Note 4. Value of Business Acquired (“VOBA”), Deferred Acquisition Costs (“DAC”), and Deferred Sales Inducements (“DSI”)

VOBA

VOBA reflects the estimated fair value of in force contracts acquired and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the life insurance and annuity contracts in force at the acquisition date. VOBA is based on actuarially determined projections, for each block of business, of future policy and contract charges, premiums, mortality, Separate Accounts performance, surrenders, operating expenses, investment returns and other factors. Actual experience on the purchased business may vary from these projections. If estimated gross profits or premiums differ from expectations, the amortization of VOBA is adjusted to reflect actual experience. The long-term equity growth rate assumption for the amortization of VOBA, DAC and DSI was 9% at June 30, 2013 and 2012, respectively.

The change in the carrying amount of VOBA for the three and six months ended June 30 was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Accretion (amortization) expense	$	(8,746	)	$	10,343		$	(8,493	)	$	(9,190	)
Unlocking		1			(9,097	)		262			8,676
Adjustment related to realized gains on investments		(5	)		27			(5	)		(31	)
Adjustment related to unrealized gains and OTTI on investments		(847	)		(4,928	)		3,736			(8,211	)

Change in VOBA carrying amount	$	(9,597	)	$	(3,655	)	$	(4,500	)	$	(8,756	)

For the three and six months ended June 30, 2013 change in VOBA accretion (amortization) expense balance was primarily driven by favorable equity markets and regular amortization due to positive gross profits creating greater reserve release when compared to the same period 2012. The change in unlocking for the three and six months ended was driven by a decrease in Separate Account returns, which resulted in favorable unlocking.

DAC and DSI

The change in the carrying amount of DAC and DSI for the three and six months ended June 30 was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
DAC	2013			2012			2013			2012
Capitalization	$	17		$	109		$	178		$	185
Accretion (amortization) expense		(2,709	)		6,693			(5,413	)		307
Unlocking		-			(938	)		(659	)		914

Change in DAC carrying amount	$	(2,692	)	$	5,864		$	(5,894	)	$	1,406


	Three Months Ended June 30,						Six Months Ended June 30,
DSI	2013			2012			2013			2012
Capitalization	$	14		$	4		$	46		$	9
Accretion (amortization) expense		(621	)		1,507			(1,237	)		(250	)
Unlocking		-			108			48			529

Change in DSI carrying amount	$	(607	)	$	1,619		$	(1,143	)	$	288

The change in the carrying amount of DAC and DSI for the three and six months ended June 30, 2013 was primarily driven by positive gross profits and favorable equity markets resulting in increased amortization as compared to the same period in 2012.