The amortized cost and fair value of fixed maturity securities held at September 30, 2011, were as follows (in 000's):


Available-for-sale fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Temporary Losses		OTTI Losses (1)		Fair Value
Non-corporate securities:
Asset-backed securities	$	55	$	1	$	0	$	-	$	56
Residential mortgage-backed securities		26,241		2,287		-		-		28,528
Commercial mortgage-backed securities		15,216		331		(1,156)		-		14,391
Foreign government & agency securities		-		-		-		-		-
U.S. states and political subdivision securities		215		6		-		-		221
U.S. treasury and agency securities		494,419		14,431		-		-		508,850
Total non-corporate securities		536,146		17,056		(1,156)		-		552,046

Corporate securities		1,038,389		93,839		(15,488)		(10,595)		1,106,145

Total available-for-sale fixed maturity securities	$	1,574,535	$	110,895	$	(16,644)	$	(10,595)	$	1,658,191


Trading fixed maturity securities		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-corporate securities:
Asset-backed securities	$	474,376	$	10,054	$	(145,576)	$	338,854
Residential mortgage-backed securities		958,835		15,753		(202,750)		771,838
Commercial mortgage-backed securities		809,373		39,038		(135,538)		712,873
Foreign government & agency securities		97,822		18,293		-		116,115
U.S. states and political subdivision securities		486		28		-		514
U.S. treasury and agency securities		323,722		13,916		-		337,638
Total non-corporate securities		2,664,614		97,082		(483,864)		2,277,832

Corporate securities		7,984,728		435,800		(142,408)		8,278,120

Total trading fixed maturity securities	$	10,649,342	$	532,882	$	(626,272)	$	10,555,952

(1) Represents the pre-tax non-credit OTTI loss recorded as a component of accumulated other comprehensive income (“AOCI”) for assets still held at the reporting date. Recoveries of $8,907 are shown within gross unrealized gains and the remainder as gross unrealized temporary losses.

The amortized cost and fair value of fixed maturity securities held at December 31, 2010, were as follows (000's):


Available-for-sale fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Temporary Losses		OTTI Losses (1)		Fair Value
Non-corporate securities:
Asset-backed securities	$	694	$	27	$	(6)	$	-	$	715
Residential mortgage-backed securities		32,263		2,351		-		-		34,614
Commercial mortgage-backed securities		15,952		522		(1,424)		-		15,050
Foreign government & agency securities		506		57		-		-		563
U.S. states and political subdivision securities		217		-		(3)		-		214
U.S. treasury and agency securities		371,704		4,500		(971)		-		375,233
Total non-corporate securities		421,336		7,457		(2,404)		-		426,389

Corporate securities		1,001,615		82,490		(2,267)		(12,304)		1,069,534

Total available-for-sale fixed maturity securities	$	1,422,951	$	89,947	$	(4,671)	$	(12,304)	$	1,495,923


Trading fixed maturity securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Non-corporate securities:
Asset-backed securities	$	544,106	$	10,104	$	(142,230)	$	411,980
Residential mortgage-backed securities		1,184,184		17,259		(278,650)		922,793
Commercial mortgage-backed securities		917,650		42,368		(140,823)		819,195
Foreign government & agency securities		122,537		8,239		-		130,776
U.S. states and political subdivision securities		605		8		-		613
U.S. treasury and agency securities		745,460		3,037		(878)		747,619
Total non-corporate securities		3,514,542		81,015		(562,581)		3,032,976

Corporate securities		8,195,874		368,893		(130,625)		8,434,142

Total trading fixed maturity securities	$	11,710,416	$	449,908	$	(693,206)	$	11,467,118

(1) Represents the pre-tax non-credit OTTI loss recorded as a component of AOCI for assets still held at the reporting date.

