UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q




(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
x		OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended ~~September 30, 2013~~March 31, 2014
		OR
¨		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
¨		OF THE SECURITIES EXCHANGE ACT OF 1934
		Commission File Number 1-11848

REINSURANCE GROUP OF AMERICA, INCORPORATED

(Exact name of Registrant as specified in its charter)



MISSOURI		43-1627032
(State or other jurisdiction		(IRS employer
of incorporation or organization)		identification number)

1370 Timberlake Manor Parkway

Chesterfield, Missouri 63017

(Address of principal executive offices)

(636) 736-7000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer X Accelerated filer Non-accelerated filer Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No X

As of ~~October 31, 2013,~~April 30, 2014, ~~70,586,106~~69,077,582 shares of the registrant’s common stock were outstanding.

Table of Contents

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

TABLE OF CONTENTS


Item		Page		Page

	PART I – FINANCIAL INFORMATION		PART I – FINANCIAL INFORMATION

1	Financial Statements		Financial Statements

	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2013 and December 31, 2012	3	Condensed Consolidated Balance Sheets (Unaudited) March 31, 2014 and December 31, 2013	3

	Condensed Consolidated Statements of Income (Unaudited) Three and nine months ended September 30, 2013 and 2012	4	Condensed Consolidated Statements of Income (Unaudited) Three months ended March 31, 2014 and 2013	4

	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three and nine months ended September 30, 2013 and 2012	5	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three months ended March 31, 2014 and 2013	5

	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended September 30, 2013 and 2012	6	Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2014 and 2013	6

	Notes to Condensed Consolidated Financial Statements (Unaudited)	7	Notes to Condensed Consolidated Financial Statements (Unaudited)	7

2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53	Management’s Discussion and Analysis of Financial Condition and Results of Operations	44

3	Quantitative and Qualitative Disclosure About Market Risk	87	Quantitative and Qualitative Disclosure About Market Risk	75

4	Controls and Procedures	87	Controls and Procedures	75

	PART II – OTHER INFORMATION		PART II – OTHER INFORMATION

1	Legal Proceedings	88	Legal Proceedings	76

1A	Risk Factors	88	Risk Factors	76

2	Unregistered Sales of Equity Securities and Use of Proceeds	89	Unregistered Sales of Equity Securities and Use of Proceeds	76

6	Exhibits	89	Exhibits	76

	Signatures	90	Signatures	77

	Index to Exhibits	91	Index to Exhibits	78

Table of Contents

PART I - FINANCIAL INFORMATION

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
	(Dollars in thousands, except share data)						(Dollars in thousands, except share data)
Assets
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
Available-for-sale at fair value (amortized cost of $20,497,524 and $20,270,734)							$	22,157,182		$	21,474,136
Mortgage loans on real estate (net of allowances of $8,466 and $10,106)							2,526,228			2,486,680
Policy loans	1,244,878			1,278,175			1,296,897			1,244,469
Funds withheld at interest	5,739,872			5,594,182			5,814,231			5,771,467
Short-term investments	44,192			288,082			118,789			139,395
Other invested assets	1,116,391			1,159,543			1,234,779			1,324,960
Total investments	31,923,023			32,912,183			33,148,106			32,441,107
Cash and cash equivalents	1,423,235			1,259,892			1,127,132			923,647
Accrued investment income	262,330			201,344			233,816			267,908
Premiums receivable and other reinsurance balances	1,252,610			1,356,087			1,454,959			1,439,528
Reinsurance ceded receivables	592,948			620,901			594,794			594,515
Deferred policy acquisition costs	3,533,932			3,619,274			3,450,523			3,517,796
Other assets	538,477			390,757			532,251			489,972
Total assets	$	39,526,555		$	40,360,438		$	40,541,581		$	39,674,473
Liabilities and Stockholders’ Equity
Future policy benefits	$	11,873,306		$	11,372,856		$	11,887,951		$	11,866,776
Interest-sensitive contract liabilities	12,868,425			13,353,502			12,809,003			12,947,557
Other policy claims and benefits	3,440,371			3,160,250			3,899,004			3,571,761
Other reinsurance balances	264,023			233,630			283,249			275,138
Deferred income taxes	1,975,819			2,120,501			2,023,588			1,837,577
Other liabilities	510,079			742,249			638,967			541,035
Short-term debt							50,000			—
Long-term debt	2,214,170			1,815,253			2,214,526			2,214,350
Collateral finance facility	484,712			652,010			484,747			484,752
Total liabilities	33,630,905			33,450,251			34,291,035			33,738,946
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
Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at March 31, 2014 and December 31, 2013							791			791
Additional paid-in-capital	1,778,307			1,755,421			1,782,838			1,777,906
Retained earnings	3,544,632			3,357,255			3,772,776			3,659,938
Treasury stock, at cost - 8,594,734 and 5,210,427 shares	(528,081		)	(312,182		)
Treasury stock, at cost - 9,623,749 and 8,369,540 shares							(585,358		)	(508,715		)
Accumulated other comprehensive income	1,100,001			2,108,902			1,279,499			1,005,607
Total stockholders’ equity	5,895,650			6,910,187			6,250,546			5,935,527
Total liabilities and stockholders’ equity	$	39,526,555		$	40,360,438		$	40,541,581		$	39,674,473

See accompanying notes to condensed consolidated financial statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2013			2012			2013			2012			2014			2013
Revenues:	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Net premiums	$	2,026,180		$	1,912,746		$	6,041,029		$	5,726,889		$	2,100,637		$	1,979,693
Investment income, net of related expenses	369,366			396,781			1,238,731			1,066,055			404,375			425,131
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(391		)	(1,996		)	(10,396		)	(11,562		)	(303		)	(202		)
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			84,874			94,573
Total investment related gains (losses), net	(76,465		)	76,053			66,149			143,374			84,571			94,371
Other revenues	70,734			63,501			235,650			181,491			67,590			101,907
Total revenues	2,389,815			2,449,081			7,581,559			7,117,809			2,657,173			2,601,102
Benefits and Expenses:
Claims and other policy benefits	1,714,899			1,662,625			5,434,383			4,868,220			1,843,677			1,688,910
Interest credited	59,939			130,341			303,767			285,080			110,594			125,483
Policy acquisition costs and other insurance expenses	268,081			318,106			995,943			961,679			354,873			357,357
Other operating expenses	111,672			103,786			344,581			319,425			110,936			119,501
Interest expense	30,831			29,749			89,235			76,431			35,084			28,486
Collateral finance facility expense	2,698			2,995			7,886			8,840			2,569			2,538
Total benefits and expenses	2,188,120			2,247,602			7,175,795			6,519,675			2,457,733			2,322,275
Income before income taxes	201,695			201,479			405,764			598,134			199,440			278,827
Provision for income taxes	63,740			57,004			131,886			189,230			62,776			93,292
Net income	$	137,955		$	144,475		$	273,878		$	408,904		$	136,664		$	185,535
Earnings per share:
Basic earnings per share	$	1.95		$	1.96		$	3.79		$	5.55		$	1.94		$	2.51
Diluted earnings per share	$	1.93		$	1.95		$	3.76		$	5.52		$	1.92		$	2.49
Dividends declared per share	$	0.30		$	0.24		$	0.78		$	0.60		$	0.30		$	0.24

See accompanying notes to condensed consolidated financial statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

~~(in thousands)~~

(Unaudited)


	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
	2013			2012		2013			2012		2014			2013
Comprehensive income (loss)
Comprehensive income											(Dollars in thousands)
Net income	$	137,955		$	144,475	$	273,878		$	408,904	$	136,664		$	185,535
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments	27,139			36,248		(75,798		)	43,463		(42,683		)	(14,105		)
Change in net unrealized gains and losses on investments	(112,035		)	315,501		(938,216		)	483,242		315,384			(119,333		)
Change in other-than-temporary impairment losses on fixed maturity securities	2,246			364		2,896			4,952		450			451
Changes in pension and other postretirement plan adjustments	517			336		2,217			1,837		741			825
Total other comprehensive income (loss), net of tax	(82,133		)	352,449		(1,008,901		)	533,494		273,892			(132,162		)
Total comprehensive income (loss)	$	55,822		$	496,924	$	(735,023	)	$	942,398
Total comprehensive income											$	410,556		$	53,373

See accompanying notes to condensed consolidated financial ~~statements.~~statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,						Three months ended March 31,
	2013			2012			2014			2013
	(Dollars in thousands)						(Dollars in thousands)
Cash Flows from Operating Activities:
Net income	$	273,878		$	408,904		$	136,664		$	185,535
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		)	34,480			(30,083		)
Premiums receivable and other reinsurance balances	81,189			(102,447		)	(15,627		)	72,864
Deferred policy acquisition costs	56,286			(70,107		)	64,559			42,741
Reinsurance ceded receivable balances	49,286			2,240			4,254			28,131
Future policy benefits, other policy claims and benefits, and other reinsurance balances	1,005,756			1,406,844			392,876			275,091
Deferred income taxes	276,372			(99,200		)	41,472			16,343
Other assets and other liabilities, net	(293,106		)	225,749			(29,340		)	(12,317		)
Amortization of net investment premiums, discounts and other	(70,687		)	(61,644		)	(25,357		)	(22,497		)
Investment related gains, net	(66,149		)	(143,374		)	(84,571		)	(94,371		)
Gain on repurchase of collateral finance facility securities	(46,506		)	—			—			(46,506		)
Excess tax benefits from share-based payment arrangement	(2,410		)	262			(668		)	(143		)
Other, net	50,460			22,533			22,486			80,142
Net cash provided by operating activities	1,251,030			1,529,076			541,228			494,930
Cash Flows from Investing Activities:
Sales of fixed maturity securities available-for-sale	2,838,099			3,970,569			584,491			795,575
Maturities of fixed maturity securities available-for-sale	118,951			122,405			111,854			36,028
Purchases of fixed maturity securities available-for-sale	(3,496,639		)	(4,660,131		)	(917,715		)	(1,277,240		)
Cash invested in mortgage loans	(467,429		)	(350,823		)	(135,802		)	(79,361		)
Cash invested in policy loans	—			(8,032		)	(52,913		)	—
Cash invested in funds withheld at interest	(70,753		)	(81,602		)	(21,466		)	(29,829		)
Principal payments on mortgage loans on real estate	262,226			85,921			105,622			52,157
Principal payments on policy loans	33,314			24,934			485			32,378
Purchase of a business, net of cash acquired of $9,709	(2,805		)	—
Change in short-term investments	235,260			98,007			20,740			101,722
Change in other invested assets	35,341			(227,881		)	160,427			(16,805		)
Net cash used in investing activities	(514,435		)	(1,026,633		)	(144,277		)	(385,375		)
Cash Flows from Financing Activities:
Dividends to stockholders	(56,465		)	(44,220		)	(21,244		)	(17,753		)
Repurchase and repayment of collateral finance facility securities	(119,255		)	—			—			(112,000		)
Proceeds from long-term debt issuance	398,492			400,000
Debt issuance costs	(3,400		)	(6,255		)
Net change in short-term debt							50,000			—
Purchases of treasury stock	(269,204		)	(6,924		)	(86,837		)	(47,640		)
Excess tax benefits from share-based payment arrangement	2,410			(262		)	668			143
Exercise of stock options, net	9,212			4,096			6,364			1,071
Change in cash collateral for derivatives and other arrangements	(68,635		)	(62,896		)	29,680			11,532
Deposits on universal life and other investment type policies and contracts	120,250			89,458			36,257			17,241
Withdrawals on universal life and other investment type policies and contracts	(550,122		)	(249,190		)	(215,660		)	(204,196		)
Net cash (used in) provided by financing activities	(536,717		)	123,807
Net cash used in financing activities							(200,772		)	(351,602		)
Effect of exchange rate changes on cash	(36,535		)	14,610			7,306			(16,004		)
Change in cash and cash equivalents	163,343			640,860			203,485			(258,051		)
Cash and cash equivalents, beginning of period	1,259,892			962,870			923,647			1,259,892
Cash and cash equivalents, end of period	$	1,423,235		$	1,603,730		$	1,127,132		$	1,001,841
Supplementary information:
Cash paid for interest	$	75,003		$	76,514		$	25,434		$	16,552
Cash paid for income taxes, net of refunds	$	100,429		$	81,391		$	8,611		$	9,125
Business purchase information - See Note 12 - "Financing and Other Activities"
Non-cash supplementary information - See Note 4 - "Investments"

See accompanying notes to condensed consolidated financial statements (unaudited).

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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)


1.	~~Organization~~Business and Basis of Presentation

Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Results for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2013.~~2014. 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~~2013 Annual Report on Form 10-K (“~~2012~~2013 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on ~~March~~February 27, 2014.

Effective January 1, ~~2013.~~

2014, the Company realigned certain operations and management responsibilities to better fit within its geographic-based segments. Operations in Mexico and Latin America have been moved from Europe & South Africa to the U.S. segment, which has been renamed U.S. and Latin America. Operations in India have been moved from Europe & South Africa to the Asia Pacific segment. The Europe & South Africa segment has been renamed Europe, Middle East and Africa. Prior-period figures have been adjusted to conform to the new segment reporting structure.


2.	Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share on net income (in thousands, except per share information):


	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2013		2012		2013		2012		2014		2013
Earnings:
Net income (loss) (numerator for basic and diluted calculations)	$	137,955	$	144,475	$	273,878	$	408,904
Net income (numerator for basic and diluted calculations)									$	136,664	$	185,535
Shares:
Weighted average outstanding shares (denominator for basic calculation)	70,865		73,776		72,342		73,690		70,574		73,838
Equivalent shares from outstanding stock options	526		362		498		388		690		551
Denominator for diluted calculation	71,391		74,138		72,840		74,078		71,264		74,389
Earnings per share:
Basic	$	1.95	$	1.96	$	3.79	$	5.55	$	1.94	$	2.51
Diluted	$	1.93	$	1.95	$	3.76	$	5.52	$	1.92	$	2.49

The calculation of common equivalent shares does not include the impact of options having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three months ended ~~September 30, 2013~~March 31, 2014, no0.3 million stock options and approximately ~~0.7~~0.9 million performance contingent shares were excluded from the calculation. For the three months ended ~~September 30, 2012~~March 31, 2013, approximately ~~0.7~~1.5 million stock options and approximately ~~0.7~~0.9 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.

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3.	Accumulated Other Comprehensive Income

The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the ~~nine~~three months ended ~~September 30,~~March 31, 2014 and 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
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
	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2013	$	207,083		$	820,245		$	(21,721	)	$	1,005,607
Other comprehensive income (loss) before reclassifications	(42,683		)	319,758			161			277,236
Amounts reclassified to (from) AOCI	—			(3,924		)	580			(3,344		)
Net current-period other comprehensive income (loss)	(42,683		)	315,834			741			273,892
Balance, March 31, 2014	$	164,400		$	1,136,079		$	(20,980	)	$	1,279,499

Accumulated Other Comprehensive Income (Loss), Net of Income Tax

Accumulated
Currency
Translation
Adjustments

Unrealized
Appreciation
(Depreciation)
of Investments⁽¹⁾

Pension and
Postretirement
Benefits
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



	Accumulated Other Comprehensive Income (Loss), Net of Income Tax
	Accumulated Currency Translation Adjustments			Unrealized Appreciation (Depreciation) of Investments⁽¹⁾			Pension and Postretirement Benefits			Total
Balance, December 31, 2012	$	267,475		$	1,877,657		$	(36,230	)	$	2,108,902
Other comprehensive income (loss) before reclassifications	(14,105		)	(112,711		)	99			(126,717		)
Amounts reclassified to (from) AOCI	—			(6,171		)	726			(5,445		)
Net current-period other comprehensive income (loss)	(14,105		)	(118,882		)	825			(132,162		)
Balance, March 31, 2013	$	253,370		$	1,758,775		$	(35,405	)	$	1,976,740


(1)	Includes cash flow hedges. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.

The following table presents the amounts of AOCI reclassifications for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 (dollars in thousands):


								Amount Reclassified from AOCI
	Amount Reclassified from AOCI							Three months ended March 31,
Details about AOCI Components	Three months ended September 30, 2013			Nine months ended September 30, 2013			Affected Line Item in Statement of Income	2014			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	$	1,189		$	10,348		Investment related gains (losses), net
Gains and losses on cash flow hedge - interest rate swap	291			796			Investment income	218			305			Investment income
Deferred policy acquisition costs attributed to unrealized gains and losses⁽¹⁾	(602		)	(15,433		)		4,421			(1,548		)
	(13,047		)	(3,515		)	Total before tax	5,828			9,105			Total before tax
	5,009			1,988			Tax expense	(1,904		)	(2,934		)	Tax expense
	$	(8,038	)	$	(1,527	)	Net of tax	$	3,924		$	6,171		Net of tax
Amortization of unrealized pension and postretirement benefits:
Prior service cost⁽²⁾	$	(152	)	$	(459	)		$	(2	)	$	(94	)
Actuarial gains/(losses)⁽²⁾	(1,087		)	(3,078		)		(890		)	(1,023		)
	(1,239		)	(3,537		)	Total before tax	(892		)	(1,117		)	Total before tax
	434			1,238			Tax benefit	312			391			Tax benefit
	$	(805	)	$	(2,299	)	Net of tax	$	(580	)	$	(726	)	Net of tax

Total reclassifications for the period	$	(8,843	)	$	(3,826	)	Net of tax	$	3,344		$	5,445		Net of tax


(1)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the ~~2012~~2013 Annual Report for additional details.


(2)	These AOCI components are included in the computation of the net periodic pension cost. See Note 910 – “Employee Benefit Plans” for additional details.

Table of Contents


4.	Investments

Fixed Maturity and Equity Securities Available-for-Sale

The following tables provide information relating to investments in fixed maturity and equity securities by sector as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


September 30, 2013:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
March 31, 2014:														Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI			Cost		Gains		Losses		Value		Total		in AOCI
Available-for-sale:
Corporate securities	$	11,505,673	$	637,691	$	208,802	$	11,934,562	56.1	%	$	—		$	11,858,578	$	762,137	$	102,415	$	12,518,300	56.4	%	$	—
Canadian and Canadian provincial governments	2,719,147		785,840		13,831		3,491,156		16.4		—			2,655,865		802,236		7,937		3,450,164		15.6		—
Residential mortgage-backed securities	922,581		44,948		15,691		951,838		4.5		(300		)	969,944		45,270		13,343		1,001,871		4.5		(300		)
Asset-backed securities	883,495		19,264		17,481		885,278		4.1		(2,259		)	933,130		23,247		11,798		944,579		4.3		(2,259		)
Commercial mortgage-backed securities	1,371,473		102,207		20,566		1,453,114		6.8		(1,609		)	1,367,205		95,154		11,856		1,450,503		6.5		(1,609		)
U.S. government and agencies	413,254		20,412		2,819		430,847		2.0		—			447,071		18,158		2,967		462,262		2.1		—
State and political subdivisions	288,757		22,626		13,654		297,729		1.4		—			368,465		31,367		9,200		390,632		1.8		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,812,970		50,246		18,632		1,844,584		8.7		—			1,897,266		57,073		15,468		1,938,871		8.8		—
Total fixed maturity securities	$	19,917,350	$	1,683,234	$	311,476	$	21,289,108	100.0	%	$	(4,168	)	$	20,497,524	$	1,834,642	$	174,984	$	22,157,182	100.0	%	$	(4,168	)
Non-redeemable preferred stock	$	80,985	$	5,187	$	3,333	$	82,839	56.4	%				$	84,156	$	7,273	$	2,662	$	88,767	31.5	%
Other equity securities	68,123		—		4,052		64,071		43.6					191,988		2,921		1,661		193,248		68.5
Total equity securities	$	149,108	$	5,187	$	7,385	$	146,910	100.0	%				$	276,144	$	10,194	$	4,323	$	282,015	100.0	%


December 31, 2012:	Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
December 31, 2013:														Amortized		Unrealized		Unrealized		Estimated Fair		% of		Other-than- temporary impairments
	Cost		Gains		Losses		Value		Total		in AOCI			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	%	$	—		$	11,697,394	$	616,147	$	202,786	$	12,110,755	56.4	%	$	—
Canadian and Canadian provincial governments	2,676,777		1,372,731		174		4,049,334		18.2		—			2,728,111		669,762		16,848		3,381,025		15.7		—
Residential mortgage-backed securities	969,267		76,520		3,723		1,042,064		4.7		(241		)	970,434		38,126		18,917		989,643		4.6		(300		)
Asset-backed securities	700,455		19,898		28,798		691,555		3.1		(2,259		)	891,751		18,893		15,812		894,832		4.2		(2,259		)
Commercial mortgage-backed securities	1,608,376		142,369		51,842		1,698,903		7.6		(6,125		)	1,314,782		91,651		17,487		1,388,946		6.5		(1,609		)
U.S. government and agencies	231,256		33,958		24		265,190		1.2		—			489,631		16,468		4,748		501,351		2.3		—
State and political subdivisions	270,086		38,058		5,646		302,498		1.4		—			313,252		21,907		14,339		320,820		1.5		—
Other foreign government, supranational and foreign government-sponsored enterprises	1,769,784		94,929		2,714		1,861,999		8.3		—			1,865,379		45,347		23,962		1,886,764		8.8		—
Total fixed maturity securities	$	19,559,432	$	2,864,436	$	132,254	$	22,291,614	100.0	%	$	(8,625	)	$	20,270,734	$	1,518,301	$	314,899	$	21,474,136	100.0	%	$	(4,168	)
Non-redeemable preferred stock	$	68,469	$	6,542	$	170	$	74,841	33.6	%				$	81,993	$	5,342	$	5,481	$	81,854	20.2	%
Other equity securities	148,577		416		1,134		147,859		66.4					327,479		618		4,220		323,877		79.8
Total equity securities	$	217,046	$	6,958	$	1,304	$	222,700	100.0	%				$	409,472	$	5,960	$	9,701	$	405,731	100.0	%

The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral. The Company pledged fixed maturity securities as collateral to derivative and reinsurance counterparties with an amortized cost of $~~53.8~~60.8 million and $~~16.9~~57.2 million, and an estimated fair value of $~~54.5~~62.6 million and $~~17.0~~58.0 million, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 respectively. The pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance ~~sheets as of September 30, 2013, and are included in other invested assets in the condensed consolidated balance sheets as of December 31, 2012.~~sheets. Securities with an amortized cost of $~~7,954.6~~8,051.4 million and $~~7,549.0~~7,842.9 million, and an estimated fair value of $~~8,260.6~~8,505.1 million and $~~7,913.8~~8,125.4 million, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, were held in trust to satisfy collateral requirements under certain third-party reinsurance treaties.

~~Table of Contents~~

The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $~~92.2~~107.2 million and $~~95.6~~94.1 million, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, none of the collateral had been sold or re-pledged.

Table of Contents

As of ~~September 30, 2013~~March 31, 2014, the Company held securities with a fair value of $~~1,238.5~~1,245.7 million that were guaranteed or issued by the Canadian province of Ontario and $~~1,479.4~~1,419.0 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~~2013, the Company held securities with a fair value of $~~1,400.0~~1,222.3 million that were guaranteed or issued by the Canadian province of Ontario and $~~1,785.0~~1,389.1 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity.

The amortized cost and estimated fair value of fixed maturity securities available-for-sale at ~~September 30, 2013~~March 31, 2014 are shown by contractual maturity in the table ~~below.~~below (dollars in thousands). 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 ~~September 30, 2013, the contractual maturities of investments in fixed maturity securities were as follows (dollars in thousands):~~


	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available-for-sale:
Due in one year or less	$	416,152	$	421,874	$	616,796	$	624,013
Due after one year through five years	3,712,227		3,890,251		3,673,274		3,873,527
Due after five years through ten years	6,800,712		7,027,350		7,148,863		7,474,062
Due after ten years	5,810,710		6,659,403		5,788,312		6,788,627
Asset and mortgage-backed securities	3,177,549		3,290,230		3,270,279		3,396,953
Total	$	19,917,350	$	21,289,108	$	20,497,524	$	22,157,182

Corporate Fixed Maturity Securities

The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


September 30, 2013:			Estimated
March 31, 2014:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	3,728,120	$	3,870,583	32.4	%	$	3,993,669	$	4,204,783	33.6	%
Industrial	5,926,283		6,125,796		51.3		5,967,291		6,295,510		50.3
Utility	1,829,273		1,916,477		16.1		1,886,833		2,007,246		16.0
Other	21,997		21,706		0.2		10,785		10,761		0.1
Total	$	11,505,673	$	11,934,562	100.0	%	$	11,858,578	$	12,518,300	100.0	%

December 31, 2012:			Estimated
December 31, 2013:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Finance	$	3,619,455	$	3,900,152	31.5	%	$	3,838,716	$	3,983,623	32.9	%
Industrial	5,881,967		6,443,846		52.0		5,943,353		6,138,150		50.7
Utility	1,799,658		2,002,611		16.2		1,904,100		1,978,218		16.3
Other	32,351		33,462		0.3		11,225		10,764		0.1
Total	$	11,333,431	$	12,380,071	100.0	%	$	11,697,394	$	12,110,755	100.0	%

Table of Contents

Other-Than-Temporary Impairments - Fixed Maturity and Equity Securities

As discussed in Note 2 – “Summary of Significant Accounting Policies” of the ~~2012~~2013 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities are recognized in AOCI. For these securities the net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):


	Three months ended September 30,						Three months ended March 31,
	2013			2012			2014		2013
Balance, beginning of period	$	13,324		$	45,903		$	11,696	$	16,675
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		)	—		(1,902		)
Balance, end of period	$	11,696		$	23,862		$	11,696	$	14,773

	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

Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale

Securities acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired securities. For each security, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. At the date of acquisition, the timing and amount of the cash flows expected to be collected was determined based on a best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. If subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.

The following tables present information on the Company’s purchased credit impaired securities, which are included in fixed maturity securities available-for-sale (dollars in thousands):


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Outstanding principal and interest balance⁽¹⁾	$	186,379	$	108,831	$	208,044	$	192,644
Carrying value, including accrued interest⁽²⁾	$	135,862	$	84,765	165,740		148,822


(1)	Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest.


(2)	Estimated fair value plus accrued interest.

~~Table of Contents~~

The following table presents information about purchased credit impaired investments acquired during the periods, as of ~~their~~the acquisition dates (dollars in thousands).:


	Nine months ended September 30,				Three months ended March 31,
	2013		2012		2014		2013
Contractually required payments (including interest)	$	126,869	$	50,268	$	31,672	$	91,863
Cash flows expected to be collected⁽¹⁾	101,205		42,316		25,722		72,940
Fair value of investments acquired	66,880		30,853		18,151		50,874


(1)	Represents undiscounted principal and interest cash flow expectations at the date of acquisition.

Table of Contents

The following table presents activity for the accretable yield on purchased credit impaired securities for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013 (dollars in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2013			2012			2013			2012			2014			2013
Balance, beginning of period	$	66,269		$	—		$	39,239		$	—		$	69,469		$	39,239
Investments purchased	4,374			11,463			34,325			11,463			7,571			22,066
Accretion	(1,952		)	(6		)	(5,774		)	(6		)	(2,139		)	(1,943		)
Disposals	—			—			(832		)	—			(379		)	—
Reclassification from nonaccretable difference	1,388			—			3,121			—			(1,155		)	553
Balance, end of period	$	70,079		$	11,457		$	70,079		$	11,457		$	73,367		$	59,915

Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale

The following table presents the total gross unrealized losses for the ~~1,397~~1,046 and ~~567~~1,396 fixed maturity and equity securities as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total		Gross Unrealized Losses		% of Total
Less than 20%	$	286,594	89.9	%	$	54,951	41.2	%	$	161,371	90.0	%	$	296,731	91.4	%
20% or more for less than six months	6,325		2.0		734		0.5		163		0.1		6,444		2.0
20% or more for six months or greater	25,942		8.1		77,873		58.3		17,773		9.9		21,425		6.6
Total	$	318,861	100.0	%	$	133,558	100.0	%	$	179,307	100.0	%	$	324,600	100.0	%

The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. 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.

The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for ~~1,397~~1,046 and ~~567~~1,396 fixed maturity and equity securities that have estimated fair values below amortized cost as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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.

