) (27,867 ) 2,220 Net Amount September 30, 2013: Derivative assets $ 109,819 $ (22,398 ) $ 87,421 $ (10,624 ) $ (64,027 ) $ 12,770 Derivative liabilities 35,546 (22,398 ) 13,148 (15,238 ) (8,150 ) (10,240 ) December 31, 2012: Derivative assets $ 190,634 $ (22,426 ) $ 168,208 $ (22,458 ) $ (136,414 ) $ 9,336 Derivative liabilities 54,078 (22,426 ) 31,652 (1,565 ) (27,867 ) 2,220 JuneSeptember 30, 2013 and December 31, 2012, the Company held interest rate swaps that were designated and qualified as cash flow hedges of interest rate risk. As of June 30, 2013 and December 31, 2012, the Companyrisk, held foreign currency swaps that were designated and qualified as hedges of a portion of its net investment in its foreign operations. As of June 30, 2013operations and December 31, 2012, the Company also had derivative instruments that were not designated as hedging instruments. See Note 2 – “Summary of Significant Accounting Policies” of the Company’s 2012 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. Derivative instruments are carried at fair value and generally require an insignificant amount of cash at inception of the contracts.sixnine months ended JuneSeptember 30, 2013 and 2012 (dollars in thousands): Three months ended June 30, 2013 2012 $ 1,961 $ (862 ) (6,797 ) 464 (201 ) (321 ) $ (5,037 ) $ (719 ) Six months ended June 30, 2013 2012 $ 403 $ (828 ) (4,934 ) 787 (506 ) (678 ) $ (5,037 ) $ (719 ) Three months ended September 30, 2013 2012 Accumulated other comprehensive income (loss), balance beginning of period $ (5,037 ) $ (719 ) Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges 2,583 (2,831 ) Amounts reclassified to investment income (291 ) (351 ) Accumulated other comprehensive income (loss), balance end of period $ (2,745 ) $ (3,901 ) Nine months ended September 30, 2013 2012 Accumulated other comprehensive income (loss), balance beginning of period $ 403 $ (828 ) Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges (2,352 ) (2,044 ) Amounts reclassified to investment income (796 ) (1,029 ) Accumulated other comprehensive income (loss), balance end of period $ (2,745 ) $ (3,901 ) JuneSeptember 30, 2013, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $0.7 million.$0.6 million. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to investment income over the term of the investment cash flows. There were no hedged forecasted transactions, other than the receipt or payment of variable interest payments on existing financial instruments, for the three and sixnine months ended JuneSeptember 30, 2013 and 2012.2012.sixnine months ended JuneSeptember 30, 2013 and 2012 (dollars in thousands): Amount of Gains
(Losses) Deferred in
AOCI on Derivatives Amount and Location of Gains (Losses)
Reclassified from AOCI into Income (Loss) Amount and Location of Gains (Losses)
Recognized in Income (Loss) on Derivatives (Effective Portion) (Effective Portion) Investment Income Investment Related Gains
(Losses) Investment Income For the three months ended June 30, 2013: Interest rate swaps $ (6,797 ) $ — $ 201 $ 31 $ — For the three months ended June 30, 2012: Interest rate swaps $ 464 $ — $ 321 $ 27 $ — For the six months ended June 30, 2013: Interest rate swaps $ (4,934 ) $ — $ 506 $ 14 $ — For the six months ended June 30, 2012: Interest rate swaps $ 787 $ — $ 678 $ 3 $ — (Effective Portion) (Effective Portion) Investment Income Investment Income For the three months ended September 30, 2013: Interest rate swaps $ 2,583 $ — $ 291 $ (3 ) $ — Interest rate swaps $ (2,831 ) $ — $ 351 $ (3 ) $ — For the nine months ended September 30, 2013: Interest rate swaps $ (2,352 ) $ — $ 796 $ 11 $ — For the nine months ended September 30, 2012: Interest rate swaps $ (2,044 ) $ — $ 1,029 $ — $ — sixnine months ended JuneSeptember 30, 2013 and 2012 (dollars in thousands): Derivative Gains (Losses) Deferred in AOCI For the three months ended June 30, For the six months ended June 30, 2013 2012 2013 2012 $ 23,913 $ 6,642 $ 34,835 $ (4,003 ) Derivative Gains (Losses) Deferred in AOCI For the three months ended September 30, For the nine months ended September 30, 2013 2012 2013 2012 Foreign currency swaps $ (14,600 ) $ (19,454 ) $ 20,235 $ (23,457 ) (1) (2) $18.4$3.8 million and $(16.4)$(16.4) million at JuneSeptember 30, 2013 and December 31, 2012, respectively. If a foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a foreign operation.gains (losses)losses of $52.4$24.5 million and $82.1$20.6 million, for the three months, and $(112.8)$137.2 million and $(11.3)$31.8 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively, related to derivatives (not including embedded derivatives) that do not qualify or have not been qualified for hedge accounting.sixnine months ended JuneSeptember 30, 2013 and 2012 is as follows (dollars in thousands): Gain (Loss) for the Three Months Ended
June 30, 2013 2012 Investment related gains (losses), net $ (38,415 ) $ 73,342 Investment related gains (losses), net (7,981 ) — Investment related gains (losses), net 714 11,074 Investment related gains (losses), net (2,958 ) 516 Investment related gains (losses), net (1,117 ) (1,431 ) Investment related gains (losses), net 2,427 (4,795 ) Investment related gains (losses), net (5,049 ) 3,367 Investment related gains (losses), net 47,717 (4,453 ) Policy acquisition costs and other insurance expenses — 859 Interest credited (28,019 ) 26,279 Investment related gains (losses), net 35,809 (74,929 ) $ 3,128 $ 29,829 Gain (Loss) for the Six Months Ended
June 30, 2013 2012 Investment related gains (losses), net $ (60,679 ) $ 25,990 Investment related gains (losses), net (5,998 ) — Investment related gains (losses), net (6,167 ) (6,335 ) Investment related gains (losses), net (8,617 ) (1,093 ) Investment related gains (losses), net (1,988 ) (2,233 ) Investment related gains (losses), net 6,332 7,019 Investment related gains (losses), net (35,672 ) (34,616 ) Investment related gains (losses), net 137,974 (13,881 ) Policy acquisition costs and other insurance expenses — (139 ) Interest credited (61,015 ) 7,538 Investment related gains (losses), net 87,123 71,446 $ 51,293 $ 53,696 Type of Non-hedging Derivative Income Statement Location of Gain (Loss) 2013 2012 Interest rate swaps Investment related gains (losses), net $ (8,221 ) $ (1,437 ) Interest rate options Investment related gains (losses), net (2,374 ) — Financial futures Investment related gains (losses), net (1,140 ) (3,977 ) Foreign currency forwards Investment related gains (losses), net 629 519 CPI swaps Investment related gains (losses), net (39 ) 422 Credit default swaps Investment related gains (losses), net 10,807 7,817 Equity options Investment related gains (losses), net (24,113 ) (23,916 ) Embedded derivatives in: Modco or funds withheld arrangements Investment related gains (losses), net (67,461 ) 54,836 Indexed annuity products Policy acquisition costs and other insurance expenses — (224 ) Indexed annuity products Interest credited 28,379 (33,597 ) Variable annuity products Investment related gains (losses), net 19,829 2,579 Total non-hedging derivatives $ (43,704 ) $ 3,022 Type of Non-hedging Derivative Income Statement Location of Gain (Loss) 2013 2012 Interest rate swaps Investment related gains (losses), net $ (68,900 ) $ 24,553 Interest rate options Investment related gains (losses), net (8,373 ) — Financial futures Investment related gains (losses), net (7,306 ) (10,312 ) Foreign currency forwards Investment related gains (losses), net (7,988 ) (574 ) CPI swaps Investment related gains (losses), net (2,027 ) (1,811 ) Credit default swaps Investment related gains (losses), net 17,138 14,835 Equity options Investment related gains (losses), net (59,784 ) (58,532 ) Embedded derivatives in: Modco or funds withheld arrangements Investment related gains (losses), net 70,514 40,955 Indexed annuity products Policy acquisition costs and other insurance expenses — (363 ) Indexed annuity products Interest credited (32,637 ) (26,059 ) Variable annuity products Investment related gains (losses), net 106,952 74,025 Total non-hedging derivatives $ 7,589 $ 56,717 equity futures are used primarily to economically hedge liabilities embedded in certain variable annuity products. With exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the relevant stock indices, and to post variation margin on a daily basis in an amount equal to the difference between the daily estimated fair values of those contracts. The Company enters into exchange-traded equity futures with regulated futures commission merchants that are members of the exchange.JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands): June 30, 2013 December 31, 2012 Estimated Fair
Value of Credit
Default Swaps Maximum
Amount of Future
Payments under
Credit Default
Swaps(2) Weighted
Average
Years to
Maturity(3) Estimated Fair
Value of Credit
Default Swaps Maximum
Amount of Future
Payments under
Credit Default
Swaps(2) Weighted
Average
Years to
Maturity(3) $ (1,149 ) $ 122,500 5.4 $ (2,077 ) $ 124,500 5.9 — — — — — — (1,149 ) 122,500 5.4 (2,077 ) 124,500 5.9 (3,821 ) 133,200 5.6 (2,345 ) 135,500 5.5 2,551 430,000 4.5 937 430,000 5.0 (1,270 ) 563,200 4.7 (1,408 ) 565,500 5.1 (101 ) 6,000 4.0 (222 ) 6,000 4.5 — — — — — — (101 ) 6,000 4.0 (222 ) 6,000 4.5 $ (2,520 ) $ 691,700 4.8 $ (3,707 ) $ 696,000 5.2 September 30, 2013 December 31, 2012 AAA/AA-/A+/A/A- Single name credit default swaps $ (80 ) $ 112,500 5.2 $ (2,077 ) $ 124,500 5.9 Credit default swaps referencing indices — — — — — — Subtotal (80 ) 112,500 5.2 (2,077 ) 124,500 5.9 BBB+/BBB/BBB- Single name credit default swaps (1,734 ) 144,200 5.0 (2,345 ) 135,500 5.5 Credit default swaps referencing indices 3,936 415,000 4.2 937 430,000 5.0 Subtotal 2,202 559,200 4.4 (1,408 ) 565,500 5.1 BB+ Single name credit default swaps — — — (222 ) 6,000 4.5 Credit default swaps referencing indices — — — — — — Subtotal — — — (222 ) 6,000 4.5 Total $ 2,122 $ 671,700 4.6 $ (3,707 ) $ 696,000 5.2 (1) (2) (3) $(0.4)$1.0 million and $6.3$(6.2) million for the three months, and $(2.1)$(1.0) million and $(57.2)$(63.4) million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. Changes in fair values of embedded derivatives on variable annuity contracts are net of an increase (decrease) in investment related gains (losses), net of $(0.2)$(3.7) million and $14.6$(28.3) million for the three months, and $(4.9)$(8.6) million and $51.6 millionfor$23.2 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. Additionally, the Company reinsures equity-indexed annuity and variable annuity contracts with benefits that are considered embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and guaranteed minimum income benefits. The related gains (losses) and the effect on net income after amortization of deferred acquisition costs (“DAC”) and income taxes for the three and sixnine months ended JuneSeptember 30, 2013 and 2012 are reflected in the following table (dollars in thousands): Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ 47,717 $ (4,453 ) $ 137,974 $ (13,881 ) 13,911 (2,598 ) 35,535 (665 ) 35,809 (74,929 ) 87,123 71,446 29,082 (16,175 ) 41,274 (1,093 ) (28,019 ) 27,138 (61,015 ) 7,399 (30,845 ) 15,378 (60,395 ) 29,248 Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Embedded derivatives in modco or funds withheld arrangements included in investment related gains $ (67,461 ) $ 54,836 $ 70,514 $ 40,955 After the associated amortization of DAC and taxes, the related amounts included in net income (15,693 ) 11,228 19,842 10,563 Embedded derivatives in variable annuity contracts included in investment related gains 19,829 2,579 106,952 74,025 After the associated amortization of DAC and taxes, the related amounts included in net income 11,052 1,588 52,326 494 Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses 28,379 (33,821 ) (32,637 ) (26,422 ) After the associated amortization of DAC and taxes, the related amounts included in net income 6,622 (22,529 ) (53,772 ) 6,465 As are affected through regulated exchanges and positionsthese transactions are marked to marketsettled on a daily basis, the Company has minimalthereby reducing credit risk exposure to credit-related losses in the event of nonperformancenon-performance by counterparties.JuneSeptember 30, 2013 and December 31, 2012 are reflected in the following table (dollars in thousands): June 30, 2013 December 31, 2012 $ 105,672 $ 136,558 6,950 27,867 2,722 1,565 (89,829 ) (136,414 ) (17,010 ) (22,458 ) $ 8,505 $ 7,118 $ 5,251 $ 5,605 September 30, 2013 December 31, 2012 Estimated fair value of derivatives in net asset position $ 74,273 $ 136,558 8,150 27,867 15,238 1,565 (64,027 ) (136,414 ) (10,624 ) (22,458 ) Initial margin for cleared derivatives (10,869 ) — Net credit exposure $ 12,141 $ 7,118 $ 3,833 $ 5,605 (1) (2) (3) (4) (5) 6.6. Fair Value of Assets and Liabilities JuneSeptember 30, 2013 and December 31, 2012 are summarized below (dollars in thousands):June 30, 2013: Fair Value Measurements Using: Total Level 1 Level 2 Level 3 $ 11,803,481 $ 63,568 $ 10,147,908 $ 1,592,005 3,525,793 — 3,525,793 — 1,054,968 — 914,914 140,054 790,310 — 437,704 352,606 1,638,632 — 1,457,650 180,982 412,990 354,097 58,893 — 291,811 — 250,536 41,275 1,766,231 290,708 1,448,693 26,830 21,284,216 708,373 18,242,091 2,333,752 (108,473 ) — — (108,473 ) 347,823 347,823 — — 21,092 19,169 1,923 — 90,458 87,728 2,730 — 69,881 69,881 — — 36,853 — 36,853 — 8,073 — 8,073 — 148 — 148 — (23 ) — (23 ) — (2,775 ) — (2,775 ) — 60,715 — 60,715 — 15,800 — 15,800 — 14,759 14,759 — — 293,889 172,368 121,521 — $ 21,838,547 $ 1,247,733 $ 18,365,535 $ 2,225,279 $ 878,568 $ — $ — $ 878,568 4,140 — 4,140 — 9,484 — 9,484 — (118 ) — (118 ) — (387 ) — (387 ) — $ 891,687 $ — $ 13,119 $ 878,568 September 30, 2013: Fair Value Measurements Using: Total Level 1 Level 2 Level 3 Assets: Fixed maturity securities – available-for-sale: Corporate securities $ 11,934,562 $ 58,111 $ 10,356,155 $ 1,520,296 Canadian and Canadian provincial governments 3,491,156 — 3,491,156 — Residential mortgage-backed securities 951,838 — 818,567 133,271 Asset-backed securities 885,278 — 457,198 428,080 Commercial mortgage-backed securities 1,453,114 — 1,328,173 124,941 U.S. government and agencies securities 430,847 362,269 65,156 3,422 State and political subdivision securities 297,729 — 253,688 44,041 Other foreign government supranational and foreign government-sponsored enterprises 1,844,584 302,997 1,514,427 27,160 Total fixed maturity securities – available-for-sale 21,289,108 723,377 18,284,520 2,281,211 Funds withheld at interest – embedded derivatives (175,933 ) — — (175,933 ) Cash equivalents 671,999 671,999 — — Short-term investments 19,436 12,761 6,675 — Other invested assets: Non-redeemable preferred stock 82,839 75,279 2,735 4,825 Other equity securities 64,071 64,071 — — Derivatives: Interest rate swaps 29,102 — 29,102 — Interest rate options 5,699 — 5,699 — Foreign currency forwards — — — — CPI swaps 112 — 112 — Credit default swaps 1,764 — 1,764 — Equity options 43,482 — 43,482 — Foreign currency swaps 7,262 — 7,262 — Other 15,514 15,514 — — Total other invested assets 249,845 154,864 90,156 4,825 Total $ 22,054,455 $ 1,563,001 $ 18,381,351 $ 2,110,103 Liabilities: Interest sensitive contract liabilities – embedded derivatives $ 825,899 $ — $ — $ 825,899 Other liabilities: Derivatives: Interest rate swaps 2,286 — 2,286 — Foreign currency forwards 8,928 — 8,928 — Credit default swaps (170 ) — (170 ) — Equity options (139 ) — (139 ) — Foreign currency swaps 2,243 — 2,243 — Total $ 839,047 $ — $ 13,148 $ 825,899 December 31, 2012: Fair Value Measurements Using: Total Level 1 Level 2 Level 3 Assets: Fixed maturity securities – available-for-sale: Corporate securities $ 12,380,071 $ 43,544 $ 10,667,964 $ 1,668,563 Canadian and Canadian provincial governments 4,049,334 — 4,049,334 — Residential mortgage-backed securities 1,042,064 — 948,133 93,931 Asset-backed securities 691,555 — 459,164 232,391 Commercial mortgage-backed securities 1,698,903 — 1,531,897 167,006 U.S. government and agencies securities 265,190 192,780 67,872 4,538 State and political subdivision securities 302,498 — 259,286 43,212 Other foreign government, supranational and foreign government-sponsored enterprises 1,861,999 297,025 1,536,694 28,280 Total fixed maturity securities – available-for-sale 22,291,614 533,349 19,520,344 2,237,921 Funds withheld at interest – embedded derivatives (243,177 ) — — (243,177 ) Cash equivalents 575,864 575,864 — — Short-term investments 239,131 178,923 38,177 22,031 Other invested assets: Non-redeemable preferred stock 74,841 64,268 10,573 — Other equity securities 147,859 147,859 — — Derivatives: Interest rate swaps 104,972 — 104,972 — Foreign currency forwards 1,017 — 1,017 — CPI swaps 1,446 — 1,446 — Credit default swaps (1,741 ) — (1,741 ) — Equity options 62,514 — 62,514 — Collateral 17,002 1,323 15,679 — Other 11,951 11,951 — — Total other invested assets 419,861 225,401 194,460 — Total $ 23,283,293 $ 1,513,537 $ 19,752,981 $ 2,016,775 Liabilities: Interest sensitive contract liabilities – embedded derivatives $ 912,361 $ — $ — $ 912,361 Other liabilities: Derivatives: Interest rate swaps 196 — 196 — Foreign currency forwards 2,105 — 2,105 — Credit default swaps 1,953 — 1,953 — Foreign currency swaps 27,398 — 27,398 — Total $ 944,013 $ — $ 31,652 $ 912,361 JuneSeptember 30, 2013 and 2012, the application of market standard valuation techniques applied to similar assets and liabilities has been consistent.thenthan twelve months, are based upon other market observable data and are typically classified as Level 2. However, certain short-term investments may incorporate significant unobservable inputs resulting in a Level 3 classification. Various time deposits carried as cash equivalents or short-term investments are not measured at estimated fair value and therefore are excluded from the tables presented.JuneSeptember 30, 2013 and December 31, 2012, respectively, the Company classified approximately 11.0%10.7% and 10.0% of its fixed maturity securities in the Level 3 category. These securities primarily consist of private placement corporate securities and bank loans with inactive trading markets. Additionally, the Company has included asset-backed securities with subprime exposure and mortgage-backed securities with below investment grade ratings in the Level 3 category due to market uncertainty associated with these securities and the Company’s utilization of unobservable information from third parties for the valuation of these securities.JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013: Fair Value Unobservable Input Range