The amortized cost and estimated fair value by maturity periods for fixed maturity securities held at September 30, 2011 are shown below (in 000's). Actual maturities may differ from contractual maturities on structured securities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


		Amortized Cost		Fair Value
Maturities of available-for-sale fixed securities:
Due in one year or less	$	211,965	$	213,138
Due after one year through five years		602,848		634,713
Due after five years through ten years		137,362		140,181
Due after ten years		580,848		627,183
Subtotal – Maturities of available-for-sale fixed securities		1,533,023		1,615,215
ABS, RMBS and CMBS securities(1)		41,512		42,976
Total available-for-sale fixed securities	$	1,574,535	$	1,658,191

Maturities of trading fixed securities:
Due in one year or less	$	688,391	$	702,958
Due after one year through five years		4,404,765		4,577,164
Due after five years through ten years		1,775,609		1,894,398
Due after ten years		1,537,993		1,557,865
Subtotal – Maturities of trading fixed securities		8,406,758		8,732,385
ABS, RMBS and CMBS securities(1)		2,242,584		1,823,567
Total trading fixed securities	$	10,649,342	$	10,555,952

Gross gains of $72.0 million and gross losses of $24.1 million were realized on the sale of fixed maturity securities for the nine-month period ended September 30, 2011.

The following table shows the number of securities, fair value and gross unrealized losses, which includes temporary unrealized losses and the portion of non-credit OTTI losses recognized in AOCI. The Company's available-for-sale fixed maturity investments are aggregated by investment category and length of time that the individual securities had been in an unrealized loss position at September 30, 2011 (in 000's).

	Less Than Twelve Months					Twelve Months Or More					Total
	No. (1)	Fair Value		Gross Unrealized Losses		No. (1)	Fair Value		Gross Unrealized Losses		No. (1)	Fair Value		Gross Unrealized Losses

Non-corporate securities:
Asset-backed securities	-	$	-	$	-	1	$	1	$	-	1	$	1	$	-
Residential mortgage-backed securities	-		-		-	1		22		-	1		22		-
Commercial mortgage-backed securities	2		3,112		(143)	4		2,144		(1,014)	6		5,256		(1,157)
U.S. treasury and agency securities	-		-		-	-		-		-	-		-		-
Total non-corporate securities	2		3,112		(143)	6		2,167		(1,014)	8		5,279		(1,157)

Corporate securities	48		181,402		(9,942)	13		33,241		(7,233)	61		214,643		(17,175)
Total	50	$	184,514	$	(10,085)	19	$	35,408	$	(8,247)	69	$	219,922	$	(18,332)

	Less Than Twelve Months					Twelve Months Or More					Total
	No. (1)		Fair Value		Gross Unrealized Losses	No. (1)		Fair Value		Gross Unrealized Losses	No. (1)		Fair Value		Gross Unrealized Losses

Non-corporate securities:
Asset-backed securities	-	$	-	$	-	1	$	11	$	(6)	1	$	11	$	(6)
Residential mortgage-backed securities	1		26		-	-		-		-	1		26		-
Commercial mortgage-backed securities	-		-		-	5		2,534		(1,424)	5		2,534		(1,424)
Foreign government & agency securities	-		-		-	-		-		-	-		-		-
U.S. states and political subdivisions	1		214		(3)	-		-		-	1		214		(3)
U.S. treasury and agency securities	2		23,636		(971)	-		-		-	2		23,636		(971)

Total non-corporate securities	4		23,876		(974)	6		2,545		(1,430)	10		26,421		(2,404)
Corporate securities	72		187,916		(5,211)	35		91,154		(9,360)	107		279,070		(14,571)
Total	76	$	211,792	$	(6,185)	41	$	93,699	$	(10,790)	117	$	305,491	$	(16,975)

(1) These columns present the number of securities (not in thousands) in an unrealized loss position.

Beginning on April 1, 2009, the Company presents and discloses OTTI in accordance with FASB ASC Topic 320, “Investments-Debt and Equity Securities.” Securities whose fair value is less than their carrying amount are considered to be impaired and are evaluated for potential OTTI. If the Company intends to sell, or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, the security is considered other-than-temporarily impaired and the Company records a charge to earnings for the full amount of impairment based on the difference between the current carrying amount and the fair value of the security. Otherwise, losses on securities which are other-than-temporarily impaired are separated into two categories: credit loss and non-credit loss. The credit loss portion is charged to net realized investment losses in the unaudited condensed consolidated statements of operations, while the non-credit loss is charged to other comprehensive income. When an unrealized loss on an available-for-sale fixed maturity security is considered temporary, the Company continues to record the unrealized loss in other comprehensive income and not in earnings.

