Investments

Fixed Maturities and Equity Securities

Available-for-sale and fair value option fixed maturities and equity securities were as follows as of December 31, 2011.



	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:
Public utilities	1,915.1		198.0		5.8		—		2,107.3		—
Other corporate securities	6,251.8		572.8		25.3		—		6,799.3		—
Total 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 investments	$	17,221.6	$	1,662.8	$	152.2	$	59.2	$	18,791.4	$	38.1
⁽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 Consolidated Statements of Operations.

Available-for-sale and fair value option fixed maturities and equity securities were as follows as of December 31, 2010.



	Amortized Cost		Gross Unrealized Capital Gains		Gross Unrealized Capital Losses		Embedded Derivatives⁽³⁾		Fair Value		OTTI⁽²⁾
Fixed maturities:
U.S. Treasuries	$	717.0	$	4.7	$	7.3	$	—	$	714.4	$	—
U.S. government agencies and authorities	536.7		45.9		—		—		582.6		—
State, municipalities, and political subdivisions	145.9		5.0		10.2		—		140.7		—

U.S. corporate securities:
Public utilities	1,442.0		73.5		13.3		—		1,502.2		—
Other corporate securities	5,380.1		392.0		31.1		—		5,741.0		0.3
Total U.S. corporate securities	6,822.1		465.5		44.4		—		7,243.2		0.3

Foreign securities⁽¹⁾:
Government	446.3		39.6		5.0		—		480.9		—
Other	4,089.5		240.5		37.4		—		4,292.6		0.1
Total foreign securities	4,535.8		280.1		42.4		—		4,773.5		0.1

Residential mortgage-backed securities:
Agency	1,419.3		234.6		8.3		36.5		1,682.1		0.8
Non-Agency	696.7		62.3		49.2		17.8		727.6		28.0
Total Residential mortgage-backed securities	2,116.0		296.9		57.5		54.3		2,409.7		28.8
Commercial mortgage-backed securities	1,005.6		54.2		30.2		—		1,029.6		14.5
Other asset-backed securities	615.3		16.2		42.7		—		588.8		15.7

Total fixed maturities, including securities pledged	16,494.4		1,168.5		234.7		54.3		17,482.5		59.4
Less: securities pledged	936.5		35.0		9.3		—		962.2		—
Total fixed maturities	15,557.9		1,133.5		225.4		54.3		16,520.3		59.4
Equity securities	179.6		21.0		—		—		200.6		—
Total investments	$	15,737.5	$	1,154.5	$	225.4	$	54.3	$	16,720.9	$	59.4
⁽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 Consolidated Statements of Operations.

The amortized cost and fair value of total fixed maturities, including securities pledged, as of December 31, 2011, are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called, or prepaid. MBS and other 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	$	271.1	$	288.4
After one year through five years	4,147.2		4,375.9
After five years through ten years	5,199.4		5,587.3
After ten years	4,781.6		5,391.4
Mortgage-backed securities	2,821.5		3,158.4
Other asset-backed securities	441.5		438.8
Fixed maturities, including securities pledged	$	17,662.3	$	19,240.2

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 at December 31, 2011 and 2010.

At December 31, 2011 and 2010, fixed maturities with fair values of $13.6 and $13.4, respectively, were on deposit as required by regulatory authorities.

The Company invests in various categories of 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 dramatic decreases and increases in interest rates resulting in the prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. At December 31, 2011 and 2010, approximately 41.1% and 35.5%, respectively, of the Company's CMO holdings were invested in those types of CMOs, such as interest-only or 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 at fair value with changes in the fair value reported in Other net realized gains (losses) in the Consolidated Statements of Operations.

Transfer of Alt-A RMBS Participation Interest and Related Loan to Dutch State

On January 26, 2009, ING announced it reached an agreement, for itself and on behalf of certain ING affiliates including the Company, with the Dutch State on an Illiquid Assets Back-Up Facility covering 80% of ING's Alt-A RMBS. Refer to the Related Party Transactions note to these Consolidated Financial Statements for further details of these agreements.

Variable Interest Entities

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 collateralized loan obligations (“CLOs”) of $0.9 and $0.6 at December 31, 2011 and 2010, respectively, is included in Limited partnerships/corporations on the Consolidated Balance Sheets. Income and losses recognized on these investments are reported in Net investment income on the Consolidated Statements of Operations.

