Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

(Mark One)	  	 	 	 	
x  	  	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)	 	 	
 	  	OF THE SECURITIES EXCHANGE ACT OF 1934	 	 	
 	 	 	
 	  	For the quarterly period ended June 30, 2013	 	 	
 	 	 	
 	  	OR	 	 	
 	 	 	
¨  	  	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)	 	 	
 	  	OF THE SECURITIES EXCHANGE ACT OF 1934	 	 	
Commission File Number 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of Registrant as specified in its charter)

MISSOURI	 	43-1627032	
(State or other jurisdiction	 	(IRS employer	
of incorporation or organization)	 	identification number)	
1370 Timberlake Manor Parkway
Chesterfield, Missouri 63017
(Address of principal executive offices)
(636) 736-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes   X    No       
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes   X     No       
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   X          Accelerated filer                 Non-accelerated filer                Smaller reporting company       
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes         No   X
As of July 31, 2013, 70,984,449 shares of the registrant’s common stock were outstanding.

Table of Contents
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS

Item	    	 	  	Page	 	
 	 	 	
 	    	PART I – FINANCIAL INFORMATION	  	 	 	 	
 	 	 	
1	    	Financial Statements	  	 	 	 	
 	 	 	
 	    	Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2013 and December 31, 2012	  	 	3	  	
 	 	 	
 	    	Condensed Consolidated Statements of Income (Unaudited)
Three and six months ended June 30, 2013 and 2012	  	 	4	  	
 	 	 	
 	    	Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Three and six months ended June 30, 2013 and 2012	  	 	5	  	
 	 	 	
 	    	Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 2013 and 2012	  	 	6	  	
 	 	 	
 	    	Notes to Condensed Consolidated Financial Statements (Unaudited)	  	 	7	  	
 	 	 	
2	    	Management’s Discussion and Analysis of
Financial Condition and Results of Operations	  	 	50	  	
 	 	 	
3	    	Quantitative and Qualitative Disclosure About Market Risk	  	 	84	  	
 	 	 	
4	    	Controls and Procedures	  	 	84	  	
 	 	 	
 	    	PART II – OTHER INFORMATION	  	 	 	 	
 	 	 	
1	    	Legal Proceedings	  	 	85	  	
 	 	 	
1A	    	Risk Factors	  	 	85	  	
 	 	 	
2	    	Unregistered Sales of Equity Securities and Use of Proceeds	  	 	85	  	
 	 	 	
5	    	Other Information	  	 	85	  	
 	 	 	
6	    	Exhibits	  	 	85	  	
 	 	 	
 	    	Signatures	  	 	86	  	
 	 	 	
 	    	Index to Exhibits	  	 	87	  	
 
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PART I - FINANCIAL INFORMATION
REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

 	  	June 30,
2013	 	 	December 31,
2012	 	
 	  	(Dollars in thousands, except share data)	 	
 
Assets	  	 	 	 	 	 	 	 	
Fixed maturity securities:	  	 	 	 	 	 	 	 	
Available-for-sale at fair value (amortized cost of $19,757,321 and $19,559,432)	  	$	21,284,216	  	 	$	22,291,614	  	
Mortgage loans on real estate (net of allowances of $7,903 and $11,580)	  	 	2,377,246	  	 	 	2,300,587	  	
Policy loans	  	 	1,245,252	  	 	 	1,278,175	  	
Funds withheld at interest	  	 	5,777,395	  	 	 	5,594,182	  	
Short-term investments	  	 	38,601	  	 	 	288,082	  	
Other invested assets	  	 	1,035,809	  	 	 	1,159,543	  	
 	  	 	 	 	 	 	 	 	
Total investments	  	 	31,758,519	  	 	 	    32,912,183	  	
Cash and cash equivalents	  	 	973,619	  	 	 	1,259,892	  	
Accrued investment income	  	 	233,153	  	 	 	201,344	  	
Premiums receivable and other reinsurance balances	  	 	1,314,004	  	 	 	1,356,087	  	
Reinsurance ceded receivables	  	 	585,555	  	 	 	620,901	  	
Deferred policy acquisition costs	  	 	3,453,513	  	 	 	3,619,274	  	
Other assets	  	 	472,258	  	 	 	390,757	  	
 	  	 	 	 	 	 	 	 	
Total assets	  	$	38,790,621	  	 	$	40,360,438	  	
 	  	 	 	 	 	 	 	 	
Liabilities and Stockholders’ Equity	  	 	 	 	 	 	 	 	
Future policy benefits	  	$	11,491,692	  	 	$	11,372,856	  	
Interest-sensitive contract liabilities	  	 	12,991,981	  	 	 	13,353,502	  	
Other policy claims and benefits	  	 	3,316,727	  	 	 	3,160,250	  	
Other reinsurance balances	  	 	254,815	  	 	 	233,630	  	
Deferred income taxes	  	 	1,839,909	  	 	 	2,120,501	  	
Other liabilities	  	 	584,488	  	 	 	742,249	  	
Short-term debt	  	 	120,000	  	 	 	—	  	
Long-term debt	  	 	1,815,533	  	 	 	1,815,253	  	
Collateral finance facility	  	 	487,556	  	 	 	652,010	  	
 	  	 	 	 	 	 	 	 	
Total liabilities	  	 	    32,902,701	  	 	 	33,450,251	  	
Commitments and contingent liabilities (See Note 8)	  	 	 	 	 	 	 	 	
Stockholders’ Equity:	  	 	 	 	 	 	 	 	
Preferred stock - par value $.01 per share, 10,000,000 shares authorized, no shares issued or outstanding	  	 	—	  	 	 	—	  	
Common stock - par value $.01 per share, 140,000,000 shares authorized, 79,137,758 shares issued at June 30, 2013 and December 31, 2012	  	 	791	  	 	 	791	  	
Additional paid-in-capital	  	 	1,772,811	  	 	 	1,755,421	  	
Retained earnings	  	 	3,428,646	  	 	 	3,357,255	  	
Treasury stock, at cost - 8,170,066 and 5,210,427 shares	  	 	(496,462	) 	 	 	(312,182	) 	
Accumulated other comprehensive income	  	 	1,182,134	  	 	 	2,108,902	  	
 	  	 	 	 	 	 	 	 	
Total stockholders’ equity	  	 	5,887,920	  	 	 	6,910,187	  	
 	  	 	 	 	 	 	 	 	
Total liabilities and stockholders’ equity	  	$	38,790,621	  	 	$	40,360,438	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to condensed consolidated financial statements (unaudited).
 
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	 	 	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Revenues:	  	(Dollars in thousands, except per share data)	 	
Net premiums	  	$	2,035,156	  	 	$	1,950,661	  	 	$	4,014,849	  	 	$	3,814,143	  	
Investment income, net of related expenses	  	 	444,234	  	 	 	328,334	  	 	 	869,365	  	 	 	669,274	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	(9,803	) 	 	 	(1,959	) 	 	 	(10,005	) 	 	 	(9,566	) 	
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income	  	 	(306	) 	 	 	162	  	 	 	(306	) 	 	 	(7,059	) 	
Other investment related gains (losses), net	  	 	58,352	  	 	 	25,598	  	 	 	152,925	  	 	 	83,946	  	
 	  	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	48,243	  	 	 	23,801	  	 	 	142,614	  	 	 	67,321	  	
Other revenues	  	 	63,009	  	 	 	72,957	  	 	 	164,916	  	 	 	117,990	  	
 	  	 	 	 	 	 	 	 	
Total revenues	  	 	2,590,642	  	 	 	2,375,753	  	 	 	5,191,744	  	 	 	4,668,728	  	

Benefits and Expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	2,030,574	  	 	 	1,625,446	  	 	 	3,719,484	  	 	 	3,205,595	  	
Interest credited	  	 	118,345	  	 	 	66,697	  	 	 	243,828	  	 	 	154,739	  	
Policy acquisition costs and other insurance expenses	  	 	370,505	  	 	 	335,939	  	 	 	727,862	  	 	 	643,573	  	
Other operating expenses	  	 	113,408	  	 	 	105,541	  	 	 	232,909	  	 	 	215,639	  	
Interest expense	  	 	29,918	  	 	 	23,360	  	 	 	58,404	  	 	 	46,682	  	
Collateral finance facility expense	  	 	2,650	  	 	 	2,878	  	 	 	5,188	  	 	 	5,845	  	
 	  	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	  2,665,400	  	 	 	  2,159,861	  	 	 	  4,987,675	  	 	 	  4,272,073	  	

Income (loss) before income taxes	  	 	(74,758	) 	 	 	215,892	  	 	 	204,069	  	 	 	396,655	  	
Provision for income taxes	  	 	(25,146	) 	 	 	74,781	  	 	 	68,146	  	 	 	132,226	  	
 	  	 	 	 	 	 	 	 	
Net income (loss)	  	$	(49,612	) 	 	$	141,111	  	 	$	135,923	  	 	$	264,429	  	
 	  	 	 	 	 	 	 	 	
Earnings per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic earnings per share	  	$	(0.69	) 	 	$	1.91	  	 	$	1.86	  	 	$	3.59	  	
Diluted earnings per share	  	$	(0.69	) 	 	$	1.91	  	 	$	1.85	  	 	$	3.57	  	
Dividends declared per share	  	$	0.24	  	 	$	0.18	  	 	$	0.48	  	 	$	0.36	  	
See accompanying notes to condensed consolidated financial statements (unaudited).
 
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(Unaudited)

 	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	 	 	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Comprehensive income (loss)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income (loss)	  	$	(49,612	) 	 	$	141,111	  	 	$	135,923	  	 	$	264,429	  	
Other comprehensive income (loss), net of tax:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in foreign currency translation adjustments	  	 	(88,832	) 	 	 	(16,865	) 	 	 	(102,937	) 	 	 	7,215	  	
Change in net unrealized gains and losses on investments	  	 	(706,848	) 	 	 	203,156	  	 	 	(826,181	) 	 	 	167,741	  	
Change in other-than-temporary impairment losses on fixed maturity securities	  	 	199	  	 	 	(106	) 	 	 	650	  	 	 	4,588	  	
Changes in pension and other postretirement plan adjustments	  	 	875	  	 	 	1,211	  	 	 	1,700	  	 	 	1,501	  	
 	  	 	 	 	 	 	 	 	
Total other comprehensive income (loss), net of tax	  	 	(794,606	) 	 	 	187,396	  	 	 	(926,768	) 	 	 	181,045	  	
 	  	 	 	 	 	 	 	 	
Total comprehensive income (loss)	  	$	(844,218	) 	 	$	328,507	  	 	$	(790,845	) 	 	$	445,474	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to condensed consolidated financial statements.
 
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

 	  	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	
 	  	(Dollars in thousands)	 	
Cash Flows from Operating Activities:	  	 	 	 	 	 	 	 	
Net income	  	$	135,923	  	 	$	264,429	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Change in operating assets and liabilities:	  	 	 	 	 	 	 	 	
Accrued investment income	  	 	(35,457	) 	 	 	(38,182	) 	
Premiums receivable and other reinsurance balances	  	 	(5,100	) 	 	 	(47,370	) 	
Deferred policy acquisition costs	  	 	104,002	  	 	 	(63,690	) 	
Reinsurance ceded receivable balances	  	 	64,814	  	 	 	(540	) 	
Future policy benefits, other policy claims and benefits, and other reinsurance balances	  	 	806,172	  	 	 	755,790	  	
Deferred income taxes	  	 	69,071	  	 	 	(5,469	) 	
Other assets and other liabilities, net	  	 	(165,129	) 	 	 	62,682	  	
Amortization of net investment premiums, discounts and other	  	 	(43,662	) 	 	 	(69,347	) 	
Investment related gains, net	  	 	(142,614	) 	 	 	(67,321	) 	
Gain on repurchase of collateral finance facility securities	  	 	(46,506	) 	 	 	—	  	
Excess tax benefits from share-based payment arrangement	  	 	(2,420	) 	 	 	24	  	
Other, net	  	 	66,027	  	 	 	27,251	  	
 	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	805,121	  	 	 	818,257	  	
Cash Flows from Investing Activities:	  	 	 	 	 	 	 	 	
Sales of fixed maturity securities available-for-sale	  	 	1,898,833	  	 	 	1,759,932	  	
Maturities of fixed maturity securities available-for-sale	  	 	62,734	  	 	 	104,008	  	
Purchases of fixed maturity securities available-for-sale	  	 	    (2,487,016	) 	 	 	    (2,518,580	) 	
Cash invested in mortgage loans	  	 	(244,939	) 	 	 	(225,005	) 	
Cash invested in policy loans	  	 	(17	) 	 	 	(1,589	) 	
Cash invested in funds withheld at interest	  	 	(60,156	) 	 	 	(60,145	) 	
Principal payments on mortgage loans on real estate	  	 	150,098	  	 	 	46,313	  	
Principal payments on policy loans	  	 	32,940	  	 	 	11,752	  	
Change in short-term investments	  	 	241,136	  	 	 	35,989	  	
Change in other invested assets	  	 	(1,591	) 	 	 	62,541	  	
 	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	(407,978	) 	 	 	(784,784	) 	
Cash Flows from Financing Activities:	  	 	 	 	 	 	 	 	
Dividends to stockholders	  	 	(35,169	) 	 	 	(26,524	) 	
Repurchase of collateral finance facility securities	  	 	(112,000	) 	 	 	—	  	
Net change in short-term debt	  	 	120,000	  	 	 	—	  	
Purchases of treasury stock	  	 	(234,690	) 	 	 	(6,924	) 	
Excess tax benefits from share-based payment arrangement	  	 	2,420	  	 	 	(24	) 	
Exercise of stock options, net	  	 	11,439	  	 	 	(651	) 	
Change in cash collateral for derivatives and other arrangements	  	 	(31,858	) 	 	 	(15,096	) 	
Deposits on universal life and other investment type policies and contracts	  	 	39,706	  	 	 	79,134	  	
Withdrawals on universal life and other investment type policies and contracts	  	 	(397,033	) 	 	 	(70,753	) 	
 	  	 	 	 	 	 	 	 	
Net cash used in financing activities	  	 	(637,185	) 	 	 	(40,838	) 	
Effect of exchange rate changes on cash	  	 	(46,231	) 	 	 	1,836	  	
 	  	 	 	 	 	 	 	 	
Change in cash and cash equivalents	  	 	(286,273	) 	 	 	(5,529	) 	
Cash and cash equivalents, beginning of period	  	 	1,259,892	  	 	 	962,870	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	973,619	  	 	$	957,341	  	
 	  	 	 	 	 	 	 	 	
Supplementary information:	  	 	 	 	 	 	 	 	
Cash paid for interest	  	$	58,387	  	 	$	49,094	  	
Cash paid for income taxes, net of refunds	  	$	105,401	  	 	$	40,735	  	
See accompanying notes to condensed consolidated financial statements (unaudited).
 
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REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
1.	Organization and Basis of Presentation	
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Results for the six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. There were no subsequent events that would require disclosure or adjustments to the accompanying condensed consolidated financial statements through the date the financial statements were issued. These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries, all intercompany accounts and transactions have been eliminated. They should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K (“2012 Annual Report”) filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013.
 
2.	Earnings Per Share	
The following table sets forth the computation of basic and diluted earnings per share on net income (loss) (in thousands, except per share information):

 	  	Three months ended June 30,	 	  	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	  	2013	 	  	2012	 	
Earnings:	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Net income (loss) (numerator for basic and diluted calculations)	  	$	(49,612	) 	 	$	141,111	  	  	$	135,923	  	  	$	264,429	  	
Shares:	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Weighted average outstanding shares (denominator for basic calculation)	  	 	72,350	  	 	 	73,718	  	  	 	73,089	  	  	 	73,646	  	
Equivalent shares from outstanding stock options	  	 	—	  	 	 	336	  	  	 	484	  	  	 	402	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Denominator for diluted calculation	  	 	72,350	  	 	 	74,054	  	  	 	73,573	  	  	 	74,048	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Earnings per share:	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
Basic	  	$	(0.69	) 	 	$	1.91	  	  	$	1.86	  	  	$	3.59	  	
Diluted	  	$	(0.69	) 	 	$	1.91	  	  	$	1.85	  	  	$	3.57	  	
As a result of the net loss for the three months ended June 30, 2013, the Company was required to use basic weighted average common shares outstanding in the calculation of diluted loss per share, since the inclusion of shares for outstanding stock options of 0.4 million would have been antidilutive to the earnings (loss) per share calculations. In the absence of the losses, weighted average common shares outstanding and dilutive potential common shares would have totaled 72.8 million.
The calculation of common equivalent shares does not include the impact of options having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three months ended June 30, 2013, no stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. For the three months ended June 30, 2012, approximately 1.8 million stock options and approximately 0.7 million performance contingent shares were excluded from the calculation. Year-to-date amounts for equivalent shares from outstanding stock options and performance contingent shares are the weighted average of the individual quarterly amounts.
 
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3.	Accumulated Other Comprehensive Income	
The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the six months ended June 30, 2013 and 2012 are as follows (dollars in thousands):

 	  	Accumulated Other Comprehensive Income (Loss), Net of Income  Tax	 	
 	 	 	 	 	
 	  	Accumulated
Currency
Translation
Adjustments	 	 	Unrealized
Appreciation
(Depreciation)
of Investments (1)	 	 	Pension and
Postretirement
Benefits	 	 	Total	 	
Balance, December 31, 2012	  	$	267,475	  	 	$	1,877,657	  	 	$	(36,230	) 	 	$	2,108,902	  	
Other comprehensive income (loss) before reclassifications	  	 	(102,937	) 	 	 	(819,019	) 	 	 	206	  	 	 	(921,750	) 	
Amounts reclassified from AOCI	  	 	—	  	 	 	(6,512	) 	 	 	1,494	  	 	 	(5,018	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net current-period other comprehensive income (loss)	  	 	(102,937	) 	 	 	(825,531	) 	 	 	1,700	  	 	 	(926,768	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, June 30, 2013	  	$	164,538	  	 	$	1,052,126	  	 	$	(34,530	) 	 	$	1,182,134	  	

 	  	Accumulated Other Comprehensive Income (Loss), Net of Income  Tax	 	
 	 	 	 	 	
 	  	Accumulated
Currency
Translation
Adjustments	 	 	Unrealized
Appreciation
(Depreciation)
of Investments (1)	 	 	Pension and
Postretirement
Benefits	 	 	Total	 	
Balance, December 31, 2011	  	$	229,795	  	 	$	1,419,318	  	 	$	(30,960	) 	 	$	1,618,153	  	
Change in component during the period	  	 	7,215	  	 	 	172,329	  	 	 	1,501	  	 	 	181,045	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance, June 30, 2012	  	$	237,010	  	 	$	1,591,647	  	 	$	(29,459	) 	 	$	1,799,198	  	

(1)	Includes cash flow hedges. See Note 5 - “Derivative Instruments” for additional information on cash flow hedges.	
The following table presents the amounts reclassified out of AOCI for the three and six months ended June 30, 2013 (dollars in thousands):

 	  	Amount Reclassified from AOCI	 	 	 	
Details about AOCI Components	  	Three months ended
June 30, 2013	 	 	Six months ended
June 30, 2013	 	 	Affected Line Item in Statement of Income	
Unrealized gains and losses on available-for-sale securities	  	$	13,510	  	 	$	23,858	  	 	Investment related gains (losses), net	
Gains and losses on cash flow hedge - interest rate swap	  	 	201	  	 	 	506	  	 	Investment income	
Deferred policy acquisition costs attributed to unrealized gains and losses(1)	  	 	(13,283	) 	 	 	(14,831	) 	 	 	
 	  	 	 	 	 	 	 	 	 	 	
 	  	 	428	  	 	 	9,533	  	 	Total before tax	
 	  	 	(87	) 	 	 	(3,021	) 	 	Tax expense	
 	  	 	 	 	 	 	 	 	 	 	
 	  	$	341	  	 	$	6,512	  	 	Net of tax	
 	  	 	 	 	 	 	 	 	 	 	
Amortization of unrealized pension and postretirement benefits:	  	 	 	 	 	 	 	 	 	 	
Prior service cost(2)	  	$	(213	) 	 	$	(307	) 	 	 	
Actuarial gains/(losses)(2)	  	 	(968	) 	 	 	(1,991	) 	 	 	
 	  	 	 	 	 	 	 	 	 	 	
 	  	 	(1,181	) 	 	 	(2,298	) 	 	Total before tax	
 	  	 	413	  	 	 	804	  	 	Tax benefit	
 	  	 	 	 	 	 	 	 	 	 	
 	  	$	(768	) 	 	$	(1,494	) 	 	Net of tax	

Total reclassifications for the period	  	$	(427	) 	 	$	5,018	  	 	Net of tax	

(1)	This AOCI component is included in the computation of the deferred policy acquisition cost. See Note 8 – “Deferred Policy Acquisition Costs” of the 2012 Annual Report for additional details.	
(2)	These AOCI components are included in the computation of the net periodic pension cost. See Note 9 – “Employee Benefit Plans” for additional details.	
 
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4.	Investments	
Fixed Maturity and Equity Securities Available-for-Sale
The following tables provide information relating to investments in fixed maturity and equity securities by sector as of June 30, 2013 and December 31, 2012 (dollars in thousands):

June 30, 2013:	  	Amortized
Cost	 	  	Unrealized
Gains	 	  	Unrealized
Losses	 	  	Estimated Fair
Value	 	  	% of
Total	 	 	Other-than-
temporary
impairments
in AOCI	 	
Available-for-sale:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Corporate securities	  	$	11,346,144	  	  	$	648,955	  	  	$	191,618	  	  	$	11,803,481	  	  	 	55.4	% 	 	$	—	  	
Canadian and Canadian provincial governments	  	 	2,633,388	  	  	 	901,567	  	  	 	9,162	  	  	 	3,525,793	  	  	 	16.6	  	 	 	—	  	
Residential mortgage-backed securities	  	 	1,015,155	  	  	 	53,581	  	  	 	13,768	  	  	 	1,054,968	  	  	 	5.0	  	 	 	(241	) 	
Asset-backed securities	  	 	789,849	  	  	 	18,998	  	  	 	18,537	  	  	 	790,310	  	  	 	3.7	  	 	 	    (2,259	) 	
Commercial mortgage-backed securities	  	 	1,564,924	  	  	 	110,294	  	  	 	36,586	  	  	 	1,638,632	  	  	 	7.7	  	 	 	(5,125	) 	
U.S. government and agencies	  	 	394,026	  	  	 	21,417	  	  	 	2,453	  	  	 	412,990	  	  	 	1.9	  	 	 	—	  	
State and political subdivisions	  	 	278,148	  	  	 	25,513	  	  	 	11,850	  	  	 	291,811	  	  	 	1.4	  	 	 	—	  	
Other foreign government, supranational and foreign government-sponsored enterprises	  	 	1,735,687	  	  	 	51,165	  	  	 	20,621	  	  	 	1,766,231	  	  	 	8.3	  	 	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Total fixed maturity securities	  	$	    19,757,321	  	  	$	    1,831,490	  	  	$	    304,595	  	  	$	21,284,216	  	  	 	100.0	% 	 	$	(7,625	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Non-redeemable preferred stock	  	$	85,483	  	  	$	6,722	  	  	$	1,747	  	  	$	90,458	  	  	 	56.4	% 	 	 	 	 	
Other equity securities	  	 	74,273	  	  	 	—	  	  	 	4,392	  	  	 	69,881	  	  	 	43.6	  	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Total equity securities	  	$	159,756	  	  	$	6,722	  	  	$	6,139	  	  	$	160,339	  	  	 	100.0	% 	 	 	 	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2012:	  	Amortized
Cost	 	  	Unrealized
Gains	 	  	Unrealized
Losses	 	  	Estimated Fair
Value	 	  	% of
Total	 	 	Other-than-
temporary
impairments
in AOCI	 	
Available-for-sale:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Corporate securities	  	$	11,333,431	  	  	$	1,085,973	  	  	$	39,333	  	  	$	12,380,071	  	  	 	55.5	% 	 	$	—	  	
Canadian and Canadian provincial governments	  	 	2,676,777	  	  	 	1,372,731	  	  	 	174	  	  	 	4,049,334	  	  	 	18.2	  	 	 	—	  	
Residential mortgage-backed securities	  	 	969,267	  	  	 	76,520	  	  	 	3,723	  	  	 	1,042,064	  	  	 	4.7	  	 	 	(241	) 	
Asset-backed securities	  	 	700,455	  	  	 	19,898	  	  	 	28,798	  	  	 	691,555	  	  	 	3.1	  	 	 	(2,259	) 	
Commercial mortgage-backed securities	  	 	1,608,376	  	  	 	142,369	  	  	 	51,842	  	  	 	1,698,903	  	  	 	7.6	  	 	 	(6,125	) 	
U.S. government and agencies	  	 	231,256	  	  	 	33,958	  	  	 	24	  	  	 	265,190	  	  	 	1.2	  	 	 	—	  	
State and political subdivisions	  	 	270,086	  	  	 	38,058	  	  	 	5,646	  	  	 	302,498	  	  	 	1.4	  	 	 	—	  	
Other foreign government, supranational and foreign government-sponsored enterprises	  	 	1,769,784	  	  	 	94,929	  	  	 	2,714	  	  	 	1,861,999	  	  	 	8.3	  	 	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Total fixed maturity securities	  	$	    19,559,432	  	  	$	    2,864,436	  	  	$	    132,254	  	  	$	    22,291,614	  	  	 	100.0	% 	 	$	(8,625	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Non-redeemable preferred stock	  	$	68,469	  	  	$	6,542	  	  	$	170	  	  	$	74,841	  	  	 	33.6	% 	 	 	 	 	
Other equity securities	  	 	148,577	  	  	 	416	  	  	 	1,134	  	  	 	147,859	  	  	 	66.4	  	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Total equity securities	  	$	217,046	  	  	$	6,958	  	  	$	1,304	  	  	$	222,700	  	  	 	100.0	% 	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
The Company enters into various collateral arrangements that require both the pledging and acceptance of fixed maturity securities as collateral. The Company pledged fixed maturity securities as collateral to derivative and reinsurance counterparties with an amortized cost of $32.9 million and $16.9 million, and an estimated fair value of $33.9 million and $17.0 million, as of June 30, 2013 and December 31, 2012 respectively. The pledged fixed maturity securities are included in fixed maturity securities, available-for-sale in the condensed consolidated balance sheets as of June 30, 2013, and are included in other invested assets in the condensed consolidated balance sheets as of December 31, 2012. Securities with an amortized cost of $8,046.9 million and $7,549.0 million, and an estimated fair value of $8,377.6 million and $7,913.8 million, as of June 30, 2013 and December 31, 2012, respectively, were held in trust to satisfy collateral requirements under certain third-party reinsurance treaties.
 
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The Company received fixed maturity securities as collateral from derivative and reinsurance counterparties with an estimated fair value of $91.5 million and $95.6 million, as of June 30, 2013 and December 31, 2012, respectively. The collateral is held in separate custodial accounts and is not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral; however, as of June 30, 2013 and December 31, 2012, none of the collateral had been sold or re-pledged.
As of June 30, 2013, the Company held securities with a fair value of $1,231.6 million that were guaranteed or issued by the Canadian province of Ontario and $1,516.3 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity. As of December 31, 2012, the Company held securities with a fair value of $1,400.0 million that were guaranteed or issued by the Canadian province of Ontario and $1,785.0 million that were guaranteed or issued by the Canadian province of Quebec, both of which exceeded 10% of total stockholders’ equity.
The amortized cost and estimated fair value of fixed maturity securities available-for-sale at June 30, 2013 are shown by contractual maturity in the table below. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Asset and mortgage-backed securities are shown separately in the table below, as they are not due at a single maturity date. At June 30, 2013, the contractual maturities of investments in fixed maturity securities were as follows (dollars in thousands):

 	  	Amortized
Cost	 	  	Fair
Value	 	
Available-for-sale:	  	 	 	 	  	 	 	 	
Due in one year or less	  	$	426,022	  	  	$	432,495	  	
Due after one year through five years	  	 	3,613,328	  	  	 	3,773,306	  	
Due after five years through ten years	  	 	6,893,971	  	  	 	7,127,743	  	
Due after ten years	  	 	5,454,072	  	  	 	6,466,762	  	
Asset and mortgage-backed securities	  	 	3,369,928	  	  	 	3,483,910	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	    19,757,321	  	  	$	    21,284,216	  	
 	  	 	 	 	  	 	 	 	
The tables below show the major industry types of the Company’s corporate fixed maturity holdings as of June 30, 2013 and December 31, 2012 (dollars in thousands):

June 30, 2013:	  	Amortized Cost	 	  	Estimated
Fair Value	 	  	% of Total	 	
Finance	  	$	3,636,121	  	  	$	3,770,773	  	  	 	32.0	% 	
Industrial	  	 	5,914,051	  	  	 	6,138,234	  	  	 	52.0	  	
Utility	  	 	1,768,696	  	  	 	1,867,151	  	  	 	15.8	  	
Other	  	 	27,276	  	  	 	27,323	  	  	 	0.2	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	11,346,144	  	  	$	11,803,481	  	  	 	100.0	% 	

December 31, 2012:	  	Amortized Cost	 	  	Estimated Fair
Value	 	  	% of Total	 	
Finance	  	$	3,619,455	  	  	$	3,900,152	  	  	 	31.5	% 	
Industrial	  	 	5,881,967	  	  	 	6,443,846	  	  	 	52.0	  	
Utility	  	 	1,799,658	  	  	 	2,002,611	  	  	 	16.2	  	
Other	  	 	32,351	  	  	 	33,462	  	  	 	0.3	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	    11,333,431	  	  	$	    12,380,071	  	  	 	100.0	% 	

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Other-Than-Temporary Impairments
As discussed in Note 2 – “Summary of Significant Accounting Policies” of the 2012 Annual Report, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities are recognized in AOCI. For these securities the net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in AOCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):

 	  	Three months ended June 30,	 	
 	  	2013	 	 	2012	 	
Balance, beginning of period	  	$	14,773	  	 	$	62,236	  	
Initial impairments - credit loss OTTI recognized on securities not previously impaired	  	 	—	  	 	 	60	  	
Additional impairments - credit loss OTTI recognized on securities previously impaired	  	 	—	  	 	 	161	  	
Credit loss OTTI previously recognized on securities impaired to fair value during the period	  	 	(1,449	) 	 	 	(8,288	) 	
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	  	 	—	  	 	 	(8,266	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	        13,324	  	 	$	        45,903	  	

  	  	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	
Balance, beginning of period	  	$	16,675	  	 	$	63,947	  	
Initial impairments -credit loss OTTI recognized on securities not previously impaired	  	 	—	  	 	 	1,962	  	
Additional impairments - credit loss OTTI recognized on securities previously impaired	  	 	—	  	 	 	8,881	  	
Credit loss OTTI previously recognized on securities impaired to fair value during the period	  	 	(1,449	) 	 	 	(19,669	) 	
Credit loss OTTI previously recognized on securities which matured, paid down, prepaid or were sold during the period	  	 	(1,902	) 	 	 	(9,218	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	13,324	  	 	$	45,903	  	
 	  	 	 	 	 	 	 	 	
Purchased Credit Impaired Fixed Maturity Securities Available-for-Sale
In the third quarter of 2012, the Company began purchasing certain structured securities that had experienced deterioration in credit quality since their issuance. Securities acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired securities. For each security, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. At the date of acquisition, the timing and amount of the cash flows expected to be collected was determined based on a best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. If subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.
The following tables present information on the Company’s purchased credit impaired securities, which are included in fixed maturity securities available-for-sale (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
Outstanding principal and interest balance(1)	  	$	178,911	  	  	$	108,831	  	
Carrying value, including accrued interest(2)	  	$	132,985	  	  	$	84,765	  	
 
(1)	Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest.	
(2)	Estimated fair value plus accrued interest.	
 
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The following table presents information about purchased credit impaired investments acquired during the six months ended June 30, 2013 (dollars in thousands).

  	  	At Date of Acquisition	 	
Contractually required payments (including interest)	  	$	109,931	  	
Cash flows expected to be collected(1)	  	 	88,422	  	
Fair value of investments acquired	  	 	58,471	  	
 
(1)	Represents undiscounted principal and interest cash flow expectations at the date of acquisition.	
The following table presents activity for the accretable yield on purchased credit impaired securities for the three and six months ended June 30, 2013 (dollars in thousands):

 	  	Three months ended June 30, 2013	 	 	Six months ended June 30, 2013	 	
Balance, beginning of period	  	$	59,915	  	 	$	39,239	  	
Investments purchased	  	 	7,885	  	 	 	29,951	  	
Accretion	  	 	(1,879	) 	 	 	(3,822	) 	
Disposals	  	 	(832	) 	 	 	(832	) 	
Reclassification from nonaccretable difference	  	 	1,180	  	 	 	1,733	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	66,269	  	 	$	66,269	  	
 	  	 	 	 	 	 	 	 	
Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale
The following table presents the total gross unrealized losses for the 1,394 and 567 fixed maturity and equity securities as of June 30, 2013 and December 31, 2012, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
  	  	Gross
Unrealized
Losses	 	  	% of Total	 	  	Gross
Unrealized
Losses	 	  	% of Total	 	
Less than 20%	  	$	267,765	  	  	 	86.2%	  	  	$	54,951	  	  	 	41.2%	  	
20% or more for less than six months	  	 	5,629	  	  	 	1.8  	  	  	 	734	  	  	 	0.5  	  	
20% or more for six months or greater	  	 	37,340	  	  	 	12.0  	  	  	 	77,873	  	  	 	58.3  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	        310,734	  	  	 	        100.0%	  	  	$	        133,558	  	  	 	        100.0%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider declines in value as a potential indicator of credit deterioration. However, the Company believes that due to fluctuating market conditions and an extended period of economic uncertainty, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to a fixed maturity security since it may not have an impact on the ability of the issuer to service all scheduled payments and the Company’s evaluation of the recoverability of all contractual cash flows or the ability to recover an amount at least equal to amortized cost. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows or deferability features.
The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,394 and 567 fixed maturity and equity securities that have estimated fair values below amortized cost as of June 30, 2013 and December 31, 2012, respectively (dollars in thousands). These investments are presented by class and grade of security, as well as the length of time the related fair value has remained below amortized cost.
 