Table of Contents


	Less than 12 months				12 months or greater				Total				Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross				Gross				Gross				Gross
September 30, 2013:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
March 31, 2014:													Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		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	$	2,057,301	$	64,535	$	311,738	$	31,273	$	2,369,039	$	95,808
Canadian and Canadian provincial governments	140,648		12,530		6,898		1,301		147,546		13,831		114,845		6,334		12,421		1,603		127,266		7,937
Residential mortgage-backed securities	207,602		11,909		18,997		2,257		226,599		14,166		190,212		9,802		32,621		3,294		222,833		13,096
Asset-backed securities	270,863		4,602		53,786		5,571		324,649		10,173		214,774		3,140		79,532		7,023		294,306		10,163
Commercial mortgage-backed securities	188,153		6,565		22,435		5,968		210,588		12,533		106,146		1,295		26,181		5,443		132,327		6,738
U.S. government and agencies	72,032		2,658		3,958		161		75,990		2,819		75,193		2,777		4,104		190		79,297		2,967
State and political subdivisions	95,935		8,776		14,981		4,878		110,916		13,654		103,058		5,440		8,158		3,760		111,216		9,200
Other foreign government, supranational and foreign government-sponsored enterprises	644,427		17,479		10,589		1,153		655,016		18,632		502,280		10,605		68,811		4,829		571,091		15,434
Total investment grade securities	4,778,089		233,178		261,671		41,320		5,039,760		274,498		3,363,809		103,928		543,566		57,415		3,907,375		161,343
Non-investment grade securities:
Corporate securities	311,613		12,155		42,024		7,957		353,637		20,112		191,113		3,886		43,178		2,721		234,291		6,607
Residential mortgage-backed securities	53,633		1,068		2,254		457		55,887		1,525		26,209		197		1,776		50		27,985		247
Asset-backed securities	29,043		467		30,901		6,841		59,944		7,308		1,694		10		8,483		1,625		10,177		1,635
Commercial mortgage-backed securities	971		25		10,905		8,008		11,876		8,033		—		—		5,969		5,118		5,969		5,118
Other foreign government, supranational and foreign government-sponsored enterprises													2,440		34		—		—		2,440		34
Total non-investment grade securities	395,260		13,715		86,084		23,263		481,344		36,978		221,456		4,127		59,406		9,514		280,862		13,641
Total fixed maturity securities	$	5,173,349	$	246,893	$	347,755	$	64,583	$	5,521,104	$	311,476	$	3,585,265	$	108,055	$	602,972	$	66,929	$	4,188,237	$	174,984
Non-redeemable preferred stock	$	42,338	$	3,331	$	1	$	2	$	42,339	$	3,333	$	20,765	$	2,660	$	1	$	2	$	20,766	$	2,662
Other equity securities	47,151		2,619		17,028		1,433		64,179		4,052		—		—		32,833		1,661		32,833		1,661
Total equity securities	$	89,489	$	5,950	$	17,029	$	1,435	$	106,518	$	7,385	$	20,765	$	2,660	$	32,834	$	1,663	$	53,599	$	4,323


	Less than 12 months				12 months or greater				Total				Less than 12 months				12 months or greater				Total
			Gross				Gross				Gross				Gross				Gross				Gross
December 31, 2012:	Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
December 31, 2013:													Estimated		Unrealized		Estimated		Unrealized		Estimated		Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		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	$	3,141,179	$	148,895	$	301,303	$	40,548	$	3,442,482	$	189,443
Canadian and Canadian provincial governments	12,349		174		—		—		12,349		174		188,491		14,419		12,029		2,429		200,520		16,848
Residential mortgage-backed securities	22,288		97		19,394		3,199		41,682		3,296		283,967		15,900		23,068		1,688		307,035		17,588
Asset-backed securities	59,119		449		96,179		9,508		155,298		9,957		255,656		4,916		56,668		4,983		312,324		9,899
Commercial mortgage-backed securities	89,507		797		29,181		7,974		118,688		8,771		219,110		3,725		20,068		5,745		239,178		9,470
U.S. government and agencies	7,272		24		—		—		7,272		24		133,697		4,469		4,406		279		138,103		4,748
State and political subdivisions	20,602		1,514		11,736		4,132		32,338		5,646		120,193		9,723		15,202		4,616		135,395		14,339
Other foreign government, supranational and foreign government-sponsored enterprises	244,817		1,953		7,435		761		252,252		2,714		665,313		21,075		36,212		2,847		701,525		23,922
Total investment grade securities	1,242,157		18,284		272,112		42,960		1,514,269		61,244		5,007,606		223,122		468,956		63,135		5,476,562		286,257
Non-investment grade securities:
Corporate securities	181,168		3,170		39,123		5,501		220,291		8,671		283,603		9,451		38,256		3,892		321,859		13,343
Residential mortgage-backed securities	15,199		80		2,633		347		17,832		427		62,146		1,075		3,945		254		66,091		1,329
Asset-backed securities	3,421		26		31,938		18,815		35,359		18,841		28,670		415		32,392		5,498		61,062		5,913
Commercial mortgage-backed securities	3,317		764		68,405		42,307		71,722		43,071		15,762		81		10,980		7,936		26,742		8,017
Other foreign government, supranational and foreign government-sponsored enterprises													9,403		40		—		—		9,403		40
Total non-investment grade securities	203,105		4,040		142,099		66,970		345,204		71,010		399,584		11,062		85,573		17,580		485,157		28,642
Total fixed maturity securities	$	1,445,262	$	22,324	$	414,211	$	109,930	$	1,859,473	$	132,254	$	5,407,190	$	234,184	$	554,529	$	80,715	$	5,961,719	$	314,899
Non-redeemable preferred stock	$	5,577	$	52	$	5,679	$	118	$	11,256	$	170	$	51,386	$	5,479	$	1	$	2	$	51,387	$	5,481
Other equity securities	85,374		1,134		—		—		85,374		1,134		218,834		1,748		32,550		2,472		251,384		4,220
Total equity securities	$	90,951	$	1,186	$	5,679	$	118	$	96,630	$	1,304	$	270,220	$	7,227	$	32,551	$	2,474	$	302,771	$	9,701

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As of ~~September 30, 2013~~March 31, 2014, 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 ~~September 30, 2013~~March 31, 2014, 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.

Unrealized losses on non-investment grade securities as of March 31, 2014are ~~principally~~primarily related to high-yield corporate securities ~~due to~~and commercial mortgage-backed securities. Unrealized losses decreased across all security types as interest ~~rate movements~~rates decreased during the first ~~nine~~three months of ~~2013. As of September 30, 2013 and December 31, 2012, approximately~~ ~~$20.1 million~~ ~~and~~ ~~$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 were associated with non-investment grade asset and mortgage-backed securities. During the first nine months of 2013, commercial mortgage-backed securities benefited from improvement in delinquency rates and the Company sold several non-investment grade commercial mortgage-backed securities.2014.

Investment Income, Net of Related Expenses

Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2013			2012			2013			2012			2014			2013
Fixed maturity securities available-for-sale	$	243,938		$	221,212		$	723,772		$	633,110		$	243,962		$	239,244
Mortgage loans on real estate	33,013			26,938			89,618			67,258			33,092			28,243
Policy loans	15,743			16,519			49,103			49,637			13,438			17,910
Funds withheld at interest	80,024			127,855			376,495			305,861			112,739			137,259
Short-term investments	374			960			1,609			3,027			965			813
Investment receivable	—			—			—			—
Other invested assets	9,411			13,117			36,712			35,803			14,501			13,922
Investment revenue	382,503			406,601			1,277,309			1,094,696
Investment income													418,697			437,391
Investment expense	(13,137		)	(9,820		)	(38,578		)	(28,641		)	(14,322		)	(12,260		)
Investment income, net of related expenses	$	369,366		$	396,781		$	1,238,731		$	1,066,055		$	404,375		$	425,131

Investment Related Gains (Losses), Net

Investment related gains (losses), net consist of the following (dollars in thousands):

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

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The other-than-temporary impairment losses on fixed maturity securities in the third quarter and first nine 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 nine 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 decrease in derivatives and other in the third quarter was primarily due to a decrease in the fair value of embedded derivatives. 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.



	Three months ended March 31,
	2014			2013
Fixed maturities and equity securities available for sale:
Other-than-temporary impairment losses on fixed maturities	$	(303	)	$	(202	)
Portion of loss recognized in accumulated other comprehensive income (before taxes)	—			—
Net other-than-temporary impairment losses on fixed maturity securities recognized in earnings	(303		)	(202		)
Impairment losses on equity securities	—			—
Gain on investment activity	8,067			21,680
Loss on investment activity	(6,583		)	(11,212		)
Other impairment losses and change in mortgage loan provision	1,664			(1,626		)
Derivatives and other, net	81,726			85,731
Total investment related gains (losses), net	$	84,571		$	94,371

During the three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, the Company sold fixed maturity and equity securities with fair values of $~~410.4~~235.1 million and $~~220.5~~204.3 million at losses of $~~30.4~~6.6 million and $~~6.7 million, respectively. During the nine months ended~~ ~~September 30, 2013~~ ~~and 2012, the Company sold fixed maturity and equity securities with fair values of~~ ~~$872.2 million~~ ~~and~~ ~~$622.1 million~~ ~~at losses of~~ ~~$48.4 million~~ ~~and~~ ~~$23.1~~11.2 million, respectively. The Company generally does not engage in short-term buying and selling of securities.

Securities Borrowing and Other

The Company participates in a securities borrowing program whereby securities, which are not reflected on the Company’s condensed consolidated balance sheets, are borrowed from a third party. The Company is required to maintain a minimum of 100% of the fair value of the borrowed securities as collateral, which consists of rights to reinsurance treaty cash flows. The Company had borrowed securities with an amortized cost of $184.5 million and $~~87.5~~93.0 million, and an estimated fair value of $183.4 million and $93.0 million, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, ~~which was equal to the fair value in both periods.~~respectively. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.

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The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets. As of ~~September 30,~~March 31, 2014 the Company had pledged securities with an amortized cost of $300.5 million and an estimated fair value of $312.8 million, in return the Company received securities with an estimated fair value of $349.7 million. As of December 31, 2013 the Company had pledged securities with an amortized cost of $~~292.4~~300.3 million and an estimated fair value of $~~307.0~~310.8 million, ~~and~~ in return the Company received securities with an estimated fair value of $~~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~~344.2 million.

Mortgage Loans on Real Estate

Mortgage loans represented approximately ~~7.8%~~7.6% and ~~7.0%~~7.7% of the Company’s total investments as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, light warehouses 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
Apartment	$	290,678	11.7	%	$	229,266	9.9	%	$	346,918	13.7	%	$	289,394	11.6	%
Retail	796,144		31.9		669,958		29.0		720,921		28.4		748,731		30.0
Office building	854,870		34.2		825,406		35.7		917,985		36.2		917,284		36.7
Industrial	444,186		17.8		455,682		19.7		412,322		16.3		439,890		17.6
Other commercial	110,373		4.4		131,855		5.7		136,548		5.4		101,487		4.1
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%	$	2,534,694	100.0	%	$	2,496,786	100.0	%

~~Table of Contents~~

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, the Company’s mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
Pacific	$	658,054	26.4	%	$	593,589	25.7	%	$	678,578	26.8	%	$	671,822	26.9	%
South Atlantic	581,781		23.3		477,068		20.5		521,853		20.6		543,658		21.8
Mountain	260,794		10.4		233,174		10.1		374,874		14.8		334,446		13.4
Middle Atlantic	269,602		10.8		300,475		13.0		251,235		10.0		266,802		10.7
West North Central	181,937		7.3		168,063		7.3		160,561		6.3		138,442		5.5
East North Central	239,997		9.6		224,122		9.7		243,936		9.6		236,766		9.5
West South Central	155,061		6.2		161,451		7.0		167,894		6.6		168,246		6.7
East South Central	67,155		2.7		62,789		2.7		59,384		2.3		59,625		2.4
New England	81,870		3.3		91,436		4.0		76,379		3.0		76,979		3.1
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%	$	2,534,694	100.0	%	$	2,496,786	100.0	%

The maturities of the mortgage loans, gross of valuation allowances, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 are as follows (dollars in thousands):


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total		Recorded Investment		% of Total
Due within five years	$	1,024,065	41.0	%	$	1,187,387	51.3	%	$	968,162	38.2	%	$	987,109	39.5	%
Due after five years through ten years	963,479		38.6		776,655		33.6		998,196		39.4		984,289		39.4
Due after ten years	508,707		20.4		348,125		15.1		568,336		22.4		525,388		21.1
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%	$	2,534,694	100.0	%	$	2,496,786	100.0	%

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Information regarding the Company’s credit quality indicators, as determined by the Company's internal evaluation methodology for its recorded investment in mortgage loans, gross of valuation allowances, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 is as follows (dollars in thousands):


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
Internal credit risk grade:	Recorded Investment		% of Total		Recorded Investment		% of Total
Internal credit quality grade:									Recorded Investment		% of Total		Recorded Investment		% of Total
High investment grade	$	1,556,974	62.4	%	$	1,235,605	53.5	%	$	1,266,653	50.0	%	$	1,437,244	57.5	%
Investment grade	754,369		30.2		834,494		36.1		1,023,250		40.4		827,993		33.2
Average	106,912		4.3		132,607		5.7		183,250		7.2		155,914		6.2
Watch list	49,173		2.0		76,463		3.3		32,936		1.3		49,404		2.0
In or near default	28,823		1.1		32,998		1.4		28,605		1.1		26,231		1.1
Total	$	2,496,251	100.0	%	$	2,312,167	100.0	%	$	2,534,694	100.0	%	$	2,496,786	100.0	%

The age analysis of the Company’s past due recorded investment in mortgage loans, gross of valuation allowances, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 is as follows (dollars in thousands):


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
31-60 days past due	$	—	$	7,504	$	—	$	—
61-90 days past due	—		—		—		—
Greater than 90 days	3,046		16,886		7,087		—
Total past due	3,046		24,390		7,087		—
Current	2,493,205		2,287,777		2,527,607		2,496,786
Total	$	2,496,251	$	2,312,167	$	2,534,694	$	2,496,786

~~Table of Contents~~

The following table presents the recorded investment in mortgage loans, by method of measuring impairment, and the related valuation allowances as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Mortgage loans:
Individually measured for impairment	$	32,624	$	39,956	$	32,344	$	37,841
Collectively measured for impairment	2,463,627		2,272,211		2,502,350		2,458,945
Mortgage loans, gross of valuation allowances	2,496,251		2,312,167		2,534,694		2,496,786
Valuation allowances:
Individually measured for impairment	4,691		6,980		1,677		3,211
Collectively measured for impairment	2,978		4,600		6,789		6,895
Total valuation allowances	7,669		11,580		8,466		10,106
Mortgage loans, net of valuation allowances	$	2,488,582	$	2,300,587	$	2,526,228	$	2,486,680

Information regarding the Company’s loan valuation allowances for mortgage loans for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013 is as follows (dollars in thousands):


	Three months ended September 30,						Three months ended March 31,
	2013			2012			2014			2013
Balance, beginning of period	$	7,903		$	11,011		$	10,106		$	11,580
Recoveries							24			—
Charge-offs	—			(526		)	—			(852		)
Provision (release)	(234		)	2,848			(1,664		)	(804		)
Balance, end of period	$	7,669		$	13,333		$	8,466		$	9,924

	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

1716

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Information regarding the portion of the Company’s mortgage loans that were impaired as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 is as follows (dollars in thousands):


	Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value		Unpaid Principal Balance		Recorded Investment		Related Allowance		Carrying Value
September 30, 2013:
March 31, 2014:
Impaired mortgage loans with no valuation allowance recorded	$	11,762	$	11,157	$	—	$	11,157	$	20,610	$	20,007	$	—	$	20,007
Impaired mortgage loans with valuation allowance recorded	21,536		21,467		4,691		16,776		12,308		12,337		1,677		10,660
Total impaired mortgage loans	$	33,298	$	32,624	$	4,691	$	27,933	$	32,918	$	32,344	$	1,677	$	30,667
December 31, 2012:
December 31, 2013:
Impaired mortgage loans with no valuation allowance recorded	$	13,039	$	12,496	$	—	$	12,496	$	21,698	$	21,100	$	—	$	21,100
Impaired mortgage loans with valuation allowance recorded	27,527		27,460		6,980		20,480		16,772		16,741		3,211		13,530
Total impaired mortgage loans	$	40,566	$	39,956	$	6,980	$	32,976	$	38,470	$	37,841	$	3,211	$	34,630

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,								Three months ended March 31,
	2013				2012				2014				2013
	Average Investment⁽¹⁾		Interest Income		Average Investment⁽¹⁾		Interest Income		Average Investment⁽¹⁾		Interest Income		Average Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	13,631	$	349	$	11,054	$	109	$	14,539	$	318	$	13,378	$	135
Impaired mortgage loans with valuation allowance recorded	21,490		266		35,047		461		20,554		193		27,184		240
Total	$	35,121	$	615	$	46,101	$	570	$	35,093	$	511	$	40,562	$	375

	Nine months ended September 30,
	2013				2012
	Average Investment⁽¹⁾		Interest Income		Average Investment⁽¹⁾		Interest Income
Impaired mortgage loans with no valuation allowance recorded	$	13,504	$	533	$	16,312	$	305
Impaired mortgage loans with valuation allowance recorded	24,337		801		36,178		1,180
Total	$	37,841	$	1,334	$	52,490	$	1,485

(1) Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances.

The Company did not acquire any impaired mortgage loans during the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012.~~2013. The Company had $~~3.0 million~~ ~~and~~ ~~$16.9~~7.1 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at ~~September 30, 2013~~March 31, 2014 ~~and~~. The Company had no mortgage loans that were on a nonaccrual status at December 31, ~~2012~~2013~~, respectively.~~.

Policy Loans

Policy loans comprised approximately 3.9% and ~~3.9%~~3.8% of the Company’s total investments as of both ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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.

~~Table of Contents~~

Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~18.0%~~17.5% and ~~17.0%~~17.8% of the Company’s total investments as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. ~~As of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012, approximately~~ ~~70.0%~~ ~~and~~ ~~69.7%, respectively, of~~Of the ~~Company’s~~$5.8 billion funds withheld at interest balance, net of embedded derivatives, ~~was~~as of March 31, 2014, $4.1 billion of the balance is 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.

Other Invested Assets

Other invested assets include equity securities, limited partnership interests, real estate joint ventures, structured loans, derivative contracts, fair value option ("FVO") contractholder-directed unit-linked investments, Federal Home Loan Bank of Des Moines ("FHLB") common stock (included in other), and real estate held-for-investment (included in other). The fair value option was elected for contractholder-directed investments supporting unit-linked variable annuity type liabilities which do not qualify for

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presentation and reporting as separate ~~account assets (included in other), and real estate held-for-investment (included in other).~~accounts. Other invested assets represented approximately 3.7% and ~~3.5%~~4.1% of the Company’s total investments as of both ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. Carrying values of these assets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 are as follows (dollars in thousands):


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Equity securities	$	146,910	$	222,700	$	282,015	$	405,731
Limited partnerships and real estate joint ventures	417,761		356,419		403,874		411,456
Structured loans	245,404		306,497		209,590		223,549
Derivatives	87,421		168,208		121,173		75,227
FVO contractholder-directed unit-linked investments					147,342		138,892
Other	218,895		105,719		70,785		70,105
Total other invested assets	$	1,116,391	$	1,159,543	$	1,234,779	$	1,324,960

~~Investments Transferred to the Company~~

During the second quarter of 2012, the Company added a large fixed deferred annuity reinsurance transaction in its U.S. Asset-Intensive sub-segment. This transaction increased the Company’s invested asset base by approximately ~~$5.4 billion~~ which was reflected on the condensed consolidated balance sheet as of June 30, 2012 as an investment receivable. In satisfaction of this investment receivable, the Company received the following on July 31, 2012 and August 3, 2012 (dollars in thousands):

Amortized Cost/
Recorded Investment

Estimated
Fair Value
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

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5.	Derivative Instruments

Derivatives, except embedded derivatives, are carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value. Embedded derivative liabilities on modified coinsurance or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. ~~Embedded derivative assets are included on the condensed consolidated balance sheets in reinsurance ceded receivables.~~ The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013						December 31, 2012						March 31, 2014						December 31, 2013
	Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value
	Amount		Assets		Liabilities		Amount		Assets		Liabilities		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	$	1,330,276	$	46,649	$	10,978	$	1,592,943	$	32,555	$	21,873
Interest rate options	240,000		5,699		—		—		—		—		240,000		3,836		—		240,000		2,554		—
Financial futures	84,192		—		—		127,877		—		—		143,629		—		—		123,780		—		—
Foreign currency forwards	79,618		—		8,928		74,400		1,017		2,105		68,885		—		10,067		79,618		—		12,772
Consumer price index swaps	76,306		131		19		85,135		1,446		—		62,254		13		83		59,922		—		309
Credit default swaps	689,700		5,744		3,810		714,000		2,228		5,922		663,700		8,639		1,425		682,700		10,438		2,156
Equity options	704,402		43,621		—		696,776		62,514		—		821,432		30,866		—		757,352		33,902		—
Synthetic guaranteed investment contracts	3,978,244		—		—		2,018,073		—		—		4,993,100		—		—		4,629,859		—		—
Embedded derivatives in:
Modified coinsurance or funds withheld arrangements	—		—		175,933		—		—		243,177		—		—		99,029		—		—		176,270
Indexed annuity products	—		—		760,746		—		—		740,256		—		—		858,270		—		—		838,670
Variable annuity products	—		—		65,153		—		—		172,105		—		—		53,717		—		—		30,055
Total non-hedging derivatives	7,362,929		100,475		1,030,283		5,911,320		190,290		1,181,432		8,323,276		90,003		1,033,569		8,166,174		79,449		1,082,105
Derivatives designated as hedging instruments:
Interest rate swaps	51,335		—		2,770		57,275		344		786		51,043		—		4,055		49,131		—		4,606
Foreign currency swaps	780,274		9,344		4,325		629,512		—		27,398		682,206		44,213		—		728,674		21,903		620
Total hedging derivatives	831,609		9,344		7,095		686,787		344		28,184		733,249		44,213		4,055		777,805		21,903		5,226
Total derivatives	$	8,194,538	$	109,819	$	1,037,378	$	6,598,107	$	190,634	$	1,209,616	$	9,056,525	$	134,216	$	1,037,624	$	8,943,979	$	101,352	$	1,087,331

Netting Arrangements

Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.

The Company has elected to include all derivatives, except embedded derivatives, in the tables below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 4 – "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.

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The following table provides information relating to the Company’s derivative instruments as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


								Gross Amounts Not Offset in the Balance Sheet																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			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
September 30, 2013:
March 31, 2014:
Derivative assets	$	109,819	$	(22,398	)	$	87,421	$	(10,624	)	$	(64,027	)	$	12,770		$	134,216	$	(13,043	)	$	121,173	$	(20,985	)	$	(84,252	)	$	15,936
Derivative liabilities	35,546		(22,398		)	13,148		(15,238		)	(8,150		)	(10,240		)	26,608		(13,043		)	13,565		(17,423		)	(8,450		)	(12,308		)
December 31, 2012:
December 31, 2013:
Derivative assets	$	190,634	$	(22,426	)	$	168,208	$	(22,458	)	$	(136,414	)	$	9,336		$	101,352	$	(26,125	)	$	75,227	$	(11,095	)	$	(51,006	)	$	13,126
Derivative liabilities	54,078		(22,426		)	31,652		(1,565		)	(27,867		)	2,220			42,336		(26,125		)	16,211		(18,081		)	(8,033		)	(9,903		)

~~Table of Contents~~

Accounting for Derivative Instruments and Hedging Activities

The Company does not enter into derivative instruments for speculative purposes. As discussed below under “Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging,” the Company uses various derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the Company held interest rate swaps that were designated and qualified as cash flow hedges of interest rate risk, held foreign currency swaps that were designated and qualified as hedges of a portion of its net investment in its foreign operations and had derivative instruments that were not designated as hedging instruments. See Note 2 – “Summary of Significant Accounting Policies” of the Company’s ~~2012~~2013 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.

Cash Flow Hedges

The Company designates and accounts for certain interest rate swaps, in which the cash flows are denominated in different currencies, commonly referred to as cross-currency swaps, as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging.

The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ (dollars in thousands):


	Three months ended September 30,						Three months ended March 31,
	2013			2012			2014			2013
Accumulated other comprehensive income (loss), balance beginning of period	$	(5,037	)	$	(719	)	$	(4,578	)	$	403
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	2,583			(2,831		)	776			1,863
Amounts reclassified to investment income	(291		)	(351		)	(218		)	(305		)
Accumulated other comprehensive income (loss), balance end of period	$	(2,745	)	$	(3,901	)	$	(4,020	)	$	1,961

	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	)

As of ~~September 30, 2013~~March 31, 2014, 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 $0.6 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 nine~~ months ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013.

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The following table presents the effects of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and AOCI for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ (dollars in thousands):


Derivatives in Cash Flow Hedging Relationships	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					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)				(Ineffective Portion and Amounts Excluded from Effectiveness Testing)					(Effective Portion)		(Effective Portion)				(Ineffective Portion and Amounts Excluded from Effectiveness Testing)
				Investment Related Gains (Losses)		Investment Income		Investment Related Gains (Losses)			Investment Income				Investment Related Gains (Losses)		Investment Income		Investment Related Gains (Losses)			Investment Income
For the three months ended September 30, 2013:
For the three months ended March 31, 2014:
Interest rate swaps	$	2,583		$	—	$	291	$	(3	)	$	—	$	776	$	—	$	218	$	(6	)	$	—
For the three months ended September 30, 2012:
For the three months ended March 31, 2013:
Interest rate swaps	$	(2,831	)	$	—	$	351	$	(3	)	$	—	$	1,863	$	—	$	305	$	(17	)	$	—
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	$	—		$	—

Hedges of Net Investments in Foreign Operations

The Company uses foreign currency swaps to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ (dollars in thousands):


	Derivative Gains (Losses) Deferred in AOCI											Derivative Gains (Losses) Deferred in AOCI
	For the three months ended September 30,						For the nine months ended September 30,					For the three months ended March 31,
Type of NIFO Hedge ^{(1) (2)}	2013			2012			2013		2012			2014		2013
Foreign currency swaps	$	(14,600	)	$	(19,454	)	$	20,235	$	(23,457	)	$	23,080	$	10,922


(1)	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.


(2)	There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations.

The cumulative foreign currency translation gain ~~(loss)~~ recorded in AOCI related to these hedges was $~~3.8~~47.0 million and $~~(16.4)~~23.9 million at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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.

Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging

The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), in the condensed consolidated statements of income, except where otherwise noted. The Company recognized investment related ~~losses~~gains (losses) of $~~24.5~~19.8 million and $~~20.6~~(60.4) million, for the three months ended March 31, 2014 and ~~$137.2 million~~ ~~and~~ ~~$31.8 million~~ ~~for the nine months ended September 30,~~ 2013, ~~and 2012,~~ respectively, related to derivatives (not including embedded derivatives) that do not qualify or have not been qualified for hedge accounting.

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A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s income statement for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ is as follows (dollars in thousands):


		Gain (Loss) for the three months ended September 30,							Gain (Loss) for the three months ended March 31,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2013			2012			Income Statement Location of Gain (Loss)	2014			2013
Interest rate swaps	Investment related gains (losses), net	$	(8,221	)	$	(1,437	)	Investment related gains (losses), net	$	29,653		$	(22,265	)
Interest rate options	Investment related gains (losses), net	(2,374		)	—			Investment related gains (losses), net	1,282			1,982
Financial futures	Investment related gains (losses), net	(1,140		)	(3,977		)	Investment related gains (losses), net	(1,584		)	(6,881		)
Foreign currency forwards	Investment related gains (losses), net	629			519			Investment related gains (losses), net	1,154			(5,659		)
CPI swaps	Investment related gains (losses), net	(39		)	422			Investment related gains (losses), net	352			(871		)
Credit default swaps	Investment related gains (losses), net	10,807			7,817			Investment related gains (losses), net	(2,114		)	3,904
Equity options	Investment related gains (losses), net	(24,113		)	(23,916		)	Investment related gains (losses), net	(8,966		)	(30,623		)
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		)
Modified coinsurance or funds withheld arrangements								Investment related gains (losses), net	77,241			90,257
Indexed annuity products	Interest credited	28,379			(33,597		)	Interest credited	(23,840		)	(32,996		)
Variable annuity products	Investment related gains (losses), net	19,829			2,579			Investment related gains (losses), net	(23,661		)	51,314
Total non-hedging derivatives		$	(43,704	)	$	3,022			$	49,517		$	48,162

		Gain (Loss) for the nine months ended September 30,
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

Types of Derivatives Used by the Company

Interest Rate Swaps

Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). With an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between two rates, which can be either fixed-rate or floating-rate interest amounts, tied to an agreed-upon notional principal amount. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments at each due date.

Interest Rate Options

Interest rate options, commonly referred to as swaptions, are used by the Company primarily to hedge living benefit guarantees embedded in certain variable annuity products. A swaption, used to hedge against adverse changes in interest rates, is an option to enter into a swap with a forward starting effective date. The Company pays an upfront premium for the right to exercise this option in the future.

~~Table of Contents~~

Financial Futures

Exchange-traded futures are used primarily to economically hedge liabilities embedded in certain variable annuity products. With exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the relevant 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 futures with regulated futures commission merchants that are members of the exchange.

Equity Options

Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products. To hedge against adverse changes in equity indices volatility, the Company buys put options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price.

Consumer Price Index Swaps

Consumer price index (“CPI”) swaps are used by the Company primarily to economically hedge liabilities embedded in certain insurance products where value is directly affected by changes in a designated benchmark consumer price index. With a CPI swap transaction, the Company agrees with another party to exchange the actual amount of inflation realized over a specified period of time for a fixed amount of inflation determined at inception. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date. Most of these swaps will require a single payment to be made by one counterparty at the maturity date of the swap.

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Foreign Currency Swaps

Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the termination of the currency swap by each party. The Company uses foreign currency swaps to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates.

Foreign Currency Forwards

Foreign currency forwards are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date.

Credit Default Swaps

The Company sells protection under single name credit default swaps and credit default swap index tranches to diversify its credit risk exposure in certain portfolios and, in combination with purchasing securities, to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for indexed reference entities and single name reference entities are defined in the contracts. The Company’s maximum exposure to credit loss equals the notional value for credit default swaps. In the event of default ~~for credit default swaps,~~of a referencing entity, the Company is typically required to pay the protection holder the full notional value less a recovery ~~rate~~amount determined at auction.

~~Table of Contents~~

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013						December 31, 2012						March 31, 2014					December 31, 2013
Rating Agency Designation of Referenced Credit Obligations⁽¹⁾	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⁾	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⁾
AAA/AA-/A+/A/A-
Single name credit default swaps	$	(80	)	$	112,500	5.2	$	(2,077	)	$	124,500	5.9	$	1,059	$	112,500	5.0	$	614	$	117,500	5.1
Credit default swaps referencing indices	—			—		—	—			—		—	—		—		—	—		—		—
Subtotal	(80		)	112,500		5.2	(2,077		)	124,500		5.9	1,059		112,500		5.0	614		117,500		5.1
BBB+/BBB/BBB-
Single name credit default swaps	(1,734		)	144,200		5.0	(2,345		)	135,500		5.5	608		127,200		5.0	656		142,200		4.9
Credit default swaps referencing indices	3,936			415,000		4.2	937			430,000		5.0	6,291		406,000		5.2	7,295		405,000		5.0
Subtotal	2,202			559,200		4.4	(1,408		)	565,500		5.1	6,899		533,200		5.2	7,951		547,200		5.0
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	$	7,958	$	645,700	5.1	$	8,565	$	664,700	4.4


(1)	The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).


