Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Financial Instruments

Fair Value Measurements

Fair Value Measurement

The Company measures the fair value of its financial assets and liabilities based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset, or nonperformance risk, including the Company's nonperformance risk. The estimate of fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants to sell the asset or transfer the liability ("exit price") in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability. The Company utilizes a number of valuation sources to determine the fair values of its financial assets and liabilities, including quoted market prices, third-party commercial pricing services, third party brokers and industry-standard, vendor-provided software that models the value based on market observable inputs and other internal modeling techniques based on projected cash flows.

The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Condensed Consolidated Balance Sheets are categorized as follows:

• Level 1 - Unadjusted quoted prices for identical assets or liabilities in an active market. The Company defines an active market as a market in which transactions take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2 - Quoted prices in markets that are not active or valuation techniques that require inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

a) Quoted prices for similar assets or liabilities in active markets;

b) Quoted prices for identical or similar assets or liabilities in non-active markets;

c) Inputs other than quoted market prices that are observable; and

d) Inputs that are derived principally from or corroborated by observable market data through correlation or other means.

• Level 3 - Prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These valuations, whether derived internally or obtained from a third party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. When available, the estimated fair value of securities is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing, or other similar techniques.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of September 30, 2012:

	2012
	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	1,022.5	$	53.5	$	—	$	1,076.0
U.S. government agencies and authorities	—		400.7		—		400.7
U.S. corporate, state and municipalities	—		9,995.0		156.8		10,151.8
Foreign(1)	—		5,357.0		34.8		5,391.8
Residential mortgage-backed securities	—		2,511.1		6.6		2,517.7
Commercial mortgage-backed securities	—		871.2		—		871.2
Other asset-backed securities	—		451.0		42.6		493.6
Total fixed maturities, including securities pledged	1,022.5		19,639.5		240.8		20,902.8
Equity securities, available-for-sale	125.4		—		17.0		142.4
Derivatives:
Interest rate contracts	10.4		530.1		—		540.5
Foreign exchange contracts	—		0.4		—		0.4
Credit contracts	—		2.8		—		2.8
Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	866.7		—		—		866.7
Assets held in separate accounts	46,928.2		4,671.0		8.5		51,607.7
Total assets	$	48,953.2	$	24,843.8	$	266.3	$	74,063.3
Liabilities:
Product guarantees:
Stabilizer and MCGs	$	—	$	—	$	113.0	$	113.0
FIA	—		—		17.5		17.5
Derivatives:
Interest rate contracts	—		346.4		—		346.4
Foreign exchange contracts	—		32.9		—		32.9
Equity contracts	0.1		—		—		0.1
Credit contracts	—		0.6		—		0.6
Total liabilities	$	0.1	$	379.9	$	130.5	$	510.5

⁽¹⁾ Primarily U.S. dollar denominated.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as

of December 31, 2011:

	2011
	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities, including securities pledged:
U.S. Treasuries	$	1,180.3	$	51.3	$	—	$	1,231.6
U.S. government agencies and authorities	—		410.7		—		410.7
U.S. corporate, state and municipalities	—		8,883.5		129.1		9,012.6
Foreign(1)	—		4,937.0		51.1		4,988.1
Residential mortgage-backed securities	—		2,206.1		41.0		2,247.1
Commercial mortgage-backed securities	—		911.3		—		911.3
Other asset-backed securities	—		411.1		27.7		438.8
Total fixed maturities, including securities pledged	1,180.3		17,811.0		248.9		19,240.2
Equity securities, available-for-sale	125.9		—		19.0		144.9
Derivatives:
Interest rate contracts	5.7		437.6		—		443.3
Foreign exchange contracts	—		0.7		—		0.7
Credit contracts	—		2.6		—		2.6
Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements	953.9		4.8		—		958.7
Assets held in separate accounts	40,556.8		4,722.3		16.1		45,295.2
Total assets	$	42,822.6	$	22,979.0	$	284.0	$	66,085.6
Liabilities:
Product guarantees:
Stabilizers and MCGs	$	—	$	—	$	221.0	$	221.0
FIA	—		—		16.3		16.3
Derivatives:
Interest rate contracts	—		306.4		—		306.4
Foreign exchange contracts	—		32.4		—		32.4
Credit contracts	—		8.6		12.7		21.3
Total liabilities	$	—	$	347.4	$	250.0	$	597.4

⁽¹⁾ Primarily U.S. dollar denominated.