(Weighted Average) $ 5,139 Market comparable securities Liquidity premium 1% 403,894 Market comparable securities Liquidity premium 0-2%(1%) (108,473 ) Total return swap Mortality 0-100% (1%) Lapse 0-35% (6%) Withdrawal 0-5% (3%) Own Credit 0-1% (1%) Crediting rate 2-4% (3%) 793,586 Discounted cash flow Mortality 0-100% (1%) Lapse 0-35% (6%) Withdrawal 0-5% (3%) Option budget
projection 2-4% (3%) 84,982 Discounted cash flow Mortality 0-100%(2%) Lapse 0-25%(5%) Withdrawal 0-7%(3%) Own Credit 0-1%(1%) Long-term 0-27%(13%) December 31, 2012: Fair Value Unobservable
Input Range
(Weighted Average) $ 5,451 Market comparable securities Liquidity
premium 1% 450,177 Market comparable securities Liquidity
premium 0-2%(1%) 22,031 Market comparable securities Liquidity
premium 1% (243,177 ) Total return swap Mortality 0-100%(1%) Lapse 0-35%(6%) Withdrawal 0-5%(3%) Own Credit 0-1%(1%) Crediting
Rate 2-4%(3%) 740,256 Discounted cash flow Mortality 0-100%(1%) Lapse 0-35%(6%) Withdrawal 0-5%(3%) Option budget
projection 2-4%(3%) 172,105 Discounted cash flow Mortality 0-100%(2%) Lapse 0-25%(5%) Withdrawal 0-7%(3%) Own Credit 0-1%(1%) Long-term
volatility 0-27%(14%) September 30, 2013: Valuation Technique(s) Unobservable Input Range (Weighted Average) Fair Value Assets: State and political subdivision securities $ 5,032 Market comparable securities Liquidity premium 1 % Corporate securities 366,372 Market comparable securities Liquidity premium 0-2% (1%) Funds withheld at interest- embedded derivatives (175,933 ) Total return swap Mortality 0-100% (1%) Lapse 0-35% (6%) �� Withdrawal 0-5% (3%) Own Credit 0-1% (1%) Crediting rate 2-4% (3%) Liabilities: Interest sensitive contract liabilities- embedded derivatives- indexed annuities 760,746 Discounted cash flow Mortality 0-100% (1%) Lapse 0-35% (6%) Withdrawal 0-5% (3%) Option budget projection 2-4% (3%) Interest sensitive contract liabilities- embedded derivatives- variable annuities 65,153 Discounted cash flow Mortality 0-100% (2%) Lapse 0-25% (5%) Withdrawal 0-7% (3%) Own Credit 0-1% (1%) Long-term volatility 0-27% (13%) December 31, 2012: Fair Value Valuation Technique(s) Unobservable Input Range (Weighted Average) Assets: State and political subdivision securities $ 5,451 Market comparable securities Liquidity premium 1 % Corporate securities 450,177 Market comparable securities Liquidity premium 0-2% (1%) Short-term investments 22,031 Market comparable securities Liquidity premium 1 % Funds withheld at interest- embedded derivatives (243,177 ) Total return swap Mortality 0-100% (1%) Lapse 0-35% (6%) Withdrawal 0-5% (3%) Own Credit 0-1% (1%) Crediting Rate 2-4% (3%) Liabilities: Interest sensitive contract liabilities- embedded derivatives- indexed annuities 740,256 Discounted cash flow Mortality 0-100% (1%) Lapse 0-35% (6%) Withdrawal 0-5% (3%) Option budget projection 2-4% (3%) Interest sensitive contract liabilities- embedded derivatives- variable annuities 172,105 Discounted cash flow Mortality 0-100% (2%) Lapse 0-25% (5%) Withdrawal 0-7% (3%) Own Credit 0-1% (1%) Long-term volatility 0-27% (14%) sixnine months ended JuneSeptember 30, 2013 and 2012 (dollars in thousands): Three months ended June 30, 2013 2012 Transfers from
Level 1 to
Level 2 Transfers from
Level 2 to
Level 1 Transfers from
Level 1 to
Level 2 Transfers from
Level 2 to
Level 1 $ — $ — $ 2,996 $ — — — — 11,152 — — 12,794 — — — 1,059 — $ — $ — $ 16,849 $ 11,152 Six months ended June 30, 2013 2012 Transfers from
Level 1 to
Level 2 Transfers from
Level 2 to
Level 1 Transfers from
Level 1 to
Level 2 Transfers from
Level 2 to
Level 1 $ — $ 14,012 $ 2,996 $ 4 — — — 11,152 — — 12,794 — — — 1,059 — $ — $ 14,012 $ 16,849 $ 11,156 Three months ended September 30, 2013 2012 Fixed maturity securities - available-for-sale: Corporate securities $ — $ — $ 11,777 $ — Other foreign government, supranational and foreign government-sponsored enterprises — — 2,163 — Total fixed maturity securities — — 13,940 — Non-redeemable preferred stock — — 9,646 11,068 Total $ — $ — $ 23,586 $ 11,068 Nine months ended September 30, 2013 2012 Fixed maturity securities - available-for-sale: Corporate securities $ — $ 14,012 $ 14,773 $ 4 U.S. government and agencies securities — — — 11,152 State and political subdivision securities — — 12,794 — Other foreign government, supranational and foreign government-sponsored enterprises — — 3,222 — Total fixed maturity securities — 14,012 30,789 11,156 Non-redeemable preferred stock — — 9,646 11,068 Total $ — $ 14,012 $ 40,435 $ 22,224 sixnine months ended JuneSeptember 30, 2013, as well as the portion of gains or losses included in income for the three and sixnine months ended JuneSeptember 30, 2013 attributable to unrealized gains or losses related to those assets and liabilities still held at JuneSeptember 30, 2013 (dollars in thousands):For the three months ended June 30, 2013: Fixed maturity securities - available-for-sale Corporate
securities Residential
mortgage-
backed
securities Asset-backed
securities Commercial
mortgage-
backed
securities $ 1,646,903 $ 140,717 $ 288,231 $ 175,294 (2,313 ) (111 ) 1,526 581 350 198 226 (8,992 ) — — — — — — — — — — — — (37,672 ) (2,714 ) 2,601 15,445 100,690 11,383 72,542 — (39,793 ) (1,018 ) (7,995 ) (1,118 ) (80,533 ) (7,367 ) (5,559 ) (228 ) 4,373 4,306 5,340 — — (5,340 ) (4,306 ) — $ 1,592,005 $ 140,054 $ 352,606 $ 180,982 Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period $ (2,191 ) $ (112 ) $ 1,515 $ 580 — — — (10,109 ) — — — — — — — — — — — — For the three months ended June 30, 2013 (continued): Fixed maturity securities
available-for-sale State
and political
subdivision
securities Other foreign
government,
supranational and
foreign government-
sponsored enterprises Funds withheld
at interest-
embedded
derivative Short-term
investments Interest sensitive
contract
liabilities
embedded
derivatives $ 42,639 $ 27,865 $ (156,189 ) $ 22,001 $ (890,476 ) 9 (76 ) — — — (4 ) — 47,716 — 35,809 — — — — — — — — — (28,020 ) — — — — — (1,087 ) (959 ) — (1 ) — — — — — (14,764 ) — — — — — (282 ) — — (22,000 ) 18,883 — — — — — — — — — — $ 41,275 $ 26,830 $ (108,473 ) $ — $ (878,568 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period $ 9 $ (76 ) $ — $ — $ — — — 47,717 — 34,788 — — — — — — — — — (46,902 ) — — — — — For the six months ended June 30, 2013: Fixed maturity securities - available-for-sale Corporate
securities Residential
mortgage-backed
securities Asset-backed
securities Commercial
mortgage-
backed
securities U.S.
Government
and agencies
securities $ 1,668,563 $ 93,931 $ 232,391 $ 167,006 $ 4,538 (4,339 ) (6 ) 2,405 1,083 — (913 ) 25 (1,521 ) (9,862 ) — — — — — — — — — — — — — — — — (36,710 ) (200 ) 14,638 27,945 — 175,362 51,920 128,423 — — (56,071 ) (2,617 ) (16,293 ) (2,722 ) — (145,899 ) (12,289 ) (11,436 ) (2,468 ) — 8,146 14,630 8,305 — — (16,134 ) (5,340 ) (4,306 ) — (4,538 ) $ 1,592,005 $ 140,054 $ 352,606 $ 180,982 $ — For the six months ended June 30, 2013 (continued): Fixed maturity securities - available-for-sale Corporate
securities Residential
mortgage-backed
securities Asset-backed
securities Commercial
mortgage-
backed
securities U.S.
Government
and agencies
securities Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period $ (4,218 ) $ (7 ) $ 2,397 $ 1,081 $ — (202 ) — — (10,109 ) — — — — — — — — — — — — — — — — For the six months ended June 30, 2013 (continued): Fixed maturity securities
available-for-sale State
and political
subdivision
securities Other foreign
government,
supranational and
foreign government-
sponsored enterprises Funds
withheld
at interest-
embedded
derivative Short-term
investments Interest
sensitive
contract
liabilities
embedded
derivatives $ 43,212 $ 28,280 $ (243,177 ) $ 22,031 $ (912,361 ) 18 (150 ) — (3 ) — (8 ) — 134,704 — 87,123 — — — — — — — — — (61,016 ) — — — — — (1,639 ) (1,300 ) — (28 ) — — — — — (28,624 ) — — — — — (308 ) — — (22,000 ) 36,310 — — — — — — — — — — $ 41,275 $ 26,830 $ (108,473 ) $ — $ (878,568 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period $ 18 $ (150 ) $ — $ (4 ) $ — — — 134,705 — 84,911 — — — — — — — — — (97,326 ) — — — — — For the three months ended September 30, 2013: Fixed maturity securities - available-for-sale Fair value, beginning of period $ 1,592,005 $ 140,054 $ 352,606 $ 180,982 $ — Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses (2,254 ) 24 2,314 466 — Investment related gains (losses), net (924 ) (419 ) 53 (6,864 ) — Claims & other policy benefits — — — — — Interest credited — — — — — Policy acquisition costs and other insurance expenses — — — — — Included in other comprehensive income 587 122 370 8,998 (40 ) 80,644 2,623 91,675 19,420 — (53,052 ) (1,116 ) (8,659 ) (81,253 ) — (90,493 ) (8,017 ) (4,812 ) (233 ) — Transfers into Level 3 2,760 — — 3,425 3,462 Transfers out of Level 3 (8,977 ) — (5,467 ) — — Fair value, end of period $ 1,520,296 $ 133,271 $ 428,080 $ 124,941 $ 3,422 Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ (2,096 ) $ 24 $ 2,314 $ 301 $ — Investment related gains (losses), net — — — (134 ) — Claims & other policy benefits — — — — — Interest credited — — — — — Policy acquisition costs and other insurance expenses — — — — — For the three months ended September 30, 2013 (continued): Other foreign government, supranational and foreign government-sponsored enterprises Other invested assets- non-redeemable preferred stock Interest sensitive contract liabilities embedded derivatives Fair value, beginning of period $ 41,275 $ 26,830 $ (108,473 ) $ — $ (878,568 ) Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses 9 (77 ) — — — Investment related gains (losses), net (4 ) — (67,460 ) — 19,829 Claims & other policy benefits — — — — — Interest credited — — — — 28,378 Policy acquisition costs and other insurance expenses — — — — — Included in other comprehensive income 1,844 407 — 186 — — — — — (16,082 ) — — — — — (62 ) — — — 20,544 Transfers into Level 3 979 — — 4,639 — Transfers out of Level 3 — — — — — Fair value, end of period $ 44,041 $ 27,160 $ (175,933 ) $ 4,825 $ (825,899 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ 9 $ (77 ) $ — $ — $ — Investment related gains (losses), net — — (67,460 ) — 19,326 Claims & other policy benefits — — — — — Interest credited — — — — 7,834 Policy acquisition costs and other insurance expenses — — — — — For the nine months ended September 30, 2013: Fixed maturity securities - available-for-sale Commercial mortgage-backed securities U.S. Government and agencies securities State and political subdivision securities Fair value, beginning of period $ 1,668,563 $ 93,931 $ 232,391 $ 167,006 $ 4,538 $ 43,212 Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses (6,594 ) 18 4,719 1,548 — 27 Investment related gains (losses), net (1,837 ) (394 ) (1,468 ) (16,726 ) — (12 ) Claims & other policy benefits — — — — — — Interest credited — — — — — — Policy acquisition costs and other insurance expenses — — — — — — Included in other comprehensive income (36,123 ) (78 ) 15,007 36,943 (40 ) 204 256,006 54,543 220,098 19,420 — — (109,123 ) (3,733 ) (24,951 ) (83,974 ) — — (236,392 ) (20,307 ) (16,248 ) (2,701 ) — (369 ) Transfers into Level 3 10,906 14,631 8,305 3,425 3,462 979 Transfers out of Level 3 (25,110 ) (5,340 ) (9,773 ) — (4,538 ) — Fair value, end of period $ 1,520,296 $ 133,271 $ 428,080 $ 124,941 $ 3,422 $ 44,041 Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ (6,313 ) $ 17 $ 4,711 $ 1,382 $ — $ 27 Investment related gains (losses), net (202 ) — — (10,243 ) — — Claims & other policy benefits — — — — — — Interest credited — — — — — — Policy acquisition costs and other insurance expenses — — — — — — For the nine months ended September 30, 2013 (continued): Other invested assets- non-redeemable preferred stock Fair value, beginning of period $ 28,280 $ (243,177 ) $ 22,031 $ — $ (912,361 ) Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses (227 ) — (3 ) — — Investment related gains (losses), net — 67,244 — — 106,952 Claims & other policy benefits — — — — — Interest credited — — — — (32,637 ) Policy acquisition costs and other insurance expenses — — — — — Included in other comprehensive income (893 ) — (28 ) 186 — — — — — (44,707 ) — — — — — — — (22,000 ) — 56,854 Transfers into Level 3 — — — 4,639 — Transfers out of Level 3 — — — — — Fair value, end of period $ 27,160 $ (175,933 ) $ — $ 4,825 $ (825,899 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ (227 ) $ — $ (4 ) $ — $ — Investment related gains (losses), net — 67,244 — — 104,237 Claims & other policy benefits — — — — — Interest credited — — — — (89,491 ) Policy acquisition costs and other insurance expenses — — — — — (1) sixnine months ended JuneSeptember 30, 2012, as well as the portion of gains or losses included in income for the three and sixnine months ended JuneSeptember 30, 2012 attributable to unrealized gains or losses related to those assets and liabilities still held at JuneSeptember 30, 2012 (dollars in thousands):For the three months ended June 30, 2012: Fixed maturity securities - available-for-sale Corporate
securities Residential
mortgage-
backed
securities Asset-backed
securities Commercial
mortgage- backed
securities State.
and political
subdivision
securities $ 977,671 $ 54,435 $ 146,362 $ 118,678 $ 5,239 77 188 195 545 9 (696 ) (315 ) 164 393 (4 ) — — — — — — — — — — — — — — — 10,341 (172 ) 1,782 (2,273 ) 827 68,275 337 2,012 — — (17,876 ) (8,219 ) (7,902 ) (1,552 ) — (32,497 ) (1,902 ) (3,238 ) (58 ) (23 ) — 7,176 — — 8,438 (11,281 ) (1,937 ) (11,017 ) — — $ 994,014 $ 49,591 $ 128,358 $ 115,733 $ 14,486 $ 84 $ 148 $ 151 $ 545 $ 9 (380 ) (161 ) — — — — — — — — — — — — — — — — — — For the three months ended June 30, 2012 (continued): Funds withheld
at interest-
embedded
derivatives Other invested
assets- other
equity securities Reinsurance
ceded
receivable-
embedded
derivatives Interest
sensitive contract
liabilities
embedded
derivatives $ (370,884 ) $ 11,827 $ 3,514 $ (903,282 ) — — — — (4,453 ) 1,098 — (74,929 ) — — — (1,721 ) — — — 27,825 — — 1,003 — — 505 — — — 108 — (16,107 ) — (3,788 ) — — — — (101 ) 29,287 — — — — — (6,523 ) — — $ (375,337 ) $ 3,227 $ 4,416 $ (938,927 ) For the three months ended June 30, 2012 (continued): Funds withheld
at interest-
embedded
derivatives Other invested
assets- other
equity securities Reinsurance
ceded
receivable-
embedded
derivatives Interest
sensitive contract
liabilities
embedded
derivatives $ — $ — $ — $ — (4,452 ) (183 ) — (76,737 ) — — — (1,959 ) — — — (1,288 ) — — 1,143 — For the six months ended June 30, 2012: Fixed maturity securities - available-for-sale Corporate
securities Residential
mortgage-
backed
securities Asset-backed
securities Commercial
mortgage- backed
securities State.