(2)	Assumes the value of the referenced credit obligations is zero.


(3)	The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.

The Company also purchases credit default swaps to reduce its risk against a drop in bond prices due to credit concerns of certain bond issuers. If a credit event, as defined by the contract, occurs, the Company is able to put the bond back to the counterparty at par.

Synthetic Guaranteed Investment Contracts

The Company sells fee-based synthetic guaranteed investment contracts which include investment-only, stable value contracts, to retirement plans. The assets are owned by the trustees of such plans, who invest the assets under the terms of investment guidelines agreed to with the Company. The contracts contain a guarantee of a minimum rate of return on participant balances supported by the underlying assets, and a guarantee of liquidity to meet certain participant-initiated plan cash flow requirements. These contracts are ~~accounted for~~reported as derivatives, recorded at fair value and classified as interest rate derivatives.

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Embedded Derivatives

The Company has certain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance (“modco”) or funds withheld basis. Changes in fair values of embedded derivatives on modco or funds withheld treaties are net of ~~an increase (decrease)~~a decrease in investment related gains (losses), net of $~~1.0~~0.9 million and $~~(6.2)~~1.7 million for the three months ~~and~~ended ~~$(1.0) million~~March 31, 2014 and ~~$(63.4) million~~ ~~for the nine months ended~~ ~~September 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)~~a decrease in investment related gains (losses), net of $~~(3.7)~~0.5 million and $~~(28.3)~~11.9 million for the three months ~~and~~ended ~~$(8.6) million~~March 31, 2014 and ~~$23.2 million~~ ~~for the nine months ended~~ ~~September 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 nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ are reflected in the following table (dollars in thousands):

~~Table of Contents~~


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2013			2012			2013			2012			2014			2013
Embedded derivatives in modco or funds withheld arrangements included in investment related gains	$	(67,461	)	$	54,836		$	70,514		$	40,955		$	77,241		$	90,257
After the associated amortization of DAC and taxes, the related amounts included in net income	(15,693		)	11,228			19,842			10,563			18,079			21,624
Embedded derivatives in variable annuity contracts included in investment related gains	19,829			2,579			106,952			74,025			(23,661		)	51,314
After the associated amortization of DAC and taxes, the related amounts included in net income	11,052			1,588			52,326			494			(13,669		)	12,192
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses	28,379			(33,821		)	(32,637		)	(26,422		)	(23,840		)	(32,996		)
After the associated amortization of DAC and taxes, the related amounts included in net income	6,622			(22,529		)	(53,772		)	6,465			(18,375		)	(29,550		)

Credit Risk

The Company manages its credit risk related to over-the-counter ("OTC") derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination.

The credit exposure of the Company's OTC derivative transactions is represented by the contracts with a positive fair value (market value) at the reporting date. To reduce credit exposures, the Company seeks to (i) enter into OTC derivative transactions pursuant to master netting agreements that provide for a netting of payments and receipts with a single counterparty, and (ii) enter into agreements that allow the use of credit support annexes, which are bilateral rating-sensitive agreements that require collateral postings at established threshold levels. Certain of the Company's OTC derivatives are cleared derivatives, which are bilateral transactions between the Company and a counterparty where the transactions are cleared through a clearinghouse, such that each derivative counterparty is only exposed to the default of the clearinghouse. These cleared transactions require initial and daily variation margin collateral postings and include certain interest rate swaps and credit default swaps entered into on or after June 10, 2013, related to new guidelines implemented under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Also, the Company enters into exchange-traded futures through regulated exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of non-performance by counterparties to such financial instruments.

The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that may vary depending on the posting party’s ratings. Additionally, a decline in the Company’s or the counterparty’s credit ratings to specified levels could result in potential settlement of the derivative positions under the Company’s agreements with its counterparties. The Company also has exchange-traded futures, which require the maintenance of a margin account. 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.

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The Company’s credit exposure related to derivative contracts is generally limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. Information regarding the Company’s credit exposure related to its over-the-counter derivative contracts and margin account for exchange-traded futures at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 are reflected in the following table (dollars in thousands):


	September 30, 2013			December 31, 2012			March 31, 2014			December 31, 2013
Estimated fair value of derivatives in net asset position	$	74,273		$	136,558		$	107,608		$	59,016
Cash provided as collateral⁽¹⁾	8,150			27,867			8,450			8,033
Securities pledged to counterparties as collateral⁽²⁾	15,238			1,565			17,423			18,081
Cash pledged from counterparties as collateral⁽³⁾	(64,027		)	(136,414		)	(84,252		)	(51,006		)
Securities pledged from counterparties as collateral⁽⁴⁾	(10,624		)	(22,458		)	(20,985		)	(11,095		)
Initial margin for cleared derivatives	(10,869		)	—			(12,927		)	(13,350		)
Net credit exposure	$	12,141		$	7,118		$	15,317		$	9,679
Margin account related to exchange-traded futures⁽⁵⁾	$	3,833		$	5,605		$	3,904		$	2,566


(1)	Consists of receivable from counterparty, included in other assets.


(2)	Included in other invested assets, primarily consists of U.S. Treasury securities.


(3)	Included in cash and cash equivalents, with obligation to return cash collateral recorded in other liabilities.


(4)	Consists of U.S. Treasury securities.


(5)	Included in cash and cash equivalents.

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6.	Fair Value of Assets and Liabilities

Fair Value Measurement

General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principles also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. Active markets are defined as having the following characteristics for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available. The Company’s Level 1 assets ~~and liabilities~~ include investment securities that are traded in exchange markets.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. The Company’s Level 2 assets and liabilities include investment securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using market standard valuation techniques. This category primarily includes corporate securities, Canadian and Canadian provincial government securities, and residential and commercial mortgage-backed securities, among others. Level 2 valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities or through the use of valuation methodologies using observable market inputs. Prices from ~~services~~servicers are validated through analytical reviews and assessment of current market activity.

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using market standard valuation techniques described above. When observable inputs are not available, the market standard techniques for determining the estimated fair value of certain securities that trade infrequently, and therefore have little transparency, rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation and cannot be supported by reference to market activity. Even though unobservable, management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities. For the Company’s invested assets, this category generally includes corporate securities (primarily private placements and bank loans), asset-backed securities (including collateralized debt obligations and those with exposure to subprime mortgages), and to a lesser extent, certain residential and commercial mortgage-backed securities,

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among others. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques. Non-binding broker quotes, which are utilized when pricing service information is not available, are reviewed for reasonableness based on the Company’s understanding of the market, and are generally considered Level 3. Under certain circumstances, based on its observations of transactions in active markets, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, the Company would apply internally developed valuation techniques to the related assets or liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs.

When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

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Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 are summarized below (dollars in thousands):


September 30, 2013:				Fair Value Measurements Using:
March 31, 2014:															Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3			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		$	12,518,300		$	71,152	$	11,155,447		$	1,291,701
Canadian and Canadian provincial governments	3,491,156			—		3,491,156			—			3,450,164			—		3,450,164			—
Residential mortgage-backed securities	951,838			—		818,567			133,271			1,001,871			—		823,944			177,927
Asset-backed securities	885,278			—		457,198			428,080			944,579			—		441,904			502,675
Commercial mortgage-backed securities	1,453,114			—		1,328,173			124,941			1,450,503			—		1,360,130			90,373
U.S. government and agencies securities	430,847			362,269		65,156			3,422			462,262			360,017		64,214			38,031
State and political subdivision securities	297,729			—		253,688			44,041			390,632			—		346,799			43,833
Other foreign government supranational and foreign government-sponsored enterprises	1,844,584			302,997		1,514,427			27,160			1,938,871			298,309		1,629,405			11,157
Total fixed maturity securities – available-for-sale	21,289,108			723,377		18,284,520			2,281,211			22,157,182			729,478		19,272,007			2,155,697
Funds withheld at interest – embedded derivatives	(175,933		)	—		—			(175,933		)	(99,029		)	—		—			(99,029		)
Cash equivalents	671,999			671,999		—			—			532,957			532,957		—			—
Short-term investments	19,436			12,761		6,675			—			85,292			78,710		6,582			—
Other invested assets:
Non-redeemable preferred stock	82,839			75,279		2,735			4,825			88,767			87,382		1,385			—
Other equity securities	64,071			64,071		—			—			193,248			193,248		—			—
Derivatives:
Interest rate swaps	29,102			—		29,102			—			34,911			—		34,911			—
Interest rate options	5,699			—		5,699			—
Financial futures												3,836			—		3,836			—
Foreign currency forwards	—			—		—			—			—			—		—			—
CPI swaps	112			—		112			—			(70		)	—		(70		)	—
Credit default swaps	1,764			—		1,764			—			7,421			—		7,421			—
Equity options	43,482			—		43,482			—			30,862			—		30,862			—
Foreign currency swaps	7,262			—		7,262			—			44,213			—		44,213			—
FVO contractholder-directed unit-linked investments												147,342			140,659		6,683			—
Collateral												—			—		—			—
Other	15,514			15,514		—			—			7,193			7,193		—			—
Total other invested assets	249,845			154,864		90,156			4,825			557,723			428,482		129,241			—
Total	$	22,054,455		$	1,563,001	$	18,381,351		$	2,110,103		$	23,234,125		$	1,769,627	$	19,407,830		$	2,056,668
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	825,899		$	—	$	—		$	825,899		$	911,987		$	—	$	—		$	911,987
Other liabilities:
Derivatives:
Interest rate swaps	2,286			—		2,286			—			3,295			—		3,295			—
Foreign currency forwards	8,928			—		8,928			—			10,067			—		10,067			—
Credit default swaps	(170		)	—		(170		)	—			207			—		207			—
Equity options	(139		)	—		(139		)	—			(4		)	—		(4		)	—
Foreign currency swaps	2,243			—		2,243			—			—			—		—			—
Total	$	839,047		$	—	$	13,148		$	825,899		$	925,552		$	—	$	13,565		$	911,987

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December 31, 2012:				Fair Value Measurements Using:
December 31, 2013:															Fair Value Measurements Using:
	Total			Level 1		Level 2			Level 3			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		$	12,110,755		$	68,934	$	10,696,532		$	1,345,289
Canadian and Canadian provincial governments	4,049,334			—		4,049,334			—			3,381,025			—		3,381,025			—
Residential mortgage-backed securities	1,042,064			—		948,133			93,931			989,643			—		836,138			153,505
Asset-backed securities	691,555			—		459,164			232,391			894,832			—		422,984			471,848
Commercial mortgage-backed securities	1,698,903			—		1,531,897			167,006			1,388,946			—		1,287,161			101,785
U.S. government and agencies securities	265,190			192,780		67,872			4,538			501,351			396,092		64,340			40,919
State and political subdivision securities	302,498			—		259,286			43,212			320,820			—		277,044			43,776
Other foreign government, supranational and foreign government-sponsored enterprises	1,861,999			297,025		1,536,694			28,280			1,886,764			304,487		1,544,280			37,997
Total fixed maturity securities – available-for-sale	22,291,614			533,349		19,520,344			2,237,921			21,474,136			769,513		18,509,504			2,195,119
Funds withheld at interest – embedded derivatives	(243,177		)	—		—			(243,177		)	(176,270		)	—		—			(176,270		)
Cash equivalents	575,864			575,864		—			—			371,345			371,345		—			—
Short-term investments	239,131			178,923		38,177			22,031			111,572			105,649		5,923			—
Other invested assets:
Non-redeemable preferred stock	74,841			64,268		10,573			—			81,854			74,220		2,672			4,962
Other equity securities	147,859			147,859		—			—			323,877			323,877		—			—
Derivatives:
Interest rate swaps	104,972			—		104,972			—			9,904			—		9,904			—
Foreign currency forwards	1,017			—		1,017			—			2,554			—		2,554			—
CPI swaps	1,446			—		1,446			—			(309		)	—		(309		)	—
Credit default swaps	(1,741		)	—		(1,741		)	—			7,926			—		7,926			—
Equity options	62,514			—		62,514			—			33,869			—		33,869			—
Collateral	17,002			1,323		15,679			—			21,283			—		21,283			—
FVO contractholder-directed unit-linked investments												138,892			132,643		6,249			—
Other	11,951			11,951		—			—			9,142			9,142		—			—
Total other invested assets	419,861			225,401		194,460			—			628,992			539,882		84,148			4,962
Total	$	23,283,293		$	1,513,537	$	19,752,981		$	2,016,775		$	22,409,775		$	1,786,389	$	18,599,575		$	2,023,811
Liabilities:
Interest sensitive contract liabilities – embedded derivatives	$	912,361		$	—	$	—		$	912,361		$	868,725		$	—	$	—		$	868,725
Other liabilities:
Derivatives:
Interest rate swaps	196			—		196			—			3,828			—		3,828			—
Foreign currency forwards	2,105			—		2,105			—			12,772			—		12,772			—
Credit default swaps	1,953			—		1,953			—			(356		)	—		(356		)	—
Foreign currency swaps	27,398			—		27,398			—			(33		)	—		(33		)	—
Total	$	944,013		$	—	$	31,652		$	912,361		$	884,936		$	—	$	16,211		$	868,725

The Company may utilize information from third parties, such as pricing services and brokers, to assist in determining the fair value for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s condensed consolidated financial statements. This includes responsibility for monitoring the fair value process, ensuring objective and reliable valuation practices and pricing of financial instruments, and approving changes to valuation methodologies and pricing sources. The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required.

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The Company performs initial and ongoing analysis and review of the various techniques utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also performs ongoing analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value and to monitor controls around pricing, which includes quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, review of pricing trends, comparison of a sample of executed prices of securities sold to the fair value estimates, comparison of fair value estimates to management’s knowledge of the current market, and ongoing confirmation that third party pricing services use, wherever possible, market-based parameters for valuation. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company also determines if the inputs used in estimated fair values received from pricing services are observable by assessing whether these inputs can be corroborated by observable market data.

The fair value of embedded derivative liabilities, including those calculated by third parties, are monitored through the use of attribution reports to quantify the effect of underlying sources of fair value change, including capital market inputs based on policyholder account values, interest rates and short-term and long-term implied volatilities, from period to period. Actuarial assumptions are based on experience studies performed internally in combination with available industry information and are reviewed on a periodic basis, at least annually.

For assets and liabilities reported at fair value, the Company utilizes, when available, fair values based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market valuation techniques, market comparable pricing and the income approach. The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings. For the quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~2013, the application of market standard valuation techniques applied to similar assets and liabilities has been consistent.

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.

Fixed Maturity Securities – The fair values of the Company’s publicly-traded fixed maturity securities are generally based on prices obtained from independent pricing services. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally receives prices from multiple pricing services for each security, but ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. To validate reasonableness, prices are periodically reviewed as explained above. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service.

If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used, if available. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information from the pricing service or broker with an internally developed valuation; however, this occurs infrequently. Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These estimates may use significant unobservable inputs, which reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset. Circumstances where observable market data are not available may include events such as market illiquidity and credit events related to the security. Pricing service overrides, internally developed valuations and non-binding broker quotes are generally based on significant unobservable inputs and are reflected as Level 3 in the valuation hierarchy.

The inputs used in the valuation of corporate and government securities include, but are not limited to standard market observable inputs which are derived from, or corroborated by, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer. For structured securities, valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to: collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.

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When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent with what other market participants would use when pricing such securities.

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

Embedded Derivatives – For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a discounted cash flow model, which includes an estimate of future equity option purchases and an adjustment for the Company’s own credit risk. The variable annuity embedded derivative calculations are performed by third parties based on methodology and input assumptions provided by the Company. To validate the reasonableness of the resulting fair value, the Company’s internal actuaries perform reviews and analytical procedures on the results. The capital market inputs to the model, such as equity indexes, short-term equity volatility and interest rates, are generally observable. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.

The fair value of embedded derivatives associated with funds withheld reinsurance treaties is determined based upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld at interest asset with an adjustment for the Company’s own credit risk. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.

Company’s Own Credit Risk – The Company uses a structural default risk model to estimate its own credit risk. The input assumptions are a combination of externally derived and published values (default threshold and uncertainty), market inputs (interest rate, Company equity price per share, Company debt per share, Company equity price volatility) and insurance industry data (Loss Given Default), adjusted for market recoverability.

Cash Equivalents and Short-Term Investments – Cash equivalents and short-term investments include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The fair value of certain other short-term investments, such as floating rate notes and bonds with original maturities less than 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.

Equity Securities – Equity securities consist principally of exchange-traded funds and preferred stock of publicly and privately traded companies. The fair values of publicly traded equity securities are primarily based on quoted market prices in active markets and are classified within Level 1 in the fair value hierarchy. The fair values of preferred equity securities, for which quoted market prices are not readily available, are based on prices obtained from independent pricing services and these securities are generally classified within Level 2 in the fair value hierarchy. Non-binding broker quotes for equity securities are generally based on significant unobservable inputs and are reflected as Level 3 in the fair value hierarchy.

FVO Contractholder-Directed Unit-Linked Investments - FVO contractholder-directed investments supporting unit-linked variable annuity type liabilities primarily consist of exchange-traded funds and, to a lesser extent, fixed maturity securities and cash and cash equivalents. The fair values of the exchange-traded securities are primarily based on quoted market prices in active markets and are classified within Level 1 of the hierarchy. The fair value of the fixed maturity contractholder-directed securities is determined on a basis consistent with the methodologies described above for fixed maturity securities and are classified within Level 2 of the hierarchy.

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Derivative Assets and Derivative Liabilities – All of the derivative instruments utilized by the Company are classified within Level 2 on the fair value hierarchy. These derivatives are principally valued using an income approach. Valuations of interest rate contracts are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, and repurchase rates. Valuations of foreign currency contracts, ~~non-option-based,~~ are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, currency spot rates, and cross currency basis curves. Valuations of credit contracts ~~non-option-based,~~ are based on present value techniques, which utilize significant inputs that may include the swap yield curve, credit curves, and recovery rates. Valuations of equity market contracts, non-option-based, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, spot equity index levels, and dividend yield curves. Valuations of equity market contracts, option-based, are based on option pricing models, which utilize significant inputs that may include the swap yield curve, spot equity index levels, dividend yield curves, and equity volatility. The Company does not currently have derivatives included in Level 3 measurement.

Level 3 Measurements and Transfers

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, the Company classified approximately ~~10.7%~~9.7% and ~~10.0%~~10.2% 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.

The significant unobservable inputs used in the fair value measurement of the Company’s corporate, sovereign, government-backed, and other political subdivision ~~and short-term~~ investments are probability of default, liquidity premium and subordination premium. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumptions used for the liquidity premium and subordination premium. For securities with a fair value derived using the market comparable pricing valuation technique, liquidity premium is the only significant unobservable input.

The significant unobservable inputs used in the fair value measurement of the Company’s asset and mortgage-backed securities are prepayment rates, probability of default, liquidity premium and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the liquidity premium and loss severity and a directionally opposite change in the assumption used for prepayment rates.

The actuarial assumptions used in the fair value of embedded derivatives which include assumptions related to lapses, withdrawals, and mortality, are based on experience studies performed by the Company in combination with available industry information and are reviewed on a periodic basis, at least annually. The significant unobservable inputs used in the fair value measurement of embedded derivatives are assumptions associated with policyholder experience and selected capital market assumptions for equity-indexed and variable annuities. The selected capital market assumptions, which include long-term implied volatilities, are projections based on short-term historical information. Changes in interest rates, equity indices, equity volatility, the Company’s own credit risk, and actuarial assumptions regarding policyholder experience may result in significant fluctuations in the value of embedded derivatives.

Fair value measurements associated with funds withheld reinsurance treaties are generally not materially sensitive to changes in unobservable inputs associated with policyholder experience. The primary drivers of change in these fair values are related to movements of credit spreads, which are generally observable. Increases (decreases) in market credit spreads tend to decrease (increase) the fair value of embedded derivatives. Increases (decreases) in the own credit assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.

Fair value measurements associated with variable annuity treaties are sensitive to both capital markets inputs and policyholder experience inputs. Increases (decreases) in lapse rates tend to decrease (increase) the value of the embedded derivatives associated with variable annuity treaties. Increases (decreases) in the long-term volatility assumption tend to increase (decrease) the fair value of embedded derivatives. Increases (decreases) in the own credit assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.

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The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed by the Company, which does not include unobservable Level 3 asset and liability measurements provided by third parties, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


September 30, 2013:					Valuation Technique(s)		Unobservable Input		Range (Weighted Average)
September 30, 2013:		Fair Value					Unobservable Input
March 31, 2014:															Valuation Technique(s)	Unobservable Input	Range (Weighted Average)
March 31, 2014:												Fair Value				Unobservable Input	Range (Weighted Average)
Assets:									Range (Weighted Average)
State and political subdivision securities		$	5,032		Valuation Technique(s)	Market comparable securities		Liquidity premium		1	%		$	21,689	Valuation Technique(s)	Market comparable securities	Liquidity premium	1	%
Corporate securities		366,372			Market comparable securities		Liquidity premium		0-2% (1%)			267,015			Market comparable securities	Liquidity premium	0-2% (1%)
U.S. government and agencies												34,693			Market comparable securities	Liquidity premium	0-1% (1%)
Funds withheld at interest- embedded derivatives		(175,933		)	Total return swap		Mortality		0-100% (1%)			(99,029		)	Total return swap	Mortality	0-100% (2%)
							Lapse		0-35% (6%)							Lapse	0-35% (7%)
	��						Withdrawal		0-5% (3%)							Withdrawal	0-5% (3%)
							Own Credit		0-1% (1%)							Own Credit	0-1% (1%)
							Crediting rate		2-4% (3%)							Crediting rate	2-4% (3%)
Liabilities:
Interest sensitive contract liabilities- embedded derivatives- indexed annuities		760,746			Discounted cash flow		Mortality		0-100% (1%)			858,270			Discounted cash flow	Mortality	0-100% (2%)
							Lapse		0-35% (6%)							Lapse	0-35% (7%)
							Withdrawal		0-5% (3%)							Withdrawal	0-5% (3%)
							Option budget projection		2-4% (3%)							Option budget projection	2-4% (3%)

Interest sensitive contract liabilities- embedded derivatives- variable annuities		65,153			Discounted cash flow		Mortality		0-100% (2%)			53,717			Discounted cash flow	Mortality	0-100% (2%)
							Lapse		0-25% (5%)							Lapse	0-25% (7%)
							Withdrawal		0-7% (3%)							Withdrawal	0-7% (3%)
							Own Credit		0-1% (1%)							Own Credit	0-1% (1%)
							Long-term volatility		0-27% (13%)							Long-term volatility	0-27% (10%)

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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%)

December 31, 2013:

Fair Value

Valuation Technique(s)

Unobservable Input

Range (Weighted Average)

Assets:

State and political subdivision securities

29,024

Market comparable securities

Liquidity premium

Corporate securities

312,887

Market comparable securities

Liquidity premium

0-2% (1%)

Short-term investments

37,539

Market comparable securities

Liquidity premium

0-1% (1%)

Funds withheld at interest- embedded derivatives

(176,270

)

Total return swap

Mortality

0-100% (2%)

Lapse

0-35% (7%)

Withdrawal

0-5% (3%)

Own Credit

0-1% (1%)

Crediting Rate

2-4% (3%)

Liabilities:

Interest sensitive contract liabilities- embedded derivatives- indexed annuities

838,670

Discounted cash flow

Mortality

0-100% (2%)

Lapse

0-35% (7%)

Withdrawal

0-5% (3%)

Option budget projection

2-4% (3%)

Interest sensitive contract liabilities- embedded derivatives- variable annuities

30,055

Discounted cash flow

Mortality

0-100% (2%)

Lapse

0-25% (6%)

Withdrawal

0-7% (3%)

Own Credit

0-1% (1%)

Long-term volatility

0-27% (10%)

The Company recognizes transfers of financial instruments into and out of levels within the fair value hierarchy at the beginning of the quarter in which the actual event or change in circumstances that caused the transfer occurs. Financial instruments transferred into Level 3 are due to a lack of observable market transactions and price information. Financial instruments are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the financial instrument, a specific event, one or more significant input(s) becoming observable. Transfers out of Level 3 were primarily the result of the Company using observable pricing information or a third party pricing quotation that appropriately reflects the fair value of those financial instruments, without the need for adjustment based on the Company’s own assumptions regarding the characteristics of a specific financial instrument or the current liquidity in the market. In addition, certain transfers out of Level 3 were also due to increased observations of market transactions and price information for those financial instruments.

~~Table of Contents~~

Transfers from Level 1 to Level 2 are due to the lack of observable market data when pricing these securities, while transfers from Level 2 to Level 1 are due to an increase in the availability of market observable data in an active market. The following tables present the transfers between Level 1 and Level 2 during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ (dollars in thousands):

Three months ended September 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
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

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
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



	Three months ended March 31,
	2014				2013
	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
Fixed maturity securities - available-for-sale:
Corporate securities	$	—	$	—	$	—	$	14,012
Total fixed maturity securities	$	—	$	—	$	—	$	14,012

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The tables below provide a summary of the changes in fair value of Level 3 assets and liabilities for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as well as the portion of gains or losses included in income for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 attributable to unrealized gains or losses related to those assets and liabilities still held at ~~September 30, 2013~~March 31, 2014 (dollars in thousands):


For the three months ended September 30, 2013:	Fixed maturity securities - available-for-sale
For the three months ended March 31, 2014:																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			Corporate securities			Residential mortgage- backed securities			Asset-backed securities			Commercial mortgage- backed securities			U.S. Government and agencies securities
Fair value, beginning of period	$	1,592,005		$	140,054		$	352,606		$	180,982		$	—		$	1,345,289		$	153,505		$	471,848		$	101,785		$	40,919
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(2,254		)	24			2,314			466			—			(1,111		)	56			2,057			372			(97		)
Investment related gains (losses), net	(924		)	(419		)	53			(6,864		)	—			(161		)	106			304			86			(195		)
Claims & other policy benefits	—			—			—			—			—			—			—			—			—			—
Interest credited	—			—			—			—			—			—			—			—			—			—
Policy acquisition costs and other insurance expenses	—			—			—			—			—			—			—			—			—			—
Included in other comprehensive income	587			122			370			8,998			(40		)	2,450			2,887			5,501			3,035			305
Purchases⁽¹⁾	80,644			2,623			91,675			19,420			—			79,512			18,750			59,224			—			128
Sales⁽¹⁾	(53,052		)	(1,116		)	(8,659		)	(81,253		)	—			(38,747		)	(744		)	(6,612		)	(14,626		)	—
Settlements⁽¹⁾	(90,493		)	(8,017		)	(4,812		)	(233		)	—			(51,944		)	(6,172		)	(6,315		)	(279		)	(3,029		)
Transfers into Level 3	2,760			—			—			3,425			3,462			6,930			10,563			5,948			—			—
Transfers out of Level 3	(8,977		)	—			(5,467		)	—			—			(50,517		)	(1,024		)	(29,280		)	—			—
Fair value, end of period	$	1,520,296		$	133,271		$	428,080		$	124,941		$	3,422		$	1,291,701		$	177,927		$	502,675		$	90,373		$	38,031
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		$	—		$	(1,062	)	$	52		$	2,050		$	428		$	(97	)
Investment related gains (losses), net	—			—			—			(134		)	—			—			—			—			—			—
Claims & other policy benefits	—			—			—			—			—			—			—			—			—			—
Interest credited	—			—			—			—			—			—			—			—			—			—
Policy acquisition costs and other insurance expenses	—			—			—			—			—			—			—			—			—			—

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For the three months ended September 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
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
—
Purchases⁽¹⁾
—
—
—
—
(16,082 )
Sales⁽¹⁾
—
—
—
—
—
Settlements⁽¹⁾
(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 —
—
—
—
—

~~Table of Contents~~

For the nine months ended September 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 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
Purchases⁽¹⁾
256,006
54,543
220,098
19,420
—
—
Sales⁽¹⁾
(109,123 ) (3,733 ) (24,951 ) (83,974 ) —
—
Settlements⁽¹⁾
(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 —
—
—
—
—
—

~~Table of Contents~~


For the nine months ended September 30, 2013 (continued):	Fixed maturity securities available-for-sale
For the three months ended March 31, 2014 (continued):															Fixed maturity securities available-for-sale
	Other foreign government, supranational and foreign government- sponsored enterprises			Funds withheld at interest- embedded derivative			Short-term investments			Other invested assets- non-redeemable preferred stock		Interest sensitive contract liabilities embedded derivatives			State and political subdivision securities			Other foreign government, supranational and foreign government-sponsored enterprises			Funds withheld at interest- embedded derivative			Other invested assets- non-redeemable preferred stock			Interest sensitive contract liabilities embedded derivatives
Fair value, beginning of period	$	28,280		$	(243,177	)	$	22,031		$	—	$	(912,361	)	$	43,776		$	37,997		$	(176,270	)	$	4,962		$	(868,725	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	(227		)	—			(3		)	—		—			12			—			—			—			—
Investment related gains (losses), net	—			67,244			—			—		106,952			(4		)	—			77,241			—			(23,661		)
Claims & other policy benefits	—			—			—			—		—			—			—			—			—			—
Interest credited	—			—			—			—		(32,637		)	—			—			—			—			(23,840		)
Policy acquisition costs and other insurance expenses	—			—			—			—		—			—			—			—			—			—
Included in other comprehensive income	(893		)	—			(28		)	186		—			113			—			—			—			—
Purchases⁽¹⁾	—			—			—			—		(44,707		)	—			—			—			—			(15,193		)
Sales⁽¹⁾	—			—			—			—		—			—			—			—			—			—
Settlements⁽¹⁾	—			—			(22,000		)	—		56,854			(64		)	(298		)	—			—			19,432
Transfers into Level 3	—			—			—			4,639		—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—		—			—			(26,542		)	—			(4,962		)	—
Fair value, end of period	$	27,160		$	(175,933	)	$	—		$	4,825	$	(825,899	)	$	43,833		$	11,157		$	(99,029	)	$	—		$	(911,987	)
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	)	$	—	$	—		$	12		$	—		$	—		$	—		$	—
Investment related gains (losses), net	—			67,244			—			—		104,237			—			—			77,241			—			(24,211		)
Claims & other policy benefits	—			—			—			—		—			—			—			—			—			—
Interest credited	—			—			—			—		(89,491		)	—			—			—			—			(43,273		)
Policy acquisition costs and other insurance expenses	—			—			—			—		—			—			—			—			—			—


(1)	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.