Valuation of Financial Assets and Liabilities at Fair Value

Certain assets and liabilities are measured at estimated fair value on the Company’s Condensed Consolidated Balance Sheets. In addition, further disclosure of estimated fair values is included in the Investments note to these Condensed Consolidated Financial Statements. The Company defines fair value as the price that would be received to sell 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. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances. However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement which is determined based on a hypothetical transaction at the measurement date, from a market participant’s perspective. The Company considers three broad valuation techniques when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available.

The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of "exit price" and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third party commercial pricing services, brokers and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third-party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades, or monitoring of trading volumes.

All valuation methods and assumptions are validated at least quarterly to ensure the accuracy and relevance of the fair values. Except for the nonperformance risk change described below, there were no material changes to the valuation methods or assumptions used to determine fair values during the nine months ended September 30, 2012 and the year ended December 31, 2011.

The following valuation methods and assumptions were used by the Company in estimating the reported values for the investments and derivatives described below:

Fixed maturities: The fair values for the actively traded marketable bonds are determined based upon the quoted market prices and are classified as Level 1 assets.  Assets in this category would primarily include certain U.S. Treasury securities.  The fair values for marketable bonds without an active market are obtained through several commercial pricing services which provide the estimated fair values and are classified as Level 2 assets.  These services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, broker-dealer quotes, credit quality, issuer spreads, bids, offers and other reference data. This category includes U.S. and foreign corporate bonds, ABS, U.S. agency and government guaranteed securities, CMBS and RMBS, including certain CMO assets.

Generally, the Company does not obtain more than one vendor price from pricing services per instrument. The Company uses a hierarchy process in which prices are obtained from a primary vendor and, if that vendor is unable to provide the price, the next vendor in the hierarchy is contacted until a price is obtained or it is determined that a price cannot be obtained from a commercial pricing service. When a price cannot be obtained from a commercial pricing service, independent broker quotes are solicited.  Securities priced using independent broker quotes are classified as Level 3.

Broker quotes and prices obtained from pricing services are reviewed and validated through an internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades, or monitoring of trading volumes. As of September 30, 2012, $150.2 and $16.3 billion of a total fair value of $20.9 billion in fixed maturities, including securities pledged, were valued using unadjusted broker quotes and unadjusted prices obtained from pricing services, respectively, and verified through the review process. The remaining balance in fixed maturities consisted primarily of privately placed bonds valued using a matrix-based pricing.

All prices and broker quotes obtained go through the review process described above including valuations for which only one broker quote is obtained.  After review, for those instruments where the price is determined to be appropriate, the unadjusted price provided is used for financial statement valuation. If it is determined that the price is questionable, another price may be requested from a different vendor. The internal valuation committee then reviews all prices for the instrument again, along with information from the review, to determine which price best represents "exit price" for the instrument.

Fair values of privately placed bonds are determined primarily using a matrix-based pricing model and are generally classified as Level 2 assets.  The model considers the current level of risk-free interest rates, current corporate spreads, the credit quality of the issuer and cash flow characteristics of the security.  Also considered are factors such as the net worth of the borrower, the value of collateral, the capital structure of the borrower, the presence of guarantees and the Company’s evaluation of the borrower’s ability to compete in its relevant market.  Using this data, the model generates estimated market values which the Company considers reflective of the fair value of each privately placed bond.

Equity securities, available-for-sale: Fair values of publicly traded equity securities are based upon quoted market price and are classified as Level 1 assets. Other equity securities, typically private equities or equity securities not traded on an exchange, are valued by other sources such as analytics or brokers and are classified as Level 2 or Level 3 assets.