and political
subdivision
securities $ 974,169 $ 81,655 $ 193,492 $ 115,976 $ 10,373 107 298 444 1,133 4 (1,280 ) (36 ) (506 ) (11,682 ) (8 ) — — — — — — — — — — — — — — — 9,659 1,408 8,477 11,248 1,233 89,435 582 2,012 — — (27,285 ) (16,224 ) (7,902 ) (1,552 ) — (53,371 ) (3,702 ) (7,103 ) (58 ) (46 ) 17,445 7,176 1,080 10,846 8,438 (14,865 ) (21,566 ) (61,636 ) (10,178 ) (5,508 ) $ 994,014 $ 49,591 $ 128,358 $ 115,733 $ 14,486 $ 114 $ 255 $ 400 $ 1,133 $ 4 (1,106 ) (269 ) (607 ) (12,075 ) — — — — — — — — — — — — — — — — For the six months ended June 30, 2012 (continued): Funds withheld
at interest-
embedded
derivatives Other invested
assets- other
equity securities Reinsurance
ceded
receivable-
embedded
derivatives Interest
sensitive
contract
liabilities
embedded
derivatives $ (361,456 ) $ 11,489 $ 4,945 $ (1,028,241 ) — — — — (13,881 ) 1,098 — 71,446 — — — 557 — — — 6,632 — — (325 ) — — 843 — — — 108 — (39,697 ) — (3,788 ) — — — — (204 ) 50,376 — — — — — (6,523 ) — — $ (375,337 ) $ 3,227 $ 4,416 $ (938,927 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period $ — $ — $ — $ — (13,881 ) (183 ) — 67,887 — — — 79 — — — (43,395 ) — — (46 ) — For the three months ended September 30, 2012: Fixed maturity securities - available-for-sale Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. Government and agencies securities State and political subdivision securities Fair value, beginning of period $ 994,014 $ 49,591 $ 128,358 $ 115,733 $ — $ 14,486 Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses (4,846 ) 114 54 446 (59 ) 1 Investment related gains (losses), net (1,059 ) (187 ) (3 ) (2,088 ) — (4 ) Claims & other policy benefits — — — — — — Interest credited — — — — — — Policy acquisition costs and other insurance expenses — — — — — — Included in other comprehensive income 22,280 479 7,658 6,188 (15 ) 3,433 556,031 31,020 62,109 21,092 4,640 — (18,548 ) (24,566 ) (3,725 ) — — — (31,448 ) (1,437 ) (4,407 ) (511 ) — (116 ) Transfers into Level 3 1,293 1,804 5,006 26,208 — 29,150 Transfers out of Level 3 (10,444 ) (7,459 ) (5,460 ) — — — Fair value, end of period $ 1,507,273 $ 49,359 $ 189,590 $ 167,068 $ 4,566 $ 46,950 Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ (4,861 ) $ 28 $ 40 $ 446 $ (59 ) $ 1 Investment related gains (losses), net (223 ) — (242 ) (2,088 ) — — Claims & other policy benefits — — — — — — Interest credited — — — — — — Policy acquisition costs and other insurance expenses — — — — — — For the three months ended September 30, 2012 (continued): Short-term
investments Interest sensitive contract liabilities embedded derivatives Fair value, beginning of period $ (375,337 ) $ — $ 3,227 $ 4,416 $ (938,927 ) Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses — (7 ) — — — Investment related gains (losses), net 54,836 — — — 2,579 Claims & other policy benefits — — — — 213 Interest credited — — — — (33,980 ) Policy acquisition costs and other insurance expenses — — — (124 ) — Included in other comprehensive income — 54 — — — — 22,014 — — (8,502 ) — — — — — — — — (100 ) 24,813 Transfers into Level 3 — — — — — Transfers out of Level 3 — — (3,227 ) — — Fair value, end of period $ (320,501 ) $ 22,061 $ — $ 4,192 $ (953,804 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ — $ (7 ) $ — $ — $ — Investment related gains (losses), net 54,836 — — — 427 Claims & other policy benefits — — — — (23 ) Interest credited — — — — (58,621 ) Policy acquisition costs and other insurance expenses — — — 13 — For the nine months ended September 30, 2012: Fixed maturity securities - available-for-sale Corporate securities Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities U.S. Government and agencies securities Fair value, beginning of period $ 974,169 $ 81,655 $ 193,492 $ 115,976 $ — $ 10,373 Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses (4,738 ) 413 497 1,579 (59 ) 5 Investment related gains (losses), net (2,339 ) (223 ) (510 ) (13,771 ) — (12 ) Claims & other policy benefits — — — — — — Interest credited — — — — — — Policy acquisition costs and other insurance expenses — — — — — — Included in other comprehensive income 31,940 1,886 16,135 17,436 (15 ) 4,666 645,466 31,602 64,121 21,092 4,640 — (45,833 ) (40,790 ) (11,627 ) �� (1,552 ) — — (84,819 ) (5,139 ) (11,510 ) (568 ) — (162 ) Transfers into Level 3 18,738 8,979 6,086 37,054 — 37,588 Transfers out of Level 3 (25,311 ) (29,024 ) (67,094 ) (10,178 ) — (5,508 ) Fair value, end of period $ 1,507,273 $ 49,359 $ 189,590 $ 167,068 $ 4,566 $ 46,950 Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ (4,747 ) $ 283 $ 440 $ 1,579 $ (59 ) $ 5 Investment related gains (losses), net (1,329 ) (269 ) (849 ) (14,163 ) — — Claims & other policy benefits — — — — — — Interest credited — — — — — — Policy acquisition costs and other insurance expenses — — — — — — For the nine months ended September 30, 2012 (continued): Short-term
investments Reinsurance ceded receivable-embedded derivatives Interest sensitive contract liabilities embedded derivatives Fair value, beginning of period $ (361,456 ) $ — $ 11,489 $ 4,945 $ (1,028,241 ) Total gains/losses (realized/unrealized) Included in earnings, net: Investment income, net of related expenses — (7 ) — — — Investment related gains (losses), net 40,955 — 1,098 — 74,025 Claims & other policy benefits — — — — 770 Interest credited — — — — (27,348 ) Policy acquisition costs and other insurance expenses — — — (449 ) — Included in other comprehensive income — 54 843 — — — 22,014 108 — (48,199 ) — — (3,788 ) — — — — — (304 ) 75,189 Transfers into Level 3 — — — — — Transfers out of Level 3 — — (9,750 ) — — Fair value, end of period $ (320,501 ) $ 22,061 $ — $ 4,192 $ (953,804 ) Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period Included in earnings, net: Investment income, net of related expenses $ — $ (7 ) $ — $ — $ — Investment related gains (losses), net 40,955 — (183 ) — 68,315 Claims & other policy benefits — — — — 56 Interest credited — — — — (102,017 ) Policy acquisition costs and other insurance expenses — — — (33 ) — (1)
Mortgage loans(1) Real estate(3) Mortgage loans(1) Limited partnership interests(2) Real estate(3) Mortgage loans — The impaired mortgage loans presented above were written down to their estimated fair values at the date the impairments were recognized and are reported as losses above. Subsequent improvements in estimated fair value on previously impaired loans recorded through a reduction in the previously established valuation allowance are reported as gains above. Nonrecurring fair value adjustments on mortgage loans are based on the fair value of underlying collateral or discounted cash Limited partnership interests — The impaired investments presented above were accounted for using the cost method. Impairments on these cost method investments were recognized at estimated fair value determined using the net asset values of the Company’s ownership interest as provided in the financial statements of the investees. The Real estate investment - The impaired real estate investments presented above were written down to their estimated fair value at the date of impairment and are reported as losses above. The impairments were based on third-party appraisal values obtained and reviewed by the Company.Certain are measured at estimated fair value on a non-recurringnonrecurring basis andduring the periods presented; that is, they are not included in the tables presented above. The amounts below relate to certain investments measured at fair value on a recurring basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The estimated fair value during the period and still held at the reporting dates (dollars in thousands)values for these assets were determined using significant unobservable inputs (Level 3). Three months ended June 30, 2013 2012 Carrying
Value
Prior to
Measurement Estimated Fair
Value After
Measurement Net
Investment
Gains
(Losses) Carrying
Value
Prior to
Measurement Estimated Fair
Value After
Measurement Net
Investment
Gains
(Losses) $ 13,602 $ 13,575 $ (27 ) $ 22,323 $ 23,375 $ 1,052 4,736 4,136 (600 ) — — — Six months ended June 30, 2013 2012 Carrying
Value
Prior to
Measurement Estimated Fair
Value After
Measurement Net
Investment
Gains
(Losses) Carrying
Value
Prior to
Measurement Estimated Fair
Value After
Measurement Net
Investment
Gains
(Losses) $ 13,482 $ 13,575 $ 93 $ 26,119 $ 23,375 $ (2,744 ) 11,590 9,161 (2,429 ) — — — 4,736 4,136 (600 ) — — — Three months ended September 30, (dollars in thousands) 2013 2012 $ 13,528 $ 13,575 $ 47 $ 25,092 $ 23,467 $ (1,625 ) — — — 23,012 15,558 (7,454 ) Nine months ended September 30, 2013 2012 $ 13,436 $ 13,575 $ 139 $ 27,836 $ 23,467 $ (4,369 ) 11,590 9,161 (2,429 ) 25,191 16,944 (8,247 ) 4,736 4,136 (600 ) — — — (1) flows and were classified as Level 3 in the fair value hierarchy.(2) valuation ofmarket for these investments is considered Level 3 in the fair value hierarchy due to thehas limited activity and price transparency inherent in the market for such investments.(3)
Assets: Mortgage loans on real estate Policy loans Funds withheld at interest(1) Cash and cash equivalents(2) Short-term investments(2) Other invested assets(2) Accrued investment income Liabilities: Interest-sensitive contract liabilities(1) Long-term debt Collateral finance facility Assets: Mortgage loans on real estate Policy loans Funds withheld at interest(1) Cash and cash equivalents(2) Short-term investments(2) Other invested assets(2) Accrued investment income Liabilities: Interest-sensitive contract liabilities(1) Long-term debt Collateral finance facility Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are embedded derivatives and are measured at fair value on a recurring basis. Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are measured at fair value on a recurring basis. U.S. Canada Europe & South Africa Asia Pacific Corporate and Other Total U.S. Canada Europe & South Africa Asia Pacific Corporate and Other Total U.S. Canada Europe & South Africa Asia Pacific Corporate and Other Total Facility Capacity Basis of Fees Represents issued but undrawn letters of credit. There was no cash borrowed for the periods presented. Commitment Period 2033 2035 Service cost Interest Cost Expected return on plan assets Amortization of prior service cost Amortization of prior actuarial loss Net periodic benefit cost Service cost Interest Cost Expected return on plan assets Amortization of prior service cost Amortization of prior actuarial loss Net periodic benefit cost The individual effect on income before income taxes for these three types of embedded derivatives is as follows: Revenues: Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses Other operating expenses Total benefits and expenses Income before income taxes Revenues: Net premiums Investment income (loss), net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses (income) Other operating expenses Total benefits and expenses Income before income taxes Revenues: Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses Other operating expenses Total benefits and expenses Income before income taxes Revenues: Net premiums Investment income (loss), net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses (income) Other operating expenses Total benefits and expenses Income before income taxes the second quarter of 2012. The decrease in the percentages for the third quarter and first nine months was due to normal volatility in individual mortality claims and a decrease in group reinsurance claims associated with disability, medical and life coverages. Although reasonably predictable over a period of years, claims can be volatile over short-term periods. Revenues: Total revenues Less: Embedded derivatives – modco/funds withheld treaties Guaranteed minimum benefit riders and related free standing derivatives Revenues before certain derivatives Benefits and expenses: Total benefits and expenses Less: Embedded derivatives – modco/funds withheld treaties Guaranteed minimum benefit riders and related free standing derivatives Equity-indexed annuities Benefits and expenses before certain derivatives Income before income taxes: Income before income taxes Less: Embedded derivatives – modco/funds withheld treaties Guaranteed minimum benefit riders and related free standing derivatives Equity-indexed annuities Income before income taxes and certain derivatives Revenues: Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses Other operating expenses Total benefits and expenses Income before income taxes Revenues: Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Policy acquisition costs and other insurance expenses Other operating expenses Total benefits and expenses Income before income taxes Revenues: Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses Other operating expenses Interest expense Total benefits and expenses Income (loss) before income taxes Revenues: Net premiums Investment income, net of related expenses Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income Other investment related gains (losses), net Total investment related gains (losses), net Other revenues Total revenues Benefits and expenses: Claims and other policy benefits Interest credited Policy acquisition costs and other insurance expenses (income) Other operating expenses Interest expenses Collateral finance facility expense Total benefits and expenses Income (loss) before income taxes investments. Commitment Period Maximum Potential Obligation 2033 2035 assets and purchase of a business. Certain of the Company’s debt agreements contain financial covenant restrictions related to, among others, liens, the issuance and disposition of stock of restricted subsidiaries, minimum requirements of consolidated net worth, maximum ratios of debt to capitalization and change of control provisions. The Company is required to maintain a minimum consolidated net worth, as defined in the debt agreements, of $2.8 billion, calculated as of the last day of each fiscal quarter. Also, consolidated indebtedness, calculated as of the last day of each fiscal quarter, cannot exceed 35% of the sum of the Company’s consolidated indebtedness plus adjusted consolidated net worth. A material ongoing covenant default could require immediate payment of the amount due, including principal, under the various agreements. Additionally, the Company’s debt agreements contain cross-default covenants, which would make outstanding borrowings immediately payable in the event of a material uncured covenant default under any of the agreements, including, but not limited to, non-payment of indebtedness when due for an amount in excess of $100.0 million, bankruptcy proceedings, or any other event which results in the acceleration of the maturity of indebtedness. As of Fixed maturity securities, available-for-sale Mortgage loans on real estate Policy loans Funds withheld at interest Short-term investments Other invested assets Cash and cash equivalents Total cash and invested assets Average invested assets at amortized cost Net investment income Investment yield (ratio of net investment income to average invested assets) basis. 2012 2012 linked to the interest rate curve. The Company’s holdings in Canadian securities were one of the largest contributors to the decrease in net unrealized gain reported in the accumulated other comprehensive income reflected in the Company’s condensed consolidated balance sheets. These assets are longer in duration and held primarily for asset/liability management to meet Canadian regulatory requirements. See “Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the various sectors as of 2012 Sovereign: Ireland Spain Total sovereign Financial institutions: Ireland Italy Spain Total financial institutions Other: Ireland Italy Spain Total other Total Financial institutions: Ireland Spain Total financial institutions Other: Ireland Italy Spain Total other Total Australia Japan United Kingdom South Africa Cayman Islands France South Korea Germany United Arab Emirates Other Total Australia Japan United Kingdom Cayman Islands South Africa South Korea Germany New Zealand France Other Total NAIC Designation Rating Agency Designation 1 2 3 4 5 6 Residential mortgage-backed securities: Agency Non-agency Total residential mortgage-backed securities Commercial mortgage-backed securities Asset-backed securities Total 2006 & Prior 2007 2008 2009 2010 2011 2012 2013 Total 2006 & Prior 2007 2008 2009 2010 2011 2012 2013 Total 2005 & Prior 2006 2007 2008 2009 2010 2011 2012 Total 2005 & Prior 2006 2007 2008 2009 2010 2011 2012 Total Structured securities Corporate / Other fixed maturity securities Equity securities Other impairments (primarily mortgage loans and limited partnerships) Total Sector: Corporate securities Canadian and Canada provincial governments Residential mortgage-backed securities Asset-backed securities Commercial mortgage-backed securities State and political subdivisions U.S. government and agencies Other foreign government supranational and foreign government-sponsored enterprises Total Industry: Finance Asset-backed Industrial Mortgage-backed Government Utility Total 2012 2012. The maximum amount of assets held in a specific currency (with the exception of the U.S. Dollar) is measured relative to risk targets and is monitored regularly. No guarantee minimum benefits GMDB only GMIB only GMAB only GMWB only GMDB / WB Other Total variable annuity account values Fair value of liabilities associated with living benefit riders 2012 Liquidity demands come primarily from payment of claims, expenses and investment purchases, all of which are known or can be reasonably forecasted. Contingent liquidity demands exist and require the Company to inventory and estimate likely and potential liquidity demands stemming from stress scenarios. April 1, 2013 - April 30, 2013 May 1, 2013 - May 31, 2013 June 1, 2013 - June 30, 2013JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013 Carrying Value Estimated Fair
Value Fair Value Measurement Using: Level 1 Level 2 Level 3 $ 2,377,246 $ 2,416,787 $ — $ — $ 2,416,787 1,245,252 1,245,252 — 1,245,252 — 5,884,501 6,331,471 — — 6,331,471 625,796 625,796 625,796 — — 17,509 17,509 17,509 — — 524,810 561,899 4,635 37,590 519,674 233,153 233,153 — 233,153 — $ 11,250,921 $ 11,392,786 $ — $ — $ 11,392,786 1,935,533 2,080,701 — — 2,080,701 487,556 373,774 — — 373,774 December 31, 2012: Carrying Value Estimated Fair
