Investments

Fixed Maturities and Equity Securities

Available-for-sale and fair value option ("FVO") fixed maturities and equity securities were as follows as of June 30, 2012.



	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽³⁾		Fair Value		OTTI⁽²⁾
Fixed maturities:
U.S. Treasuries	$	903.8	$	149.7	$	—	$	—	$	1,053.5	$	—
U.S. government agencies and authorities	378.9		24.5		—		—		403.4		—
State, municipalities and political subdivisions	77.2		13.3		—		—		90.5		—
U.S. corporate securities	8,692.1		922.1		23.9		—		9,590.3		—

Foreign securities⁽¹⁾:
Government	419.3		35.5		1.4		—		453.4		—
Other	4,308.2		388.5		21.6		—		4,675.1		—
Total foreign securities	4,727.5		424.0		23.0		—		5,128.5		—

Residential mortgage-backed securities:
Agency	1,513.8		202.9		4.6		37.9		1,750.0		0.6
Non-Agency	452.2		68.2		34.2		21.0		507.2		25.6
Total residential mortgage-backed securities	1,966.0		271.1		38.8		58.9		2,257.2		26.2

Commercial mortgage-backed securities	828.4		64.9		1.4		—		891.9		4.4
Other asset-backed securities	451.3		22.3		17.2		—		456.4		3.9
Total fixed maturities, including securities pledged	18,025.2		1,891.9		104.3		58.9		19,871.7		34.5
Less: securities pledged	342.2		13.5		2.1		—		353.6		—
Total fixed maturities	17,683.0		1,878.4		102.2		58.9		19,518.1		34.5
Equity securities	131.2		13.5		—		—		144.7		—
Total fixed maturities and equity securities	$	17,814.2	$	1,891.9	$	102.2	$	58.9	$	19,662.8	$	34.5
⁽¹⁾ Primarily U.S. dollar denominated.
⁽²⁾ Represents other-than-temporary impairments ("OTTI") reported as a component of Other comprehensive income.
⁽³⁾ Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

Available-for-sale and FVO fixed maturities and equity securities were as follows as of December 31, 2011 (As revised).



	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽³⁾		Fair Value		OTTI⁽²⁾
Fixed maturities:
U.S. Treasuries	$	1,096.6	$	135.0	$	—	$	—	$	1,231.6	$	—
U.S. government agencies and authorities	379.7		31.0		—		—		410.7		—
State, municipalities and political subdivisions	95.1		10.9		—		—		106.0		—
U.S. corporate securities	8,166.9		770.8		31.1		—		8,906.6		—

Foreign securities⁽¹⁾:
Government	308.5		39.8		3.1		—		345.2		—
Other	4,352.5		328.8		38.4		—		4,642.9		—
Total foreign securities	4,661.0		368.6		41.5		—		4,988.1		—

Residential mortgage-backed securities:
Agency	1,442.0		218.7		3.4		39.4		1,696.7		0.7
Non-Agency	513.4		66.7		49.5		19.8		550.4		28.8
Total residential mortgage-backed securities	1,955.4		285.4		52.9		59.2		2,247.1		29.5

Commercial mortgage-backed securities	866.1		51.0		5.8		—		911.3		4.4
Other asset-backed securities	441.5		19.4		22.1		—		438.8		4.2
Total fixed maturities, including securities pledged	17,662.3		1,672.1		153.4		59.2		19,240.2		38.1
Less: securities pledged	572.5		22.4		1.2		—		593.7		—
Total fixed maturities	17,089.8		1,649.7		152.2		59.2		18,646.5		38.1
Equity securities	131.8		13.1		—		—		144.9		—
Total fixed maturities and equity securities	$	17,221.6	$	1,662.8	$	152.2	$	59.2	$	18,791.4	$	38.1
⁽¹⁾ Primarily U.S. dollar denominated.
⁽²⁾ Represents OTTI reported as a component of Other comprehensive income.
⁽³⁾ Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

The amortized cost and fair value of total fixed maturities, including securities pledged, as of June 30, 2012, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called, or prepaid. Mortgage-backed securities ("MBS") and other asset-backed securities ("ABS") are shown separately because they are not due at a single maturity date.



	Amortized Cost		Fair Value
Due to mature:
One year or less	$	551.5	$	579.7
After one year through five years	3,910.9		4,154.1
After five years through ten years	5,291.1		5,796.3
After ten years	5,026.0		5,736.1
Mortgage-backed securities	2,794.4		3,149.1
Other asset-backed securities	451.3		456.4
Fixed maturities, including securities pledged	$	18,025.2	$	19,871.7

The investment portfolio is monitored to maintain a diversified portfolio on an on-going basis. Credit risk is mitigated by monitoring concentrations by issuer, sector and geographic stratification and limiting exposure to any one issuer.