Cash and cash equivalents, Short-term investments and Short-term investments under securities loan agreement: The carrying amounts for cash reflect the assets' fair values. The fair value for cash equivalents and most short-term investments are determined based on quoted market prices. These assets are classified as Level 1. Other short-term investments are valued and classified in the fair value hierarchy consistent with the policies described herein, depending on investment type.

Derivatives: Derivatives are carried at fair value, which is determined using the Company’s derivative accounting system in conjunction with observable key financial data from third party sources, such as yield curves, exchange rates, S&P 500 Index prices, London Interbank Offered Rates ("LIBOR") and Overnight Index Swap ("OIS") rates. In June 2012, the Company began using OIS rather than LIBOR for valuations of collateralized interest rate derivatives, which are obtained from third-party sources. For those derivatives that are unable to be valued by the accounting system, the Company typically utilizes values established by third-party brokers. Counterparty credit risk is considered and incorporated in the Company’s valuation process through counterparty credit rating requirements and monitoring of overall exposure.  It is the Company’s policy to transact only with investment grade counterparties with a credit rating of A- or better. The Company’s nonperformance risk is also considered and incorporated in the Company’s valuation process. Valuations for the Company’s futures and interest rate forward contracts are based on unadjusted quoted prices from an active exchange and, therefore, are classified as Level 1. The Company also has certain credit default swaps and options that are priced using models that primarily use market observable inputs, but contain inputs that are not observable to market participants, which have been classified as Level 3.  However, all other derivative instruments are valued based on market observable inputs and are classified as Level 2.

The Company has entered into a number of options as hedges on its FIA liabilities. The maximum exposure is the current value of the option. The payoff of these contracts depends on market conditions during the lifetime of the option. The fair value measurement of options is highly sensitive to implied equity and interest rate volatility and the market reflects a considerable variance in broker quotes. The Company uses a third-party vendor to determine the market value of these options.

Product guarantees: The Company records an embedded derivative liability for its FIA contracts for interest payments to contract holders above the minimum guaranteed interest rate. The guarantee is an embedded derivative and is required to be accounted for separately from the host contract. The fair value of the obligation is calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by market implied assumptions. These derivatives are classified as Level 3 liabilities in the fair value hierarchy.

The Company records reserves for Stabilizer and MCG contracts containing guaranteed credited rates in accordance with U.S. GAAP for derivative instruments and hedging activities. The guarantee is an embedded derivative or a stand-alone derivative (depending on the underlying product) and is required to be reported at fair value. The estimated fair value is determined based on the present value of projected future claims, minus the present value of future guaranteed premiums. At inception of the contract, the Company projects a guaranteed premium to be equal to the present value of the projected future claims. The income associated with the contracts is projected using relevant actuarial and capital market assumptions, including benefits and related contract charges, over the anticipated life of the related contracts. The cash flow estimates are produced by using stochastic techniques under a variety of risk neutral scenarios and other market implied assumptions. These derivatives are classified as Level 3 liabilities.

The discount rate used to determine the fair value of the embedded derivatives and stand-alone derivative associated with the Company's product guarantees includes an adjustment to reflect the risk that these obligations will not be fulfilled (“nonperformance risk”). Through June 30, 2012, the Company's nonperformance risk adjustment was based on the credit default swap spreads of ING Verzekeringen N.V. ("ING V"), the Company's indirect parent company, with similar term to maturity and priority of payment. The ING V credit default spread was applied to the risk-free swap curve in the Company's valuation models for these product guarantees. As a result of the availability of ING U.S., Inc.'s market observable data following the issuance of its long-term debt on July 13, 2012, the Company changed its estimate of nonperformance risk to incorporate a blend of observable, similarly rated peer company credit default swap spreads, adjusted to reflect the Company's own credit quality as well as an adjustment to reflect the priority of policyholder claims.

The Company's valuation actuaries are responsible for the policies and procedures for valuing the embedded derivatives, reflecting the capital markets and actuarial valuation inputs and nonperformance risk in the estimate of the fair value of the embedded derivatives. The actuarial and capital market assumptions for each liability are approved by each product's Chief Risk Officer ("CRO"), including an independent annual review by the U.S. CRO. Models used to value the embedded derivatives must comply with the Company's governance policies.