Value Fair Value Measurement Using: Level 1 Level 2 Level 3 $ 2,300,587 $ 2,426,688 $ — $ — $ 2,426,688 1,278,175 1,278,175 — 1,278,175 — 5,837,359 6,362,324 — — 6,362,324 684,028 684,028 684,028 — — 48,951 48,951 48,951 — — 596,336 626,358 — 32,250 594,108 201,344 201,344 — 201,344 — $ 11,566,962 $ 11,926,339 $ — $ — $ 11,926,339 1,815,253 2,014,062 — — 2,014,062 652,010 456,050 — — 456,050 September 30, 2013 Carrying Value Fair Value Measurement Using: Level 1 Level 2 Level 3 Assets: Mortgage loans on real estate $ 2,488,582 $ 2,515,250 $ — $ — $ 2,515,250 Policy loans 1,244,878 1,244,878 — 1,244,878 — 5,917,002 6,144,891 — — 6,144,891 751,236 751,236 751,236 — — 24,756 24,756 24,756 — — 652,759 694,909 4,956 31,436 658,517 Accrued investment income 262,330 262,330 — 262,330 — Liabilities: $ 11,104,386 $ 10,923,043 $ — $ — $ 10,923,043 Long-term debt 2,214,170 2,348,049 — — 2,348,049 Collateral finance facility 484,712 365,307 — — 365,307 December 31, 2012: Carrying Value Fair Value Measurement Using: Level 1 Level 2 Level 3 Assets: Mortgage loans on real estate $ 2,300,587 $ 2,426,688 $ — $ — $ 2,426,688 Policy loans 1,278,175 1,278,175 — 1,278,175 — 5,837,359 6,362,324 — — 6,362,324 684,028 684,028 684,028 — — 48,951 48,951 48,951 — — 596,336 626,358 — 32,250 594,108 Accrued investment income 201,344 201,344 — 201,344 — Liabilities: $ 11,566,962 $ 11,926,339 $ — $ — $ 11,926,339 Long-term debt 1,815,253 2,014,062 — — 2,014,062 Collateral finance facility 652,010 456,050 — — 456,050 (1) (2) andinvestments supporting unit-linked variable annuity type liabilities, FHLB common stock.stock and cash collateral. The fair value of limited partnerships and other investments accounted for using the cost method is determined using the net asset values of the Company’s ownership interest as provided in the financial statements of the investees. The valuation of these investments is considered Level 3 in the fair value hierarchy due to the limited activity and price transparency inherent in the market for such investments. The fair value of structured loans is estimated based on a discounted cash flow analysis using discount rates applicable to each structured loan, this is considered Level 3 in the fair value hierarchy. The fair value of the investments supporting unit-linked variable annuity type liabilities is considered to be the carrying value and it is considered Level 3 in the fair value hierarchy. The fair value of the Company’s common stock investment in the Federal Home Loan Bank of Des Moines is considered to be the carrying value and it is considered Level 2 in the fair value hierarchy. The fair value of the Company’sCompany's cash collateral is considered to be the carrying value and considered to be Level 1 in the fair value hierarchy.7.7. Segment Information Three months ended June 30, Six months ended June 30, Total revenues: 2013 2012 2013 2012 $ 1,564,386 $ 1,370,221 $ 3,064,650 $ 2,694,368 295,325 276,239 592,414 551,862 338,910 323,943 678,139 632,280 368,173 377,733 757,142 737,418 23,848 27,617 99,399 52,800 $ 2,590,642 $ 2,375,753 $ 5,191,744 $ 4,668,728 Three months ended June 30, Six months ended June 30, Income (loss) before income taxes: 2013 2012 2013 2012 $ 170,443 $ 140,586 $ 344,852 $ 233,331 35,659 35,030 71,967 90,093 15,818 19,591 33,203 26,197 (290,448 ) 23,859 (275,930 ) 55,926 (6,230 ) (3,174 ) 29,977 (8,892 ) $ (74,758 ) $ 215,892 $ 204,069 $ 396,655 Three months ended September 30, Nine months ended September 30, Total revenues: 2013 2012 2013 2012 U.S. $ 1,337,562 $ 1,446,834 $ 4,402,212 $ 4,141,202 Canada 292,504 287,629 884,918 839,491 Europe & South Africa 358,796 323,225 1,036,935 955,505 Asia Pacific 376,929 364,516 1,134,071 1,101,934 Corporate and Other 24,024 26,877 123,423 79,677 Total $ 2,389,815 $ 2,449,081 $ 7,581,559 $ 7,117,809 Three months ended September 30, Nine months ended September 30, Income (loss) before income taxes: 2013 2012 2013 2012 U.S. $ 105,867 $ 156,678 $ 450,719 $ 390,009 Canada 41,869 37,520 113,836 127,613 Europe & South Africa 41,553 32,166 74,756 58,363 Asia Pacific 17,112 (16,483 ) (258,818 ) 39,443 Corporate and Other (4,706 ) (8,402 ) 25,271 (17,294 ) Total $ 201,695 $ 201,479 $ 405,764 $ 598,134 three and sixnine months ended JuneSeptember 30, 2013 in the Asia Pacific segment reflects an increase in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits as well as poor claims experience in the Australian operation’soperation's individual lump sum and individual disability businesses.Total Assets: June 30, 2013 December 31, 2012 $ 24,653,033 $ 24,924,363 4,069,624 3,764,002 2,143,826 2,235,199 3,216,175 3,208,732 4,707,963 6,228,142 $ 38,790,621 $ 40,360,438 Total Assets: September 30, 2013 December 31, 2012 U.S. $ 24,601,693 $ 24,924,363 Canada 4,065,475 3,764,002 Europe & South Africa 2,403,094 2,235,199 Asia Pacific 3,396,639 3,208,732 Corporate and Other 5,059,654 6,228,142 Total $ 39,526,555 $ 40,360,438 8.8. Commitments and Contingent Liabilities JuneSeptember 30, 2013, the Company’s commitments to fund investments were $241.8$241.9 million in limited partnerships, $42.5$23.1 million in commercial mortgage loans and $74.5$58.2 million in bank loans, including revolving credit agreements. At December 31, 2012, the Company’s commitments to fund investments were $176.7$176.7 million in limited partnerships, $22.2$22.2 million in commercial mortgage loans and $68.5$68.5 million in bank loans, including revolving credit agreements. The Company anticipates that the majority of its current commitments will be invested over the next five years; however, these commitments could become due any time at the request of the counterparties. Investments in limited partnerships and private placements are carried at cost or reported using the equity method and included in other invested assets in the condensed consolidated balance sheets. Bank loans are carried at fair value and included in fixed maturities available-for-sale.JuneSeptember 30, 2013 and December 31, 2012, there were approximately $76.2$223.7 million and $45.4$45.4 million, respectively, of undrawn outstanding bank letters of credit in favor of third parties. Additionally, the Company utilizes letters of credit primarily to secure reserve credits when it retrocedes business to its subsidiaries, including Parkway Reinsurance Company (“Parkway Re”), Rockwood Reinsurance Company (“Rockwood Re”), Timberlake Financial L.L.C. (“Timberlake Financial”), RGA Americas Reinsurance, Ltd. (“RGA Americas”), RGA Reinsurance Company (Barbados) Ltd. (“RGA Barbados”) and RGA Atlantic Reinsurance Company, Ltd. (“RGA Atlantic”). The Company cedes business to its affiliates to help reduce the amount of regulatory capital required in certain jurisdictions such as the U.S. and the United Kingdom. The capital required to support the business in the affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of JuneSeptember 30, 2013 and December 31, 2012, $861.3$916.5 million and $763.5$763.5 million, respectively, in undrawn letters of credit from various banks were outstanding, primarily backing reinsurance between the various subsidiaries of the Company. The banks providing letters of credit to the Company are included on the National Association of Insurance Commissioners (“NAIC”) list of approved banks.fiveseven credit facilities, a syndicated revolving credit facility with a capacity of $850.0$850.0 million and foursix letter of credit facilities with a combined capacity of $690.0 million.$894.3 million. The Company may borrow cash and obtain letters of credit in multiple currencies under its syndicated revolving credit facility. The following table provides additional information on the Company’s credit facilities as of JuneSeptember 30, 2013 and December 31, 2012 (dollars in millions): Amount Utilized(1) Maturity Date June 30, 2013 December 31, 2012 $ 850.0 December 2015 $ 94.2 $ 402.9 Senior unsecured long-term debt rating $ 200.0 September 2019 200.0 200.0 Fixed $ 120.0 May 2016 80.0 100.0 Fixed $ 270.0 November 2017 270.0 — Fixed $ 100.0 June 2017 90.3 — Fixed Facility Capacity Maturity Date September 30, 2013 December 31, 2012 Basis of Fees $ 850.0 December 2015 $ 73.9 $ 402.9 Senior unsecured long-term debt rating 200.0 September 2019 200.0 200.0 Fixed 120.0 May 2016 115.0 100.0 Fixed 270.0 November 2017 270.0 — Fixed 100.0 June 2017 92.2 — Fixed 52.9 November 2013 52.9 — Fixed 151.4 March 2019 151.4 — Fixed (1) $815.2$860.6 million and $686.0$686.0 million as of JuneSeptember 30, 2013 and December 31, 2012, respectively, and are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. As of JuneSeptember 30, 2013 and December 31, 2012, the Company’s exposure related to treaty guarantees, net of assets held in trust, was $628.1$669.9 million and $463.5$463.5 million, respectively. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to borrowed securities provide additional security to third parties should a subsidiary fail to return the borrowed securities when due. As of JuneSeptember 30, 2013 and December 31, 2012, RGA’s obligation related to borrowed securities guarantees was $87.5 million.$87.5 million. There were no amounts guaranteed under financing arrangements as of JuneSeptember 30, 2013 and December 31, 2012.$300.0$300.0 million of collateral financing through 2020 from an international bank which enabled Manor Re to deposit assets in trust to support statutory reserve credits for an affiliated reinsurance transaction. The bank has recourse to RGA should Manor Re fail to make payments or otherwise not perform its obligations under this financing.JuneSeptember 30, 2013, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents information about these commitments (dollars in millions): Maximum Potential Obligation $ 350.0 560.0 Commitment Period Maximum Potential Obligation 2033 $ 1,350.0 2035 560.0 9.9. Employee Benefit Plans sixnine months ended JuneSeptember 30, 2013 and 2012 were as follows (dollars in thousands): Pension Benefits Other Benefits Three months ended June 30, Three months ended June 30, 2013 2012 2013 2012 $ 2,129 $ 2,196 $ 410 $ 279 1,020 1,090 311 258 (1,100 ) (799 ) — — 213 87 — — 782 1,388 186 89 $ 3,044 $ 3,962 $ 907 $ 626 Pension Benefits Other Benefits Six months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ 4,012 $ 3,728 $ 820 $ 558 2,038 2,070 623 517 (1,867 ) (1,533 ) — — 307 186 — — 1,619 1,663 372 177 $ 6,109 $ 6,114 $ 1,815 $ 1,252 Pension Benefits Other Benefits Three months ended September 30, Three months ended September 30, 2013 2012 2013 2012 Service cost $ 2,000 $ 1,910 $ 590 $ 673 Interest Cost 1,017 1,065 392 418 Expected return on plan assets (933 ) (766 ) — — Amortization of prior service cost 152 102 — — Amortization of prior actuarial loss 808 851 279 380 Net periodic benefit cost $ 3,044 $ 3,162 $ 1,261 $ 1,471 Pension Benefits Other Benefits Nine months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Service cost $ 6,012 $ 5,638 $ 1,411 $ 1,231 Interest Cost 3,055 3,135 1,015 935 Expected return on plan assets (2,800 ) (2,299 ) — — Amortization of prior service cost 459 288 — — Amortization of prior actuarial loss 2,427 2,514 651 557 Net periodic benefit cost $ 9,153 $ 9,276 $ 3,077 $ 2,723 $3.4$6.8 million during the first sixnine months of 2013 and expectsdoes not expect to make totalany additional pension contributions of $6.8 million in 2013.10.10. Equity Based Compensation $6.0$5.5 million and $5.5$3.7 million in the secondthird quarter of 2013 and 2012, respectively. In the first quarter of 2013, the Company granted 0.7 million stock appreciation rights at $58.77$58.77 weighted average exercise price per share and 0.3 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 14,200 shares of common stock. As of JuneSeptember 30, 2013 1.8, 1.7 million share options at $50.43$50.57 weighted average per share were vested and exercisable with a remaining weighted average exercise period of 5.14.9 years. As of JuneSeptember 30, 2013, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $38.2 million.$32.7 million. It is estimated that these costs will vest over a weighted average period of 2.22.1 years.11.11. Retrocession Arrangements and Reinsurance Ceded Receivables JuneSeptember 30, 2013 and December 31, 2012, all rated retrocession pool participants rated by the A.M. Best Company were rated “A-“A- (excellent)” or better. The Company verifies retrocession pool participants’ ratings on a quarterly basis. For a majority of the retrocessionaires that were not rated, security in the form of letters of credit or trust assets has been given as additional security in favor of RGA Reinsurance Company (“RGA Reinsurance”). In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance.JuneSeptember 30, 2013 and December 31, 2012, the Company had claims recoverable from retrocessionaires of $147.2$132.4 million and $156.0$156.0 million, respectively, which is included in reinsurance ceded receivables, in the condensed consolidated balance sheets. The Company considers outstanding claims recoverable in excess of 90 days to be past due. There were $9.8$6.5 million and $10.4$10.4 million of past due claims recoverable as of JuneSeptember 30, 2013 and December 31, 2012, respectively. Based on financial reviews of the counterparties, the Company has not established a valuation allowance for claims recoverable. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to recoverability of any such claims.12.Repurchase of Collateral Finance Facility Notes12. Financing and Other Activities $160.0$160.0 million face amount of its Series A Floating Rate Insured Notes issued by RGA’s subsidiary, Timberlake Financial, L.L.C., for $112.0$112.0 million, which was the market value at the date of the purchase. The notes were purchased by RGA Reinsurance Company, also a subsidiary of RGA. As a result, the Company recorded a pre-tax gain of $46.5$46.5 million, after fees, in other revenues at that time.13.13. Stock Transactions $200.0$200.0 million of RGA’s outstanding common stock. In April 2013, RGA’s board of directors authorized an increase of $100.0$100.0 million to the share repurchase program previously authorized in January 2013. In July 2013, RGA’s board of directors authorized an additional increase of $100.0$100.0 million to the share repurchase program previously authorized in January 2013. With these authorizations, the total amount of the Company’s outstanding common stock authorized for repurchase is $400.0 million.$400.0 million.$47.6 million.$47.6 million. During the second quarter of 2013, the Company repurchased an additional 2,865,132 shares of common stock under the program for $182.9$182.9 million. During the third quarter of 2013, the Company repurchased 471,169 shares of common stock under the program for $30.8 million. The common shares repurchased have been placed into treasury to be used for general corporate purposes. As of JuneSeptember 30, 2013 there was $69.5$138.7 million remaining under the board of directors authorized share repurchase program, which does not reflect the additional $100.0 million authorization approved by RGA’s board of director’s in July 2013.program.14.14. New Accounting Standards FASBFinancial Accounting Standards Board ("FASB") in the form of accounting standards updates to the FASB Accounting Standards Codification™. Accounting standards updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.$318.4$318.4 million and a decrease in the deferred policy acquisition costs balance of $470.1$470.1 million on January 1, 2012.Company’sCompany's condensed consolidated financial statements.decreased $290.7increased $0.2 million, or 134.6%0.1%, and $192.6decreased $192.4 million, or 48.6%32.2%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The slight increase in income before income taxes for the third quarter of 2013 was primarily due to an increase in net premiums in all segments and favorable mortality experience in most markets largely offset by decreased investment related gains. The decrease in income before income taxes for the second quarterfirst nine months of 2013 was primarily due to a significant loss in the Asia Pacific segment and a decrease in investment related gains partially offset by increased investment related gains and higher investment income.income and the recognition in other revenues of gains on the repurchase of collateral finance facility securities of $46.5 million. The loss in the Asia Pacific segment reflects an increase in Australian group claims liabilities primarily related to total and permanent disability coverage and disability income benefits as well as poor claims experience in the Australian operation’s individual lump sum and individual disability businesses.businesses, all in the second quarter of 2013. The decrease in income before income taxes for the first six months of 2013 was primarily due to the aforementioned loss in the Asia Pacific segment related to the Australian operations partially offset by an increase in investment related gains, higher investment income and the recognition in other revenues of gains on the repurchase of collateral finance facility securities of $46.5 million. The increase in investment related gains in the secondthird quarter and first sixnine months reflects a favorablean unfavorable change in the value of embedded derivatives within the U.S. segment. The effect of tightening credit spreadssegment due largely to rising interest rates in the U.S. markets generated an increase in revenue related to embedded derivatives to a greater extent in the first six monthsthird quarter of 2013 than 2012.2013. Foreign currency fluctuations relativeresulted in a decrease to the prior year favorablyaffected income before income taxes byof approximately $14.4$6.1 million and $12.2an increase of approximately $6.1 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012.change in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis are subject to the general accounting principles for derivatives and hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, increased income before income taxes by $25.4 million and $55.7 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. Changes in risk-free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, increased income before income taxes by $14.5 million and $19.5 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, increased income before income taxes by $69.6 million and $65.2 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in ana reduction of approximately $13.6 million and increase of approximately $109.5 million and approximately $140.4$126.7 million in consolidated income before income taxes in the secondthird quarter andsixnine months of 2013, respectively, as compared to the same periods in 2012. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.$84.5$113.4 million, or 4.3%5.9%, and $200.7$314.1 million, or 5.3%5.5%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012, primarily due to growth in life reinsurance partially offset by foreign currency fluctuations. Foreign currency fluctuations unfavorably affected net premiums by approximately $21.2$51.7 million and $40.8$92.5 million for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Consolidated assumed insurance in force increased to $2,823.8$2,903.8 billion as of JuneSeptember 30, 2013 from $2,782.3$2,881.0 billion as of JuneSeptember 30, 2012 due to new business production. Foreign currency fluctuations negatively affectedoffset the increase in assumed life insurance in force from JuneSeptember 30, 2012 by $77.4$71.6 billion. The Company added new business production, measured by face amount of insurance in force, of $104.0$91.6 billion and $86.8$118.9 billion during the secondthird quarter of 2013 and 2012, respectively, and $199.9$291.5 billion and $205.3$324.2 billion during the first sixnine months of 2013 and 2012, respectively. Management believes industry consolidation and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced in some markets.increased $115.9decreased $27.4 million, or 35.3%6.9%, and $200.1increased $172.7 million, or 29.9%16.2%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increases aredecrease in the third quarter was primarily due to the increasea $35.5 million decrease in market value changes related to the Company’s funds withheld at interest investment associated with the reinsurance of certain EIAs which contributedEIAs. The increase in the first nine months was largely due to a $78.2 million increase from market value changes related to the increases inCompany’s funds withheld at interest investment income by $92.9 million and 113.7 million inassociated with the second quarter and first six monthsreinsurance of 2013, respectively.certain EIAs. The effect on investment income of the EIAs market value changes is substantially offset by a corresponding change in interest credited to policyholder account balances resulting in an insignificant effect on net income. In addition, investment income associated with a large fixed annuity transaction executed in the secondthird quarter of 2012 contributed $15.4increased investment income by $17.4 million and $68.9$86.3 million to the increase in the secondthird quarter and first sixnine months of 2013, respectively. The increase also reflects a larger average invested asset base, excluding funds withheld and other spread business, somewhat offset by lower effective investment portfolio yields. Average invested assets at amortized cost, excluding funds withheld and other spread business, for the sixnine months ended JuneSeptember 30, 2013 totaled $17.9 billion, a 9.8%9.0% increase over JuneSeptember 30, 2012. The average yield earned on investments, excluding funds withheld and other spread business, was 4.77%4.75% and 5.06%4.98% for the secondthird quarter of 2013 and 2012, respectively, and 4.80%4.78% and 5.06%5.03% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments. While there washas been some improvement late in the second quarter of 2013, a continued low interest rate environment in the U.S. and Canada is expected to put downward pressure on this yield in future reporting periods.a favorablean unfavorable change of $24.4$152.5 million and $75.3$77.2 million, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increases areunfavorable change for the third quarter was primarily due to a favorable changeunfavorable changes in the embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis of $52.2 million and $151.9 million, a favorable$122.3 million. The unfavorable change infor the embedded derivatives relatedfirst nine months is primarily due to guaranteed minimum living benefits of $110.7 million and $15.7 million in the second quarter and first six months of 2013, respectively. Offsetting these increases was a decrease in the fair value of derivatives used to hedge the embedded derivative liabilities associated with guaranteed minimum living benefits of$134.3 $95.7 million and $90.9 millionpartially offset by a favorable change in the second quarter and first six monthsembedded derivatives related to guaranteed minimum living benefits of 2013, respectively.$32.9 million. Investment impairments on fixed maturity and equity securities increaseddecreased by $8.3$2.2 million and decreased by $6.3$8.5 million in the secondthird quarter and first sixnine months of 2013, respectively. See Note 4 - “Investments” and Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives. Investment33.6%31.6% and 34.6%28.3% for the secondthird quarter of 2013 and 2012, respectively, and 33.4%32.5% and 33.3%31.6% for the first sixnine months of 2013 and 2012, respectively. The secondthird quarter and first sixnine months of 2013 effective tax rates were lower than the U.S. statutory rate of 35.0% primarily as a result of income in non-U.S. jurisdictions with lower tax rates than the U.S., differences in tax basis in foreign jurisdictions and an adjustment to reconcile the establishment of a valuation allowance on a portion of Australia’s deferred2012 income tax asset.provision to the 2012 federal income tax return, which was filed in the current quarter. The secondthird quarter and first sixnine months of 2012 effective tax rate was lower than the U.S. statutory rate of 35.0% primarily as a result of income in non-U.S. jurisdictions with lower tax rates than the U.S. and differences in tax basis in foreign jurisdictions offset by a tax accrual of $2.1 million related to business extender provisions that the U.S. Congress did not pass prior to the end of 2012.For the three months ended June 30, 2013 Non-Traditional (dollars in thousands) Traditional Asset-Intensive Financial