3934

Table of Contents

The tables below provide a summary of the changes in fair value of Level 3 assets and liabilities for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013, as well as the portion of gains or losses included in income for the three ~~and nine~~ months ended ~~September 30, 2012~~March 31, 2013 attributable to unrealized gains or losses related to those assets and liabilities still held at ~~September 30, 2012~~March 31, 2013 (dollars in thousands):


For the three months ended September 30, 2012:	Fixed maturity securities - available-for-sale
For the three months ended March 31, 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			State and political subdivision securities			Corporate securities			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		$	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	(4,846		)	114			54			446			(59		)	1			(2,027		)	105			878			502			—			9
Investment related gains (losses), net	(1,059		)	(187		)	(3		)	(2,088		)	—			(4		)	(1,262		)	(173		)	(1,747		)	(870		)	—			(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			963			2,514			12,036			12,500			—			(553		)
Purchases ⁽¹⁾	556,031			31,020			62,109			21,092			4,640			—			74,671			40,538			55,881			—			—			—
Sales⁽¹⁾	(18,548		)	(24,566		)	(3,725		)	—			—			—			(16,278		)	(1,599		)	(8,297		)	(1,604		)	—			—
Settlements⁽¹⁾	(31,448		)	(1,437		)	(4,407		)	(511		)	—			(116		)	(65,366		)	(4,923		)	(5,877		)	(2,240		)	—			(25		)
Transfers into Level 3	1,293			1,804			5,006			26,208			—			29,150			3,773			10,324			2,966			—			—			—
Transfers out of Level 3	(10,444		)	(7,459		)	(5,460		)	—			—			—			(16,134		)	—			—			—			(4,538		)	—
Fair value, end of period	$	1,507,273		$	49,359		$	189,590		$	167,068		$	4,566		$	46,950		$	1,646,903		$	140,717		$	288,231		$	175,294		$	—		$	42,639
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		$	(2,027	)	$	105		$	882		$	501		$	—		$	9
Investment related gains (losses), net	(223		)	—			(242		)	(2,088		)	—			—			(202		)	—			—			—			—			—
Claims & other policy benefits	—			—			—			—			—			—			—			—			—			—			—			—
Interest credited	—			—			—			—			—			—			—			—			—			—			—			—
Policy acquisition costs and other insurance expenses	—			—			—			—			—			—			—			—			—			—			—			—

4035

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For the three months ended September 30, 2012 (continued):	Funds withheld at interest- embedded derivatives			Short-term investments			Other invested assets- other equity securities			Reinsurance ceded receivable- embedded derivatives			Interest sensitive contract liabilities embedded derivatives
																Fixed maturity securities - available-for-sale
For the three months ended March 31, 2013 (continued):																Other foreign government securities			Funds withheld at interest- embedded derivatives			Short-term investments			Interest sensitive contract liabilities embedded derivatives
Fair value, beginning of period	$	(375,337	)	$	—		$	3,227		$	4,416		$	(938,927	)	$	28,280		$	(243,177	)	$	22,031		$	(912,361	)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Investment income, net of related expenses	—			(7		)	—			—			—			(75		)	—			(3		)	—
Investment related gains (losses), net	54,836			—			—			—			2,579			—			86,988			—			51,314
Claims & other policy benefits	—			—			—			—			213			—			—			—			—
Interest credited	—			—			—			—			(33,980		)	—			—			—			(32,996		)
Policy acquisition costs and other insurance expenses	—			—			—			(124		)	—			—			—			—			—
Included in other comprehensive income	—			54			—			—			—			(340		)	—			(27		)	—
Purchases⁽¹⁾	—			22,014			—			—			(8,502		)	—			—			—			(13,860		)
Sales⁽¹⁾	—			—			—			—			—			—			—			—			—
Settlements⁽¹⁾	—			—			—			(100		)	24,813			—			—			—			17,427
Transfers into Level 3	—			—			—			—			—			—			—			—			—
Transfers out of Level 3	—			—			(3,227		)	—			—			—			—			—			—
Fair value, end of period	$	(320,501	)	$	22,061		$	—		$	4,192		$	(953,804	)	$	27,865		$	(156,189	)	$	22,001		$	(890,476	)
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	)	$	—		$	—		$	—		$	(75	)	$	—		$	(4	)	$	—
Investment related gains (losses), net	54,836			—			—			—			427			—			86,988			—			50,123
Claims & other policy benefits	—			—			—			—			(23		)	—			—			—			—
Interest credited	—			—			—			—			(58,621		)	—			—			—			(50,424		)
Policy acquisition costs and other insurance expenses	—			—			—			13			—			—			—			—			—

~~Table of Contents~~

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
State and political
subdivision 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
Purchases ⁽¹⁾
645,466
31,602
64,121
21,092
4,640
—
Sales⁽¹⁾
(45,833 ) (40,790 ) (11,627 ) �� (1,552 ) —
—
Settlements⁽¹⁾
(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 —
—
—
—
—
—

~~Table of Contents~~

For the nine months ended September 30, 2012 (continued):
Funds withheld
at interest-
embedded
derivatives
Short-term
investments
Other invested
assets- other
equity securities
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
—
—
Purchases⁽¹⁾
—
22,014
108
—
(48,199 )
Sales⁽¹⁾
—
—
(3,788 ) —
—
Settlements⁽¹⁾
—
—
—
(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)	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.

~~Table of Contents~~

Nonrecurring Fair Value Measurements

The following table presents information for assets measured at estimated fair value on a nonrecurring basis during the periods presented; that is, they are not 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 values for these assets were determined using significant unobservable inputs (Level 3).


	Three months ended September 30,														Three months ended March 31,
(dollars in thousands)	2013							2012							2014						2013
	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)			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)
Mortgage loans⁽¹⁾	$	13,528	$	13,575	$	47		$	25,092	$	23,467	$	(1,625	)	$	10,280	$	10,660	$	380	$	13,581	$	13,700	$	119
Limited partnership interests⁽²⁾	—		—		—			23,012		15,558		(7,454		)	—		—		—		11,590		9,161		(2,429		)

	Nine months ended September 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)
Mortgage loans⁽¹⁾	$	13,436	$	13,575	$	139		$	27,836	$	23,467	$	(4,369	)
Limited partnership interests⁽²⁾	11,590		9,161		(2,429		)	25,191		16,944		(8,247		)
Real estate⁽³⁾	4,736		4,136		(600		)	—		—		—

(1)

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 flows.

(2)

Limited partnership interests — The impaired ~~investments~~limited partnership interests 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 market for these investments has limited activity and price transparency.


~~(3)~~	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.

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Fair Value of Financial Instruments

The Company is required by general accounting principles for Fair Value Measurements and Disclosures to disclose the fair value of certain financial instruments including those that are not carried at fair value. The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


September 30, 2013	Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3
March 31, 2014:											Carrying Value		Estimated Fair Value		Fair Value Measurement Using:
															Level 1		Level 2		Level 3
Assets:
Mortgage loans on real estate											$	2,526,228	$	2,576,966	$	—	$	—	$	2,576,966
Policy loans											1,296,897		1,296,897		—		1,296,897		—
Funds withheld at interest⁽¹⁾											5,912,727		6,236,412		—		—		6,236,412
Cash and cash equivalents⁽²⁾											594,175		594,175		594,175		—		—
Short-term investments⁽²⁾											33,497		33,497		33,497		—		—
Other invested assets⁽²⁾											476,249		519,548		5,108		36,046		478,394
Accrued investment income											233,816		233,816		—		233,816		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾											$	10,065,850	$	9,812,347	$	—	$	—	$	9,812,347
Short-term debt											50,000		50,000		—		50,000		—
Long-term debt											2,214,526		2,407,939		—		—		2,407,939
Collateral finance facility											484,747		376,193		—		—		376,193

December 31, 2013:											Carrying Value		Estimated Fair 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	$	2,486,680	$	2,489,721	$	—	$	—	$	2,489,721
Policy loans	1,244,878		1,244,878		—		1,244,878		—		1,244,469		1,244,469		—		1,244,469		—
Funds withheld at interest⁽¹⁾	5,917,002		6,144,891		—		—		6,144,891		5,948,374		6,207,342		—		—		6,207,342
Cash and cash equivalents⁽²⁾	751,236		751,236		751,236		—		—		552,302		552,302		552,302		—		—
Short-term investments⁽²⁾	24,756		24,756		24,756		—		—		27,823		27,823		27,823		—		—
Other invested assets⁽²⁾	652,759		694,909		4,956		31,436		658,517		491,545		534,442		5,070		33,886		495,486
Accrued investment income	262,330		262,330		—		262,330		—		267,908		267,908		—		267,908		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	11,104,386	$	10,923,043	$	—	$	—	$	10,923,043	$	10,228,120	$	9,989,514	$	—	$	—	$	9,989,514
Long-term debt	2,214,170		2,348,049		—		—		2,348,049		2,214,350		2,333,023		—		—		2,333,023
Collateral finance facility	484,712		365,307		—		—		365,307		484,752		374,984		—		—		374,984

December 31, 2012:	Carrying Value		Estimated Fair 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		—
Funds withheld at interest⁽¹⁾	5,837,359		6,362,324		—		—		6,362,324
Cash and cash equivalents⁽²⁾	684,028		684,028		684,028		—		—
Short-term investments⁽²⁾	48,951		48,951		48,951		—		—
Other invested assets⁽²⁾	596,336		626,358		—		32,250		594,108
Accrued investment income	201,344		201,344		—		201,344		—
Liabilities:
Interest-sensitive contract liabilities⁽¹⁾	$	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)	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.


(2)	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.

Mortgage Loans on Real Estate – The fair value of mortgage loans on real estate is estimated by discounting cash flows, both principal and interest, using current interest rates for mortgage loans with similar credit ratings and similar remaining maturities. As such, inputs include current treasury yields and spreads, which are based on the credit rating and average life of the loan, corresponding to the market spreads. The valuation of mortgage loans on real estate is considered Level 3 in the fair value hierarchy.

Policy Loans – Policy loans typically carry an interest rate that is adjusted annually based on an observable market index and therefore carrying value approximates fair value. The valuation of policy loans is considered Level 2 in the fair value hierarchy.

Funds Withheld at Interest – The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in the agreement. When funds withheld are specifically identified in the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. Ceding companies use a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs, to value the securities that are held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.

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Cash and Cash Equivalents and Short-term Investments – The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the short-term maturities of these instruments and are considered Level 1 in the fair value hierarchy.

Other Invested Assets – This primarily includes limited partnership interests accounted for using the cost method, structured loans, ~~investments supporting unit-linked variable annuity type liabilities,~~ FHLB common 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's cash collateral is considered to be the carrying value and considered to be Level 1 in the fair value hierarchy.

Accrued Investment Income – The carrying value for accrued investment income approximates fair value as there are no adjustments made to the carrying value. This is considered Level 2 in the fair value hierarchy.

Interest-Sensitive Contract Liabilities – The carrying and fair values of interest-sensitive contract liabilities reflected in the table above exclude contracts with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities utilizes a market standard technique with both capital market inputs and policyholder behavior assumptions, as well as cash values adjusted for recapture fees. The capital market inputs to the model, such as interest rates, are generally observable. Policyholder behavior assumptions are generally not observable and may require use of significant management judgment. The valuation of interest-sensitive contract liabilities is considered Level 3 in the fair value hierarchy.

Short-term Debt – The carrying amount of short-term debt approximates its fair value because of the relatively short time between origination of the debt instrument and its maturity, which is reflected in Level 2.

Long-term Debt and Collateral Finance Facility – The fair value of the Company’s long-term debt and collateral finance facility is generally estimated by discounting future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the Company, including inputs when available, from actively traded debt of the Company or other companies with similar credit quality. The valuation of long-term debt and collateral finance facility are generally obtained from brokers and are considered Level 3 in the fair value hierarchy.


7.	Segment Information

Effective January 1, 2014, the Company realigned certain operations and management responsibilities to better fit within its geographic-based segments. Operations in Mexico and Latin America have been moved from Europe & South Africa to the U.S. segment, which has been renamed U.S. and Latin America. Operations in India have been moved from Europe & South Africa to the Asia Pacific segment. The Europe & South Africa segment has been renamed Europe, Middle East and Africa. Prior-period figures have been adjusted to conform to the new segment reporting structure.

The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the ~~2012~~2013 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets. Investment income is allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.

The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses are attributed to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.

The Company’s reportable segments are strategic business units that are primarily segregated by geographic region. Information related to revenues, income ~~(loss)~~ before income taxes and total assets of the Company for each reportable segment are summarized below (dollars in thousands).

4638

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	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
Total revenues:	2013		2012		2013		2012		2014		2013
U.S.	$	1,337,562	$	1,446,834	$	4,402,212	$	4,141,202
U.S. and Latin America:
Traditional									$	1,278,692	$	1,196,924
Non-Traditional									288,621		314,100
Canada	292,504		287,629		884,918		839,491		277,749		297,089
Europe & South Africa	358,796		323,225		1,036,935		955,505
Europe, Middle East and Africa									365,857		307,587
Asia Pacific	376,929		364,516		1,134,071		1,101,934		415,029		409,851
Corporate and Other	24,024		26,877		123,423		79,677		31,225		75,551
Total	$	2,389,815	$	2,449,081	$	7,581,559	$	7,117,809	$	2,657,173	$	2,601,102

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

The loss before income taxes for the nine months ended September 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's individual lump sum and individual disability businesses.



	Three months ended March 31,
Income before income taxes:	2014		2013
U.S. and Latin America:
Traditional	$	50,972	$	79,543
Non-Traditional	83,124		97,564
Canada	20,064		36,308
Europe, Middle East and Africa	15,205		10,963
Asia Pacific	26,311		18,242
Corporate and Other	3,764		36,207
Total	$	199,440	$	278,827


Total Assets:	September 30, 2013		December 31, 2012		March 31, 2013		December 31, 2013
U.S.	$	24,601,693	$	24,924,363
U.S. and Latin America:
Traditional					$	13,326,226	$	13,285,423
Non-Traditional					11,743,411		11,716,908
Canada	4,065,475		3,764,002		4,012,037		4,103,730
Europe & South Africa	2,403,094		2,235,199
Europe, Middle East and Africa					2,572,563		2,230,568
Asia Pacific	3,396,639		3,208,732		3,657,850		3,597,456
Corporate and Other	5,059,654		6,228,142		5,229,494		4,740,388
Total	$	39,526,555	$	40,360,438	$	40,541,581	$	39,674,473


8.	Commitments and Contingent Liabilities

At ~~September 30, 2013~~March 31, 2014, the Company’s commitments to fund investments were $~~241.9~~302.5 million in limited partnerships, $~~23.1~~23.5 million in commercial mortgage loans, $39.8 million in private placements and $~~58.2~~46.9 million in bank loans, including revolving credit agreements. At December 31, ~~2012,~~2013, the Company’s commitments to fund investments were $~~176.7~~239.5 million in limited partnerships, $~~22.2~~4.6 million in commercial mortgage loans, $22.0 million in private placements and $~~68.5~~37.0 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.

The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated.

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The Company has obtained bank letters of credit in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. Certain of these letters of credit contain financial covenant restrictions. At ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, there were approximately $~~223.7~~209.4 million and $~~45.4~~210.3 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, $~~916.5~~966.3 million and $~~763.5~~995.5 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.

The Company maintains seven credit facilities, a syndicated revolving credit facility with a capacity of $850.0 million and six letter of credit facilities with a combined capacity of $~~894.3~~880.1 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in millions):


			Amount Utilized⁽¹⁾							Amount Utilized⁽¹⁾
Facility Capacity	Facility Capacity	Maturity Date	September 30, 2013		December 31, 2012		Basis of Fees	Facility Capacity	Maturity Date	March 31, 2014		December 31, 2013		Basis of Fees
$	850.0	December 2015	$	73.9	$	402.9	Senior unsecured long-term debt rating	850.0	December 2015	$	65.1	$	67.6	Senior unsecured long-term debt rating
200.0	200.0	September 2019	200.0		200.0		Fixed	200.0	September 2019	200.0		200.0		Fixed
120.0	120.0	May 2016	115.0		100.0		Fixed	120.0	May 2016	80.0		85.1		Fixed
270.0	270.0	November 2017	270.0		—		Fixed	270.0	November 2017	270.0		270.0		Fixed
100.0	100.0	June 2017	92.2		—		Fixed	100.0	June 2017	86.0		89.4		Fixed
52.9		November 2013	52.9		—		Fixed
151.4		March 2019	151.4		—		Fixed
75.0⁽²⁾								75.0⁽²⁾	November 2013	75.0		58.4		Fixed
115.1⁽²⁾								115.1⁽²⁾	March 2019	115.1		132.5		Fixed


(1)	Represents issued but undrawn letters of credit. There was no cash borrowed for the periods presented.


(2)	Foreign currency facility, U.S. dollar amount may vary.

RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain reinsurance treaties, securities borrowing arrangements, financing arrangements and office lease obligations, whereby, if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. In limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party, totaled $~~860.6~~939.7 million and $~~686.0~~826.9 million as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, respectively, and are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, the Company’s exposure related to treaty guarantees, net of assets held in trust, was $~~669.9~~753.0 million and $~~463.5~~647.9 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, RGA’s obligation related to borrowed securities guarantees was $184.5 million and $~~87.5~~93.0 million., respectively. There were no amounts guaranteed under financing arrangements as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012.~~2013.

Manor Reinsurance, Ltd. (“Manor Re”), a subsidiary of RGA, has obtained $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.

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commitments as the occurrence of the defined events is considered remote. The following table presents information about these commitments (dollars in millions):

~~Table of Contents~~


			Maximum Potential Obligation
Commitment Period	Maximum Potential Obligation		March 31, 2014		December 31, 2013
2026			$	500.0	$	500.0
2033	$	1,350.0	1,350.0		1,350.0
2035	560.0
2036			1,250.0		1,250.0

In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.


9.	Income Tax

Provision for income tax expense differed from the amounts computed by applying the U.S. federal income tax statutory rate of 35% to pre-tax income as a result of the following (dollars in thousands):



	Three months ended March 31,
	2014			2013
Tax provision at U.S. statutory rate	$	69,804		$	97,589
Increase (decrease) in income taxes resulting from:
Foreign tax rate differing from U.S. tax rate	(3,221		)	(2,388		)
Differences in tax basis in foreign jurisdictions	250			900
Deferred tax valuation allowance	(3,157		)	(22		)
Amounts related to tax audit contingencies	778			1,099
Corporate rate changes	(17		)	(1,371		)
Subpart F	2,439			465
Foreign tax credits	(855		)	(670		)
Return to provision adjustments	(3,353		)	(2,484		)
Other, net	108			174
Total provision for income taxes	$	62,776		$	93,292
Effective tax rate	31.5		%	33.5		%

During the quarter ended March 31, 2014, the company released a valuation allowance on tax benefits associated with claims experience on certain treaties, which was partially offset by a tax accrual related to the Active Financing Exception business extender provision that the U.S. Congress did not pass prior to the end of the quarter.


10.	Employee Benefit Plans

The components of net periodic benefit costs for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ were as follows (dollars in thousands):


	Pension Benefits						Other Benefits				Pension Benefits						Other Benefits
	Three months ended September 30,						Three months ended September 30,				Three months ended March 31,						Three months ended March 31,
	2013			2012			2013		2012		2014			2013			2014		2013
Service cost	$	2,000		$	1,910		$	590	$	673	$	1,501		$	1,883		$	470	$	410
Interest Cost	1,017			1,065			392		418		808			1,018			338		312
Expected return on plan assets	(933		)	(766		)	—		—		(933		)	(767		)	—		—
Amortization of prior service cost	152			102			—		—		2			94			—		—
Amortization of prior actuarial loss	808			851			279		380		673			837			217		186
Net periodic benefit cost	$	3,044		$	3,162		$	1,261	$	1,471	$	2,051		$	3,065		$	1,025	$	908

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

The Company has not made any pension contributions during the first three months of 2014, but expects to make total pension contributions of ~~$6.8~~$6.1 million ~~during the first nine months of 2013 and does not expect to make any additional pension contributions~~ in ~~2013.~~2014.

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~~10.~~11.	Equity Based Compensation

Equity compensation expense was $~~5.5~~4.3 million and $~~3.7~~9.7 million in the ~~third~~first quarter of ~~2013~~2014 and ~~2012,~~2013, respectively. In the first quarter of ~~2013,~~2014, the Company granted ~~0.7~~0.3 million stock appreciation rights at $~~58.77~~78.48 weighted average exercise price per share and ~~0.3~~0.2 million performance contingent units to employees. Additionally, non-employee directors were granted a total of ~~14,200~~15,925 shares of common stock. As of ~~September 30, 2013~~March 31, 2014, ~~1.7~~1.9 million share options at $~~50.57~~50.84 weighted average per share were vested and exercisable with a remaining weighted average exercise period of ~~4.9~~5.4 years. As of ~~September 30, 2013~~March 31, 2014, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $~~32.7~~43.9 million. It is estimated that these costs will vest over a weighted average period of ~~2.1~~2.3 years.

Effective with the 2014 grants, certain eligible associates were granted a greater portion of equity awards in performance contingent units, while others were granted a greater portion of awards settled in cash. This change increases the performance based nature of the awards while reducing share issuance.


~~11.~~12.	Retrocession Arrangements and Reinsurance Ceded Receivables

The Company generally reports retrocession activity on a gross basis. Amounts paid or deemed to have been paid for reinsurance are reflected in reinsurance ceded receivables. The cost of reinsurance related to long-duration contracts is recognized over the terms of the reinsured policies on a basis consistent with the reporting of those policies. ~~In the normal course of business,~~

Retrocession reinsurance treaties do not relieve the Company ~~seeks~~from its obligations to ~~limit its exposure~~direct writing companies. Failure of retrocessionaires to ~~loss on any single insured~~honor their obligations could result in losses to the Company. Consequently, allowances would be established for amounts deemed uncollectible. At March 31, 2014 and December 31, 2013, no allowances were deemed necessary. The Company regularly evaluates the financial condition of the insurance companies from which it assumes and to ~~recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage, quota share and coinsurance contracts.~~which it cedes reinsurance.

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~~Certain retrocessions~~Retrocessions are arranged through the Company’s retrocession pools for amounts in excess of the Company’s retention limit. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~,2013, all rated retrocession pool participants ~~rated~~followed by the A.M. Best Company were rated ““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”).~~security. In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. In addition to its third party retrocessionaires, various RGA reinsurance subsidiaries retrocede amounts in excess of their retention to RGA Reinsurance, Parkway Re, RGA Barbados, RGA Americas, Rockwood Re, Manor Reinsurance, Ltd. (“Manor Re”), RGA Worldwide or RGA Atlantic.

~~As of~~ ~~September 30, 2013~~ ~~and~~ ~~December~~At March 31, ~~2012~~,2014, the Company had $594.8 million of ceded reinsurance receivables, of which $358.9 million, or 60.3%, were with the Company’s four largest ceded reinsurers. Included in the March 31, 2014 total ceded reinsurance receivables balance were $141.7 million of claims recoverable, ~~from retrocessionaires~~ of ~~$132.4~~which $7.5 million ~~and~~ ~~$156.0 million, respectively, which is included in reinsurance ceded receivables, in the condensed consolidated balance sheets. The Company considers outstanding claims recoverable~~ were in excess of 90 days ~~to be~~ past due. ~~There were~~ ~~$6.5 million~~ ~~and~~ ~~$10.4 million~~ ~~of past due claims recoverable as of~~ ~~September 30, 2013~~ ~~and~~ At 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.~~	~~Financing and Other Activities~~

~~During the first quarter of~~ 2013, the Company ~~repurchased~~ ~~$160.0~~had $594.5 million ~~face amount~~ of ~~its Series A Floating Rate Insured Notes issued by RGA’s subsidiary, Timberlake Financial, L.L.C.~~ceded reinsurance receivables, of which $359.2 million, or 60.4%, ~~for~~ ~~$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 million, after fees, in other revenues at that time.~~

~~On August 13, 2013, the Company completed its acquisition of the Dutch life insurance company Leidsche Verzekeringen Maatschappij N.V. for a total purchase price of~~ ~~$12.5 million. The purchase price was allocated to~~ ~~$147.3 million~~ ~~of assets and~~ ~~$134.8 million~~ ~~of liabilities at the date of acquisition. The purchased life insurance company primarily sells term life and unit-linked variable annuity policies.~~

On ~~September 19, 2013, RGA issued~~ ~~4.70%~~ ~~Senior Notes due~~ ~~September 15, 2023~~ ~~with a face amount of~~ ~~$400.0 million. These senior notes have been registered~~ with the ~~Securities and Exchange Commission. The net proceeds from~~Company’s four largest ceded reinsurers. Included in the ~~offering~~December 31, 2013 total ceded reinsurance receivables balance were ~~approximately~~ ~~$395.1~~$134.1 million ~~and will be used for general corporate purposes. Capitalized issue costs~~ of claims recoverable, of which $4.2 million were ~~approximately~~ ~~$3.4 million~~.in excess of 90 days past due.


13.	Stock Transactions

~~In January 2013,~~On February 20, 2014, RGA’s board of directors authorized a share repurchase program ~~with no expiration date,~~ for up to ~~$200.0~~$300.0 million of the RGA’s outstanding common stock. The authorization is effective immediately and does not have an expiration date. Repurchases would be made in accordance with applicable securities laws and would be made through market transactions, block trades, privately negotiated transactions or other means or a combination of these methods, with the timing and number of shares repurchased dependent on a variety of factors, including share price, corporate and regulatory requirements and market and business conditions. Repurchases may be commenced or suspended from time to time without prior notice. In ~~April 2013, RGA’s~~connection with this new authorization, the board of directors ~~authorized an increase of~~ ~~$100.0 million~~ toterminated the ~~share~~stock repurchase ~~program previously authorized~~authority granted in ~~January~~ 2013. ~~In July 2013, RGA’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’s outstanding common stock authorized for repurchase is~~ ~~$400.0 million~~.

During the first quarter of ~~2013,~~2014, RGA repurchased ~~815,011~~1,449,293 shares of common stock under this program for $~~47.6~~112.6 million. ~~During the second quarter of 2013, the Company repurchased~~ ~~2,865,132~~ ~~shares of common stock under the program for~~ ~~$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 ~~September 30, 2013~~March 31, 2014 there was $~~138.7~~187.4 million remaining under the board of directors authorized share repurchase program.


14.	New Accounting Standards

Changes to the general accounting principles are established by the Financial 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.

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Adoption of New Accounting Standards

Basis of Presentation

In December 2011, the FASB amended the general accounting principles for Balance Sheet as it relates to the disclosures about offsetting assets and liabilities. The amendment requires disclosures about the Company’s rights of offset and related arrangements associated with its financial instruments and derivative instruments. This amendment also requires the disclosure of both gross and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB amended the general accounting principles for Balance Sheet as it relates to the disclosures about offsetting assets and liabilities. This amendment clarifies that the scope of the Balance Sheet amendment made in December 2011 applies only to derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset or subject to an enforceable master netting agreement or a similar agreement. These amendments are effective for interim and annual reporting periods beginning on or after January 1, 2013. The Company adopted these amendments and the required disclosures are provided in Note 5 — “Derivative Instruments”.

~~Transfers and Servicing~~

~~In April 2011, the FASB amended the general accounting principles for~~ ~~Transfers and Servicing~~ as it relates to the reconsideration of effective control for repurchase agreements. This amendment removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets and also removes the collateral maintenance implementation guidance related to that criterion. The amendment is effective for interim and annual periods beginning after December 15, 2011. The adoption of this amendment did not have an impact on the Company’s condensed consolidated financial statements.

~~Fair Value Measurements and Disclosures~~

~~In May 2011, the FASB amended the general accounting principles for~~ ~~Fair Value Measurements and Disclosures~~ as it relates to the measurement and disclosure requirements about fair value measurements. This amendment clarifies the FASB’s intent about the application of existing fair value measurement requirements. It also changes particular principles and requirements for measuring fair value and for disclosing information about fair value measurements. The amendment is effective for interim and annual periods beginning after December 15, 2011. The Company adopted this amendment and the required disclosures are provided in Note 6 — “Fair Value of Assets and Liabilities.”

~~Deferred Policy Acquisition Costs~~

~~In October 2010, the FASB amended the general accounting principles for~~ ~~Financial Services – Insurance~~ as it relates to accounting for costs associated with acquiring or renewing insurance contracts. This amendment clarifies that only those costs that result directly from and are essential to the contract transaction and that would not have been incurred had the contract transaction not occurred can be capitalized. It also defines acquisitions costs as costs that are related directly to the successful acquisitions of new or renewal insurance contracts. The amendment is effective for fiscal years and interim periods beginning after December 15, 2011. The retrospective adoption of this amendment on January 1, 2012, resulted in a reduction in the Company’s deferred acquisition cost asset and a corresponding reduction to equity, reflected in the financial statements in all periods. There will be a decrease in amortization subsequent to adoption due to the reduced deferred acquisition cost asset. There has also been a reduction in the level of future costs the Company defers; thereby increasing expenses incurred in future periods. The cumulative effect of the adoption of this amendment was a decrease to total stockholders’ equity of ~~$318.4 million~~ ~~and a decrease in the deferred policy acquisition costs balance of~~ ~~$470.1 million~~ ~~on January 1, 2012.~~

~~Comprehensive Income~~

~~In February 2013, the FASB amended the general accounting principles for~~ ~~Comprehensive Income~~ as it relates to the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This amendment also requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. However, this is only necessary if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendment is effective for interim and annual reporting periods beginning after December 31, 2012. The Company adopted this amendment and the required disclosures are provided in Note 3 — “Accumulated Other Comprehensive Income.”