To compute the credit loss component of OTTI for corporate bonds on the date of transition (April 1, 2009), both historical default (by rating) data, used as a proxy for the probability of default, and loss given default (by issuer) projections were applied to the par amount of the bond. For corporate bonds post-transition, the present value of future cash flows using the book yield is used to determine the credit component of OTTI. If the present value of the cash flow is less than the security's amortized cost, the difference is recorded as a credit loss. The difference between the estimates of the credit related loss and the overall OTTI is the non-credit-related component.

As a result of the adoption of FASB ASC Topic 320, a cumulative effect adjustment, net of tax, of $9.1 million was recorded to decrease accumulated other comprehensive income with a corresponding increase to retained earnings (accumulated deficit) for the non-credit loss component of previously impaired securities that the Company neither intends to sell, nor is it more likely than not that the Company will be required to sell, before recovery of amortized cost.

For those securities where the Company does not have the intent to sell and it is not more likely than not that the Company will be required to sell, the Company employs a portfolio monitoring process to identify securities that are other-than-temporarily impaired. The Company utilizes a Credit Committee comprised of investment and finance professionals which meets at least quarterly to review individual issues or issuers that are of concern. In determining whether a security is other-than-temporarily-impaired, the Credit Committee considers the factors described below. The process involves a quarterly screening of all impaired securities.

Discrete credit events, such as a ratings downgrade, also are used to identify securities that may be other-than-temporarily impaired. The securities identified are then evaluated based on issuer-specific facts and circumstances, such as the issuer's ability to meet current and future interest and principal payments, an evaluation of the issuer's financial position and its near-term recovery prospects, difficulties being experienced by an issuer's parent or affiliate, and management's assessment of the outlook for the issuer's sector. In making these evaluations, the Credit Committee exercises considerable judgment. Based on this evaluation, issues or issuers are considered for inclusion on one of the Company's following credit lists:

“Monitor List”- Management has concluded that the Company's amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require monitoring on a quarterly basis. No OTTI charge is recorded in the Company's unaudited condensed consolidated statements of operations for unrealized loss on securities related to these issuers.

“Watch List”- Management has concluded that the Company's amortized cost will be recovered through timely collection of all contractually specified cash flows, but that changes in issuer-specific facts and circumstances require continued monitoring during the quarter. A security is moved from the Monitor List to the Watch List when changes in issuer-specific facts and circumstances increase the possibility that a security may become impaired within the next 24 months. No OTTI charge is recorded in the Company's unaudited condensed consolidated statements of operations for unrealized loss on securities related to these issuers.

“Impaired List”- This list includes securities that the Company has the intent to sell or more likely than not will be required to sell. In addition, it includes those securities that management has concluded that the Company's amortized cost will not be recovered due to expected delays or shortfalls in contractually specified cash flows. For these investments, an OTTI charge is recorded or the security is sold and a realized loss is recorded as a charge to income. Credit OTTI losses are recorded in the Company's unaudited condensed consolidated statement of operations and non-credit OTTI losses are recorded in other comprehensive income.

Structured securities, those rated single A or below in particular, are subject to certain provisions in FASB ASC Topic 325 “Investments–Other.” These provisions require the Company to periodically update its best estimate of cash flows over the life of the security. In the event that fair value is less than carrying amount and there has been an adverse change in the expected cash flows (as measured by comparing the original expected cash flows to the current expectation of cash flows, both discounted at the current effective rate), then an impairment charge is recorded to income. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third parties, along with assumptions and judgments about the future performance of the underlying collateral. Losses incurred on the respective portfolios are based on expected loss models, not incurred loss models. Expected cash flows include assumptions about key systematic risks and loan-specific information.