Reinsurance Total
U.S. $ 1,124,292 $ 11,129 $ — $ 1,135,421 133,259 200,837 819 334,915 (8,085 ) — — (8,085 ) (253 ) — — (253 ) 12,038 43,063 (100 ) 55,001 3,700 43,063 (100 ) 46,663 1,144 29,937 16,306 47,387 1,262,395 284,966 17,025 1,564,386 972,739 11,083 — 983,822 13,590 104,263 — 117,853 164,393 97,533 3,602 265,528 22,226 2,878 1,636 26,740 1,172,948 215,757 5,238 1,393,943 $ 89,447 $ 69,209 $ 11,787 $ 170,443 For the three months ended June 30, 2012 Non-Traditional (dollars in thousands) Traditional Asset-Intensive Financial
Reinsurance Total
U.S. $ 1,082,400 $ 3,355 $ — $ 1,085,755 133,652 95,957 179 229,788 (1,822 ) — — (1,822 ) 162 — — 162 2,449 12,468 32 14,949 789 12,468 32 13,289 401 29,254 11,734 41,389 1,217,242 141,034 11,945 1,370,221 934,807 5,102 — 939,909 14,555 51,926 — 66,481 150,958 46,597 704 198,259 20,586 2,807 1,593 24,986 1,120,906 106,432 2,297 1,229,635 $ 96,336 $ 34,602 $ 9,648 $ 140,586 For the six months ended June 30, 2013 Non-Traditional (dollars in thousands) Traditional Asset-Intensive Financial
Reinsurance Total
U.S. $ 2,170,341 $ 14,967 $ — $ 2,185,308 265,548 380,206 1,416 647,170 (8,247 ) — — (8,247 ) (253 ) — — (253 ) 19,497 131,647 (66 ) 151,078 10,997 131,647 (66 ) 142,578 1,673 58,818 29,103 89,594 2,448,559 585,638 30,453 3,064,650 1,902,419 14,671 — 1,917,090 29,740 213,048 — 242,788 304,361 192,196 7,042 503,599 45,747 6,991 3,583 56,321 2,282,267 426,906 10,625 2,719,798 $ 166,292 $ 158,732 $ 19,828 $ 344,852 For the six months ended June 30, 2012 Non-Traditional (dollars in thousands) Traditional Asset-Intensive Financial
Reinsurance Total
U.S. $ 2,103,907 $ 6,951 $ — $ 2,110,858 266,069 205,234 343 471,646 (7,852 ) — — (7,852 ) (5,745 ) — — (5,745 ) 1,302 53,071 (107 ) 54,266 (12,295 ) 53,071 (107 ) 40,669 1,404 49,147 20,644 71,195 2,359,085 314,403 20,880 2,694,368 1,842,268 7,004 — 1,849,272 29,609 124,676 — 154,285 296,443 105,662 1,474 403,579 44,587 5,869 3,445 53,901 2,212,907 243,211 4,919 2,461,037 $ 146,178 $ 71,192 $ 15,961 $ 233,331 For the three months ended September 30, 2013 Non-Traditional (dollars in thousands) Asset-Intensive Traditional Revenues: Net premiums $ 1,112,526 $ 3,800 $ — $ 1,116,326 Investment income, net of related expenses 138,146 124,808 1,160 264,114 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities — — — — Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income — — — — Other investment related gains (losses), net (5,262 ) (82,064 ) (321 ) (87,647 ) Total investment related gains (losses), net (5,262 ) (82,064 ) (321 ) (87,647 ) Other revenues 651 28,519 15,599 44,769 Total revenues 1,246,061 75,063 16,438 1,337,562 Benefits and expenses: Claims and other policy benefits 961,746 8,899 — 970,645 Interest credited 13,659 45,805 — 59,464 Policy acquisition costs and other insurance expenses 162,443 6,312 3,228 171,983 Other operating expenses 23,397 4,198 2,008 29,603 Total benefits and expenses 1,161,245 65,214 5,236 1,231,695 Income before income taxes $ 84,816 $ 9,849 $ 11,202 $ 105,867 For the three months ended September 30, 2012 Non-Traditional (dollars in thousands) Asset-Intensive Traditional Revenues: Net premiums $ 1,045,767 $ 3,623 $ — $ 1,049,390 Investment income (loss), net of related expenses 135,532 160,441 364 296,337 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (557 ) — — (557 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income (551 ) — — (551 ) Other investment related gains (losses), net (819 ) 58,875 (146 ) 57,910 Total investment related gains (losses), net (1,927 ) 58,875 (146 ) 56,802 Other revenues 764 31,976 11,565 44,305 Total revenues 1,180,136 254,915 11,783 1,446,834 Benefits and expenses: Claims and other policy benefits 917,264 2,828 — 920,092 Interest credited 14,637 115,478 — 130,115 Policy acquisition costs and other insurance expenses 156,995 56,027 2,012 215,034 Other operating expenses 20,684 2,596 1,635 24,915 Total benefits and expenses 1,109,580 176,929 3,647 1,290,156 Income before income taxes $ 70,556 $ 77,986 $ 8,136 $ 156,678 For the nine months ended September 30, 2013 Non-Traditional (dollars in thousands) Asset-Intensive Traditional Revenues: Net premiums $ 3,282,867 $ 18,767 $ — $ 3,301,634 Investment income, net of related expenses 403,694 505,014 2,576 911,284 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (8,247 ) — — (8,247 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income (253 ) — — (253 ) Other investment related gains (losses), net 14,235 49,583 (387 ) 63,431 Total investment related gains (losses), net 5,735 49,583 (387 ) 54,931 Other revenues 2,324 87,337 44,702 134,363 Total revenues 3,694,620 660,701 46,891 4,402,212 Benefits and expenses: Claims and other policy benefits 2,864,165 23,570 — 2,887,735 Interest credited 43,399 258,853 — 302,252 Policy acquisition costs and other insurance expenses 466,804 198,508 10,270 675,582 Other operating expenses 69,144 11,189 5,591 85,924 Total benefits and expenses 3,443,512 492,120 15,861 3,951,493 Income before income taxes $ 251,108 $ 168,581 $ 31,030 $ 450,719 For the nine months ended September 30, 2012 Non-Traditional (dollars in thousands) Asset-Intensive Traditional Revenues: Net premiums $ 3,149,674 $ 10,574 $ — $ 3,160,248 Investment income (loss), net of related expenses 401,601 365,675 707 767,983 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (8,409 ) — — (8,409 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income (6,296 ) — — (6,296 ) Other investment related gains (losses), net 483 111,946 (253 ) 112,176 Total investment related gains (losses), net (14,222 ) 111,946 (253 ) 97,471 Other revenues 2,168 81,123 32,209 115,500 Total revenues 3,539,221 569,318 32,663 4,141,202 Benefits and expenses: Claims and other policy benefits 2,759,532 9,832 — 2,769,364 Interest credited 44,246 240,154 — 284,400 Policy acquisition costs and other insurance expenses 453,438 161,689 3,486 618,613 Other operating expenses 65,271 8,465 5,080 78,816 Total benefits and expenses 3,322,487 420,140 8,566 3,751,193 Income before income taxes $ 216,734 $ 149,178 $ 24,097 $ 390,009 $29.9$60.7 million, or 21.2%, and $111.5 million, or 47.8%15.6%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increasedecrease in income before income taxes in the three and six months of 2013third quarter can be largely attributed to the Asset-Intensive segment.sub-segment. The significant increase in income overdecrease is primarily the prior year for this sub-segment was generated primarily by a large Asset-Intensive transaction completed inresult of rising interest rates during the second quarter of 2012, favorable changes in credit spreads onwhich reduced the fair value of embedded derivatives associated with treaties written on a modified coinsurancemodco or funds withheld basis, andbasis. In addition, there was a decrease in investment related gains (losses), net due to the significant amount of investment related gains recognized in 2012 associated with the portfolio restructure of a new fixed annuity transaction. These decreases were somewhat offset by favorable returnsmortality experience in the broader equity marketsU.S. Traditional sub-segment. The increase in 2013. Income before income taxesfor the first nine months can be attributed to an increase in investment related gains (losses), net in the U.S. Traditional sub-segment also increasedas well as slightly improved mortality. In addition, the first nine months reflects improved performance in the first six months of 2013,Asset-Intensive sub-segment mainly as a result of an increasethe aforementioned fixed annuity transaction that was recorded in investment related gains.modified coinsurancemodco agreements. These reinsurance arrangements may involve either facultative or automatic agreements.decreasedincreased by $6.9$14.3 million, or 7.2%20.2%, and increased $20.1$34.4 million, or 13.8%15.9%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The decreaseincrease in the secondthird quarter was primarily due to an increase infavorable mortality compared to the acquisition margin combined with lower yield rates. Overall, while the acquisition ratios are expected to remain in a predictable range, they may fluctuate from period tosame prior year period. The increase in the first sixnine months was primarily duecan be attributed to an increase in investment related gains (losses), net and growth, primarily in the individual health line of business,slightly improved mortality compared to the same period in 2012.$41.9$66.8 million, or 3.9%6.4%, and $66.4$133.2 million, or 3.2%4.2%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increase in net premiums was driven largely by growth in the health and group related coverages which contributed $27.5$30.4 million and $52.0$82.3 million to the increase for the secondthird quarter and first sixnine months of 2013, respectively. This sub-segment added new individual life business production, measured by face amount of insurance in force, of $21.8$22.0 billion and $24.2$23.1 billion during the secondthird quarters of 2013 and $47.42012, respectively, and $69.4 billion and $109.1$132.2 billion during the first sixnine months of 2013 and 2012, respectively. Approximately $42.4 billion of the decrease in insurance in force for the first sixnine months as compared to the same period in 2012 relates to one large in force transaction recorded in the first quarter of 2012.decreased $0.4increased $2.6 million, or 0.3%1.9%, and $0.5$2.1 million, or 0.2%0.5%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The decreasesincreases are due to lower yield rates offset by an increase in the average invested asset base.base offset by lower yield rates. Investment related gains (losses), net increased $2.9decreased $3.3 million and $23.3increased $20.0 million, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increase in the first sixnine months is primarily due to an increase in net investment gains. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.86.5%86.4% and 86.4%87.7% for the secondthird quarter of 2013 and 2012, respectively, and 87.7%87.2% and 87.6% for the sixnine months ended JuneSeptember 30, 2013, respectively.6.6%6.7%, and increased $0.1$0.8 million, or 0.4%1.9%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. This expense relates primarily to one treaty in which the related investment income decreased proportionately, resulting in minimal net income impact. Interest credited in this sub-segment relates to amounts credited on cash value products which also have a significant mortality component. Income before income taxes is affected by the spread between the investment income and the interest credited on the underlying products. Interest earned rates and related interest crediting rates are index driven. The spread remained relatively constant in both periods.13.9%15.0% for the secondthird quarter of 2013 and 2012, and 14.0%14.2% and 14.1%14.4% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to period.$1.6$2.7 million, or 8.0%13.1%, and $1.2$3.9 million, or 2.6%5.9%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Other operating expenses, as a percentage of net premiums were 2.0%2.1% and 1.9%2.0% for the secondthird quarter of 2013 and 2012, and 2.1% for both sixnine month periods ended JuneSeptember 30, 2013 and 2012, respectively.modified coinsurancemodco whereby the Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities, as well as fees associated with variable annuity account values.(dollars in thousands) Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ 284,966 $ 141,034 $ 585,638 $ 314,403 46,326 (4,593 ) 136,527 (13,980 ) (7,473 ) 16,127 (8,513 ) 66,797 246,113 129,500 457,624 261,586 215,757 106,432 426,906 243,211 26,316 (455 ) 83,306 (12,857 ) (3,034 ) 10,011 (4,446 ) 43,481 (12,727 ) 1,793 (19,573 ) (43 ) 205,202 95,083 367,619 212,630 69,209 34,602 158,732 71,192 20,010 (4,138 ) 53,221 (1,123 ) (4,439 ) 6,116 (4,067 ) 23,316 12,727 (1,793 ) 19,573 43 $ 40,911 $ 34,417 $ 90,005 $ 48,956 (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Revenues: Total revenues $ 75,063 $ 254,915 $ 660,701 $ 569,318 Less: Embedded derivatives – modco/funds withheld treaties (68,703 ) 54,258 67,824 40,278 Guaranteed minimum benefit riders and related free standing derivatives (10,087 ) (22,577 ) (18,599 ) 44,220 Revenues before certain derivatives 153,853 223,234 611,476 484,820 Benefits and expenses: Total benefits and expenses 65,214 176,929 492,120 420,140 Less: Embedded derivatives – modco/funds withheld treaties (43,317 ) 37,562 39,988 24,705 Guaranteed minimum benefit riders and related free standing derivatives (6,646 ) (15,816 ) (11,091 ) 27,665 Equity-indexed annuities (12,103 ) 1,062 (31,675 ) 1,019 Benefits and expenses before certain derivatives 127,280 154,121 494,898 366,751 Income before income taxes: Income before income taxes 9,849 77,986 168,581 149,178 Less: Embedded derivatives – modco/funds withheld treaties (25,386 ) 16,696 27,836 15,573 Guaranteed minimum benefit riders and related free standing derivatives (3,441 ) (6,761 ) (7,508 ) 16,555 Equity-indexed annuities 12,103 (1,062 ) 31,675 (1,019 ) Income before income taxes and certain derivatives $ 26,573 $ 69,113 $ 116,578 $ 118,069 $(0.4)$1.0 million and $6.3$(6.2) million for the three months, and $(2.1)$(1.0) million and $(57.2)$(63.4) million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. A 10% increase in the Company’s own credit risk rate would have increased revenues for the sixnine months ended JuneSeptember 30, 2013 by approximately $0.1$0.2 million. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues for the sixnine months ended JuneSeptember 30, 2013 by approximately $0.1$0.2 million.secondthird quarter of 2013, the change in fair value of the embedded derivative increaseddecreased revenues by $46.3$68.7 million and related deferred acquisition expenses increaseddecreased benefits and expenses by $26.3$43.3 million, for a positivenegative pre-tax income impact of $20.0$25.4 million. During the secondthird quarter of 2012, the change in fair value of the embedded derivative decreasedincreased revenues by $4.6$54.3 million and related deferred acquisition expenses decreasedincreased benefits and expenses by $0.5$37.6 million, for a negativepositive pre-tax income impact of $4.1$16.7 million. In the first sixnine months of 2013, the change in fair value of the embedded derivative increased revenues by $136.5$67.8 million and related deferred acquisition expenses increased benefits and expenses by $83.3$40.0 million, for a positive pre-tax income impact of $53.2$27.8 million. During the first sixnine months of 2012, the change in fair value of the embedded derivative decreasedincreased revenues by $14.0$40.3 million and related deferred acquisition expenses decreasedincreased benefits and expenses by $12.9$24.7 million, for a negativepositive pre-tax income impact of $1.1$15.6 million.$(0.2)$(3.7) million and $14.6$(28.3) million for the three months, and $(4.9)$(8.6) million and $51.6$23.2 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. A 10% increase in the Company’s own credit risk rate would have increased revenues for the sixnine months ended JuneSeptember 30, 2013 by approximately $1.2$0.8 million. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues for the sixnine months ended JuneSeptember 30, 2013 by approximately $1.2$0.8 million.secondthird quarter of 2013, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, decreased revenues by $7.5$10.1 million and deferred acquisition expenses decreased benefits and expenses by $3.0$6.6 million for a negative pre-tax income impact of $4.4$3.5 million. In the secondthird quarter of 2012, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives increaseddecreased revenues by $16.1$22.6 million and deferred acquisition expenses increaseddecreased benefits and expenses by $10.0$15.8 million for a positivenegative pre-tax income impact of $6.1$6.8 million. In the first sixnine months of 2013, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, decreased revenues by $8.5$18.6 million and deferred acquisition expenses decreased benefits and expenses by $4.4$11.1 million for a negative pre-tax income impact of $4.1$7.5 million. In the first sixnine months of 2012, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives increased revenues by $66.8$44.2 million and deferred acquisition expenses increased benefits and expenses by $43.5$27.7 million for a positive pre-tax income impact of $23.3$16.6 million.secondthird quarter of 2013 and 2012, expenses decreased $12.7$12.1 million and increased $1.8$1.1 million, respectively. In the first sixnine months of 2013 and 2012, expenses decreased $19.6$31.7 million and less than $0.1increased $1.0 million, respectively.The increase in incomeof $6.5decreased by $42.5 million and $41.0$1.5 million in the secondthird quarter and first sixnine months of 2013, as compared to the same periods in 2012,2012. The decrease in the third quarter was primarily due tolargely a result of a higher level of investment related gains and corresponding changes in DAC in 2012. In the first nine months, these decreases were largely offset by the effect of a large deferred annuity coinsurance agreement entered into in the second quarter of 2012. This increase was partially offset, particularlysecondthird quarter of 2013 compared to 2012 by the net impact2012. The negative variance was primarily a result of lower investment related gains (losses) and corresponding changes in DAC related to capital gains (losses) in the funds withheld portfolios, as significant net gains were taken in 2012 compared to net losses in 2013. Funds withheld capital gains and losses are reported through investment income.The increase in revenue before certain derivatives of $116.6 million and $196.0DAC.second quarter and first sixnine months of 2013, as compared to the same periods in 2012,2012. This variance was driven by a combination of changes in investment income related to equity options held in a funds withheld portfolio associated with equity-indexed annuity treaties and an increase in investment income attributed to the new coinsurance agreement mentioned above. The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited expense.The increase in benefitsof $110.1decreased by $26.8 million and $155.0increased by $128.1 million in the secondthird quarter and first sixnine months of 2013, as compared to the same periods in 2012, was2012. These variances were driven by a combination of changes in interest credited related to equity options held in funds withheld portfolio associated with equity-indexed annuity treaties and an increase in interest credited attributed to the new coinsurance agreement mentioned above. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income. average invested asset base supporting this sub-segment decreased to $11.2$11.0 billion in the secondthird quarter of 2013 from $11.6 billion in the secondthird quarter of 2012. The decrease in the asset base was due primarily to one large closed-block transaction in which the business is beginning to run-off.run-off, as anticipated. As of JuneSeptember 30, 2013 $4.3, $4.2 billion of the invested assets were funds withheld at interest, of which 94.4%94.9% is associated with one client.$2.1$3.1 million, or 22.2%37.7%, and $3.9$6.9 million, or 24.2%28.8%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increase in the secondthird quarter of 2013 was the result of additional surplus relief provided as compared to the same period in 2012. At JuneSeptember 30, 2013 and 2012, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was $3.1$3.4 billion and $2.1$2.3 billion, respectively. The increase was primarily due to a number of new transactions entered into in the last half of 2012 and the first half of 2013. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.(dollars in thousands) For the three months ended
June 30, For the six months ended