As of June 30, 2012 and December 31, 2011, the Company did not have any investments in a single issuer, other than obligations of the U.S. government and government agencies and the State of the Netherlands (the "Dutch State") loan obligation, with a carrying value in excess of 10% of the Company’s Shareholder’s equity.

The Company invests in various categories of collateralized mortgage obligations ("CMOs"), including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to significant decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. As of June 30, 2012 and December 31, 2011, approximately 43.7% and 41.1%, respectively, of the Company’s CMO holdings were invested in those types of CMOs, such as interest only and principal only strips, which are subject to more prepayment and extension risk than traditional CMOs.

Certain CMOs, primarily interest-only and principal-only strips, are accounted for as hybrid instruments and valued using the FVO with changes in fair value reported in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.

Repurchase Agreements

The Company engages in dollar repurchase agreements with mortgage-backed securities ("dollar rolls") and repurchase agreements with other collateral types to increase its return on investments and improve liquidity. Such arrangements typically meet the requirements to be accounted for as financing arrangements. As of June 30, 2012 and December 31, 2011, the Company did not have any securities pledged in dollar rolls and repurchase agreement transactions.

The Company also enters into reverse repurchase agreements. These transactions involve a purchase of securities and an agreement to sell substantially the same securities as those purchased. As of June 30, 2012 and December 31, 2011, the Company did not have any securities pledged under reverse repurchase agreements.

The primary risk associated with short-term collateralized borrowings is that the counterparty will be unable to perform under the terms of the contract. The Company's exposure is limited to the excess of the net replacement cost of the securities over the value of the short-term investments. The Company believes the counterparties to the dollar rolls, repurchase and reverse repurchase agreements are financially responsible and that the counterparty risk is minimal.

Securities Lending

The Company engages in securities lending whereby certain domestic securities from its portfolio are loaned to other institutions for short periods of time. As of June 30, 2012 and December 31, 2011, the fair value of loaned securities was $306.4 and $515.8, respectively, and is included in Securities pledged on the Condensed Consolidated Balance Sheets. Collateral retained by the lending agent and invested in liquid assets on behalf of the Company is recorded in Short-term investments under securities loan agreement, including collateral delivered. As of June 30, 2012 and December 31, 2011, liabilities to return collateral of $315.3 and $524.8, respectively, are included in Payables under securities loan agreement, including collateral held, on the Condensed Consolidated Balance Sheets.

Variable Interest Entities ("VIEs")

The Company holds certain VIEs for investment purposes. VIEs may be in the form of private placement securities, structured securities, securitization transactions, or limited partnerships. The Company has reviewed each of its holdings and determined that consolidation of these investments in the Company’s financial statements is not required, as the Company is not the primary beneficiary, because the Company does not have both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation or right to potentially significant losses or benefits, for any of its investments in VIEs. The Company provided no non-contractual financial support and its carrying value represents the Company’s exposure to loss. The carrying value of the equity tranches of the collateralized loan obligations ("CLOs") of $1.1 and $0.9 as of June 30, 2012 and December 31, 2011, respectively, is included in Limited partnerships/corporations on the Condensed Consolidated Balance Sheets. Income and losses recognized on these investments are reported in Net investment income on the Condensed Consolidated Statements of Operations.

On June 4, 2012, the Company entered into an agreement to sell certain general account private equity limited partnership investment interest holdings ("sale of certain alternative investments") with a carrying value of $331.9 as of March 31, 2012 to a group of private equity funds that are or will be managed by Pomona Management LLC, an affiliate of the Company. The transaction resulted in a net pretax loss of $38.7 in the second quarter of 2012 reported in Net investment income on the Condensed Consolidated Statements of Operations. The transaction is expected to close in two tranches with the first tranche closed on June 29, 2012 and the second tranche expected to close prior to December 31, 2012. As of June 30, 2012, the fair value of these alternative investments in the second tranche was reduced to $190.0, which represents the sales price of the remaining alternative investments involved in this transaction. No additional loss is anticipated on the second tranche since the fair value of the alternative investments was reduced to the agreed-upon sales price as of June 30, 2012.