~~Table of Contents~~

~~In June 2011, the FASB amended the general accounting principles for~~ ~~Comprehensive Income~~ as it relates to the presentation of comprehensive income. This amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in either a continuous statement of comprehensive income or in two separate but consecutive statements. The amendment does not change the items that must be reported in other comprehensive income. In December 2011, the FASB amended the general accounting principles for ~~Comprehensive Income~~ as it relates to the presentation of comprehensive income. This amendment defers the requirement to present the effects of reclassifications out of accumulated other comprehensive income on the Company’s consolidated statements of income, which was required in the ~~Comprehensive Income~~ amendment made in June 2011. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted these amendments and the required presentation is provided in the Condensed Consolidated Statements of Comprehensive Income.

~~Future Adoption of New Accounting Standards~~

Income Taxes

In July 2013, the FASB amended the general accounting principles for Income Taxes as it relates to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This amendment clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this amendment isdid not ~~expected to~~ have an impact on the Company's condensed consolidated financial statements.

Comprehensive Income

In February 2013, the FASB amended the general accounting principles for Comprehensive Income as it relates to the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This amendment also requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. However, this is only necessary if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendment is effective for interim and annual reporting periods beginning after December 15, 2012. The Company adopted this amendment and the required disclosures are provided in Note 3 — “Accumulated Other Comprehensive Income.”

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking and Cautionary Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.

Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, including ongoing uncertainties regarding the amount of United States sovereign debt and the credit ratings thereof, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate and operate reinsurance business that the Company acquires, (22) action by regulators who have authority over the Company’s reinsurance operations in the jurisdictions in which it operates, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) interruption or failure of the Company's telecommunication, information technology or other operational systems, or the Company's failure to maintain adequate security to protect the confidentiality or privacy of personal or sensitive data stored on such systems, (26) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, ~~(26)~~(27) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and ~~(27)~~(28) other risks and uncertainties described in this document and in the Company’s other filings with the SEC.

Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and the cautionary statements described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A – “Risk Factors” in the ~~2012~~2013 Annual Report.

Overview

RGA is an insurance holding company that was formed on December 31, 1992. The condensed consolidated financial statements include the assets, liabilities and results of operations of RGA, RGA Reinsurance, ~~RCM,~~Reinsurance Company of Missouri, Incorporated, RGA Barbados, RGA Americas, RGA Atlantic, RGA Life Reinsurance Company of Canada (“RGA Canada”), RGA Reinsurance Company of Australia, Limited and RGA International Reinsurance Company as well as other subsidiaries, which are primarily wholly owned (collectively, the Company).

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The Company is primarily engaged in the reinsurance of individual and group coverages for traditional life and health, longevity, disability, annuity and critical illness products, and financial reinsurance. RGA and its predecessor, the Reinsurance Division of General American Life Insurance Company, a Missouri life insurance company, have been engaged in the business of life reinsurance since 1973. ~~Approximately 66.3% of the Company’s 2012 net premiums were from its operations in North America, represented by its U.S. and Canada segments.~~

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The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties and income earned on invested assets.

The Company’s primary business is life and health reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or voluntary surrenders of underlying policies, deaths of insureds, and the exercise of recapture options by ceding companies.

As is customary in the reinsurance business, clients continually update, refine, and revise reinsurance information provided to the Company. Such revised information is used by the Company in preparation of its financial statements and the financial effects resulting from the incorporation of revised data are reflected in the current period.

The Company’s long-term profitability primarily depends on the volume and amount of death and health-related claims incurred and the ability to adequately price the risks assumed. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. The maximum amount of individual life coverage the Company retains per life varies by market and can be as high as $8.0 million. In certain limited situations the Company has retained more than $8.0 million per individual life. Exposures in excess of these retention amounts are typically retroceded to retrocessionaires; however, the Company remains fully liable to the ceding company for the entire amount of risk it assumes. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.

The Company has five geographic-based or function-based operational segments, each of which is a distinct reportable segment: U.S.~~, Canada,~~ and Latin America; Canada; Europe, ~~& South Africa,~~Middle East and Africa; Asia ~~Pacific~~Pacific; and Corporate and Other. The U.S. and Latin America operations are further segmented into traditional and non-traditional businesses. The U.S. and Latin America operations provide ~~traditional~~individual life, long-term care, group life and health reinsurance, annuity and financial reinsurance products. The U.S. and Latin America operations non-traditional business also issues fee-based synthetic guaranteed investment contracts, which include investment-only, stable value contracts, to retirement plans. The Canada operations reinsure traditional life products as well as creditor reinsurance, group life and health reinsurance, non-guaranteed critical illness products and longevity reinsurance. Europe, ~~& South~~Middle East and Africa operations include a variety of life and health products, critical illness and longevity business throughout Europe and in South Africa, in addition to other markets the Company is developing. The principle types of reinsurance in Asia Pacific include life, critical illness, health, disability, superannuation and financial reinsurance. Corporate and Other includes results from, among others, RGA Technology Partners, Inc. (“RTP”), a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry, interest expense related to debt and the investment income and expense associated with the Company’s collateral finance facility. The Company measures segment performance based on profit or loss from operations before income taxes.

The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a consistent basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses is credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.

Results of Operations

Consolidated

Consolidated income before income taxes ~~increased $0.2~~decreased $79.4 million, or ~~0.1%, and decreased $192.4 million, or 32.2%,~~28.5% for the ~~three and nine months ended September 30, 2013,~~first quarter of 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The ~~slight increase~~decrease 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~~unfavorable mortality experience in ~~most markets largely offset by decreased investment related gains. The decrease in income before income taxes for~~ the ~~first nine months of 2013 was primarily due~~U.S. and Latin America segment and the Canada segment compared to ~~a significant loss in~~ the ~~Asia Pacific segment~~prior year and a decrease in ~~investment related gains partially offset by higher investment income and the recognition~~other revenues. The decrease in other revenues is related to the recognition of gains on the repurchase of collateral finance facility securities of $46.5 ~~million. The loss~~million 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, all in the second quarter of 2013. The decrease in investment related gains in the third quarter and first nine months reflects an unfavorable change in the value of embedded derivatives within the U.S. segment due largely to rising interest rates in the third quarter of 2013. Foreign currency fluctuations ~~resulted in a decrease~~relative to the prior year unfavorably affected income before income taxes by approximately $6.7 million in the first quarter of ~~approximately $6.1 million and an increase of approximately $6.1 million for the third quarter and first nine months of 2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

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The Company recognizes in consolidated income, any changes in the value of embedded derivatives on modco or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable annuity products. The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in a reduction of approximately ~~$13.6 million and increase of approximately $126.7~~$50.0 million in consolidated income before income taxes in the ~~third quarter and~~

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first ~~nine~~three months of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012. These fluctuations do~~2013. This fluctuation does 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. The individual effect on income before income taxes for these three types of embedded derivatives is as follows:

The 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, reduced income before income taxes by ~~$41.4 million and increased it by $14.3~~$5.5 million in the ~~third quarter and~~ first ~~nine~~three months of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

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~~reduced income before income taxes by ~~$13.2 million and $32.7~~$4.7 million in the ~~third quarter and~~ first ~~nine~~three months of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

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~~reduced income before income taxes by ~~$14.6 million and $79.7~~$39.8 million in the ~~third quarter and~~ first ~~nine~~three months of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

Consolidated net premiums increased ~~$113.4~~$120.9 million, or ~~5.9%~~6.1%, ~~and $314.1 million, or 5.5%, for~~in the first three ~~and nine~~ months ~~ended September 30, 2013,~~of 2014, as compared to the same ~~periods~~period in ~~2012, primarily~~2013, due to growth in life reinsurance ~~partially offset by foreign currency fluctuations.~~in force. Foreign currency fluctuations unfavorably affected net premiums by approximately ~~$51.7~~$50.4 million ~~and $92.5 million for~~in the ~~three and nine months ended September 30, 2013,~~first quarter of 2014 as compared to the same ~~periods~~period in ~~2012.~~2013. Consolidated assumed life insurance in force increased to ~~$2,903.8~~$2,955.3 billion as of ~~September 30, 2013~~March 31, 2014 from ~~$2,881.0~~$2,872.8 billion as of ~~September 30, 2012~~March 31, 2013 due to new business production. ~~Foreign currency fluctuations offset the increase in assumed life insurance in force from September 30, 2012 by $71.6 billion.~~ The Company added new business production, measured by face amount of insurance in force, of ~~$91.6~~$98.9 billion and ~~$118.9 billion during the third quarter of 2013 and 2012, respectively, and $291.5 billion and $324.2~~$95.9 billion during the first ~~nine months~~quarter of 2014 and 2013, ~~and 2012,~~ respectively. Foreign currency fluctuations negatively affected the increase in assumed life insurance in force from March 31, 2013 by $41.8 billion. 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.

Consolidated investment income, net of related expenses, decreased ~~$27.4~~$20.8 million, or ~~6.9%, and increased $172.7 million, or 16.2%~~4.9%, for the three ~~and nine~~ months ended ~~September 30, 2013,~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The decrease ~~in the third quarter was~~is primarily due to ~~a $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. The increase in the first nine months was largely due to a $78.2~~EIAs which unfavorably affected investment income by $20.7 million ~~increase from market value changes related to the Company’s funds withheld at interest~~and lower effective investment ~~associated with the reinsurance of certain EIAs.~~portfolio yields. 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 third quarter of 2012 increased investment income~~The decrease is partially offset by ~~$17.4 million and $86.3 million in the third quarter and first nine 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.~~business. Average invested assets at amortized cost, excluding ~~funds withheld and other~~ spread business, for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 totaled ~~$17.9~~$19.7 billion, a ~~9.0%~~10% increase over ~~September 30, 2012.~~March 31, 2013. The average yield earned on investments, excluding ~~funds withheld and other~~ spread business, ~~was 4.75% and 4.98%~~decreased to 4.74%, for the ~~third~~first quarter of ~~2013 and 2012, respectively, and 4.78% and 5.03%~~2014 from 4.83% for the ~~nine months ended September 30, 2013 and 2012, respectively.~~first quarter of 2013. 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 has recently been some improvement, ~~in 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.

Total investment related gains (losses), net ~~reflect an unfavorable change of $152.5~~decreased by $9.8 million, ~~and $77.2 million,~~or 10.4%, for the three ~~and nine~~ months ended ~~September 30, 2013,~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The ~~unfavorable change for the third quarter was~~decrease is primarily due to an unfavorable ~~changes~~change in the embedded derivatives related to guaranteed minimum living benefits of $75.0 million and an unfavorable change in the embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis of ~~$122.3 million. The unfavorable change for the first nine months is primarily due to a decrease~~$13.0 million. Largely offsetting these decreases was an increase in the fair value of derivatives used to hedge the embedded derivative liabilities associated with guaranteed minimum living benefits of ~~$95.7 million partially offset by a favorable change in the embedded derivatives related to guaranteed minimum living benefits of $32.9~~$76.3 million. ~~Investment impairments on fixed maturity and equity securities decreased by $2.2 million and $8.5 million in the third quarter and first nine 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. ~~Investment~~

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investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment operations.

The effective tax rate on a consolidated basis was ~~31.6%~~31.5% and ~~28.3% for the third quarter of 2013 and 2012, respectively, and 32.5% and 31.6%~~33.5% for the first ~~nine months~~quarter of ~~2013~~2014 and ~~2012,~~2013, respectively. The ~~third quarter and first nine months of 2013~~2014 effective tax ~~rates were~~rate was lower than the U.S. ~~statutory~~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~~ and the release of a valuation allowance on tax ~~basis in foreign jurisdictions and an adjustment to reconcile the 2012 income~~benefits associated with claims experience on certain

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treaties, which were partially offset by a tax ~~provision~~accrual related to the ~~2012 federal income tax return, which was filed in~~Active Financing Exception business extender provision that the ~~current~~U.S. Congress did not pass prior to the end of the quarter. The ~~third quarter and first nine months of 2012~~2013 effective tax rate was lower than the U.S. ~~statutory~~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.~~jurisdictions.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, results of operations and financial position as reported in the condensed consolidated financial statements could change significantly.

Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates and assumptions:

Premiums receivable;

Deferred acquisition costs;

Liabilities for future policy benefits and incurred but not reported claims;

Valuation of investments and other-than-temporary impairments to specific investments;

Valuation of embedded derivatives; and

Income taxes.

A discussion of each of the critical accounting policies may be found in the Company’s ~~2012~~2013 Annual Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”

Further discussion and analysis of the results for ~~2013~~2014 compared to ~~2012~~2013 are presented by segment.

U.S. and Latin America Operations

U.S. and Latin America operations consist of two ~~major sub-segments:~~segments: Traditional and Non-Traditional. The Traditional ~~sub-segment~~segment primarily specializes in individual mortality-risk reinsurance and to a lesser extent, group, health and long-term care reinsurance. The Non-Traditional ~~sub-segment~~segment consists of Asset-Intensive and Financial Reinsurance. ~~During 2012,~~Asset-Intensive within the ~~Asset-Intensive sub-segment issued its first~~Non-Traditional segment also issues fee-based synthetic guaranteed investment contracts which include investment-only, stable value contracts, to retirement plans.

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For the three months ended September 30, 2013 Non-Traditional
(dollars in thousands) Asset-Intensive
Financial
Reinsurance

Total
U.S.
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
Financial
Reinsurance

Total
U.S.
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

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For the nine months ended September 30, 2013				Non-Traditional
For the three months ended March 31, 2014															Non-Traditional
(dollars in thousands)				Asset-Intensive		Financial Reinsurance			Total U.S.						Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
	Traditional											Traditional
Revenues:
Net premiums	$	3,282,867		$	18,767	$	—		$	3,301,634		$	1,141,905		$	5,180	$	—	$	1,147,085
Investment income, net of related expenses	403,694			505,014		2,576			911,284			133,376			158,402		1,247		293,025
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(8,247		)	—		—			(8,247		)	(47		)	—		—		(47		)
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			2,816			76,335		83		79,234
Total investment related gains (losses), net	5,735			49,583		(387		)	54,931			2,769			76,335		83		79,187
Other revenues	2,324			87,337		44,702			134,363			642			28,276		19,098		48,016
Total revenues	3,694,620			660,701		46,891			4,402,212			1,278,692			268,193		20,428		1,567,313
Benefits and expenses:
Claims and other policy benefits	2,864,165			23,570		—			2,887,735			1,033,707			4,260		—		1,037,967
Interest credited	43,399			258,853		—			302,252			12,272			95,084		—		107,356
Policy acquisition costs and other insurance expenses	466,804			198,508		10,270			675,582			156,000			94,140		5,742		255,882
Other operating expenses	69,144			11,189		5,591			85,924			25,741			4,094		2,177		32,012
Total benefits and expenses	3,443,512			492,120		15,861			3,951,493			1,227,720			197,578		7,919		1,433,217
Income before income taxes	$	251,108		$	168,581	$	31,030		$	450,719		$	50,972		$	70,615	$	12,509	$	134,096

For the nine months ended September 30, 2012				Non-Traditional
For the three months ended March 31, 2013															Non-Traditional
(dollars in thousands)				Asset-Intensive		Financial Reinsurance			Total U.S.						Asset-Intensive		Financial Reinsurance		Total U.S. and Latin America
	Traditional											Traditional
Revenues:
Net premiums	$	3,149,674		$	10,574	$	—		$	3,160,248		$	1,056,428		$	3,838	$	—	$	1,060,266
Investment income (loss), net of related expenses	401,601			365,675		707			767,983			132,535			179,369		597		312,501
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(8,409		)	—		—			(8,409		)	(162		)	—		—		(162		)
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			7,471			88,584		34		96,089
Total investment related gains (losses), net	(14,222		)	111,946		(253		)	97,471			7,309			88,584		34		95,927
Other revenues	2,168			81,123		32,209			115,500			652			28,881		12,797		42,330
Total revenues	3,539,221			569,318		32,663			4,141,202			1,196,924			300,672		13,428		1,511,024
Benefits and expenses:
Claims and other policy benefits	2,759,532			9,832		—			2,769,364			936,881			3,588		—		940,469
Interest credited	44,246			240,154		—			284,400			16,150			108,785		—		124,935
Policy acquisition costs and other insurance expenses	453,438			161,689		3,486			618,613			140,072			94,663		3,440		238,175
Other operating expenses	65,271			8,465		5,080			78,816			24,278			4,113		1,947		30,338
Total benefits and expenses	3,322,487			420,140		8,566			3,751,193			1,117,381			211,149		5,387		1,333,917
Income before income taxes	$	216,734		$	149,178	$	24,097		$	390,009		$	79,543		$	89,523	$	8,041	$	177,107

Income before income taxes for the U.S. and Latin America operations segment decreased by ~~$50.8~~$43.0 million, or ~~32.4%, and increased by $60.7 million, or 15.6%~~24.3%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The decrease in income before income taxes in the ~~third~~first quarter can be largely attributed to the Asset-Intensive sub-segment. The decrease is primarily the result of rising interest rates during the quarter which reduced the fair value of embedded derivatives associated with treaties written on a modco or funds withheld basis. 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 favorableTraditional segment. Unfavorable mortality experience resulted in ~~the U.S. Traditional sub-segment. The increase in income for the first nine months can be attributed to~~ an increase in ~~investment related gains (losses), net~~the loss ratio of approximately 90.5% in the ~~U.S. Traditional sub-segment as well as slightly improved mortality. In addition, the~~ first ~~nine months reflects improved performance~~quarter of 2014 compared to 88.7% in the ~~Asset-Intensive sub-segment mainly as a result of the aforementioned fixed annuity transaction that was recorded~~same period in ~~the second quarter of 2012.~~2013.

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Traditional Reinsurance

The U.S. and Latin America Traditional ~~sub-segment~~segment provides life and health reinsurance to domestic clients for a variety of products through yearly renewable term, coinsurance and modco agreements. These reinsurance arrangements may involve either facultative or automatic agreements.

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Income before income taxes for the U.S. and Latin America Traditional ~~sub-segment increased~~segment decreased by ~~$14.3~~$28.6 million, or ~~20.2%, and $34.4 million, or 15.9%,~~35.9% for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The ~~increase~~decrease in the ~~third~~first quarter was primarily due to ~~favorable~~unfavorable mortality compared to the same prior year period. ~~The increase in the first nine months can be attributed to an increase in investment related gains (losses), net and slightly improved mortality compared to the same period in 2012.~~

Net premiums increased ~~$66.8~~$85.5 million, or ~~6.4%, and $133.2 million, or 4.2%,~~8.1% for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The increase in net premiums was driven ~~largely~~in part by growth in the health and group related coverages which contributed ~~$30.4 million and $82.3~~$28.4 million to the increase for the ~~third quarter and~~ first ~~nine~~three months of ~~2013, respectively. This sub-segment~~2014. In addition, the segment added new individual life business production, measured by face amount of insurance in force of ~~$22.0~~$20.4 billion and ~~$23.1 billion during the third quarters of 2013 and 2012, respectively, and $69.4 billion and $132.2~~$29.4 billion during the first ~~nine~~three months of 2014 and 2013, ~~and 2012,~~ respectively. ~~Approximately $42.4 billion of the decrease in insurance in force~~

Net investment income increased $0.8 million, or 0.6%, for the ~~first nine~~three months ended March 31, 2014, as compared to the same period in ~~2012 relates to one large in force transaction recorded in the first quarter of 2012.~~

~~Net investment income increased $2.6 million, or 1.9%, and $2.1 million, or 0.5%, for the~~ ~~three and nine~~ ~~months ended~~ ~~September 30, 2013, as compared to the same periods in 2012.~~2013. The ~~increases are~~increase is due to an increase in the average invested asset base offset by lower yield rates. Investment related gains (losses), net decreased ~~$3.3 million and increased $20.0~~$4.5 million, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012. The increase in the first nine months is primarily due to an increase in net~~2013. A portion of 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.

Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were ~~86.4%~~90.5% and ~~87.7%~~88.7% for the ~~third quarter of 2013 and 2012, respectively, and 87.2% and 87.6%~~three months ended March 31, 2014, respectively. The increase in the percentage for the ~~nine months ended September 30, 2013, respectively. The decrease in the percentages for the third quarter and~~ first ~~nine~~three months was due, in part, to higher than normal volatility in large facultative individual mortality ~~claims and a decrease in group reinsurance claims associated with disability, medical and life coverages.~~claims. Although reasonably predictable over a period of years, claims can be volatile over short-term periods.

Interest credited expense decreased ~~$1.0~~$3.9 million, or ~~6.7%, and $0.8 million, or 1.9%~~24.0%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. This expense relates primarily to one treaty in which the related investment income decreased ~~proportionately, resulting in minimal net income impact.~~proportionately. Interest credited in this ~~sub-segment~~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. A treaty amendment in the fourth quarter of 2013 reduced the spread earned on this treaty by 25 basis points. Interest earned rates and related interest crediting rates are index driven. ~~The spread remained relatively constant in both periods.~~

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~14.6%~~13.7% and ~~15.0%~~13.3% for the ~~third quarter of 2013 and 2012, and 14.2% and 14.4% for the nine~~three months ended ~~September 30,~~March 31, 2014 and 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.

Other operating expenses increased ~~$2.7~~$1.5 million, or ~~13.1%, and $3.9 million, or 5.9%~~6.0%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. Other operating expenses, as a percentage of net premiums were ~~2.1% and 2.0% for the third quarter of 2013 and 2012, and 2.1%~~2.3% for both ~~nine~~three month periods ended ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ respectively.

Non-Traditional - Asset-Intensive Reinsurance

~~The U.S.~~Non-Traditional Asset-Intensive ~~sub-segment~~Reinsurance primarily assumes investment risk within underlying annuities and corporate-owned life insurance policies. Most of these reinsurance agreements are coinsurance, coinsurance with funds withheld or modco 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.

~~Table of Contents~~

Impact of certain derivatives:

Income for the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modco basis or funds withheld basis, as well as embedded derivatives associated with the Company’s reinsurance of equity-indexed annuities and variable annuities with guaranteed minimum benefit riders. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues), and interest credited. These fluctuations are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties.

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The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented. Revenues before certain derivatives, benefits and expenses before certain derivatives, and income before income taxes and certain derivatives, should not be viewed as substitutes for GAAP revenues, GAAP benefits and expenses, and GAAP income before income taxes.


(dollars in thousands)	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2013			2012			2013			2012			2014			2013
Revenues:
Total revenues	$	75,063		$	254,915		$	660,701		$	569,318		$	268,193		$	300,672
Less:
Embedded derivatives – modco/funds withheld treaties	(68,703		)	54,258			67,824			40,278			78,696			90,201
Guaranteed minimum benefit riders and related free standing derivatives	(10,087		)	(22,577		)	(18,599		)	44,220			238			(1,039		)
Revenues before certain derivatives	153,853			223,234			611,476			484,820			189,259			211,510
Benefits and expenses:
Total benefits and expenses	65,214			176,929			492,120			420,140			197,578			211,149
Less:
Embedded derivatives – modco/funds withheld treaties	(43,317		)	37,562			39,988			24,705			49,427			56,990
Guaranteed minimum benefit riders and related free standing derivatives	(6,646		)	(15,816		)	(11,091		)	27,665			640			(1,411		)
Equity-indexed annuities	(12,103		)	1,062			(31,675		)	1,019			(2,131		)	(6,845		)
Benefits and expenses before certain derivatives	127,280			154,121			494,898			366,751			149,642			162,415
Income before income taxes:
Income before income taxes	9,849			77,986			168,581			149,178			70,615			89,523
Less:
Embedded derivatives – modco/funds withheld treaties	(25,386		)	16,696			27,836			15,573			29,269			33,211
Guaranteed minimum benefit riders and related free standing derivatives	(3,441		)	(6,761		)	(7,508		)	16,555			(402		)	372
Equity-indexed annuities	12,103			(1,062		)	31,675			(1,019		)	2,131			6,845
Income before income taxes and certain derivatives	$	26,573		$	69,113		$	116,578		$	118,069		$	39,617		$	49,095

Embedded Derivatives - Modco/Funds Withheld Treaties- Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis. The fair value changes of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. Changes in the fair value of the embedded derivative are driven by changes in investment credit spreads, including the Company’s own credit risk. Generally, an increase in investment credit spreads, ignoring changes in the Company’s own credit risk, will have a negative impact on the fair value of the embedded derivative (decrease in income). Changes in fair values of these embedded derivatives are net of ~~an increase (decrease)~~a decrease in revenues of ~~$1.0~~$0.9 million and ~~$(6.2)~~$1.7 million for the three months ~~and $(1.0) million and $(63.4) million for the nine months~~ ended ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, 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 ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 by approximately ~~$0.2~~$0.1 million. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues for the nine months ended ~~September 30, 2013~~March 31, 2014 by approximately ~~$0.2~~$0.1 million.

~~Table of Contents~~

In the ~~third~~first quarter of ~~2013, the change in fair value of the embedded derivative decreased revenues by~~ ~~$68.7 million~~ ~~and related deferred acquisition expenses decreased benefits and expenses by~~ ~~$43.3 million, for a negative pre-tax income impact of $25.4 million. During the third quarter of 2012,~~2014, the change in fair value of the embedded derivative increased revenues by $~~54.3~~78.7 million and related deferred acquisition expenses increased benefits and expenses by $~~37.6~~49.4 million, for a positive pre-tax income impact of ~~$16.7~~$29.3 million. InDuring the first ~~nine months~~quarter of 2013, the change in fair value of the embedded derivative increased revenues by $~~67.8~~90.2 million and related deferred acquisition expenses increased benefits and expenses by $~~40.0~~57.0 million, for a positive pre-tax income impact of ~~$27.8 million. During the first nine months of 2012, the change in fair value of the embedded derivative increased revenues by~~ ~~$40.3 million~~ ~~and related deferred acquisition expenses increased benefits and expenses by~~ ~~$24.7 million, for a positive pre-tax income impact of $15.6~~$33.2 million.

Guaranteed Minimum Benefit Riders- Represents the impact related to guaranteed minimum benefits associated with the Company’s reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives purchased by the Company to partially hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in expenses. Changes in fair values of these embedded derivatives are net of an increase ~~(decrease)~~ in revenues of ~~$(3.7)~~$0.5 million and ~~$(28.3)~~$11.9 million for the three months ended March 31, 2014and ~~$(8.6) million and $23.2 million for the nine months ended September 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 ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 by approximately ~~$0.8~~$0.4 million. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 by approximately ~~$0.8~~$0.4 million.

Table of Contents

In the ~~third~~first quarter of 2014, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, increased revenues by $0.2 million and deferred acquisition expenses increased benefits and expenses by $0.6 million for a negative pre-tax income impact of $0.4 million. In the first 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 $~~10.1~~1.0 million and deferred acquisition expenses decreased benefits and expenses by $~~6.6 million~~ for a negative pre-tax income impact of $3.5 million. In the third quarter of 2012, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives decreased revenues by ~~$22.6 million~~ ~~and deferred acquisition expenses decreased benefits and expenses by~~ ~~$15.8 million~~ for a negative pre-tax income impact of $6.8 million. In the first nine 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 ~~$18.6 million~~ ~~and deferred acquisition expenses decreased benefits and expenses by~~ ~~$11.1 million~~ for a negative pre-tax income impact of $7.5 million. In the first nine 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 ~~$44.2 million~~ ~~and deferred acquisition expenses increased benefits and expenses by~~ ~~$27.7~~1.4 million for a positive pre-tax income impact of ~~$16.6~~$0.4 million.

Equity-Indexed Annuities- Represents the impact of changes ~~in the benchmark rate on the calculation~~ of the fair value of embedded derivative liabilities associated with equity-indexed annuities, after adjustments for related deferred acquisition expenses. In the ~~third~~first quarter of ~~2013~~2014 and ~~2012,~~2013, expenses decreased $~~12.1~~2.1 million and increased $~~1.1 million, respectively. In the first nine months of 2013 and 2012, expenses decreased~~ ~~$31.7 million~~ ~~and increased~~ ~~$1.0~~6.8 million, respectively.

The changes in derivatives discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including benchmark rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues) and interest credited.

Discussion and analysis before certain derivatives:

Income before income taxes and certain derivatives decreased by ~~$42.5 million and $1.5~~$9.5 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2013,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The decrease in the ~~third~~first quarter was ~~largely~~primarily due to a ~~result~~decrease in both variable and fixed equity annuities, in large part due to the favorable equity market experience during the first quarter of 2013 compared to the first quarter of 2014. This decrease was partially offset by a ~~higher level of~~favorable interest margin related to a large fixed deferred annuity transaction. Also contributing to the decrease in income were net changes in investment related gains and ~~corresponding changes~~losses associated with funds withheld and coinsurance portfolios and the related impact of deferred acquisition expenses. Funds withheld capital gains and losses are reported through investment income while coinsurance activity is reflected 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.~~investment related gains (losses), net.

Revenue before certain derivatives decreased by ~~$69.4~~$22.3 million in the ~~third~~first quarter of ~~2013~~2014 compared to ~~2012.~~2013. The negative variance was primarily a result ~~of lower investment related gains and corresponding changes in DAC.~~

~~Revenue increased by $126.7 million in the first nine months of 2013, as compared to the same periods in 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~~coupled with net changes in investment ~~income attributed to~~related gains and losses associated with funds withheld and coinsurance portfolios and the ~~new coinsurance agreement mentioned above.~~related impact of deferred acquisition expenses. The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited expense.