Securitizations

The Company invests in various tranches of securitization entities, including RMBS, CMBS and ABS. Some RMBS investments are in various senior level tranches of mortgage securitizations issued and guaranteed by Fannie Mae, Freddie Mac, or a similar government-sponsored entity, typically referred to as “agency pass-through” investments. These securitizations pool residential mortgages and pass through the principal and interest to investors based on the terms of each tranche or portion of the total pool. Investments held by the Company in non-agency RMBS and CMBS also include interest-only, principal-only, and inverse floating securities. 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 described above are thinly capitalized by design, and considered VIEs under ASC 810-10-25 as amended by ASU 2009-17. As discussed above, 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 will not consolidate any of the RMBS, CMBS, and ABS entities in which it holds investments. These investments are accounted for as investments as described in the Business, Basis of Presentation and Significant Accounting Policies note to these Consolidated Financial Statements.

Fixed Maturity Securities Credit Quality - Ratings

The Securities Valuation Office ("SVO") of the National Association of Insurance Commissioners (“NAIC”) evaluates the fixed maturity security investments of insurers for regulatory reporting and capital assessment purposes and assigns securities to one of six credit quality categories called “NAIC designations.” An internally developed rating is used as permitted by the NAIC if no rating is available. The NAIC designations are generally similar to the credit quality designations of a Nationally Recognized Statistical Rating Organization (“NRSRO”) for marketable fixed maturity securities, called “rating agency designations,” except for certain structured securities as described below. NAIC designations of "1," highest quality, and "2," high quality, include fixed maturity securities generally considered investment grade (“IG”) by such rating organizations. NAIC designations 3 through 6 include fixed maturity securities generally considered below investment grade (“BIG”) by such rating organizations.

The NAIC adopted revised designation methodologies for non−agency RMBS, including RMBS backed by subprime mortgage loans reported within ABS, that became effective December 31, 2009 and for CMBS that became effective December 31, 2010. The NAIC's objective with the revised designation methodologies for these structured securities was to increase the accuracy in assessing expected losses, and to use the improved assessment to determine a more appropriate capital requirement for such structured securities. The revised methodologies reduce regulatory reliance on rating agencies and allow for greater regulatory input into the assumptions used to estimate expected losses from such structured securities.

As a result of time lags between the funding of investments, the finalization of legal documents and the completion of the SVO filing process, the fixed maturity portfolio generally includes securities that have not yet been rated by the SVO as of each balance sheet date, such as private placements. Pending receipt of SVO ratings, the categorization of these securities by NAIC designation is based on the expected ratings indicated by internal analysis.

Information about the Company's fixed maturity securities holdings, including securities pledged, by NAIC designations is set forth in the following tables. Corresponding rating agency designation does not directly translate into NAIC designation, but represents the Company's best estimate of comparable ratings from rating agencies, including Moody's, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.

It is management's objective that the portfolio of fixed maturities be of high quality and be well diversified by market sector. The fixed maturities in the Company's portfolio are generally rated by external rating agencies and, if not externally rated, are rated by the Company on a basis believed to be similar to that used by the rating agencies. Ratings are derived from three NRSRO ratings and are applied as follows based on the number of agency rating received:


▪	when three ratings are received then the middle rating is applied;


▪	when two ratings are received then the lower rating is applied;


▪	when a single rating is received, the NRSRO rating is applied;


▪	and, when ratings are unavailable then an internal rating is applied.

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, for IG and BIG securities by duration, based on NAIC designations, were as follows at December 31, 2011 and 2010.



	2011								2010
	IG		% of IG and BIG		BIG		% of IG and BIG		IG		% of IG and BIG		BIG		% of IG and BIG
Six months or less below amortized cost	$	38.4	25.0	%	$	7.1	4.6	%	$	72.0	30.6	%	$	12.6	5.4	%
More than six months and twelve months or less below amortized cost	12.5		8.1	%	4.1		2.7	%	0.9		0.4	%	1.1		0.5	%
More than twelve months below amortized cost	61.4		40.1	%	29.9		19.5	%	106.5		45.4	%	41.6		17.7	%
Total unrealized capital loss	$	112.3	73.2	%	$	41.1	26.8	%	$	179.4	76.4	%	$	55.3	23.6	%

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged to creditors, for securities rated BBB and above (Investment Grade (“IG”)) and securities rated BB and below (Below Investment Grade (“BIG”)) by duration, based on NRSRO ratings, were as follows at December 31, 2011 and 2010.