Securitizations

The Company invests in various tranches of securitization entities, including Residential Mortgage-backed Securities ("RMBS"), Commercial Mortgage-backed Securities ("CMBS") and ABS. Through its investments, the Company is not obligated to provide any financial or other support to these entities. Each of the RMBS, CMBS and ABS entities are thinly capitalized by design and considered VIEs. The Company's involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer, or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor does the Company function in any of these roles. The Company through its investments or other arrangements does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, the Company is not the primary beneficiary and does not consolidate any of the RMBS, CMBS and ABS entities in which it holds investments. These investments are accounted for as investments available-for-sale as described in the Financial Instruments note to these Condensed Consolidated Financial Statements and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS which are accounted for under the FVO for which changes in fair value are reflected in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. The Company's maximum exposure to loss on these structured investments is limited to the amount of its investment. Refer to the Investments note of these Condensed Consolidated Financial Statements for details regarding the carrying amounts and classifications of these assets.

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturities, including securities pledged to creditors, by market sector and duration were as follows as of June 30, 2012 and December 31, 2011.



	Six Months or Less Below Amortized Cost				More Than Six Months and Twelve Months or Less Below Amortized Cost				More Than Twelve Months Below Amortized Cost				Total
	Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses		Fair Value		Unrealized Capital Losses
2012
U.S. Treasuries	$	209.1	$	—	$	—	$	—	$	—	$	—	$	209.1	$	—
U.S. corporate, state and municipalities	418.0		10.4		108.7		5.1		46.5		8.4		573.2		23.9
Foreign	291.4		8.1		83.9		3.9		77.7		11.0		453.0		23.0
Residential mortgage-backed	49.1		2.6		25.3		0.7		210.2		35.5		284.6		38.8
Commercial mortgage-backed	41.5		0.4		—		—		30.5		1.0		72.0		1.4
Other asset-backed	5.1		0.1		5.3		0.1		49.6		17.0		60.0		17.2
Total	$	1,014.2	$	21.6	$	223.2	$	9.8	$	414.5	$	72.9	$	1,651.9	$	104.3

2011
U.S. Treasuries	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
U.S. corporate, state and municipalities	595.1		22.8		46.5		3.0		52.9		5.3		694.5		31.1
Foreign	435.3		19.1		49.9		4.6		169.5		17.8		654.7		41.5
Residential mortgage-backed	49.4		1.6		97.0		5.2		175.4		46.1		321.8		52.9
Commercial mortgage-backed	28.3		1.8		69.0		2.5		8.9		1.5		106.2		5.8
Other asset-backed	32.6		0.2		4.9		1.3		44.1		20.6		81.6		22.1
Total	$	1,140.7	$	45.5	$	267.3	$	16.6	$	450.8	$	91.3	$	1,858.8	$	153.4

Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 85.0% and 83.2% of the average book value as of June 30, 2012 and December 31, 2011, respectively.

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive months as indicated in the tables below, were as follows for June 30, 2012 and December 31, 2011.



	Amortized Cost				Unrealized Capital Losses				Number of Securities
	< 20%		> 20%		< 20%		> 20%		< 20%	> 20%
2012
Six months or less below amortized cost	$	1,052.0	$	25.1	$	21.0	$	9.9	173	17
More than six months and twelve months or less below amortized cost	244.6		25.9		10.3		9.6		58	11
More than twelve months below amortized cost	298.5		110.1		15.4		38.1		109	42
Total	$	1,595.1	$	161.1	$	46.7	$	57.6	340	70

2011
Six months or less below amortized cost	$	1,197.2	$	60.1	$	46.9	$	16.9	256	31
More than six months and twelve months or less below amortized cost	270.3		25.1		13.9		9.1		52	9
More than twelve months below amortized cost	355.6		103.9		26.7		39.9		129	37
Total	$	1,823.1	$	189.1	$	87.5	$	65.9	437	77

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, by market sector for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive months as indicated in the tables below, were as follows for June 30, 2012 and December 31, 2011.



	Amortized Cost				Unrealized Capital Losses				Number of Securities
	< 20%		> 20%		< 20%		> 20%		< 20%	> 20%
2012
U.S. Treasuries	$	209.1	$	—	$	—	$	—	3	—
U.S. corporate, state and municipalities	579.6		17.5		15.7		8.2		104	4
Foreign	449.1		26.9		14.1		8.9		70	6
Residential mortgage-backed	239.7		83.7		10.7		28.1		126	45
Commercial mortgage-backed	73.4		—		1.4		—		14	—
Other asset-backed	44.2		33.0		4.8		12.4		23	15
Total	$	1,595.1	$	161.1	$	46.7	$	57.6	340	70

2011
U.S. Treasuries	$	—	$	—	$	—	$	—	—	—
U.S. corporate, state and municipalities	717.7		7.9		28.8		2.3		119	3
Foreign	670.5		25.7		31.9		9.6		122	7
Residential mortgage-backed	276.5		98.2		19.0		33.9		119	47
Commercial mortgage-backed	110.1		1.9		5.4		0.4		16	1
Other asset-backed	48.3		55.4		2.4		19.7		61	19
Total	$	1,823.1	$	189.1	$	87.5	$	65.9	437	77

As of June 30, 2012 and December 31, 2011, the Company held no fixed maturities with an unrealized capital loss in excess of $10.0.