There are inherent risks and uncertainties in management's evaluation of securities for OTTI. These risks and uncertainties include factors both external and internal to the Company, such as general economic conditions, an issuer's financial condition or near-term recovery prospects, market interest rates, unforeseen events which affect one or more issuers or industry sectors, and portfolio management parameters, including asset mix, interest rate risk, portfolio diversification, duration matching and greater than expected liquidity needs. All of these factors could impact management's evaluation of securities for OTTI.

For securities that are assessed to have incurred a credit loss, the amount of credit loss is calculated based upon the cash flows that the Company expects to collect given an assessment of the relevant facts and circumstances for the issuer and specific bond issue. Such factors include the financial condition, credit quality and the near-term prospects of the issuer, as well as the issuer's relative liquidity, among other factors.

The Company recorded OTTI credit losses in its unaudited condensed consolidated statements of operations totaling $0.1 million and $0.9 million for the nine-month periods ended September 30, 2011 and 2010, respectively, for OTTI on its available-for-sale fixed maturity securities. The $0.1 million OTTI credit loss recorded during the nine-month period ended September 30, 2011 was concentrated in structured securities issued by sponsored securitization vehicles. The $0.9 million credit loss OTTI recorded during the nine-month period ended September 30, 2010 was concentrated in corporate debt of financial institutions. These impairments were driven primarily by adverse financial conditions of the issuers.

The following table rolls forward the amount of credit losses recognized in earnings on debt securities, for which a portion of the OTTI was also recognized in other comprehensive income for the nine-month periods ended September 30, (in 000's):

		2011		2010

Beginning Balance, at January 1	$	5,847	$	9,148
Add: Credit losses on OTTI not previously recognized		71		885
Less: Credit losses on securities sold		(5,755)		(2,528)
Less: Increases in cash flows expected on previously impaired securities		-		(1,543)
Other		3,341		-
Ending balance, at September 30	$	3,504	$	5,962

The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral manager and as an investor through normal investment activities, or as a means of accessing capital. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities.

The Company performs ongoing qualitative assessments of its VIEs under FASB ASC Topic 810, “Consolidation,” to determine whether it has a controlling financial interest in the VIE and, therefore, is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company consolidates the VIE in its condensed consolidated financial statements if it determines that it is the VIEs primary beneficiary.

At September 30, 2011, the Company had an interest in one significant VIE, Credit and Repackaged Securities Limited Series 2006-10 Trust (the CARS -Trust), for which consolidation is required under FASB ASC Topic 810.

On September 6, 2006, the Company entered into an agreement with the CARS Trust. Pursuant to this agreement, the Company purchased a funded note from the CARS Trust which, through a credit default swap entered into by the CARS Trust, is exposed to the credit performance of a portfolio of corporate reference entities. The Company entered into this agreement for yield enhancement related to the fee earned on the credit default swap which adds to the return earned on the funded note.

The CARS Trust is a structured investment vehicle for which the Company provides investment management services and holds securities issued by the entity. Creditors have no recourse against the Company in the event of default by the CARS Trust, nor does the Company have any implied or unfunded commitments to the CARS Trust. The Company's financial, or other support provided to the CARS Trust is limited to its investment management services and original investment. The following table presents the carrying value of assets and liabilities and the maximum exposure to loss relating to the CARS Trust (in 000's).

As the sole beneficiary of the CARS Trust, while having a controlling financial interest in the investment vehicle, the Company is required to consolidate the entity under FASB ASC Topic 810. As a result of the consolidation, the Company has recorded in its condensed consolidated balance sheets, investment grade corporate debt securities and a credit default swap held by the CARS Trust. At issue, the swap had a seven-year term, maturing in 2013. Under the terms of the swap, the CARS Trust will be required to make payments to the swap counterparty upon the occurrence of a credit event, with respect to any reference entity, that is in excess of the threshold amount specified in the swap agreement. In the event that the CARS Trust is required to make any payments under the swap, the underlying assets held by the trust would be liquidated to fund the payment. If the disposition of these assets is insufficient to fund the payment calculated, then under the terms of the agreement, the cash settlement amount would be capped at the amount of the proceeds from the sale of the underlying assets. As of September 30, 2011, the maximum future payments that the CARS Trust could be required to make is $37.4 million. The CARS Trust made no payment during the nine-month period ended September 30, 2011 or the year ended December 31, 2010. The carrying amount of the assets in this VIE is included in trading fixed maturity securities and the carrying amount of the liabilities in this VIE is included in the derivative liabilities in the Company's condensed consolidated balance sheets.