~~Table of Contents~~

Benefits and expenses before certain derivatives decreased by ~~$26.8 million and increased by $128.1~~$12.8 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2013,~~2014, as compared to the same ~~periods~~period in ~~2012. These variances were driven by~~2013. The variance is related to a ~~combination of changes~~decrease 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.~~treaties. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income. The decrease was somewhat offset by an increase in related deferred acquisition expenses, primarily as a result of favorable equity market performance in the first quarter of 2013 compared to the same period in 2014.

The invested asset base supporting this ~~sub-segment~~segment decreased to $11.0 billion in the ~~third~~first quarter of ~~2013~~2014 from ~~$11.6~~$11.3 billion in the ~~third~~first quarter of ~~2012.~~2013. The decrease in the asset base was due primarily to one large closed-block transaction in which the business is beginning to run-off, as anticipated. As of ~~September 30, 2013~~March 31, 2014, ~~$4.2~~$4.4 billion of the invested assets were funds withheld at interest, of which ~~94.9%~~95% is associated with one client.

Non-Traditional - Financial Reinsurance

~~U.S.~~Non-Traditional Financial Reinsurance ~~sub-segment~~ income before income taxes consists primarily of net fees earned on financial reinsurance transactions. Financial reinsurance risks are assumed by the U.S. and Latin America segment and a portion is retroceded to other insurance companies or brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts and brokered business are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses.

Income before income taxes increased ~~$3.1~~$4.5 million, or ~~37.7%, and $6.9 million, or 28.8%~~55.6%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The increase in ~~the third quarter of 2013~~2014 was the result of additional surplus relief provided as compared to the same period in ~~2012.~~2013. At ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was ~~$3.4~~$4.6 billion and ~~$2.3~~$2.7 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~~since March 31, 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.

Table of Contents

Canada Operations

The Company conducts reinsurance business in Canada primarily through RGA ~~Life Reinsurance Company of~~ Canada, ~~(“RGA Canada”),~~ a wholly-owned subsidiary. RGA Canada assists clients with capital management activity and mortality and morbidity risk management, and is primarily engaged in traditional individual life reinsurance, as well as creditor, group life and health, critical illness, and longevity reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance.


(dollars in thousands)	For the three months ended September 30,					For the nine months ended September 30,				For the three months ended March 31,
	2013			2012		2013		2012		2014			2013
Revenues:
Net premiums	$	236,067		$	227,944	$	718,971	$	667,321	$	230,844		$	243,271
Investment income, net of related expenses	50,161			46,764		152,358		141,906		47,603			50,555
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		(1,659		)	3,055
Total investment related gains (losses), net	6,472			9,633		13,275		23,801		(1,659		)	3,055
Other revenues	(196		)	3,288		314		6,463		961			208
Total revenues	292,504			287,629		884,918		839,491		277,749			297,089
Benefits and expenses:
Claims and other policy benefits	185,011			191,275		571,293		536,757		194,756			189,698
Interest credited	19			22		37		22		—			12
Policy acquisition costs and other insurance expenses	55,553			49,790		168,519		147,551		53,104			60,832
Other operating expenses	10,052			9,022		31,233		27,548		9,825			10,239
Total benefits and expenses	250,635			250,109		771,082		711,878		257,685			260,781
Income before income taxes	$	41,869		$	37,520	$	113,836	$	127,613	$	20,064		$	36,308

~~Table of Contents~~

Income before income taxes ~~increased~~decreased by ~~$4.3~~$16.2 million, or ~~11.6%, and decreased $13.8 million, or 10.8%~~44.7%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period 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.~~2013. The decrease in income in the first ~~nine months~~quarter of ~~2013~~2014 was primarily due to ~~better~~unfavorable traditional individual life mortality experience incompared to the prior year and a ~~decrease~~decline of ~~$10.5~~$4.7 million in net investment related ~~gains. In addition, the first nine months of 2012 included $6.3 million of income from the recapture of~~gains, (losses), net. Additionally, 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 ~~$2.1 million and $3.2~~$2.2 million for the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

Net premiums ~~increased $8.1~~decreased $12.4 million, or ~~3.6%, and $51.7 million, or 7.7%~~5.1%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net premiums of approximately ~~$10.3 million and $15.1~~$21.7 million for the ~~third~~first quarter ~~and first nine months~~ of ~~2013,~~2014, respectively, as compared to the same ~~periods~~period in ~~2012. Premiums~~2013. Ignoring foreign currency exchange, premiums increased 3.8% in the ~~third~~first quarter ~~and first nine months~~ of ~~2013~~2014 due to new business from both new and existing ~~treaties.~~treaties, offset by a decrease in premiums from creditor treaties of $9.3 million. Excluding the impact of foreign currency exchange, reinsurance in force at ~~September 30, 2013~~March 31, 2014 increased ~~6.5%~~6.9% 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.March 31, 2013. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period.

Net investment income ~~increased $3.4~~decreased $3.0 million, or ~~7.3%, and $10.5 million, or 7.4%~~5.8%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period 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.2013. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease toin net investment income of approximately ~~$2.2 million and $3.3~~$4.5 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012. Investment~~2013. A portion of 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.

~~Other revenues decreased by $3.5 million, or 106.0%, and $6.1 million, or 95.1%, for the~~ ~~three and nine~~ ~~months ended September 30, 2013, as compared to the same periods in 2012. The decrease in the third quarter~~

Table of 2013 was primarily due to $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.Contents

Loss ratios for this segment were ~~78.4%~~84.4% and ~~83.9%~~78.0% for the ~~third~~first quarter of 2014 and 2013, respectively. The increase in the loss ratio for the first quarter of 2014 compared to the first quarter of 2013 ~~and 2012, and 79.5% and 80.4%, for~~is due to unfavorable traditional individual life mortality experience in the ~~nine months ended September 30, 2013 and 2012, respectively.~~first quarter of 2014. Loss ratios for the traditional individual life mortality business were ~~95.3%~~99.7% and ~~97.1%~~95.2% for the ~~third~~first quarter of 2014 and 2013, respectively. Excluding creditor business, claims as a percentage of net premiums for this segment were 98.0% and ~~2012, respectively, and 94.7% and 93.0%~~93.2% for the ~~nine months ended September 30,~~first quarter of 2014 and 2013, respectively. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and ~~2012,~~1998. These blocks are mature blocks of long-term permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year claims costs to fund claims in later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. Excluding creditor business, claims and other policy benefits, as a percentage of net premiums and investment income were 77.8% and 72.9% for the first quarter of 2014 and 2013, respectively.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~23.5%~~23.0% and ~~21.8%~~25.0% for the ~~third~~first quarter of ~~2013~~2014 and ~~2012, and 23.4% and 22.1% for the nine months ended September 30,~~ 2013, ~~and 2012,~~ respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums for traditional individual life business were ~~12.5%~~13.9% and ~~11.1%~~12.9% for the ~~third~~first quarter of ~~2013~~2014 and ~~2012, and 12.6% and 12.4% for the nine months ended September 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~~patterns of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.

Other operating expenses ~~increased~~decreased by ~~$1.0~~$0.4 million, or ~~11.4%, and $3.7 million, or 13.4%~~4.0%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in operating expenses of approximately $0.7 million in the first quarter of 2014, as compared to the same period in 2013. Other operating expenses as a percentage of net premiums were 4.3% and ~~4.0%~~4.2% for the ~~third~~first quarter of ~~2013~~2014 and ~~2012, and 4.3% and 4.1% for the nine months ended September 30,~~ 2013, ~~and 2012,~~ respectively.

Europe, ~~& South~~Middle East and Africa Operations

The Europe, ~~& South~~Middle East and Africa segment includes operations in the United Kingdom (“UK”), South Africa, France, Germany, ~~India,~~Ireland, Italy, ~~Mexico,~~ the Netherlands, Poland, Spain, Turkey and the United Arab Emirates. The segment provides reinsurance for a variety of life and health products through yearly renewable term and coinsurance agreements, critical illness coverage and longevity risk related to payout annuities. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and, in some markets, group risks.

~~Table of Contents~~


(dollars in thousands)	Three months ended September 30,				Nine months ended September 30,				Three months ended March 31,
	2013		2012		2013		2012		2014		2013
Revenues:
Net premiums	$	329,705	$	303,101	$	972,988	$	905,947	$	340,743	$	292,809
Investment income, net of related expenses	13,708		11,437		40,389		34,016		13,369		11,429
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		3,822		1,772
Total investment related gains (losses), net	1,350		7,111		3,630		10,249		3,822		1,772
Other revenues	14,033		1,576		19,928		5,293		7,923		1,577
Total revenues	358,796		323,225		1,036,935		955,505		365,857		307,587
Benefits and expenses:
Claims and other policy benefits	276,309		251,553		843,454		777,029		307,341		260,258
Interest credited									2,786		—
Policy acquisition costs and other insurance expenses	13,596		14,697		37,083		43,299		13,265		11,607
Other operating expenses	27,338		24,809		81,642		76,814		27,260		24,759
Total benefits and expenses	317,243		291,059		962,179		897,142		350,652		296,624
Income before income taxes	$	41,553	$	32,166	$	74,756	$	58,363	$	15,205	$	10,963

Income before income taxes increased by ~~$9.4~~$4.2 million, or ~~29.2%, and $16.4 million, or 28.1%~~38.7%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The ~~increases~~increase in income before income taxes for the ~~third~~first quarter ~~and first nine months were~~was primarily due to increased business volumes, most notably in fee income treaties, partially offset by unfavorable claims experience. ~~Unfavorable~~Favorable foreign currency exchange fluctuations contributed to the ~~decrease~~increase in income before income taxes totaling ~~$0.4 million and $2.3~~$0.5 million for the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

Table of Contents

Net premiums increased ~~$26.6~~$47.9 million, or ~~8.8%, and $67.0 million, or 7.4%~~16.4%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. 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 ~~$4.3 million and $26.0~~$20.8 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively. During 2013, there were unfavorable~~2014. Favorable foreign currency exchange fluctuations, particularly with the British pound and the ~~South African rand weakening~~Euro strengthening against the U.S. dollar, ~~which decreased~~increased net premiums by approximately ~~$8.3 million and $28.2~~$8.7 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled ~~$62.5~~$65.7 million and ~~$58.8~~$63.3 million in the ~~third~~first quarter of ~~2013~~2014 and ~~2012, respectively, and $190.1 million and $182.3 million for the nine months ended September 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.

Net investment income increased ~~$2.3~~$1.9 million, or ~~19.9%, and $6.4 million, or 18.7%~~17.0%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012. These increases were~~2013. The increase was primarily due to an increase in the invested asset ~~base. Offsetting these increases were unfavorable changes~~base largely offset by a decrease in ~~foreign currency exchange fluctuations~~investment yield. A portion 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~~investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.

Other revenues increased by ~~$12.5~~$6.3 million, or ~~790.4%, and $14.6 million, or 276.5%~~402.4%, for the three ~~and nine~~ months ended ~~September 30, 2013,~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012. These increases~~2013. The increase in other revenues ~~relate~~relates to ~~a single transaction in Continental Europe which resulted in~~an increased number of fee income ~~of $11.0 million recognized in the third quarter of 2013.~~treaties. At ~~September 30,~~March 31, 2014 and 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 ~~$0.6~~$0.9 billion and $0.3 billion, respectively. The increase was primarily due to ~~the aforementioned~~a transaction in Continental ~~Europe.~~Europe entered into in the last 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.

~~Table of Contents~~

Loss ratios for this segment were ~~83.8%~~90.2% and ~~83.0%~~88.9% for the ~~third~~first quarter of ~~2013~~2014 and ~~2012, and 86.7% and 85.8% for the nine months ended September 30,~~ 2013, ~~and 2012,~~ respectively. The increase in the loss ratios is attributable to unfavorable individual life claims experience over the ~~same~~ prior ~~periods~~year, 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.

Interest credited expense increased by $2.8 million for the three months ended March 31, 2014, as compared to the same period in 2013. Interest credited in this segment relates to amounts credited to the contractholders of unit-linked variable annuities associated with the Company’s acquisition of Leidsche Verzekeringen Maatschappij N.V. on August 13, 2013. The effect on interest credited related to unit-linked variable annuities is substantially offset by a corresponding change in investment income and investment related gains (losses), net.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~4.1%~~3.9% and ~~4.8%~~4.0% for the ~~third~~first quarter of ~~2013~~2014 and ~~2012, and 3.8% and 4.8% for the nine months ended September 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.

Other operating expenses increased $2.5 million, or ~~10.2%, and $4.8 million, or 6.3%~~10.1%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. Other operating expenses as a percentage of net premiums totaled ~~8.3% and 8.2% for the third quarter of 2013 and 2012, and 8.4%~~8.0% and 8.5% for the ~~nine months ended September 30, 2013 and 2012, respectively.~~

While concerns continue in 2013 relating to the European sovereign debt and European economies, approximately 85.1% of revenues for the segment were earned outside of the eurozone, primarily the UK, in the thirdfirst quarter of ~~2013. Approximately 7.2% of the segment’s revenues were earned in Spain, Italy~~2014 and ~~Portugal over the same period.~~2013, respectively.

Asia Pacific Operations

The Asia Pacific segment includes operations in Australia, Hong Kong, India, Japan, Malaysia, Singapore, New Zealand, South Korea, Taiwan and mainland China. The principal types of reinsurance include life, critical illness, disability, superannuation, and financial reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and, in addition, offer life and disability insurance coverage. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.

(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

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(dollars in thousands)	Three months ended March 31,
	2014		2013
Revenues:
Net premiums	$	381,750	$	384,324
Investment income, net of related expenses	24,642		22,630
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	2,514		(4,439		)
Total investment related gains (losses), net	2,514		(4,439		)
Other revenues	6,123		7,336
Total revenues	415,029		409,851
Benefits and expenses:
Claims and other policy benefits	303,596		298,401
Interest credited	246		311
Policy acquisition costs and other insurance expenses	54,289		62,086
Other operating expenses	30,587		30,811
Total benefits and expenses	388,718		391,609
Income (loss) before income taxes	$	26,311	$	18,242

Income before income taxes increased by ~~$33.6~~$8.1 million ~~and decreased $298.3 million~~, or 44.2%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The increase in income before income taxes for the ~~third~~first quarter is primarily attributable to ~~both unfavorable claims experience and an increase~~a decrease in ~~claim liabilities~~policy acquisition costs in Australia related to the suspension of new business quoting activity in the ~~third quarter of 2012. The decrease in income before income taxes in the first nine 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's individual lump sum and individual disability businesses. Other operations in this segment reported results in line with management's expectations. In total, the Australia operation reported a loss before income taxes of $292.1 million for the first nine months of 2013, while the other operations in this segment reported income before income taxes of $33.3 million for the same period.market. Additionally, foreign currency exchange fluctuations resulted in ~~an increase (decrease)~~a decrease to income before income taxes totaling approximately ~~$(3.1) million and $12.1~~$3.2 million for the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012.~~2013.

Net premiums ~~increased $12.7~~decreased $2.6 million, or ~~3.8%, and $59.4 million, or 6.0%~~0.7%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012. Premiums in the third quarter and first nine months of 2013 increased mainly in Hong Kong and South East Asia, and Australia with new treaties and growth in existing treaties, partially offset~~2013. The decrease was driven by ~~a decrease in premiums in Japan and South Korea. Unfavorable~~unfavorable changes in Asia Pacific segment currencies ~~resulted~~of approximately $37.2 million for the first quarter of 2014, as compared to the same period in 2013. In local currencies, net premiums from mortality and health business increased but were slightly offset by a decrease in net premiums ~~of approximately $33.0 million~~from group and ~~$49.2 million for the third quarter and first nine months of 2013, respectively, as compared to the same periods in 2012.~~financial related business.

A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the Asia Pacific segment is offered primarily in South Korea, Australia and Hong Kong. Net premiums earned from this coverage totaled ~~$74.1~~$60.4 million and ~~$68.4~~$54.9 million in the ~~third~~first quarter of ~~2013~~2014 and ~~2012, respectively, and $179.9 million and $155.4 million for the first nine months ended September 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.

Net investment income increased ~~$3.0~~$2.0 million, or ~~15.8%, and $3.2 million, or 5.2%~~8.9%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012. These increases can be~~2013. The increase was primarily ~~attributed~~due to an increase in the invested asset base ~~with the first nine months variance somewhat~~ offset slightly by lower investment yields. ~~Offsetting these increases were~~The increase was also offset by an unfavorable ~~changes~~change in foreign currency exchange fluctuations of ~~$2.5 million and $3.7~~$3.0 million for the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, as compared to the same ~~periods~~period in ~~2012. Investment~~2013. A portion of investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.

Other revenues decreased by ~~$3.6~~$1.2 million, or ~~36.2%, and $17.0 million, or 40.8%~~16.5%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012. These decreases~~2013. The decrease 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 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 ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was ~~$1.6~~$1.3 billion and ~~$2.5~~$2.0 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.

Loss ratios for this segment were ~~82.5%~~79.5% and 90.7% for the third quarter of 2013 and 2012, and 108.1% and 79.5% for the nine months ended September 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 ratio77.6% for the first ~~nine months~~quarter of 2014 and 2013, respectively. 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 ~~primarily~~inherent in the business. Loss ratios will fluctuate due to ~~a $274.1 million increase in Australian group claims liabilities as well as poor claims experience~~timing of client company reporting, variations in the ~~Australian operation's individual lump sum~~mixture of business and ~~individual disability businesses. The increase in liabilities is reflected in~~ the ~~table above in claims and other policy benefits. Excluding~~relative maturity of the ~~Australia operation, loss ratio for this segment was 79.9% for the nine months ended September 30, 2013, in line with management's expectations.~~business.

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The largest portion of the Australian liability increase relates to group total and permanent disability coverage, and to a lesser extent, group disability income benefits. Even though these group contracts are typically only three years in duration, the increase in loss ratios to this extent, compared to pricing, has created the need for this significant increase in claims liabilities. The Company completed a comprehensive claims analysis in the second quarter of 2013 that indicated an increase in claim incidences as well as an increase in claim lags throughout the claim reporting process and the additional liabilities reflect potential additional deterioration in the projection of future claims development. The Company believes a number of factors in the current Australian market are leading to a significant rise in claim levels and reporting lags and the Company is working with the ceding companies to better manage this business. The Company has suspended all new quoting activity in the Australian group total and permanent disability market indefinitely. Group premiums recognized in Australia for all group coverage types, including total and permanent disability, were $88.6 million and $274.9 million for the three and nine months ended September 30, 2013, respectively, and $369.1 million for the year ended December 31, 2012.

Policy acquisition costs and other insurance expenses as a percentage of net premiums were ~~13.8%~~14.2% and ~~16.0% for the third quarter of 2013 and 2012, and~~ 16.2% ~~and 19.4%~~ for the first ~~nine months ended September 30,~~quarter of 2014 and 2013, respectively. The decrease in the ratio in the first quarter of 2014 is primarily attributable to a decrease in policy acquisition costs in Australia related to the suspension of new business quoting activity in the Australian group total and ~~2012, respectively.~~permanent disability market. 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.~~

Other operating expenses ~~increased $1.1~~decreased $0.2 million, or ~~3.9%, and $7.5 million, or 9.1%~~0.7%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. Other operating expenses as a percentage of net premiums totaled ~~8.6%~~8.0% for both first quarter periods of 2014 and ~~8.5% for the third quarter of 2013 and 2012 and 8.7% and 8.4% for the first nine months ended September 30, 2013 and 2012, respectively.~~2013. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.

Corporate and Other

Corporate and Other revenues include primarily investment income and investment related gains and losses from unallocated invested assets. Corporate and Other expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance ~~expenses~~income line item, unallocated overhead and executive costs, interest expense related to debt, and the investment income and expense associated with the Company’s collateral finance facility. Additionally, Corporate and Other includes results from, among others, RTP, a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry.


(dollars in thousands)	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
	2013			2012			2013			2012			2014			2013
Revenues:
Net premiums	$	1,004		$	1,896		$	288		$	5,663		$	215		$	(977	)
Investment income, net of related expenses	19,024			22,927			68,858			59,545			25,736			28,016
Investment related gains (losses), net:
Other-than-temporary impairments on fixed maturity securities	(194		)	(1,439		)	(1,952		)	(3,153		)	(256		)	(40		)
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			963			(1,904		)
Total investment related gains (losses), net	(1,723		)	(2,226		)	(2,149		)	1,803			707			(1,944		)
Other revenues	5,719			4,280			56,426			12,666			4,567			50,456
Total revenues	24,024			26,877			123,423			79,677			31,225			75,551
Benefits and expenses:
Claims and other policy benefits	30			(77		)	2			(65		)	17			84
Interest credited	186			—			623			—			206			225
Policy acquisition costs and other insurance income	(20,354		)	(14,194		)	(54,770		)	(41,406		)	(21,667		)	(15,343		)
Other operating expenses	15,339			16,806			55,176			53,171			11,252			23,354
Interest expenses	30,831			29,749			89,235			76,431
Interest expense													35,084			28,486
Collateral finance facility expense	2,698			2,995			7,886			8,840			2,569			2,538
Total benefits and expenses	28,730			35,279			98,152			96,971			27,461			39,344
Income (loss) before income taxes	$	(4,706	)	$	(8,402	)	$	25,271		$	(17,294	)
Income before income taxes													$	3,764		$	36,207

~~Table of Contents~~

Income before income taxes ~~increased~~decreased by ~~$3.7~~$32.4 million, or ~~44.0%, and by $42.6 million, or 246.1%~~89.6%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The ~~increase~~decrease for the ~~third~~first quarter is primarily due to a decrease of $45.9 million in other revenues and an increase of $6.6 million in interest expense, partially offset by a $12.1 million decrease in other operating expenses and a $6.3 million increase in policy acquisition costs and other insurance income of $6.2 million and a $1.4 million increase to other revenue. The increase for the first nine months is primarily due to a $43.8 million increase to other revenue partially offset by an increase in interest expense of $12.8 million.income.

Total revenues decreased by ~~$2.9~~$44.3 million, ~~and increased by $43.7 million~~or 58.7% for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The decrease for the ~~third~~first quarter is primarily due to a ~~$3.9~~decrease of $46.5 million ~~decrease to net investment income due~~related to a ~~decrease in the investment yield. The increase for the first nine months was largely due to a $46.5 million~~ gain on the repurchase of collateral finance facility securities ~~in the first quarter of 2013, included~~recognized in other ~~revenues. Additionally, there was a $9.3 million increase~~revenues in ~~investment income mainly due to a higher investment yield, primarily on limited partnership investments.~~2013.

Total benefits and expenses decreased by ~~$6.5~~$11.9 million, or ~~18.6%, and increased $1.2 million, or 1.2%~~30.2%, for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014, as compared to the same ~~periods~~period in ~~2012.~~2013. The decrease in the ~~third~~first quarter was primarily due to ana $12.1 million decrease in other operating expenses primarily relating to employee incentive compensation and a $6.3 million increase ~~of $6.2 million~~ in policy acquisition costs and other insurance income primarily related to the offset to capital charges allocated to the operating ~~segments and a reduction in other operating expenses of $1.5 million,~~segments. These expense decreases were partially offset by ~~a $1.1 million increase in interest expense due to a higher level of outstanding debt. The increase in the first nine months of 2013 was primarily due to~~ an increase in interest expense of ~~$12.8~~$6.6 million as a result of a higher level of outstanding ~~debt, and an increase in other operating expenses~~debt.

Table of $2.0 million primarily relating to employee compensation, largely offset by a $13.4 million increase in policy acquisition and other insurance income primarily related to the offset to capital charges allocated to the operating segments.Contents

Liquidity and Capital Resources

Current Market Environment

The ~~current interest rate environment in select markets, primarily the U.S., continues to negatively affect the Company’s earnings. The~~ average investment yield, excluding ~~funds withheld and other~~ spread business, has decreased 259 basis points for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 as compared to the same period in ~~2012.~~2013. In addition, the Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. Results of operations in the first ~~nine~~three months of ~~2013~~2014 compared to the same period in ~~2012~~2013 include ~~favorable~~unfavorable changes in the value of embedded derivatives. The effect of tightening credit spreads in the U.S. markets generated ~~an increase~~increases in revenue related to embedded derivatives in both three month periods but to a ~~greater~~lessor extent in ~~the first nine months of 2013~~2014 than ~~2012. This increase was partially offset by a~~2013. The rise in interest rates ~~in 2013, which~~over the past 12 months has also reduced gross unrealized gains on fixed maturity and equity securities available-for-sale, which were ~~$1,688.4~~$1,844.8 million and ~~$2,913.9~~$2,691.6 million at ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, respectively. Gross unrealized losses totaled ~~$318.9~~$179.3 million and ~~$153.7~~$122.5 million at ~~September 30,~~March 31, 2014 and 2013, ~~and 2012,~~ respectively.

The Company continues to be in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer. As indicated above, gross unrealized gains on investment securities of ~~$1,688.4~~$1,844.8 million are well in excess of gross unrealized losses of ~~$318.9~~$179.3 million as of ~~September 30, 2013~~March 31, 2014. 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~~December 2013, the U.S. Federal Reserve announced that it was ~~not~~modestly tapering its quantitative easing ("QE") ~~program due to ongoing concerns with~~program. The Federal Reserve Bank or New York indicated that the ~~U.S. economy~~“sizeable and ~~labor market. That announcement and the stability in the QE program will likely continue to put~~still increasing holdings of longer-term securities should maintain downward pressure on ~~U.S.~~longer-term interest ~~rates.~~rates, support mortgage markets, and help to make broader financial conditions more accommodative.” 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.

The Company projects its reserves to be sufficient and it would not expect to write down deferred acquisition costs or be required to take any actions to augment capital, even if interest rates remain at current levels for the next five years, assuming all other factors remain constant. While the Company has felt the pressures of sustained low interest rates and volatile equity markets and may continue to do so, its business operations are not overly sensitive to these risks. Although management believes the Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.

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The Holding Company

RGA is an insurance holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid to its shareholders, repurchase of common stock and interest payments on its indebtedness. RGA recognized interest expense of ~~$117.7~~$44.6 million and ~~$104.9~~$38.0 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, respectively. ~~RGA purchased a subsidiary for $12.5 million during the nine months ended September 30, 2013.~~ RGA made capital contributions to subsidiaries of ~~$106.6~~$10.0 million and ~~$3.9~~$17.0 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, respectively. Dividends to shareholders were ~~$56.5~~$21.2 million and ~~$44.2~~$17.8 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, respectively. There were no principal payments on RGA’s debt for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012.~~2013. 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 ~~$150.5~~$24.9 million and ~~$59.6~~$25.7 million for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012,~~2013, respectively. ~~Net proceeds from~~There was no issuance of unaffiliated or affiliated long-term debt ~~issuance were $395.1 million and $393.7 million~~ for the ~~nine~~three months ended ~~September 30, 2013~~March 31, 2014 and ~~2012, respectively.~~2013. As the Company continues its business operations, RGA will continue to be dependent upon these sources of liquidity. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, RGA held ~~$837.1~~$828.8 million and ~~$722.3~~$788.4 million, respectively, of cash and cash equivalents, short-term and other investments and fixed maturity investments.

RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third-parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third-parties have recourse to RGA should the subsidiary fail to provide the required funding, however, as of ~~September 30, 2013,~~March 31, 2014, 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~~See Note 8 - "Commitments and Contingent Liabilities" in the Notes to Condensed Consolidated Financial Statements for a table that presents ~~information about these~~the commitments ~~(dollars in millions):~~by period and maximum obligation.

Commitment Period Maximum Potential Obligation
2033 $ 1,350.0
2035 560.0

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RGA has established an intercompany revolving credit facility where certain subsidiaries can lend to or borrow from each other and from RGA in order to manage capital and liquidity more efficiently. The intercompany revolving credit facility, which is a series of demand loans among RGA and its affiliates, is permitted under applicable insurance laws. This facility reduces overall borrowing costs by allowing RGA and its operating companies to access internal cash resources instead of incurring third-party transaction costs. The statutory borrowing and lending limit for RGA’s Missouri-domiciled insurance subsidiaries is currently 3% of the insurance company’s admitted assets as of its most recent year-end. There was ~~$25.0~~$60.0 million and $50.0 million outstanding under the intercompany revolving credit facility as of ~~September 30, 2013~~March 31, 2014 and ~~none as of~~ December 31, ~~2012~~2013., respectively. In addition to loans associated with the intercompany revolving credit facility, RGA and its subsidiary, RGA Capital LLC, each provided a loan to RGA Australian Holdings Pty Limited, another RGA subsidiary, with both loans having an outstanding balance of ~~$26.9~~$27.8 million and $26.8 million as of ~~September 30, 2013.~~March 31, 2014 and December 31, 2013, respectively.

The Company believes that it has sufficient liquidity for the next 12 months to fund its cash needs under various scenarios that include the potential risk of early recapture of reinsurance treaties and higher than expected death claims. Historically, the Company has generated positive net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, preferred securities or common equity and, if necessary, the sale of invested assets subject to market conditions.

In ~~July 2013,~~April 2014, the Company’s ~~quarterly~~board of directors declared a dividend ~~was increased to~~of $0.30 ~~per share from $0.24~~ per share. All future payments of dividends are at the discretion of RGA’s board of directors and will depend on the Company’s earnings, capital requirements, insurance regulatory conditions, operating conditions, and other such factors as the board of directors may deem relevant. The amount of dividends that RGA can pay will depend in part on the operations of its reinsurance subsidiaries. See Note 13 - "Stock Transactions" in the Notes to Condensed Consolidated Financial Statements for information on the Company's share repurchase program.

Cash Flows

The Company’s ~~net~~principal cash inflows from its reinsurance operations include premiums and deposit funds received from ceding companies. The primary liquidity concerns with respect to these cash flows ~~provided~~are early recapture of the reinsurance contract by the ceding company and lapses of annuity products reinsured by the Company. The Company’s principal cash inflows from its invested assets result from investment income and the maturity and sales of invested assets. The primary liquidity concern with respect to these cash inflows relates to the risk of default by debtors and interest rate volatility. The Company manages these risks very closely. See “Investments” and “Interest Rate Risk” below.