June 30, 2013 2012 2013 2012 $ 239,633 $ 221,167 $ 482,904 $ 439,377 51,642 46,242 102,197 95,142 — — — — — — — — 3,748 5,625 6,803 14,168 3,748 5,625 6,803 14,168 302 3,205 510 3,175 295,325 276,239 592,414 551,862 196,584 184,857 386,282 345,482 6 — 18 — 52,134 47,476 112,966 97,761 10,942 8,876 21,181 18,526 259,666 241,209 520,447 461,769 $ 35,659 $ 35,030 $ 71,967 $ 90,093 (dollars in thousands) For the three months ended September 30, For the nine months ended September 30, 2013 2012 2013 2012 Revenues: Net premiums $ 236,067 $ 227,944 $ 718,971 $ 667,321 Investment income, net of related expenses 50,161 46,764 152,358 141,906 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities — — — — Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income — — — — Other investment related gains (losses), net 6,472 9,633 13,275 23,801 Total investment related gains (losses), net 6,472 9,633 13,275 23,801 Other revenues (196 ) 3,288 314 6,463 Total revenues 292,504 287,629 884,918 839,491 Benefits and expenses: Claims and other policy benefits 185,011 191,275 571,293 536,757 Interest credited 19 22 37 22 Policy acquisition costs and other insurance expenses 55,553 49,790 168,519 147,551 Other operating expenses 10,052 9,022 31,233 27,548 Total benefits and expenses 250,635 250,109 771,082 711,878 Income before income taxes $ 41,869 $ 37,520 $ 113,836 $ 127,613 $0.6$4.3 million, or 1.8%11.6%, and decreased $18.1$13.8 million, or 20.1%10.8%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increase in the third quarter was primarily due to better results on group creditor business in the third quarter of 2013, as compared to the third quarter of 2012. The decrease in income in the first sixnine months of 2013 was primarily due to better traditional individual life mortality experience in the prior year and a decrease of $7.4$10.5 million in net investment related gains. In addition, the first sixnine months of 2012 included $6.3 million of income from the recapture of a previously assumed block of individual life business recognized in the first quarter of 2012. A weaker Canadian dollar resulted in a decrease in income before income taxes of $0.6$2.1 million and $1.1$3.2 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012.$18.5$8.1 million, or 8.3%3.6%, and $43.5$51.7 million, or 9.9%7.7%, for the three and sixnine months ended JuneSeptember 30, 2013 as compared to the same periods in 2012. Premiums increased in the second quarter and first six months of 2013 due to new business from both new and existing treaties. Excluding the impact of foreign currency exchange, reinsurance in force at June 30, 2013 increased 6.5% over June 30, 2012. Also contributing to the increase in net premiums is an increase in premiums from creditor treaties of $3.4 million and $20.1 million for the second quarter and first six months of 2013,, as compared to the same periods in 2012. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net premiums of approximately $3.1$10.3 million and $4.7$15.1 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012. Premiums increased in the third quarter and first nine months of 2013 due to new business from both new and existing treaties. Excluding the impact of foreign currency exchange, reinsurance in force at September 30, 2013 increased 6.5% over September 30, 2012. Also contributing to the increase in net premiums is an increase in premiums from creditor treaties of $3.3 million and $23.4 million for the third quarter and first nine months of 2013, as compared to the same periods in 2012. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period.$5.4$3.4 million, or 11.7%7.3%, and $7.1$10.5 million, or 7.4%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increase in investment income, excluding the impact of foreign currency exchange, was mainly the result of an increase in the allocated asset base due to growth in the underlying business volume, offset by a lower investment yield. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease to net investment income of approximately $0.7$2.2 million and $1.1$3.3 million in the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012. Investment income and investment related gains and losses are allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.$2.9$3.5 million, or 90.6%106.0%, and $2.7$6.1 million, or 83.9%95.1%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. These decreases wereThe decrease in the third quarter of 2013 was primarily due to $3.3$3.5 million in fees earned from the modification of an existing treaty in the third quarter of 2012. The decrease in the first nine months of 2013 as compared to 2012 is primarily due to $3.5 million of fees earned from the modification of an existing treaty and $3.1 million of fees earned in the prior year from the recapture of a previously assumed block of individual life business.82.0%78.4% and 83.6%83.9% for the secondthird quarter of 2013 and 2012, and 80.0%79.5% and 78.6%80.4%, for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Excluding creditor business, lossLoss ratios for this segmentthe traditional individual life mortality business were 94.5%95.3% and 95.5%97.1% for the secondthird quarter of 2013 and 2012, respectively, and 93.9%94.7% and 89.7%93.0% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. The increase in the loss ratio for the first six months of 2013 is due to better than expected traditional individual life mortality experience in the prior year compared to the current year.21.8%23.5% and 21.5%21.8% for the secondthird quarter of 2013 and 2012, and 23.4% and 22.2%22.1% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums for traditional individual life business were 12.3%12.5% and 12.1%11.1% for the secondthird quarter of 2013 and 2012, and 12.6% and 13.4%12.4% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels and product mix. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.$2.1$1.0 million, or 23.3%11.4%, and $2.7$3.7 million, or 14.3%13.4%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Other operating expenses as a percentage of net premiums were 4.6%4.3% and 4.0% for the secondthird quarter of 2013 and 2012, and 4.4%4.3% and 4.2%4.1% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively.(dollars in thousands) Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ 319,375 $ 310,075 $ 643,283 $ 602,846 14,457 11,248 26,681 22,579 — — — — — — — — 470 1,156 2,280 3,138 470 1,156 2,280 3,138 4,608 1,464 5,895 3,717 338,910 323,943 678,139 632,280 283,230 263,992 567,145 525,476 11,753 13,550 23,487 28,602 28,109 26,810 54,304 52,005 323,092 304,352 644,936 606,083 $ 15,818 $ 19,591 $ 33,203 $ 26,197 (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Revenues: Net premiums $ 329,705 $ 303,101 $ 972,988 $ 905,947 Investment income, net of related expenses 13,708 11,437 40,389 34,016 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities — — — — Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income — — — — Other investment related gains (losses), net 1,350 7,111 3,630 10,249 Total investment related gains (losses), net 1,350 7,111 3,630 10,249 Other revenues 14,033 1,576 19,928 5,293 Total revenues 358,796 323,225 1,036,935 955,505 Benefits and expenses: Claims and other policy benefits 276,309 251,553 843,454 777,029 Policy acquisition costs and other insurance expenses 13,596 14,697 37,083 43,299 Other operating expenses 27,338 24,809 81,642 76,814 Total benefits and expenses 317,243 291,059 962,179 897,142 Income before income taxes $ 41,553 $ 32,166 $ 74,756 $ 58,363 decreasedincreased by $3.8$9.4 million, or 19.3%29.2%, and increased $7.0$16.4 million, or 26.7%28.1%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The decreaseincreases in income before income taxes for the secondthird quarter was primarily due to higher mortality claims in the UK. The increase in income before income taxes for theand first sixnine months waswere primarily due to increased business volumes, most notably in fee income treaties, partially offset by unfavorable claims experience. Unfavorable foreign currency exchange fluctuations contributed to the decrease in income before income taxes totaling $1.0$0.4 million and $1.9$2.3 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012.$9.3$26.6 million, or 3.0%8.8%, and $40.4$67.0 million, or 6.7%7.4%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Net premiums increased as a result of new business from both new and existing treaties including an increase associated with reinsurance of longevity risk in the UK of $2.2$4.3 million and $24.0$26.0 million in the secondthird quarter and first sixnine months of 2013, respectively. During 2013, there were unfavorable foreign currency exchange fluctuations, particularly with the British pound and the South African rand weakening against the U.S. dollar which decreased net premiums by approximately $10.0$8.3 million and $19.9$28.2 million in the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012.$63.1$62.5 million and $62.0$58.8 million in the secondthird quarter of 2013 and 2012, respectively, and $126.8$190.1 million and $123.5$182.3 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.$3.2$2.3 million, or 28.5%19.9%, and $4.1$6.4 million, or 18.2%18.7%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. These increases were primarily due to an increase in the invested asset base. Offsetting these increases were unfavorable changes in foreign currency exchange fluctuations of $0.5 million and $1.6 million for the third quarter and first nine months of 2013, respectively, as compared to the same periods in 2012. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.88.7%83.8% and 85.1%83.0% for the secondthird quarter of 2013 and 2012, and 88.2%86.7% and 87.2%85.8% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. The increase in the loss ratios is attributable to unfavorable individual life claims experience over the same prior periods primarily in the UK market. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business.3.7%4.1% and 4.4%4.8% for the secondthird quarter of 2013 and 2012, and 3.7%3.8% and 4.7%4.8% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. These percentages fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business. In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.$1.3$2.5 million, or 4.8%10.2%, and $2.3$4.8 million, or 4.4%6.3%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Other operating expenses as a percentage of net premiums totaled 8.8%8.3% and 8.6%8.2% for the secondthird quarter of 2013 and 2012, and 8.4% and 8.6%8.5% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively.86.1%85.1% of revenues for the segment were earned outside of the eurozone, primarily the UK, in the secondthird quarter of 2013. Approximately 7.9%7.2% of the segment’s revenues were earned in Spain, Italy and Portugal over the same period.(dollars in thousands) Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 $ 340,466 $ 331,945 $ 704,070 $ 657,295 21,402 20,711 43,483 43,289 — — — — — — — — (4,156 ) 968 (8,621 ) 5,317 (4,156 ) 968 (8,621 ) 5,317 10,461 24,109 18,210 31,517 368,173 377,733 757,142 737,418 567,050 236,733 848,995 485,353 274 216 585 454 60,163 89,996 122,226 140,843 31,134 26,929 61,266 54,842 — — — — 658,621 353,874 1,033,072 681,492 $ (290,448 ) $ 23,859 $ (275,930 ) $ 55,926 (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Revenues: Net premiums $ 343,078 $ 330,415 $ 1,047,148 $ 987,710 Investment income, net of related expenses 22,359 19,316 65,842 62,605 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (197 ) — (197 ) — Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income — — — — Other investment related gains (losses), net 5,280 4,733 (3,341 ) 10,050 Total investment related gains (losses), net 5,083 4,733 (3,538 ) 10,050 Other revenues 6,409 10,052 24,619 41,569 Total revenues 376,929 364,516 1,134,071 1,101,934 Benefits and expenses: Claims and other policy benefits 282,904 299,782 1,131,899 785,135 Interest credited 270 204 855 658 Policy acquisition costs and other insurance expenses 47,303 52,779 169,529 193,622 Other operating expenses 29,340 28,234 90,606 83,076 Total benefits and expenses 359,817 380,999 1,392,889 1,062,491 Income (loss) before income taxes $ 17,112 $ (16,483 ) $ (258,818 ) $ 39,443 decreasedincreased by $314.3$33.6 million and $331.9decreased $298.3 million for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The increase in income before income taxes for the third quarter is primarily attributable to both unfavorable claims experience and an increase in claim liabilities in Australia in the third quarter of 2012. The decrease in income before income taxes in the second quarter and first sixnine months is primarily due to a $274.1 million increase in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits, as discussed further below, as well as poor claims experience in the Australian operation’soperation's individual lump sum and individual disability businesses. Other operations in this segment reported results in line with management’smanagement's expectations. In total, the Australia operation reported a loss before income taxes of $300.3$292.1 million for the second quarterfirst nine months of 2013, while the other operations in this segment reported income before income taxes of $9.9$33.3 million for the same period. Additionally, foreign currency exchange fluctuations resulted in an increase (decrease) to income before income taxes totaling approximately $16.1$(3.1) million and $15.2$12.1 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012.$8.5$12.7 million, or 2.6%3.8%, and $46.8$59.4 million, or 7.1%6.0%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Premiums in the secondthird quarter and first sixnine months of 2013 increased mainly in Hong Kong and South East Asia, and Australia with new treaties and growth in existing treaties, partially offset by a decrease in premiums in Japan and South Korea. Unfavorable changes in Asia Pacific segment currencies resulted in a decrease in net premiums of approximately $8.1$33.0 million and $16.2$49.2 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012.$51.2$74.1 million and $46.7$68.4 million in the secondthird quarter of 2013 and 2012, respectively, and $105.8$179.9 million and $87.0$155.4 million for the first sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period.$0.7$3.0 million, or 3.3%15.8%, and $0.2$3.2 million, or 0.4%5.2%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. These increases can be primarily attributed to an increase in the invested asset base largelywith the first nine months variance somewhat offset by lower investment yields. Offsetting these increases were unfavorable changes in foreign currency exchange fluctuations of $0.6$2.5 million and $1.2$3.7 million for the secondthird quarter and first sixnine months of 2013, respectively, as compared to the same periods in 2012. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.$13.6$3.6 million, or 56.6%36.2%, and $13.3$17.0 million, or 42.2%40.8%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. These decreases in other revenues relate to a reduction in the amount of financial reinsurance assumed. In addition, contributing to the decrease in the first nine months was a transaction with a client in Australia which resulted in a one-time fee of $12.2 million recognized in the second quarter of 2012. The transaction did not have a significant impact on income before taxes because the amount was offset by additional amortization of deferred acquisition costs, net of the release of reserves. At JuneSeptember 30, 2013 and 2012, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was $1.8$1.6 billion and $2.5 billion, respectively. The decrease was primarily due to several financial reinsurance agreements, which are performing as expected, where the amount of reinsurance assumed from the client decreases over time. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.166.6%82.5% and 71.3%90.7% for the secondthird quarter of 2013 and 2012, and 120.6%108.1% and 73.8%79.5% for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. The decrease in the loss ratio for the third quarter of 2013 was due to adverse individual and group claims experience in 2012 in Australia, as well as a $27.9 million increase in claim liabilities for Australia’s group life, and total and permanent disability reinsurance business. The increase in the loss ratiosratio for the first nine months is primarily due to a $274.1 million increase in Australian group claims liabilities as well as poor claims experience in the Australian operation’soperation's individual lump sum and individual disability businesses. The increase in liabilities is reflected in the table above in claims and other policy benefits. Excluding the Australia operation, loss ratiosratio for this segment were 76.5% and 78.1%was 79.9% for the three and sixnine months ended JuneSeptember 30, 2013, respectively. Excluding Australia, loss ratios for this segment were in line with management’smanagement's expectations.$91.3$88.6 million and $186.3$274.9 million for the three and sixnine months ended JuneSeptember 30, 2013, respectively, and $369.1 million for the year ended December 31, 2012.17.7%13.8% and 27.1%16.0% for the secondthird quarter of 2013 and 2012, and 17.4%16.2% and 21.4%19.4% for the first sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does fluctuate periodically due to timing of client company reporting and variations in the mixture of business. Additionally, the prior year figure was affected by the aforementioned transaction with an Australian client.$4.2$1.1 million, or 15.6%3.9%, and $6.4$7.5 million, or 11.7%9.1%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. Other operating expenses as a percentage of net premiums totaled 9.1%8.6% and 8.1%8.5% for the secondthird quarter of 2013 and 2012 and 8.7% and 8.3%8.4% for the first sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.(dollars in thousands) Three months ended June 30, Six months ended June 30, 2013 2012 2013 2012 �� $ 261 $ 1,719 $ (716 ) $ 3,767 21,818 20,345 49,834 36,618 (1,718 ) (137 ) (1,758 ) (1,714 ) (53 ) — (53 ) (1,314 ) 3,289 2,900 1,385 7,057 1,518 2,763 (426 ) 4,029 251 2,790 50,707 8,386 23,848 27,617 99,399 52,800 (112 ) (45 ) (28 ) 12 212 — 437 — (19,073 ) (13,342 ) (34,416 ) (27,212 ) 16,483 17,940 39,837 36,365 29,918 23,360 58,404 46,682 2,650 2,878 5,188 5,845 30,078 30,791 69,422 61,692 $ (6,230 ) $ (3,174 ) $ 29,977 $ (8,892 ) (dollars in thousands) Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Revenues: Net premiums $ 1,004 $ 1,896 $ 288 $ 5,663 Investment income, net of related expenses 19,024 22,927 68,858 59,545 Investment related gains (losses), net: Other-than-temporary impairments on fixed maturity securities (194 ) (1,439 ) (1,952 ) (3,153 ) Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income 59 (8 ) 6 (1,322 ) Other investment related gains (losses), net (1,588 ) (779 ) (203 ) 6,278 Total investment related gains (losses), net (1,723 ) (2,226 ) (2,149 ) 1,803 Other revenues 5,719 4,280 56,426 12,666 Total revenues 24,024 26,877 123,423 79,677 Benefits and expenses: Claims and other policy benefits 30 (77 ) 2 (65 ) Interest credited 186 — 623 — Policy acquisition costs and other insurance income (20,354 ) (14,194 ) (54,770 ) (41,406 ) Other operating expenses 15,339 16,806 55,176 53,171 Interest expenses 30,831 29,749 89,235 76,431 Collateral finance facility expense 2,698 2,995 7,886 8,840 Total benefits and expenses 28,730 35,279 98,152 96,971 Income (loss) before income taxes $ (4,706 ) $ (8,402 ) $ 25,271 $ (17,294 ) decreasedincreased by $3.1$3.7 million, or 96.3%44.0%, and increased by $38.9$42.6 million, or 437.1%246.1%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The decreaseincrease for the secondthird quarter is primarily due to a $2.5 million decrease to other revenue and an increase in interest expense of $6.6 million partially offset by a decrease in policy acquisition costs and other insurance expensesincome of $5.7 million.$6.2 million and a $1.4 million increase to other revenue. The increase for the first sixnine months is primarily due to a $42.3$43.8 million increase to other revenue partially offset by an increase in interest expense of $11.7$12.8 million.$3.8$2.9 million and increased by $46.6$43.7 million for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The decrease for the secondthird quarter is primarily due to a $2.5$3.9 million decrease to other revenue relatednet investment income due to a decrease in foreign currency gain (loss).the investment yield. The increase for the first sixnine months was largely due to a $46.5 million gain on repurchase of collateral finance facility securities in the first quarter of 2013.2013, included in other revenues. Additionally, there was a $13.2$9.3 million increase in investment income mainly due to a higher investment yield, primarily on limited partnership investments, in addition to growth in the invested asset base.