At September 30, 2011, other than the CARS Trust, the Company had no interest in significant VIEs for which consolidation is required under FASB ASC Topic 810.

In addition, through normal investment activities, the Company makes passive investments in various issues by VIEs. These investments are included in trading and available-for-sale fixed maturity securities, limited partnerships and other invested assets in the Company's condensed consolidated financial statements. The Company has not provided financial or other support with respect to these investments other than its original investments. For these investments, the Company has determined it is not the primary beneficiary due to the size of its investment relative to other issues, the level of credit subordination which reduces its obligation to absorb losses or right to receive benefits, and/or its inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company's maximum exposure to loss on these investments is limited to the amount of its investment.

The Company invests in commercial first mortgage loans throughout the United States. Investments are diversified by geographic area. The Company's mortgage loans are collateralized by the related properties and generally are no more than 75% of the property's value at the time that the original loan is made. The carrying value of commercial mortgage loans, net of applicable allowances, was $1,514.4 million and $1,737.5 million at September 30, 2011 and December 31, 2010, respectively.

A loan is considered impaired when it is probable that the principal or interest is not collectible in accordance with the contractual terms of the loan. The allowance for credit losses is estimated using the present value of expected cash flows discounted at the loan's effective interest rate or the fair value of the collateral, if the loan is collateral dependent. A specific allowance for loan loss is established for an impaired loan if the present value of expected cash flows discounted at the loan's effective interest rate, or the fair value of the loan collateral, less cost to sell, is less than the recorded amount of the loan. A general allowance for loan loss is established based on an assessment of past loss experience on a group of loans with similar characteristics and current economic conditions. While management believes that it uses the best information available to establish the allowances, future adjustments may become necessary if economic conditions differ from the assumptions used in calculating them.

Delinquency status is determined based upon the occurrence of a missed contract payment. The following table sets forth an age analysis of past due loans in the Company's mortgage loan portfolio:

	Gross Carrying Value
	September 30, 2011		December 31, 2010
Past due:
Between 30 and 59 days	$	-	$	16,607
Between 60 and 89 days		3,555		12,333
90 days or more		12,956		19,310
Total past due		16,511		48,250
Current (1)		1,551,410		1,743,060
Total mortgage loans	$	1,567,921	$	1,791,310
Past due 90 days or more and still accruing	$	-	$	-

(1) Included in the $1,551.4 million and $1,743.1 million of the Company's mortgage loans in current status at September 30, 2011 and ended December 31, 2010 are $146.5 million and $165.6 million, respectively, of mortgage loans that are impaired but not past due.

The Company individually evaluates all its mortgage loans for impairment and records a specific provision for those deemed impaired. The Company also collectively evaluates most of its mortgage loans (excluding those for which a specific allowance was recorded) for impairment. At September 30, 2011, the Company individually and collectively evaluated loans with a gross carrying value of $1,567.9 million and $1,437.0 million, respectively. At December 31, 2010, the Company individually and collectively evaluated loans with a gross carrying value of $1,791.3 million and $1,706.0 million, respectively.

The credit quality indicator for the Company's mortgage loans is an internal risk-rated measure based on the borrowers' ability to pay and the value of the underlying collateral. The internal risk rating is related to an increasing likelihood of loss, with a low quality rating representing the category in which a loss is first expected. The following table shows the gross carrying value of the Company's mortgage loans disaggregated by credit quality indicator (in 000's).