Quarterly, an attribution analysis is performed to quantify changes in fair value measurements and a sensitivity analysis is used to analyze the changes. The changes in fair value measurements are also compared to corresponding movements in the hedge target to assess the validity of the attributions. The results of the attribution analysis are reviewed by the valuation actuaries, responsible CFOs, Controllers, CROs, and/or others as nominated by management.

Assets held in separate accounts: Assets held in separate accounts are reported at the quoted fair values of the underlying investments in the separate accounts.  The underlying investments include mutual funds, short-term investments and cash, the valuations of which are based upon a quoted market price and are included in Level 1.  Fixed maturity valuations are obtained from third-party commercial pricing services and brokers and are classified in the fair value hierarchy consistent with the policy described above for fixed maturities.

Transfers in and out of Level 1 and 2

There were no securities transferred between Levels 1 and Level 2 for the three and nine months ended September 30, 2012 and 2011.  The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.

Level 3 Financial Instruments

The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities classified as Level 3, additional information is presented below.

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the three and nine months ended September 30, 2012:

	Three Months Ended September 30, 2012
	Fair Value as of July 1			Total Realized/Unrealized Gains (Losses) Included in:							Purchases			Issuances		Sales			Settlements			Transfers in to Level 3(2)		Transfers out of Level 3(2)		Fair Value as of September 30			Change in Unrealized Gains (Losses) Included in Earnings(3)
				Net Income				OCI
Fixed maturities, including securities pledged:
U.S. corporate, state and municipalities	$	151.6		$	—			$	2.0		$	—		$	—	$	—		$	(0.9	)	$	4.1	$	—	$	156.8		$	—
Foreign	19.4			—				(3.6		)	—			—		—			(2.5		)	21.5		—		34.8			—
Residential mortgage-backed securities	6.0			(0.1		)		(0.5		)	—			—		—			(0.1		)	1.3		—		6.6			(0.1		)
Other asset-backed securities	30.1			0.4				1.3			10.0			—		—			(0.4		)	1.2		—		42.6			0.4
Total fixed maturities, including securities pledged	207.1			0.3				(0.8		)	10.0			—		—			(3.9		)	28.1		—		240.8			0.3
Equity securities, available-for-sale	18.5			(0.2		)		—			—			—		(1.3		)	—			—		—		17.0			—
Derivatives, net	—			—				—			—			—		—			—			—		—		—			—
Product guarantees:
Stabilizer and MCGs	(133.0		)	21.2			(1)	—			(1.2		)	—		—			—			—		—		(113.0		)	—
FIA	(17.6		)	0.1			(1)	—			—			—		—			—			—		—		(17.5		)	—
Separate Accounts(4)	8.7			0.3				—			0.1			—		(2.0		)	—			1.4		—		8.5			0.2
(1) All gains and losses on Level 3 are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(2) The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(3) For financial instruments still held as of September 30, amounts are included in Net investment income and Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(4) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which result in a net zero impact on net income (loss) for the Company.