	2011								2010
	IG		% of IG and BIG		BIG		% of IG and BIG		IG		% of IG and BIG		BIG		% of IG and BIG
Six months or less below amortized cost	$	38.3	25.0	%	$	7.2	4.7	%	$	72.0	30.6	%	$	12.6	5.4	%
More than six months and twelve months or less below amortized cost	6.8		4.4	%	9.8		6.4	%	1.6		0.7	%	0.4		0.2	%
More than twelve months below amortized cost	42.1		27.4	%	49.2		32.1	%	70.9		30.2	%	77.2		32.9	%
Total unrealized capital loss	$	87.2	56.8	%	$	66.2	43.2	%	$	144.5	61.5	%	$	90.2	38.5	%

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 December 31, 2011 and 2010.



	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 Loss		Fair Value		Unrealized Capital Loss		Fair Value		Unrealized Capital Loss		Fair Value		Unrealized Capital Loss
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

2010
U.S. Treasuries	$	475.6	$	7.3	$	—	$	—	$	—	$	—	$	475.6	$	7.3
U.S. corporate, state, and municipalities	1,043.1		38.6		21.8		1.1		142.9		14.9		1,207.8		54.6
Foreign	866.3		30.1		14.9		0.9		101.7		11.4		982.9		42.4
Residential mortgage-backed	400.5		6.8		0.2		—		240.7		50.7		641.4		57.5
Commercial mortgage-backed	5.1		—		—		—		184.0		30.2		189.1		30.2
Other asset-backed	121.4		1.8		0.1		—		132.1		40.9		253.6		42.7
Total	$	2,912.0	$	84.6	$	37.0	$	2.0	$	801.4	$	148.1	$	3,750.4	$	234.7

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

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 periods as indicated in the tables below, were as follows for December 31, 2011 and 2010.



	Amortized Cost				Unrealized Capital Loss				Number of Securities
	< 20%		> 20%		< 20%		> 20%		< 20%	> 20%
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

2010
Six months or less below amortized cost	$	3,190.2	$	68.6	$	98.5	$	22.3	491	19
More than six months and twelve months or less below amortized cost	129.3		19.6		8.2		4.6		52	3
More than twelve months below amortized cost	353.5		223.9		23.2		77.9		87	69
Total	$	3,673.0	$	312.1	$	129.9	$	104.8	630	91

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 periods as indicated in the tables below, were as follows for December 31, 2011 and 2010.



	Amortized Cost				Unrealized Capital Loss				Number of Securities
	< 20%		> 20%		< 20%		> 20%		< 20%	> 20%
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

2010
U.S. Treasuries	$	482.9	$	—	$	7.3	$	—	3	—
U.S. corporate, state and municipalities	1,218.7		43.7		40.2		14.4		188	5
Foreign	1,013.7		11.6		39.6		2.8		137	4
Residential mortgage-backed	599.6		99.3		25.7		31.8		160	47
Commercial mortgage-backed	155.1		64.2		9.5		20.7		19	5
Other asset-backed	203.0		93.3		7.6		35.1		123	30
Total	$	3,673.0	$	312.1	$	129.9	$	104.8	630	91

At December 31, 2011, the Company held no fixed maturity with an unrealized capital loss in excess of $10.0. At December 31, 2010, the Company held 1 fixed maturity with an unrealized capital loss in excess of $10.0. The unrealized capital loss on this fixed maturity equaled $10.0, or 4.3% of the total unrealized capital losses, as of December 31, 2010.

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 OTTI, which follows this section. After detailed impairment analysis was completed, management 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.

Other-Than-Temporary Impairments

The following tables identify the Company's credit-related and intent-related impairments included in the Consolidated Statements of Operations, excluding noncredit impairments included in AOCI, by type for the years ended December 31, 2011, 2010, and 2009.



	2011			2010				2009
	Impairment		No of Securities	Impairment			No. of Securities	Impairment		No. of Securities
U.S. Treasuries	$	—	—	$	1.7		1	$	156.0	15
Public utilities	—		—	1.3			5	—		—
Other U.S. corporate	20.4		17	5.3			19	47.8		57
Foreign⁽¹⁾	27.8		50	42.4			20	50.6		42
Residential mortgage-backed	8.2		38	14.8			53	31.6		69
Commercial mortgage-backed	28.2		8	20.5			8	17.7		11
Other asset-backed	22.7		53	58.5			42	43.4		32
Limited partnerships	—		—	1.6			4	17.6		17
Equity securities	—		—	—		*	1	19.5		9
Mortgage loans on real estate	—		—	1.0			1	10.3		4
Total	$	107.3	166	$	147.1		154	$	394.5	256
* Less than $0.1.
⁽¹⁾ Primarily U.S. dollar denominated.