The following table shows the gross carrying value of impaired mortgage loans and related allowances at September 30, 2011 in (000's):

The following table shows the gross carrying value of impaired mortgage loans and related allowances at December 31, 2010 (in 000's):

The average recorded investment in the impaired loans, the related amount of interest income recognized and cash receipts for interest on impaired mortgage loans were as follows (in 000's):

The gross carrying value of the Company's mortgage loans in a nonaccrual status was $130.2 million and $114.7 million at September 30, 2011 and December 31, 2010, respectively.

The Company may modify the terms of a loan by adjusting the interest rate, extending the maturity date or both. The Company evaluates each restructuring of debt and considers it a troubled debt restructuring (“TDR”) if for economic or legal reasons related to the debtor's financial difficulties grants a concession to the borrower that it would not otherwise consider. Specifically, the Company's evaluation of each restructuring includes an assessment of the indicators of impairment to determine if the debtor is exhibiting financial difficulties and an assessment of market lending activity to determine if the debtor can obtain funds from other sources at market interest rates at or near those for nontroubled debts. Those restructures where financial difficulties are present and alternative sources of funding are not available or prohibitively expensive to the borrower are considered TDR.

Upon adoption of the amendments in ASU 2011-02, the Company reassessed all restructured loans that occurred on or after January 1, 2011, the beginning of its current fiscal year, for identification as TDRs. Adoption of the ASU 2011-02 had no impact on the number of restructured loans that are considered TDRs.

All TDRs identified by the Company are commercial mortgage loans modified by granting concessions to borrowers where, as a result of the restructuring, the Company does not expect to collect all amounts due, including interest accrued at the original contract rate.

Modifications are factored into the determination of the allowance for credit losses by including adjustments to the outstanding recorded investment. The financial effect of TDR is not recognized when the Company expects to collect cash flows at, or above, the original contract rate. For the three and nine-months periods ended September 30, 2011, no financial effect from TDR was recognized. The following table provides information about the Company's loans that were modified and how they were modified as TDR (in 000's, except for the number of contracts):

	The nine-month period ended						The three-month period ended
	September 30, 2011						September 30, 2011
	No. (1)		Pre-Modification Recorded Investment		Post-Modification Recorded Investment	No. (1)			Pre-Modification Recorded Investment		Post-Modification Recorded Investment

Adjusted interest rate	1	$	2,834	$	2,834	1		$	2,834	$	2,834
Extended maturity date	-		-		-	-			-		-
Combined rate and maturity	5		15,368		15,368	-			-		-
Total	6	$	18,202	$	18,202	1		$	2,834	$	2,834

(1) Represents the number of contracts that were modified and considered as TDR.

Defaults are factored into the determination of the allowance for credit losses by indicating that, as a result of the default, the Company does not expect to collect all amounts due per the modified terms. The following table shows the number and value of TDRs within the previous fifteen months for which there was a payment default during (in 000's, except for the number of contracts)

The Company uses derivative financial instruments for risk management purposes to hedge against specific interest rate risk, foreign currency exchange rates, equity market conditions, and to alter exposure arising from mismatches between assets and liabilities. Derivative instruments are recorded in the condensed consolidated balance sheets at fair value and are presented as assets or liabilities.

The Company does not employ hedge accounting. The Company believes that its derivatives provide economic hedges and the cost of formally documenting hedge effectiveness in accordance with the provisions of FASB ASC Topic 815 is not justified. As a result, all changes in the fair value of derivatives are recorded in the current period operations as a component of net derivative income or loss.

Credit enhancements such as collateral are used to improve the credit risk of longer term derivative contracts.

It is common, and the Company's preferred practice, for the parties to execute a Credit Support Annex (“CSA”) in conjunction with the International Swaps and Derivatives Association Master Agreement. Under a CSA, collateral is passed between the parties to mitigate the market contingent counterparty risk inherent in outstanding positions.

The primary types of derivatives held by the Company include interest rate and foreign currency swap agreements, swaptions, futures, call/put options, foreign currency forwards and embedded derivatives, as described below.