$0.7$6.5 million, or 2.3%18.6%, and increased $7.7$1.2 million, or 12.5%1.2%, for the three and sixnine months ended JuneSeptember 30, 2013, as compared to the same periods in 2012. The decrease in the secondthird quarter was primarily due to a decreasean increase of $5.7$6.2 million in policy acquisition costs and other insurance expensesincome primarily related to the offset to capital charges allocated to the operating segments and a reduction in other operating expenses of $1.5 million, largely offset by a $6.6$1.1 million increase in interest expense due to a higher level of outstanding debt. The increase in the first sixnine months of 2013 was primarily due to an increase in interest expense of $11.7$12.8 million, as a result of a higher level of outstanding debt, and an increase in other operating expenses of $3.5$2.0 million primarily relating to employee compensation, partiallylargely offset by a $7.2$13.4 million decreaseincrease in policy acquisition and other insurance expensesincome primarily related to the offset to capital charges allocated to the operating segments.iscontinues to negatively affectingaffect the Company’s earnings. The average investment yield, excluding funds withheld and other spread business, has decreased 2625 basis points for the sixnine months ended JuneSeptember 30, 2013 as compared to the same period in 2012. In addition, the Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. Results of operations in the first sixnine months of 2013 compared to the same period in 2012 include favorable changes in the value of embedded derivatives. The effect of tightening credit spreads in the U.S. markets generated an increase in revenue related to embedded derivatives to a greater extent in the first sixnine months of 2013 than 2012. However, risingThis increase was partially offset by a rise in interest rates late in the second quarter of 2013, havewhich has also reduced gross unrealized gains on fixed maturity and equity securities available-for-sale, which were $1,838.2$1,688.4 million and $2,487.0$2,913.9 million at JuneSeptember 30, 2013 and 2012, respectively. Gross unrealized losses totaled $310.7$318.9 million and $196.3$153.7 million at JuneSeptember 30, 2013 and 2012, respectively.$1,838.2$1,688.4 million are well in excess of gross unrealized losses of $310.7$318.9 million as of JuneSeptember 30, 2013.2013. Historically low interest rates continued to put pressure on the Company’s investment yield. In January 2012, U.S. Federal Reserve officials indicated that economic conditions in the U.S. would likely warrant exceptionally low federal funds rate through 2014. In September 2013, the U.S. Federal Reserve announced that it was not tapering its quantitative easing ("QE") program due to ongoing concerns with the U.S. economy and labor market. That announcement and the stability in the QE program will likely continue to put downward pressure on U.S. interest rates. The Company does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future.$77.4$117.7 million and $65.6$104.9 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. RGA purchased a subsidiary for $12.5 million during the nine months ended September 30, 2013. RGA made capital contributions to subsidiaries of $17.0$106.6 million and $0.8$3.9 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. Dividends to shareholders were $35.2$56.5 million and $26.5$44.2 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. There were no principal payments on RGA’s debt for the sixnine months ended JuneSeptember 30, 2013 and 2012. The primary sources of RGA’s liquidity include proceeds from its capital raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with its subsidiaries and dividends from operating subsidiaries. RGA recognized interest and dividend income of $51.2$150.5 million and $40.8$59.6 million for the sixnine months ended JuneSeptember 30, 2013 and 2012, respectively. There was no issuance of unaffiliated long-term debt for the six months ended June 30, 2013 and 2012. Net proceeds from affiliatedunaffiliated long-term debt issuance were $120.0$395.1 million and $393.7 million for the sixnine months ended JuneSeptember 30, 2013. There was no issuance of unaffiliated long-term debt for the six months ended June 2012.2013 and 2012, respectively. As the Company continues its business operations, RGA will continue to be dependent upon these sources of liquidity. As of JuneSeptember 30, 2013 and December 31, 2012, RGA held $497.1$837.1 million and $722.3 million, respectively, of cash and cash equivalents, short-term and other investments and fixed maturity investments.JuneSeptember 30, 2013, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents information about these commitments (dollars in millions): $ 350.0 560.0 Commitment Period Maximum Potential Obligation 2033 $ 1,350.0 2035 560.0 $138.0$25.0 million outstanding under the intercompany revolving credit facility as of JuneSeptember 30, 2013 and none as of December 31, 2012.2012. In addition to loans associated with the intercompany revolving credit facility, RGA and its subsidiary, RGA Capital LLC, a subsidiary of RGA,each provided a loan to RGA Australian Holdings Pty Limited, another RGA subsidiary, with both loans having an outstanding balance of $27.4$26.9 million as of JuneSeptember 30, 2013.“Stock Transactions”"Stock Transactions" in the Notes to Condensed Consolidated Financial Statements for information on the Company’sCompany's share repurchase program.sixnine months ended JuneSeptember 30, 2013 and 2012 were $805.1$1,251.0 million and $818.3$1,529.1 million, respectively. Cash flows from operating activities are affected by the timing of premiums received, claims paid, and working capital changes. The Company believes the short-term cash requirements of its business operations will be sufficiently met by the positive cash flows generated. Additionally, the Company believes it maintains a high quality fixed maturity portfolio that can be sold, if necessary, to meet the Company’s short- and long-term obligations.sixnine months ended JuneSeptember 30, 2013 and 2012 was $408.0$514.4 million and $784.8$1,026.6 million, respectively. Cash flows from investing activities primarily reflect the sales, maturities and purchases of fixed maturity securities related to the management of the Company’s investment portfolios and the investment of excess cash generated by operating and financing activities. Cash flows from investing activities also include the investment activity related to mortgage loans, policy loans, funds withheld at interest, short-term investments, and other invested assets.used in(used in) provided by financing activities for the sixnine months ended JuneSeptember 30, 2013 and 2012 was $637.2$(536.7) million and $40.8$123.8 million, respectively. Cash flows from financing activities primarily reflects the Company’s capital management efforts, treasury stock activity, dividends to stockholders, changes in collateral for derivative positions and the activity related to universal life and other investment type policies and contracts.DebtJuneSeptember 30, 2013 and December 31, 2012, the Company had $1,815.5$2,214.2 million and $1,815.3 million, respectively, in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. The ability of the Company to make debt principal and interest payments depends on the earnings and surplus of subsidiaries, investment earnings on undeployed capital proceeds, and the Company’s ability to raise additional funds. Scheduled repayments of debt over the next five years total $300.0 million, all due in 2017.JuneSeptember 30, 2013, the Company had no cash borrowings outstanding and $94.2$73.9 million in issued, but undrawn, letters of credit under this facility. As of JuneSeptember 30, 2013 and December 31, 2012, the average interest rate on short-term and long-term debt outstanding was 5.64%5.76% and 5.99%, respectively.during the second quarter ofin 2013. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries.JuneSeptember 30, 2013, Timberlake Re’s capital and surplus totaled $42.4$39.8 million. The increase in capital and surplus is primarily due to reserve decreases and favorable mortality during the second quarter of 2013. Timberlake Re’sRe's capital and surplus is expected to remain above $35.0 million. Since Timberlake Re’s capital and surplus previously fell below the minimum requirement in its licensing order of $35.0 million, it has been required, since the second quarter of 2011, to request approval on a quarterly rather than annual basis and provide additional scenario testing results. Approval to pay interest on the surplus note was granted through SeptemberDecember 30, 2013.$1,012.2$1,467.4 million and $1,548.0 million at JuneSeptember 30, 2013 and December 31, 2012, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of $89.8$64.0 million and $136.4 million as of JuneSeptember 30, 2013 and December 31, 2012, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is included in other liabilities in the Company’s condensed consolidated balance sheets. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.JuneSeptember 30, 2013 the Company had pledged securities with an amortized cost of $292.1$292.4 million and an estimated fair value of $307.7$307.0 million, and in return the Company received securities with an estimated fair value of $338.0$347.5 million. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2 million and an estimated fair value of $305.9 million, and in return the Company received securities with an estimated fair value of $342.0 million. In addition to its security agreements with third parties, certain RGA’s subsidiaries have entered into intercompany securities lending agreements to more efficiently source securities for lending to third parties and to provide for more efficient regulatory capital management.$37.6$31.4 million of FHLB common stock, which is included in other invested assets on the Company’sCompany's condensed consolidated balance sheets. Membership provides RGA Reinsurance access to borrowing arrangements with the FHLB (“advances”) and funding agreements, discussed below. RGA Reinsurance had $120.0 million outstanding in advances at June 30, 2013, which is included in short-term debt on the Company’s condensed consolidated balance sheets. RGA Reinsurance did not have advances at September 30, 2013 and December 31, 2012. RGA Reinsurance’sReinsurance's average$17.0$24.1 million and $8.5$8.1 million during the secondthird quarter and first sixnine months of 2013,2012, respectively. RGA Reinsurance did not have advances during the first six months of 2012. Interest on advances is reflected in interest expense on the Company’sCompany's condensed consolidated statements of income.Reinsurance’sReinsurance's commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize RGA Reinsurance’sReinsurance's obligations under the funding agreements. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB’sFHLB's recovery is limited to the amount of RGA Reinsurance’sReinsurance's liability under the outstanding funding agreements. The amount of the RGA Reinsurance’sReinsurance's liability for the funding agreements with the FHLB under guaranteed investment contracts was $535.9 million and $500.0 million at both JuneSeptember 30, 2013 and December 31, 2012, respectively, which is included in interest sensitive contract liabilities on the Company’sCompany's condensed consolidated balance sheets. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities and commercial mortgage loans. The amount of collateral exceeds the liability and is dependent on the type of assets collateralizing the guaranteed investment contracts.$32.7$33.3 billion and $34.2$34.2 billion at JuneSeptember 30, 2013 and December 31, 2012, respectively, as illustrated below (dollars in thousands): June 30, 2013 % of Total December 31, 2012 % of Total $ 21,284,216 65.0% $ 22,291,614 65.2% 2,377,246 7.3% 2,300,587 6.7% 1,245,252 3.8% 1,278,175 3.7% 5,777,395 17.6% 5,594,182 16.4% 38,601 0.1% 288,082 0.9% 1,035,809 3.2% 1,159,543 3.4% 973,619 3.0% 1,259,892 3.7% $ 32,732,138 100.0% $ 34,172,075 100.0% September 30, 2013 % of Total December 31, 2012 % of Total Fixed maturity securities, available-for-sale $ 21,289,108 63.8 % $ 22,291,614 65.2 % Mortgage loans on real estate 2,488,582 7.5 2,300,587 6.7 Policy loans 1,244,878 3.7 1,278,175 3.7 Funds withheld at interest 5,739,872 17.2 5,594,182 16.4 Short-term investments 44,192 0.1 288,082 0.9 Other invested assets 1,116,391 3.4 1,159,543 3.4 Cash and cash equivalents 1,423,235 4.3 1,259,892 3.7 Total cash and invested assets $ 33,346,258 100.0 % $ 34,172,075 100.0 % Three months ended June 30, Six months ended June 30, 2013 2012 Increase/
(Decrease) 2013 2012 Increase/
(Decrease) $ 18,112,841 $ 16,539,380 9.5% $ 17,946,154 $ 16,339,042 9.8% 212,047 205,471 3.2% 425,369 408,074 4.2% 4.77% 5.06% (29) bps 4.80% 5.06% (26) bps Although interest rates rose during the second quarter Three months ended September 30, Nine months ended September 30, 2013 2012 2013 2012 Average invested assets at amortized cost $ 18,263,880 $ 17,030,794 7.2 % $ 17,910,062 $ 16,432,165 9.0 % Net investment income 213,318 208,346 2.4 638,687 616,420 3.6 Investment yield (ratio of net investment income to average invested assets) 4.75 % 4.98 % (23) bps 4.78 % 5.03 % (25) bps sixnine months ended JuneSeptember 30, 2013 in comparison to the same periods in the prior year due primarily to slightly lower yields on investments within several asset classes, including fixed maturity securities, mortgage loans and policy loans.upon reinvestment. The lower yields are due primarily to a lower interest rate environment on a historical basis which decreases the yield on new investment purchases.JuneSeptember 30, 2013 and December 31, 2012.JuneSeptember 30, 2013 and December 31, 2012, approximately 93.2%93.7% and 94.2%, respectively, of the Company’s consolidated investment portfolio of fixed maturity securities were investment grade.55.4%56.1% and 55.5% of total fixed maturity securities as of JuneSeptember 30, 2013 and December 31, 2012.2012. See “Corporate Fixed Maturity Securities” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the major industry types, which comprise the corporate fixed maturity holdings at JuneSeptember 30, 2013 and December 31, 2012.JuneSeptember 30, 2013, the Company’s investments in Canadian and Canadian provincial government securities represented 16.6%16.4% of the fair value of total fixed maturity securities compared to 18.2% of the fair value of total fixed maturity securities at December 31, 2012.2012. These assets are primarily high quality, long duration provincial strips whose valuation is closelyJune2012.JuneSeptember 30, 2013 and December 31, 2012.2012. In addition, the Company did not purchase or sell credit protection, through credit default swaps, referenced to sovereign entities of Europe’s peripheral region and Cyprus.JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013: Estimated Amortized Cost Fair Value % of Total $ 5,000 $ 4,627 3.4% 4,985 4,955 3.6 9,985 9,582 7.0 6,925 7,183 5.2 13,566 13,264 9.7 30,983 33,937 24.7 51,474 54,384 39.6 39,556 40,386 29.4 6,394 6,821 5.0 24,523 26,191 19.0 70,473 73,398 53.4 $ 131,932 $ 137,364 100.0% December 31, 2012: Estimated Amortized Cost Fair Value % of Total $ 4,093 $ 4,520 3.8% 38,422 39,920 33.7 42,515 44,440 37.5 38,852 41,019 34.6 6,434 6,653 5.6 24,725 26,547 22.3 70,011 74,219 62.5 $ 112,526 $ 118,659 100.0% September 30, 2013: Estimated Amortized Cost Fair Value % of Total Sovereign: Ireland $ 5,000 $ 4,640 3.3 % Spain 4,986 5,107 3.6 Total sovereign 9,986 9,747 6.9 Financial institutions: Ireland 7,258 7,497 5.3 Italy 13,825 13,875 9.9 Spain 31,201 33,245 23.6 Total financial institutions 52,284 54,617 38.8 Other: Ireland 39,874 41,168 29.2 Italy 8,796 9,006 6.4 Spain 24,753 26,274 18.7 Total other 73,423 76,448 54.3 Total $ 135,693 $ 140,812 100.0 % December 31, 2012: Estimated Amortized Cost Fair Value % of Total Financial institutions: Ireland $ 4,093 $ 4,520 3.8 % Spain 38,422 39,920 33.7 Total financial institutions 42,515 44,440 37.5 Other: Ireland 38,852 41,019 34.6 Italy 6,434 6,653 5.6 Spain 24,725 26,547 22.3 Total other 70,011 74,219 62.5 Total $ 112,526 $ 118,659 100.0 % and Spain and the Company’s exposure to Italy’s financial institutions which had fair values slightly below amortized cost.JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013: Estimated Amortized Cost Fair Value % of Total $ 440,212 $ 445,431 29.7% 287,929 290,708 19.3 157,304 160,204 10.6 78,289 75,994 5.0 53,362 55,993 3.7 51,504 53,384 3.5 50,623 51,639 3.4 47,726 49,764 3.3 37,294 40,255 2.7 278,916 282,651 18.8 $ 1,483,159 $ 1,506,023 100.0% December 31, 2012: Estimated Amortized Cost Fair Value % of Total $ 472,188 $ 483,629 30.9% 291,955 297,025 19.0 130,792 139,826 8.9 69,172 77,912 5.0 63,721 66,372 4.2 52,613 55,563 3.5 51,413 54,602 3.5 53,593 54,092 3.5 45,342 48,761 3.1 258,578 287,421 18.4 $ 1,489,367 $ 1,565,203 100.0% September 30, 2013: Estimated Amortized Cost Fair Value % of Total Australia $ 421,552 $ 425,373 26.9 % Japan 297,576 302,997 19.1 United Kingdom 150,472 152,251 9.6 South Africa 81,548 80,384 5.1 New Zealand 67,078 66,178 4.2 Cayman Islands 53,508 56,549 3.6 South Korea 52,264 54,072 3.4 Germany 49,361 51,490 3.2 France 47,974 50,103 3.2 Other 336,378 343,801 21.7 Total $ 1,557,711 $ 1,583,198 100.0 % December 31, 2012: Estimated Amortized Cost Fair Value % of Total Australia $ 472,188 $ 483,629 30.9 % Japan 291,955 297,025 19.0 United Kingdom 130,792 139,826 8.9 Cayman Islands 69,172 77,912 5.0 South Africa 63,721 66,372 4.2 South Korea 52,613 55,563 3.5 Germany 51,413 54,602 3.5 New Zealand 53,593 54,092 3.5 France 45,342 48,761 3.1 Other 258,578 287,421 18.4 Total $ 1,489,367 $ 1,565,203 100.0 % JuneSeptember 30, 2013, the Company’s investment in sovereign fixed maturity securities represented 7.1%7.4% of the fair value of total fixed maturity securities compared to 7.0% of the fair value of total fixed maturity securities at December 31, 2012.2012. The Company typically invests in sovereign fixed maturity securities to help mitigate exposure to foreign currency fluctuations from liabilities denominated in the same currencies.JuneSeptember 30, 2013 and December 31, 2012 was as follows (dollars in thousands): June 30, 2013 December 31, 2012 Amortized
Cost Estimated Fair
Value % of Total Amortized
Cost Estimated
Fair Value % of Total AAA/AA/A $ 12,307,880 $ 13,643,772 64.1% $ 12,059,154 $ 14,300,571 64.2% BBB 5,997,232 6,189,030 29.1% 6,186,536 6,692,929 30.0% BB 723,316 728,014 3.4% 694,349 712,712 3.2% B 519,789 530,990 2.5% 444,996 444,035 2.0% CCC and lower 90,970 84,157 0.4% 118,738 95,906 0.4% In or near default 118,134 108,253 0.5% 55,659 45,461 0.2% Total $ 19,757,321 $ 21,284,216 100.0% $ 19,559,432 $ 22,291,614 100.0% September 30, 2013 December 31, 2012 Amortized Cost % of Total Amortized Cost % of Total 1 AAA/AA/A $ 12,460,380 $ 13,643,495 64.1 % $ 12,059,154 $ 14,300,571 64.2 % 2 BBB 6,117,081 6,298,628 29.6 6,186,536 6,692,929 30.0 3 BB 652,300 655,000 3.1 694,349 712,712 3.2 4 B 499,580 512,325 2.4 444,996 444,035 2.0 5 CCC and lower 87,364 86,644 0.4 118,738 95,906 0.4 6 In or near default 100,645 93,016 0.4 55,659 45,461 0.2 Total $ 19,917,350 $ 21,289,108 100.0 % $ 19,559,432 $ 22,291,614 100.0 % JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands): June 30, 2013 December 31, 2012 Amortized Cost Estimated
Fair Value Amortized Cost Estimated
Fair Value $ 546,603 $ 579,317 $ 497,918 $ 555,535 468,552 475,651 471,349 486,529 1,015,155 1,054,968 969,267 1,042,064 1,564,924 1,638,632 1,608,376 1,698,903 789,849 790,310 700,455 691,555 $ 3,369,928 $ 3,483,910 $ 3,278,098 $ 3,432,522 September 30, 2013 December 31, 2012 Amortized Cost Amortized Cost Residential mortgage-backed securities: Agency $ 517,517 $ 541,870 $ 497,918 $ 555,535 Non-agency 405,064 409,968 471,349 486,529 Total residential mortgage-backed securities 922,581 951,838 969,267 1,042,064 Commercial mortgage-backed securities 1,371,473 1,453,114 1,608,376 1,698,903 Asset-backed securities 883,495 885,278 700,455 691,555 Total $ 3,177,549 $ 3,290,230 $ 3,278,098 $ 3,432,522 JuneSeptember 30, 2013 and December 31, 2012.2012. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments. In addition, non-agency mortgage-backed securities face credit risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.JuneSeptember 30, 2013 and December 31, 2012, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling $1,945.9$1,755.8 million and $1,969.4 million, and estimated fair values of $2,045.1$1,847.5 million and $2,090.0 million, respectively. Those amounts include exposure to commercial mortgage-backed securities held directly in the Company’s investment portfolios within fixed maturity securities, as well as securities held by ceding companies that support the Company’s funds withheld at interest investment. The securities are generally highly rated with weighted average S&P credit ratings of approximately “A+” at both JuneSeptember 30, 2013 and December 31, 2012.2012. Approximately 29.6%31.3% and 30.3%, based on estimated fair value, were classified in the “AAA” category at JuneSeptember 30, 2013 and December 31, 2012, respectively. The Company recorded $10.1 million of other-than-temporary impairments in its direct investments in commercial mortgage-backed securities for the first sixnine months ended JuneSeptember 30, 2013.2013. The Company recorded $12.1$14.2 million of other-than-temporary impairments in its direct investments in commercial mortgage-backed securities for the first sixnine months ended JuneSeptember 30, 2012. The following tables summarize the commercial mortgage-backed securities by rating and underwriting year at JuneSeptember 30, 2013 and December 31, 2012 (dollars in thousands):June 30, 2013: AAA AA A Underwriting Year Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value $ 294,583 $ 317,295 $ 175,038 $ 188,762 $ 181,070 $ 190,519 161,197 173,999 32,862 36,525 67,277 73,370 — — 53,660 64,675 18,061 20,058 1,653 1,784 7,139 7,832 3,490 5,455 27,995 29,350 47,168 50,095 19,146 20,535 15,745 15,902 18,182 19,996 40,444 40,898 32,265 31,054 34,672 34,662 58,193 56,413 36,744 35,712 10,427 9,906 2,486 2,438 $ 570,182 $ 605,096 $ 379,148 $ 412,453 $ 390,167 $ 409,686 BBB Below Investment Grade Total Underwriting Year Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value $ 202,213 $ 207,205 $ 99,391 $ 100,075 $ 952,295 $ 1,003,856 93,813 106,225 108,771 104,126 463,920 494,245 — — 21,729 22,561 93,450 107,294 4,002 5,332 — — 16,284 20,403 — — — — 94,309 99,980 33,146 31,483 — — 107,517 108,279 43,379 40,852 — — 168,509 162,981 — — — — 49,657 48,056 $ 376,553 $ 391,097 $ 229,891 $ 226,762 $ 1,945,941 $ 2,045,094 December 31, 2012: AAA AA A Underwriting Year Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value $ 69,810 $ 75,706 $ 129,430 $ 141,189 $ 99,840 $ 103,112 243,222 270,756 59,773 66,862 85,198 93,688 182,456 201,131 32,810 37,542 69,266 77,657 7,674 7,672 53,510 67,624 14,387 17,098 1,655 1,820 17,399 19,483 3,463 5,599 27,984 29,956 47,085 53,027 13,273 14,405 15,748 16,411 16,069 18,184 40,546 42,726 28,324 29,080 36,340 36,925 58,376 59,595 $ 576,873 $ 632,532 $ 392,416 $ 440,836 $ 384,349 $ 413,880 BBB Below Investment Grade Total Underwriting Year Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value Amortized