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 	 	Less than 12 months	 	 	12 months or greater	 	 	Total	 	
June 30, 2013:	 	Estimated
Fair Value	 	 	Gross
Unrealized
Losses	 	 	Estimated
Fair Value	 	 	Gross
Unrealized
Losses	 	 	Estimated
Fair Value	 	 	Gross
Unrealized
Losses	 	
Investment grade securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate securities	 	$	    3,229,715	  	 	$	161,032	  	 	$	89,098	  	 	$	12,531	  	 	$	    3,318,813	  	 	$	173,563	  	
Canadian and Canadian provincial governments	 	 	138,843	  	 	 	9,162	  	 	 	—	  	 	 	—	  	 	 	138,843	  	 	 	9,162	  	
Residential mortgage-backed securities	 	 	210,336	  	 	 	9,553	  	 	 	14,822	  	 	 	2,643	  	 	 	225,158	  	 	 	12,196	  	
Asset-backed securities	 	 	220,912	  	 	 	4,719	  	 	 	51,673	  	 	 	5,567	  	 	 	272,585	  	 	 	10,286	  	
Commercial mortgage-backed securities	 	 	227,712	  	 	 	9,172	  	 	 	18,893	  	 	 	6,455	  	 	 	246,605	  	 	 	15,627	  	
U.S. government and agencies	 	 	191,973	  	 	 	2,344	  	 	 	4,037	  	 	 	109	  	 	 	196,010	  	 	 	2,453	  	
State and political subdivisions	 	 	97,877	  	 	 	6,351	  	 	 	11,402	  	 	 	5,499	  	 	 	109,279	  	 	 	11,850	  	
Other foreign government, supranational and foreign government-sponsored enterprises	 	 	657,957	  	 	 	19,787	  	 	 	5,698	  	 	 	721	  	 	 	663,655	  	 	 	20,508	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investment grade securities	 	 	4,975,325	  	 	 	222,120	  	 	 	195,623	  	 	 	33,525	  	 	 	5,170,948	  	 	 	255,645	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-investment grade securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate securities	 	 	366,159	  	 	 	11,452	  	 	 	40,425	  	 	 	6,603	  	 	 	406,584	  	 	 	18,055	  	
Residential mortgage-backed securities	 	 	53,715	  	 	 	1,007	  	 	 	2,359	  	 	 	565	  	 	 	56,074	  	 	 	1,572	  	
Asset-backed securities	 	 	25,233	  	 	 	376	  	 	 	30,434	  	 	 	7,875	  	 	 	55,667	  	 	 	8,251	  	
Commercial mortgage-backed securities	 	 	19,324	  	 	 	198	  	 	 	43,879	  	 	 	20,761	  	 	 	63,203	  	 	 	20,959	  	
Other foreign government, supranational and foreign government-sponsored enterprises	 	 	952	  	 	 	113	  	 	 	—	  	 	 	—	  	 	 	952	  	 	 	113	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-investment grade securities	 	 	465,383	  	 	 	13,146	  	 	 	117,097	  	 	 	35,804	  	 	 	582,480	  	 	 	48,950	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity securities	 	$	5,440,708	  	 	$	235,266	  	 	$	312,720	  	 	$	69,329	  	 	$	5,753,428	  	 	$	304,595	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-redeemable preferred stock	 	$	30,787	  	 	$	1,745	  	 	$	1	  	 	$	2	  	 	$	30,788	  	 	$	1,747	  	
 	 	 	 	 	 	 	
Other equity securities	 	 	69,881	  	 	 	4,392	  	 	 	—	  	 	 	—	  	 	 	69,881	  	 	 	4,392	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total equity securities	 	$	100,668	  	 	$	6,137	  	 	$	1	  	 	$	2	  	 	$	100,669	  	 	$	6,139	  	

  	 	Less than 12 months	 	 	12 months or greater	 	 	Total	 	
December 31, 2012:	 	Estimated
Fair Value	 	 	Gross
Unrealized
Losses	 	 	Estimated
Fair Value	 	 	Gross
Unrealized
Losses	 	 	Estimated
Fair Value	 	 	Gross
Unrealized
Losses	 	
Investment grade securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate securities	 	$	786,203	  	 	$	13,276	  	 	$	108,187	  	 	$	17,386	  	 	$	894,390	  	 	$	30,662	  	
Canadian and Canadian provincial governments	 	 	12,349	  	 	 	174	  	 	 	—	  	 	 	—	  	 	 	12,349	  	 	 	174	  	
Residential mortgage-backed securities	 	 	22,288	  	 	 	97	  	 	 	19,394	  	 	 	3,199	  	 	 	41,682	  	 	 	3,296	  	
Asset-backed securities	 	 	59,119	  	 	 	449	  	 	 	96,179	  	 	 	9,508	  	 	 	155,298	  	 	 	9,957	  	
Commercial mortgage-backed securities	 	 	89,507	  	 	 	797	  	 	 	29,181	  	 	 	7,974	  	 	 	118,688	  	 	 	8,771	  	
U.S. government and agencies	 	 	7,272	  	 	 	24	  	 	 	—	  	 	 	—	  	 	 	7,272	  	 	 	24	  	
State and political subdivisions	 	 	20,602	  	 	 	1,514	  	 	 	11,736	  	 	 	4,132	  	 	 	32,338	  	 	 	5,646	  	
Other foreign government, supranational and foreign government-sponsored enterprises	 	 	244,817	  	 	 	1,953	  	 	 	7,435	  	 	 	761	  	 	 	252,252	  	 	 	2,714	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investment grade securities	 	 	1,242,157	  	 	 	18,284	  	 	 	272,112	  	 	 	42,960	  	 	 	1,514,269	  	 	 	61,244	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-investment grade securities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate securities	 	 	181,168	  	 	 	3,170	  	 	 	39,123	  	 	 	5,501	  	 	 	220,291	  	 	 	8,671	  	
Residential mortgage-backed securities	 	 	15,199	  	 	 	80	  	 	 	2,633	  	 	 	347	  	 	 	17,832	  	 	 	427	  	
Asset-backed securities	 	 	3,421	  	 	 	26	  	 	 	31,938	  	 	 	18,815	  	 	 	35,359	  	 	 	18,841	  	
Commercial mortgage-backed securities	 	 	3,317	  	 	 	764	  	 	 	68,405	  	 	 	42,307	  	 	 	71,722	  	 	 	43,071	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total non-investment grade securities	 	 	203,105	  	 	 	4,040	  	 	 	142,099	  	 	 	66,970	  	 	 	345,204	  	 	 	71,010	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity securities	 	$	1,445,262	  	 	$	22,324	  	 	$	414,211	  	 	$	109,930	  	 	$	1,859,473	  	 	$	132,254	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-redeemable preferred stock	 	$	5,577	  	 	$	52	  	 	$	5,679	  	 	$	118	  	 	$	11,256	  	 	$	170	  	
Other equity securities	 	 	85,374	  	 	 	1,134	  	 	 	—	  	 	 	—	  	 	 	85,374	  	 	 	1,134	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total equity securities	 	$	90,951	  	 	$	1,186	  	 	$	5,679	  	 	$	118	  	 	$	96,630	  	 	$	1,304	  	

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As of June 30, 2013, the Company does not intend to sell these fixed maturity securities and does not believe it is more likely than not that it will be required to sell these fixed maturity securities before the recovery of the fair value up to the current amortized cost of the investment, which may be maturity. As of June 30, 2013, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity and equity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality, asset-liability management and liquidity guidelines.
Unrealized losses on non-investment grade securities are principally related to asset and mortgage-backed securities and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations. As of June 30, 2013 and December 31, 2012, approximately $29.2 million and $61.5 million, respectively, of gross unrealized losses greater than 12 months was associated with non-investment grade asset and mortgage-backed securities. This class of securities was evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts and security specific expectations of cash flows. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread.
Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses, consist of the following (dollars in thousands):

 	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
Fixed maturity securities available-for-sale	  	$	240,590	  	 	$	193,388	  	 	$	479,834	  	 	$	384,806	  	
Mortgage loans on real estate	  	 	28,362	  	 	 	16,000	  	 	 	56,605	  	 	 	30,966	  	
Policy loans	  	 	15,450	  	 	 	16,334	  	 	 	33,360	  	 	 	33,117	  	
Funds withheld at interest	  	 	159,212	  	 	 	62,992	  	 	 	296,471	  	 	 	178,006	  	
Short-term investments	  	 	422	  	 	 	781	  	 	 	1,235	  	 	 	1,769	  	
Investment receivable	  	 	—	  	 	 	36,752	  	 	 	—	  	 	 	36,752	  	
Other invested assets	  	 	13,379	  	 	 	11,356	  	 	 	27,301	  	 	 	22,679	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment revenue	  	 	457,415	  	 	 	337,603	  	 	 	894,806	  	 	 	688,095	  	
Investment expense	  	 	(13,181	) 	 	 	(9,269	) 	 	 	(25,441	) 	 	 	(18,821	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	$	444,234	  	 	$	328,334	  	 	$	869,365	  	 	$	669,274	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment Related Gains (Losses), Net
Investment related gains (losses), net consist of the following (dollars in thousands):

 	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
Fixed maturities and equity securities available for sale:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other-than-temporary impairment losses on fixed maturities	  	$	(9,803	) 	 	$	(1,959	) 	 	$	(10,005	) 	 	$	(9,566	) 	
Portion of loss recognized in accumulated other comprehensive income (before taxes)	  	 	(306	) 	 	 	162	  	 	 	(306	) 	 	 	(7,059	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net other-than-temporary impairment losses on fixed maturities recognized in earnings	  	 	(10,109	) 	 	 	(1,797	) 	 	 	(10,311	) 	 	 	(16,625	) 	
Impairment losses on equity securities	  	 	—	  	 	 	(2,186	) 	 	 	—	  	 	 	(3,025	) 	
Gain on investment activity	  	 	26,845	  	 	 	26,593	  	 	 	48,525	  	 	 	48,905	  	
Loss on investment activity	  	 	(6,760	) 	 	 	(8,918	) 	 	 	(17,972	) 	 	 	(16,422	) 	
Other impairment losses and change in mortgage loan provision	  	 	125	  	 	 	1,762	  	 	 	(1,501	) 	 	 	(4,081	) 	
Derivatives and other, net	  	 	38,142	  	 	 	8,347	  	 	 	123,873	  	 	 	58,569	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	$	48,243	  	 	$	23,801	  	 	$	142,614	  	 	$	67,321	  	

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The net other-than-temporary impairment losses on fixed maturity securities recognized in earnings were $10.1 million and $1.8 million for the three months ended June 30, 2013 and 2012, and $10.3 million and $16.6 million for the first six months of 2013 and 2012, respectively. The other-than-temporary impairment losses on fixed maturity securities in the second quarter and first six months of 2013 were primarily due to the decision to sell certain subordinated commercial mortgage-backed securities. The other-than-temporary impairments in the first six months of 2012 were primarily due to a decline in value of structured securities with exposure to commercial mortgages and general credit deterioration in select corporate and foreign securities. The increase in derivatives and other in 2013 is primarily due to an increase in the fair value of embedded derivatives.
During the three months ended June 30, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $257.6 million and $153.5 million at losses of $6.8 million and $8.9 million, respectively. During the six months ended June 30, 2013 and 2012, the Company sold fixed maturity and equity securities with fair values of $461.9 million and $401.6 million at losses of $18.0 million and $16.4 million, respectively. The Company generally does not engage in short-term buying and selling of securities.
Securities Borrowing and Other
The Company participates in a securities borrowing program whereby securities, which are not reflected on the Company’s condensed consolidated balance sheets, are borrowed from a third party. The Company is required to maintain a minimum of 100% of the fair value of the borrowed securities as collateral, which consists of rights to reinsurance treaty cash flows. The Company had borrowed securities with an amortized cost of $87.5 million as of June 30, 2013 and December 31, 2012, which was equal to the fair value in both periods. The borrowed securities are used to provide collateral under an affiliated reinsurance transaction.
The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets. As of June 30, 2013 the Company had pledged securities with an amortized cost of $292.1 million and an estimated fair value of $307.7 million, and in return the Company received securities with an estimated fair value of $338.0 million. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2 million and an estimated fair value of $305.9 million, and in return the Company received securities with an estimated fair value of $342.0 million.
Mortgage Loans on Real Estate
Mortgage loans represented approximately 7.5% and 7.0% of the Company’s total investments as of June 30, 2013 and December 31, 2012. The Company makes mortgage loans on income producing properties, such as apartments, retail and office buildings, and light industrial facilities. Loan-to-value ratios at the time of loan approval are 75% or less. The distribution of mortgage loans, gross of valuation allowances, by property type is as follows as of June 30, 2013 and December 31, 2012 (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
  	  	Recorded
Investment	 	  	% of Total	 	  	Recorded
Investment	 	  	% of Total	 	
Apartment	  	$	220,117	  	  	 	9.2%	  	  	$	229,266	  	  	 	9.9%	  	
Retail	  	 	747,282	  	  	 	31.3   	  	  	 	669,958	  	  	 	29.0   	  	
Office building	  	 	841,842	  	  	 	35.3   	  	  	 	825,406	  	  	 	35.7   	  	
Industrial	  	 	450,140	  	  	 	18.9   	  	  	 	455,682	  	  	 	19.7   	  	
Other commercial	  	 	125,768	  	  	 	5.3   	  	  	 	131,855	  	  	 	5.7   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	        2,385,149	  	  	 	        100.0%	  	  	$	        2,312,167	  	  	 	        100.0%	  	

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As of June 30, 2013 and December 31, 2012, the Company’s mortgage loans, gross of valuation allowances, were distributed throughout the United States as follows (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
 	  	Recorded
Investment	 	  	% of Total	 	  	Recorded
Investment	 	  	% of Total	 	
Pacific	  	$	636,084	  	  	 	26.7%	  	  	$	593,589	  	  	 	25.7%	  	
South Atlantic	  	 	507,010	  	  	 	21.3    	  	  	 	477,068	  	  	 	20.5    	  	
Mountain	  	 	257,130	  	  	 	10.8    	  	  	 	233,174	  	  	 	10.1    	  	
Middle Atlantic	  	 	276,799	  	  	 	11.6    	  	  	 	300,475	  	  	 	13.0    	  	
West North Central	  	 	174,764	  	  	 	7.3    	  	  	 	168,063	  	  	 	7.3    	  	
East North Central	  	 	222,991	  	  	 	9.2    	  	  	 	224,122	  	  	 	9.7    	  	
West South Central	  	 	158,666	  	  	 	6.7    	  	  	 	161,451	  	  	 	7.0    	  	
East South Central	  	 	61,966	  	  	 	2.6    	  	  	 	62,789	  	  	 	2.7    	  	
New England	  	 	89,739	  	  	 	3.8    	  	  	 	91,436	  	  	 	4.0    	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	    2,385,149	  	  	 	100.0%	  	  	$	    2,312,167	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The maturities of the mortgage loans, gross of valuation allowances, as of June 30, 2013 and December 31, 2012 are as follows (dollars in thousands):

 	  	June 30, 2013	 	 	December 31, 2012	 	
 	  	Recorded
Investment	 	 	% of Total	 	 	Recorded
Investment	 	 	% of Total	 	
Due within five years	  	$	1,066,678	  	 	 	44.7%	  	 	$	1,187,387	  	 	 	51.3%	  	
Due after five years through ten years	  	 	875,596	  	 	 	36.7    	  	 	 	776,655	  	 	 	33.6    	  	
Due after ten years	  	 	442,875	  	 	 	18.6    	  	 	 	348,125	  	 	 	15.1    	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	  	$	    2,385,149	  	 	 	100.0%	  	 	$	    2,312,167	  	 	 	100.0%	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Information regarding the Company’s credit quality indicators for its recorded investment in mortgage loans, gross of valuation allowances, as of June 30, 2013 and December 31, 2012 is as follows (dollars in thousands):

 	  	June 30, 2013	 	 	December 31, 2012	 	
Internal credit risk grade:	  	Recorded
Investment	 	  	% of Total	 	 	Recorded
Investment	 	  	% of Total	 	
High investment grade	  	$	1,475,089	  	  	 	61.8%	  	 	$	1,235,605	  	  	 	53.5%	  	
Investment grade	  	 	694,476	  	  	 	29.1    	  	 	 	834,494	  	  	 	36.1    	  	
Average	  	 	127,967	  	  	 	5.4    	  	 	 	132,607	  	  	 	5.7    	  	
Watch list	  	 	53,831	  	  	 	2.3    	  	 	 	76,463	  	  	 	3.3    	  	
In or near default	  	 	33,786	  	  	 	1.4    	  	 	 	32,998	  	  	 	1.4    	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	    2,385,149	  	  	 	100.0%	  	 	$	    2,312,167	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
The age analysis of the Company’s past due recorded investment in mortgage loans, gross of valuation allowances, as of June 30, 2013 and December 31, 2012 is as follows (dollars in thousands):

 	  	June 30, 2013	 	 	December 31, 2012	 	
31-60 days past due	  	$	20,563	  	 	$	7,504	  	
61-90 days past due	  	 	—	  	 	 	—	  	
Greater than 90 days	  	 	7,930	  	 	 	16,886	  	
 	  	 	 	 	 	 	 	 	
Total past due	  	 	28,493	  	 	 	24,390	  	
Current	  	 	2,356,656	  	 	 	2,287,777	  	
 	  	 	 	 	 	 	 	 	
Total	  	$	    2,385,149	  	 	$	    2,312,167	  	

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The following table presents the recorded investment in mortgage loans, by method of evaluation of credit loss, and the related valuation allowances, by type of credit loss, at (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
Mortgage loans:	  	 	 	 	  	 	 	 	
Evaluated individually for credit losses	  	$	37,617	  	  	$	39,956	  	
Evaluated collectively for credit losses	  	 	2,347,532	  	  	 	2,272,211	  	
 	  	 	 	 	  	 	 	 	
Mortgage loans, gross of valuation allowances	  	 	2,385,149	  	  	 	2,312,167	  	
 	  	 	 	 	  	 	 	 	
Valuation allowances:	  	 	 	 	  	 	 	 	
Specific for credit losses	  	 	4,738	  	  	 	6,980	  	
Non-specifically identified credit losses	  	 	3,165	  	  	 	4,600	  	
 	  	 	 	 	  	 	 	 	
Total valuation allowances	  	 	7,903	  	  	 	11,580	  	
 	  	 	 	 	  	 	 	 	
Mortgage loans, net of valuation allowances	  	$	    2,377,246	  	  	$	    2,300,587	  	
 	  	 	 	 	  	 	 	 	
Information regarding the Company’s loan valuation allowances for mortgage loans for the three and six months ended June 30, 2013 and 2012 is as follows (dollars in thousands):

 	  	Three months ended June 30,	 	
 	  	2013	 	 	2012	 	
Balance, beginning of period	  	$	9,924	  	 	$	14,650	  	
Charge-offs	  	 	(1,296	) 	 	 	(1,876	) 	
Provision (release)	  	 	(725	) 	 	 	(1,763	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	    7,903	  	 	$	    11,011	  	

 	  	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	
Balance, beginning of period	  	$	    11,580	  	 	$	11,793	  	
Charge-offs	  	 	(2,148	) 	 	 	(4,069	) 	
Provision (release)	  	 	(1,529	) 	 	 	3,287	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	7,903	  	 	$	    11,011	  	

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Information regarding the portion of the Company’s mortgage loans that were impaired as of June 30, 2013 and December 31, 2012 is as follows (dollars in thousands):

 	  	Unpaid
Principal
Balance	 	  	Recorded
Investment	 	  	Related
Allowance	 	  	Carrying
Value	 	
June 30, 2013:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Impaired mortgage loans with no valuation allowance recorded	  	$	16,714	  	  	$	16,104	  	  	$	—	  	  	$	16,104	  	
Impaired mortgage loans with valuation allowance recorded	  	 	21,582	  	  	 	21,513	  	  	 	4,738	  	  	 	16,775	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total impaired mortgage loans	  	$	38,296	  	  	$	37,617	  	  	$	4,738	  	  	$	32,879	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
December 31, 2012:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Impaired mortgage loans with no valuation allowance recorded	  	$	13,039	  	  	$	12,496	  	  	$	—	  	  	$	12,496	  	
Impaired mortgage loans with valuation allowance recorded	  	 	27,527	  	  	 	27,460	  	  	 	6,980	  	  	 	20,480	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total impaired mortgage loans	  	$	40,566	  	  	$	39,956	  	  	$	6,980	  	  	$	32,976	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The Company’s average investment in impaired mortgage loans and the related interest income are reflected in the table below for the periods indicated (dollars in thousands):
 	   	
 	  	Three months ended June 30,	 	
 	  	2013	 	  	2012	 	
 	  	Average
Investment (1)	 	  	Interest
Income	 	  	Average
Investment (1)	 	  	Interest
Income	 	
Impaired mortgage loans with no valuation allowance recorded	  	$	15,181	  	  	$	49	  	  	$	10,585	  	  	$	28	  	
Impaired mortgage loans with valuation allowance recorded	  	 	24,211	  	  	 	294	  	  	 	41,747	  	  	 	410	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	39,392	  	  	$	343	  	  	$	52,332	  	  	$	438	  	

 	  	Six months ended June 30,	 	
 	  	2013	 	  	2012	 	
 	  	Average
Investment (1)	 	  	Interest
Income	 	  	Average
Investment (1)	 	  	Interest
Income	 	
Impaired mortgage loans with no valuation allowance recorded	  	$	14,286	  	  	$	184	  	  	$	17,555	  	  	$	197	  	
Impaired mortgage loans with valuation allowance recorded	  	 	25,294	  	  	 	534	  	  	 	37,634	  	  	 	718	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	39,580	  	  	$	718	  	  	$	55,189	  	  	$	915	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
(1) Average recorded investment represents the average loan balances as of the beginning of period and all subsequent quarterly end of period balances.
The Company did not acquire any impaired mortgage loans during the six months ended June 30, 2013 and 2012. The Company had $7.9 million and $16.9 million of mortgage loans, gross of valuation allowances, that were on nonaccrual status at June 30, 2013 and December 31, 2012, respectively.
Policy Loans
Policy loans comprised approximately 3.9% of the Company’s total investments as of both June 30, 2013 and December 31, 2012, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. As policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.
Funds Withheld at Interest
Funds withheld at interest comprised approximately 18.2% and 17.0% of the Company’s total investments as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013 and December 31, 2012, approximately 70.8% and 69.7%, respectively, of the Company’s funds withheld at interest balance, net of embedded derivatives, was associated with one client. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed to the Company from the ceding company. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate this risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance.
 
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Other Invested Assets
Other invested assets include equity securities, limited partnership interests, real estate joint ventures, structured loans, derivative contracts, Federal Home Loan Bank of Des Moines (“FHLB”) common stock (included in other), and real estate held-for-investment (included in other). Other invested assets represented approximately 3.3% and 3.5% of the Company’s total investments as of June 30, 2013 and December 31, 2012, respectively. Carrying values of these assets as of June 30, 2013 and December 31, 2012 are as follows (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
Equity securities	  	$	160,339	  	  	$	222,700	  	
Limited partnerships and real estate joint ventures	  	 	423,790	  	  	 	356,419	  	
Structured loans	  	 	245,734	  	  	 	306,497	  	
Derivatives	  	 	118,791	  	  	 	168,208	  	
Other	  	 	87,155	  	  	 	105,719	  	
 	  	 	 	 	  	 	 	 	
Total other invested assets	  	$	1,035,809	  	  	$	1,159,543	  	

5.	Derivative Instruments	
Derivatives, except embedded derivatives, are carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value. Embedded derivative liabilities on modified coinsurance or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. Embedded derivative assets are included on the condensed consolidated balance sheets in reinsurance ceded receivables. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of June 30, 2013 and December 31, 2012 (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	 	
 	  	Notional
Amount	 	  	Carrying Value/Fair Value	 	  	Notional
Amount	 	  	Carrying Value/Fair Value	 	 	
 	  	 	 	  	Assets	 	  	Liabilities	 	  	 	 	  	Assets	 	  	Liabilities	 	 	 	 	 	 	 	
Derivatives not designated as hedging instruments:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps	  	$	1,531,811	  	  	$	54,742	  	  	$	16,971	  	  	$	2,195,059	  	  	$	123,085	  	  	$	17,867	  	 	 	 	 	 	 	
Interest rate options	  	 	240,000	  	  	 	8,073	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	
Financial futures	  	 	110,328	  	  	 	—	  	  	 	—	  	  	 	127,877	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	
Foreign currency forwards	  	 	83,387	  	  	 	148	  	  	 	9,484	  	  	 	74,400	  	  	 	1,017	  	  	 	2,105	  	 	 	 	 	 	 	
Consumer price index swaps	  	 	74,840	  	  	 	234	  	  	 	257	  	  	 	85,135	  	  	 	1,446	  	  	 	—	  	 	 	 	 	 	 	
Credit default swaps	  	 	709,700	  	  	 	3,975	  	  	 	6,632	  	  	 	714,000	  	  	 	2,228	  	  	 	5,922	  	 	 	 	 	 	 	
Equity options	  	 	727,641	  	  	 	61,102	  	  	 	—	  	  	 	696,776	  	  	 	62,514	  	  	 	—	  	 	 	 	 	 	 	
Synthetic guaranteed investment contracts	  	 	3,469,027	  	  	 	—	  	  	 	—	  	  	 	2,018,073	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	
Embedded derivatives in:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Modified coinsurance or funds withheld arrangements	  	 	—	  	  	 	—	  	  	 	108,473	  	  	 	—	  	  	 	—	  	  	 	243,177	  	 	 	 	 	 	 	
Indexed annuity products	  	 	—	  	  	 	—	  	  	 	793,586	  	  	 	—	  	  	 	—	  	  	 	740,256	  	 	 	 	 	 	 	
Variable annuity products	  	 	—	  	  	 	—	  	  	 	84,982	  	  	 	—	  	  	 	—	  	  	 	172,105	  	 	 	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Total non-hedging derivatives	  	 	6,946,734	  	  	 	128,274	  	  	 	1,020,385	  	  	 	5,911,320	  	  	 	190,290	  	  	 	1,181,432	  	 	 	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Derivatives designated as hedging instruments:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps	  	 	50,349	  	  	 	—	  	  	 	5,058	  	  	 	57,275	  	  	 	344	  	  	 	786	  	 	 	 	 	 	 	
Foreign currency swaps	  	 	729,890	  	  	 	18,298	  	  	 	2,498	  	  	 	629,512	  	  	 	—	  	  	 	27,398	  	 	 	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Total hedging derivatives	  	 	780,239	  	  	 	18,298	  	  	 	7,556	  	  	 	686,787	  	  	 	344	  	  	 	28,184	  	 	 	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	
Total derivatives	  	$	    7,726,973	  	  	$	    146,572	  	  	$	    1,027,941	  	  	$	    6,598,107	  	  	$	    190,634	  	  	$	    1,209,616	  	 	 	 	 	 	 	

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Netting Arrangements
Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.
The Company has elected to include all derivatives, except embedded derivatives, in the tables below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 4 – “Investments” for information regarding the Company’s securities borrowing and repurchase/reverse repurchase programs. See “Embedded Derivatives” below for information regarding the Company’s bifurcated embedded derivatives.
The following table provides information relating to the Company’s derivative instruments as of June 30, 2013 and December 31, 2012 (dollars in thousands):

 	  	 	 	  	 	 	 	 	 	  	Gross Amounts Not
Offset in the Balance Sheet	 	 	 	 	
 	  	Gross Amounts
Recognized	 	  	Gross Amounts
Offset in the
Balance Sheet	 	 	Net Amounts
Presented in the
Balance Sheet	 	  	Financial
Instruments	 	 	Cash  Collateral
Pledged/
Received	 	 	Net Amount	 	
June 30, 2013:	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Derivative assets	  	$	146,572	  	  	$	(27,781	) 	 	$	118,791	  	  	$	(17,010	) 	 	$	(89,829	) 	 	$	11,952	  	
Derivative liabilities	  	 	40,900	  	  	 	(27,781	) 	 	 	13,119	  	  	 	(2,722	) 	 	 	(6,950	) 	 	 	3,447	  	
December 31, 2012:	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Derivative assets	  	$	190,634	  	  	$	(22,426	) 	 	$	168,208	  	  	$	(22,458	) 	 	$	(136,414	) 	 	$	9,336	  	
Derivative liabilities	  	 	54,078	  	  	 	(22,426	) 	 	 	31,652	  	  	 	(1,565	) 	 	 	(27,867	) 	 	 	2,220	  	
Accounting for Derivative Instruments and Hedging Activities
The Company does not enter into derivative instruments for speculative purposes. As discussed below under “Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging,” the Company uses various derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits. As of June 30, 2013 and December 31, 2012, the Company held interest rate swaps that were designated and qualified as cash flow hedges of interest rate risk. As of June 30, 2013 and December 31, 2012, the Company held foreign currency swaps that were designated and qualified as hedges of a portion of its net investment in its foreign operations. As of June 30, 2013 and December 31, 2012, the Company also had derivative instruments that were not designated as hedging instruments. See Note 2 – “Summary of Significant Accounting Policies” of the Company’s 2012 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. Derivative instruments are carried at fair value and generally require an insignificant amount of cash at inception of the contracts.
Cash Flow Hedges
The Company designates and accounts for certain interest rate swaps, in which the cash flows are denominated in different currencies, commonly referred to as cross-currency swaps, as cash flow hedges when they meet the requirements of the general accounting principles for  Derivatives and Hedging .
 
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The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three and six months ended June 30, 2013 and 2012 (dollars in thousands):

 	  	Three months ended June 30,	 	
 	  	2013	 	 	2012	 	
Accumulated other comprehensive income (loss), balance beginning of period	  	$	    1,961	  	 	$	(862	) 	
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	  	 	(6,797	) 	 	 	    464	  	
Amounts reclassified to investment income	  	 	(201	) 	 	 	(321	) 	
 	  	 	 	 	 	 	 	 	
Accumulated other comprehensive income (loss), balance end of period	  	$	(5,037	) 	 	$	(719	) 	

 	  	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	
Accumulated other comprehensive income (loss), balance beginning of period	  	$	403	  	 	$	(828	) 	
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges	  	 	(4,934	) 	 	 	787	  	
Amounts reclassified to investment income	  	 	(506	) 	 	 	(678	) 	
 	  	 	 	 	 	 	 	 	
Accumulated other comprehensive income (loss), balance end of period	  	$	(5,037	) 	 	$	(719	) 	
 	  	 	 	 	 	 	 	 	
As of June 30, 2013, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $0.7 million. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to investment income over the term of the investment cash flows. There were no hedged forecasted transactions, other than the receipt or payment of variable interest payments on existing financial instruments, for the three and six months ended June 30, 2013 and 2012.
The following table presents the effects of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and AOCI for the three and six months ended June 30, 2013 and 2012 (dollars in thousands):

Derivatives in Cash Flow
Hedging Relationships	 	Amount of Gains    
(Losses) Deferred in    
AOCI on Derivatives     	 	 	Amount and Location of Gains (Losses)
  Reclassified from AOCI into Income (Loss)   	 	 	Amount and Location of Gains (Losses)
  Recognized in Income (Loss) on Derivatives  	 	
 	 	 	 	 	 	 	 	 	 	
 	 	(Effective Portion)	 	 	(Effective Portion)	 	 	(Ineffective Portion and Amounts Excluded
from Effectiveness Testing)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	  Investment Related  
Gains (Losses)	 	 	  Investment Income  	 	 	  Investment Related Gains  
(Losses)	 	 	  Investment Income  	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the three months ended June 30, 2013:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	$	(6,797	) 	 	$	—	  	 	$	201	  	 	$	31	  	 	$	—	  	
For the three months ended June 30, 2012:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	$	464	  	 	$	—	  	 	$	321	  	 	$	27	  	 	$	—	  	
For the six months ended June 30, 2013:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	$	(4,934	) 	 	$	—	  	 	$	506	  	 	$	14	  	 	$	—	  	
For the six months ended June 30, 2012:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	 	$	787	  	 	$	—	  	 	$	678	  	 	$	3	  	 	$	—	  	
 
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Hedges of Net Investments in Foreign Operations
The Company uses foreign currency swaps to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three and six months ended June 30, 2013 and 2012 (dollars in thousands):

  	  	Derivative Gains (Losses) Deferred in AOCI	 	
 	  	For the three months ended June 30,	 	  	For the six months ended June 30,	 	
Type of NIFO Hedge (1) (2)	  	2013	 	  	2012	 	  	2013	 	  	2012	 	
Foreign currency swaps	  	$	23,913	  	  	$	6,642	  	  	$	34,835	  	  	$	(4,003	) 	
 
(1)	There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented.	
(2)	There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations.	
The cumulative foreign currency translation gain (loss) recorded in AOCI related to these hedges was $18.4 million and $(16.4) million at June 30, 2013 and December 31, 2012, respectively. If a foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a foreign operation.
Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging
The Company uses various derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), in the condensed consolidated statements of income, except where otherwise noted. The Company recognized investment related gains (losses) of $52.4 million and $82.1 million, for the three months, and $(112.8) million and $(11.3) million for the six months ended June 30, 2013 and 2012, respectively, related to derivatives (not including embedded derivatives) that do not qualify or have not been qualified for hedge accounting.
 
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A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s income statement for the three and six months ended June 30, 2013 and 2012 is as follows (dollars in thousands):

 	 	 	 	Gain (Loss) for the Three Months Ended
June 30,	 	
Type of Non-hedging Derivative	 	Income Statement Location of Gain (Loss)	 	2013	 	 	2012	 	
Interest rate swaps	 	Investment related gains (losses), net	 	$	(38,415	) 	 	$	73,342	  	
Interest rate options	 	Investment related gains (losses), net	 	 	(7,981	) 	 	 	—	  	
Financial futures	 	Investment related gains (losses), net	 	 	714	  	 	 	11,074	  	
Foreign currency forwards	 	Investment related gains (losses), net	 	 	(2,958	) 	 	 	516	  	
CPI swaps	 	Investment related gains (losses), net	 	 	(1,117	) 	 	 	(1,431	) 	
Credit default swaps	 	Investment related gains (losses), net	 	 	2,427	  	 	 	(4,795	) 	
Equity options	 	Investment related gains (losses), net	 	 	(5,049	) 	 	 	3,367	  	
Embedded derivatives in:	 	 	 	 	 	 	 	 	 	 	
Modco or funds withheld arrangements	 	Investment related gains (losses), net	 	 	47,717	  	 	 	(4,453	) 	
Indexed annuity products	 	Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	859	  	
Indexed annuity products	 	Interest credited	 	 	(28,019	) 	 	 	26,279	  	
Variable annuity products	 	Investment related gains (losses), net	 	 	35,809	  	 	 	(74,929	) 	
 	 	 	 	 	 	 	 	 	 	 	
Total non-hedging derivatives	 	 	 	$	3,128	  	 	$	29,829	  	

 	 	 	 	Gain (Loss) for the Six Months Ended
June 30,	 	
Type of Non-hedging Derivative	 	Income Statement Location of Gain (Loss)	 	2013	 	 	2012	 	
Interest rate swaps	 	Investment related gains (losses), net	 	$	(60,679	) 	 	$	25,990	  	
Interest rate options	 	Investment related gains (losses), net	 	 	(5,998	) 	 	 	—	  	
Financial futures	 	Investment related gains (losses), net	 	 	(6,167	) 	 	 	(6,335	) 	
Foreign currency forwards	 	Investment related gains (losses), net	 	 	(8,617	) 	 	 	(1,093	) 	
CPI swaps	 	Investment related gains (losses), net	 	 	(1,988	) 	 	 	(2,233	) 	
Credit default swaps	 	Investment related gains (losses), net	 	 	6,332	  	 	 	7,019	  	
Equity options	 	Investment related gains (losses), net	 	 	(35,672	) 	 	 	(34,616	) 	
Embedded derivatives in:	 	 	 	 	 	 	 	 	 	 	
Modco or funds withheld arrangements	 	Investment related gains (losses), net	 	 	137,974	  	 	 	(13,881	) 	
Indexed annuity products	 	Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	(139	) 	
Indexed annuity products	 	Interest credited	 	 	(61,015	) 	 	 	7,538	  	
Variable annuity products	 	Investment related gains (losses), net	 	 	87,123	  	 	 	71,446	  	
 	 	 	 	 	 	 	 	 	 	 	
Total non-hedging derivatives	 	 	 	$	51,293	  	 	$	53,696	  	
 	 	 	 	 	 	 	 	 	 	 	
Types of Derivatives Used by the Company
Interest Rate Swaps
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). With an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between two rates, which can be either fixed-rate or floating-rate interest amounts, tied to an agreed-upon notional principal amount. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments at each due date.
Interest Rate Options
Interest rate options, commonly referred to as swaptions, are used by the Company primarily to hedge living benefit guarantees embedded in certain variable annuity products. A swaption, used to hedge against adverse changes in interest rates, is an option to enter into a swap with a forward starting effective date. The Company pays an upfront premium for the right to exercise this option in the future.
 