	Nine Months Ended September 30, 2012
	Fair Value as of January 1			Total Realized/Unrealized Gains (Losses) Included in:							Purchases			Issuances		Sales			Settlements			Transfers in to Level 3(2)		Transfers out of Level 3(2)			Fair Value as of September 30			Change in Unrealized Gains (Losses) Included in Earnings(3)
				Net Income				OCI
Fixed maturities, including securities pledged:
U.S. corporate, state and municipalities	$	129.1		$	(0.2	)		$	(1.2	)	$	7.2		$	—	$	—		$	(7.2	)	$	32.7	$	(3.6	)	$	156.8		$	(0.2	)
Foreign	51.1			0.9				(4.0		)	—			—		(5.7		)	(2.5		)	20.7		(25.7		)	34.8			—
Residential mortgage-backed securities	41.0			0.7				1.3			—			—		(6.0		)	(0.1		)	—		(30.3		)	6.6			(0.3		)
Other asset-backed securities	27.7			0.8				1.8			10.0			—		—			(1.6		)	3.9		—			42.6			0.8
Total fixed maturities, including securities pledged	248.9			2.2				(2.1		)	17.2			—		(11.7		)	(11.4		)	57.3		(59.6		)	240.8			0.3
Equity securities, available-for-sale	19.0			(0.2		)		(0.1		)	0.7			—		(2.4		)	—			—		—			17.0			—
Derivatives, net	(12.7		)	(1.7		)		—			—			—		—			14.4			—		—			—			—
Product guarantees:
Stabilizer and MCGs	(221.0		)	112.0			(1)	—			(4.0		)	—		—			—			—		—			(113.0		)	—
FIA	(16.3		)	(1.2		)	(1)	—			—			—		—			—			—		—			(17.5		)	—
Separate Accounts(4)	16.1			0.7				—			0.1			—		(10.0		)	—			1.6		—			8.5			0.9
(1) All gains and losses on Level 3 are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(2) The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(3) For financial instruments still held as of September 30, amounts are included in Net investment income and Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(4) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which result in a net zero impact on net income (loss) for the Company.

The following tables summarize the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the three and nine months ended September 30, 2011:

	Three Months Ended September 30, 2011
	Fair Value as of July 1			Total Realized/Unrealized Gains (Losses) Included in:							Purchases and Issuances			Sales and Settlements			Transfers in to Level 3(2)		Transfers out of Level 3(2)			Fair Value as of September 30			Change in Unrealized Gains (Losses) Included in Earnings(3)
				Net Income				OCI
Fixed maturities, including securities pledged:
U.S. corporate, state and municipalities	$	133.5		$	—			$	3.2		$	—		$	(0.5	)	$	—	$	—		$	136.2		$	—
Foreign	24.9			—				(0.4		)	—			(1.6		)	—		(2.7		)	20.2			—
Residential mortgage-backed securities	12.3			(0.3		)		0.1			—			(0.1		)	—		—			12.0			(0.3		)
Other asset-backed securities	49.1			(1.7		)		(0.5		)	—			(7.9		)	—		(1.3		)	37.7			(2.1		)
Total fixed maturities, including securities pledged	219.8			(2.0		)		2.4			—			(10.1		)	—		(4.0		)	206.1			(2.4		)
Equity securities, available-for-sale	21.7			—				—			0.2			(2.9		)	—		—			19.0			—
Derivatives, net	(9.7		)	(6.2		)		—			0.3			—			—		—			(15.6		)	(6.2		)
Product guarantees:
Stabilizer and MCGs	(2.5		)	(146.8		)	(1)	—			(1.5		)	—			—		—			(150.8		)	—
FIA	(11.8		)	(2.0		)	(1)	—			—			—			—		—			(13.8		)	—
Separate Accounts(4)	13.5			(0.6		)		—			7.7			(0.4		)	—		(5.9		)	14.3			(0.7		)
(1) All gains and losses on Level 3 are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(2) The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(3) For financial instruments still held as of September 30, amounts are included in Net investment income and Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(4) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which result in a net zero impact on net income (loss) for the Company.