All investments with fair values less than amortized cost are included in the Company’s other-than-temporary impairment analysis and impairments were recognized as disclosed in the "Evaluating Securities for Other-than-Temporary Impairments" section, which follows. After detailed impairment analysis was completed, the Company determined that the remaining investments in an unrealized loss position were not other-than-temporarily impaired and therefore no further other-than-temporary impairment was necessary.

Evaluating Securities for Other-than-Temporary Impairments

The Company performs a regular evaluation, on a security-by-security basis, of its available-for-sale securities holdings, including fixed maturity securities and equity securities in accordance with its impairment policy in order to evaluate whether such investments are other-than-temporarily impaired.

The following tables identify the Company’s credit-related and intent-related other-than-temporary impairments included in the Condensed Consolidated Statements of Operations, excluding noncredit impairments included in Other comprehensive income, by type for the three and six months ended June 30, 2012 and 2011.



	Three Months Ended June 30,
	2012			2011
	Impairment		No. of Securities	Impairment		No. of Securities
U.S. corporate	$	0.2	1	$	0.3	1
Foreign⁽¹⁾	0.4		2	0.2		2
Residential mortgage-backed	0.9		24	3.0		18
Commercial mortgage-backed	—		—	8.1		3
Other asset-backed	0.2		2	6.2		26
Total	$	1.7	29	$	17.8	50
⁽¹⁾ Primarily U.S. dollar denominated.

	Six Months Ended June 30,
	2012			2011
	Impairment		No. of Securities	Impairment		No. of Securities
U.S. corporate	$	0.2	1	$	3.9	2
Foreign⁽¹⁾	0.8		3	3.3		11
Residential mortgage-backed	1.6		28	3.3		23
Commercial mortgage-backed	—		—	8.1		3
Other asset-backed	0.4		3	19.4		47
Total	$	3.0	35	$	38.0	86
⁽¹⁾ Primarily U.S. dollar denominated.

The above tables include $1.1 and $1.9 of write-downs related to credit impairments for the three and six months ended June 30, 2012, respectively, in Other-than-temporary impairments, which are recognized in the Condensed Consolidated Statements of Operations. The remaining $0.6 and $1.1 in write-downs for the three and six months ended June 30, 2012, respectively, are related to intent impairments.

The above tables include $3.6 and $6.4 of write-downs related to credit impairments for the three and six months ended June 30, 2011, respectively, in Other-than-temporary impairments, which are recognized in the Condensed Consolidated Statements of Operations. The remaining $14.2 and $31.6 in write-downs for the three and six months ended June 30, 2011, respectively, are related to intent impairments.

The following tables summarize these intent impairments, which are also recognized in earnings, by type for the three and six months ended June 30, 2012 and 2011.



	Three Months Ended June 30,
	2012			2011
	Impairment		No. of Securities	Impairment		No. of Securities
U.S. corporate	$	0.2	1	$	0.3	1
Foreign⁽¹⁾	0.4		2	0.2		2
Residential mortgage-backed	—		—	—		—
Commercial mortgage-backed	—		—	8.1		3
Other asset-backed	—		—	5.6		24
Total	$	0.6	3	$	14.2	30
⁽¹⁾ Primarily U.S. dollar denominated.

	Six Months Ended June 30,
	2012			2011
	Impairment		No. of Securities	Impairment		No. of Securities
U.S. corporate	$	0.2	1	$	3.9	2
Foreign⁽¹⁾	0.8		3	1.2		8
Residential mortgage-backed	—		—	0.1		1
Commercial mortgage-backed	—		—	8.1		3
Other asset-backed	0.1		1	18.3		45
Total	$	1.1	5	$	31.6	59
⁽¹⁾ Primarily U.S. dollar denominated.

The Company may sell securities during the period in which fair value has declined below amortized cost for fixed maturities or cost for equity securities. In certain situations, new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. Accordingly, these factors may lead the Company to record additional intent related capital losses.

The fair value of fixed maturities with OTTI as of June 30, 2012 and 2011 was $1.7 billion and $1.8 billion, respectively.