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Financial Futures
Exchange-traded equity futures are used primarily to economically hedge liabilities embedded in certain variable annuity products. With exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the relevant stock indices, and to post variation margin on a daily basis in an amount equal to the difference between the daily estimated fair values of those contracts. The Company enters into exchange-traded equity futures with regulated futures commission merchants that are members of the exchange.
Equity Options
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products. To hedge against adverse changes in equity indices volatility, the Company buys put options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price.
Consumer Price Index Swaps
Consumer price index (“CPI”) swaps are used by the Company primarily to economically hedge liabilities embedded in certain insurance products where value is directly affected by changes in a designated benchmark consumer price index. With a CPI swap transaction, the Company agrees with another party to exchange the actual amount of inflation realized over a specified period of time for a fixed amount of inflation determined at inception. These transactions are executed pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date. Most of these swaps will require a single payment to be made by one counterparty at the maturity date of the swap.
Foreign Currency Swaps
Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the termination of the currency swap by each party.
Foreign Currency Forwards
Foreign currency forwards are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. With a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date.
Credit Default Swaps
The Company sells protection under single name credit default swaps and credit default swap index tranches to diversify its credit risk exposure in certain portfolios and, in combination with purchasing securities, to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for indexed reference entities and single name reference entities are defined in the contracts. The Company’s maximum exposure to credit loss equals the notional value for credit default swaps. In the event of default for credit default swaps, the Company is typically required to pay the protection holder the full notional value less a recovery rate determined at auction.
 
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The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at June 30, 2013 and December 31, 2012 (dollars in thousands):

 	 	June 30, 2013	 	 	December 31, 2012	 	
 	 	 	 	 	 	 	
Rating Agency Designation of
Referenced
Credit Obligations(1)	 	Estimated Fair
Value of Credit
Default Swaps	 	 	Maximum
Amount of Future
Payments under
Credit Default
Swaps (2)	 	 	Weighted
Average
Years to
Maturity (3)	 	 	Estimated Fair
Value of Credit
Default Swaps	 	 	Maximum
Amount of Future
Payments under
Credit Default
Swaps (2)	 	 	Weighted
Average
Years to
Maturity (3) 	 	
AAA/AA-/A+/A/A-	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Single name credit default swaps	 	$	(1,149	) 	 	$	122,500	  	 	 	5.4	  	 	$	(2,077	) 	 	$	124,500	  	 	 	5.9	  	
Credit default swaps referencing indices	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subtotal	 	 	(1,149	) 	 	 	122,500	  	 	 	5.4	  	 	 	(2,077	) 	 	 	124,500	  	 	 	5.9	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BBB+/BBB/BBB-	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Single name credit default swaps	 	 	(3,821	) 	 	 	133,200	  	 	 	5.6	  	 	 	(2,345	) 	 	 	135,500	  	 	 	5.5	  	
Credit default swaps referencing indices	 	 	2,551	  	 	 	430,000	  	 	 	4.5	  	 	 	937	  	 	 	430,000	  	 	 	5.0	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subtotal	 	 	(1,270	) 	 	 	563,200	  	 	 	4.7	  	 	 	(1,408	) 	 	 	565,500	  	 	 	5.1	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
BB+	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Single name credit default swaps	 	 	(101	) 	 	 	6,000	  	 	 	4.0	  	 	 	(222	) 	 	 	6,000	  	 	 	4.5	  	
Credit default swaps referencing indices	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Subtotal	 	 	(101	) 	 	 	6,000	  	 	 	4.0	  	 	 	(222	) 	 	 	6,000	  	 	 	4.5	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	(2,520	) 	 	$	691,700	  	 	 	4.8	  	 	$	(3,707	) 	 	$	696,000	  	 	 	5.2	  	

(1)	The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).	
(2)	Assumes the value of the referenced credit obligations is zero.	
(3)	The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.	
The Company also purchases credit default swaps to reduce its risk against a drop in bond prices due to credit concerns of certain bond issuers. If a credit event, as defined by the contract, occurs, the Company is able to put the bond back to the counterparty at par.
Synthetic Guaranteed Investment Contracts
The Company sells fee-based synthetic guaranteed investment contracts which include investment-only, stable value contracts, to retirement plans. The assets are owned by the trustees of such plans, who invest the assets under the terms of investment guidelines agreed to with the Company. The contracts contain a guarantee of a minimum rate of return on participant balances supported by the underlying assets, and a guarantee of liquidity to meet certain participant-initiated plan cash flow requirements. These contracts are accounted for as derivatives, recorded at fair value and classified as interest rate derivatives.
 
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Embedded Derivatives
The Company has certain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance treaties structured on a modified coinsurance (“modco”) or funds withheld basis. Changes in fair values of embedded derivatives on modco or funds withheld treaties are net of an increase (decrease) in investment related gains (losses), net of $(0.4) million and $6.3 million for the three months, and $(2.1) million and $(57.2) million for the six months ended June 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. Changes in fair values of embedded derivatives on variable annuity contracts are net of an increase (decrease) in investment related gains (losses), net of $(0.2) million and $14.6 million for the three months, and $(4.9) million and $51.6 millionfor the six months ended June 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. Additionally, the Company reinsures equity-indexed annuity and variable annuity contracts with benefits that are considered embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and guaranteed minimum income benefits. The related gains (losses) and the effect on net income after amortization of deferred acquisition costs (“DAC”) and income taxes for the three and six months ended June 30, 2013 and 2012 are reflected in the following table (dollars in thousands):

 	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
Embedded derivatives in modco or funds withheld arrangements included in investment related gains	  	$	  47,717	  	 	$	(4,453	) 	 	$	  137,974	  	 	$	(13,881	) 	
After the associated amortization of DAC and taxes, the related amounts included in net income	  	 	13,911	  	 	 	(2,598	) 	 	 	35,535	  	 	 	(665	) 	
Embedded derivatives in variable annuity contracts included in investment related gains	  	 	35,809	  	 	 	(74,929	) 	 	 	87,123	  	 	 	  71,446	  	
After the associated amortization of DAC and taxes, the related amounts included in net income	  	 	29,082	  	 	 	(16,175	) 	 	 	41,274	  	 	 	(1,093	) 	
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses	  	 	(28,019	) 	 	 	  27,138	  	 	 	(61,015	) 	 	 	7,399	  	
After the associated amortization of DAC and taxes, the related amounts included in net income	  	 	(30,845	) 	 	 	15,378	  	 	 	(60,395	) 	 	 	29,248	  	
Credit Risk
The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. As exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties.
The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that may vary depending on the posting party’s ratings. Additionally, a decline in the Company’s or the counterparty’s credit ratings to specified levels could result in potential settlement of the derivative positions under the Company’s agreements with its counterparties. The Company also has exchange-traded futures, which require the maintenance of a margin account.
 
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The Company’s credit exposure related to derivative contracts is generally limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. Information regarding the Company’s credit exposure related to its over-the-counter derivative contracts and margin account for exchange-traded futures at June 30, 2013 and December 31, 2012 are reflected in the following table (dollars in thousands):

 	  	  June 30, 2013  	 	 	  December 31, 2012  	 	
Estimated fair value of derivatives in net asset position	  	$	105,672	  	 	$	136,558	  	
Cash provided as collateral(1)	  	 	6,950	  	 	 	27,867	  	
Securities pledged to counterparties as collateral(2)	  	 	2,722	  	 	 	1,565	  	
Cash pledged from counterparties as collateral(3)	  	 	(89,829	) 	 	 	(136,414	) 	
Securities pledged from counterparties as collateral(4)	  	 	(17,010	) 	 	 	(22,458	) 	
 	  	 	 	 	 	 	 	 	
Net credit exposure	  	$	8,505	  	 	$	7,118	  	
 	  	 	 	 	 	 	 	 	
Margin account related to exchange-traded futures(5)	  	$	5,251	  	 	$	5,605	  	

(1)	Consists of receivable from counterparty, included in other assets.	
(2)	Included in other invested assets, primarily consists of U.S. Treasury securities.	
(3)	Included in cash and cash equivalents, with obligation to return cash collateral recorded in other liabilities.	
(4)	Consists of U.S. Treasury securities.	
(5)	Included in cash and cash equivalents.	
 
6.	Fair Value of Assets and Liabilities	
Fair Value Measurement
General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for 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. These principles also establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. Active markets are defined as having the following characteristics for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available. The Company’s Level 1 assets and liabilities include investment securities that are traded in exchange markets.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. The Company’s Level 2 assets and liabilities include investment securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using market standard valuation techniques. This category primarily includes corporate securities, Canadian and Canadian provincial government securities, and residential and commercial mortgage-backed securities, among others. Level 2 valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities or through the use of valuation methodologies using observable market inputs. Prices from services are validated through analytical reviews and assessment of current market activity.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using market standard valuation techniques described above. When observable inputs are not available, the market standard techniques for determining the estimated fair value of certain securities that trade infrequently, and therefore have little transparency, rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation and cannot be supported by reference to market activity. Even though unobservable, management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities. For the Company’s invested assets, this category generally includes corporate securities (primarily private placements and bank loans), asset-backed securities (including those with exposure to subprime mortgages), and to a lesser extent, certain residential and commercial mortgage-backed securities, among others. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques. Non-binding broker quotes, which are utilized when pricing service information is not available, are reviewed for reasonableness based on the
 
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Company’s understanding of the market, and are generally considered Level 3. Under certain circumstances, based on its observations of transactions in active markets, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, the Company would apply internally developed valuation techniques to the related assets or liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs.
When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
Assets and Liabilities by Hierarchy Level
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012 are summarized below (dollars in thousands):

June 30, 2013:	  	 	 	 	Fair Value Measurements Using:	 	
 	  	Total	 	 	Level 1	 	  	Level 2	 	 	Level 3	 	
Assets:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Fixed maturity securities – available-for-sale:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Corporate securities	  	$	11,803,481	  	 	$	63,568	  	  	$	10,147,908	  	 	$	1,592,005	  	
Canadian and Canadian provincial governments	  	 	3,525,793	  	 	 	—	  	  	 	3,525,793	  	 	 	—	  	
Residential mortgage-backed securities	  	 	1,054,968	  	 	 	—	  	  	 	914,914	  	 	 	140,054	  	
Asset-backed securities	  	 	790,310	  	 	 	—	  	  	 	437,704	  	 	 	352,606	  	
Commercial mortgage-backed securities	  	 	1,638,632	  	 	 	—	  	  	 	1,457,650	  	 	 	180,982	  	
U.S. government and agencies securities	  	 	412,990	  	 	 	354,097	  	  	 	58,893	  	 	 	—	  	
State and political subdivision securities	  	 	291,811	  	 	 	—	  	  	 	250,536	  	 	 	41,275	  	
Other foreign government supranational and foreign government-sponsored enterprises	  	 	1,766,231	  	 	 	290,708	  	  	 	1,448,693	  	 	 	26,830	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total fixed maturity securities – available-for-sale	  	 	21,284,216	  	 	 	708,373	  	  	 	18,242,091	  	 	 	2,333,752	  	
Funds withheld at interest – embedded derivatives	  	 	(108,473	) 	 	 	—	  	  	 	—	  	 	 	(108,473	) 	
Cash equivalents	  	 	347,823	  	 	 	347,823	  	  	 	—	  	 	 	—	  	
Short-term investments	  	 	21,092	  	 	 	19,169	  	  	 	1,923	  	 	 	—	  	
Other invested assets:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Non-redeemable preferred stock	  	 	90,458	  	 	 	87,728	  	  	 	2,730	  	 	 	—	  	
Other equity securities	  	 	69,881	  	 	 	69,881	  	  	 	—	  	 	 	—	  	
Derivatives:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Interest rate swaps	  	 	36,853	  	 	 	—	  	  	 	36,853	  	 	 	—	  	
Interest rate options	  	 	8,073	  	 	 	—	  	  	 	8,073	  	 	 	—	  	
Foreign currency forwards	  	 	148	  	 	 	—	  	  	 	148	  	 	 	—	  	
CPI swaps	  	 	(23	) 	 	 	—	  	  	 	(23	) 	 	 	—	  	
Credit default swaps	  	 	(2,775	) 	 	 	—	  	  	 	(2,775	) 	 	 	—	  	
Equity options	  	 	60,715	  	 	 	—	  	  	 	60,715	  	 	 	—	  	
Foreign currency swaps	  	 	15,800	  	 	 	—	  	  	 	15,800	  	 	 	—	  	
Other	  	 	14,759	  	 	 	14,759	  	  	 	—	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total other invested assets	  	 	293,889	  	 	 	172,368	  	  	 	121,521	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total	  	$	  21,838,547	  	 	$	  1,247,733	  	  	$	  18,365,535	  	 	$	  2,225,279	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Liabilities:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Interest sensitive contract liabilities – embedded derivatives	  	$	878,568	  	 	$	—	  	  	$	—	  	 	$	878,568	  	
Other liabilities:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Derivatives:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Interest rate swaps	  	 	4,140	  	 	 	—	  	  	 	4,140	  	 	 	—	  	
Foreign currency forwards	  	 	9,484	  	 	 	—	  	  	 	9,484	  	 	 	—	  	
Credit default swaps	  	 	(118	) 	 	 	—	  	  	 	(118	) 	 	 	—	  	
Equity options	  	 	(387	) 	 	 	—	  	  	 	(387	) 	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total	  	$	891,687	  	 	$	—	  	  	$	13,119	  	 	$	878,568	  	

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December 31, 2012:	  	 	 	 	Fair Value Measurements Using:	 	
 	  	Total	 	 	Level 1	 	  	Level 2	 	 	Level 3	 	
Assets:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Fixed maturity securities – available-for-sale:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Corporate securities	  	$	12,380,071	  	 	$	43,544	  	  	$	10,667,964	  	 	$	1,668,563	  	
Canadian and Canadian provincial governments	  	 	4,049,334	  	 	 	—	  	  	 	4,049,334	  	 	 	—	  	
Residential mortgage-backed securities	  	 	1,042,064	  	 	 	—	  	  	 	948,133	  	 	 	93,931	  	
Asset-backed securities	  	 	691,555	  	 	 	—	  	  	 	459,164	  	 	 	232,391	  	
Commercial mortgage-backed securities	  	 	1,698,903	  	 	 	—	  	  	 	1,531,897	  	 	 	167,006	  	
U.S. government and agencies securities	  	 	265,190	  	 	 	192,780	  	  	 	67,872	  	 	 	4,538	  	
State and political subdivision securities	  	 	302,498	  	 	 	—	  	  	 	259,286	  	 	 	43,212	  	
Other foreign government, supranational and foreign government-sponsored enterprises	  	 	1,861,999	  	 	 	297,025	  	  	 	1,536,694	  	 	 	28,280	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total fixed maturity securities – available-for-sale	  	 	22,291,614	  	 	 	533,349	  	  	 	19,520,344	  	 	 	2,237,921	  	
Funds withheld at interest – embedded derivatives	  	 	(243,177	) 	 	 	—	  	  	 	—	  	 	 	(243,177	) 	
Cash equivalents	  	 	575,864	  	 	 	575,864	  	  	 	—	  	 	 	—	  	
Short-term investments	  	 	239,131	  	 	 	178,923	  	  	 	38,177	  	 	 	22,031	  	
Other invested assets:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Non-redeemable preferred stock	  	 	74,841	  	 	 	64,268	  	  	 	10,573	  	 	 	—	  	
Other equity securities	  	 	147,859	  	 	 	147,859	  	  	 	—	  	 	 	—	  	
Derivatives:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Interest rate swaps	  	 	104,972	  	 	 	—	  	  	 	104,972	  	 	 	—	  	
Foreign currency forwards	  	 	1,017	  	 	 	—	  	  	 	1,017	  	 	 	—	  	
CPI swaps	  	 	1,446	  	 	 	—	  	  	 	1,446	  	 	 	—	  	
Credit default swaps	  	 	(1,741	) 	 	 	—	  	  	 	(1,741	) 	 	 	—	  	
Equity options	  	 	62,514	  	 	 	—	  	  	 	62,514	  	 	 	—	  	
Collateral	  	 	17,002	  	 	 	1,323	  	  	 	15,679	  	 	 	—	  	
Other	  	 	11,951	  	 	 	11,951	  	  	 	—	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total other invested assets	  	 	419,861	  	 	 	225,401	  	  	 	194,460	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total	  	$	  23,283,293	  	 	$	  1,513,537	  	  	$	  19,752,981	  	 	$	  2,016,775	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Liabilities:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Interest sensitive contract liabilities – embedded derivatives	  	$	912,361	  	 	$	—	  	  	$	—	  	 	$	912,361	  	
Other liabilities:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Derivatives:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Interest rate swaps	  	 	196	  	 	 	—	  	  	 	196	  	 	 	—	  	
Foreign currency forwards	  	 	2,105	  	 	 	—	  	  	 	2,105	  	 	 	—	  	
Credit default swaps	  	 	1,953	  	 	 	—	  	  	 	1,953	  	 	 	—	  	
Foreign currency swaps	  	 	27,398	  	 	 	—	  	  	 	27,398	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total	  	$	944,013	  	 	$	—	  	  	$	31,652	  	 	$	912,361	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
The Company may utilize information from third parties, such as pricing services and brokers, to assist in determining the fair value for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s condensed consolidated financial statements. This includes responsibility for monitoring the fair value process, ensuring objective and reliable valuation practices and pricing of financial instruments, and approving changes to valuation methodologies and pricing sources. The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required.
 
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The Company performs initial and ongoing analysis and review of the various techniques utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also performs ongoing analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value and to monitor controls around pricing, which includes quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, review of pricing trends, comparison of a sample of executed prices of securities sold to the fair value estimates, comparison of fair value estimates to management’s knowledge of the current market, and ongoing confirmation that third party pricing services use, wherever possible, market-based parameters for valuation. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company also determines if the inputs used in estimated fair values received from pricing services are observable by assessing whether these inputs can be corroborated by observable market data.
The fair value of embedded derivative liabilities, including those calculated by third parties, are monitored through the use of attribution reports to quantify the effect of underlying sources of fair value change, including capital market inputs based on policyholder account values, interest rates and short-term and long-term implied volatilities, from period to period. Actuarial assumptions are based on experience studies performed internally in combination with available industry information and are reviewed on a periodic basis, at least annually.
For assets and liabilities reported at fair value, the Company utilizes when available, fair values based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market valuation techniques, market comparable pricing and the income approach. The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings. For the quarters ended June 30, 2013 and 2012, the application of market standard valuation techniques applied to similar assets and liabilities has been consistent.
The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.
Fixed Maturity Securities – The fair values of the Company’s publicly-traded fixed maturity securities are generally based on prices obtained from independent pricing services. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally receives prices from multiple pricing services for each security, but ultimately uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. To validate reasonableness, prices are periodically reviewed as explained above. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service.
If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used, if available. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may override the information from the pricing service or broker with an internally developed valuation; however, this occurs infrequently. Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These estimates may use significant unobservable inputs, which reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset. Circumstances where observable market data are not available may include events such as market illiquidity and credit events related to the security. Pricing service overrides, internally developed valuations and non-binding broker quotes are generally based on significant unobservable inputs and are reflected as Level 3 in the valuation hierarchy.
The inputs used in the valuation of corporate and government securities include, but are not limited to standard market observable inputs which are derived from, or corroborated by, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer. For structured securities, valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to: collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.
 
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When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are believed to be consistent with what other market participants would use when pricing such securities.
The fair values of private placement securities are primarily determined using a discounted cash flow model. In certain cases these models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 3. For certain private fixed maturities, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the security. To the extent management determines that such unobservable inputs are not significant to the price of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.
Embedded Derivatives – For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a discounted cash flow model, which includes an estimate of future equity option purchases and an adjustment for the Company’s own credit risk. The variable annuity embedded derivative calculations are performed by third parties based on methodology and input assumptions provided by the Company. To validate the reasonableness of the resulting fair value, the Company’s internal actuaries perform reviews and analytical procedures on the results. The capital market inputs to the model, such as equity indexes, short-term equity volatility and interest rates, are generally observable. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.
The fair value of embedded derivatives associated with funds withheld reinsurance treaties is determined based upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld at interest asset with an adjustment for the Company’s own credit risk. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy, see “Level 3 Measurements and Transfers” below for a description.
Company’s Own Credit Risk – The Company uses a structural default risk model to estimate its own credit risk. The input assumptions are a combination of externally derived and published values (default threshold and uncertainty), market inputs (interest rate, Company equity price per share, Company debt per share, Company equity price volatility) and insurance industry data (Loss Given Default), adjusted for market recoverability.
Cash Equivalents and Short-Term Investments – Cash equivalents and short-term investments include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The fair value of certain other short-term investments, such as floating rate notes and bonds with original maturities less then twelve months, are based upon other market observable data and are typically classified as Level 2. However, certain short-term investments may incorporate significant unobservable inputs resulting in a Level 3 classification. Various time deposits carried as cash equivalents or short-term investments are not measured at estimated fair value and therefore are excluded from the tables presented.
Equity Securities – Equity securities consist principally of exchange-traded funds and preferred stock of publicly and privately traded companies. The fair values of publicly traded equity securities are primarily based on quoted market prices in active markets and are classified within Level 1 in the fair value hierarchy. The fair values of preferred equity securities, for which quoted market prices are not readily available, are based on prices obtained from independent pricing services and these securities are generally classified within Level 2 in the fair value hierarchy.
Derivative Assets and Derivative Liabilities – All of the derivative instruments utilized by the Company are classified within Level 2 on the fair value hierarchy. These derivatives are principally valued using an income approach. Valuations of interest rate contracts are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, and repurchase rates. Valuations of foreign currency contracts, non-option-based, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, currency spot rates, and cross currency basis curves. Valuations of credit contracts, non-option-based, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, credit curves, and recovery rates. Valuations of equity market contracts, non-option-based, are based on present value techniques, which utilize significant inputs that may include the swap yield curve, spot equity index levels, and dividend yield curves. Valuations of equity market contracts, option-based, are based on option pricing models, which utilize significant inputs that may include the swap yield curve, spot equity index levels, dividend yield curves, and equity volatility. The Company does not currently have derivatives included in Level 3 measurement.
 
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Level 3 Measurements and Transfers
As of June 30, 2013 and December 31, 2012, respectively, the Company classified approximately 11.0% and 10.0% of its fixed maturity securities in the Level 3 category. These securities primarily consist of private placement corporate securities and bank loans with inactive trading markets. Additionally, the Company has included asset-backed securities with subprime exposure and mortgage-backed securities with below investment grade ratings in the Level 3 category due to market uncertainty associated with these securities and the Company’s utilization of unobservable information from third parties for the valuation of these securities.
The significant unobservable inputs used in the fair value measurement of the Company’s corporate, sovereign, government-backed, other political subdivision and short-term investments are probability of default, liquidity premium and subordination premium. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumptions used for the liquidity premium and subordination premium. For securities with a fair value derived using the market comparable pricing valuation technique, liquidity premium is the only significant unobservable input.
The significant unobservable inputs used in the fair value measurement of the Company’s asset and mortgage-backed securities are prepayment rates, probability of default, liquidity premium and loss severity in the event of default. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the liquidity premium and loss severity and a directionally opposite change in the assumption used for prepayment rates.
The actuarial assumptions used in the fair value of embedded derivatives which include assumptions related to lapses, withdrawals, and mortality, are based on experience studies performed by the Company in combination with available industry information and are reviewed on a periodic basis, at least annually. The significant unobservable inputs used in the fair value measurement of embedded derivatives are assumptions associated with policyholder experience and selected capital market assumptions for equity-indexed and variable annuities. The selected capital market assumptions, which include long-term implied volatilities, are projections based on short-term historical information. Changes in interest rates, equity indices, equity volatility, the Company’s own credit risk, and actuarial assumptions regarding policyholder experience may result in significant fluctuations in the value of embedded derivatives.
Fair value measurements associated with funds withheld reinsurance treaties are generally not materially sensitive to changes in unobservable inputs associated with policyholder experience. The primary drivers of change in these fair values are related to movements of credit spreads, which are generally observable. Increases (decreases) in market credit spreads tend to decrease (increase) the fair value of embedded derivatives. Increases (decreases) in the own credit assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.
Fair value measurements associated with variable annuity treaties are sensitive to both capital markets inputs and policyholder experience inputs. Increases (decreases) in lapse rates tend to decrease (increase) the value of the embedded derivatives associated with variable annuity treaties. Increases (decreases) in the long-term volatility assumption tend to increase (decrease) the fair value of embedded derivatives. Increases (decreases) in the own credit assumption tend to decrease (increase) the magnitude of the fair value of embedded derivatives.
 
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The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements developed by the Company, which does not include unobservable Level 3 asset and liability measurements provided by third parties, as of June 30, 2013 and December 31, 2012 (dollars in thousands):

June 30, 2013:	  	Fair Value	 	 	Valuation Technique(s)	  	Unobservable Input	  	Range
(Weighted Average)	 	
Assets:	  	 	 	 	 	 	  	 	  	 	 	 	
State and political subdivision securities	  	$	5,139	  	 	Market comparable securities	  	Liquidity premium	  	 	1%	  	
Corporate securities	  	 	403,894	  	 	Market comparable securities	  	Liquidity premium	  	 	0-2%(1%)	  	
Funds withheld at interest- embedded derivatives	  	 	(108,473	) 	 	Total return swap	  	Mortality	  	 	0-100% (1%)	  	
 	  	 	 	 	 	 	  	Lapse	  	 	0-35% (6%)	  	
 	  	 	 	 	 	 	  	Withdrawal	  	 	0-5% (3%)	  	
 	  	 	 	 	 	 	  	Own Credit	  	 	0-1% (1%)	  	
 	  	 	 	 	 	 	  	Crediting rate	  	 	2-4% (3%)	  	
Liabilities:	  	 	 	 	 	 	  	 	  	 	 	 	
Interest sensitive contract liabilities- embedded derivatives- indexed annuities	  	 	793,586	  	 	Discounted cash flow	  	Mortality	  	 	0-100% (1%)	  	
 	  	 	 	 	 	 	  	Lapse	  	 	0-35% (6%)	  	
 	  	 	 	 	 	 	  	Withdrawal	  	 	0-5% (3%)	  	
 	  	 	 	 	 	 	  	Option budget
projection	  	 	2-4% (3%)	  	
Interest sensitive contract liabilities- embedded derivatives- variable annuities	  	 	84,982	  	 	Discounted cash flow	  	Mortality	  	 	0-100%(2%)	  	
 	 	 	 	 	
 	  	 	 	 	 	 	  	Lapse	  	 	0-25%(5%)	  	
 	 	 	 	 	
 	  	 	 	 	 	 	  	Withdrawal	  	 	0-7%(3%)	  	
 	 	 	 	 	
 	  	 	 	 	 	 	  	Own Credit	  	 	0-1%(1%)	  	
 	  	 	 	 	 	 	  	Long-term

volatility	  	 	0-27%(13%)	  	
 
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December 31, 2012:	  	Fair Value	 	 	Valuation
Technique(s)	  	Unobservable
Input	  	Range
(Weighted Average)	 	
Assets:	  	 	 	 	 	 	  	 	  	 	 	 	
 	 	 	 	 	
State and political subdivision securities	  	$	5,451	  	 	Market comparable securities	  	Liquidity
premium	  	 	1%	  	
    	  	 	 	 	 	 	  	 	  	 	 	 	
Corporate securities	  	 	450,177	  	 	Market comparable securities	  	Liquidity
premium	  	 	0-2%(1%)	  	
    	  	 	 	 	 	 	  	 	  	 	 	 	
Short-term investments	  	 	22,031	  	 	Market comparable securities	  	Liquidity
premium	  	 	1%	  	
    	  	 	 	 	 	 	  	 	  	 	 	 	
Funds withheld at interest- embedded derivatives	  	 	(243,177	) 	 	Total return swap	  	Mortality	  	 	0-100%(1%)	  	
 	  	 	 	 	 	 	  	Lapse	  	 	0-35%(6%)	  	
 	  	 	 	 	 	 	  	Withdrawal	  	 	0-5%(3%)	  	
 	  	 	 	 	 	 	  	Own Credit	  	 	0-1%(1%)	  	
 	  	 	 	 	 	 	  	Crediting
Rate	  	 	2-4%(3%)	  	
Liabilities:	  	 	 	 	 	 	  	 	  	 	 	 	
Interest sensitive contract liabilities- embedded derivatives- indexed annuities	  	 	740,256	  	 	Discounted cash flow	  	Mortality	  	 	0-100%(1%)	  	
 	  	 	 	 	 	 	  	Lapse	  	 	0-35%(6%)	  	
 	  	 	 	 	 	 	  	Withdrawal	  	 	0-5%(3%)	  	
 	  	 	 	 	 	 	  	Option budget
projection	  	 	2-4%(3%)	  	
    	  	 	 	 	 	 	  	 	  	 	 	 	
Interest sensitive contract liabilities- embedded derivatives- variable annuities	  	 	172,105	  	 	Discounted cash flow	  	Mortality	  	 	0-100%(2%)	  	
 	  	 	 	 	 	 	  	Lapse	  	 	0-25%(5%)	  	
 	  	 	 	 	 	 	  	Withdrawal	  	 	0-7%(3%)	  	
 	  	 	 	 	 	 	  	Own Credit	  	 	0-1%(1%)	  	
 	  	 	 	 	 	 	  	Long-term
volatility	  	 	0-27%(14%)	  	
The Company recognizes transfers of financial instruments into and out of levels within the fair value hierarchy at the beginning of the quarter in which the actual event or change in circumstances that caused the transfer occurs. Financial instruments transferred into Level 3 are due to a lack of observable market transactions and price information. Financial instruments are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the financial instrument, a specific event, one or more significant input(s) becoming observable. Transfers out of Level 3 were primarily the result of the Company using observable pricing information or a third party pricing quotation that appropriately reflects the fair value of those financial instruments, without the need for adjustment based on the Company’s own assumptions regarding the characteristics of a specific financial instrument or the current liquidity in the market. In addition, certain transfers out of Level 3 were also due to increased observations of market transactions and price information for those financial instruments.
 