	Nine Months Ended September 30, 2011
	Fair Value as of January 1			Total Realized/Unrealized Gains (Losses) Included in:							Purchases and Issuances			Sales and Settlements			Transfers in to Level 3(2)		Transfers out of Level 3(2)			Fair Value as of September 30			Change in Unrealized Gains (Losses) Included in Earnings(3)
				Net Income				OCI
Fixed maturities, including securities pledged:
U.S. corporate, state and municipalities	$	11.2		$	—			$	6.4		$	13.9		$	(16.0	)	$	120.7	$	—		$	136.2		$	—
Foreign	11.4			0.7				(1.2		)	—			(8.8		)	22.3		(4.2		)	20.2			—
Residential mortgage-backed securities	254.7			(2.9		)		2.4			3.0			(15.8		)	—		(229.4		)	12.0			(0.7		)
Other asset-backed securities	247.7			(28.3		)		16.6			—			(127.7		)	1.5		(72.1		)	37.7			(3.7		)
Total fixed maturities, including securities pledged	525.0			(30.5		)		24.2			16.9			(168.3		)	144.5		(305.7		)	206.1			(4.4		)
Equity securities, available-for-sale	27.7			0.1				0.1			4.2			(4.2		)	—		(8.9		)	19.0			—
Derivatives, net	(13.6		)	(2.2		)		—			0.2			—			—		—			(15.6		)	(2.3		)
Product guarantees:
Stabilizer and MCGs	(3.0		)	(143.7		)	(1)	—			(4.1		)	—			—		—			(150.8		)	—
FIA	(5.6		)	(8.2		)	(1)	—			—			—			—		—			(13.8		)	—
Separate Accounts(4)	22.3			(0.1		)		—			7.8			(3.1		)	—		(12.6		)	14.3			—
(1) All gains and losses on Level 3 are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by-contract basis. These amounts are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(2) The Company’s policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(3) For financial instruments still held as of September 30, amounts are included in Net investment income and Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(4) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income (loss) for separate account assets are offset by an equal amount for separate account liabilities, which result in a net zero impact on net income (loss) for the Company.

The transfers out of Level 3 for the three and nine months ended September 30, 2011 in fixed maturities, including securities pledged, were primarily due to the Company's determination that the market for subprime RMBS securities had become active in the first quarter 2011 and to an increased utilization of vendor valuations for certain CMO assets, as opposed to the previous use of broker quotes in the second quarter of 2011. While the valuation methodology for subprime RMBS securities has not changed, the Company has concluded that the frequency of transactions in the market for subprime RMBS securities represent regularly occurring market transactions and therefore are now classified as Level 2.

The remaining transfers in and out of Level 3 for fixed maturities, equity securities and separate accounts during the three and nine months ended September 30, 2012 and 2011 were due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3, as these securities are generally less liquid with very limited trading activity or where less transparency exists corroborating the inputs to the valuation methodologies. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate.

Significant Unobservable Inputs

Quantitative information about the significant unobservable inputs used in the Company's Level 3 fair value measurements of its Annuity product guarantees is presented in the following sections and table.

The Company's Level 3 fair value measurements of its fixed maturities, equity securities available-for-sale, and equity and credit derivative contracts are primarily based on broker quotes for which the quantitative detail of the unobservable inputs is neither provided nor reasonably corroborated, thus negating the ability to perform a sensitivity analysis.

Significant unobservable inputs used in the fair value measurements of FIAs include nonperformance risk and lapses. Such inputs are monitored quarterly.

The significant unobservable inputs used in the fair value measurement of the Stabilizer embedded derivatives and MCG derivative containing guaranteed credited rates are interest rate implied volatility, nonperformance risk, lapses and policyholder deposits. Such inputs are monitored quarterly.

Following is a description of selected inputs:

Interest Rate Volatility: A term-structure model is used to approximate implied volatility for the swap rates for the Stabilizer and MCG contracts. Where no implied volatility is readily available in the market, an alternative approach is applied based on historical volatility.

Nonperformance Risk: For the estimate of the fair value of the embedded derivatives and the stand-alone derivative associated with our product guarantees, valuation actuaries use a blend of observable, similarly rated peer company credit default swap spreads, adjusted to reflect the Company's own credit quality as well as an adjustment to reflect the priority of policyholder claims.

Policyholder Behavior Assumptions: Management regularly reviews actuarial assumptions, which are based on the Company's experience and periodically reviewed against industry standards. Industry standards and Company experience may be limited on certain products.

The following table presents the unobservable inputs for Level 3 fair value measurements as of September 30, 2012:

	Range(1)
Unobservable Input	FIA	Stabilizer / MCG
Interest rate implied volatility	-	0% to 4%
Nonperformance risk	0.25% to 3.5%	0.25% to 3.5%
Policyholder Behavior Assumptions:
Lapses	0% to 10%	0% to 55%
Policyholder deposits(2)	-	0% to 20%
(1) Represents the range of reasonable assumptions that management has used in its fair value calculations.
(2) Measured as a percentage of assets under management or assets under administration.