As a component of its investment strategy, the Company utilizes swap agreements. Swap agreements are agreements to exchange with a counterparty a series of cash flow payments at pre-determined intervals and are based upon or calculated by reference to changes in specified interest rates (fixed or floating) or foreign currency exchange rates. Typically, no cash is exchanged at the outset of the contract and no principal payments are made by either party, except on certain foreign currency swaps. A single net payment is usually made by one counterparty at pre-determined dates. The net payment is recorded as a component of net derivative income (loss) in the condensed consolidated statement of operations.

Interest rate swaps are generally used to change the character of cash flows (e.g., fixed payments to floating rate payments) for duration matching purposes and to manage exposures to changes in the risk-free interest rate.

Foreign currency swaps are utilized as an economic hedge against changes in foreign currencies associated with certain non-U.S. dollar denominated cash flows.

On September 6, 2006, the Company entered into an agreement with the CARS Trust, whereby the Company is the sole beneficiary. Refer to Note 5 for additional information on the CARS Trust.

The Company may utilize swaptions to hedge exposure to interest rate risk. Swaptions give the buyer the option to enter into an interest rate swap per the terms of the original swaption agreement. A premium is paid on settlement date and no further cash transactions occur until the positions settle or expire. At expiration, the swaption either cash settles for value, settles into an interest rate swap, or expires worthless per the terms of the original swaption agreement. At September 30, 2011, the Company did not have any position in swaptions.

Futures contracts, both long and short, are entered into for purposes of hedging liabilities on fixed index and variable annuity products containing guaranteed minimum death benefits (“GMDB”) and guaranteed minimum living benefit features, with cash flows based on changes in equity indices. Certain futures also are utilized to hedge interest rate risk associated with these products. On the trade date, an initial cash margin is exchanged. Daily cash is exchanged to settle the daily variation margin.

In addition to short futures, the Company also utilizes listed put options on major indices to hedge against stock market exposure inherent in the guaranteed minimum death benefit and living benefit features of the Company's variable annuities. Unlike futures, however, these options require initial cash outlays. The Company also purchases listed and over-the-counter (“OTC”) call options on major indices to economically hedge its obligations under certain fixed annuity contracts, as well as enhance income on the underlying assets. On the trade date, an initial cash margin is exchanged for listed options. Daily cash is exchanged to settle the daily variation margin.

A foreign currency forward is an agreement between two parties to buy and sell currencies at the current market rate, for settlement at a specified future date. Foreign currency forwards are utilized as an economic hedge against changes in foreign currencies associated with certain non-U.S. dollar denominated cash flows.

The Company performs a quarterly analysis of its new contracts, agreements and financial instruments for embedded derivatives. No embedded derivatives require bifurcation from financial assets. However, the Company issues certain annuity contracts and enters into reinsurance agreements that contain derivatives embedded in the contract. Upon issuing the contract, the embedded derivative is separated from the host contract (annuity contract or reinsurance agreement) and is carried at fair value. Refer to Note 6 for further information regarding derivatives embedded in reinsurance contracts; refer to Note 8 for further information regarding derivatives embedded in annuity contracts.

	At September 30, 2011			At December 31, 2010
	Number of Contracts	Principal Notional (2)		Number of Contracts	Principal Notional (2)

Interest rate swaps	79	$	5,062,500	70	$	5,443,500
Currency swaps	4		47,500	7		349,460
Credit default swaps	1		37,400	1		37,400
Currency forwards	18		28,441	36		44,149
Swaptions	-		-	1		350,000
Futures (1)	(46,933)		4,180,087	(25,669)		2,918,839
Index call options	7,450		1,337,510	9,604		1,858,109
Index put options	4,850		548,739	4,100		515,632
Total		$	11,242,177		$	11,517,089

With the exception of embedded derivatives, all derivatives are carried at fair value in derivative instruments – receivable or derivative instruments – payable in the Company's condensed consolidated balance sheets. Embedded derivatives related to reinsurance agreements and annuity contracts are carried at fair value in contractholder deposit funds and other policy liabilities in the Company's condensed consolidated balance sheets. The following is a summary of the Company's derivative asset and liability positions by primary risk exposure (in 000's).