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Transfers from Level 1 to Level 2 are due to the lack of observable market data when pricing these securities, while transfers from Level 2 to Level 1 are due to an increase in the availability of market observable data in an active market. The following tables present the transfers between Level 1 and Level 2 during the three and six months ended June 30, 2013 and 2012 (dollars in thousands):

 	  	Three months ended June 30,	 	
 	  	2013	 	  	2012	 	
 	  	Transfers from
Level 1 to
Level 2	 	  	Transfers from
Level 2 to
Level 1	 	  	Transfers from
Level 1 to
Level 2	 	  	Transfers from
Level 2 to
Level 1	 	
Fixed maturity securities - available-for-sale:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Corporate securities	  	$	—	  	  	$	—	  	  	$	2,996	  	  	$	—	  	
U.S. government and agencies securities	  	 	—	  	  	 	—	  	  	 	—	  	  	 	11,152	  	
State and political subdivision securities	  	 	—	  	  	 	—	  	  	 	12,794	  	  	 	—	  	
Other foreign government, supranational and foreign government-sponsored enterprises	  	 	—	  	  	 	—	  	  	 	1,059	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total fixed maturity securities	  	$	—	  	  	$	—	  	  	$	16,849	  	  	$	11,152	  	

 	  	Six months ended June 30,	 	
 	  	2013	 	  	2012	 	
 	  	Transfers from
Level 1 to
Level 2	 	  	Transfers from
Level 2 to
Level 1	 	  	Transfers from
Level 1 to
Level 2	 	  	Transfers from
Level 2 to
Level 1	 	
Fixed maturity securities - available-for-sale:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Corporate securities	  	$	—	  	  	$	14,012	  	  	$	2,996	  	  	$	4	  	
U.S. government and agencies securities	  	 	—	  	  	 	—	  	  	 	—	  	  	 	11,152	  	
State and political subdivision securities	  	 	—	  	  	 	—	  	  	 	12,794	  	  	 	—	  	
Other foreign government, supranational and foreign government-sponsored enterprises	  	 	—	  	  	 	—	  	  	 	1,059	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total fixed maturity securities	  	$	—	  	  	$	14,012	  	  	$	16,849	  	  	$	11,156	  	

35

Table of Contents
The tables below provide a summary of the changes in fair value of Level 3 assets and liabilities for the three and six months ended June 30, 2013, as well as the portion of gains or losses included in income for the three and six months ended June 30, 2013 attributable to unrealized gains or losses related to those assets and liabilities still held at June 30, 2013 (dollars in thousands):

For the three months ended June 30, 2013:	  	Fixed maturity securities - available-for-sale	 	
 	 	 	 	 	
 	  	Corporate
securities	 	 	Residential
mortgage-
backed
securities	 	 	Asset-backed
securities	 	 	Commercial
mortgage-
backed
securities	 	
Fair value, beginning of period	  	$	  1,646,903	  	 	$	  140,717	  	 	$	  288,231	  	 	$	  175,294	  	
Total gains/losses (realized/unrealized)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	 	(2,313	) 	 	 	(111	) 	 	 	1,526	  	 	 	581	  	
Investment related gains (losses), net	  	 	350	  	 	 	198	  	 	 	226	  	 	 	(8,992	) 	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Included in other comprehensive income	  	 	(37,672	) 	 	 	(2,714	) 	 	 	2,601	  	 	 	15,445	  	
Purchases(1)	  	 	100,690	  	 	 	11,383	  	 	 	72,542	  	 	 	—	  	
Sales(1)	  	 	(39,793	) 	 	 	(1,018	) 	 	 	(7,995	) 	 	 	(1,118	) 	
Settlements(1)	  	 	(80,533	) 	 	 	(7,367	) 	 	 	(5,559	) 	 	 	(228	) 	
Transfers into Level 3	  	 	4,373	  	 	 	4,306	  	 	 	5,340	  	 	 	—	  	
Transfers out of Level 3	  	 	—	  	 	 	(5,340	) 	 	 	(4,306	) 	 	 	—	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	  	$	1,592,005	  	 	$	140,054	  	 	$	352,606	  	 	$	180,982	  	

Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	$	(2,191	) 	 	$	(112	) 	 	$	1,515	  	 	$	580	  	
Investment related gains (losses), net	  	 	—	  	 	 	—	  	 	 	—	  	 	 	(10,109	) 	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 
36

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the three months ended June 30, 2013 (continued):	 	Fixed maturity securities
available-for-sale	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
 	 	State
and political
subdivision
securities	 	 	Other foreign
government,
supranational and
foreign government-
sponsored enterprises	 	 	Funds withheld
at interest-
embedded
derivative	 	 	Short-term
investments	 	 	Interest sensitive
contract
liabilities
embedded
derivatives	 	
Fair value, beginning of period	 	$	42,639	  	 	$	27,865	  	 	$	(156,189	) 	 	$	22,001	  	 	$	(890,476	) 	
Total gains/losses (realized/unrealized)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	 	 	9	  	 	 	(76	) 	 	 	—	  	 	 	—	  	 	 	—	  	
Investment related gains (losses), net	 	 	(4	) 	 	 	—	  	 	 	47,716	  	 	 	—	  	 	 	35,809	  	
Claims & other policy benefits	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(28,020	) 	
Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Included in other comprehensive income	 	 	(1,087	) 	 	 	(959	) 	 	 	—	  	 	 	(1	) 	 	 	—	  	
Purchases(1)	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(14,764	) 	
Sales(1)	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Settlements(1)	 	 	(282	) 	 	 	—	  	 	 	—	  	 	 	(22,000	) 	 	 	18,883	  	
Transfers into Level 3	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Transfers out of Level 3	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	 	$	41,275	  	 	$	26,830	  	 	$	(108,473	) 	 	$	—	  	 	$	(878,568	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	 	$	9	  	 	$	(76	) 	 	$	—	  	 	$	—	  	 	$	—	  	
Investment related gains (losses), net	 	 	—	  	 	 	—	  	 	 	47,717	  	 	 	—	  	 	 	34,788	  	
Claims & other policy benefits	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(46,902	) 	
Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	
For the six months ended June 30, 2013:	 	Fixed maturity securities - available-for-sale	 	
 	 	 	 	 	 	
 	 	Corporate
securities	 	 	Residential
mortgage-backed
securities	 	 	Asset-backed
securities	 	 	Commercial
mortgage-
backed
securities	 	 	U.S.
Government
and agencies
securities	 	
Fair value, beginning of period	 	$	1,668,563	  	 	$	93,931	  	 	$	232,391	  	 	$	167,006	  	 	$	4,538	  	
Total gains/losses (realized/unrealized)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	 	 	(4,339	) 	 	 	(6	) 	 	 	2,405	  	 	 	1,083	  	 	 	—	  	
Investment related gains (losses), net	 	 	(913	) 	 	 	25	  	 	 	(1,521	) 	 	 	(9,862	) 	 	 	—	  	
Claims & other policy benefits	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Included in other comprehensive income	 	 	(36,710	) 	 	 	(200	) 	 	 	14,638	  	 	 	27,945	  	 	 	—	  	
Purchases(1)	 	 	175,362	  	 	 	51,920	  	 	 	128,423	  	 	 	—	  	 	 	—	  	
Sales(1)	 	 	(56,071	) 	 	 	(2,617	) 	 	 	(16,293	) 	 	 	(2,722	) 	 	 	—	  	
Settlements(1)	 	 	(145,899	) 	 	 	(12,289	) 	 	 	(11,436	) 	 	 	(2,468	) 	 	 	—	  	
Transfers into Level 3	 	 	8,146	  	 	 	14,630	  	 	 	8,305	  	 	 	—	  	 	 	—	  	
Transfers out of Level 3	 	 	(16,134	) 	 	 	(5,340	) 	 	 	(4,306	) 	 	 	—	  	 	 	(4,538	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	 	$	  1,592,005	  	 	$	  140,054	  	 	$	    352,606	  	 	$	  180,982	  	 	$	—	  	

37

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the six months ended June 30, 2013 (continued):	 	Fixed maturity securities - available-for-sale	 	
 	 	 	 	 	 	
 	 	Corporate
securities	 	 	Residential
mortgage-backed
securities	 	 	Asset-backed
securities	 	 	Commercial
mortgage-
backed
securities	 	 	U.S.
Government
and agencies
securities	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	 	$	(4,218	) 	 	$	(7	) 	 	$	2,397	  	 	$	1,081	  	 	$	—	  	
Investment related gains (losses), net	 	 	(202	) 	 	 	—	  	 	 	—	  	 	 	(10,109	) 	 	 	—	  	
Claims & other policy benefits	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	 	 	 	
For the six months ended June 30, 2013 (continued):	 	Fixed maturity securities
available-for-sale	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	
 	 	State
and  political
subdivision
securities	 	 	Other foreign
government,
supranational and
foreign government-
sponsored enterprises	 	 	Funds
withheld
at interest-
embedded
derivative	 	 	Short-term
investments	 	 	Interest
sensitive
contract
liabilities
embedded
derivatives	 	
Fair value, beginning of period	 	$	  43,212	  	 	$	  28,280	  	 	$	  (243,177	) 	 	$	    22,031	  	 	$	  (912,361	) 	
Total gains/losses (realized/unrealized)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	 	 	18	  	 	 	(150	) 	 	 	—	  	 	 	(3	) 	 	 	—	  	
Investment related gains (losses), net	 	 	(8	) 	 	 	—	  	 	 	134,704	  	 	 	—	  	 	 	87,123	  	
Claims & other policy benefits	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(61,016	) 	
Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Included in other comprehensive income	 	 	(1,639	) 	 	 	(1,300	) 	 	 	—	  	 	 	(28	) 	 	 	—	  	
Purchases(1)	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(28,624	) 	
Sales(1)	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Settlements(1)	 	 	(308	) 	 	 	—	  	 	 	—	  	 	 	(22,000	) 	 	 	36,310	  	
Transfers into Level 3	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Transfers out of Level 3	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	 	$	41,275	  	 	$	26,830	  	 	$	(108,473	) 	 	$	—	  	 	$	(878,568	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	 	$	18	  	 	$	(150	) 	 	$	—	  	 	$	(4	) 	 	$	—	  	
Investment related gains (losses), net	 	 	—	  	 	 	—	  	 	 	134,705	  	 	 	—	  	 	 	84,911	  	
Claims & other policy benefits	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	(97,326	) 	
Policy acquisition costs and other insurance expenses	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 
(1)	The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.	
 
38

Table of Contents
The tables below provide a summary of the changes in fair value of Level 3 assets and liabilities for the three and six months ended June 30, 2012, as well as the portion of gains or losses included in income for the three and six months ended June 30, 2012 attributable to unrealized gains or losses related to those assets and liabilities still held at June 30, 2012 (dollars in thousands):

For the three months ended June 30, 2012:	  	Fixed maturity securities - available-for-sale	 	
 	  	Corporate
securities	 	 	Residential
mortgage-
backed
securities	 	 	Asset-backed
securities	 	 	Commercial
mortgage- backed
securities	 	 	State.
and  political
subdivision
securities	 	
Fair value, beginning of period	  	$	977,671	  	 	$	54,435	  	 	$	146,362	  	 	$	118,678	  	 	$	5,239	  	
Total gains/losses (realized/unrealized)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	 	77	  	 	 	188	  	 	 	195	  	 	 	545	  	 	 	9	  	
Investment related gains (losses), net	  	 	(696	) 	 	 	(315	) 	 	 	164	  	 	 	393	  	 	 	(4	) 	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance
expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Included in other comprehensive income	  	 	10,341	  	 	 	(172	) 	 	 	1,782	  	 	 	(2,273	) 	 	 	827	  	
Purchases (1)	  	 	68,275	  	 	 	337	  	 	 	2,012	  	 	 	—	  	 	 	—	  	
Sales(1)	  	 	(17,876	) 	 	 	(8,219	) 	 	 	(7,902	) 	 	 	(1,552	) 	 	 	—	  	
Settlements(1)	  	 	(32,497	) 	 	 	(1,902	) 	 	 	(3,238	) 	 	 	(58	) 	 	 	(23	) 	
Transfers into Level 3	  	 	—	  	 	 	7,176	  	 	 	—	  	 	 	—	  	 	 	8,438	  	
Transfers out of Level 3	  	 	(11,281	) 	 	 	(1,937	) 	 	 	(11,017	) 	 	 	—	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	  	$	994,014	  	 	$	49,591	  	 	$	128,358	  	 	$	115,733	  	 	$	14,486	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	$	84	  	 	$	148	  	 	$	151	  	 	$	545	  	 	$	9	  	
Investment related gains (losses), net	  	 	(380	) 	 	 	(161	) 	 	 	—	  	 	 	—	  	 	 	—	  	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance
expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 	 	 	
For the three months ended June 30, 2012 (continued):	 	 	 	 	 	 	 	
 	  	Funds withheld
at interest-
embedded
derivatives	 	 	Other invested
assets- other
equity securities	 	 	Reinsurance
ceded
receivable-
embedded
derivatives	 	 	Interest
sensitive contract
liabilities
embedded
derivatives	 	 	 	 	
Fair value, beginning of period	  	$	(370,884	) 	 	$	11,827	  	 	$	3,514	  	 	$	(903,282	) 	 	 	 	
Total gains/losses (realized/unrealized)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	 	
Investment related gains (losses), net	  	 	(4,453	) 	 	 	1,098	  	 	 	—	  	 	 	(74,929	) 	 	 	 	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,721	) 	 	 	 	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	27,825	  	 	 	 	
Policy acquisition costs and other insurance
expenses	  	 	—	  	 	 	—	  	 	 	1,003	  	 	 	—	  	 	 	 	
Included in other comprehensive income	  	 	—	  	 	 	505	  	 	 	—	  	 	 	—	  	 	 	 	
Purchases(1)	  	 	—	  	 	 	108	  	 	 	—	  	 	 	(16,107	) 	 	 	 	
Sales(1)	  	 	—	  	 	 	(3,788	) 	 	 	—	  	 	 	—	  	 	 	 	
Settlements(1)	  	 	—	  	 	 	—	  	 	 	(101	) 	 	 	29,287	  	 	 	 	
Transfers into Level 3	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	 	
Transfers out of Level 3	  	 	—	  	 	 	(6,523	) 	 	 	—	  	 	 	—	  	 	 	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	  	$	(375,337	) 	 	$	3,227	  	 	$	4,416	  	 	$	(938,927	) 	 	 	 	

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For the three months ended June 30, 2012 (continued):	 	 	 	 	
  	  	Funds withheld
at interest-
embedded
derivatives	 	 	Other invested
assets- other
equity securities	 	 	Reinsurance
ceded
receivable-
embedded
derivatives	 	 	Interest
sensitive contract
liabilities
embedded
derivatives	 	 	 	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	$	—	  	 	$	—	  	 	$	—	  	 	$	—	  	 	 	 	
Investment related gains (losses), net	  	 	(4,452	) 	 	 	(183	) 	 	 	—	  	 	 	(76,737	) 	 	 	 	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,959	) 	 	 	 	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	(1,288	) 	 	 	 	
Policy acquisition costs and other insurance
expenses	  	 	—	  	 	 	—	  	 	 	1,143	  	 	 	—	  	 	 	 	
 	 	 	
For the six months ended June 30, 2012:	  	Fixed maturity securities - available-for-sale	 	 	 	 	
  	  	Corporate
securities	 	 	Residential
mortgage-
backed
securities	 	 	Asset-backed
securities	 	 	Commercial
mortgage- backed
securities	 	 	State.
and  political
subdivision
securities	 	
Fair value, beginning of period	  	$	974,169	  	 	$	81,655	  	 	$	193,492	  	 	$	115,976	  	 	$	10,373	  	
Total gains/losses (realized/unrealized)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	 	107	  	 	 	298	  	 	 	444	  	 	 	1,133	  	 	 	4	  	
Investment related gains (losses), net	  	 	(1,280	) 	 	 	(36	) 	 	 	(506	) 	 	 	(11,682	) 	 	 	(8	) 	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance
expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Included in other comprehensive income	  	 	9,659	  	 	 	1,408	  	 	 	8,477	  	 	 	11,248	  	 	 	1,233	  	
Purchases (1)	  	 	89,435	  	 	 	582	  	 	 	2,012	  	 	 	—	  	 	 	—	  	
Sales(1)	  	 	(27,285	) 	 	 	(16,224	) 	 	 	(7,902	) 	 	 	(1,552	) 	 	 	—	  	
Settlements(1)	  	 	(53,371	) 	 	 	(3,702	) 	 	 	(7,103	) 	 	 	(58	) 	 	 	(46	) 	
Transfers into Level 3	  	 	17,445	  	 	 	7,176	  	 	 	1,080	  	 	 	10,846	  	 	 	8,438	  	
Transfers out of Level 3	  	 	(14,865	) 	 	 	(21,566	) 	 	 	(61,636	) 	 	 	(10,178	) 	 	 	(5,508	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value, end of period	  	$	994,014	  	 	$	49,591	  	 	$	128,358	  	 	$	115,733	  	 	$	14,486	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Included in earnings, net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment income, net of related expenses	  	$	114	  	 	$	255	  	 	$	400	  	 	$	1,133	  	 	$	4	  	
Investment related gains (losses), net	  	 	(1,106	) 	 	 	(269	) 	 	 	(607	) 	 	 	(12,075	) 	 	 	—	  	
Claims & other policy benefits	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Interest credited	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
Policy acquisition costs and other insurance
expenses	  	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	 	 	—	  	
 
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Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
For the six months ended June 30, 2012 (continued):	  	Funds withheld
at interest-
embedded
derivatives	 	  	Other invested
assets- other
equity securities	 	  	Reinsurance
ceded
receivable-
embedded
derivatives	 	  	Interest
sensitive
contract
liabilities
embedded
derivatives	 	
Fair value, beginning of period	  	$	(361,456	) 	  	$	11,489	  	  	$	4,945	  	  	$	    (1,028,241	) 	
Total gains/losses (realized/unrealized)	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Included in earnings, net:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Investment income, net of related expenses	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Investment related gains (losses), net	  	 	(13,881	) 	  	 	1,098	  	  	 	—	  	  	 	71,446	  	
Claims & other policy benefits	  	 	—	  	  	 	—	  	  	 	—	  	  	 	557	  	
Interest credited	  	 	—	  	  	 	—	  	  	 	—	  	  	 	6,632	  	
Policy acquisition costs and other insurance expenses	  	 	—	  	  	 	—	  	  	 	(325	) 	  	 	—	  	
Included in other comprehensive income	  	 	—	  	  	 	843	  	  	 	—	  	  	 	—	  	
Purchases(1)	  	 	—	  	  	 	108	  	  	 	—	  	  	 	(39,697	) 	
Sales(1)	  	 	—	  	  	 	(3,788	) 	  	 	—	  	  	 	—	  	
Settlements(1)	  	 	—	  	  	 	—	  	  	 	(204	) 	  	 	50,376	  	
Transfers into Level 3	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Transfers out of Level 3	  	 	—	  	  	 	(6,523	) 	  	 	—	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Fair value, end of period	  	$	(375,337	) 	  	$	3,227	  	  	$	4,416	  	  	$	(938,927	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Unrealized gains and losses recorded in earnings for the period relating to those Level 3 assets and liabilities that were still held at the end of the period	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Included in earnings, net:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Investment income, net of related expenses	  	$	—	  	  	$	—	  	  	$	—	  	  	$	—	  	
Investment related gains (losses), net	  	 	(13,881	) 	  	 	(183	) 	  	 	—	  	  	 	67,887	  	
Claims & other policy benefits	  	 	—	  	  	 	—	  	  	 	—	  	  	 	79	  	
Interest credited	  	 	—	  	  	 	—	  	  	 	—	  	  	 	(43,395	) 	
Policy acquisition costs and other insurance expenses	  	 	—	  	  	 	—	  	  	 	(46	) 	  	 	—	  	
 
(1)	The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.	
 
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Table of Contents
Nonrecurring Fair Value Measurements
Certain assets are measured at estimated fair value on a non-recurring basis and are not included in the tables presented above. The amounts below relate to certain investments measured at estimated fair value during the period and still held at the reporting dates (dollars in thousands).

 	  	Three months ended June 30,	 	
 	  	2013	 	 	2012	 	
 	 	 	 	 	 	 	
 	  	Carrying
Value
Prior to
Measurement	 	  	Estimated Fair
Value  After
Measurement	 	  	Net
Investment
Gains
(Losses)	 	 	Carrying
Value
Prior to
Measurement	 	  	Estimated Fair
Value After
Measurement	 	  	Net
Investment
Gains
(Losses)	 	
Mortgage loans(1)	  	$	13,602	  	  	$	13,575	  	  	$	(27	) 	 	$	22,323	  	  	$	23,375	  	  	$	1,052	  	
Real estate(3)	  	 	4,736	  	  	 	4,136	  	  	 	(600	) 	 	 	—	  	  	 	—	  	  	 	—	  	
    	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	
 	  	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	
 	  	Carrying
Value
Prior to
Measurement	 	  	Estimated Fair
Value After
Measurement	 	  	Net
Investment
Gains
(Losses)	 	 	Carrying
Value
Prior to
Measurement	 	  	Estimated Fair
Value  After
Measurement	 	  	Net
Investment
Gains
(Losses)	 	
Mortgage loans(1)	  	$	13,482	  	  	$	13,575	  	  	$	93	  	 	$	26,119	  	  	$	23,375	  	  	$	(2,744	) 	
Limited partnership interests(2)	  	 	11,590	  	  	 	9,161	  	  	 	(2,429	) 	 	 	—	  	  	 	—	  	  	 	—	  	
Real estate(3)	  	 	4,736	  	  	 	4,136	  	  	 	(600	) 	 	 	—	  	  	 	—	  	  	 	—	  	
 
(1)	Mortgage loans — The impaired mortgage loans presented above were written down to their estimated fair values at the date the impairments were recognized and are reported as losses above. Subsequent improvements in estimated fair value on previously impaired loans recorded through a reduction in the previously established valuation allowance are reported as gains above. Nonrecurring fair value adjustments on mortgage loans are based on the fair value of underlying collateral or discounted cash flows and were classified as Level 3 in the fair value hierarchy.	
(2)	Limited partnership interests — The impaired investments presented above were accounted for using the cost method. Impairments on these cost method investments were recognized at estimated fair value determined using the net asset values of the Company’s ownership interest as provided in the financial statements of the investees. The valuation of these investments is considered Level 3 in the fair value hierarchy due to the limited activity and price transparency inherent in the market for such investments.	
(3)	Real estate investment - The impaired real estate investments presented above were written down to their estimated fair value at the date of impairment and are reported as losses above. The impairments were based on third-party appraisal values obtained and reviewed by the Company.	
 
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Table of Contents
Fair Value of Financial Instruments
The Company is required by general accounting principles for Fair Value Measurements and Disclosures to disclose the fair value of certain financial instruments including those that are not carried at fair value. The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, at June 30, 2013 and December 31, 2012 (dollars in thousands):

June 30, 2013	  	Carrying Value	 	  	Estimated Fair
Value	 	  	Fair Value Measurement Using:	 	 	
 	  	 	 	  	 	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	 	 	 	 	 	 	 	 	
Assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Mortgage loans on real estate	  	$	2,377,246	  	  	$	2,416,787	  	  	$	—	  	  	$	—	  	  	$	2,416,787	  	 	 	 	 	 	 	 	 	
Policy loans	  	 	1,245,252	  	  	 	1,245,252	  	  	 	—	  	  	 	    1,245,252	  	  	 	—	  	 	 	 	 	 	 	 	 	
Funds withheld at interest(1)	  	 	5,884,501	  	  	 	6,331,471	  	  	 	—	  	  	 	—	  	  	 	6,331,471	  	 	 	 	 	 	 	 	 	
Cash and cash equivalents(2)	  	 	625,796	  	  	 	625,796	  	  	 	625,796	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	 	 	
Short-term investments(2)	  	 	17,509	  	  	 	17,509	  	  	 	17,509	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	 	 	
Other invested assets(2)	  	 	524,810	  	  	 	561,899	  	  	 	4,635	  	  	 	37,590	  	  	 	519,674	  	 	 	 	 	 	 	 	 	
Accrued investment income	  	 	233,153	  	  	 	233,153	  	  	 	—	  	  	 	233,153	  	  	 	—	  	 	 	 	 	 	 	 	 	
Liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Interest-sensitive contract liabilities(1)	  	$	    11,250,921	  	  	$	    11,392,786	  	  	$	—	  	  	$	—	  	  	$	    11,392,786	  	 	 	 	 	 	 	 	 	
Long-term debt	  	 	1,935,533	  	  	 	2,080,701	  	  	 	—	  	  	 	—	  	  	 	2,080,701	  	 	 	 	 	 	 	 	 	
Collateral finance facility	  	 	487,556	  	  	 	373,774	  	  	 	—	  	  	 	—	  	  	 	373,774	  	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	
December 31, 2012:	  	Carrying Value	 	  	Estimated Fair
Value	 	  	Fair Value Measurement Using:	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	  	Level 1	 	  	Level 2	 	  	Level 3	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mortgage loans on real estate	  	$	2,300,587	  	  	$	2,426,688	  	  	$	—	  	  	$	—	  	  	$	2,426,688	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Policy loans	  	 	1,278,175	  	  	 	1,278,175	  	  	 	—	  	  	 	1,278,175	  	  	 	—	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Funds withheld at interest(1)	  	 	5,837,359	  	  	 	6,362,324	  	  	 	—	  	  	 	—	  	  	 	6,362,324	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents(2)	  	 	684,028	  	  	 	684,028	  	  	 	    684,028	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Short-term investments(2)	  	 	48,951	  	  	 	48,951	  	  	 	48,951	  	  	 	—	  	  	 	—	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other invested assets(2)	  	 	596,336	  	  	 	626,358	  	  	 	—	  	  	 	32,250	  	  	 	594,108	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accrued investment income	  	 	201,344	  	  	 	201,344	  	  	 	—	  	  	 	201,344	  	  	 	—	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Liabilities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest-sensitive contract liabilities(1)	  	$	11,566,962	  	  	$	11,926,339	  	  	$	—	  	  	$	—	  	  	$	11,926,339	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Long-term debt	  	 	1,815,253	  	  	 	2,014,062	  	  	 	—	  	  	 	—	  	  	 	2,014,062	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
Collateral finance facility	  	 	652,010	  	  	 	456,050	  	  	 	—	  	  	 	—	  	  	 	456,050	  	 	 	 	 	 	 	 	 	 	 	 	 	 	
 
(1)	Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are embedded derivatives and are measured at fair value on a recurring basis.	
(2)	Carrying values presented herein differ from those presented in the condensed consolidated balance sheets because certain items within the respective financial statement caption are measured at fair value on a recurring basis.	
Mortgage Loans on Real Estate – The fair value of mortgage loans on real estate is estimated by discounting cash flows, both principal and interest, using current interest rates for mortgage loans with similar credit ratings and similar remaining maturities. As such, inputs include current treasury yields and spreads, which are based on the credit rating and average life of the loan, corresponding to the market spreads. The valuation of mortgage loans on real estate is considered Level 3 in the fair value hierarchy.
Policy Loans – Policy loans typically carry an interest rate that is adjusted annually based on an observable market index and therefore carrying value approximates fair value. The valuation of policy loans is considered Level 2 in the fair value hierarchy.
Funds Withheld at Interest – The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in the agreement. When funds withheld are specifically identified in the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. Ceding companies use a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs, to value the securities that are held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.
 
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Table of Contents
Cash and Cash Equivalents and Short-term Investments – The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the short-term maturities of these instruments and are considered Level 1 in the fair value hierarchy.
Other Invested Assets – This primarily includes limited partnership interests accounted for using the cost method, structured loans and FHLB common stock. The fair value of limited partnerships and other investments accounted for using the cost method is determined using the net asset values of the Company’s ownership interest as provided in the financial statements of the investees. The valuation of these investments is considered Level 3 in the fair value hierarchy due to the limited activity and price transparency inherent in the market for such investments. The fair value of structured loans is estimated based on a discounted cash flow analysis using discount rates applicable to each structured loan, this is considered Level 3 in the fair value hierarchy. The fair value of the Company’s common stock investment in the Federal Home Loan Bank of Des Moines is considered to be the carrying value and it is considered Level 2 in the fair value hierarchy. The fair value of the Company’s cash collateral is considered to be the carrying value and considered to be Level 1 in the fair value hierarchy.
Accrued Investment Income – The carrying value for accrued investment income approximates fair value as there are no adjustments made to the carrying value. This is considered Level 2 in the fair value hierarchy.
Interest-Sensitive Contract Liabilities – The carrying and fair values of interest-sensitive contract liabilities reflected in the table above exclude contracts with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities utilizes a market standard technique with both capital market inputs and policyholder behavior assumptions, as well as cash values adjusted for recapture fees. The capital market inputs to the model, such as interest rates, are generally observable. Policyholder behavior assumptions are generally not observable and may require use of significant management judgment. The valuation of interest-sensitive contract liabilities is considered Level 3 in the fair value hierarchy.
Long-term Debt and Collateral Finance Facility – The fair value of the Company’s long-term debt and collateral finance facility is generally estimated by discounting future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the Company, including inputs when available, from actively traded debt of the Company or other companies with similar credit quality. The valuation of long-term debt and collateral finance facility are generally obtained from brokers and are considered Level 3 in the fair value hierarchy.
 
7.	Segment Information	
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the 2012 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets. Investment income is allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.
The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses are attributed to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
The Company’s reportable segments are strategic business units that are primarily segregated by geographic region. Information related to revenues, income (loss) before income taxes and total assets of the Company for each reportable segment are summarized below (dollars in thousands).

 	  	Three months ended June 30,	 	  	Six months ended June 30,	 	
 	  	 	 	 	
Total revenues:	  	2013	 	  	2012	 	  	2013	 	  	2012	 	
U.S.	  	$	1,564,386	  	  	$	1,370,221	  	  	$	3,064,650	  	  	$	2,694,368	  	
Canada	  	 	295,325	  	  	 	276,239	  	  	 	592,414	  	  	 	551,862	  	
Europe & South Africa	  	 	338,910	  	  	 	323,943	  	  	 	678,139	  	  	 	632,280	  	
Asia Pacific	  	 	368,173	  	  	 	377,733	  	  	 	757,142	  	  	 	737,418	  	
Corporate and Other	  	 	23,848	  	  	 	27,617	  	  	 	99,399	  	  	 	52,800	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	    2,590,642	  	  	$	    2,375,753	  	  	$	    5,191,744	  	  	$	    4,668,728	  	

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 	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	 	 	 	
Income (loss) before income taxes:	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
U.S.	  	$	170,443	  	 	$	140,586	  	 	$	344,852	  	 	$	233,331	  	
Canada	  	 	35,659	  	 	 	35,030	  	 	 	71,967	  	 	 	90,093	  	
Europe & South Africa	  	 	15,818	  	 	 	19,591	  	 	 	33,203	  	 	 	26,197	  	
Asia Pacific	  	 	(290,448	) 	 	 	23,859	  	 	 	(275,930	) 	 	 	55,926	  	
Corporate and Other	  	 	(6,230	) 	 	 	(3,174	) 	 	 	29,977	  	 	 	(8,892	) 	
 	  	 	 	 	 	 	 	 	
Total	  	$	(74,758	) 	 	$	    215,892	  	 	$	    204,069	  	 	$	    396,655	  	
 	  	 	 	 	 	 	 	 	
The loss before income taxes for the three and six months ended June 30, 2013 in the Asia Pacific segment reflects an increase in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits as well as poor claims experience in the Australian operation’s individual lump sum and individual disability businesses.

Total Assets:	  	June 30, 2013	 	  	December 31, 2012	 	
U.S.	  	$	24,653,033	  	  	$	24,924,363	  	
Canada	  	 	4,069,624	  	  	 	3,764,002	  	
Europe & South Africa	  	 	2,143,826	  	  	 	2,235,199	  	
Asia Pacific	  	 	3,216,175	  	  	 	3,208,732	  	
Corporate and Other	  	 	4,707,963	  	  	 	6,228,142	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	    38,790,621	  	  	$	    40,360,438	  	

8.	Commitments and Contingent Liabilities	
At June 30, 2013, the Company’s commitments to fund investments were $241.8 million in limited partnerships, $42.5 million in commercial mortgage loans and $74.5 million in bank loans, including revolving credit agreements. At December 31, 2012, the Company’s commitments to fund investments were $176.7 million in limited partnerships, $22.2 million in commercial mortgage loans and $68.5 million in bank loans, including revolving credit agreements. The Company anticipates that the majority of its current commitments will be invested over the next five years; however, these commitments could become due any time at the request of the counterparties. Investments in limited partnerships and private placements are carried at cost or reported using the equity method and included in other invested assets in the condensed consolidated balance sheets. Bank loans are carried at fair value and included in fixed maturities available-for-sale.
The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated.
The Company has obtained bank letters of credit in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. Certain of these letters of credit contain financial covenant restrictions. At June 30, 2013 and December 31, 2012, there were approximately $76.2 million and $45.4 million, respectively, of undrawn outstanding bank letters of credit in favor of third parties. Additionally, the Company utilizes letters of credit to secure reserve credits when it retrocedes business to its subsidiaries, including Parkway Reinsurance Company (“Parkway Re”), Rockwood Reinsurance Company (“Rockwood Re”), Timberlake Financial L.L.C. (“Timberlake Financial”), RGA Americas Reinsurance, Ltd. (“RGA Americas”), RGA Reinsurance Company (Barbados) Ltd. (“RGA Barbados”) and RGA Atlantic Reinsurance Company, Ltd. (“RGA Atlantic”). The Company cedes business to its affiliates to help reduce the amount of regulatory capital required in certain jurisdictions such as the U.S. and the United Kingdom. The capital required to support the business in the affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of June 30, 2013 and December 31, 2012, $861.3 million and $763.5 million, respectively, in undrawn letters of credit from various banks were outstanding, backing reinsurance between the various subsidiaries of the Company. The banks providing letters of credit to the Company are included on the National Association of Insurance Commissioners (“NAIC”) list of approved banks.
 
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The Company maintains five credit facilities, a syndicated revolving credit facility with a capacity of $850.0 million and four letter of credit facilities with a combined capacity of $690.0 million. The Company may borrow cash and obtain letters of credit in multiple currencies under its syndicated revolving credit facility. The following table provides additional information on the Company’s credit facilities as of June 30, 2013 and December 31, 2012 (dollars in millions):

 	 	  	 	  	Amount Utilized(1)	 	  	 	
Facility Capacity	 	  	Maturity Date	  	June 30, 2013	 	  	December 31, 2012	 	  	Basis of Fees	
$	850.0	  	  	December 2015	  	$	94.2	  	  	$	402.9	  	  	Senior unsecured long-term debt rating	
$	200.0	  	  	September 2019	  	 	200.0	  	  	 	200.0	  	  	Fixed	
$	120.0	  	  	May 2016	  	 	80.0	  	  	 	100.0	  	  	Fixed	
$	270.0	  	  	November 2017	  	 	270.0	  	  	 	—	  	  	Fixed	
$	100.0	  	  	June 2017	  	 	90.3	  	  	 	—	  	  	Fixed	
 
(1)	Represents issued but undrawn letters of credit. There was no cash borrowed for the periods presented.	
RGA has issued guarantees to third parties on behalf of its subsidiaries for the payment of amounts due under certain reinsurance treaties, securities borrowing arrangements, financing arrangements and office lease obligations, whereby, if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. In limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size, relative to the ceding company. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party, totaled $815.2 million and $686.0 million as of June 30, 2013 and December 31, 2012, respectively, and are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. As of June 30, 2013 and December 31, 2012, the Company’s exposure related to treaty guarantees, net of assets held in trust, was $628.1 million and $463.5 million, respectively. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to borrowed securities provide additional security to third parties should a subsidiary fail to return the borrowed securities when due. As of June 30, 2013 and December 31, 2012, RGA’s obligation related to borrowed securities guarantees was $87.5 million. There were no amounts guaranteed under financing arrangements as of June 30, 2013 and December 31, 2012.
Manor Reinsurance, Ltd. (“Manor Re”), a subsidiary of RGA, has obtained $300.0 million of collateral financing through 2020 from an international bank which enabled Manor Re to deposit assets in trust to support statutory reserve credits for an affiliated reinsurance transaction. The bank has recourse to RGA should Manor Re fail to make payments or otherwise not perform its obligations under this financing.
RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third-parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third-parties have recourse to RGA should the subsidiary fail to provide the required funding, however, as of June 30, 2013, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents information about these commitments (dollars in millions):

Commitment Period	  	Maximum Potential Obligation	 	
2033	  	$	350.0	  	
2035	  	 	560.0	  	
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.
 
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9.	Employee Benefit Plans	
The components of net periodic benefit costs for the three and six months ended June 30, 2013 and 2012 were as follows (dollars in thousands):

 	  	Pension Benefits	 	 	Other Benefits	 	
 	  	Three months ended June 30,	 	 	Three months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	  	2012	 	
Service cost	  	$	2,129	  	 	$	2,196	  	 	$	410	  	  	$	279	  	
Interest Cost	  	 	1,020	  	 	 	1,090	  	 	 	311	  	  	 	258	  	
Expected return on plan assets	  	 	(1,100	) 	 	 	(799	) 	 	 	—	  	  	 	—	  	
Amortization of prior service cost	  	 	213	  	 	 	87	  	 	 	—	  	  	 	—	  	
Amortization of prior actuarial loss	  	 	782	  	 	 	1,388	  	 	 	186	  	  	 	89	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net periodic benefit cost	  	$	3,044	  	 	$	    3,962	  	 	$	    907	  	  	$	    626	  	

 	  	Pension Benefits	 	 	Other Benefits	 	
 	  	Six months ended June 30,	 	 	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	  	2012	 	
Service cost	  	$	4,012	  	 	$	3,728	  	 	$	820	  	  	$	558	  	
Interest Cost	  	 	2,038	  	 	 	2,070	  	 	 	623	  	  	 	517	  	
Expected return on plan assets	  	 	(1,867	) 	 	 	(1,533	) 	 	 	—	  	  	 	—	  	
Amortization of prior service cost	  	 	307	  	 	 	186	  	 	 	—	  	  	 	—	  	
Amortization of prior actuarial loss	  	 	1,619	  	 	 	1,663	  	 	 	372	  	  	 	177	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net periodic benefit cost	  	$	6,109	  	 	$	6,114	  	 	$	1,815	  	  	$	1,252	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
The Company has made pension contributions of $3.4 million during the first six months of 2013 and expects to make total pension contributions of $6.8 million in 2013.
 
10.	Equity Based Compensation	
Equity compensation expense was $6.0 million and $5.5 million in the second quarter of 2013 and 2012, respectively. In the first quarter of 2013, the Company granted 0.7 million stock appreciation rights at $58.77 weighted average exercise price per share and 0.3 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 14,200 shares of common stock. As of June 30, 2013, 1.8 million share options at $50.43 weighted average per share were vested and exercisable with a remaining weighted average exercise period of 5.1 years. As of June 30, 2013, the total compensation cost of non-vested awards not yet recognized in the condensed consolidated financial statements was $38.2 million. It is estimated that these costs will vest over a weighted average period of 2.2 years.
 
11.	Retrocession Arrangements and Reinsurance Ceded Receivables	
The Company generally reports retrocession activity on a gross basis. Amounts paid or deemed to have been paid for reinsurance are reflected in reinsurance ceded receivables. The cost of reinsurance related to long-duration contracts is recognized over the terms of the reinsured policies on a basis consistent with the reporting of those policies. In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage, quota share and coinsurance contracts.
Certain retrocessions are arranged through the Company’s retrocession pools for amounts in excess of the Company’s retention limit. As of June 30, 2013 and December 31, 2012, all rated retrocession pool participants rated by the A.M. Best Company were rated “A- (excellent)” or better. The Company verifies retrocession pool participants’ ratings on a quarterly basis. For a majority of the retrocessionaires that were not rated, security in the form of letters of credit or trust assets has been given as additional security in favor of RGA Reinsurance Company (“RGA Reinsurance”). In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance.
 