Additional sources of liquidity to meet unexpected cash outflows in excess of operating ~~activities~~cash inflows and current cash and equivalents on hand include selling short-term investments or fixed maturity securities and drawing funds under a revolving credit facility, under which the Company had availability of $784.9 million as of March 31, 2014. The Company also has $557.0 million of funds available through collateralized borrowings from the Federal Home Loan Bank of Des Moines (“FHLB”).

The Company’s principal cash outflows relate to the payment of claims liabilities, interest credited, operating expenses, income taxes, and principal and interest under debt and other financing obligations. The Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage and coinsurance contracts (See Note 2, “Summary of Significant Accounting Policies” of the Company's 2013 Annual Report). The Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance. 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 nor to the recoverability of future claims. The Company’s management believes its current sources of liquidity are adequate to meet its cash requirements for the ~~nine months ended~~ ~~September 30, 2013~~ ~~and 2012 were~~ ~~$1,251.0 million~~ ~~and~~ ~~$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.next 12 months.

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Summary of Primary Sources and Uses of Liquidity and Capital

The Company's primary sources and uses of liquidity and capital are summarized as follows:



		For the three months ended March 31,
		2014		2013
		(Dollars in thousands)
Sources:
	Net cash provided by operating activities	$	541,228	$	494,930
	Net cash provided by short-term debt issuances	50,000		—
	Excess tax benefits from share-based payment arrangement	668		143
	Exercise of stock options, net	6,364		1,071
	Change in securities sold under agreements to repurchase and cash
	collateral for derivative positions	29,680		11,532
	Effect of exchange rate changes on cash	7,306		—
	Total sources	635,246		507,676

Uses:
	Net cash used in investing activities	144,277		385,375
	Dividends to stockholders	21,244		17,753
	Repurchase and repayment of collateral finance facility securities	—		112,000
	Purchases of treasury stock	86,837		47,640
	Cash used for changes in universal life and other
	investment type policies and contracts	179,403		186,955
	Effect of exchange rate changes on cash	—		16,004
	Total uses	431,761		765,727
Net increase (decrease) in cash and cash equivalents		$	203,485	$	(258,051	)

~~Net~~Cash Flows from Operations - The principal cash ~~used in investing~~inflows from the Company’s insurance activities ~~for~~come from insurance premiums, annuity considerations and deposit funds. The principal cash outflows relate to the ~~nine months ended~~ liabilities associated with various life and health insurance, annuity and disability products, operating expenses, income tax and interest on outstanding debt obligations. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal.

~~September 30, 2013~~Cash Flows from Investments - The principal cash inflows from the Company’s investment activities come from repayments of principal on invested assets, proceeds from maturities of invested assets, sales of invested assets, settlements of freestanding derivatives and ~~2012 was~~ ~~$514.4 million~~net investment income. The principal cash outflows relate to purchases of investments, issuances of policy loans and ~~$1,026.6 million, respectively. Cash flows~~settlements of freestanding derivatives. The Company typically has a net cash outflow from investing activities ~~primarily reflect~~because cash inflows from insurance operations are reinvested in accordance with its asset/liability management discipline to fund insurance liabilities. The Company closely monitors and manages these risks through its credit risk management process. The primary liquidity concerns with respect to these cash flows are the ~~sales, maturities~~risk of default by debtors and ~~purchases of fixed maturity securities related to the management of~~market disruption.

Financing Cash Flows - The principal cash inflows from 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, other invested assets and purchase of a business.

~~Net cash (used in) provided by~~ financing activities ~~for the nine months ended~~ ~~September 30, 2013~~come from issuances of RGA debt and ~~2012 was~~ ~~$(536.7) million~~equity securities, and ~~$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 todeposit funds associated with universal life and other investment type policies and contracts. The principal cash outflows come from repayments of debt, payments of dividends to stockholders, purchases of treasury stock, and withdrawals associated with universal life and other investment type policies and contracts. A primary liquidity concern with respect to these cash flows is the risk of early contractholder and policyholder withdrawal.

Debt

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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, the Company had ~~$2,214.2~~$2,214.5 million and ~~$1,815.3~~$2,214.4 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.

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The Company enters into derivative agreements with counterparties that reference either the Company’s debt rating or its financial strength rating. If either rating is downgraded in the future, it could trigger certain terms in the Company’s derivative agreements, which could negatively affect overall liquidity. For the majority of the Company’s derivative agreements, there is a termination event should the long-term senior debt ratings drop below either BBB+ (S&P) or Baa1 (Moody’s) or the financial strength ratings drop below either A- (S&P) or A3 (Moody’s).

The Company may borrow up to $850.0 million in cash and obtain letters of credit in multiple currencies on its revolving credit facility that expires in December 2015. As of ~~September 30, 2013~~March 31, 2014, the Company had no cash borrowings outstanding and ~~$73.9~~$65.1 million in issued, but undrawn, letters of credit under this facility. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, the average interest rate on short-term and long-term debt outstanding was ~~5.76%~~5.64% and ~~5.99%~~5.76%, respectively.

On September 19, 2013, RGA issued 4.70% Senior Notes due September 15, 2023 with a face amount of $400.0 million. These senior notes have been registered with the Securities and Exchange Commission. The net proceeds from the offering were approximately $395.1 million and will be used for general corporate purposes. Capitalized issue costs were approximately $3.4 million.

Based on the historic cash flows and the current financial results of the Company, management believes RGA’s cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months.

Collateral Finance Facilities and Statutory Reserve Funding

The Company uses various internal and third-party reinsurance arrangements and funding sources to manage statutory reserve strain, including reserves associated with Regulation XXX, and collateral requirements. Assets in trust and letters of credit are often used as collateral in these arrangements.

Regulation XXX, implemented in the U.S. for various types of life insurance business beginning January 1, 2000, significantly increased the level of reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level premium term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. In situations where primary insurers have reinsured business to reinsurers that are unlicensed and unaccredited in the U.S., the reinsurer must provide collateral equal to its reinsurance reserves in order for the ceding company to receive statutory financial statement credit. In order to manage the effect of Regulation XXX on its statutory financial statements, RGA Reinsurance has retroceded a majority of Regulation XXX reserves to unaffiliated and affiliated unlicensed reinsurers.

RGA Reinsurance’s statutory capital may be significantly reduced if the unaffiliated or affiliated reinsurer is unable to provide the required collateral to support RGA Reinsurance’s statutory reserve credits and RGA Reinsurance cannot find an alternative source for collateral.

In 2006, RGA’s subsidiary, Timberlake Financial L.L.C. (“Timberlake Financial”), issued $850.0 million of Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance and retroceded to Timberlake Reinsurance Company II (“Timberlake Re”). Proceeds from the notes, along with a $112.8 million direct investment by the Company, were deposited into a series of accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. Interest on the notes accrues at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly. The payment of interest and principal on the notes is insured through a financial guaranty insurance policy by a monoline insurance company whose parent company emerged from Chapter 11 bankruptcy in 2013. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries.

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Timberlake Financial relies primarily upon the receipt of interest and principal payments on a surplus note and dividend payments from its wholly-owned subsidiary, Timberlake Re, a South Carolina captive insurance company, to make payments of interest and principal on the notes. The ability of Timberlake Re to make interest and principal payments on the surplus note and dividend payments to Timberlake Financial is contingent upon the South Carolina Department of Insurance’s regulatory approval. ~~As of~~ ~~September 30, 2013~~, Timberlake Re’s capital and surplus totaled $39.8 million. Timberlake Re'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 ~~December~~March 30, ~~2013.~~2015.

~~During~~The Company’s condensed consolidated balance sheets include the ~~first quarter~~assets of ~~2013,~~Timberlake Financial, a wholly-owned subsidiary, recorded as fixed maturity investments and other invested assets, which consists of restricted cash and cash equivalents, with the liability for the notes recorded as collateral finance facility. The Company’s consolidated statements of income include the investment return of Timberlake Financial as investment income and the cost of the facility is reflected in collateral finance facility expense.

In order to enhance liquidity and capital efficiency within the group, various operating subsidiaries have purchased $500.0 million of RGA subordinated debt. Similarly, RGA also purchased $475.0 million of surplus notes issued by its subsidiary Rockwood Re. These intercompany debt securities are eliminated for consolidated financial reporting.

Based on the growth of the Company’s business and the pattern of reserve levels under Regulation XXX associated with term life business and other statutory reserve requirements, the amount of ceded reserve credits is expected to grow. This growth will require the Company ~~repurchased $160.0 million face amount~~to obtain additional letters of credit, put additional assets in trust, or utilize other funding mechanisms to support

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the reserve credits. If the Company is unable to support the reserve credits, the regulatory capital levels of several of its subsidiaries may be significantly reduced. The reduction in regulatory capital would not directly affect the Company’s consolidated shareholders’ equity under GAAP; however, it could affect the Company’s ability to write new business and retain existing business.

The National Association of Insurance Commissioners has been analyzing the insurance industry’s use of affiliated captive reinsurers to satisfy certain reserve requirements and considering ways to promote uniformity in both the approval and supervision of such reinsurers. Affiliated captives are commonly used in the insurance industry to help reduce statutory reserve and collateral requirements and are often domiciled in the same state as the insurance company that sponsors the captive. If a state insurance regulator that regulates any of the ~~Timberlake Financial notes for $112.0 million, which was~~Company’s domestic insurance companies restricts the ~~market value at~~use of captive reinsurers or makes them less effective, the ~~date of the purchase. The notes were purchased by RGA Reinsurance.~~Company’s ability to reinsure certain products, maintain risk based capital ratios and deploy excess capital could be adversely affected. As a result, the Company ~~recorded a pre-tax gain~~may need to alter the type and volume of ~~$46.5 million, after fees, in other revenues at that time.~~

~~In 2010, Manor Re obtained $300.0 million of collateral financing through 2020 from an international bank which enabled Manor Re to deposit assets in trust~~business it reinsures, increase prices on those products, raise additional capital to support higher regulatory reserves or implement higher cost strategies, all of which could adversely impact the Company’s competitive position and its results of operations.

No changes in the use or regulation of captives have been proposed and it is too early to predict the extent of any changes that may be made. Accordingly, the Company expects to continue its strategy of using captives to enhance its capital efficiency and competitive position while it monitors the regulations related to captives and any proposed changes in such regulations. The Company cannot estimate the impact of discontinuing or altering its captive strategy in response to potential regulatory changes due to many unknown variables such as the cost and availability of alternative capital, potential changes in regulatory reserving requirements under a principle-based reserving approach which would likely reduce required collateral, changes in acceptable collateral for statutory ~~reserve credit~~reserves, the potential introduction of the concept of a “certified reinsurer” in the laws and regulations in certain jurisdictions where the Company operates, the potential for ~~an affiliated reinsurance transaction. The bank has recourse to RGA should Manor Re fail to make payments~~ increased pricing of products offered by the Company and the potential change in mix of products sold and/or ~~otherwise not perform~~offered by the Company and/or its ~~obligations under this financing. Interest on the collateral financing accrues at an annual rate of 3-month LIBOR plus a base rate margin, payable quarterly.~~clients.

Asset / Liability Management

The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.

The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.

The Company’s asset-intensive products are primarily supported by investments in fixed maturity securities reflected on the Company’s balance sheet and under funds withheld arrangements with the ceding company. Investment guidelines are established to structure the investment portfolio based upon the type, duration and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. The Company manages the asset-intensive business to provide a targeted spread between the interest rate earned on investments and the interest rate credited to the underlying interest-sensitive contract liabilities. The Company periodically reviews models projecting different interest rate scenarios and their effect on profitability. Certain of these asset-intensive agreements, primarily in the U.S. and Latin America operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company.

The Company’s liquidity position (cash and cash equivalents and short-term investments) was ~~$1,467.4~~$1,245.9 million and ~~$1,548.0~~$1,063.0 million at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of ~~$64.0~~$84.3 million and ~~$136.4~~$51.0 million as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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.

The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets. As of ~~September 30, 2013~~March 31, 2014 the Company had pledged securities with an amortized cost of ~~$292.4~~$300.5 million and an estimated fair value of ~~$307.0~~$312.8 million, and in return the Company received securities with an estimated fair value of ~~$347.5~~$349.7 million. As of December 31, ~~2012~~2013 the Company had pledged securities with an amortized cost of ~~$290.2~~$300.3 million and an estimated fair value of ~~$305.9~~$310.8 million, and in return the Company received securities with an estimated fair value of ~~$342.0~~$344.2 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.

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RGA Reinsurance is a member of the Federal Home Loan Bank of Des Moines (“FHLB”) and holds ~~$31.4~~$36.0 million of FHLB common stock, which is included in other invested assets on the Company's condensed consolidated balance sheets. Membership provides RGA Reinsurance access to borrowing arrangements ~~with the FHLB~~ (“advances”) and funding agreements, discussed ~~below.~~below, with the FHLB. RGA Reinsurance had $50.0 million in outstanding advances with the FHLB at March 31, 2014 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's average~~

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~~outstanding balance of advances was $79.0 million and $32.3 million during the third quarter and first nine months of 2013, respectively.~~2013. RGA Reinsurances’s average outstanding balance of advances was ~~$24.1 million and $8.1~~$11.7 million during the ~~third quarter and~~ first ~~nine~~three months of ~~2012, respectively.~~2014. RGA Reinsurance had no advances during the first three months of 2013. Interest on advances is reflected in interest expense on the Company's condensed consolidated statements of income.

In addition, RGA Reinsurance has also entered into funding agreements with the FHLB under guaranteed investment contracts whereby RGA Reinsurance has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on RGA Reinsurance's commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize RGA Reinsurance's obligations under the funding agreements. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB's recovery is limited to the amount of RGA Reinsurance's liability under the outstanding funding agreements. The amount of the RGA Reinsurance's liability for the funding agreements with the FHLB under guaranteed investment contracts was ~~$535.9~~$601.1 million and ~~$500.0~~$597.1 million at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012,~~2013, respectively, which is included in interest sensitive contract liabilities on the Company'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.

Investments

Management of Investments

The Company’s investment and derivative strategies involve matching the characteristics of its reinsurance products and other obligations and to seek to closely approximate the interest rate sensitivity of the assets with estimated interest rate sensitivity of the reinsurance liabilities. The Company achieves its income objectives through strategic and tactical asset allocations, security and derivative strategies within an asset/liability management and disciplined risk management framework. Derivative strategies are employed within the Company’s risk management framework to help manage duration, currency, and other risks in assets and/or liabilities and to replicate the credit characteristics of certain assets. For a discussion of the Company’s risk management process see “Market Risk” in the “Enterprise Risk Management” section below.

The Company’s portfolio management groups work with the Enterprise Risk Management function to develop the investment policies for the assets of the Company’s domestic and international investment portfolios. All investments held by the Company, directly or in a funds withheld at interest reinsurance arrangement, are monitored for conformance with the Company’s stated investment policy limits as well as any limits prescribed by the applicable jurisdiction’s insurance laws and regulations. See Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company’s investments.

Portfolio Composition

The Company had total cash and invested assets of $~~33.3~~34.3 billion and $~~34.2~~33.4 billion at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, as illustrated below (dollars in thousands):


	September 30, 2013		% of Total		December 31, 2012		% of Total		March 31, 2014		% of Total		December 31, 2013		% of Total
Fixed maturity securities, available-for-sale	$	21,289,108	63.8	%	$	22,291,614	65.2	%	$	22,157,182	64.6	%	$	21,474,136	64.4	%
Mortgage loans on real estate	2,488,582		7.5		2,300,587		6.7		2,526,228		7.4		2,486,680		7.4
Policy loans	1,244,878		3.7		1,278,175		3.7		1,296,897		3.8		1,244,469		3.7
Funds withheld at interest	5,739,872		17.2		5,594,182		16.4		5,814,231		17.0		5,771,467		17.3
Short-term investments	44,192		0.1		288,082		0.9		118,789		0.3		139,395		0.4
Other invested assets	1,116,391		3.4		1,159,543		3.4		1,234,779		3.6		1,324,960		4.0
Cash and cash equivalents	1,423,235		4.3		1,259,892		3.7		1,127,132		3.3		923,647		2.8
Total cash and invested assets	$	33,346,258	100.0	%	$	34,172,075	100.0	%	$	34,275,238	100.0	%	$	33,364,754	100.0	%

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Investment Yield

The following table presents consolidated average invested assets at amortized cost, net investment income and investment yield, excluding ~~funds withheld at interest and~~ spread related business. ~~Funds withheld at interest assets and other spread~~Spread related business ~~are~~is primarily associated with ~~the reinsurance of annuity~~ contracts on which the Company earns an interest rate spread between assets and liabilities. Fluctuations in the yield on ~~funds withheld assets and other~~ spread related business ~~are~~is generally subject to varying degrees, by corresponding adjustments to the interest credited on the liabilities (dollars in thousands).

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	Three months ended September 30,								Nine months ended September 30,								Three months ended March 31,
	2013			2012			Increase/ (Decrease)		2013			2012			Increase/ (Decrease)		2014			2013			Increase/ (Decrease)
Average invested assets at amortized cost	$	18,263,880		$	17,030,794		7.2	%	$	17,910,062		$	16,432,165		9.0	%	$	19,726,037		$	17,992,152		9.6	%
Net investment income	213,318			208,346			2.4		638,687			616,420			3.6		229,644			213,322			7.7
Investment yield (ratio of net investment income to average invested assets)	4.75		%	4.98		%	(23) bps		4.78		%	5.03		%	(25) bps		4.74		%	4.83		%	(.09)

Investment yield decreased for the three ~~and nine~~ months ended ~~September 30, 2013~~March 31, 2014 in comparison to the same ~~periods~~period in the prior year due to lower yields upon reinvestment. The lower yields are due primarily to a lower interest rate environment on a historical basis.

Fixed Maturity and Equity Securities Available-for-Sale

See “Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that provide the amortized cost, unrealized gains and losses, estimated fair value of fixed maturity and equity securities, and the other-than-temporary impairments in AOCI by sector as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

The Company’s fixed maturity securities are invested primarily in corporate bonds, mortgage- and asset-backed securities, and U.S. and Canadian government securities. As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, approximately ~~93.7%~~94.9% and ~~94.2%~~93.7%, respectively, of the Company’s consolidated investment portfolio of fixed maturity securities were investment grade.

Important factors in the selection of investments include diversification, quality, yield, call protection and total rate of return ~~potential and call protection.~~potential. The relative importance of these factors is determined by market conditions and the underlying ~~product or~~reinsurance liability and existing portfolio characteristics. ~~Cash equivalents are primarily invested in high-grade money market instruments.~~ The largest asset class in which fixed maturity securities were invested was corporate securities, which represented approximately ~~56.1% and 55.5%~~56.4% of total fixed maturity securities as of both ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

As of ~~September 30, 2013~~March 31, 2014, the Company’s investments in Canadian and Canadian provincial government securities represented ~~16.4%~~15.6% of the fair value of total fixed maturity securities compared to ~~18.2%~~15.7% of the fair value of total fixed maturity securities at December 31, ~~2012~~2013. These assets are primarily high quality, long duration provincial strips whose valuation is closely 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

The creditworthiness of Greece, Ireland, Italy, Portugal and Spain, commonly referred to as “Europe’s peripheral region,” and Cyprus is under ongoing stress and uncertainty due to high debt levels and economic ~~weakness.~~weakness, although the situation in 2014 and 2013 appears more stable than previous years. The Company did not have material exposure to sovereign fixed maturity securities, which includes global government agencies, from Europe’s peripheral region and Cyprus, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. 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.

~~Table of Contents~~

The tables below show the Company’s exposure to fixed maturity ~~securities~~ and equity securities, based on the security’s country of issuance, from Europe’s peripheral region and Cyprus as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):

Table of Contents


September 30, 2013:			Estimated
March 31, 2014:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Sovereign:
Ireland	$	5,000	$	4,640	3.3	%	$	5,000	$	4,431	3.0	%
Spain	4,986		5,107		3.6		4,988		5,294		3.5
Total sovereign	9,986		9,747		6.9		9,988		9,725		6.5
Financial institutions:
Ireland	7,258		7,497		5.3		9,124		9,464		6.3
Italy	13,825		13,875		9.9		15,930		17,018		11.3
Spain	31,201		33,245		23.6		31,302		34,751		23.1
Total financial institutions	52,284		54,617		38.8		56,356		61,233		40.7
Other:
Ireland	39,874		41,168		29.2		37,960		40,277		26.8
Italy	8,796		9,006		6.4		8,794		9,484		6.3
Spain	24,753		26,274		18.7		26,429		29,521		19.7
Total other	73,423		76,448		54.3		73,183		79,282		52.8
Total	$	135,693	$	140,812	100.0	%	$	139,527	$	150,240	100.0	%

December 31, 2012:			Estimated
December 31, 2013:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Sovereign:
Ireland							$	5,000	$	4,574	3.1	%
Spain							4,987		5,119		3.5
Total sovereign							9,987		9,693		6.6
Financial institutions:
Ireland	$	4,093	$	4,520	3.8	%	7,391		7,665		5.2
Italy							13,932		14,518		9.8
Spain	38,422		39,920		33.7		31,292		33,689		22.9
Total financial institutions	42,515		44,440		37.5		52,615		55,872		37.9
Other:
Ireland	38,852		41,019		34.6		42,514		43,596		29.6
Italy	6,434		6,653		5.6		8,795		9,354		6.4
Spain	24,725		26,547		22.3		26,392		28,770		19.5
Total other	70,011		74,219		62.5		77,701		81,720		55.5
Total	$	112,526	$	118,659	100.0	%	$	140,303	$	147,285	100.0	%

~~Strong improvement~~Improvement in European financial markets, as the governments of the European Union have demonstrated willingness to negotiate a solution to the region’s debt problems, ~~during 2013,~~ has resulted in unrealized gains in both financial institutions and all other fixed maturity and equity securities held by the Company that were issued within the region with the exception of the Company’s sovereign exposure to Ireland which had fair values slightly below amortized cost.

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The tables below show the Company’s exposure to sovereign fixed maturity securities originated in countries other than Europe’s peripheral region, included in “Other foreign government, supranational and foreign government-sponsored enterprises,” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements, as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


September 30, 2013:			Estimated
March 31, 2014:									Estimated
							Amortized Cost		Fair Value		% of Total
Australia							$	427,903	$	432,528	25.5	%
Japan							287,202		294,095		17.4
United Kingdom							145,760		146,421		8.6
South Africa							82,509		79,994		4.7
New Zealand							78,861		77,906		4.6
France							57,765		60,788		3.6
Cayman Islands							53,555		57,703		3.5
South Korea							52,537		54,742		3.2
Netherlands							43,397		44,901		2.7
Other							428,265		443,882		26.2
Total							$	1,657,754	$	1,692,960	100.0	%

December 31, 2013:									Estimated
	Amortized Cost		Fair Value		% of Total		Amortized Cost		Fair Value		% of Total
Australia	$	421,552	$	425,373	26.9	%	$	420,682	$	424,446	26.0	%
Japan	297,576		302,997		19.1		299,745		304,488		18.7
United Kingdom	150,472		152,251		9.6		158,308		158,110		9.7
South Africa	81,548		80,384		5.1		81,231		79,788		5.0
New Zealand	67,078		66,178		4.2		70,185		68,961		4.2
Cayman Islands	53,508		56,549		3.6		53,561		56,344		3.5
South Korea	52,264		54,072		3.4		52,863		54,526		3.3
Germany	49,361		51,490		3.2		49,600		51,266		3.1
France	47,974		50,103		3.2		48,157		50,067		3.1
Other	336,378		343,801		21.7		377,973		381,694		23.4
Total	$	1,557,711	$	1,583,198	100.0	%	$	1,612,305	$	1,629,690	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	%

As of both ~~September 30,~~March 31, 2014 and December 31, 2013,, the Company’s investment in sovereign fixed maturity securities represented ~~7.4%~~7.6% 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~~.securities. The Company typically invests in sovereign fixed maturity securities to help mitigate exposure to foreign currency fluctuations from liabilities denominated in the same currencies.

The Company references rating agency designations in some of its investment disclosures. These designations are based on the ratings from nationally recognized rating organizations, primarily those assigned by S&P. In instances where a S&P rating is not available, the Company will reference the rating provided by Moody’s and in the absence of both the Company will assign equivalent ratings based on information from the NAIC. The NAIC assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their U.S. statutory filings. Effective January 1, 2014, structured securities (mortgage-backed and asset-backed securities) held by the Company's insurance subsidiaries that maintain the NAIC statutory basis of accounting began utilizing the NAIC rating methodology. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).

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The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 was as follows (dollars in thousands):


		September 30, 2013						December 31, 2012							March 31, 2014						December 31, 2013
NAIC Designation	Rating Agency Designation	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total		Rating Agency Designation	Amortized Cost		Estimated Fair Value		% of Total		Amortized Cost		Estimated Fair Value		% of Total
1	AAA/AA/A	$	12,460,380	$	13,643,495	64.1	%	$	12,059,154	$	14,300,571	64.2	%	AAA/AA/A	$	13,519,276	$	14,859,087	67.0	%	$	12,868,061	$	13,867,584	64.6	%
2	BBB	6,117,081		6,298,628		29.6		6,186,536		6,692,929		30.0		BBB	5,882,308		6,177,731		27.9		6,072,604		6,255,451		29.1
3	BB	652,300		655,000		3.1		694,349		712,712		3.2		BB	637,814		666,571		3.0		725,733		740,465		3.4
4	B	499,580		512,325		2.4		444,996		444,035		2.0		B	379,529		379,688		1.7		387,687		400,775		1.9
5	CCC and lower	87,364		86,644		0.4		118,738		95,906		0.4		CCC and lower	60,003		60,427		0.3		106,619		106,873		0.5
6	In or near default	100,645		93,016		0.4		55,659		45,461		0.2		In or near default	18,594		13,678		0.1		110,030		102,988		0.5
	Total	$	19,917,350	$	21,289,108	100.0	%	$	19,559,432	$	22,291,614	100.0	%	Total	$	20,497,524	$	22,157,182	100.0	%	$	20,270,734	$	21,474,136	100.0	%

The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013 (dollars in thousands):


	September 30, 2013				December 31, 2012				March 31, 2014				December 31, 2013
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Residential mortgage-backed securities:
Agency	$	517,517	$	541,870	$	497,918	$	555,535	$	569,064	$	591,515	$	567,113	$	580,855
Non-agency	405,064		409,968		471,349		486,529		400,880		410,356		403,321		408,788
Total residential mortgage-backed securities	922,581		951,838		969,267		1,042,064		969,944		1,001,871		970,434		989,643
Commercial mortgage-backed securities	1,371,473		1,453,114		1,608,376		1,698,903		1,367,205		1,450,503		1,314,782		1,388,946
Asset-backed securities	883,495		885,278		700,455		691,555		933,130		944,579		891,751		894,832
Total	$	3,177,549	$	3,290,230	$	3,278,098	$	3,432,522	$	3,270,279	$	3,396,953	$	3,176,967	$	3,273,421

The residential mortgage-backed securities include agency-issued pass-through securities and collateralized mortgage obligations. A majority of the agency-issued pass-through securities are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. ~~The weighted average credit rating of residential mortgage-backed securities was “A+” as of both~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 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 from the expected, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal ~~payments.~~payments from the expected. 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.

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling ~~$1,755.8~~$1,367.2 million and ~~$1,969.4~~$1,314.8 million, and estimated fair values of ~~$1,847.5~~$1,450.5 million and ~~$2,090.0~~$1,388.9 million, respectively. ~~Those amounts include exposure to~~Approximately 99.3% of the commercial mortgage-backed securities ~~held directly in~~were considered investment-grade utilizing the ~~Company’s investment portfolios within fixed maturity securities,~~rating methodology described above 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~~ ~~September 30, 2013~~ ~~and~~ ~~December~~March 31, ~~2012~~2014. ~~Approximately 31.3% and 30.3%~~Commercial mortgage-backed securities with a vintage year of 2007 or prior totaled $915.4 million, or 63.1%, ~~based on estimated fair value, were classified in~~of the ~~“AAA” category at~~ ~~September 30, 2013~~ ~~and~~ ~~December~~March 31, ~~2012~~2014, ~~respectively.~~commercial mortgage-backed securities balance with the concentration within the 2005 through 2007 vintage years. The Company ~~recorded $10.1 million of~~had no other-than-temporary impairments in its ~~direct~~ investments in commercial mortgage-backed securities for the first ~~nine~~three months ended ~~September 30, 2013~~. The Company recorded $14.2 million of other-than-temporary impairments in its direct investments in commercial mortgage-backed securities for the first nine months ended September 30, 2012. The following tables summarize the commercial mortgage-backed securities by rating and underwriting year at ~~September 30, 2013~~March 31, 2014 and ~~December 31, 2012~~ ~~(dollars in thousands):~~2013.

~~Table of Contents~~

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

~~Table of Contents~~

Asset-backed securities include credit card and automobile receivables, ~~sub-prime~~subprime mortgage-backed securities, home equity loans, manufactured housing bonds and collateralized debt ~~obligations. The Company’s asset-backed securities are diversified by issuer and contain both floating and fixed rate securities and had a weighted average credit rating of “A+” and “AA-” at~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012, respectively.~~obligations (primarily collateralized loan obligations). The Company owns floating rate securities that represent approximately ~~15.3%~~14.1% and ~~15.0%~~14.0% of the total fixed maturity securities at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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.

Table of Contents

Since the financial crisis of 2008, the Company has continued to monitor its exposure in other structured security investments that includes subprime mortgage securities as well as Alt-A securities, a classification of mortgage loans where the risk profile of the borrower falls between prime and subprime. At ~~September 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 $113.9 million and $122.6 million, and estimated fair values of $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 ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~, the Company’s Alt-A securities had an amortized cost of $177.3 million and $169.0 million, and estimated fair values of $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 nine months of 2013. During the first nine months of 2012, the Company recorded $0.5 million in other-than-temporary impairments in its direct subprime and Alt-A portfolios.