Generally, the following will cause an increase (decrease) in the FIA embedded derivative fair value liability:

• A decrease (increase) in nonperformance risk

• A decrease (increase) in lapses

Generally, the following will cause an increase (decrease) in the derivative and embedded derivative fair value liabilities related to Stabilizer and MCG contracts:

• An increase (decrease) in interest rate volatility

• A decrease (increase) in the nonperformance risk

• A decrease (increase) in lapses

• A decrease (increase) in policyholder deposits

Other Financial Instruments

The carrying values and estimated fair values of the Company’s financial instruments were as follows as of September 30, 2012 and December 31, 2011:

	2012				2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturities, including securities pledged	$	20,318.6	$	20,318.6	$	18,728.3	$	18,728.3
Fixed maturities, at fair value using the fair value option	584.2		584.2		511.9		511.9
Equity securities, available-for-sale	142.4		142.4		144.9		144.9
Mortgage loans on real estate	2,712.3		2,802.9		2,373.5		2,423.1
Loan - Dutch State obligation	353.9		354.5		417.0		421.9
Policy loans	242.5		242.5		245.9		245.9
Limited partnerships/corporations	369.7		369.7		510.6		510.6
Cash, cash equivalents, short-term investments and short-term investments under securities loan agreements	866.7		866.7		958.7		958.7
Derivatives	543.7		543.7		446.6		446.6
Notes receivable from affiliates	175.0		185.1		175.0		165.2
Assets held in separate accounts	51,607.7		51,607.7		45,295.2		45,295.2
Liabilities:
Investment contract liabilities:
Without a fixed maturity	19,311.6		23,582.6		18,410.4		21,739.8
With a fixed maturity	1,099.7		1,253.6		1,222.4		1,369.1
Product guarantees:
Stabilizer and MCGs	113.0		113.0		221.0		221.0
FIA	17.5		17.5		16.3		16.3
Derivatives	380.0		380.0		360.0		360.0

The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized at fair value on the Condensed Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates, in many cases, could not be realized in immediate settlement of the instrument.

ASC Topic 825 excludes certain financial instruments, including insurance contracts and all nonfinancial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following valuation methods and assumptions were used by the Company in estimating the fair value of the following financial instruments, which are not carried at fair value on the Condensed Consolidated Balance Sheets:

Mortgage loans on real estate: The fair values for mortgage loans on real estate are estimated on a monthly basis using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Mortgage loans on real estate are classified as Level 3.

Loan - Dutch State obligation: The fair value of the Dutch State loan obligation is estimated utilizing cash flows net of certain contract fees discounted using the Netherlands Strip Yield Curve and is classified as Level 3.

Policy loans: The fair value of policy loans is equal to the carrying value of the loans.  Policy loans are collateralized by the cash surrender value of the associated insurance contracts and are classified as Level 2.

Limited partnerships/corporations: The fair value for these investments, primarily private equity fund of funds and hedge funds, is based on actual or estimated Net Asset Value ("NAV") information as provided by the investee and are classified as Level 3.

Investment contract liabilities:

Without a fixed maturity: Fair value is estimated as the mean present value of stochastically modeled cash flows associated

with the contract liabilities taking into account assumptions about contract holder behavior. The stochastic valuation scenario set is consistent with current market parameters and discount is taken using stochastically evolving risk-free rates in the scenarios plus an adjustment for nonperformance risk. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3.

With a fixed maturity: Fair value is estimated by discounting cash flows, including associated expenses for maintaining the contracts, at rates, which are risk-free rates plus an adjustment for nonperformance risk. These liabilities are classified as Level 2.

Notes receivable from affiliates: Estimated fair value of the Company’s notes receivable from affiliates is determined primarily using a matrix-based pricing. The model considers the current level of risk-free interest rates, credit quality of the issuer and cash flow characteristics of the security model and is classified as Level 2.

Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized capital gains (losses). In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’s management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.