	At September 30, 2011					At December 31, 2010
		Asset Derivatives Fair Value (a)		Liability Derivatives Fair Value (a)			Asset Derivatives Fair Value (a)		Liability Derivatives Fair Value (a)

Interest rate contracts		$	381,316	$	317,501		$	97,060	$	329,214
Foreign currency contracts			2,249		2,031			32,504		3,878
Equity contracts			63,933		-			59,397		-
Credit contracts			-		26,748			-		27,341
Futures contracts (b)			79,711		2,454			9,103		1,590
Total derivative instruments			527,209		348,734			198,064		362,023
Embedded derivatives (c)			-		1,429,216			2,896		178,069
Total		$	527,209	$	1,777,950		$	200,960	$	540,092

All realized and unrealized derivative gains and losses are recorded in net derivative loss in the Company's condensed consolidated statements of operations. The following is a summary of the Company's realized and unrealized gains (losses) by derivative type (in 000's):

		For the nine-month periods ended September 30,				For the three-month periods ended September 30,
		2011		2010		2011		2010

Interest rate contracts	$	212,124	$	(96,191)	$	204,039	$	(17,522)
Foreign currency contracts		(46,711)		(7,480)		(42,423)		(2,055)
Equity contracts		(27,213)		(32,856)		(23,047)		(18,844)
Credit contracts		593		3,716		(4,185)		3,093
Futures contracts		394,330		(9,531)		508,031		(149,933)
Embedded derivatives		(1,202,188)		(480,722)		(1,203,481)		129,362
Net derivative loss	$	(669,065)	$	(623,064)	$	(561,066)	$	(55,899)

Credit risk relates to the uncertainty of an obligor's continued ability to make timely payments in accordance with the contractual terms of the instrument or contract. With derivative instruments, the Company is primarily exposed to credit risk through its counterparty relationships. The Company primarily manages credit risk through policies which address the quality of counterparties, contractual requirements for transacting with counterparties and collateral support agreements, and limitations on counterparty concentrations. Exposures by counterparty and counterparty credit ratings are monitored closely. All of the contracts are held with counterparties rated A or higher. As of September 30, 2011, the Company's liability positions were linked to a total of 7 counterparties, of which the largest single unaffiliated counterparty payable, net of collateral, had credit exposure of $26.7 million to the Company. As of September 30, 2011, the Company's asset positions were linked to a total of 13 counterparties, of which the largest single unaffiliated counterparty receivable, net of collateral, had credit exposure of $3.3 million.

All derivative transactions are covered under standardized contractual agreements with counterparties all of which include credit-related contingent features. Certain counterparty relationships also may include supplementary agreements with such tailored terms as additional triggers for early terminations, acceptable practices related to cross transaction netting, or minimum thresholds for determining collateral.

Credit-related triggers include failure to pay or deliver on an obligation past certain grace periods, bankruptcy or the downgrade of credit ratings to below a stipulated level. These triggers apply to both the Company and its counterparty. The aggregate value of all derivative instruments with credit risk-related contingent features that were in a liability position at September 30, 2011 and December 31, 2010 was $348.7 million and $362.0 million, respectively.

In the event of an early termination, the Company might be required to accelerate payments to counterparties, up to the current value of its liability positions, offset by the value of previously pledged collateral and cross-transaction netting. If payments cannot be exchanged simultaneously at early termination, funds also will be held in escrow to facilitate settlement. If an early termination was triggered on September 30, 2011, the Company would have no net obligation to settle.

If counterparties are unable to meet accelerated payment obligations, the Company also may be exposed to uncollectible asset positions, offset by the value of collateral that has been posted by the Company.

At September 30, 2011, the Company pledged $309.8 million in U.S. Treasury securities as collateral to counterparties. At September 30, 2011, counterparties pledged to the Company $217.2 million in collateral, comprised of cash and U.S. Treasury securities.