The following tables identify the amount of credit impairments on fixed maturities for which a portion of the OTTI was recognized in Other comprehensive income (loss) and the corresponding changes in such amounts for the three and six months ended June 30, 2012 and 2011.



	Three Months Ended June 30,
	2012			2011
Balance at April 1	$	19.5		$	52.3
Additional credit impairments:
On securities not previously impaired	1.1			0.1
On securities previously impaired	—			3.3
Reductions:
Securities intent impairments	—			(4.4		)
Securities sold, matured, prepaid or paid down	(0.6		)	(14.1		)
Balance at June 30	$	20.0		$	37.2

	Six Months Ended June 30,
	2012			2011
Balance at January 1	$	19.4		$	59.2
Additional credit impairments:
On securities not previously impaired	1.2			0.3
On securities previously impaired	0.6			3.4
Reductions:
Securities intent impairments	—			(7.7		)
Securities sold, matured, prepaid or paid down	(1.2		)	(18.0		)
Balance at June 30	$	20.0		$	37.2

Net Investment Income

The Company uses the equity method of accounting for investments in limited partnership interests that are not consolidated. This asset group consists primarily of private equities, hedge funds and certain VIEs. The Company records its share of earnings using a lag methodology, relying upon the most recent financial information available, generally not to exceed three months, where the contractual right exists to receive such financial information on a timely basis. The Company's equity in earnings from limited partnership interests accounted for under the equity method is recorded in Net investment income.

The following tables summarize Net investment income for the three and six months ended June 30, 2012 and 2011.



	Three Months Ended June 30,
	2012			2011
Fixed maturities	$	303.7		$	316.0
Equity securities, available-for-sale	3.0			4.8
Mortgage loans on real estate	37.5			29.1
Policy loans	3.3			3.3
Short-term investments and cash equivalents	0.3			0.4
Other	(24.2		)	37.8
Gross investment income	323.6			391.4
Less: investment expenses	(11.7		)	(10.7		)
Net investment income	$	311.9		$	380.7

	Six Months Ended June 30,
	2012			2011
Fixed maturities	$	608.0		$	612.6
Equity securities, available-for-sale	4.1			8.5
Mortgage loans on real estate	71.1			55.6
Policy loans	6.6			6.5
Short-term investments and cash equivalents	0.5			0.7
Other	(3.4		)	61.3
Gross investment income	686.9			745.2
Less: investment expenses	(23.0		)	(21.5		)
Net investment income	$	663.9		$	723.7

Net Realized Capital Gains (Losses)

Net realized capital gains (losses) are comprised of the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to credit-related and intent-related other-than-temporary impairment of investments. Realized investment gains and losses are also generated primarily from changes in fair value of embedded derivatives within product guarantees and fixed maturities, changes in fair value of fixed maturities recorded at FVO and changes in fair value including accruals on derivative instruments, except for effective cash flow hedges. The cost of the investments on disposal is generally determined based on first-in-first-out ("FIFO") methodology. Net realized capital gains (losses) were as follows for the three and six months ended June 30, 2012 and 2011.



	Three Months Ended June 30,
	2012			2011
Fixed maturities, available-for-sale, including securities pledged	$	17.8		$	40.8
Fixed maturities, at fair value using the fair value option	(3.4		)	(0.3		)
Equity securities, available-for-sale	—			1.2
Derivatives	39.3			(30.7		)
Embedded derivatives - fixed maturities	4.6			5.7
Embedded derivatives - product guarantees	(59.5		)	(6.6		)
Other investments	—			5.8
Net realized capital gains (losses)	$	(1.2	)	$	15.9

After-tax net realized capital gains (losses)	$	(6.8	)	$	20.9

	Six Months Ended June 30,
	2012			2011
Fixed maturities, available-for-sale, including securities pledged	$	57.3		$	72.2
Fixed maturities, at fair value using the fair value option	(46.3		)	(3.7		)
Equity securities, available-for-sale	—			2.8
Derivatives	26.2			(39.9		)
Embedded derivatives - fixed maturities	(0.2		)	(1.6		)
Embedded derivatives - product guarantees	89.5			(3.1		)
Other investments	(0.4		)	8.8
Net realized capital gains (losses)	$	126.1		$	35.5

After-tax net realized capital gains (losses)	$	72.0		$	10.2

Proceeds from the sale of fixed maturities and equity securities and the related gross realized gains and losses were as follows for the six months ended June 30, 2012 and 2011.



	Six Months Ended June 30,
	2012		2011
Proceeds on sales	$	1,803.3	$	3,149.3
Gross gains	67.9		125.0
Gross losses	7.3		15.7