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As of June 30, 2013 and December 31, 2012, the Company had claims recoverable from retrocessionaires of $147.2 million and $156.0 million, respectively, which is included in reinsurance ceded receivables, in the condensed consolidated balance sheets. The Company considers outstanding claims recoverable in excess of 90 days to be past due. There were $9.8 million and $10.4 million of past due claims recoverable as of June 30, 2013 and December 31, 2012, respectively. Based on financial reviews of the counterparties, the Company has not established a valuation allowance for claims recoverable. The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to recoverability of any such claims.
 
12.	Repurchase of Collateral Finance Facility Notes	
During the first quarter of 2013, the Company repurchased $160.0 million face amount of its Series A Floating Rate Insured Notes issued by RGA’s subsidiary, Timberlake Financial, L.L.C., for $112.0 million, which was the market value at the date of the purchase. The notes were purchased by RGA Reinsurance Company, also a subsidiary of RGA. As a result, the Company recorded a pre-tax gain of $46.5 million, after fees, in other revenues at that time.
 
13.	Stock Transactions	
In January 2013, RGA’s board of directors authorized a share repurchase program, with no expiration date, for up to $200.0 million of RGA’s outstanding common stock. In April 2013, RGA’s board of directors authorized an increase of $100.0 million to the share repurchase program previously authorized in January 2013. In July 2013, RGA’s board of directors authorized an additional increase of $100.0 million to the share repurchase program previously authorized in January 2013. With these authorizations, the total amount of the Company’s outstanding common stock authorized for repurchase is $400.0 million.
During the first quarter of 2013, RGA repurchased 815,011 shares of common stock under this program for $47.6 million. During the second quarter of 2013, the Company repurchased an additional 2,865,132 shares of common stock under the program for $182.9 million. The common shares repurchased have been placed into treasury to be used for general corporate purposes. As of June 30, 2013 there was $69.5 million remaining under the board of directors authorized share repurchase program, which does not reflect the additional $100.0 million authorization approved by RGA’s board of director’s in July 2013.
 
14.	New Accounting Standards	
Changes to the general accounting principles are established by the FASB in the form of accounting standards updates to the FASB Accounting Standards Codification™. Accounting standards updates not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s consolidated financial statements.
Adoption of New Accounting Standards
Basis of Presentation
In December 2011, the FASB amended the general accounting principles for Balance Sheet as it relates to the disclosures about offsetting assets and liabilities. The amendment requires disclosures about the Company’s rights of offset and related arrangements associated with its financial instruments and derivative instruments. This amendment also requires the disclosure of both gross and net information about both instruments and transactions eligible for offset in the balance sheet and instruments and transactions subject to an agreement similar to a master netting arrangement. In January 2013, the FASB amended the general accounting principles for  Balance Sheet  as it relates to the disclosures about offsetting assets and liabilities. This amendment clarifies that the scope of the Balance Sheet amendment made in December 2011 applies only to derivatives, including bifurcated embedded derivatives, repurchase and reverse repurchase agreements, and securities borrowing and lending transactions that are either offset or subject to an enforceable master netting agreement or a similar agreement. These amendments are effective for interim and annual reporting periods beginning on or after January 1, 2013. The Company adopted these amendments and the required disclosures are provided in Note 5 — “Derivative Instruments”.
Transfers and Servicing
In April 2011, the FASB amended the general accounting principles for Transfers and Servicing as it relates to the reconsideration of effective control for repurchase agreements. This amendment removes from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets and also removes the collateral maintenance implementation guidance related to that criterion. The amendment is effective for interim and annual periods beginning after December 15, 2011. The adoption of this amendment did not have an impact on the Company’s condensed consolidated financial statements.
 
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Fair Value Measurements and Disclosures
In May 2011, the FASB amended the general accounting principles for Fair Value Measurements and Disclosures as it relates to the measurement and disclosure requirements about fair value measurements. This amendment clarifies the FASB’s intent about the application of existing fair value measurement requirements. It also changes particular principles and requirements for measuring fair value and for disclosing information about fair value measurements. The amendment is effective for interim and annual periods beginning after December 15, 2011. The Company adopted this amendment and the required disclosures are provided in Note 6 — “Fair Value of Assets and Liabilities.”
Deferred Policy Acquisition Costs
In October 2010, the FASB amended the general accounting principles for Financial Services – Insurance as it relates to accounting for costs associated with acquiring or renewing insurance contracts. This amendment clarifies that only those costs that result directly from and are essential to the contract transaction and that would not have been incurred had the contract transaction not occurred can be capitalized. It also defines acquisitions costs as costs that are related directly to the successful acquisitions of new or renewal insurance contracts. The amendment is effective for fiscal years and interim periods beginning after December 15, 2011. The retrospective adoption of this amendment on January 1, 2012, resulted in a reduction in the Company’s deferred acquisition cost asset and a corresponding reduction to equity, reflected in the financial statements in all periods. There will be a decrease in amortization subsequent to adoption due to the reduced deferred acquisition cost asset. There has also been a reduction in the level of future costs the Company defers; thereby increasing expenses incurred in future periods. The cumulative effect of the adoption of this amendment was a decrease to total stockholders’ equity of $318.4 million and a decrease in the deferred policy acquisition costs balance of $470.1 million on January 1, 2012.
Comprehensive Income
In February 2013, the FASB amended the general accounting principles for Comprehensive Income as it relates to the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment requires entities to provide information about the amounts reclassified out of accumulated other comprehensive income by component. This amendment also requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. However, this is only necessary if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. The amendment is effective for interim and annual reporting periods beginning after December 31, 2012. The Company adopted this amendment and the required disclosures are provided in Note 3 — “Accumulated Other Comprehensive Income.”
In June 2011, the FASB amended the general accounting principles for Comprehensive Income as it relates to the presentation of comprehensive income. This amendment requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in either a continuous statement of comprehensive income or in two separate but consecutive statements. The amendment does not change the items that must be reported in other comprehensive income. In December 2011, the FASB amended the general accounting principles for Comprehensive Income  as it relates to the presentation of comprehensive income. This amendment defers the requirement to present the effects of reclassifications out of accumulated other comprehensive income on the Company’s consolidated statements of income, which was required in the Comprehensive Income  amendment made in June 2011. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company adopted these amendments and the required presentation is provided in the Condensed Consolidated Statements of Comprehensive Income.
Future Adoption of New Accounting Standards
Income Taxes
In July 2013, the FASB amended the general accounting principles for Income Taxes as it relates to the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This amendment clarifies that an unrecognized tax benefit should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. However, to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and not combined with deferred tax assets. These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The adoption of this amendment is not expected to have an impact on the Company’s condensed consolidated financial statements.
 
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ITEM 2.       MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking and Cautionary Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.
Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, including ongoing uncertainties regarding the amount of United States sovereign debt and the credit ratings thereof, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate and operate reinsurance business that the Company acquires, (22) action by regulators who have authority over the Company’s reinsurance operations in the jurisdictions in which it operates, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (26) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and (27) other risks and uncertainties described in this document and in the Company’s other filings with the SEC.
Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and the cautionary statements described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A – “Risk Factors” in the 2012 Annual Report.
Overview
RGA is an insurance holding company that was formed on December 31, 1992. The condensed consolidated financial statements include the assets, liabilities and results of operations of RGA, RGA Reinsurance, RCM, RGA Barbados, RGA Americas, RGA Atlantic, RGA Canada, RGA Australia and RGA International as well as other subsidiaries, which are primarily wholly owned (collectively, the Company).
 
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The Company is primarily engaged in the reinsurance of individual and group coverages for traditional life and health, longevity, disability, annuity and critical illness products, and financial reinsurance. RGA and its predecessor, the Reinsurance Division of General American Life Insurance Company, a Missouri life insurance company, have been engaged in the business of life reinsurance since 1973. Approximately 66.3% of the Company’s 2012 net premiums were from its operations in North America, represented by its U.S. and Canada segments.
The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties and income earned on invested assets.
The Company’s primary business is life and health reinsurance, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or voluntary surrenders of underlying policies, deaths of insureds, and the exercise of recapture options by ceding companies.
As is customary in the reinsurance business, clients continually update, refine, and revise reinsurance information provided to the Company. Such revised information is used by the Company in preparation of its financial statements and the financial effects resulting from the incorporation of revised data are reflected in the current period.
The Company’s long-term profitability primarily depends on the volume and amount of death and health-related claims incurred and the ability to adequately price the risks assumed. While death claims are reasonably predictable over a period of many years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. The maximum amount of individual life coverage the Company retains per life varies by market and can be as high as $8.0 million. In certain limited situations the Company has retained more than $8.0 million per individual life. Exposures in excess of these retention amounts are typically retroceded to retrocessionaires; however, the Company remains fully liable to the ceding company for the entire amount of risk it assumes. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.
The Company has five geographic-based or function-based operational segments, each of which is a distinct reportable segment: U.S., Canada, Europe & South Africa, Asia Pacific and Corporate and Other. The U.S. operations provide traditional life, long-term care, group life and health reinsurance, annuity and financial reinsurance products. The Canada operations reinsure traditional life products as well as creditor reinsurance, group life and health reinsurance, non-guaranteed critical illness products and longevity reinsurance. Europe & South Africa operations include a variety of life and health products, critical illness and longevity business throughout Europe and in South Africa, in addition to other markets the Company is developing. The principle types of reinsurance in Asia Pacific include life, critical illness, health, disability, superannuation and financial reinsurance. Corporate and Other includes results from, among others, RGA Technology Partners, Inc. (“RTP”), a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry, interest expense related to debt and the investment income and expense associated with the Company’s collateral finance facility. The Company measures segment performance based on profit or loss from operations before income taxes.
The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a consistent basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses is credited to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
Results of Operations
Consolidated
Consolidated income before income taxes decreased $290.7 million, or 134.6%, and $192.6 million, or 48.6%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease in income before income taxes for the second quarter of 2013 was primarily due to a significant loss in the Asia Pacific segment partially offset by increased investment related gains and higher investment income. The loss in the Asia Pacific segment reflects an increase in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits as well as poor claims experience in the Australian operation’s individual lump sum and individual disability businesses. The decrease in income before income taxes for the first six months of 2013 was primarily due to the aforementioned loss in the Asia Pacific segment related to the Australian operations partially offset by an increase in investment related gains, higher investment income and the recognition in other revenues of gains on the repurchase of collateral finance facility securities of $46.5 million. The increase in investment related gains in the second quarter and first six months reflects a favorable change in the value of embedded derivatives within the U.S. segment. The effect of tightening credit spreads in the U.S. markets generated an increase in revenue related to embedded derivatives to a greater extent in the first six months of 2013 than 2012. Foreign currency fluctuations relative to the prior year favorably
 
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affected income before income taxes by approximately $14.4 million and $12.2 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
The Company recognizes in consolidated income, any changes in the value of embedded derivatives on modco or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable annuity products. The change in the value of embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis are subject to the general accounting principles for derivatives and hedging related to embedded derivatives. The unrealized gains and losses associated with these embedded derivatives, after adjustment for deferred acquisition costs, increased income before income taxes by $25.4 million and $55.7 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. Changes in risk-free rates used in the fair value estimates of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, increased income before income taxes by $14.5 million and $19.5 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affects the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, increased income before income taxes by $69.6 million and $65.2 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in an increase of approximately $109.5 million and approximately $140.4 million in consolidated income before income taxes in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, management believes it is helpful to distinguish between the effects of changes in these embedded derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.
Consolidated net premiums increased $84.5 million, or 4.3%, and $200.7 million, or 5.3%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012, primarily due to growth in life reinsurance partially offset by foreign currency fluctuations. Foreign currency fluctuations unfavorably affected net premiums by approximately $21.2 million and $40.8 million for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Consolidated assumed insurance in force increased to $2,823.8 billion as of June 30, 2013 from $2,782.3 billion as of June 30, 2012 due to new business production. Foreign currency fluctuations negatively affected the increase in assumed life insurance in force from June 30, 2012 by $77.4 billion. The Company added new business production, measured by face amount of insurance in force, of $104.0 billion and $86.8 billion during the second quarter of 2013 and 2012, respectively, and $199.9 billion and $205.3 billion during the first six months of 2013 and 2012, respectively. Management believes industry consolidation and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced in some markets.
Consolidated investment income, net of related expenses, increased $115.9 million, or 35.3%, and $200.1 million, or 29.9%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increases are primarily due to the increase in market value changes related to the Company’s funds withheld at interest investment associated with the reinsurance of certain EIAs which contributed to the increases in investment income by $92.9 million and 113.7 million in the second quarter and first six months of 2013, respectively. The effect on investment income of the EIAs market value changes is substantially offset by a corresponding change in interest credited to policyholder account balances resulting in an insignificant effect on net income. In addition, investment income associated with a large fixed annuity transaction executed in the second quarter of 2012 contributed $15.4 million and $68.9 million to the increase in the second quarter and first six months of 2013, respectively. The increase also reflects a larger average invested asset base, excluding funds withheld and other spread business, somewhat offset by lower effective investment portfolio yields. Average invested assets at amortized cost, excluding funds withheld and other spread business, for the six months ended June 30, 2013 totaled $17.9 billion, a 9.8% increase over June 30, 2012. The average yield earned on investments, excluding funds withheld and other spread business, was 4.77% and 5.06% for the second quarter of 2013 and 2012, respectively, and 4.80% and 5.06% for the six months ended June 30, 2013 and 2012, respectively. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments. While there was some improvement late in the second quarter of 2013, a continued low interest rate environment in the U.S. and Canada is expected to put downward pressure on this yield in future reporting periods.
Total investment related gains (losses), net reflect a favorable change of $24.4 million and $75.3 million, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increases are primarily due to a favorable change in the embedded derivatives related to reinsurance treaties written on a modco or funds withheld basis of $52.2 million and $151.9 million, a favorable change in the embedded derivatives related to guaranteed minimum living benefits of $110.7 million and $15.7 million in the second quarter and first six months of 2013, respectively. Offsetting these increases was a decrease in the fair value of derivatives used to hedge the embedded derivative liabilities associated with guaranteed minimum living benefits of
 
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$134.3 million and $90.9 million in the second quarter and first six months of 2013, respectively. Investment impairments on fixed maturity and equity securities increased by $8.3 million and decreased by $6.3 million in the second quarter and first six months of 2013, respectively. See Note 4 - “Investments” and Note 5 - “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on the impairment losses and derivatives. Investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment operations.
The effective tax rate on a consolidated basis was 33.6% and 34.6% for the second quarter of 2013 and 2012, respectively, and 33.4% and 33.3% for the first six months of 2013 and 2012, respectively. The second quarter and first six months of 2013 effective tax rates were lower than the U.S. statutory rate of 35.0% primarily as a result of income in non-U.S. jurisdictions with lower tax rates than the U.S., differences in tax basis in foreign jurisdictions, and the establishment of a valuation allowance on a portion of Australia’s deferred tax asset. The second quarter and first six months of 2012 effective tax rate was lower than the U.S. statutory rate of 35.0% primarily as a result of income in non-U.S. jurisdictions with lower tax rates than the U.S. and differences in tax basis in foreign jurisdictions offset by a tax accrual of $2.1 million related to business extender provisions that the U.S. Congress did not pass prior to the end of 2012.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of financial statements. If management determines that modifications in assumptions and estimates are appropriate given current facts and circumstances, results of operations and financial position as reported in the condensed consolidated financial statements could change significantly.
Management believes the critical accounting policies relating to the following areas are most dependent on the application of estimates and assumptions:
Deferred acquisition costs;
Liabilities for future policy benefits and incurred but not reported claims;
Valuation of investments and other-than-temporary impairments to specific investments;
Valuation of embedded derivatives; and
Income taxes.
A discussion of each of the critical accounting policies may be found in the Company’s 2012 Annual Report under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies.”
Further discussion and analysis of the results for 2013 compared to 2012 are presented by segment.
U.S. Operations
U.S. operations consist of two major sub-segments: Traditional and Non-Traditional. The Traditional sub-segment primarily specializes in individual mortality-risk reinsurance and to a lesser extent, group, health and long-term care reinsurance. The Non-Traditional sub-segment consists of Asset-Intensive and Financial Reinsurance. During 2012, the Asset-Intensive sub-segment issued its first fee-based synthetic guaranteed investment contracts which include investment-only, stable value contracts, to retirement plans.
 
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For the three months ended June 30, 2013	  	 	 	 	Non-Traditional	 	 	 	 	
 	 	 	 	 	
(dollars in thousands)	  	Traditional	 	 	Asset-Intensive	 	  	Financial
Reinsurance	 	 	Total
U.S.	 	
Revenues:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net premiums	  	$	1,124,292	  	 	$	11,129	  	  	$	—	  	 	$	1,135,421	  	
Investment income, net of related expenses	  	 	133,259	  	 	 	200,837	  	  	 	819	  	 	 	334,915	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	(8,085	) 	 	 	—	  	  	 	—	  	 	 	(8,085	) 	
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income	  	 	(253	) 	 	 	—	  	  	 	—	  	 	 	(253	) 	
Other investment related gains (losses), net	  	 	12,038	  	 	 	43,063	  	  	 	(100	) 	 	 	55,001	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	3,700	  	 	 	43,063	  	  	 	(100	) 	 	 	46,663	  	
Other revenues	  	 	1,144	  	 	 	29,937	  	  	 	16,306	  	 	 	47,387	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total revenues	  	 	1,262,395	  	 	 	284,966	  	  	 	17,025	  	 	 	1,564,386	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	972,739	  	 	 	11,083	  	  	 	—	  	 	 	983,822	  	
Interest credited	  	 	13,590	  	 	 	104,263	  	  	 	—	  	 	 	117,853	  	
Policy acquisition costs and other insurance expenses	  	 	164,393	  	 	 	97,533	  	  	 	3,602	  	 	 	265,528	  	
Other operating expenses	  	 	22,226	  	 	 	2,878	  	  	 	1,636	  	 	 	26,740	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	1,172,948	  	 	 	215,757	  	  	 	5,238	  	 	 	1,393,943	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before income taxes	  	$	89,447	  	 	$	69,209	  	  	$	11,787	  	 	$	170,443	  	

For the three months ended June 30, 2012	  	 	 	 	Non-Traditional	 	 	 	 	
 	 	 	 	 	
(dollars in thousands)	  	Traditional	 	 	Asset-Intensive	 	  	Financial
Reinsurance	 	 	Total
U.S.	 	
Revenues:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net premiums	  	$	  1,082,400	  	 	$	3,355	  	  	$	—	  	 	$	  1,085,755	  	
Investment income (loss), net of related expenses	  	 	133,652	  	 	 	95,957	  	  	 	179	  	 	 	229,788	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	(1,822	) 	 	 	—	  	  	 	—	  	 	 	(1,822	) 	
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income	  	 	162	  	 	 	—	  	  	 	—	  	 	 	162	  	
Other investment related gains (losses), net	  	 	2,449	  	 	 	12,468	  	  	 	32	  	 	 	14,949	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	789	  	 	 	12,468	  	  	 	32	  	 	 	13,289	  	
Other revenues	  	 	401	  	 	 	29,254	  	  	 	11,734	  	 	 	41,389	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total revenues	  	 	1,217,242	  	 	 	141,034	  	  	 	11,945	  	 	 	1,370,221	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	934,807	  	 	 	5,102	  	  	 	—	  	 	 	939,909	  	
Interest credited	  	 	14,555	  	 	 	51,926	  	  	 	—	  	 	 	66,481	  	
Policy acquisition costs and other insurance expenses (income)	  	 	150,958	  	 	 	46,597	  	  	 	704	  	 	 	198,259	  	
Other operating expenses	  	 	20,586	  	 	 	2,807	  	  	 	1,593	  	 	 	24,986	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	1,120,906	  	 	 	106,432	  	  	 	2,297	  	 	 	1,229,635	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before income taxes	  	$	96,336	  	 	$	34,602	  	  	$	9,648	  	 	$	140,586	  	

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For the six months ended June 30, 2013	  	 	 	 	Non-Traditional	 	 	 	 	
 	 	 	 	 	
(dollars in thousands)	  	Traditional	 	 	Asset-Intensive	 	  	Financial
Reinsurance	 	 	Total
U.S.	 	
Revenues:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net premiums	  	$	2,170,341	  	 	$	14,967	  	  	$	—	  	 	$	2,185,308	  	
Investment income, net of related expenses	  	 	265,548	  	 	 	380,206	  	  	 	1,416	  	 	 	647,170	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	(8,247	) 	 	 	—	  	  	 	—	  	 	 	(8,247	) 	
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income	  	 	(253	) 	 	 	—	  	  	 	—	  	 	 	(253	) 	
Other investment related gains (losses), net	  	 	19,497	  	 	 	131,647	  	  	 	(66	) 	 	 	151,078	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	10,997	  	 	 	131,647	  	  	 	(66	) 	 	 	142,578	  	
Other revenues	  	 	1,673	  	 	 	58,818	  	  	 	29,103	  	 	 	89,594	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total revenues	  	 	2,448,559	  	 	 	585,638	  	  	 	30,453	  	 	 	3,064,650	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	1,902,419	  	 	 	14,671	  	  	 	—	  	 	 	1,917,090	  	
Interest credited	  	 	29,740	  	 	 	213,048	  	  	 	—	  	 	 	242,788	  	
Policy acquisition costs and other insurance expenses	  	 	304,361	  	 	 	192,196	  	  	 	7,042	  	 	 	503,599	  	
Other operating expenses	  	 	45,747	  	 	 	6,991	  	  	 	3,583	  	 	 	56,321	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	2,282,267	  	 	 	426,906	  	  	 	10,625	  	 	 	2,719,798	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before income taxes	  	$	166,292	  	 	$	158,732	  	  	$	19,828	  	 	$	344,852	  	

For the six months ended June 30, 2012	  	 	 	 	Non-Traditional	 	 	 	 	
 	 	 	 	 	
(dollars in thousands)	  	Traditional	 	 	Asset-Intensive	 	  	Financial
Reinsurance	 	 	Total
U.S.	 	
Revenues:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net premiums	  	$	  2,103,907	  	 	$	6,951	  	  	$	—	  	 	$	  2,110,858	  	
Investment income (loss), net of related expenses	  	 	266,069	  	 	 	  205,234	  	  	 	343	  	 	 	471,646	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	(7,852	) 	 	 	—	  	  	 	—	  	 	 	(7,852	) 	
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income	  	 	(5,745	) 	 	 	—	  	  	 	—	  	 	 	(5,745	) 	
Other investment related gains (losses), net	  	 	1,302	  	 	 	53,071	  	  	 	(107	) 	 	 	54,266	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	(12,295	) 	 	 	53,071	  	  	 	(107	) 	 	 	40,669	  	
Other revenues	  	 	1,404	  	 	 	49,147	  	  	 	20,644	  	 	 	71,195	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total revenues	  	 	2,359,085	  	 	 	314,403	  	  	 	20,880	  	 	 	2,694,368	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	1,842,268	  	 	 	7,004	  	  	 	—	  	 	 	1,849,272	  	
Interest credited	  	 	29,609	  	 	 	124,676	  	  	 	—	  	 	 	154,285	  	
Policy acquisition costs and other insurance expenses (income)	  	 	296,443	  	 	 	105,662	  	  	 	1,474	  	 	 	403,579	  	
Other operating expenses	  	 	44,587	  	 	 	5,869	  	  	 	3,445	  	 	 	53,901	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	2,212,907	  	 	 	243,211	  	  	 	4,919	  	 	 	2,461,037	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before income taxes	  	$	146,178	  	 	$	71,192	  	  	$	15,961	  	 	$	233,331	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before income taxes for the U.S. operations segment increased by $29.9 million, or 21.2%, and $111.5 million, or 47.8%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increase in income before income taxes in the three and six months of 2013 can be largely attributed to the Asset-Intensive segment. The significant increase in income over the prior year for this sub-segment was generated primarily by a large Asset-Intensive transaction completed in the second quarter of 2012, favorable changes in credit spreads on the fair value of embedded derivatives associated with treaties written on a modified coinsurance or funds withheld basis, and favorable returns in the broader equity markets in 2013. Income before income taxes in the Traditional sub-segment also increased in the first six months of 2013, mainly as a result of an increase in investment related gains.
 
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Traditional Reinsurance
The U.S. Traditional sub-segment provides life and health reinsurance to domestic clients for a variety of products through yearly renewable term, coinsurance and modified coinsurance agreements. These reinsurance arrangements may involve either facultative or automatic agreements.
Income before income taxes for the U.S. Traditional sub-segment decreased by $6.9 million, or 7.2%, and increased $20.1 million, or 13.8%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease in the second quarter was primarily due to an increase in the acquisition margin combined with lower yield rates. Overall, while the acquisition ratios are expected to remain in a predictable range, they may fluctuate from period to period. The increase in the first six months was primarily due to an increase in investment related gains (losses), net and growth, primarily in the individual health line of business, compared to the same period in 2012.
Net premiums increased $41.9 million, or 3.9%, and $66.4 million, or 3.2%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increase in net premiums was driven largely by growth in the health and group related coverages which contributed $27.5 million and $52.0 million to the increase for the second quarter and first six months of 2013, respectively. This sub-segment added new individual life business production, measured by face amount of insurance in force, of $21.8 billion and $24.2 billion during the second quarters, and $47.4 billion and $109.1 billion during the first six months of 2013 and 2012, respectively. Approximately $42.4 billion of the decrease in the first six months as compared to the same period in 2012 relates to one large in force transaction recorded in the first quarter of 2012.
Net investment income decreased $0.4 million, or 0.3%, and $0.5 million, or 0.2%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decreases are due to lower yield rates offset by an increase in the average invested asset base. Investment related gains (losses), net increased $2.9 million and $23.3 million, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increase in the first six months is primarily due to an increase in net investment gains. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were 86.5% and 86.4% for the second quarter of 2013 and 2012, respectively, and 87.7% and 87.6% for the six months ended June 30, 2013, respectively.
Interest credited expense decreased $1.0 million, or 6.6%, and increased $0.1 million, or 0.4%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. This expense relates primarily to one treaty in which the related investment income decreased proportionately, resulting in minimal net income impact. Interest credited in this sub-segment relates to amounts credited on cash value products which also have a significant mortality component. Income before income taxes is affected by the spread between the investment income and the interest credited on the underlying products. Interest earned rates and related interest crediting rates are index driven. The spread remained relatively constant in both periods.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 14.6% and 13.9% for the second quarter of 2013 and 2012, and 14.0% and 14.1% for the six months ended June 30, 2013 and 2012, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Also, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to period.
Other operating expenses increased $1.6 million, or 8.0%, and $1.2 million, or 2.6%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Other operating expenses, as a percentage of net premiums were 2.0% and 1.9% for the second quarter of 2013 and 2012, and 2.1% for both six month periods ended June 30, 2013 and 2012, respectively.
Asset-Intensive Reinsurance
The U.S. Asset-Intensive sub-segment primarily assumes investment risk within underlying annuities and corporate-owned life insurance policies. Most of these reinsurance agreements are coinsurance, coinsurance with funds withheld or modified coinsurance whereby the Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities, as well as fees associated with variable annuity account values.
 
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Impact of certain derivatives:
Income for the asset-intensive business tends to be volatile due to changes in the fair value of certain derivatives, including embedded derivatives associated with reinsurance treaties structured on a modco basis or funds withheld basis, as well as embedded derivatives associated with the Company’s reinsurance of equity-indexed annuities and variable annuities with guaranteed minimum benefit riders. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including risk-free rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives, net of related hedging activity, and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues), and interest credited. These fluctuations are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. The following table summarizes the asset-intensive results and quantifies the impact of these embedded derivatives for the periods presented. Revenues before certain derivatives, benefits and expenses before certain derivatives, and income before income taxes and certain derivatives, should not be viewed as substitutes for GAAP revenues, GAAP benefits and expenses, and GAAP income before income taxes.

(dollars in thousands)	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	$	284,966	  	 	$	141,034	  	 	$	585,638	  	 	$	314,403	  	
Less:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Embedded derivatives – modco/funds withheld treaties	  	 	46,326	  	 	 	(4,593	) 	 	 	136,527	  	 	 	(13,980	) 	
Guaranteed minimum benefit riders and related free standing derivatives	  	 	(7,473	) 	 	 	16,127	  	 	 	(8,513	) 	 	 	66,797	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Revenues before certain derivatives	  	 	  246,113	  	 	 	  129,500	  	 	 	  457,624	  	 	 	  261,586	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	215,757	  	 	 	106,432	  	 	 	426,906	  	 	 	243,211	  	
Less:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Embedded derivatives – modco/funds withheld treaties	  	 	26,316	  	 	 	(455	) 	 	 	83,306	  	 	 	(12,857	) 	
Guaranteed minimum benefit riders and related free standing derivatives	  	 	(3,034	) 	 	 	10,011	  	 	 	(4,446	) 	 	 	43,481	  	
Equity-indexed annuities	  	 	(12,727	) 	 	 	1,793	  	 	 	(19,573	) 	 	 	(43	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefits and expenses before certain derivatives	  	 	205,202	  	 	 	95,083	  	 	 	367,619	  	 	 	212,630	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes	  	 	69,209	  	 	 	34,602	  	 	 	158,732	  	 	 	71,192	  	
Less:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Embedded derivatives – modco/funds withheld treaties	  	 	20,010	  	 	 	(4,138	) 	 	 	53,221	  	 	 	(1,123	) 	
Guaranteed minimum benefit riders and related free standing derivatives	  	 	(4,439	) 	 	 	6,116	  	 	 	(4,067	) 	 	 	23,316	  	
Equity-indexed annuities	  	 	12,727	  	 	 	(1,793	) 	 	 	19,573	  	 	 	43	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes and certain derivatives	  	$	40,911	  	 	$	34,417	  	 	$	90,005	  	 	$	48,956	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Embedded Derivatives - Modco/Funds Withheld Treaties- Represents the change in the fair value of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis. The fair value changes of embedded derivatives on funds withheld at interest associated with treaties written on a modco or funds withheld basis are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in benefits and expenses. Changes in the fair value of the embedded derivative are driven by changes in investment credit spreads, including the Company’s own credit risk. Generally, an increase in investment credit spreads, ignoring changes in the Company’s own credit risk, will have a negative impact on the fair value of the embedded derivative (decrease in income). Changes in fair values of these embedded derivatives are net of an increase (decrease) in revenues of $(0.4) million and $6.3 million for the three months, and $(2.1) million and $(57.2) million for the six months ended June 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. A 10% increase in the Company’s own credit risk rate would have increased revenues for the six months ended June 30, 2013 by approximately $0.1 million. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues for the six months ended June 30, 2013 by approximately $0.1 million.
 
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In the second quarter of 2013, the change in fair value of the embedded derivative increased revenues by $46.3 million and related deferred acquisition expenses increased benefits and expenses by $26.3 million, for a positive pre-tax income impact of $20.0 million. During the second quarter of 2012, the change in fair value of the embedded derivative decreased revenues by $4.6 million and related deferred acquisition expenses decreased benefits and expenses by $0.5 million, for a negative pre-tax income impact of $4.1 million. In the first six months of 2013, the change in fair value of the embedded derivative increased revenues by $136.5 million and related deferred acquisition expenses increased benefits and expenses by $83.3 million, for a positive pre-tax income impact of $53.2 million. During the first six months of 2012, the change in fair value of the embedded derivative decreased revenues by $14.0 million and related deferred acquisition expenses decreased benefits and expenses by $12.9 million, for a negative pre-tax income impact of $1.1 million.
Guaranteed Minimum Benefit Riders- Represents the impact related to guaranteed minimum benefits associated with the Company’s reinsurance of variable annuities. The fair value changes of the guaranteed minimum benefits along with the changes in fair value of the free standing derivatives purchased by the Company to partially hedge the liability are reflected in revenues, while the related impact on deferred acquisition expenses is reflected in expenses. Changes in fair values of these embedded derivatives are net of an increase (decrease) in revenues of $(0.2) million and $14.6 million for the three months, and $(4.9) million and $51.6 million for the six months ended June 30, 2013 and 2012, respectively, associated with the Company’s own credit risk. A 10% increase in the Company’s own credit risk rate would have increased revenues for the six months ended June 30, 2013 by approximately $1.2 million. Conversely, a 10% decrease in the Company’s own credit risk rate would have decreased revenues for the six months ended June 30, 2013 by approximately $1.2 million.
In the second quarter of 2013, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, decreased revenues by $7.5 million and deferred acquisition expenses decreased benefits and expenses by $3.0 million for a negative pre-tax income impact of $4.4 million. In the second quarter of 2012, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives increased revenues by $16.1 million and deferred acquisition expenses increased benefits and expenses by $10.0 million for a positive pre-tax income impact of $6.1 million. In the first six months of 2013, the change in the fair value of the guaranteed minimum benefits, after allowing for changes in the associated free standing derivatives, decreased revenues by $8.5 million and deferred acquisition expenses decreased benefits and expenses by $4.4 million for a negative pre-tax income impact of $4.1 million. In the first six months of 2012, the change in the fair value of the guaranteed minimum benefits after allowing for changes in the associated free standing derivatives increased revenues by $66.8 million and deferred acquisition expenses increased benefits and expenses by $43.5 million for a positive pre-tax income impact of $23.3 million.
Equity-Indexed Annuities- Represents the impact of changes in the benchmark rate on the calculation of the fair value of embedded derivative liabilities associated with equity-indexed annuities, after adjustments for related deferred acquisition expenses. In the second quarter of 2013 and 2012, expenses decreased $12.7 million and increased $1.8 million, respectively. In the first six months of 2013 and 2012, expenses decreased $19.6 million and less than $0.1 million, respectively.
The changes in derivatives discussed above are considered unrealized by management and do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Fluctuations occur period to period primarily due to changing investment conditions including, but not limited to, interest rate movements (including benchmark rates and credit spreads), implied volatility and equity market performance, all of which are factors in the calculations of fair value. Therefore, management believes it is helpful to distinguish between the effects of changes in these derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income (included in other revenues) and interest credited.
Discussion and analysis before certain derivatives:
The increase in income before income taxes and certain derivatives of $6.5 million and $41.0 million in the second quarter and first six months of 2013, as compared to the same periods in 2012, was primarily due to a large coinsurance agreement entered into in the second quarter of 2012. This increase was partially offset, particularly in the second quarter compared to 2012 by the net impact of investment related gains (losses) and corresponding changes in DAC related to capital gains (losses) in the funds withheld portfolios, as significant net gains were taken in 2012 compared to net losses in 2013. Funds withheld capital gains and losses are reported through investment income.
The increase in revenue before certain derivatives of $116.6 million and $196.0 million in the second quarter and first six months of 2013, as compared to the same periods in 2012, was driven by a combination of changes in investment income related to equity options held in a funds withheld portfolio associated with equity-indexed annuity treaties and an increase in investment income attributed to the new coinsurance agreement mentioned above. The effect on investment income related to equity options is substantially offset by a corresponding change in interest credited expense.
 
