REINSURANCE

12 Months Ended

Dec. 31, 2011

Reinsurance Disclosures [Abstract]

Reinsurance [Text Block]

8. REINSURANCE

Reinsurance ceded contracts do not relieve the Company from its obligations to its policyholders. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreement. To minimize its exposure to significant losses from reinsurer insolvencies, the Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. Management believes that any liability from this contingency is unlikely.

The effects of the Company's reinsurance agreements in the consolidated statements of operations were as follows:

		For the Years Ended December 31,
		2011		2010		2009
Revenues:
Premiums and annuity considerations:
	Direct	$	109,569	$	94,869	$	86,671
	Assumed		36,169		47,616		52,856
	Ceded		(8,318)		(6,310)		(5,281)
Net premiums and annuity considerations from continuing operations		$	137,420	$	136,175	$	134,246
Net premiums and annuity considerations related to discontinued operations		$	-	$	-	$	-
Net investment income:
	Direct	$	702,415	$	1,465,853	$	2,721,475
	Assumed		-		-		-
	Ceded (1)		25,213		(75,643)		(139,168)
Net investment income from continuing operations		$	727,628	$	1,390,210	$	2,582,307
Net investment loss related to discontinued operations		$	-	$	0	$	(24,956)
Fee and other income:
	Direct	$	743,866	$	676,670	$	581,868
	Assumed		10		-		-
	Ceded		(135,465)		(165,643)		(196,032)
Net fee and other income from continuing operations		$	608,411	$	511,027	$	385,836
Net fee and other income related to discontinued operations		$	-	$	0	$	(49,947)

(1) Investment income earned (direct) and ceded during the year ended December 31, 2011 includes a decrease of $113.3 million due to an interest rate adjustment. This adjustment did not have any impact on net investment income. Refer to the Wealth Management section ofthis Note 8 for further details.

8. REINSURANCE (CONTINUED)

		For the Years Ended December 31,
		2011		2010		2009
Benefits and expenses:
Interest credited:
	Direct	$	386,809	$	491,090	$	472,275
	Assumed		6,260		6,879		7,801
	Ceded (2)		31,139		(96,121)		(94,308)
Net interest credited from continuing operations		$	424,208	$	401,848	$	385,768
Net interest credited related to discontinued operations		$	-	$	0	$	34,216
Policyowner benefits:
	Direct	$	236,232	$	409,907	$	265,021
	Assumed		22,915		26,189		38,313
	Ceded		(124,735)		(196,302)		(192,895)
Net policyowner benefits from continuing operations		$	134,412	$	239,794	$	110,439
Net policyowner benefits related to discontinued operations		$	-	$	0	$	13,267
Other operating expenses:
	Direct	$	355,928	$	333,850	$	282,502
	Assumed		3,314		5,079		6,129
	Ceded		(8,917)		(20,759)		(40,475)
Net other operating expenses from continuing operations		$	350,325	$	318,170	$	248,156
Net other operating expenses related to discontinued operations		$	-	$	0	$	10,436

(2)Interest credited ceded during the year ended December 31, 2011 includes a $113.3 million interest rate adjustment decreasing ceded interest credited. Refer to the Wealth Management section of this Note 8 for further details.

A brief discussion of the Company's significant reinsurance agreements by business segment follows.Refer to Note 16 for additional information regarding the Company's business segments.