Cost Estimated
Fair Value $ 110,887 $ 113,801 $ 42,838 $ 37,720 $ 452,805 $ 471,528 83,565 84,689 67,131 65,645 538,889 581,640 93,414 108,902 115,028 91,505 492,974 516,737 — — 22,416 17,386 97,987 109,780 3,880 5,547 — — 26,397 32,449 — — — — 88,342 97,388 33,242 33,757 — — 105,605 111,078 43,346 43,811 — — 166,386 169,411 $ 368,334 $ 390,507 $ 247,413 $ 212,256 $ 1,969,385 $ 2,090,011 September 30, 2013: AAA AA A Amortized Estimated Amortized Estimated Amortized Estimated Underwriting Year Cost Fair Value Cost Fair Value Cost Fair Value 2006 & Prior $ 264,408 $ 283,885 $ 173,645 $ 184,540 $ 139,814 $ 148,634 2007 152,169 164,172 35,966 39,206 56,634 62,428 2008 — — 53,930 62,831 18,097 19,583 2009 1,657 1,717 7,164 7,798 — — 2010 28,002 29,332 45,744 48,286 19,215 19,961 2011 15,744 16,049 20,869 22,445 35,345 35,715 2012 39,141 37,763 50,331 49,327 27,942 27,076 2013 47,199 45,114 68,250 68,130 2,494 2,209 Total $ 548,320 $ 578,032 $ 455,899 $ 482,563 $ 299,541 $ 315,606 BBB Below Investment Grade Total Amortized Estimated Amortized Estimated Amortized Estimated Underwriting Year Cost Fair Value Cost Fair Value Cost Fair Value 2006 & Prior $ 127,685 $ 131,482 $ 79,225 $ 83,315 $ 784,777 $ 831,856 2007 94,022 106,116 63,878 62,536 402,669 434,458 2008 — — 3,116 5,013 75,143 87,427 2009 7,565 10,904 — — 16,386 20,419 2010 — — — — 92,961 97,579 2011 33,097 31,437 — — 105,055 105,646 2012 43,416 40,504 — — 160,830 154,670 2013 — — — — 117,943 115,453 Total $ 305,785 $ 320,443 $ 146,219 $ 150,864 $ 1,755,764 $ 1,847,508 December 31, 2012: AAA AA A Amortized Estimated Amortized Estimated Amortized Estimated Underwriting Year Cost Fair Value Cost Fair Value Cost Fair Value 2005 & Prior $ 69,810 $ 75,706 $ 129,430 $ 141,189 $ 99,840 $ 103,112 2006 243,222 270,756 59,773 66,862 85,198 93,688 2007 182,456 201,131 32,810 37,542 69,266 77,657 2008 7,674 7,672 53,510 67,624 14,387 17,098 2009 1,655 1,820 17,399 19,483 3,463 5,599 2010 27,984 29,956 47,085 53,027 13,273 14,405 2011 15,748 16,411 16,069 18,184 40,546 42,726 2012 28,324 29,080 36,340 36,925 58,376 59,595 Total $ 576,873 $ 632,532 $ 392,416 $ 440,836 $ 384,349 $ 413,880 BBB Below Investment Grade Total Amortized Estimated Amortized Estimated Amortized Estimated Underwriting Year Cost Fair Value Cost Fair Value Cost Fair Value 2005 & Prior $ 110,887 $ 113,801 $ 42,838 $ 37,720 $ 452,805 $ 471,528 2006 83,565 84,689 67,131 65,645 538,889 581,640 2007 93,414 108,902 115,028 91,505 492,974 516,737 2008 — — 22,416 17,386 97,987 109,780 2009 3,880 5,547 — — 26,397 32,449 2010 — — — — 88,342 97,388 2011 33,242 33,757 — — 105,605 111,078 2012 43,346 43,811 — — 166,386 169,411 Total $ 368,334 $ 390,507 $ 247,413 $ 212,256 $ 1,969,385 $ 2,090,011 JuneSeptember 30, 2013 and December 31, 2012, respectively. The Company owns floating rate securities that represent approximately 15.8%15.3% and 15.0% of the total fixed maturity securities at JuneSeptember 30, 2013 and December 31, 2012, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the condensed consolidated balance sheets as collateral finance facility. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ cash flow priority in the capital structure and the inherent prepayment sensitivity of the underlying collateral. Credit risks include the adequacy and ability to realize proceeds from the collateral. Credit risks are mitigated by credit enhancements which include excess spread, over-collateralization and subordination. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.JuneSeptember 30, 2013 and December 31, 2012, the Company directly held investments in asset-backed securities with subprime mortgage exposure and also within the portfolios supporting the Company’s funds withheld at interest with amortized costs totaling $117.2$113.9 million and $122.6 million, and estimated fair values of $111.4$108.6 million and $103.0 million, respectively. While ratings and vintage year are important factors to consider, the tranche seniority and evaluation of forecasted future losses within a tranche is critical to the valuation of these types of securities. At JuneSeptember 30, 2013 and December 31, 2012, the Company’s Alt-A securities had an amortized cost of $190.9$177.3 million and $169.0 million, and estimated fair values of $196.2$182.0 million and $174.4 million, respectively. The Alt-A securities are held directly as well as within the portfolios supporting the Company’s funds withheld at interest. The Company did not record any other-than-temporary impairments in its direct subprime or Alt-A portfolios during the first sixnine months of 2013. During the first sixnine months of 2012, the Company recorded $0.3$0.5 million in other-than-temporary impairments in its direct subprime orand Alt-A portfolios.JuneSeptember 30, 2013 and December 31, 2012, the Company held in its direct portfolio $46.5$46.3 million and $64.7 million, respectively, at amortized cost with direct exposure in the form of senior unsecured agency and preferred securities. Additionally, as of JuneSeptember 30, 2013 and December 31, 2012, the portfolios held by the Company’s ceding companies that support its funds withheld asset contain approximately $317.4$327.6 million and $307.2 million, respectively, in amortized cost of unsecured agency bond holdings and no equity exposure. As of JuneSeptember 30, 2013 and December 31, 2012, indirect exposure in the form of secured, structured mortgaged securities issued by Fannie Mae and Freddie Mac totaled approximately $733.6$701.0 million and $700.9 million, respectively, in amortized cost across the Company’s direct and funds withheld portfolios.$10.1$0.3 million and $10.3$10.6 million in other-than-temporary impairments in its fixed maturity securities, including $10.1$0.1 million and $10.2 million of other-than-temporary impairment losses on structured securities in the secondthird quarter and first sixnine months of 2013.2013, respectively. The Company recorded $4.0$2.6 million and $19.7$22.2 million in other-than-temporary impairments in its fixed maturity and equity securities, including $0.2$2.3 million and $13.0$15.3 million of other-than-temporary impairment losses on structured securities, in the secondthird quarter and first sixnine months of 2012, primarily due to a decline in value of structured securities with exposure to mortgages and general credit deterioration in select corporate and foreign securities. The table below summarizes other-than-temporary impairments for the three and sixnine months ended JuneSeptember 30, 2013 and 2012 (dollars in thousands). Three Months Ended Six Months Ended Asset Class June 30, 2013 June 30, 2012 June 30, 2013 June 30, 2012 $ 10,109 $ 220 $ 10,109 $ 13,010 — 1,577 202 3,615 — 2,186 — 3,025 (125 ) (1,762 ) 1,501 4,081 $ 9,984 $ 2,221 $ 11,812 $ 23,731 Three Months Ended Nine Months Ended September 30, 2013 September 30, 2012 September 30, 2013 September 30, 2012 Structured securities $ 134 $ 2,331 $ 10,243 $ 15,341 Corporate / Other fixed maturity securities 198 224 400 3,839 Equity securities — — — 3,025 Other impairments (primarily mortgage loans and limited partnerships) (233 ) 10,301 1,268 14,382 Total $ 99 $ 12,856 $ 11,911 $ 36,587 JuneSeptember 30, 2013 and December 31, 2012, the Company had $310.7$318.9 million and $133.6 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. The distribution of the gross unrealized losses related to these securities is shown below. June 30, 2013 December 31, 2012 63.6% 30.4% 2.9 0.1 4.4 2.8 6.0 21.6 11.8 38.8 3.8 4.3 0.8 — 6.7 2.0 100.0% 100.0% 21.3% 18.0% 6.0 21.6 33.5 9.0 16.2 41.6 14.2 6.4 8.8 3.4 100.0% 100.0% September 30, 2013 December 31, 2012 Sector: Corporate securities 67.8 % 30.4 % Canadian and Canada provincial governments 4.3 0.1 Residential mortgage-backed securities 4.9 2.8 Asset-backed securities 5.5 21.6 Commercial mortgage-backed securities 6.5 38.8 State and political subdivisions 4.3 4.3 U.S. government and agencies 0.9 — 5.8 2.0 Total 100.0 % 100.0 % Industry: Finance 21.9 % 18.0 % Asset-backed 5.5 21.6 Industrial 36.2 9.0 Mortgage-backed 11.4 41.6 Government 15.3 6.4 Utility 9.7 3.4 Total 100.0 % 100.0 % JuneSeptember 30, 2013 and December 31, 2012, respectively, where the estimated fair value had declined and remained below amortized cost by less than 20% or more than 20%.The Company continues to consider valuation declines as a potential indicator of credit deterioration. The Company believes that due to fluctuating market conditions and an extended period of economic uncertainty, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to a fixed maturity security since it may not have an impact on the ability of the issuer to service all scheduled payments and the Company’s evaluation of the recoverability of all contractual cash flows or the ability to recover an amount at least equal to amortized cost. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows and deferability features of these securities.JuneSeptember 30, 2013 and December 31, 2012.As of June 30, 2013 and 11.0%10.7% and 10.0% of its fixed maturity securities in the Level 3 category (refer to Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities, below investment grade commercial and residential mortgage-backed securities and sub-prime asset-backed securities with inactive trading markets.7.3%7.5% and 6.7% of the Company’s cash and invested assets as of JuneSeptember 30, 2013 and December 31, 2012, respectively. The Company’s mortgage loan portfolio consists principally of investments in U.S.-based commercial offices, light industrial properties and retail locations. The mortgage loan portfolio is diversified by geographic region and property type as discussed further in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements. 3.8% and 3.7% of the Company’s cash and invested assets as of both JuneSeptember 30, 2013 and December 31, 2012 respectively,, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. Because policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.17.6%17.2% and 16.4% of the Company’s cash and invested assets as of JuneSeptember 30, 2013 and December 31, 2012, respectively. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company’s consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed by the ceding company. Interest accrues to these assets at rates defined by the treaty terms. Additionally, under certain treaties the Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate the risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance. Ceding companies with funds withheld at interest had an average rating of “A” at JuneSeptember 30, 2013 and December 31, 2012.2012. Certain ceding companies maintain segregated portfolios for the benefit of the Company.derivative contracts.investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate accounts. Other invested assets represented approximately 3.2%3.3% and 3.4% of the Company’s cash and invested assets as of JuneSeptember 30, 2013 and December 31, 2012, respectively. See “Other Invested Assets” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the carrying value of the Company’s other invested assets by type as of JuneSeptember 30, 2013 and December 31, 2012.secondthird quarter and first sixnine months of 2013. The Company recorded $2.2 million and $3.0 million of other-than-temporary impairments on equity securities in the second quarter and first sixnine months of 2012. The Company did not record any other-than-temporary impairments in the third quarter on limited partnerships and $2.4 million in the first nine months of 2013. The Company recorded no$7.5 million in other-than-temporary impairments on limited partnership interests in the secondthird quarter of 2012, and $2.4 million and $0.8$8.2 million in the first sixnine months of 2013 and 2012, respectively$8.5$12.1 million and $7.1$7.1 million at JuneSeptember 30, 2013 and December 31, 2012, respectively. See “Credit Risk” in Note 5 – “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information.From December 31, 2012 primarily related to June 30,the September 2013 theissuance of senior notes as previously discussed. The Company’s obligation related to its collateral finance facility, including interest, was reduced by $177.2$183.3 million since December 31, 2012 primarily due to the repurchase of a portion of the outstanding notes as previously discussed. In addition, since December 31, 2012, the Company’s obligation for short-term debt, including interest, increasedpayables for collateral received under derivative transactions decreased by $120.0$72.4 million due to advances from the FHLBa reduction in cash received as previously discussedcollateral on derivative positions and the Company’sCompany's obligation to fund limited partnerships increased by $65.1$65.2 million. There were no other material changes in the Company’s contractual obligations from those reported in the 2012 Annual Report.JuneSeptember 30, 2013 and December 31, 2012.(dollars in millions) June 30, 2013 December 31, 2012 $ 946 $ 948 56 79 6 6 52 54 1,660 1,662 450 455 30 31 $ 3,200 $ 3,235 $ 85 $ 172 (dollars in millions) September 30, 2013 December 31, 2012 No guarantee minimum benefits $ 950 $ 948 GMDB only 83 79 GMIB only 6 6 GMAB only 52 54 GMWB only 1,704 1,662 GMDB / WB 459 455 Other 31 31 Total variable annuity account values $ 3,285 $ 3,235 Fair value of liabilities associated with living benefit riders $ 65 $ 172 JuneSeptember 30, 2013 from that disclosed in the 2012 Annual Report.$137.4$140.8 million as of JuneSeptember 30, 2013, primarily due to sovereign security investments in Ireland and Spain. The Company believes it has adequately evaluated and is appropriately managing this additional risk. See “Investments” above for additional information on the Company’s exposure related to investment securities.JuneSeptember 30, 2013, all retrocession pool members in this excess retention pool rated by the A.M. Best Company were rated “A-” or better. A rating of “A-” is the fourth highest rating out of fifteen possible ratings. For a majority of the retrocessionaires that were not rated, letters of credit or trust assets have been given as additional security. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance.Company’sCompany's financial risk includes liquidity risk, which is risk that cash resources are insufficient to meet the Company’sCompany's cash demands without incurring unacceptable costs.JuneSeptember 30, 2013, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.Therethere have been no material changes from the risk factors previously disclosed in the Company’s 2012 Annual Report.l The availability of collateral and the related cost of such collateral in the future could affect the type and volume of business we reinsure and could increase our costs. l We may need to raise additional capital to support higher regulatory reserves, which could increase our overall cost of capital. l If we, or our retrocessionaires, are unable to obtain or provide sufficient collateral to support our statutory ceded reserves, we may be required to increase regulatory reserves. In turn, this reserve increase could significantly reduce our statutory capital levels and adversely affect our ability to satisfy required regulatory capital levels, unless we are able to raise additional capital to contribute to our operating subsidiaries. l Because term life insurance is a particularly price-sensitive product, any increase in insurance premiums charged on these products by life insurance companies, in order to compensate them for the increased statutory reserve requirements or higher costs of insurance they face, may result in a significant loss of volume in their life insurance operations, which could, in turn, adversely affect our life reinsurance operations. JuneSeptember 30, 2013: Total Number of
Shares
Purchased (1) Average Price
Paid per
Share Total Number of
Shares
Purchased as Part of
Publicly
Announced Plans
or Programs (1) Maximum Number (or
Approximate Dollar
Value) of Shares that
May
Yet Be Purchased
Under
the Plan or Program 892,047 $ 58.70 892,047 $ 200,000,037 548,101 $ 65.00 424,083 $ 172,309,776 1,549,081 $ 66.34 1,549,002 $ 69,543,044 129 $ 69.70 — $ 169,543,044 122,244 $ 64.72 122,175 $ 161,636,046 349,032 $ 65.67 348,994 $ 138,719,222 (1) RGA repurchased 892,047, 424,083122,175 and 1,549,002348,994 shares of common stock under its share repurchase program for $52.4 million, $27.7$7.9 million and $102.8$22.9 million during April, MayAugust and JuneSeptember 2013, respectively. In May 2013, theThe Company net settled - issuing 340,5792,333, 2,289 and 1,409 shares from treasury and repurchasing from recipients 124,018129, 69 and 38 shares in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award. In JuneJuly, August and September 2013, the Company net settled - issuing 117 shares from treasury and repurchasing from recipients 79 sharesrespectively, in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award.RGA’sRGA's board of directors authorized a share repurchase program for up to $200.0 million of RGA’sRGA's outstanding common stock. In April 2013, RGA’sRGA's board of directors authorized an increase of $100.0 million to the share repurchase program previously authorized in January 2013. In July 2013, RGA’sRGA's board of directors authorized an additional increase of $100.0 million to the share repurchase program previously authorized in January 2013. With these authorizations, the total amount of the Company’sCompany's outstanding common stock authorized for repurchase is $400.0 million.ITEM 5. Other Information
On August 2, 2013, RGA entered into a standard Indemnification Agreement with each of RGA’s executive officers (including the principal executive officer, principal financial officer and each named executive officer) and each member of the RGA Board of Directors (the “Indemnification Agreements”). The Indemnification Agreements supplement the indemnification coverage afforded to the indemnitees by RGA’s Amended and Restated Articles of Incorporation and require RGA to indemnify each indemnitee to the fullest extent permitted by the General and Business Corporation Law of Missouri. The form of the Indemnification Agreements is filed with this report as Exhibit 10.2 and is incorporated by reference herein.
By: /s/ A. Greig Woodring President & Chief Executive Officer Date: /s/ Jack B. Lay Senior Executive Vice President & Chief Financial Officer (Principal Financial and Accounting Officer) Description 3.2 Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 of Current Report on Form 8-K filed November 25, 2008. Form of 31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase DocumentReinsurance Group of America, IncorporatedDate: August 5, 2013 Date: November 5, 2013 A. Greig Woodring A. Greig Woodring AugustNovember 5, 2013 By: By: Jack B. Lay Jack B. Lay ExhibitNumber Description3.1 3.1 Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Current Report on Form 8-K filed November 25, 2008. 10.1 RGA Flexible Stock PlanSecond Supplemental Indenture, dated as amendedof September 24, 2013, between the Company and restated effective July 1, 1998 andThe Bank of New York Mellon Trust Company, N.A., as further amendedTrustee, incorporated by Amendmentreference to Exhibit 4.2 to the Current Report on March 16, 2000, Second Amendment on May 28, 2003, Third Amendment on May 26, 2004, Fourth Amendment on May 23, 2007, Fifth Amendment on May 21, 2008, Sixth Amendment on May 8, 2011, Seventh Amendment on May 18, 2011 and Eighth Amendment on May 15,Form 8-K filed September 24, 2013.10.2 Officer and Director Indemnification Agreement.31.1 31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. 87