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The increase in benefits and expenses before certain derivatives of $110.1 million and $155.0 million in the second quarter and first six months of 2013, as compared to the same periods in 2012, was driven by a combination of changes in interest credited related to equity options held in funds withheld portfolio associated with equity-indexed annuity treaties and an increase in interest credited attributed to the new coinsurance agreement mentioned above. The effect on interest credited related to equity options is substantially offset by a corresponding change in investment income.
The average invested asset base supporting this sub-segment decreased to $11.2 billion in the second quarter of 2013 from $11.6 billion in the second quarter of 2012. The decrease in the asset base was due primarily to one large closed-block transaction in which the business is beginning to run-off. As of June 30, 2013, $4.3 billion of the invested assets were funds withheld at interest, of which 94.4% is associated with one client.
Financial Reinsurance
U.S. Financial Reinsurance sub-segment income before income taxes consists primarily of net fees earned on financial reinsurance transactions. Financial reinsurance risks are assumed by the U.S. segment and a portion is retroceded to other insurance companies or brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts and brokered business are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses.
Income before income taxes increased $2.1 million, or 22.2%, and $3.9 million, or 24.2%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increase in the second quarter of 2013 was the result of additional surplus relief provided as compared to the same period in 2012. At June 30, 2013 and 2012, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial structures was $3.1 billion and $2.1 billion, respectively. The increase was primarily due to a number of new transactions entered into in the last half of 2012 and the first half of 2013. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.
Canada Operations
The Company conducts reinsurance business in Canada primarily through RGA Life Reinsurance Company of Canada (“RGA Canada”), a wholly-owned subsidiary. RGA Canada assists clients with capital management activity and mortality and morbidity risk management, and is primarily engaged in traditional individual life reinsurance, as well as creditor, group life and health, critical illness, and longevity reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance .

(dollars in thousands)	  	For the three months  ended
June 30,	 	  	For the six months  ended
June 30,	 	
 	  	2013	 	  	2012	 	  	2013	 	  	2012	 	
Revenues:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net premiums	  	$	  239,633	  	  	$	  221,167	  	  	$	  482,904	  	  	$	  439,377	  	
Investment income, net of related expenses	  	 	51,642	  	  	 	46,242	  	  	 	102,197	  	  	 	95,142	  	
Investment related gains (losses), net:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Other-than-temporary impairments on fixed maturity securities transferred to (from) accumulated other comprehensive income	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Other investment related gains (losses), net	  	 	3,748	  	  	 	5,625	  	  	 	6,803	  	  	 	14,168	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investment related gains (losses), net	  	 	3,748	  	  	 	5,625	  	  	 	6,803	  	  	 	14,168	  	
Other revenues	  	 	302	  	  	 	3,205	  	  	 	510	  	  	 	3,175	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total revenues	  	 	295,325	  	  	 	276,239	  	  	 	592,414	  	  	 	551,862	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Benefits and expenses:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Claims and other policy benefits	  	 	196,584	  	  	 	184,857	  	  	 	386,282	  	  	 	345,482	  	
Interest credited	  	 	6	  	  	 	—	  	  	 	18	  	  	 	—	  	
Policy acquisition costs and other insurance expenses	  	 	52,134	  	  	 	47,476	  	  	 	112,966	  	  	 	97,761	  	
Other operating expenses	  	 	10,942	  	  	 	8,876	  	  	 	21,181	  	  	 	18,526	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total benefits and expenses	  	 	259,666	  	  	 	241,209	  	  	 	520,447	  	  	 	461,769	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income before income taxes	  	$	35,659	  	  	$	35,030	  	  	$	71,967	  	  	$	90,093	  	

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Income before income taxes increased by $0.6 million, or 1.8%, and decreased $18.1 million, or 20.1%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease in income in the first six months of 2013 was primarily due to better traditional individual life mortality experience in the prior year and a decrease of $7.4 million in net investment related gains. In addition, the first six months of 2012 included $6.3 million of income from the recapture of a previously assumed block of individual life business recognized in the first quarter of 2012. A weaker Canadian dollar resulted in a decrease in income before income taxes of $0.6 million and $1.1 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
Net premiums increased $18.5 million, or 8.3%, and $43.5 million, or 9.9%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Premiums increased in the second quarter and first six months of 2013 due to new business from both new and existing treaties. Excluding the impact of foreign currency exchange, reinsurance in force at June 30, 2013 increased 6.5% over June 30, 2012. Also contributing to the increase in net premiums is an increase in premiums from creditor treaties of $3.4 million and $20.1 million for the second quarter and first six months of 2013, as compared to the same periods in 2012. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease in net premiums of approximately $3.1 million and $4.7 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. Premium levels can be significantly influenced by currency fluctuations, large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period.
Net investment income increased $5.4 million, or 11.7%, and $7.1 million, or 7.4%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The increase in investment income, excluding the impact of foreign currency exchange, was mainly the result of an increase in the allocated asset base due to growth in the underlying business volume, offset by a lower investment yield. Foreign currency exchange fluctuation in the Canadian dollar resulted in a decrease to net investment income of approximately $0.7 million and $1.1 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. Investment income and investment related gains and losses are allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Other revenues decreased by $2.9 million, or 90.6%, and $2.7 million, or 83.9%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. These decreases were primarily due to $3.3 million fees earned in the prior year from the recapture of a previously assumed block of individual life business.
Loss ratios for this segment were 82.0% and 83.6% for the second quarter of 2013 and 2012, and 80.0% and 78.6%, for the six months ended June 30, 2013 and 2012, respectively. Excluding creditor business, loss ratios for this segment were 94.5% and 95.5% for the second quarter of 2013 and 2012, respectively, and 93.9% and 89.7% for the six months ended June 30, 2013 and 2012, respectively. The increase in the loss ratio for the first six months of 2013 is due to better than expected traditional individual life mortality experience in the prior year compared to the current year.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 21.8% and 21.5% for the second quarter of 2013 and 2012, and 23.4% and 22.2% for the six months ended June 30, 2013 and 2012, respectively. Policy acquisition costs and other insurance expenses as a percentage of net premiums for traditional individual life business were 12.3% and 12.1% for the second quarter of 2013 and 2012, and 12.6% and 13.4% for the six months ended June 30, 2013 and 2012, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels and product mix. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.
Other operating expenses increased by $2.1 million, or 23.3%, and $2.7 million, or 14.3%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Other operating expenses as a percentage of net premiums were 4.6% and 4.0% for the second quarter of 2013 and 2012, and 4.4% and 4.2% for the six months ended June 30, 2013 and 2012 respectively.
Europe & South Africa Operations
The Europe & South Africa segment includes operations in the United Kingdom (“UK”), South Africa, France, Germany, India, Italy, Mexico, the Netherlands, Poland, Spain and the United Arab Emirates. The segment provides reinsurance for a variety of life and health products through yearly renewable term and coinsurance agreements, critical illness coverage and longevity risk related to payout annuities. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and, in some markets, group risks.
 
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(dollars in thousands)	  	Three months ended June 30,	 	  	Six months ended June 30,	 	
 	  	2013	 	  	2012	 	  	2013	 	  	2012	 	
Revenues:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net premiums	  	$	319,375	  	  	$	310,075	  	  	$	643,283	  	  	$	602,846	  	
Investment income, net of related expenses	  	 	14,457	  	  	 	11,248	  	  	 	26,681	  	  	 	22,579	  	
Investment related gains (losses), net:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Other-than-temporary impairments on fixed maturity securities
transferred to (from) accumulated other comprehensive income	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	
Other investment related gains (losses), net	  	 	470	  	  	 	1,156	  	  	 	2,280	  	  	 	3,138	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investment related gains (losses), net	  	 	470	  	  	 	1,156	  	  	 	2,280	  	  	 	3,138	  	
Other revenues	  	 	4,608	  	  	 	1,464	  	  	 	5,895	  	  	 	3,717	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total revenues	  	 	338,910	  	  	 	323,943	  	  	 	678,139	  	  	 	632,280	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Benefits and expenses:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Claims and other policy benefits	  	 	283,230	  	  	 	263,992	  	  	 	567,145	  	  	 	525,476	  	
Policy acquisition costs and other insurance expenses	  	 	11,753	  	  	 	13,550	  	  	 	23,487	  	  	 	28,602	  	
Other operating expenses	  	 	28,109	  	  	 	26,810	  	  	 	54,304	  	  	 	52,005	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total benefits and expenses	  	 	323,092	  	  	 	304,352	  	  	 	644,936	  	  	 	606,083	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income before income taxes	  	$	15,818	  	  	$	19,591	  	  	$	33,203	  	  	$	26,197	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Income before income taxes decreased by $3.8 million, or 19.3%, and increased $7.0 million, or 26.7%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease in income before income taxes for the second quarter was primarily due to higher mortality claims in the UK. The increase in income before income taxes for the first six months was primarily due to increased business volumes partially offset by unfavorable claims experience. Unfavorable foreign currency exchange fluctuations contributed to the decrease in income before income taxes totaling $1.0 million and $1.9 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
Net premiums increased $9.3 million, or 3.0%, and $40.4 million, or 6.7%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Net premiums increased as a result of new business from both new and existing treaties including an increase associated with reinsurance of longevity risk in the UK of $2.2 million and $24.0 million in the second quarter and first six months of 2013, respectively. During 2013, there were unfavorable foreign currency exchange fluctuations, particularly with the British pound and the South African rand weakening against the U.S. dollar which decreased net premiums by approximately $10.0 million and $19.9 million in the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled $63.1 million and $62.0 million in the second quarter of 2013 and 2012, respectively, and $126.8 million and $123.5 million for the six months ended June 30, 2013 and 2012, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.
Net investment income increased $3.2 million, or 28.5%, and $4.1 million, or 18.2%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. These increases were primarily due to an increase in the invested asset base. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Loss ratios for this segment were 88.7% and 85.1% for the second quarter of 2013 and 2012, and 88.2% and 87.2% for the six months ended June 30, 2013 and 2012, respectively. The increase in the loss ratios is attributable to unfavorable individual life claims experience over the same prior periods primarily in the UK market. Although reasonably predictable over a period of years, claims can be volatile over shorter periods. Management views recent experience as normal short-term volatility that is inherent in the business.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 3.7% and 4.4% for the second quarter of 2013 and 2012, and 3.7% and 4.7% for the six months ended June 30, 2013 and 2012, respectively. These percentages fluctuate due to timing of client company reporting, variations in the mixture of business and the relative maturity of the business. In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.
 
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Other operating expenses increased $1.3 million, or 4.8%, and $2.3 million, or 4.4%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Other operating expenses as a percentage of net premiums totaled 8.8% and 8.6% for the second quarter of 2013 and 2012, and 8.4% and 8.6% for the six months ended June 30, 2013 and 2012, respectively.
While concerns continue in 2013 relating to the European sovereign debt and European economies, approximately 86.1% of revenues for the segment were earned outside of the eurozone in the second quarter of 2013. Approximately 7.9% of the segment’s revenues were earned in Spain, Italy and Portugal over the same period.
Asia Pacific Operations
The Asia Pacific segment includes operations in Australia, Hong Kong, Japan, Malaysia, Singapore, New Zealand, South Korea, Taiwan and mainland China. The principal types of reinsurance include life, critical illness, disability, superannuation, and financial reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and, in addition, offer life and disability insurance coverage. Reinsurance agreements may be facultative or automatic agreements covering primarily individual risks and in some markets, group risks.

(dollars in thousands)	  	Three months ended June 30,	 	  	Six months ended June 30,	 	
 	  	 	 	 	
 	  	2013	 	 	2012	 	  	2013	 	 	2012	 	
Revenues:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Net premiums	  	$	340,466	  	 	$	331,945	  	  	$	704,070	  	 	$	657,295	  	
Investment income, net of related expenses	  	 	21,402	  	 	 	20,711	  	  	 	43,483	  	 	 	43,289	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	—	  	 	 	—	  	  	 	—	  	 	 	—	  	
Other-than-temporary impairments on fixed maturity securities
transferred to (from) accumulated other comprehensive income	  	 	—	  	 	 	—	  	  	 	—	  	 	 	—	  	
Other investment related gains (losses), net	  	 	(4,156	) 	 	 	968	  	  	 	(8,621	) 	 	 	5,317	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	(4,156	) 	 	 	968	  	  	 	(8,621	) 	 	 	5,317	  	
Other revenues	  	 	10,461	  	 	 	24,109	  	  	 	18,210	  	 	 	31,517	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total revenues	  	 	368,173	  	 	 	377,733	  	  	 	757,142	  	 	 	737,418	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	567,050	  	 	 	236,733	  	  	 	848,995	  	 	 	485,353	  	
Interest credited	  	 	274	  	 	 	216	  	  	 	585	  	 	 	454	  	
Policy acquisition costs and other insurance expenses	  	 	60,163	  	 	 	89,996	  	  	 	122,226	  	 	 	140,843	  	
Other operating expenses	  	 	31,134	  	 	 	26,929	  	  	 	61,266	  	 	 	54,842	  	
Interest expense	  	 	—	  	 	 	—	  	  	 	—	  	 	 	—	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	658,621	  	 	 	353,874	  	  	 	1,033,072	  	 	 	681,492	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income (loss) before income taxes	  	$	(290,448	) 	 	$	23,859	  	  	$	(275,930	) 	 	$	55,926	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Income before income taxes decreased by $314.3 million and $331.9 million for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease in income before income taxes in the second quarter and first six months is primarily due to a $274.1 million increase in Australian group claims liabilities related to total and permanent disability coverage and disability income benefits, as discussed further below, as well as poor claims experience in the Australian operation’s individual lump sum and individual disability businesses. Other operations in this segment reported results in line with management’s expectations. In total, the Australia operation reported a loss before income taxes of $300.3 million for the second quarter of 2013, while the other operations in this segment reported income before income taxes of $9.9 million for the same period. Additionally, foreign currency exchange fluctuations resulted in an increase to income before income taxes totaling approximately $16.1 million and $15.2 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
Net premiums increased $8.5 million, or 2.6%, and $46.8 million, or 7.1%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Premiums in the second quarter and first six months of 2013 increased mainly in Hong Kong and South East Asia, and Australia with new treaties and growth in existing treaties, partially offset by a decrease in premiums in Japan and South Korea. Unfavorable changes in Asia Pacific segment currencies resulted in a decrease in net premiums of approximately $8.1 million and $16.2 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012.
 
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A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the Asia Pacific segment is offered primarily in South Korea, Australia and Hong Kong. Net premiums earned from this coverage totaled $51.2 million and $46.7 million in the second quarter of 2013 and 2012, respectively, and $105.8 million and $87.0 million for the first six months ended June 30, 2013 and 2012, respectively. Premium levels can be significantly influenced by currency fluctuations, large transactions and reporting practices of ceding companies and can fluctuate from period to period.
Net investment income increased $0.7 million, or 3.3%, and $0.2 million, or 0.4%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. These increases can be primarily attributed to an increase in the invested asset base largely offset by lower investment yields. Offsetting these increases were unfavorable changes in foreign currency exchange fluctuations of $0.6 million and $1.2 million for the second quarter and first six months of 2013, respectively, as compared to the same periods in 2012. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Other revenues decreased by $13.6 million, or 56.6%, and $13.3 million, or 42.2%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. These decreases in other revenues relate to a transaction with a client in Australia which resulted in a one-time fee of $12.2 million recognized in the second quarter of 2012. The transaction did not have a significant impact on income before taxes because the amount was offset by additional amortization of deferred acquisition costs, net of the release of reserves. At June 30, 2013 and 2012, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, risk based capital and other financial reinsurance structures was $1.8 billion and $2.5 billion, respectively. The decrease was primarily due to several financial reinsurance agreements, which are performing as expected, where the amount of reinsurance assumed from the client decreases over time. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and, therefore, can fluctuate from period to period.
Loss ratios for this segment were 166.6% and 71.3% for the second quarter of 2013 and 2012, and 120.6% and 73.8% for the six months ended June 30, 2013 and 2012, respectively. The increase in the loss ratios is primarily due to a $274.1 million increase in Australian group claims liabilities as well as poor claims experience in the Australian operation’s individual lump sum and individual disability businesses. The increase in liabilities is reflected in the table above in claims and other policy benefits. Excluding the Australia operation, loss ratios for this segment were 76.5% and 78.1% for the three and six months ended June 30, 2013, respectively. Excluding Australia, loss ratios for this segment were in line with management’s expectations.
The largest portion of the Australian liability increase relates to group total and permanent disability coverage, and to a lesser extent, group disability income benefits. Even though these group contracts are typically only three years in duration, the increase in loss ratios to this extent, compared to pricing, has created the need for this significant increase in claims liabilities. The Company completed a comprehensive claims analysis in the second quarter of 2013 that indicated an increase in claim incidences as well as an increase in claim lags throughout the claim reporting process and the additional liabilities reflect potential additional deterioration in the projection of future claims development. The Company believes a number of factors in the current Australian market are leading to a significant rise in claim levels and reporting lags and the Company is working with the ceding companies to better manage this business. The Company has suspended all quoting activity in the Australian group total and permanent disability market indefinitely. Group premiums recognized in Australia for all group coverage types, including total and permanent disability, were $91.3 million and $186.3 million for the three and six months ended June 30, 2013, respectively, and $369.1 million for the year ended December 31, 2012.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 17.7% and 27.1% for the second quarter of 2013 and 2012, and 17.4% and 21.4% for the first six months ended June 30, 2013 and 2012, respectively. The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does fluctuate periodically due to timing of client company reporting and variations in the mixture of business. Additionally, the prior year figure was affected by the aforementioned transaction with an Australian client.
Other operating expenses increased $4.2 million, or 15.6%, and $6.4 million, or 11.7%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. Other operating expenses as a percentage of net premiums totaled 9.1% and 8.1% for the second quarter of 2013 and 2012 and 8.7% and 8.3% for the first six months ended June 30, 2013 and 2012, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.
 
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Corporate and Other
Corporate and Other revenues include investment income and investment related gains and losses from unallocated invested assets. Corporate and Other expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance expenses line item, unallocated overhead and executive costs, interest expense related to debt, and the investment income and expense associated with the Company’s collateral finance facility. Additionally, Corporate and Other includes results from, among others, RTP, a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry.

(dollars in thousands)	  	Three months ended June 30,	 	 	Six months ended June 30,	 	
 	  	2013	 	 	2012	 	 	2013	 	 	2012	 	
Revenues:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums	  	$	261	  	 	$	1,719	  	 	$	(716	) 	 	$	3,767	  	
Investment income, net of related expenses	  	 	21,818	  	 	 	20,345	  	 	 	49,834	  	 	 	36,618	  	
Investment related gains (losses), net:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other-than-temporary impairments on fixed maturity securities	  	 	(1,718	) 	 	 	(137	) 	 	 	(1,758	) 	 	 	(1,714	) 	
Other-than-temporary impairments on fixed maturity securities
transferred to (from) accumulated other comprehensive income	  	 	(53	) 	 	 	—	  	 	 	(53	) 	 	 	(1,314	) 	
Other investment related gains (losses), net	  	 	3,289	  	 	 	2,900	  	 	 	1,385	  	 	 	7,057	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investment related gains (losses), net	  	 	1,518	  	 	 	2,763	  	 	 	(426	) 	 	 	4,029	  	
Other revenues	  	 	251	  	 	 	2,790	  	 	 	50,707	  	 	 	8,386	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total revenues	  	 	23,848	  	 	 	27,617	  	 	 	99,399	  	 	 	52,800	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Benefits and expenses:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Claims and other policy benefits	  	 	(112	) 	 	 	(45	) 	 	 	(28	) 	 	 	12	  	
Interest credited	  	 	212	  	 	 	—	  	 	 	437	  	 	 	—	  	
Policy acquisition costs and other insurance expenses (income)	  	 	(19,073	) 	 	 	(13,342	) 	 	 	(34,416	) 	 	 	(27,212	) 	
Other operating expenses	  	 	16,483	  	 	 	17,940	  	 	 	39,837	  	 	 	36,365	  	
Interest expenses	  	 	29,918	  	 	 	23,360	  	 	 	58,404	  	 	 	46,682	  	
Collateral finance facility expense	  	 	2,650	  	 	 	2,878	  	 	 	5,188	  	 	 	5,845	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total benefits and expenses	  	 	30,078	  	 	 	30,791	  	 	 	69,422	  	 	 	61,692	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income (loss) before income taxes	  	$	(6,230	) 	 	$	(3,174	) 	 	$	29,977	  	 	$	(8,892	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income before income taxes decreased by $3.1 million, or 96.3%, and increased by $38.9 million, or 437.1%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease for the second quarter is primarily due to a $2.5 million decrease to other revenue and an increase in interest expense of $6.6 million partially offset by a decrease in policy acquisition costs and other insurance expenses of $5.7 million. The increase for the first six months is primarily due to a $42.3 million increase to other revenue partially offset by an increase in interest expense of $11.7 million.
Total revenues decreased by $3.8 million and increased by $46.6 million for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease for the second quarter is primarily due to a $2.5 million decrease to other revenue related to a decrease in foreign currency gain (loss). The increase for the first six months was largely due to a $46.5 million gain on repurchase of collateral finance facility securities in the first quarter of 2013. Additionally, there was a $13.2 million increase in investment income mainly due to a higher investment yield, primarily on limited partnership investments, in addition to growth in the invested asset base.
Total benefits and expenses decreased by $0.7 million, or 2.3%, and increased $7.7 million, or 12.5%, for the three and six months ended June 30, 2013, as compared to the same periods in 2012. The decrease in the second quarter was primarily due to a decrease of $5.7 million in policy acquisition costs and other insurance expenses primarily related to the offset to capital charges allocated to the operating segments and a reduction in other operating expenses of $1.5 million, largely offset by a $6.6 million increase in interest expense due to a higher level of outstanding debt. The increase in the first six months of 2013 was primarily due to an increase in interest expense of $11.7 million, as a result of a higher level of outstanding debt, and an increase in other operating expenses of $3.5 million primarily relating to employee compensation, partially offset by a $7.2 million decrease in policy acquisition and other insurance expenses primarily related to the offset to capital charges allocated to the operating segments.
 
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Liquidity and Capital Resources
Current Market Environment
The current interest rate environment in select markets, primarily the U.S., is negatively affecting the Company’s earnings. The average investment yield, excluding funds withheld and other spread business, has decreased 26 basis points for the six months ended June 30, 2013 as compared to the same period in 2012. In addition, the Company’s insurance liabilities, in particular its annuity products, are sensitive to changing market factors. Results of operations in the first six months of 2013 compared to the same period in 2012 include favorable changes in the value of embedded derivatives. The effect of tightening credit spreads in the U.S. markets generated an increase in revenue related to embedded derivatives to a greater extent in the first six months of 2013 than 2012. However, rising interest rates late in the second quarter of 2013 have reduced gross unrealized gains on fixed maturity and equity securities available-for-sale, which were $1,838.2 million and $2,487.0 million at June 30, 2013 and 2012, respectively. Gross unrealized losses totaled $310.7 million and $196.3 million at June 30, 2013 and 2012, respectively.
The Company continues to be in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer. As indicated above, gross unrealized gains on investment securities of $1,838.2 million are well in excess of gross unrealized losses of $310.7 million as of June 30, 2013. Historically low interest rates continued to put pressure on the Company’s investment yield. In January 2012, U.S. Federal Reserve officials indicated that economic conditions in the U.S. would likely warrant exceptionally low federal funds rate through 2014. The Company does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future.
The Company projects its reserves to be sufficient and it would not expect to write down deferred acquisition costs or be required to take any actions to augment capital, even if interest rates remain at current levels for the next five years, assuming all other factors remain constant. While the Company has felt the pressures of sustained low interest rates and volatile equity markets and may continue to do so, its business operations are not overly sensitive to these risks. Although management believes the Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.
The Holding Company
RGA is an insurance holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies, dividends paid to its shareholders, repurchase of common stock and interest payments on its indebtedness. RGA recognized interest expense of $77.4 million and $65.6 million for the six months ended June 30, 2013 and 2012, respectively. RGA made capital contributions to subsidiaries of $17.0 million and $0.8 million for the six months ended June 30, 2013 and 2012, respectively. Dividends to shareholders were $35.2 million and $26.5 million for the six months ended June 30, 2013 and 2012, respectively. There were no principal payments on RGA’s debt for the six months ended June 30, 2013 and 2012. The primary sources of RGA’s liquidity include proceeds from its capital raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with its subsidiaries and dividends from operating subsidiaries. RGA recognized interest and dividend income of $51.2 million and $40.8 million for the six months ended June 30, 2013 and 2012, respectively. There was no issuance of unaffiliated long-term debt for the six months ended June 30, 2013 and 2012. Net proceeds from affiliated long-term debt issuance were $120.0 million for the six months ended June 30, 2013. There was no issuance of unaffiliated long-term debt for the six months ended June 2012. As the Company continues its business operations, RGA will continue to be dependent upon these sources of liquidity. As of June 30, 2013 and December 31, 2012, RGA held $497.1 million and $722.3 million, respectively, of cash and cash equivalents, short-term and other investments and fixed maturity investments.
RGA, through wholly-owned subsidiaries, has committed to provide statutory reserve support to third-parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). The third-parties have recourse to RGA should the subsidiary fail to provide the required funding, however, as of June 30, 2013, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents information about these commitments (dollars in millions):

Commitment Period	 	  Maximum Potential Obligation  	
2033	 	$                                             350.0	
2035	 	560.0	
 
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RGA has established an intercompany revolving credit facility where certain subsidiaries can lend to or borrow from each other and from RGA in order to manage capital and liquidity more efficiently. The intercompany revolving credit facility, which is a series of demand loans among RGA and its affiliates, is permitted under applicable insurance laws. This facility reduces overall borrowing costs by allowing RGA and its operating companies to access internal cash resources instead of incurring third-party transaction costs. The statutory borrowing and lending limit for RGA’s Missouri-domiciled insurance subsidiaries is currently 3% of the insurance company’s admitted assets as of its most recent year-end. There was $138.0 million outstanding under the intercompany revolving credit facility as of June 30, 2013 and none as of December 31, 2012. In addition to loans associated with the intercompany revolving credit facility, RGA Capital LLC, a subsidiary of RGA, provided a loan to RGA Australian Holdings Pty Limited, another RGA subsidiary, with an outstanding balance of $27.4 million as of June 30, 2013.
The Company believes that it has sufficient liquidity for the next 12 months to fund its cash needs under various scenarios that include the potential risk of early recapture of reinsurance treaties and higher than expected death claims. Historically, the Company has generated positive net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, preferred securities or common equity and, if necessary, the sale of invested assets subject to market conditions.
In July 2013, the Company’s quarterly dividend was increased to $0.30 per share from $0.24 per share. All future payments of dividends are at the discretion of RGA’s board of directors and will depend on the Company’s earnings, capital requirements, insurance regulatory conditions, operating conditions, and other such factors as the board of directors may deem relevant. The amount of dividends that RGA can pay will depend in part on the operations of its reinsurance subsidiaries. See Note 13 - “Stock Transactions” in the Notes to Condensed Consolidated Financial Statements for information on the Company’s share repurchase program.
Cash Flows
The Company’s net cash flows provided by operating activities for the six months ended June 30, 2013 and 2012 were $805.1 million and $818.3 million, respectively. Cash flows from operating activities are affected by the timing of premiums received, claims paid, and working capital changes. The Company believes the short-term cash requirements of its business operations will be sufficiently met by the positive cash flows generated. Additionally, the Company believes it maintains a high quality fixed maturity portfolio that can be sold, if necessary, to meet the Company’s short- and long-term obligations.
Net cash used in investing activities for the six months ended June 30, 2013 and 2012 was $408.0 million and $784.8 million, respectively. Cash flows from investing activities primarily reflect the sales, maturities and purchases of fixed maturity securities related to the management of the Company’s investment portfolios and the investment of excess cash generated by operating and financing activities. Cash flows from investing activities also include the investment activity related to mortgage loans, policy loans, funds withheld at interest, short-term investments and other invested assets.
Net cash used in financing activities for the six months ended June 30, 2013 and 2012 was $637.2 million and $40.8 million, respectively. Cash flows from financing activities primarily reflects the Company’s capital management efforts, treasury stock activity, dividends to stockholders, changes in collateral for derivative positions and the activity related to universal life and other investment type policies and contracts.
Debt
Certain of the Company’s debt agreements contain financial covenant restrictions related to, among others, liens, the issuance and disposition of stock of restricted subsidiaries, minimum requirements of consolidated net worth, maximum ratios of debt to capitalization and change of control provisions. The Company is required to maintain a minimum consolidated net worth, as defined in the debt agreements, of $2.8 billion, calculated as of the last day of each fiscal quarter. Also, consolidated indebtedness, calculated as of the last day of each fiscal quarter, cannot exceed 35% of the sum of the Company’s consolidated indebtedness plus adjusted consolidated net worth. A material ongoing covenant default could require immediate payment of the amount due, including principal, under the various agreements. Additionally, the Company’s debt agreements contain cross-default covenants, which would make outstanding borrowings immediately payable in the event of a material uncured covenant default under any of the agreements, including, but not limited to, non-payment of indebtedness when due for an amount in excess of $100.0 million, bankruptcy proceedings, or any other event which results in the acceleration of the maturity of indebtedness. As of June 30, 2013 and December 31, 2012, the Company had $1,815.5 million and $1,815.3 million, respectively, in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements. The ability of the Company to make debt principal and interest payments depends on the earnings and surplus of subsidiaries, investment earnings on undeployed capital proceeds, and the Company’s ability to raise additional funds. Scheduled repayments of debt over the next five years total $300.0 million, all due in 2017.
 
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The Company enters into derivative agreements with counterparties that reference either the Company’s debt rating or its financial strength rating. If either rating is downgraded in the future, it could trigger certain terms in the Company’s derivative agreements, which could negatively affect overall liquidity. For the majority of the Company’s derivative agreements, there is a termination event should the long-term senior debt ratings drop below either BBB+ (S&P) or Baa1 (Moody’s) or the financial strength ratings drop below either A- (S&P) or A3 (Moody’s).
The Company may borrow up to $850.0 million in cash and obtain letters of credit in multiple currencies on its revolving credit facility that expires in December 2015. As of June 30, 2013, the Company had no cash borrowings outstanding and $94.2 million in issued, but undrawn, letters of credit under this facility. As of June 30, 2013 and December 31, 2012, the average interest rate on short-term and long-term debt outstanding was 5.64% and 5.99%, respectively.
Based on the historic cash flows and the current financial results of the Company, management believes RGA’s cash flows will be sufficient to enable RGA to meet its obligations for at least the next 12 months.
Collateral Finance Facilities
In 2006, RGA’s subsidiary, Timberlake Financial L.L.C. (“Timberlake Financial”), issued $850.0 million of Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance and retroceded to Timberlake Reinsurance Company II (“Timberlake Re”). Proceeds from the notes, along with a $112.8 million direct investment by the Company, were deposited into a series of accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. Interest on the notes accrues at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly. The payment of interest and principal on the notes is insured through a financial guaranty insurance policy by a monoline insurance company whose parent company emerged from Chapter 11 bankruptcy during the second quarter of 2013. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries.
Timberlake Financial relies primarily upon the receipt of interest and principal payments on a surplus note and dividend payments from its wholly-owned subsidiary, Timberlake Re, a South Carolina captive insurance company, to make payments of interest and principal on the notes. The ability of Timberlake Re to make interest and principal payments on the surplus note and dividend payments to Timberlake Financial is contingent upon the South Carolina Department of Insurance’s regulatory approval. As of June 30, 2013, Timberlake Re’s capital and surplus totaled $42.4 million. The increase in capital and surplus is primarily due to reserve decreases and favorable mortality during the second quarter of 2013. Timberlake Re’s capital and surplus is expected to remain above $35.0 million. Since Timberlake Re’s capital and surplus fell below the minimum requirement in its licensing order of $35.0 million, it has been required, since the second quarter of 2011, to request approval on a quarterly rather than annual basis and provide additional scenario testing results. Approval to pay interest on the surplus note was granted through September 30, 2013.
During the first quarter of 2013, the Company repurchased $160.0 million face amount of the Timberlake Financial notes for $112.0 million, which was the market value at the date of the purchase. The notes were purchased by RGA Reinsurance. As a result, the Company recorded a pre-tax gain of $46.5 million, after fees, in other revenues at that time.
In 2010, Manor Re obtained $300.0 million of collateral financing through 2020 from an international bank which enabled Manor Re to deposit assets in trust to support statutory reserve credit for an affiliated reinsurance transaction. The bank has recourse to RGA should Manor Re fail to make payments or otherwise not perform its obligations under this financing. Interest on the collateral financing accrues at an annual rate of 3-month LIBOR plus a base rate margin, payable quarterly.
Asset / Liability Management
The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.
The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives and limits for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.
 
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The Company’s asset-intensive products are primarily supported by investments in fixed maturity securities reflected on the Company’s balance sheet and under funds withheld arrangements with the ceding company. Investment guidelines are established to structure the investment portfolio based upon the type, duration and behavior of products in the liability portfolio so as to achieve targeted levels of profitability. The Company manages the asset-intensive business to provide a targeted spread between the interest rate earned on investments and the interest rate credited to the underlying interest-sensitive contract liabilities. The Company periodically reviews models projecting different interest rate scenarios and their effect on profitability. Certain of these asset-intensive agreements, primarily in the U.S. operating segment, are generally funded by fixed maturity securities that are withheld by the ceding company.
The Company’s liquidity position (cash and cash equivalents and short-term investments) was $1,012.2 million and $1,548.0 million at June 30, 2013 and December 31, 2012, respectively. Cash and cash equivalents includes cash collateral received from derivative counterparties of $89.8 million and $136.4 million as of June 30, 2013 and December 31, 2012, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is included in other liabilities in the Company’s condensed consolidated balance sheets. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.
The Company also participates in a repurchase/reverse repurchase program in which securities, reflected as investments on the Company’s condensed consolidated balance sheets, are pledged to a third party. In return, the Company receives securities from the third party with an estimated fair value equal to a minimum of 100% of the securities pledged. The securities received are not reflected on the Company’s condensed consolidated balance sheets. As of June 30, 2013 the Company had pledged securities with an amortized cost of $292.1 million and an estimated fair value of $307.7 million, and in return the Company received securities with an estimated fair value of $338.0 million. As of December 31, 2012 the Company had pledged securities with an amortized cost of $290.2 million and an estimated fair value of $305.9 million, and in return the Company received securities with an estimated fair value of $342.0 million. In addition to its security agreements with third parties, certain RGA’s subsidiaries have entered into intercompany securities lending agreements to more efficiently source securities for lending to third parties and to provide for more efficient regulatory capital management.
RGA Reinsurance is a member of the Federal Home Loan Bank of Des Moines (“FHLB”) and holds $37.6 million of FHLB common stock, which is included in other invested assets on the Company’s condensed consolidated balance sheets. Membership provides RGA Reinsurance access to borrowing arrangements with the FHLB (“advances”) and funding agreements, discussed below. RGA Reinsurance had $120.0 million outstanding in advances at June 30, 2013, which is included in short-term debt on the Company’s condensed consolidated balance sheets. RGA Reinsurance did not have advances at December 31, 2012. RGA Reinsurance’s average outstanding balance of advances was $17.0 million and $8.5 million during the second quarter and first six months of 2013, respectively. RGA Reinsurance did not have advances during the first six months of 2012. Interest on advances is reflected in interest expense on the Company’s condensed consolidated statements of income.
In addition, RGA Reinsurance has also entered into funding agreements with the FHLB under guaranteed investment contracts whereby RGA Reinsurance has issued the funding agreements in exchange for cash and for which the FHLB has been granted a blanket lien on RGA Reinsurance’s commercial and residential mortgage-backed securities and commercial mortgage loans used to collateralize RGA Reinsurance’s obligations under the funding agreements. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreements and the related security agreements represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB’s recovery is limited to the amount of RGA Reinsurance’s liability under the outstanding funding agreements. The amount of the RGA Reinsurance’s liability for the funding agreements with the FHLB under guaranteed investment contracts was $500.0 million at both June 30, 2013 and December 31, 2012, which is included in interest sensitive contract liabilities on the Company’s condensed consolidated balance sheets. The advances on these agreements are collateralized primarily by commercial and residential mortgage-backed securities and commercial mortgage loans. The amount of collateral exceeds the liability and is dependent on the type of assets collateralizing the guaranteed investment contracts.
 