8. REINSURANCE (CONTINUED)

Wealth Management Segment

The Wealth Management segment manages a closed block of SPWLinsurance policies, a retirement-oriented tax-advantaged life insurance product. The Company discontinued sales of the SPWL product in response to certain tax law changes in the 1980s. The Company had SPWL policyholder balances of $1.3 billion and $1.5 billion at December 31, 2011 and 2010, respectively. This entire block of business is reinsured on a funds-withheld coinsurance basis with SLOC, an affiliate. Pursuant to this agreement, the Company held the following assets and liabilities at December 31:

	2011		2010
Assets
Reinsurance receivables	$	1,312,989	$	1,466,247
Liabilities
Contractholder deposit funds and other policy liabilities		1,342,628		1,478,459
Future contract and policy benefits		2,160		1,823
Reinsurance payable	$	1,410,748	$	1,555,336

The funds-withheld assets of $1.4 billion and $1.6 billion at December 31,2011 and 2010, respectively, are comprised of fixed maturity securities, mortgage loans, policy loans, derivative instruments, and cash and cash equivalents that are managed by the Company. The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $31.8 million and $14.0 million at December 31,2011 and2010, respectively. The change in the fair value of this embedded derivative decreasedderivative income by $17.8million, $24.6 million, and $120.0 million for theyears ended December 31,2011, 2010 and 2009, respectively.

By reinsuring the SPWL product, the Company increased (decreased) net investment income by $48.5 million, $(49.9) million and $(126.6) million for the years ended December 31,2011, 2010 and 2009, respectively. The Company also increased (decreased)interest credited by $55.4 million, $(71.5) million and $(73.9) million for the years ended December 31,2011, 2010 and 2009, respectively.

The net investment income ceded for the year ended December 31, 2011 was decreased by $113.3 million due to an interest rate adjustment processed during the year. The interest credited ceded for year ended December 31, 2011 was decreased by $113.3 million due to policy reinstatements and interest rate adjustments processed during the year. The adjustment was recorded to correct the Company's prior year policy loan balances that were overstated by $113.3 million due to inaccurate interest rates applied to certain SPWL policies' loan balances. The adjustment did not have any impact on the interest credited and net investment income, net of reinsurances, reported in the Company's consolidated statement of operations due to the 100% funds-withheld reinsurance agreement with SLOC noted above. The adjustment also resulted in a $113.3 million decrease in policy loans, contractholder deposit funds and other policy liabilities, reinsurance receivable, and reinsurance payable in the Company's consolidated balance sheet at December 31, 2011.

8. REINSURANCE (CONTINUED)

Individual Protection Segment

The following are the Company's significant reinsurance agreements that impact the Individual Protection segment.

On February 11, 2009, the Company received regulatory approval and entered into a reinsurance agreement with BarbCo 3, an affiliate, to cede all of the risks associated with certain in-force corporate and bank-owned variable universal life and private placement variable universal life policies on a combination coinsurance, coinsurance with funds-withheld and a modified coinsurance basis.

Effective January 1, 2010, the Company and BarbCo 3 amended the agreement to include coverage of certain corporate and bank-owned variable universal life and private placement variable universal life insurance cases sold between December 31, 2009 and March 31, 2010, inclusive. Reinsurance coverage continued for all cases sold prior to April 1, 2010. However, cases sold on or after April 1, 2010 have not been reinsured. This amendment also enabled the Company to discontinue reinsuring a portion of the covered business that was previously reinsured on a modified coinsurance basis, effective April 1, 2010. The discontinuance of the business reinsured on a modified coinsurance basis did not have a material impact on the Company's consolidated financial statements.

At the inception of the transaction, BarbCo 3 paid an initial ceding commission to the Company of $41.5 million and the Company recorded a reinsurance payable and related reinsurance receivable of $370.7 million and $329.2 million, respectively. The reinsurance payable included a funds-withheld liability of $247.9 million and a deferred gain of $122.8 million. Pursuant to this agreement, the Company held the following assets and liabilities at:

	December 31,		December 31,
	2011		2010
Assets
Reinsurance receivable	$	451,397	$	419,684
Liabilities
Contractholder deposit funds and other policy liabilities		507,606		465,035
Reinsurance payable	$	429,914	$	432,160

Reinsurance payable includes a funds-withheld liability of $324.3 million and $326.9 million at December 31, 2011 and 2010, respectively, and a deferred gain of $105.6 million and $105.3 million at December 31, 2011 and 2010, respectively. The funds-withheld assets are managed by the Company and comprised of fixed maturity securities, policy loans, equity securities, cash and cash equivalents and related accrued income, totaling $332.5 million and $357.2 million at December 31, 2011 and 2010, respectively. The funds-withheld coinsurance agreement gives rise to an embedded derivative which is required to be separated from the host reinsurance contract. At December 31, 2011 and 2010, the fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $34.1 million and $24.1 million, respectively.