~~The Company does not invest in the common equity securities of Fannie Mae and Freddie Mac, both of which are government sponsored entities. However, as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~, the Company held in its direct portfolio $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 ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~, the portfolios held by the Company’s ceding companies that support its funds withheld asset contain approximately $327.6 million and $307.2 million, respectively, in amortized cost of unsecured agency bond holdings and no equity exposure. As of ~~September 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 $701.0 million and $700.9 million, respectively, in amortized cost across the Company’s direct and funds withheld portfolios.

The Company monitors its fixed maturity and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, current intent and ability to hold securities, and various other subjective factors. Based on management's judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. See “Investments – Other-than-Temporary Impairment” in Note 2 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the ~~2012~~2013 Annual Report for additional information. The Company recorded $0.3 million ~~and $10.6 million~~ in other-than-temporary impairments in its fixed maturity securities, ~~including $0.1 million and $10.2 million of other-than-temporary impairment losses on structured securities~~ in the ~~third quarter and~~ first ~~nine~~three months of ~~2013, respectively.~~2014. The Company recorded ~~$2.6 million and $22.2~~$0.2 million in other-than-temporary impairments in its fixed maturity and equity securities, ~~including $2.3 million and $15.3 million of other-than-temporary impairment losses on structured securities,~~ in the ~~third quarter and~~ first ~~nine~~three 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.~~2013. The table below summarizes other-than-temporary impairments for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~ (dollars in thousands).


Asset Class	Three Months Ended					Nine Months Ended				Three months ended March 31,
Asset Class	September 30, 2013			September 30, 2012		September 30, 2013		September 30, 2012		2014			2013
Structured securities	$	134		$	2,331	$	10,243	$	15,341	$	—		$	—
Corporate / Other fixed maturity securities	198			224		400		3,839		303			202
Equity securities	—			—		—		3,025		—			—
Other impairments (primarily mortgage loans and limited partnerships)	(233		)	10,301		1,268		14,382
Other impairment losses and change in mortgage loan provision										(1,664		)	1,626
Total	$	99		$	12,856	$	11,911	$	36,587	$	(1,361	)	$	1,828

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At ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, the Company had ~~$318.9~~$179.3 million and ~~$133.6~~$324.6 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.


	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
Sector:
Corporate securities	67.8	%	30.4	%	59.5	%	65.4	%
Canadian and Canada provincial governments	4.3		0.1		4.4		5.2
Residential mortgage-backed securities	4.9		2.8		7.5		5.8
Asset-backed securities	5.5		21.6		6.6		4.9
Commercial mortgage-backed securities	6.5		38.8		6.6		5.4
State and political subdivisions	4.3		4.3		5.1		4.4
U.S. government and agencies	0.9		—		1.7		1.5
Other foreign government supranational and foreign government-sponsored enterprises	5.8		2.0		8.6		7.4
Total	100.0	%	100.0	%	100.0	%	100.0	%
Industry:
Finance	21.9	%	18.0	%	19.5	%	20.3	%
Asset-backed	5.5		21.6		6.6		4.9
Industrial	36.2		9.0		30.5		34.4
Mortgage-backed	11.4		41.6		14.1		11.2
Government	15.3		6.4		19.8		18.5
Utility	9.7		3.4		9.5		10.7
Total	100.0	%	100.0	%	100.0	%	100.0	%

See “Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the total gross unrealized losses for fixed maturity and equity securities at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, where the estimated fair value had declined and remained below amortized cost by less than 20% or more than 20%.

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See “Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale” in Note 4 - “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that present information related to the Company’s purchases of credit impaired securities in 2014 and 2013.

See “Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for fixed maturity and equity securities that have estimated fair values below amortized cost, by class and grade security, as well as the length of and time the related market value has remained below amortized cost as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

As of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively, the Company classified approximately ~~10.7%~~9.7% and ~~10.0%~~10.2% 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, bank loans, below investment grade commercial and residential mortgage-backed securities and ~~sub-prime~~subprime asset-backed securities with inactive trading markets.

See “Securities Borrowing and Other” in Note 4 - “Investments” in the Notes to Condensed Consolidated Financial Statements for information related to the Company’s securities borrowing program and its repurchase/reverse repurchase program.

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Mortgage Loans on Real Estate

Mortgage loans represented approximately ~~7.5%~~7.4% and ~~6.7%~~7.5% of the Company’s cash and invested assets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. The Company’s mortgage loan portfolio consists ~~principally~~ of U.S. based investments primarily 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 under "Mortgage Loans on Real Estate" in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements.

Valuation allowances on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses.

See “Mortgage Loans on Real Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for information regarding for information regarding valuation allowances and impairments.

Policy Loans

Policy loans comprised approximately 3.8% and 3.7% of the Company’s cash and invested assets as of ~~both~~ ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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.

Funds Withheld at Interest

Funds withheld at interest comprised approximately ~~17.2%~~17.0% and ~~16.4%~~17.3% of the Company’s cash and invested assets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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~~this 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013. Certain ceding companies maintain segregated portfolios for the benefit of the Company.

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Other Invested Assets

Other invested assets include equity securities, ~~collateral,~~ limited partnership interests, ~~real estate~~ joint ventures, ~~real estate held-for-investment,~~ structured loans, derivative contracts and contractholder-directed investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate accounts. Other invested assets represented approximately ~~3.3%~~3.6% and ~~3.4%~~4.0% of the Company’s cash and invested assets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, 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 ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.

The Company did not record any other-than-temporary impairments on equity securities in the ~~third quarter and~~ first ~~nine~~three months of 2014 or 2013. ~~The Company recorded $3.0 million of other-than-temporary impairments on equity securities in the first nine months of 2012.~~ The Company did not record any other-than-temporary impairments ~~in the third quarter~~ on limited ~~partnerships and $2.4 million~~partnership interests in the first ~~nine~~three months of ~~2013.~~2014. The Company recorded ~~$7.5~~$2.4 million in other-than-temporary impairments on limited partnership interests in the ~~third quarter of 2012, and $8.2 million in the~~ first ~~nine~~three months of ~~2012.~~2013.

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date plus or minus any collateral ~~pledged to~~posted or ~~from~~held by the Company. The Company had credit exposure related to its derivative contracts, excluding futures, of $~~12.1~~15.3 million and $~~7.1~~9.7 million at ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively. See “Credit Risk” in Note 5 – “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information.

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Contractual Obligations

The Company’s ~~obligation for long-term debt, including interest, increased by $518.2 million since~~ ~~December 31, 2012~~ primarily related to the September 2013 issuance of senior notes as previously discussed. The Company’s obligation related to its collateral finance facility, including interest, was reduced by $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 payables for collateral received under derivative transactions decreased by $72.4 million due to a reduction in cash received as collateral on derivative positions and the Company's obligation to fund limited partnerships increased by ~~$65.2 million.~~$63.0 million since December 31, 2013. In addition, since December 31, 2013, the Company’s obligation for short-term debt, including interest, increased by $50.1 million due to advances from the FHLB as previously discussed. There were no other material changes in the Company’s contractual obligations from those reported in the ~~2012~~2013 Annual Report.

Enterprise Risk Management

RGA maintains an Enterprise Risk Management (“ERM”) program to consistently identify, assess, mitigate, monitor, and communicate all material risks facing the organization in order to effectively manage all risks, increasing protection of RGA’s clients, shareholders, employees, and other stakeholders. RGA’s ERM framework provides a platform to assess the risk / return profiles of risks throughout the organization, thereby enabling enhanced decision making. This includes development and implementation of mitigation strategies to reduce exposures to these risks to acceptable levels. Risk management is an integral part of the Company’s culture and is interwoven in day to day activities. It includes guidelines, risk appetites, risk targets, risk limits, and other controls in areas such as mortality, morbidity, longevity, pricing, underwriting, currency, administration, investments, asset liability management, counterparty exposure, geographic exposure, financing, asset leverage, regulatory change, business continuity planning, human resources, liquidity, collateral, sovereign risks and information technology development.

The Chief Risk Officer (“CRO”), aided by the Risk Management Steering Committee (“RMSC”), Business Unit Chief Risk Officers, Risk Management Officers and a dedicated ERM function, is responsible for ensuring, on an ongoing basis, that objectives of the ERM framework are met; this includes ensuring proper risk controls are in place, risks are effectively identified, assessed and managed, and key risks to which the Company is exposed are disclosed to appropriate stakeholders. For each Business Unit and key risk, a Risk Management Officer is assigned. A Risk Officer is also assigned to take overall responsibility of a specific risk across all markets to monitor and assess this risk consistently. In addition to this network of Risk Management Officers, the Company also has risk focused committees such as the Business Continuity and Information Governance Steering Committee, Consolidated Investment Committee, Derivatives Risk Oversight Committee, Asset and Liability Management Committee, Hedging Oversight Committee, Collateral and Liquidity Committee, and the Currency Risk Management Committee. These committees are comprised of various risk experts and have overlapping membership, enabling consistent and holistic management of risks. These committees report directly or indirectly to the RMSC. The RMSC, which includes senior management executives, including the Chief Executive Officer, the Chief Financial Officer ("CFO"), the Chief Operating Officer (“COO”) and the CRO, is the primary risk management oversight for the Company.

The RMSC approves both targets and limits for each material risk and reviews these limits annually. Exposure to these risks is calculated and presented to the RMSC at least quarterly. Any exception to established risk limits or waiver needs to be approved by the RMSC.

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The CRO, reports regularly to the Finance, Investment and Risk Management (“FIRM”) Committee, a sub-committee of the Board of Directors responsible, among other duties, for overseeing the management of RGA’s ERM programs and policies. An extensive ERM report is presented to the FIRM quarterly. The report contains information on all risks as well as qualitative and quantitative assessments. ~~A list of all breaches,~~Breaches, exceptions and waivers isare also included in the report. The Board of Directors has other committees, such as the Audit Committee, whose responsibilities include aspects of risk management. The CRO reports to the ~~COO~~CFO and has direct access to the RGA Board of Directors, through the FIRM Committee.

The Company has devoted significant resources to develop its ERM program, and expects continuing to do so in the future. Nonetheless, the Company’s policies and procedures to identify, manage and monitor risks may not be fully effective. Many of the Company’s methods for managing risk are based on historical information, which may not be a good predictor of

future risk exposures, such as the risk of a pandemic causing a large number of deaths. Management of operational, legal and regulatory risk rely on policies and procedures which may not be fully effective under all scenarios.

The Company categorizes its main risks as follows:

Insurance Risk

Market Risk

Credit Risk

Operational Risk

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Specific risk assessments and descriptions can be found below and in Item 1A – “Risk Factors” of the ~~2012~~2013 Annual Report.

Insurance Risk

The risk of loss due to experience deviating adversely from expectations for mortality, morbidity, and policyholder behavior or lost future profits due to treaty recapture by clients. This category is further divided into mortality, morbidity, longevity, policyholder behavior, and client recapture. The Company uses multiple approaches to managing insurance risk: active insurance risk assessment and pricing appropriately for the risks assumed, transferring undesired risks, and managing the retained exposure prudently. These strategies are explained below.

Insurance Risk Assessment and Pricing

The Company has developed extensive expertise in assessing insurance risks which ultimately forms an integral part of ensuring that it is compensated commensurately for the risks it assumes and that it does not overpay for the risks it transfers to third parties. This expertise includes a vast array of market and product knowledge supported by a large information database of historical experience which is closely monitored. Analysis and experience studies derived from this database help form the basis for the Company’s pricing assumptions which are used in developing rates for new risks. If actual mortality or morbidity experience is materially adverse, some reinsurance treaties allow for increases to future premium rates.

Misestimation of any key risk can threaten the long term viability of the enterprise. Further, the pricing process is a key operational risk and significant effort is applied to ensuring the appropriateness of pricing assumptions. Some of the safeguards the Company uses to ensure proper pricing are: experience studies, strict underwriting, sensitivity and scenario testing, pricing guidelines and controls, authority limits and internal and external pricing reviews. In addition, the Global ERM function provides additional pricing oversight which includes periodic pricing audits.

Risk Transfer

To minimize volatility in financial results and reduce the impact of large losses, the Company transfers some of its insurance risk to third parties using vehicles such as retrocession and catastrophe coverage.

Retrocession

In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises (or retrocessionaires) under excess coverage and coinsurance contracts. In individual life markets, the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations the Company has retained more than $8.0 million per individual life. The Company enters into agreements with other reinsurers to mitigate the residual risk related to the over-retained policies. Additionally, due to some lower face amount reinsurance coverages provided by the Company in addition to individual life, such as group life, disability and health, under certain circumstances, the Company could potentially incur claims totaling more than $8.0 million per individual life.

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Catastrophe Coverage

The Company accesses the markets each year for annual catastrophic coverages and reviews current coverage and pricing of current and alternate designs. Purchases vary from year to year based on the Company’s perceived value of such coverages. The current policy covers events involving 10 or more insured deaths from a single occurrence and covers $100 million of claims in excess of the Company’s $50 million deductible.

Mitigation of Retained Exposure

The Company retains most of the inbound insurance risk. The Company manages the retained exposure proactively using various mitigating factors such as diversification and limits. Diversification is the primary mitigating factor of short term volatility risk, but it also mitigates adverse impacts of changes in long term trends and catastrophic events. The Company’s insured populations are dispersed globally, diversifying the insurance exposure because factors that cause actual experience to deviate materially from expectations do not affect all areas uniformly and synchronously or in close sequence. A variety of limits mitigate retained insurance risk. Examples of these limits include geographic exposure limits, which set the maximum amount of business that can be written in a given locale, and jumbo limits, which prevent excessive coverage on a given individual.

In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA’s mortality risk.

Market Risk

Market risk is the risk that net asset and liability values or revenue will be affected adversely by changes in market conditions such as market prices, exchange rates, and nominal interest rates. The Company is primarily exposed to interest rate, foreign currency, inflation and equity risks.

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Interest Rate Risk

Interest rate risk is the potential for loss, on a net asset and liability basis, due to changes in interest rates, including both normal rate changes and credit spread changes. This risk arises from many of the Company’s primary activities, as the Company invests substantial funds in interest-sensitive assets and also has certain interest-sensitive contract liabilities. The Company manages interest rate risk to maximize the return on the Company’s capital effectively and to preserve the value created by its business operations. As such, certain management monitoring processes are designed to minimize the effect of sudden and/or sustained changes in interest rates on fair value, cash flows, and net interest income. The Company manages its exposure to interest rates principally by matching floating rate liabilities with corresponding floating rate assets and by matching fixed rate liabilities with corresponding fixed rate assets. On a limited basis, the Company uses equity options to minimize its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products.

The Company’s exposure to interest rate price risk and interest rate cash flow risk is reviewed on a quarterly basis. Interest rate price risk exposure is measured using interest rate sensitivity analysis to determine the change in fair value of the Company’s financial instruments in the event of a hypothetical change in interest rates. Interest rate cash flow risk exposure is measured using interest rate sensitivity analysis to determine the Company’s variability in cash flows in the event of a hypothetical change in interest rates.

In order to reduce the exposure of changes in fair values from interest rate fluctuations, the Company has developed strategies to manage the interest rate sensitivity of its asset base. From time to time, the Company has utilized the swap market to manage the volatility of cash flows to interest rate fluctuations.

Foreign Currency Risk

The Company is subject to foreign currency translation, transaction, and net income exposure. The Company manages its exposure to currency principally by matching invested assets with the underlying liabilities to the extent possible. The Company has in place net investment hedges for a portion of its investments in its Canadian and Australian operations to reduce excess exposure to these currencies. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders’ equity on the condensed consolidated balance sheets.

The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). However, the Company has entered into certain interest rate swaps in which the cash flows are denominated in different currencies, commonly referred to as cross currency swaps. Those interest rate swaps have been designated as cash flow hedges. The majority of the Company’s foreign currency transactions are denominated in Australian dollars, British pounds, Canadian dollars, Euros, Japanese yen, Korean won, and the South African rand. 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.

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Inflation Risk

The primary direct effect on the Company of inflation is the increase in operating expenses. A large portion of the Company’s operating expenses consists of salaries, which are subject to wage increases at least partly affected by the rate of inflation. The rate of inflation also has an indirect effect on the Company. To the extent that a government’s policies to control the level of inflation result in changes in interest rates, the Company’s investment income is affected.

The Company reinsures annuities with benefits indexed to the cost of living. These benefits are hedged with a combination of CPI swaps and indexed government bonds.

Equity Risk

Equity risk is the risk that net asset and liability (e.g. variable annuities or other equity linked exposures) values or revenues will be affected adversely by changes in equity markets. The Company assumes equity risk from embedded derivatives in alternative investments, fixed indexed annuities and variable annuities.

Alternative Investments

Alternative Investments are investments in non-traditional asset classes that are most commonly backing capital and surplus and not liabilities. The Company generally restricts the alternative investments portfolio to non-liability supporting assets: that is, free surplus. For (re)insurance companies, alternative investments generally encompass: hedge funds, owned commercial real estate, emerging markets debt, distressed debt, commodities, infrastructure, tax credits, and equities, both public and private. The Company mitigates its exposure to alternative investments by limiting the size of the alternative investments holding.

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Fixed Indexed Annuities

Credits for fixed indexed annuities are affected by changes in equity markets. Thus the fair value of the benefit is a function of primarily index returns and volatility. The Company hedges some of the underlying equity exposure.

Variable Annuities

The Company reinsures variable annuities including those with guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). Strong equity markets, increases in interest rates and decreases in volatility will generally decrease the fair value of the liabilities underlying the benefits. Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing reserves and lowering earnings. The Company maintains a customized dynamic hedging program that is designed to substantially mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits, ignoring the Company’s own credit risk assessment. However, the hedge positions may not fully offset the changes in the carrying value of the guarantees due to, among other things, time lags, high levels of volatility in the equity and derivative markets, extreme swings in interest rates, unexpected contract holder behavior, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on the Company’s net income, financial condition or liquidity. The table below provides a summary of variable annuity account values and the fair value of the guaranteed benefits as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013.


(dollars in millions)	September 30, 2013		December 31, 2012		March 31, 2014		December 31, 2013
No guarantee minimum benefits	$	950	$	948	$	943	$	961
GMDB only	83		79		85		86
GMIB only	6		6		6		6
GMAB only	52		54		51		52
GMWB only	1,704		1,662		1,733		1,752
GMDB / WB	459		455		459		467
Other	31		31		30		31
Total variable annuity account values	$	3,285	$	3,235	$	3,307	$	3,355
Fair value of liabilities associated with living benefit riders	$	65	$	172	$	54	$	30

There has been no significant change in the Company’s quantitative or qualitative aspects of market risk during the quarter ended ~~September 30, 2013~~March 31, 2014 from that disclosed in the ~~2012~~2013 Annual Report.

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Credit Risk

Credit risk is the risk of loss due to counterparty (obligor, client, retrocessionaire, or partner) credit deterioration or unwillingness to meet its obligations. Credit risk has two forms: investment credit risk (asset default and credit migration) and insurance counterparty risk.

Investment Credit Risk

Investment credit risk, which includes default risk, is risk of loss due to credit quality deterioration of an individual financial investment, derivative or non-derivative contract or instrument. Credit quality deterioration may or may not be accompanied by a ratings downgrade. Generally, the investment credit exposure is limited to the fair value, net of any collateral received, at the reporting date.

The creditworthiness of Europe’s peripheral region is under ongoing stress and uncertainty due to high debt levels and economic weakness. The Company does not have material exposure to sovereign fixed maturity securities, which includes global government agencies, from Europe’s peripheral region and Cyprus. However, the Company does have exposure to non-sovereign fixed maturity and equity securities issued from Europe’s peripheral region. The Company increased its exposure to fixed maturity and equity securities in Europe’s peripheral region and Cyprus from an estimated fair value of ~~$118.7~~$147.3 million at December 31, ~~2012~~2013 to ~~$140.8~~$150.2 million as of ~~September 30, 2013~~March 31, 2014, 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.

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The Company manages investment credit risk using per-issuer investments limits. In addition to per-issuer limits, the Company also limits the total amounts of investments per rating category. An automated compliance system checks for compliance for all investment positions and sends warning messages when there is a breach. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.

The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that vary depending on the posting party’s financial strength ratings. Additionally, a decrease in the Company’s financial strength rating to a specified level results in potential settlement of the derivative positions under the Company’s agreements with its counterparties. The Collateral and Liquidity Committee sets rules, approves and oversees all deals requiring collateral. See “Credit Risk” in Note 5 – “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on credit risk related to derivatives.

Insurance Counterparty Risk

Insurance counterparty risk is the potential for the Company to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk.

Run-on-the-Bank

The risk that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Severely higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs.

Collection Risk

For clients and retrocessionaires, this includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to RGA.

The Company manages insurance counterparty risk by limiting the total exposure to a single counterparty and by only initiating contracts with creditworthy counterparties. In addition, some of the counterparties have set up trusts and letters of credit, reducing the Company’s exposure to these counterparties.

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Generally, RGA’s insurance subsidiaries retrocede amounts in excess of their retention to RGA Reinsurance, Parkway Re, RGA Barbados, RGA Americas, Rockwood Re, Manor Re, RGA Worldwide or RGA Atlantic. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of ~~September 30, 2013,~~March 31, 2014, 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.

The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.

Aggregate Counterparty Limits

In addition to investment credit limits and insurance counterparty limits, there are aggregate counterparty risk limits which include counterparty exposures from reinsurance, financing and investment activities at an aggregated level to control total exposure to a single counterparty. Counterparty risk aggregation is important because it enables the Company to capture risk exposures at a comprehensive level and under more extreme circumstances compared to analyzing the components individually.

All counterparty exposures are calculated on a quarterly basis, reviewed by management and monitored by the ERM function.

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Operational Risk

Operational risk is the risk of loss due to inadequate or failed internal processes, people or systems, or external events. These risks are sometimes residual risks after insurance, market and credit risks have been identified. Operational risk is further divided into: Process, Legal/Regulatory, Financial, and Intangibles. The Company's financial risk includes liquidity risk, which is risk that cash resources are insufficient to meet the Company's cash demands without incurring unacceptable costs. 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.

The Company maintains cash, cash equivalents, credit facilities, and short-term liquid investments to support its current and future anticipated liquidity requirements. The Company may also borrow via the reverse repo market, and holds a large pool of unrestricted, FHLB-eligible collateral that may be pledged to support any FHLB advances needed to provide additional liquidity.

The amount of liquidity available both within 24 hours and within 72 hours is reviewed and reported at least weekly.

In order to effectively manage operational risks, management primarily relies on:

Risk Culture

Risk management is embedded in RGA’s business processes in accordance with RGA’s risk philosophy. As the cornerstone of the ERM framework, risk culture plays a preeminent role in the effective management of risks assumed by RGA. At the heart of RGA’s risk culture is prudent risk management. Senior management sets the tone for RGA risk culture, inculcating positive risk attitudes so as to entrench sound risk management practices into day-to-day activities.

Structural Controls

Structural controls provide additional safeguards against undesired risk exposures. Examples of structural controls include: pricing and underwriting reviews, standard treaty language, etc.

Risk Monitoring and Reporting

Proactive risk monitoring and reporting enable early detection and mitigation of emerging risks. For example, there is elevated regulatory activity in the wake of the global financial crisis and RGA is actively monitoring regulatory proposals in order to respond optimally. Risk escalation channels coupled with open communication lines enhance the mitigants explained above.

New Accounting Standards

See Note 14 — “New Accounting Standards” in the Notes to Condensed Consolidated Financial Statements.

8674

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

See “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk” which is included herein.

ITEM 4. Controls and Procedures

The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.

There was no change in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended ~~September 30, 2013,~~March 31, 2014, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings

ITEM 1A. Risk Factors

~~In the risk factor below, we refer to the Company as “we,” “us,” or “our”. Other than the risk factor listed below,there have been~~There were no material changes from the risk factors ~~previously~~ disclosed in the ~~Company’s 2012~~2013 Annual Report.

~~The availability and cost of collateral, including letters of credit, asset trusts and other credit facilities, could adversely affect our operations and financial condition.~~

Regulatory reserve requirements in various jurisdictions in which we operate may be significantly higher than the reserves required under GAAP. Accordingly, we reinsure, or retrocede, business to affiliated and unaffiliated reinsurers to reduce the amount of regulatory reserves and capital we are required to hold in certain jurisdictions. A regulation in the United States, commonly referred to as Regulation XXX, requires a relatively high level of regulatory, or statutory, reserves that U.S. life insurance and life reinsurance companies must hold on their statutory financial statements for various types of life insurance business, primarily certain level term life products. The reserve levels required under Regulation XXX increase over time and are normally in excess of reserves required under GAAP. The degree to which these reserves will increase and the ultimate level of reserves will depend upon the mix of our business and future production levels in the United States. Based on the assumed rate of growth in our current business plan, and the increasing level of regulatory reserves associated with some of this business, we expect the amount of required regulatory reserves to grow significantly.

In order to reduce the effect of Regulation XXX, our principal U.S. operating subsidiary, RGA Reinsurance Company, has retroceded Regulation XXX-related reserves to affiliated and unaffiliated reinsurers, including affiliated insurers governed by captive insurance laws. Additionally, some of our reinsurance subsidiaries in foreign jurisdictions enter into various reinsurance arrangements with affiliated and unaffiliated reinsurers from time to time in order to reduce statutory capital and reserve requirements. We retrocede business to our affiliates to help reduce the amount of regulatory capital required by the laws of certain jurisdictions, including the U.S. and the UK.

State insurance regulators have been scrutinizing the use of affiliated captive reinsurers to satisfy certain reserve requirements. If a state insurance regulator that regulates any of our domestic insurance companies restricts the use of such captive reinsurers, our ability to reinsure certain products, maintain risk based capital ratios and deploy excess capital could be adversely affected. As a result, we may need to alter the type and volume of business we reinsure, increase prices on those products, and raise additional capital to support higher regulatory reserves or implement higher cost strategies, all of which could adversely impact our competitive position and our results of operations.

We believe that the capital required to support the business for our affiliated reinsurers reflects a more realistic expectation than the capital requirements of our insurance subsidiaries that are retroceding such policies, which have capital requirements that are often considered to be quite conservative. As a general matter, for us to reduce regulatory reserves on business that we retrocede, the affiliated or unaffiliated reinsurer must provide an equal amount of collateral. Such collateral may be provided through a capital markets securitization, in the form of a letter of credit from a commercial bank or through the placement of assets in trust for our benefit.

~~In connection with these reserve requirements, we face the following risks:~~



	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.

~~Table of Contents~~

~~We cannot assure you that we will be able to implement actions to mitigate the effect of increasing regulatory reserve requirements.~~

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table summarizes RGA’s repurchase activity of its common stock during the quarter ended ~~September 30, 2013:~~March 31, 2014:

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
July 1, 2013 -
July 31, 2013
129
$ 69.70
—
$ 169,543,044
August 1, 2013 -
August 31, 2013
122,244
$ 64.72
122,175
$ 161,636,046
September 1, 2013 -
September 30, 2013
349,032
$ 65.67
348,994
$ 138,719,222



	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
January 1, 2014 - January 31, 2014	702	$	74.99	—	$	—
February 1, 2014 - February 28, 2014	326,801	$	75.35	323,886	$	275,589,575
March 1, 2014 - March 31, 2014	1,126,135	$	78.37	1,125,407	$	187,392,088

(1)

RGA repurchased ~~122,175~~323,886 and ~~348,994~~1,125,407 shares of common stock under its share repurchase program for ~~$7.9~~$24.4 million and ~~$22.9~~$88.2 million during ~~August~~February and ~~September 2013,~~March 2014, respectively. The Company net settled - issuing ~~2,333, 2,289~~1,912, 8,370 and ~~1,409~~3,259 shares from treasury and repurchasing from recipients ~~129, 69~~702, 2,915 and 38728 shares in ~~July, August~~January, February and ~~September 2013,~~March 2014, respectively, in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award.

~~In January 2013, RGA's~~On February 20, 2014, RGA’s board of directors authorized a share repurchase program for up to ~~$200.0~~$300.0 million of ~~RGA's~~the RGA’s outstanding common stock. The authorization is effective immediately and does not have an expiration date. Repurchases would be made in accordance with applicable securities laws and would be made through market transactions, block trades, privately negotiated transactions or other means or a combination of these methods, with the timing and number of shares repurchased dependent on a variety of factors, including share price, corporate and regulatory requirements and market and business conditions. Repurchases may be commenced or suspended from time to time without prior notice. In ~~April 2013, RGA's~~connection with this new authorization, the board of directors ~~authorized an increase of $100.0 million to~~terminated the ~~share~~stock repurchase ~~program previously authorized~~authority granted in ~~January~~ 2013. In July 2013, RGA'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's outstanding common stock authorized for repurchase is $400.0 million.

ITEM 6. Exhibits

See index to exhibits.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	Reinsurance Group of America, Incorporated
Date: ~~November~~May 5, ~~2013~~2014	By:	/s/ A. Greig Woodring
		A. Greig Woodring
		President & Chief Executive Officer
		(Principal Executive Officer)
Date: ~~November~~May 5, ~~2013~~2014	By:	/s/ Jack B. Lay
		Jack B. Lay
		Senior Executive Vice President & Chief Financial Officer
		(Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS




Exhibit Number		Description

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.

3.2		Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 of Current Report on Form 8-K filed November 25, 2008.

~~4.1~~		Second Supplemental Indenture, dated as of September 24, 2013, between the Company and The Bank of New York Mellon Trust Company, N.A., as Trustee, incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed September 24, 2013.

~~4.2~~		~~Form of 4.70% Senior Note due 2023, incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed September 24, 2013.~~

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.

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 Document

9178



				Amortized Cost/ Recorded Investment		Estimated Fair Value
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



	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