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Investments
Management of Investments
The Company’s investment and derivative strategies involve matching the characteristics of its reinsurance products and other obligations and to seek to closely approximate the interest rate sensitivity of the assets with estimated interest rate sensitivity of the reinsurance liabilities. The Company achieves its income objectives through strategic and tactical asset allocations, security and derivative strategies within an asset/liability management and disciplined risk management framework. Derivative strategies are employed within the Company’s risk management framework to help manage duration, currency, and other risks in assets and/or liabilities and to replicate the credit characteristics of certain assets. For a discussion of the Company’s risk management process see “Market Risk” in the “Enterprise Risk Management” section below.
The Company’s portfolio management groups work with the Enterprise Risk Management function to develop the investment policies for the assets of the Company’s domestic and international investment portfolios. All investments held by the Company, directly or in a funds withheld at interest reinsurance arrangement, are monitored for conformance with the Company’s stated investment policy limits as well as any limits prescribed by the applicable jurisdiction’s insurance laws and regulations. See Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for additional information regarding the Company’s investments.
Portfolio Composition
The Company had total cash and invested assets of $32.7 billion and $34.2 billion at June 30, 2013 and December 31, 2012, respectively, as illustrated below (dollars in thousands):

 	  	June 30, 2013	 	  	% of Total	 	  	December 31, 2012	 	  	% of Total	 	
Fixed maturity securities, available-for-sale	  	$	21,284,216	  	  	 	65.0%	  	  	$	22,291,614	  	  	 	65.2%	  	
Mortgage loans on real estate	  	 	2,377,246	  	  	 	7.3%	  	  	 	2,300,587	  	  	 	6.7%	  	
Policy loans	  	 	1,245,252	  	  	 	3.8%	  	  	 	1,278,175	  	  	 	3.7%	  	
Funds withheld at interest	  	 	5,777,395	  	  	 	17.6%	  	  	 	5,594,182	  	  	 	16.4%	  	
Short-term investments	  	 	38,601	  	  	 	0.1%	  	  	 	288,082	  	  	 	0.9%	  	
Other invested assets	  	 	1,035,809	  	  	 	3.2%	  	  	 	1,159,543	  	  	 	3.4%	  	
Cash and cash equivalents	  	 	973,619	  	  	 	3.0%	  	  	 	1,259,892	  	  	 	3.7%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total cash and invested assets	  	$	32,732,138	  	  	 	100.0%	  	  	$	34,172,075	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Investment Yield
The following table presents consolidated average invested assets at amortized cost, net investment income and investment yield, excluding funds withheld at interest and spread related business. Funds withheld at interest assets and other spread related business are primarily associated with the reinsurance of annuity contracts on which the Company earns an interest rate spread between assets and liabilities. Fluctuations in the yield on funds withheld assets and other spread related business are generally subject to varying degrees, by corresponding adjustments to the interest credited on the liabilities (dollars in thousands).

 	  	Three months ended June 30,	 	  	Six months ended June 30,	 	
 	  	2013	 	  	2012	 	  	Increase/
(Decrease)	 	  	2013	 	  	2012	 	  	Increase/
(Decrease)	 	
Average invested assets at amortized cost	  	$	18,112,841    	  	  	$	16,539,380    	  	  	 	9.5%	  	  	$	17,946,154    	  	  	$	16,339,042    	  	  	 	9.8%	  	
Net investment income	  	 	212,047    	  	  	 	205,471    	  	  	 	3.2%	  	  	 	425,369    	  	  	 	408,074    	  	  	 	4.2%	  	
Investment yield (ratio of net investment income to average invested assets)	  	 	4.77%	  	  	 	5.06%	  	  	 	(29) bps	  	  	 	4.80%	  	  	 	5.06%	  	  	 	(26) bps	  	
Although interest rates rose during the second quarter of 2013, especially in the month of June, the low U.S. interest rate environment compared to historical rates continues to negatively affect the Company’s earnings through reinvestment of maturing assets and investment of new liability cash flows. Investment yield decreased for the three and six months ended June 30, 2013 in comparison to the same periods in the prior year due primarily to slightly lower yields on investments within several asset classes, including fixed maturity securities, mortgage loans and policy loans. The lower yields are due primarily to a lower interest rate environment on a historical basis which decreases the yield on new investment purchases.
 
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Fixed Maturity and Equity Securities Available-for-Sale
See “Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that provide the amortized cost, unrealized gains and losses, estimated fair value of fixed maturity and equity securities, and other-than-temporary impairments in AOCI by sector as of June 30, 2013 and December 31, 2012.
The Company’s fixed maturity securities are invested primarily in corporate bonds, mortgage- and asset-backed securities, and U.S. and Canadian government securities. As of June 30, 2013 and December 31, 2012, approximately 93.2% and 94.2%, respectively, of the Company’s consolidated investment portfolio of fixed maturity securities were investment grade.
Important factors in the selection of investments include diversification, quality, yield, total rate of return potential and call protection. The relative importance of these factors is determined by market conditions and the underlying product or portfolio characteristics. Cash equivalents are primarily invested in high-grade money market instruments. The largest asset class in which fixed maturity securities were invested was corporate securities, which represented approximately 55.4% and 55.5% of total fixed maturity securities as of June 30, 2013 and December 31, 2012. See “Corporate Fixed Maturity Securities” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the major industry types, which comprise the corporate fixed maturity holdings at June 30, 2013 and December 31, 2012.
As of June 30, 2013, the Company’s investments in Canadian and Canadian provincial government securities represented 16.6% of the fair value of total fixed maturity securities compared to 18.2% of the fair value of total fixed maturity securities at December 31, 2012. These assets are primarily high quality, long duration provincial strips whose valuation is closely
linked to the interest rate curve. The Company’s holdings in Canadian securities were one of the largest contributors to the decrease in net unrealized gain reported in the accumulated other comprehensive income reflected in the Company’s condensed consolidated balance sheets. These assets are longer in duration and held primarily for asset/liability management to meet Canadian regulatory requirements. See “Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables showing the various sectors as of June 30, 2013 and December 31, 2012.
The creditworthiness of Greece, Ireland, Italy, Portugal and Spain, commonly referred to as “Europe’s peripheral region,” and Cyprus is under ongoing stress and uncertainty due to high debt levels and economic weakness. The Company did not have material exposure to sovereign fixed maturity securities, which includes global government agencies, from Europe’s peripheral region and Cyprus, as of June 30, 2013 and December 31, 2012. In addition, the Company did not purchase or sell credit protection, through credit default swaps, referenced to sovereign entities of Europe’s peripheral region and Cyprus.
 
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The tables below show the Company’s exposure to fixed maturity securities and equity securities, based on the security’s country of issuance, from Europe’s peripheral region and Cyprus as of June 30, 2013 and December 31, 2012 (dollars in thousands):

June 30, 2013:	  	 	 	  	Estimated	 	  	 	 	
 	  	Amortized Cost	 	  	Fair Value	 	  	% of Total	 	
Sovereign:	  	 	 	 	  	 	 	 	  	 	 	 	
Ireland	  	$	5,000	  	  	$	4,627	  	  	 	3.4%	  	
Spain	  	 	4,985	  	  	 	4,955	  	  	 	3.6   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total sovereign	  	 	9,985	  	  	 	9,582	  	  	 	7.0   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Financial institutions:	  	 	 	 	  	 	 	 	  	 	 	 	
Ireland	  	 	6,925	  	  	 	7,183	  	  	 	5.2   	  	
Italy	  	 	13,566	  	  	 	13,264	  	  	 	9.7   	  	
Spain	  	 	30,983	  	  	 	33,937	  	  	 	24.7   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total financial institutions	  	 	51,474	  	  	 	54,384	  	  	 	39.6   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Other:	  	 	 	 	  	 	 	 	  	 	 	 	
Ireland	  	 	39,556	  	  	 	40,386	  	  	 	29.4   	  	
Italy	  	 	6,394	  	  	 	6,821	  	  	 	5.0   	  	
Spain	  	 	24,523	  	  	 	26,191	  	  	 	19.0   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total other	  	 	70,473	  	  	 	73,398	  	  	 	53.4   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	131,932	  	  	$	137,364	  	  	 	100.0%	  	

December 31, 2012:	  	 	 	  	Estimated	 	  	 	 	
 	  	Amortized Cost	 	  	Fair Value	 	  	% of Total	 	
Financial institutions:	  	 	 	 	  	 	 	 	  	 	 	 	
Ireland	  	$	4,093	  	  	$	4,520	  	  	 	3.8%	  	
Spain	  	 	38,422	  	  	 	39,920	  	  	 	33.7   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total financial institutions	  	 	42,515	  	  	 	44,440	  	  	 	37.5   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Other:	  	 	 	 	  	 	 	 	  	 	 	 	
Ireland	  	 	38,852	  	  	 	41,019	  	  	 	34.6   	  	
Italy	  	 	6,434	  	  	 	6,653	  	  	 	5.6   	  	
Spain	  	 	24,725	  	  	 	26,547	  	  	 	22.3   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total other	  	 	70,011	  	  	 	74,219	  	  	 	62.5   	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	112,526	  	  	$	118,659	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Strong improvement in European financial markets, as the governments of the European Union have demonstrated willingness to negotiate a solution to the region’s debt problems during 2013, has resulted in unrealized gains in both financial institutions and all other fixed maturity and equity securities held by the Company that were issued within the region with the exception of the Company’s sovereign exposure to Ireland and Spain and the Company’s exposure to Italy’s financial institutions which had fair values slightly below amortized cost.
 
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The tables below show the Company’s exposure to sovereign fixed maturity securities originated in countries other than Europe’s peripheral region, included in “Other foreign government, supranational and foreign government-sponsored enterprises,” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements, as of June 30, 2013 and December 31, 2012 (dollars in thousands):

June 30, 2013:	  	 	 	  	Estimated	 	  	 	 	
 	  	Amortized Cost	 	  	Fair Value	 	  	% of Total	 	
Australia	  	$	440,212	  	  	$	445,431	  	  	 	29.7%	  	
Japan	  	 	287,929	  	  	 	290,708	  	  	 	19.3    	  	
United Kingdom	  	 	157,304	  	  	 	160,204	  	  	 	10.6    	  	
South Africa	  	 	78,289	  	  	 	75,994	  	  	 	5.0    	  	
Cayman Islands	  	 	53,362	  	  	 	55,993	  	  	 	3.7    	  	
France	  	 	51,504	  	  	 	53,384	  	  	 	3.5    	  	
South Korea	  	 	50,623	  	  	 	51,639	  	  	 	3.4    	  	
Germany	  	 	47,726	  	  	 	49,764	  	  	 	3.3    	  	
United Arab Emirates	  	 	37,294	  	  	 	40,255	  	  	 	2.7    	  	
Other	  	 	278,916	  	  	 	282,651	  	  	 	18.8    	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	1,483,159	  	  	$	1,506,023	  	  	 	100.0%	  	

December 31, 2012:	  	 	 	  	Estimated	 	  	 	 	
 	  	Amortized Cost	 	  	Fair Value	 	  	% of Total	 	
Australia	  	$	472,188	  	  	$	483,629	  	  	 	30.9%	  	
Japan	  	 	291,955	  	  	 	297,025	  	  	 	19.0    	  	
United Kingdom	  	 	130,792	  	  	 	139,826	  	  	 	8.9    	  	
Cayman Islands	  	 	69,172	  	  	 	77,912	  	  	 	5.0    	  	
South Africa	  	 	63,721	  	  	 	66,372	  	  	 	4.2    	  	
South Korea	  	 	52,613	  	  	 	55,563	  	  	 	3.5    	  	
Germany	  	 	51,413	  	  	 	54,602	  	  	 	3.5    	  	
New Zealand	  	 	53,593	  	  	 	54,092	  	  	 	3.5    	  	
France	  	 	45,342	  	  	 	48,761	  	  	 	3.1    	  	
Other	  	 	258,578	  	  	 	287,421	  	  	 	18.4    	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	    1,489,367	  	  	$	    1,565,203	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
As of June 30, 2013, the Company’s investment in sovereign fixed maturity securities represented 7.1% of the fair value of total fixed maturity securities compared to 7.0% of the fair value of total fixed maturity securities at December 31, 2012. The Company typically invests in sovereign fixed maturity securities to help mitigate exposure to foreign currency fluctuations from liabilities denominated in the same currencies.
The Company references rating agency designations in some of its investment disclosures. These designations are based on the ratings from nationally recognized rating organizations, primarily those assigned by S&P. In instances where a S&P rating is not available, the Company will reference the rating provided by Moody’s and in the absence of both the Company will assign equivalent ratings based on information from the NAIC. The NAIC assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their statutory filings. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).
 
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The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at June 30, 2013 and December 31, 2012 was as follows (dollars in thousands):

 	  	 	  	June 30, 2013	 	  	December 31, 2012	 	
NAIC
Designation	  	Rating Agency
Designation	  	Amortized
Cost	 	  	Estimated Fair
Value	 	  	% of Total	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	% of Total	 	
1	  	AAA/AA/A	  	$	12,307,880	  	  	$	13,643,772	  	  	 	64.1%	  	  	$	12,059,154	  	  	$	14,300,571	  	  	 	64.2%	  	
2	  	BBB	  	 	5,997,232	  	  	 	6,189,030	  	  	 	29.1%	  	  	 	6,186,536	  	  	 	6,692,929	  	  	 	30.0%	  	
3	  	BB	  	 	723,316	  	  	 	728,014	  	  	 	3.4%	  	  	 	694,349	  	  	 	712,712	  	  	 	3.2%	  	
4	  	B	  	 	519,789	  	  	 	530,990	  	  	 	2.5%	  	  	 	444,996	  	  	 	444,035	  	  	 	2.0%	  	
5	  	CCC and lower	  	 	90,970	  	  	 	84,157	  	  	 	0.4%	  	  	 	118,738	  	  	 	95,906	  	  	 	0.4%	  	
6	  	In or near default	  	 	118,134	  	  	 	108,253	  	  	 	0.5%	  	  	 	55,659	  	  	 	45,461	  	  	 	0.2%	  	
 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	    Total	  	$	    19,757,321	  	  	$	    21,284,216	  	  	 	100.0%	  	  	$	    19,559,432	  	  	$	    22,291,614	  	  	 	100.0%	  	
 	  	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at June 30, 2013 and December 31, 2012 (dollars in thousands):

 	  	June 30, 2013	 	  	December 31, 2012	 	
 	  	Amortized Cost	 	  	Estimated
Fair Value	 	  	Amortized Cost	 	  	Estimated
Fair Value	 	
Residential mortgage-backed securities:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Agency	  	$	546,603	  	  	$	579,317	  	  	$	497,918	  	  	$	555,535	  	
Non-agency	  	 	468,552	  	  	 	475,651	  	  	 	471,349	  	  	 	486,529	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total residential mortgage-backed securities	  	 	1,015,155	  	  	 	1,054,968	  	  	 	969,267	  	  	 	1,042,064	  	
Commercial mortgage-backed securities	  	 	1,564,924	  	  	 	1,638,632	  	  	 	1,608,376	  	  	 	1,698,903	  	
Asset-backed securities	  	 	789,849	  	  	 	790,310	  	  	 	700,455	  	  	 	691,555	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	    3,369,928	  	  	$	    3,483,910	  	  	$	    3,278,098	  	  	$	    3,432,522	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
The residential mortgage-backed securities include agency-issued pass-through securities and collateralized mortgage obligations. A majority of the agency-issued pass-through securities are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. The weighted average credit rating of residential mortgage-backed securities was “A+” as of both June 30, 2013 and December 31, 2012. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments. In addition, non-agency mortgage-backed securities face credit risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.
As of June 30, 2013 and December 31, 2012, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling $1,945.9 million and $1,969.4 million, and estimated fair values of $2,045.1 million and $2,090.0 million, respectively. Those amounts include exposure to commercial mortgage-backed securities held directly in the Company’s investment portfolios within fixed maturity securities, as well as securities held by ceding companies that support the Company’s funds withheld at interest investment. The securities are generally highly rated with weighted average S&P credit ratings of approximately “A+” at both June 30, 2013 and December 31, 2012. Approximately 29.6% and 30.3%, based on estimated fair value, were classified in the “AAA” category at June 30, 2013 and December 31, 2012, respectively. The Company recorded $10.1 million of other-than-temporary impairments in its direct investments in commercial mortgage-backed securities for the first six months ended June 30, 2013. The Company recorded $12.1 million of other-than-temporary impairments in its direct investments in commercial mortgage-backed securities for the first six months ended June 30, 2012. The following tables summarize the commercial mortgage-backed securities by rating and underwriting year at June 30, 2013 and December 31, 2012 (dollars in thousands):
 
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June 30, 2013:	  	AAA	 	  	AA	 	  	A	 	
Underwriting Year	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	
2006 & Prior	  	$	294,583	  	  	$	317,295	  	  	$	175,038	  	  	$	188,762	  	  	$	181,070	  	  	$	190,519	  	
2007	  	 	161,197	  	  	 	173,999	  	  	 	32,862	  	  	 	36,525	  	  	 	67,277	  	  	 	73,370	  	
2008	  	 	—	  	  	 	—	  	  	 	53,660	  	  	 	64,675	  	  	 	18,061	  	  	 	20,058	  	
2009	  	 	1,653	  	  	 	1,784	  	  	 	7,139	  	  	 	7,832	  	  	 	3,490	  	  	 	5,455	  	
2010	  	 	27,995	  	  	 	29,350	  	  	 	47,168	  	  	 	50,095	  	  	 	19,146	  	  	 	20,535	  	
2011	  	 	15,745	  	  	 	15,902	  	  	 	18,182	  	  	 	19,996	  	  	 	40,444	  	  	 	40,898	  	
2012	  	 	32,265	  	  	 	31,054	  	  	 	34,672	  	  	 	34,662	  	  	 	58,193	  	  	 	56,413	  	
2013	  	 	36,744	  	  	 	35,712	  	  	 	10,427	  	  	 	9,906	  	  	 	2,486	  	  	 	2,438	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	570,182	  	  	$	605,096	  	  	$	379,148	  	  	$	412,453	  	  	$	390,167	  	  	$	409,686	  	

 	  	BBB	 	  	Below Investment Grade	 	  	Total	 	
Underwriting Year	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	
2006 & Prior	  	$	202,213	  	  	$	207,205	  	  	$	99,391	  	  	$	100,075	  	  	$	952,295	  	  	$	1,003,856	  	
2007	  	 	93,813	  	  	 	106,225	  	  	 	108,771	  	  	 	104,126	  	  	 	463,920	  	  	 	494,245	  	
2008	  	 	—	  	  	 	—	  	  	 	21,729	  	  	 	22,561	  	  	 	93,450	  	  	 	107,294	  	
2009	  	 	4,002	  	  	 	5,332	  	  	 	—	  	  	 	—	  	  	 	16,284	  	  	 	20,403	  	
2010	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	94,309	  	  	 	99,980	  	
2011	  	 	33,146	  	  	 	31,483	  	  	 	—	  	  	 	—	  	  	 	107,517	  	  	 	108,279	  	
2012	  	 	43,379	  	  	 	40,852	  	  	 	—	  	  	 	—	  	  	 	168,509	  	  	 	162,981	  	
2013	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	49,657	  	  	 	48,056	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	376,553	  	  	$	391,097	  	  	$	229,891	  	  	$	226,762	  	  	$	1,945,941	  	  	$	2,045,094	  	

December 31, 2012:	  	AAA	 	  	AA	 	  	A	 	
Underwriting Year	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	
2005 & Prior	  	$	69,810	  	  	$	75,706	  	  	$	129,430	  	  	$	141,189	  	  	$	99,840	  	  	$	103,112	  	
2006	  	 	243,222	  	  	 	270,756	  	  	 	59,773	  	  	 	66,862	  	  	 	85,198	  	  	 	93,688	  	
2007	  	 	182,456	  	  	 	201,131	  	  	 	32,810	  	  	 	37,542	  	  	 	69,266	  	  	 	77,657	  	
2008	  	 	7,674	  	  	 	7,672	  	  	 	53,510	  	  	 	67,624	  	  	 	14,387	  	  	 	17,098	  	
2009	  	 	1,655	  	  	 	1,820	  	  	 	17,399	  	  	 	19,483	  	  	 	3,463	  	  	 	5,599	  	
2010	  	 	27,984	  	  	 	29,956	  	  	 	47,085	  	  	 	53,027	  	  	 	13,273	  	  	 	14,405	  	
2011	  	 	15,748	  	  	 	16,411	  	  	 	16,069	  	  	 	18,184	  	  	 	40,546	  	  	 	42,726	  	
2012	  	 	28,324	  	  	 	29,080	  	  	 	36,340	  	  	 	36,925	  	  	 	58,376	  	  	 	59,595	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	576,873	  	  	$	632,532	  	  	$	392,416	  	  	$	440,836	  	  	$	384,349	  	  	$	413,880	  	

 	  	BBB	 	  	Below Investment Grade	 	  	Total	 	
Underwriting Year	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	  	Amortized
Cost	 	  	Estimated
Fair Value	 	
2005 & Prior	  	$	110,887	  	  	$	113,801	  	  	$	42,838	  	  	$	37,720	  	  	$	452,805	  	  	$	471,528	  	
2006	  	 	83,565	  	  	 	84,689	  	  	 	67,131	  	  	 	65,645	  	  	 	538,889	  	  	 	581,640	  	
2007	  	 	93,414	  	  	 	108,902	  	  	 	115,028	  	  	 	91,505	  	  	 	492,974	  	  	 	516,737	  	
2008	  	 	—	  	  	 	—	  	  	 	22,416	  	  	 	17,386	  	  	 	97,987	  	  	 	109,780	  	
2009	  	 	3,880	  	  	 	5,547	  	  	 	—	  	  	 	—	  	  	 	26,397	  	  	 	32,449	  	
2010	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	88,342	  	  	 	97,388	  	
2011	  	 	33,242	  	  	 	33,757	  	  	 	—	  	  	 	—	  	  	 	105,605	  	  	 	111,078	  	
2012	  	 	43,346	  	  	 	43,811	  	  	 	—	  	  	 	—	  	  	 	166,386	  	  	 	169,411	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	    368,334	  	  	$	    390,507	  	  	$	    247,413	  	  	$	    212,256	  	  	$	    1,969,385	  	  	$	    2,090,011	  	

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Asset-backed securities include credit card and automobile receivables, sub-prime mortgage-backed securities, home equity loans, manufactured housing bonds and collateralized debt obligations. The Company’s asset-backed securities are diversified by issuer and contain both floating and fixed rate securities and had a weighted average credit rating of “A+” and “AA-” at June 30, 2013 and December 31, 2012, respectively. The Company owns floating rate securities that represent approximately 15.8% and 15.0% of the total fixed maturity securities at June 30, 2013 and December 31, 2012, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the consolidated balance sheets as collateral finance facility. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ cash flow priority in the capital structure and the inherent prepayment sensitivity of the underlying collateral. Credit risks include the adequacy and ability to realize proceeds from the collateral. Credit risks are mitigated by credit enhancements which include excess spread, over-collateralization and subordination. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.
Since the financial crisis of 2008, the Company has continued to monitor its exposure in other structured security investments that includes subprime mortgage securities as well as Alt-A securities, a classification of mortgage loans where the risk profile of the borrower falls between prime and subprime. At June 30, 2013 and December 31, 2012, the Company directly held investments in asset-backed securities with subprime mortgage exposure and also within the portfolios supporting the Company’s funds withheld at interest with amortized costs totaling $117.2 million and $122.6 million, and estimated fair values of $111.4 million and $103.0 million, respectively. While ratings and vintage year are important factors to consider, the tranche seniority and evaluation of forecasted future losses within a tranche is critical to the valuation of these types of securities. At June 30, 2013 and December 31, 2012, the Company’s Alt-A securities had an amortized cost of $190.9 million and $169.0 million, and estimated fair values of $196.2 million and $174.4 million, respectively. The Alt-A securities are held directly as well as within the portfolios supporting the Company’s funds withheld at interest. The Company did not record any other-than-temporary impairments in its direct subprime or Alt-A portfolios during the first six months of 2013. During the first six months of 2012, the Company recorded $0.3 million in other-than-temporary impairments in its direct subprime or Alt-A portfolios.
The Company does not invest in the common equity securities of Fannie Mae and Freddie Mac, both of which are government sponsored entities. However, as of June 30, 2013 and December 31, 2012, the Company held in its direct portfolio $46.5 million and $64.7 million, respectively, at amortized cost with direct exposure in the form of senior unsecured agency and preferred securities. Additionally, as of June 30, 2013 and December 31, 2012, the portfolios held by the Company’s ceding companies that support its funds withheld asset contain approximately $317.4 million and $307.2 million, respectively, in amortized cost of unsecured agency bond holdings and no equity exposure. As of June 30, 2013 and December 31, 2012, indirect exposure in the form of secured, structured mortgaged securities issued by Fannie Mae and Freddie Mac totaled approximately $733.6 million and $700.9 million, respectively, in amortized cost across the Company’s direct and funds withheld portfolios.
The Company monitors its fixed maturity and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, current intent and ability to hold securities, and various other subjective factors. See “Investments – Other-than-Temporary Impairment” in Note 2 – “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the 2012 Annual Report for additional information. The Company recorded $10.1 million and $10.3 million in other-than-temporary impairments in its fixed maturity securities, including $10.1 million of other-than-temporary impairment losses on structured securities in the second quarter and first six months of 2013. The Company recorded $4.0 million and $19.7 million in other-than-temporary impairments in its fixed maturity and equity securities, including $0.2 million and $13.0 million of other-than-temporary impairment losses on structured securities, in the second quarter and first six months of 2012, primarily due to a decline in value of structured securities with exposure to mortgages and general credit deterioration in select corporate and foreign securities. The table below summarizes other-than-temporary impairments for the three and six months ended June 30, 2013 and 2012 (dollars in thousands).

 	  	Three Months Ended	 	 	Six Months Ended	 	
      Asset Class	  	June 30, 2013	 	 	June 30, 2012	 	 	June 30, 2013	 	  	June 30, 2012	 	
Structured securities	  	$	10,109	  	 	$	220	  	 	$	10,109	  	  	$	13,010	  	
Corporate / Other fixed maturity securities	  	 	—	  	 	 	1,577	  	 	 	202	  	  	 	3,615	  	
Equity securities	  	 	—	  	 	 	2,186	  	 	 	—	  	  	 	3,025	  	
Other impairments (primarily mortgage loans and limited partnerships)	  	 	(125	) 	 	 	(1,762	) 	 	 	1,501	  	  	 	4,081	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	9,984	  	 	$	2,221	  	 	$	11,812	  	  	$	23,731	  	

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At June 30, 2013 and December 31, 2012, the Company had $310.7 million and $133.6 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. The distribution of the gross unrealized losses related to these securities is shown below.

 	  	June 30, 2013	 	  	December 31, 2012	 	
Sector:	  	 	 	 	  	 	 	 	
Corporate securities	  	 	63.6%	  	  	 	30.4%	  	
Canadian and Canada provincial governments	  	 	2.9    	  	  	 	0.1    	  	
Residential mortgage-backed securities	  	 	4.4    	  	  	 	2.8    	  	
Asset-backed securities	  	 	6.0    	  	  	 	21.6    	  	
Commercial mortgage-backed securities	  	 	11.8    	  	  	 	38.8    	  	
State and political subdivisions	  	 	3.8    	  	  	 	4.3    	  	
U.S. government and agencies	  	 	0.8    	  	  	 	—    	  	
Other foreign government supranational and
foreign government-sponsored enterprises	  	 	6.7    	  	  	 	2.0    	  	
 	  	 	 	 	  	 	 	 	
Total	  	 	100.0%	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	
Industry:	  	 	 	 	  	 	 	 	
Finance	  	 	21.3%	  	  	 	18.0%	  	
Asset-backed	  	 	6.0    	  	  	 	21.6    	  	
Industrial	  	 	33.5    	  	  	 	9.0    	  	
Mortgage-backed	  	 	16.2    	  	  	 	41.6    	  	
Government	  	 	14.2    	  	  	 	6.4    	  	
Utility	  	 	8.8    	  	  	 	3.4    	  	
 	  	 	 	 	  	 	 	 	
Total	  	 	100.0%	  	  	 	100.0%	  	
 	  	 	 	 	  	 	 	 	
See “Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the total gross unrealized losses for fixed maturity and equity securities at June 30, 2013 and December 31, 2012, respectively, where the estimated fair value had declined and remained below amortized cost by less than 20% or more than 20%.
The Company’s determination of whether a decline in value is other-than-temporary includes analysis of the underlying credit and the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as a potential indicator of credit deterioration. The Company believes that due to fluctuating market conditions and an extended period of economic uncertainty, the extent and duration of a decline in value have become less indicative of when there has been credit deterioration with respect to a fixed maturity security since it may not have an impact on the ability of the issuer to service all scheduled payments and the Company’s evaluation of the recoverability of all contractual cash flows or the ability to recover an amount at least equal to amortized cost. In the Company’s impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration given the lack of contractual cash flows and deferability features of these securities.
See “Unrealized Losses for Fixed Maturity and Equity Securities Available-for-Sale” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for tables that present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for fixed maturity and equity securities that have estimated fair values below amortized cost as of June 30, 2013 and December 31, 2012.
As of June 30, 2013 and December 31, 2012, respectively, the Company classified approximately 11.0% and 10.0% of its fixed maturity securities in the Level 3 category (refer to Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities, below investment grade commercial and residential mortgage-backed securities and sub-prime asset-backed securities with inactive trading markets.
 
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Mortgage Loans on Real Estate
Mortgage loans represented approximately 7.3% and 6.7% of the Company’s cash and invested assets as of June 30, 2013 and December 31, 2012, respectively. The Company’s mortgage loan portfolio consists principally of investments in U.S.-based commercial offices, light industrial properties and retail locations. The mortgage loan portfolio is diversified by geographic region and property type as discussed further in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements.
Valuation allowances on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses.
See “Mortgage Loans on Real Estate” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for information regarding for information regarding valuation allowances and impairments.
Policy Loans
Policy loans comprised approximately 3.8% and 3.7% of the Company’s cash and invested assets as of both June 30, 2013 and December 31, 2012, respectively, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. Because policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.
Funds Withheld at Interest
Funds withheld at interest comprised approximately 17.6% and 16.4% of the Company’s cash and invested assets as of June 30, 2013 and December 31, 2012, respectively. For reinsurance agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company’s consolidated balance sheets. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed by the ceding company. Interest accrues to these assets at rates defined by the treaty terms. Additionally, under certain treaties the Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. To mitigate the risk, the Company helps set the investment guidelines followed by the ceding company and monitors compliance. Ceding companies with funds withheld at interest had an average rating of “A” at June 30, 2013 and December 31, 2012. Certain ceding companies maintain segregated portfolios for the benefit of the Company.
Other Invested Assets
Other invested assets include equity securities, collateral, limited partnership interests, real estate joint ventures, real estate held-for-investment, structured loans and derivative contracts. Other invested assets represented approximately 3.2% and 3.4% of the Company’s cash and invested assets as of June 30, 2013 and December 31, 2012, respectively. See “Other Invested Assets” in Note 4 – “Investments” in the Notes to Condensed Consolidated Financial Statements for a table that presents the carrying value of the Company’s other invested assets by type as of June 30, 2013 and December 31, 2012.
The Company did not record any other-than-temporary impairments on equity securities in the second quarter and first six months of 2013. The Company recorded $2.2 million and $3.0 million of other-than-temporary impairments on equity securities in the second quarter and first six months of 2012. The Company recorded no other-than-temporary impairments on limited partnership interests in the second quarter, and $2.4 million and $0.8 million in the first six months of 2013 and 2012, respectively
The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date plus or minus any collateral pledged to or from the Company. The Company had credit exposure related to its derivative contracts, excluding futures, of $8.5 million and $7.1 million at June 30, 2013 and December 31, 2012, respectively. See “Credit Risk” in Note 5 – “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information.
 
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Contractual Obligations
From December 31, 2012 to June 30, 2013, the Company’s obligation related to its collateral finance facility, including interest, was reduced by $177.2 million due to the repurchase of a portion of the outstanding notes as previously discussed. In addition, since December 31, 2012, the Company’s obligation for short-term debt, including interest, increased by $120.0 million due to advances from the FHLB as previously discussed and the Company’s obligation to fund limited partnerships increased by $65.1 million. There were no other material changes in the Company’s contractual obligations from those reported in the 2012 Annual Report.
Enterprise Risk Management
RGA maintains an Enterprise Risk Management (“ERM”) program to consistently identify, assess, mitigate, monitor, and communicate all material risks facing the organization in order to effectively manage all risks, increasing protection of RGA’s clients, shareholders, employees, and other stakeholders. RGA’s ERM framework provides a platform to assess the risk / return profiles of risks throughout the organization, thereby enabling enhanced decision making. This includes development and implementation of mitigation strategies to reduce exposures to these risks to acceptable levels. Risk management is an integral part of the Company’s culture and is interwoven in day to day activities. It includes guidelines, risk appetites, risk targets, risk limits, and other controls in areas such as mortality, morbidity, longevity, pricing, underwriting, currency, administration, investments, asset liability management, counterparty exposure, geographic exposure, financing, asset leverage, regulatory change, business continuity planning, human resources, liquidity, collateral, sovereign risks and information technology development.
The Chief Risk Officer (“CRO”), aided by the Risk Management Steering Committee (“RMSC”), Business Unit Chief Risk Officers, Risk Management Officers and a dedicated ERM function, is responsible for ensuring, on an ongoing basis, that objectives of the ERM framework are met; this includes ensuring proper risk controls are in place, risks are effectively identified, assessed and managed, and key risks to which the Company is exposed are disclosed to appropriate stakeholders. For each Business Unit and key risk, a Risk Management Officer is assigned. A Risk Officer is also assigned to take overall responsibility of a specific risk across all markets to monitor and assess this risk consistently. In addition to this network of Risk Management Officers, the Company also has risk focused committees such as the Business Continuity and Information Governance Steering Committee, Consolidated Investment Committee, Derivatives Risk Oversight Committee, Asset and Liability Management Committee, Hedging Oversight Committee, Collateral and Liquidity Committee, and the Currency Risk Management Committee. These committees are comprised of various risk experts and have overlapping membership, enabling consistent and holistic management of risks. These committees report directly or indirectly to the RMSC. The RMSC, which includes senior management executives, including the Chief Executive Officer, the Chief Financial Officer, the Chief Operating Officer (“COO”) and the CRO, is the primary risk management oversight for the Company.
The RMSC approves both targets and limits for each material risk and reviews these limits annually. Exposure to these risks is calculated and presented to the RMSC at least quarterly. Any exception to established risk limits or waiver needs to be approved by the RMSC.
The CRO, reports regularly to the Finance, Investment and Risk Management (“FIRM”) Committee, a sub-committee of the Board of Directors responsible, among other duties, for overseeing the management of RGA’s ERM programs and policies. An extensive ERM report is presented to the FIRM quarterly. The report contains information on all risks as well as qualitative and quantitative assessments. A list of all breaches, exceptions and waivers is also included in the report. The Board of Directors has other committees, such as the Audit Committee, whose responsibilities include aspects of risk management. The CRO reports to the COO and has direct access to the RGA Board of Directors, through the FIRM Committee.
The Company has devoted significant resources to develop its ERM program, and expects continuing to do so in the future. Nonetheless, the Company’s policies and procedures to identify, manage and monitor risks may not be fully effective. Many of the Company’s methods for managing risk are based on historical information, which may not be a good predictor of future risk exposures, such as the risk of a pandemic causing a large number of deaths. Management of operational, legal and regulatory risk rely on policies and procedures which may not be fully effective under all scenarios.
The Company categorizes its main risks as follows:
Insurance Risk
Market Risk
Credit Risk
Operational Risk
Specific risk assessments and descriptions can be found below and in Item 1A – “Risk Factors” of the 2012 Annual Report.
 