The change in fair value of the embedded derivative (decreased) increased derivative income by $(10.0) million and $2.2 million for the years ended December 31, 2011 and 2010, respectively. In addition, during the years ended December 31, 2011 and 2010, the reinsurance agreement reduced revenues by $53.2 million and $24.3 million, respectively, and decreased expenses by $31.3 million and $56.2 million, respectively.

8. REINSURANCE (CONTINUED)

Individual Protection Segment (continued)

The Company's subsidiary, SLNY, has a funds-withheld reinsurance agreement with SLOC under which SLOC funds a portion of the statutory reserves (“AXXX reserves”) required by New York Regulation 147, which is substantially similar to Actuarial Guideline 38, as adopted by the NAIC, attributable to certain UL policies sold by SLNY. Under this agreement SLNY ceded, and SLOC assumed, on a funds-withheld 90% coinsurance basis certain in-force policies at December 31, 2007. Pursuant to this agreement, SLNY held the following assets and liabilities at December 31:

	2011		2010
Assets
Reinsurance receivable	$	159,649	$	133,088
Liabilities
Contractholder deposit funds and other policy liabilities		142,146		104,795
Future contract and policy benefits		33,138		21,662
Reinsurance payable	$	238,180	$	225,387

Reinsurance payable includes a funds-withheld liability of $194.3million and $172.8 million at December 31, 2011 and 2010, respectively, and a deferred gain of $43.7 million and $52.6 million at December 31, 2011 and 2010, respectively. The funds-withheld assets are managed by the Company and are comprised of trading fixed maturity securities, policy loans, equity securities, mortgage loans and related accrued income, totaling $191.2 million and $176.7 million at December 31, 2011 and 2010, respectively. The coinsurance agreement with funds-withheld gives rise to an embedded derivative which is required to be separated from the host reinsurance contract. The fair value of the embedded derivative increased contractholder deposit funds and other policy liabilities by $31.2 million and $3.2 million at December 31, 2011 and 2010, respectively.

The change in the fair value of this embedded derivative decreased derivative income by $28.1million, $3.9 million and $11.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. In addition, the activities related to the reinsurance agreement have decreased revenues by $48.8 million, $31.0 million and $29.0 million, and decreased expenses by $26.8 million, $28.0 million and $20.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The Company has other reinsurance agreements with SLOC and several unrelated companies, which provide reinsurance for portions of the net-amount-at-risk under certain individual variable universal life, individual private placement variable universal life, bank owned life insurance (“BOLI”) and corporate owned life insurance (“COLI”) policies. These amounts are reinsured on a monthly renewable term, a yearly renewable term or a modified coinsurance basis. These other agreements decreased revenues by approximately $91.7 million, $134.7 million and $173.9 million and reduced expenses by approximately $79.9 million, $140.1 million and $168.5 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Group Protection Segment

SLNY has several agreements with unrelated companies whereby the unrelated companies reinsure the mortality and morbidity risks of certain of SLNY's group contracts.

SLNY also has a reinsurance agreement, effective May 31, 2007, to assume the net risks of SLHIC's New York issued contracts. At December 31, 2011 and 2010, SLNY held policyholder liabilities of $25.7 million and $28.6 million, respectively, related to this agreement. In addition, the reinsurance agreement increased revenues by $36.2 million, $47.6 million and $52.9 million for the years ended December 31, 2011, 2010 and 2009, respectively, and increased expenses by $26.2 million, $31.2 million and $44.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.