The above tables include $17.6, $48.4, and $112.2 for the years ended December 31, 2011, 2010, and 2009, respectively, in other-than-temporary write-downs related to credit impairments, which are recognized in earnings. The remaining $89.7, $98.7, and $282.3, in write-downs for the years ended December 31, 2011, 2010, and 2009, respectively, are related to intent impairments.

The following tables summarize these intent impairments, which are also recognized in earnings, by type for the years ended December 31, 2011, 2010, and 2009.



	2011			2010			2009
	Impairment		No. of Securities	Impairment		No. of Securities	Impairment		No. of Securities
U.S. Treasuries	$	—	—	$	1.7	1	$	156.0	15
Public utilities	—		—	1.4		5	—		—
Other U.S. corporate	20.4		17	5.3		19	35.9		42
Foreign⁽¹⁾	23.7		46	28.5		15	48.7		41
Residential mortgage-backed	1.6		7	8.6		18	2.4		1
Commercial mortgage-backed	22.9		8	16.2		6	17.7		11
Other asset-backed	21.1		50	37.0		26	21.6		10
Total	$	89.7	128	$	98.7	90	$	282.3	120
⁽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.

The fair value of fixed maturities with other-than-temporary impairments as of December 31, 2011, 2010, and 2009 was $1.9 billion, $2.0 billion, and $3.0 billion, respectively.

The following tables identify the amount of credit impairments on fixed maturities for the years ended December 31, 2011, 2010, and 2009, for which a portion of the OTTI was recognized in AOCI, and the corresponding changes in such amounts.



	2011			2010			2009
Balance at January 1	$	50.7		$	46.0		$	—
Implementation of OTTI guidance included in ASC Topic 320⁽¹⁾	—			—			25.1
Additional credit impairments:
On securities not previously impaired	0.9			12.0			13.6
On securities previously impaired	6.7			11.7			8.8
Reductions:
Intent Impairments	(8.7		)	(5.9		)	—
Securities sold, matured, prepaid or paid down	(30.2		)	(13.1		)	(1.5		)
Balance at December 31	$	19.4		$	50.7		$	46.0
⁽¹⁾ Represents credit losses remaining in Retained earnings related to the adoption of new guidance on OTTI, included in ASC Topic 320, on April 1, 2009.

Net Investment Income

Sources of Net investment income were as follows for the years ended December 31, 2011, 2010, and 2009.



	2011		2010		2009
Fixed maturities	$	1,224.2	$	1,182.4	$	1,125.7
Equity securities, available-for-sale	13.6		15.3		15.4
Mortgage loans on real estate	118.1		104.0		113.4
Real estate	—		—		6.6
Policy loans	13.7		13.3		13.7
Short-term investments and cash equivalents	0.8		0.8		2.4
Limited partnerships/corporations	84.2		56.4		(7.2		)
Other	11.3		11.6		11.9
Gross investment income	1,465.9		1,383.8		1,281.9
Less: investment expenses	45.0		41.5		39.8
Net investment income	$	1,420.9	$	1,342.3	$	1,242.1

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 and changes in fair value of fixed maturities accounted for using the fair value option and derivatives. The cost of the investments on disposal is generally determined based on first-in-first-out (“FIFO”) methodology. Net realized capital gains (losses) on investments were as follows for the years ended December 31, 2011, 2010, and 2009.



	2011			2010			2009
Fixed maturities, available-for-sale, including securities pledged	$	112.6		$	38.7		$	(15.1	)
Fixed maturities, at fair value using the fair value option	(60.6		)	(39.2		)	57.0
Equity securities, available-for-sale	7.4			4.1			(2.9		)
Derivatives	(64.3		)	(44.6		)	(190.2		)
Embedded Derivatives - fixed maturities	4.9			8.0			(77.4		)
Embedded Derivatives - product guarantees	(216.1		)	9.3			219.4
Other investments	0.3			4.9			(16.9		)
Net realized capital gains (losses)	$	(215.8	)	$	(18.8	)	$	(26.1	)
After-tax net realized capital gains (losses)	$	(53.3	)	$	1.5		$	75.2

Proceeds from the sale of fixed maturities and equity securities and the related gross realized gains and losses were as follows for the periods ended December 31, 2011, 2010, and 2009.



	2011		2010		2009
Proceeds on sales	$	5,596.3	$	5,312.9	$	4,674.6
Gross gains	249.0		213.6		228.5
Gross losses	33.6		27.8		87.4