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Insurance Risk
The risk of loss due to experience deviating adversely from expectations for mortality, morbidity, and policyholder behavior or lost future profits due to treaty recapture by clients. This category is further divided into mortality, morbidity, longevity, policyholder behavior, and client recapture. The Company uses multiple approaches to managing insurance risk: active insurance risk assessment and pricing appropriately for the risks assumed, transferring undesired risks, and managing the retained exposure prudently. These strategies are explained below.
Insurance Risk Assessment and Pricing
The Company has developed extensive expertise in assessing insurance risks which ultimately forms an integral part of ensuring that it is compensated commensurately for the risks it assumes and that it does not overpay for the risks it transfers to third parties. This expertise includes a vast array of market and product knowledge supported by a large information database of historical experience which is closely monitored. Analysis and experience studies derived from this database help form the basis for the Company’s pricing assumptions which are used in developing rates for new risks. If actual mortality or morbidity experience is materially adverse, some reinsurance treaties allow for increases to future premium rates.
Misestimation of any key risk can threaten the long term viability of the enterprise. Further, the pricing process is a key operational risk and significant effort is applied to ensuring the appropriateness of pricing assumptions. Some of the safeguards the Company uses to ensure proper pricing are: experience studies, strict underwriting, sensitivity and scenario testing, pricing guidelines and controls, authority limits and internal and external pricing reviews. In addition, the Global ERM function provides additional pricing oversight which includes periodic pricing audits.
Risk Transfer
To minimize volatility in financial results and reduce the impact of large losses, the Company transfers some of its insurance risk to third parties using vehicles such as retrocession and catastrophe coverage.
Retrocession
In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises (or retrocessionaires) under excess coverage and coinsurance contracts. In individual life markets, the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations the Company has retained more than $8.0 million per individual life. The Company enters into agreements with other reinsurers to mitigate the residual risk related to the over-retained policies. Additionally, due to some lower face amount reinsurance coverages provided by the Company in addition to individual life, such as group life, disability and health, under certain circumstances, the Company could potentially incur claims totaling more than $8.0 million per individual life.
Catastrophe Coverage
The Company accesses the markets each year for annual catastrophic coverages and reviews current coverage and pricing of current and alternate designs. Purchases vary from year to year based on the Company’s perceived value of such coverages. The current policy covers events involving 10 or more insured deaths from a single occurrence and covers $100 million of claims in excess of the Company’s $50 million deductible.
Mitigation of Retained Exposure
The Company retains most of the inbound insurance risk. The Company manages the retained exposure proactively using various mitigating factors such as diversification and limits. Diversification is the primary mitigating factor of short term volatility risk, but it also mitigates adverse impacts of changes in long term trends and catastrophic events. The Company’s insured populations are dispersed globally, diversifying the insurance exposure because factors that cause actual experience to deviate materially from expectations do not affect all areas uniformly and synchronously or in close sequence. A variety of limits mitigate retained insurance risk. Examples of these limits include geographic exposure limits, which set the maximum amount of business that can be written in a given locale, and jumbo limits, which prevent excessive coverage on a given individual.
In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA’s mortality risk.
Market Risk
Market risk is the risk that net asset and liability values or revenue will be affected adversely by changes in market conditions such as market prices, exchange rates, and nominal interest rates. The Company is primarily exposed to interest rate, foreign currency, inflation and equity risks.
 
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Interest Rate Risk
Interest rate risk is the potential for loss, on a net asset and liability basis, due to changes in interest rates, including both normal rate changes and credit spread changes. This risk arises from many of the Company’s primary activities, as the Company invests substantial funds in interest-sensitive assets and also has certain interest-sensitive contract liabilities. The Company manages interest rate risk to maximize the return on the Company’s capital effectively and to preserve the value created by its business operations. As such, certain management monitoring processes are designed to minimize the effect of sudden and/or sustained changes in interest rates on fair value, cash flows, and net interest income. The Company manages its exposure to interest rates principally by matching floating rate liabilities with corresponding floating rate assets and by matching fixed rate liabilities with corresponding fixed rate assets. On a limited basis, the Company uses equity options to minimize its exposure to movements in equity markets that have a direct correlation with certain of its reinsurance products.
The Company’s exposure to interest rate price risk and interest rate cash flow risk is reviewed on a quarterly basis. Interest rate price risk exposure is measured using interest rate sensitivity analysis to determine the change in fair value of the Company’s financial instruments in the event of a hypothetical change in interest rates. Interest rate cash flow risk exposure is measured using interest rate sensitivity analysis to determine the Company’s variability in cash flows in the event of a hypothetical change in interest rates.
In order to reduce the exposure of changes in fair values from interest rate fluctuations, the Company has developed strategies to manage the interest rate sensitivity of its asset base. From time to time, the Company has utilized the swap market to manage the volatility of cash flows to interest rate fluctuations.
Foreign Currency Risk
The Company is subject to foreign currency translation, transaction, and net income exposure. The Company manages its exposure to currency principally by matching invested assets with the underlying liabilities to the extent possible. The Company has in place net investment hedges for a portion of its investments in its Canadian and Australian operations to reduce excess exposure to these currencies. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders’ equity on the condensed consolidated balance sheets.
The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). However, the Company has entered into certain interest rate swaps in which the cash flows are denominated in different currencies, commonly referred to as cross currency swaps. Those interest rate swaps have been designated as cash flow hedges. The majority of the Company’s foreign currency transactions are denominated in Australian dollars, British pounds, Canadian dollars, Euros, Japanese yen, Korean won, and the South African rand.
The maximum amount of assets held in a specific currency (with the exception of the U.S. Dollar) is measured relative to risk targets and is monitored regularly.
Inflation Risk
The primary direct effect on the Company of inflation is the increase in operating expenses. A large portion of the Company’s operating expenses consists of salaries, which are subject to wage increases at least partly affected by the rate of inflation. The rate of inflation also has an indirect effect on the Company. To the extent that a government’s policies to control the level of inflation result in changes in interest rates, the Company’s investment income is affected.
Equity Risk
Equity risk is the risk that net asset and liability (e.g. variable annuities or other equity linked exposures) values or revenues will be affected adversely by changes in equity markets. The Company assumes equity risk from embedded derivatives in alternative investments, fixed indexed annuities and variable annuities.
Alternative Investments
Alternative Investments are investments in non-traditional asset classes that are most commonly backing capital and surplus and not liabilities. The Company generally restricts the alternative investments portfolio to non-liability supporting assets: that is, free surplus. For (re)insurance companies, alternative investments generally encompass: hedge funds, owned commercial real estate, emerging markets debt, distressed debt, commodities, infrastructure, tax credits, and equities, both public and private. The Company mitigates its exposure to alternative investments by limiting the size of the alternative investments holding.
Fixed Indexed Annuities
Credits for fixed indexed annuities are affected by changes in equity markets. Thus the fair value of the benefit is a function of primarily index returns and volatility. The Company hedges some of the underlying equity exposure.
 
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Variable Annuities
The Company reinsures variable annuities including those with guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). Strong equity markets, increases in interest rates and decreases in volatility will generally decrease the fair value of the liabilities underlying the benefits. Conversely, a decrease in the equity markets along with a decrease in interest rates and an increase in volatility will generally result in an increase in the fair value of the liabilities underlying the benefits, which has the effect of increasing reserves and lowering earnings. The Company maintains a customized dynamic hedging program that is designed to substantially mitigate the risks associated with income volatility around the change in reserves on guaranteed benefits, ignoring the Company’s own credit risk assessment. However, the hedge positions may not fully offset the changes in the carrying value of the guarantees due to, among other things, time lags, high levels of volatility in the equity and derivative markets, extreme swings in interest rates, unexpected contract holder behavior, and divergence between the performance of the underlying funds and hedging indices. These factors, individually or collectively, may have a material adverse effect on the Company’s net income, financial condition or liquidity. The table below provides a summary of variable annuity account values and the fair value of the guaranteed benefits as of June 30, 2013 and December 31, 2012.

(dollars in millions)	  	June 30, 2013	 	  	December 31, 2012	 	
No guarantee minimum benefits	  	$	946	  	  	$	948	  	
GMDB only	  	 	56	  	  	 	79	  	
GMIB only	  	 	6	  	  	 	6	  	
GMAB only	  	 	52	  	  	 	54	  	
GMWB only	  	 	1,660	  	  	 	1,662	  	
GMDB / WB	  	 	450	  	  	 	455	  	
Other	  	 	30	  	  	 	31	  	
 	  	 	 	 	  	 	 	 	
Total variable annuity account values	  	$	3,200	  	  	$	3,235	  	
 	  	 	 	 	  	 	 	 	
Fair value of liabilities associated with living benefit riders	  	$	85	  	  	$	172	  	
There has been no significant change in the Company’s quantitative or qualitative aspects of market risk during the quarter ended June 30, 2013 from that disclosed in the 2012 Annual Report.
Credit Risk
Credit risk is the risk of loss due to counterparty (obligor, client, retrocessionaire, or partner) credit deterioration or unwillingness to meet its obligations. Credit risk has two forms: investment credit risk (asset default and credit migration) and insurance counterparty risk.
Investment Credit Risk
Investment credit risk, which includes default risk, is risk of loss due to credit quality deterioration of an individual financial investment, derivative or non-derivative contract or instrument. Credit quality deterioration may or may not be accompanied by a ratings downgrade. Generally, the investment credit exposure is limited to the fair value, net of any collateral received, at the reporting date.
The creditworthiness of Europe’s peripheral region is under ongoing stress and uncertainty due to high debt levels and economic weakness. The Company does not have material exposure to sovereign fixed maturity securities, which includes global government agencies, from Europe’s peripheral region and Cyprus. However, the Company does have exposure to non-sovereign fixed maturity and equity securities issued from Europe’s peripheral region. The Company increased its exposure to fixed maturity and equity securities in Europe’s peripheral region and Cyprus from an estimated fair value of $118.7 million at December 31, 2012 to $137.4 million as of June 30, 2013, primarily due to sovereign security investments in Ireland and Spain. The Company believes it has adequately evaluated and is appropriately managing this additional risk. See “Investments” above for additional information on the Company’s exposure related to investment securities.
 
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The Company manages investment credit risk using per-issuer investments limits. In addition to per-issuer limits, the Company also limits the total amounts of investments per rating category. An automated compliance system checks for compliance for all investment positions and sends warning messages when there is a breach. The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.
The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. Collateral agreements contain attachment thresholds that vary depending on the posting party’s financial strength ratings. Additionally, a decrease in the Company’s financial strength rating to a specified level results in potential settlement of the derivative positions under the Company’s agreements with its counterparties. The Collateral and Liquidity Committee sets rules, approves and oversees all deals requiring collateral. See “Credit Risk” in Note 5 – “Derivative Instruments” in the Notes to Condensed Consolidated Financial Statements for additional information on credit risk related to derivatives.
Insurance Counterparty Risk
Insurance counterparty risk is the potential for the Company to incur losses due to a client, retrocessionaire, or partner becoming distressed or insolvent. This includes run-on-the-bank risk and collection risk.
Run-on-the-Bank
The risk that a client’s in force block incurs substantial surrenders and/or lapses due to credit impairment, reputation damage or other market changes affecting the counterparty. Severely higher than expected surrenders and/or lapses could result in inadequate in force business to recover cash paid out for acquisition costs.
Collection Risk
For clients and retrocessionaires, this includes their inability to satisfy a reinsurance agreement because the right of offset is disallowed by the receivership court; the reinsurance contract is rejected by the receiver, resulting in a premature termination of the contract; and/or the security supporting the transaction becomes unavailable to RGA.
The Company manages insurance counterparty risk by limiting the total exposure to a single counterparty and by only initiating contracts with creditworthy counterparties. In addition, some of the counterparties have set up trusts and letters of credit, reducing the Company’s exposure to these counterparties.
Generally, RGA’s insurance subsidiaries retrocede amounts in excess of their retention to RGA Reinsurance, Parkway Re, RGA Barbados, RGA Americas, Rockwood Re, Manor Re, RGA Worldwide or RGA Atlantic. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of June 30, 2013, all retrocession pool members in this excess retention pool rated by the A.M. Best Company were rated “A-” or better. A rating of “A-” is the fourth highest rating out of fifteen possible ratings. For a majority of the retrocessionaires that were not rated, letters of credit or trust assets have been given as additional security. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance.
The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.
Aggregate Counterparty Limits
In addition to investment credit limits and insurance counterparty limits, there are aggregate counterparty risk limits which include counterparty exposures from reinsurance, financing and investment activities at an aggregated level to control total exposure to a single counterparty. Counterparty risk aggregation is important because it enables the Company to capture risk exposures at a comprehensive level and under more extreme circumstances compared to analyzing the components individually.
All counterparty exposures are calculated on a quarterly basis, reviewed by management and monitored by the ERM function.
Operational Risk
Operational risk is the risk of loss due to inadequate or failed internal processes, people or systems, or external events. These risks are sometimes residual risks after insurance, market and credit risks have been identified. Operational risk is further divided into: Process, Legal/Regulatory, Financial, and Intangibles. The Company’s financial risk includes liquidity risk, which is risk that cash resources are insufficient to meet the Company’s cash demands without incurring unacceptable costs.
 
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Liquidity demands come primarily from payment of claims, expenses and investment purchases, all of which are known or can be reasonably forecasted. Contingent liquidity demands exist and require the Company to inventory and estimate likely and potential liquidity demands stemming from stress scenarios.
The Company maintains cash, cash equivalents, credit facilities, and short-term liquid investments to support its current and future anticipated liquidity requirements. The Company may also borrow via the reverse repo market, and holds a large pool of unrestricted, FHLB-eligible collateral that may be pledged to support any FHLB advances needed to provide additional liquidity.
The amount of liquidity available both within 24 hours and within 72 hours is reviewed and reported at least weekly.
In order to effectively manage operational risks, management primarily relies on:
Risk Culture
Risk management is embedded in RGA’s business processes in accordance with RGA’s risk philosophy. As the cornerstone of the ERM framework, risk culture plays a preeminent role in the effective management of risks assumed by RGA. At the heart of RGA’s risk culture is prudent risk management. Senior management sets the tone for RGA risk culture, inculcating positive risk attitudes so as to entrench sound risk management practices into day-to-day activities.
Structural Controls
Structural controls provide additional safeguards against undesired risk exposures. Examples of structural controls include: pricing and underwriting reviews, standard treaty language, etc.
Risk Monitoring and Reporting
Proactive risk monitoring and reporting enable early detection and mitigation of emerging risks. For example, there is elevated regulatory activity in the wake of the global financial crisis and RGA is actively monitoring regulatory proposals in order to respond optimally. Risk escalation channels coupled with open communication lines enhance the mitigants explained above.
New Accounting Standards
See Note 14 — “New Accounting Standards” in the Notes to Condensed Consolidated Financial Statements.
 
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
See “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk” which is included herein.
ITEM 4. Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.
There was no change in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
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PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. A legal reserve is established when the Company is notified of an arbitration demand or litigation or is notified that an arbitration demand or litigation is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated.
ITEM 1A. Risk Factors
There have been no material changes from the risk factors previously disclosed in the 2012 Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes RGA’s repurchase activity of its common stock during the quarter ended June 30, 2013:

 	  	Total Number of
Shares
Purchased (1)	 	  	Average Price
Paid  per
Share	 	  	Total Number of
Shares
Purchased as Part of
Publicly
Announced  Plans
or Programs (1)	 	  	Maximum Number (or
Approximate Dollar
Value) of Shares that
May
Yet Be Purchased
Under
the Plan or Program	 	
April 1, 2013 -
April 30, 2013	  	 	892,047	  	  	$	58.70	  	  	 	892,047	  	  	$	200,000,037	  	
May 1, 2013 -
May 31, 2013	  	 	548,101	  	  	$	65.00	  	  	 	424,083	  	  	$	172,309,776	  	
June 1, 2013 -
June 30, 2013	  	 	1,549,081	  	  	$	66.34	  	  	 	1,549,002	  	  	$	69,543,044	  	
 
(1)	RGA repurchased 892,047, 424,083 and 1,549,002 shares of common stock under its share repurchase program for $52.4 million, $27.7 million and $102.8 million during April, May and June 2013, respectively. In May 2013, the Company net settled - issuing 340,579 shares from treasury and repurchasing from recipients 124,018 shares in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award. In June 2013, the Company net settled - issuing 117 shares from treasury and repurchasing from recipients 79 shares in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award.	
In January 2013, RGA’s board of directors authorized a share repurchase program for up to $200.0 million of RGA’s outstanding common stock. In April 2013, RGA’s board of directors authorized an increase of $100.0 million to the share repurchase program previously authorized in January 2013. In July 2013, RGA’s board of directors authorized an additional increase of $100.0 million to the share repurchase program previously authorized in January 2013. With these authorizations, the total amount of the Company’s outstanding common stock authorized for repurchase is $400.0 million.
ITEM 5. Other Information
On August 2, 2013, RGA entered into a standard Indemnification Agreement with each of RGA’s executive officers (including the principal executive officer, principal financial officer and each named executive officer) and each member of the RGA Board of Directors (the “Indemnification Agreements”). The Indemnification Agreements supplement the indemnification coverage afforded to the indemnitees by RGA’s Amended and Restated Articles of Incorporation and require RGA to indemnify each indemnitee to the fullest extent permitted by the General and Business Corporation Law of Missouri. The form of the Indemnification Agreements is filed with this report as Exhibit 10.2 and is incorporated by reference herein.
ITEM 6. Exhibits
See index to exhibits.
 
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 	 	 	 	Reinsurance Group of America, Incorporated	
 	 	 	 	
Date: August 5, 2013	 	 	 	By:	 	/s/ A. Greig Woodring	
 	 	 	 	 	 	A. Greig Woodring	
 	 	 	 	 	 	President & Chief Executive Officer	
 	 	 	 	 	 	(Principal Executive Officer)	
 	 	 	 	
Date: August 5, 2013	 	 	 	By:	 	/s/ Jack B. Lay	
 	 	 	 	 	 	Jack B. Lay	
 	 	 	 	 	 	Senior Executive Vice President & Chief Financial Officer	
 	 	 	 	 	 	(Principal Financial and Accounting Officer)	
 
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INDEX TO EXHIBITS

Exhibit
Number	  	Description	
 	 	
3.1	  	Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Current Report on Form 8-K filed November 25, 2008.	
 	 	
3.2	  	Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 of Current Report on Form 8-K filed November 25, 2008.	
 	 	
10.1	  	RGA Flexible Stock Plan as amended and restated effective July 1, 1998 and as further amended by Amendment on March 16, 2000, Second Amendment on May 28, 2003, Third Amendment on May 26, 2004, Fourth Amendment on May 23, 2007, Fifth Amendment on May 21, 2008, Sixth Amendment on May 8, 2011, Seventh Amendment on May 18, 2011 and Eighth Amendment on May 15, 2013.	
 	 	
10.2	  	Form of Officer and Director Indemnification Agreement.	
 	 	
31.1	  	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
31.2	  	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.	
 	 	
32.1	  	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
32.2	  	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.	
 	 	
101.INS	  	XBRL Instance Document	
 	 	
101.SCH	  	XBRL Taxonomy Extension Schema Document	
 	 	
101.CAL	  	XBRL Taxonomy Extension Calculation Linkbase Document	
 	 	
101.LAB	  	XBRL Taxonomy Extension Label Linkbase Document	
 	 	
101.PRE	  	XBRL Taxonomy Extension Presentation Linkbase Document	
 	 	
101.DEF	  	XBRL Taxonomy Extension Definition Linkbase Document	
 
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Exhibit 10.1
REINSURANCE GROUP OF AMERICA, INCORPORATED
FLEXIBLE STOCK PLAN
As Amended and Restated Effective July 1, 1998, and as further amended by
Amendment on March 16, 2000, Second Amendment on May 28, 2003,
Third Amendment on May 26, 2004, Fourth Amendment on May 23, 2007,
Fifth Amendment on May 21, 2008, Sixth Amendment on May 8, 2011, Seventh
Amendment on May 18, 2011 and Eighth Amendment on May 15, 2013
 
i

REINSURANCE GROUP OF AMERICA, INCORPORATED
FLEXIBLE STOCK PLAN
TABLE OF CONTENTS

  	 	  	 	 	  	Page	
ARTICLE I -	 	NAME AND PURPOSE	  	 	
1.1    	 	Name	  	1	
1.2    	 	Purpose	  	1	
 	 	 	
ARTICLE II -	 	DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION	  	 	
2.1    	 	General Definitions	  	1	
 	 	(a)	 	Affiliate	  	1	
 	 	(b)	 	Agreement	  	1	
 	 	(c)	 	Benefit	  	1	
 	 	(d)	 	Board	  	1	
 	 	(e)	 	Cash Award	  	1	
 	 	(f)	 	Change of Control	  	1	
 	 	(g)	 	Code	  	1	
 	 	(h)	 	Company	  	1	
 	 	(i)	 	Committee	  	1	
 	 	(j)	 	Common Stock	  	2	
 	 	(k)	 	Effective Date	  	2	
 	 	(l)	 	Employee	  	2	
 	 	(m)	 	Employer	  	2	
 	 	(n)	 	Exchange Act	  	2	
 	 	(o)	 	Fair Market Value	  	2	
 	 	(p)	 	Fiscal Year	  	2	
 	 	(q)	 	ISO	  	2	
 	 	(r)	 	NQSO	  	2	
 	 	(s)	 	Option	  	2	
 	 	(t)	 	Other Stock Based Award	  	2	
 	 	(u)	 	Parent	  	2	
 	 	(v)	 	Participant	  	2	
 	 	(w)	 	Performance Share	  	2	
 	 	(x)	 	Plan	  	2	
 	 	(y)	 	Restricted Stock	  	3	
 	 	(z)	 	Rule 16b-3	  	3	
 	 	(aa)	 	SEC	  	3	
 	 	(bb)	 	Share	  	3	
 	 	(cc)    	 	SAR	  	3	
 	 	(dd)	 	Subsidiary	  	3	
2.2    	 	Other Definitions	  	3	
2.3    	 	Conflicts in Plan	  	3	
 	 	 	
ARTICLE III -	 	COMMON STOCK	  	 	
3.1    	 	Number of Shares	  	3	
3.2    	 	Reusage	  	3	
3.3    	 	Adjustments	  	3	
 	 	 	
ARTICLE IV -	 	ELIGIBILITY	  	 	
4.1    	 	Determined By Committee	  	4	
 
ii

 	 	 	 	 	
ARTICLE V - ADMINISTRATION	
5.1	    	Committee	  	4	
5.2	    	Authority	  	4	
5.3	    	Delegation	  	5	
5.4	    	Adjudication of Claims	  	5	
 	
ARTICLE VI - AMENDMENT	
6.1	    	Power of Board	  	5	
6.2	    	Limitation	  	5	
 	
ARTICLE VII - TERM AND TERMINATION	
7.1	    	Term	  	6	
7.2	    	Termination	  	6	
 	
ARTICLE VIII - MODIFICATION OR TERMINATION OF BENEFITS	
8.1	    	General	  	6	
8.2	    	Committee’s Right	  	6	
 	
ARTICLE IX - CHANGE OF CONTROL	
9.1	    	Right of Committee	  	6	
 	
ARTICLE X - AGREEMENTS AND CERTAIN BENEFITS	
10.1	    	Grant Evidenced by Agreement	  	7	
10.2	    	Provisions of Agreement	  	7	
10.3	    	Certain Benefits	  	7	
 	
ARTICLE XI - TANDEM AWARDS	
11.1	    	Tandem Awards	  	7	
 	
ARTICLE XII - PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING	
12.1	    	Payment	  	7	
12.2	    	Dividend Equivalents	  	8	
12.3	    	Deferral	  	8	
12.4	    	Withholding	  	8	
 	
ARTICLE XIII - OPTIONS	
13.1	    	Types of Options	  	8	
13.2	    	Shares for ISOs	  	8	
13.3	    	Grant of ISOs and Option Price	  	8	
13.4	    	Other Requirements for ISOs	  	8	
13.5	    	NQSOs	  	8	
13.6	    	Determination by Committee	  	8	
13.7	    	Limitation Shares Covered by Options	  	9	
 	
ARTICLE XIV - SARS	
14.1	    	Grant and Payment	  	9	
14.2	    	Grant of Tandem Award	  	9	
14.3	    	ISO Tandem Award	  	9	
14.4	    	Payment of Award	  	9	
14.5	    	Limitation on SARs.	  	9	
 	
ARTICLE XV - RESTRICTED STOCK	
 
iii

 	 	 	 	 	
15.1	    	Description	  	9	
15.2	    	Cost of Restricted Stock	  	10	
15.3	    	Non-Transferability	  	10	
 	 	
ARTICLE XVI - PERFORMANCE SHARES	  	 	
16.1	    	Description	  	10	
16.2	    	Grant	  	10	
 	
ARTICLE XVII - CASH AWARDS	
17.1	    	Grant	  	10	
17.2	    	Limitation on Amount	  	10	
17.3	    	Restrictions	  	10	
 	 	
ARTICLE XVIII - OTHER STOCK BASED AWARDS AND OTHER BENEFITS	  	 	
18.1	    	Other Stock Based Awards	  	10	
18.2	    	Other Benefits	  	10	
 	 	
ARTICLE XIX - MISCELLANEOUS PROVISIONS	  	 	
19.1	    	Underscored References	  	11	
19.2	    	Number and Gender	  	11	
19.3	    	Governing Law	  	11	
19.4	    	Purchase for Investment	  	11	
19.5	    	No Employment Contract	  	11	
19.6	    	No Effect on Other Benefits	  	11	
 	 	
APPENDIX A	  	12	
 
iv

Reinsurance Group of America, Incorporated
FLEXIBLE STOCK PLAN
ARTICLE I
NAME AND PURPOSE
1.1 Name. The name of this Plan is the “Reinsurance Group of America, Incorporated Flexible Stock Plan.”
1.2 Purpose. The Company has established this Plan to attract, retain, motivate and reward Employees and other individuals, to encourage ownership of the Company’s Common Stock by Employees and other individuals, and to promote and further the best interests of the Company by granting cash and other awards.
ARTICLE II
DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION
2.1 General Definitions. The following words and phrases, when used in the Plan, unless otherwise specifically defined or unless the context clearly otherwise requires, shall have the following respective meanings:
(a) Affiliate. A Parent or Subsidiary of the Company.
(b) Agreement. The document which evidences the grant of any Benefit under the Plan and which sets forth the Benefit and the terms, conditions and provisions of, and restrictions relating to, such Benefit.
(c) Benefit. Any benefit granted to a Participant under the Plan.
(d) Board. The Board of Directors of the Company.
(e) Cash Award. A Benefit payable in the form of cash.
(f) Change of Control. The acquisition, without the approval of the Board, by any person or entity, other than the Company or a Related Entity, of more than 20% of the outstanding Shares through a tender offer, exchange offer or otherwise; the liquidation or dissolution of the Company following a sale or other disposition of all or substantially all of its assets; a merger or consolidation involving the Company which results in the Company not being the surviving parent corporation; or any time during any two-year period in which individuals who constituted the Board at the start of such period (or whose election was approved by at least two-thirds of the then members of the Board who were members at the start of the two-year period) do not constitute at least 50% of the Board for any reason. A Related Entity is the Parent, a Subsidiary or any employee benefit plan (including a trust forming a part of such a plan) maintained by the Parent, the Company or a Subsidiary.
(g) Code. The Internal Revenue Code of 1986, as amended. Any reference to the Code includes the regulations promulgated pursuant to the Code.
(h) Company. Reinsurance Group of America, Incorporated.
(i) Committee. The Committee described in Section 5.1.
 
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(j) Common Stock. Any class of the Company’s common stock.
(k) Effective Date. The date that the Plan is approved by the shareholders of the Company which must occur within one year before or after approval by the Board. Any grants of Benefits prior to the approval by the shareholders of the Company shall be void if such approval is not obtained.
(l) Employee. Any person employed by the Employer.
(m) Employer. The Company and all Affiliates.
(n) Exchange Act. The Securities Exchange Act of 1934, as amended.
(o) Fair Market Value. The closing price of Shares on the New York Stock Exchange on a given date, or, in the absence of sales on a given date, the closing price on the New York Stock Exchange on the last day on which a sale occurred prior to such date.
(p) Fiscal Year. The taxable year of the Company which is the calendar year.
(q) ISO. An Incentive Stock Option as defined in Section 422 of the Code.
(r) NQSO. A Non-Qualified Stock Option, which is an Option that does not qualify as an ISO.
(s) Option. An option to purchase Shares granted under the Plan.
(t) Other Stock Based Award. An award under ARTICLE XVIII that is valued in whole or in part by reference to, or is otherwise based on, Common Stock.
(u) Parent. Any corporation (other than the Company or a Subsidiary) in an unbroken chain of corporations ending with the Company, if, at the time of the grant of an Option or other Benefit, each of the corporations (other than the Company or a Subsidiary) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. The Company’s present Parent is General American Life Insurance Company.
(v) Participant. An individual who is granted a Benefit under the Plan. Benefits may be granted only to Employees, employees and owners of entities which are not Affiliates but which have a direct or indirect ownership interest in an Employer or in which an Employer has a direct or indirect ownership interest, individuals who, and employees and owners of entities which, are customers and suppliers of an Employer, individuals who, and employees and owners of entities which, render services to an Employer, and individuals who, and employees and owners of entities which, have ownership or business affiliations with any individual or entity previously described.
(w) Performance Share. A Share awarded to a Participant under ARTICLE XVI of the Plan.
(x) Plan. The Reinsurance Group of America, Incorporated Flexible Stock Plan and all amendments and supplements to it.

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(y) Restricted Stock. Shares issued under ARTICLE XV of the Plan.
(z) Rule 16b-3. Rule 16b-3 promulgated by the SEC under the Exchange Act, as amended, or any successor rule in effect from time to time.
(aa) SEC. The Securities and Exchange Commission.
(bb) Share. A share of Common Stock.
(cc) SAR. A Stock Appreciation Right, which is the right to receive an amount equal to the appreciation, if any, in the Fair Market Value of a Share from the date of the grant of the right to the date of its payment.
(dd) Subsidiary. Any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of grant of an Option or other Benefit, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
2.2 Other Definitions. In addition to the above definitions, certain words and phrases used in the Plan and any Agreement may be defined in other portions of the Plan or in such Agreement.
2.3 Conflicts in Plan. In the case of any conflict in the terms of the Plan relating to a Benefit, the provisions in the ARTICLE of the Plan which specifically grants such Benefit shall control those in a different ARTICLE.
ARTICLE III
COMMON STOCK
3.1 Number of Shares. The number of Shares which may be issued or sold or for which Options, SARs or Performance Shares may be granted under the Plan shall be 13,360,077 Shares. Such Shares may be authorized but unissued Shares, Shares held in the treasury, or both. 1
3.2 Reusage. If an Option or SAR expires or is terminated, surrendered, or cancelled without having been fully exercised, if Restricted Shares or Performance Shares are forfeited, or if any other grant results in any Shares not being issued, the Shares covered by such Option or SAR, grant of Restricted Shares, Performance Shares or other grant, as the case may be, shall again be available for use under the Plan.
3.3 Adjustments. If there is any change in the Common Stock of the Company by reason of any stock dividend, spin-off, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, the number of SARs and number and class of shares available for Options and grants of Restricted Stock, Performance Shares and Other Stock Based Awards and the number of Shares subject to outstanding Options, SARs, grants of Restricted Stock and Performance.

1 As amended by Amendment on March 16, 2000, Second Amendment on May 28, 2003, Third Amendment on May 26, 2004, Fourth Amendment on May 23, 2007, Seventh Amendment on May 18, 2011, and Eighth Amendment on May 15, 2013.
 
3

Shares which are not vested, and Other Stock Based Awards, and the price thereof, as applicable, shall be appropriately adjusted by the Committee.
ARTICLE IV
ELIGIBILITY
4.1 Determined By Committee. The Participants and the Benefits they receive under the Plan shall be determined solely by the Committee. In making its determinations, the Committee shall consider past, present and expected future contributions of Participants and potential Participants to the Employer, including, without limitation, the performance of, or the refraining from the performance of, services.
ARTICLE V
ADMINISTRATION
5.1 Committee. The Plan shall be administered by the Committee. The Committee shall consist of three or more members of the Board each of whom is a “Non-Employee Director” as defined in Rule 16b-3 and who is an “outside director” as defined in Code Section 162(m)(4)(C)(i). The members of the Committee shall be appointed by and shall serve at the pleasure of the Board, which may from time to time appoint members in substitution for members previously appointed and fill vacancies, however caused, in the Committee. The Committee may select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. A majority of its members shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held.
5.2 Authority. Subject to the terms of the Plan, the Committee shall have discretionary authority to:
(a) determine the individuals to whom Benefits are granted, the type and amounts of Benefits to be granted and the time of all such grants;
(b) determine the terms, conditions and provisions of, and restrictions relating to, each Benefit granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations relating to the Plan;
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Benefits under the Plan;
(g) maintain accounts, records and ledgers relating to Benefits;
(h) maintain records concerning its decisions and proceedings;

4

(i) employ agents, attorneys, accountants or other persons for such purposes as the Committee considers necessary or desirable;
(j) take, at anytime, any action permitted by Section 9.1 irrespective of whether any Change of Control has occurred or is imminent; and
(k) do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and carry out the purposes of the Plan.
5.3 Delegation. Except as required by Rule 16b-3 with respect to grants of Options, Stock Appreciation Awards, Performance Shares, Other Stock Based Awards, or other Benefits to individuals who are subject to Section 16 of the Exchange Act or as otherwise required for compliance with Rule 16b-3, Code Section 162(m), or other applicable law, the Committee may delegate all or any part of its authority under the Plan to any Employee, Employees or committee.
5.4 Adjudication of Claims. The Committee shall have full and complete discretionary authority to make all determinations as to the right to Benefits under the Plan. In the event that a Participant believes he has not received the Benefits to which he is entitled under the Plan, a claim shall be made in writing to the Committee. The claim shall be reviewed by the Committee. If the claim is approved or denied, in full or in part, the Committee shall provide a written notice of approval or denial within 90 days with, in the case of a denial, the specific reasons for the denial and specific reference to the provisions of the Plan and/or Agreement upon which the denial is based. A claim shall be deemed denied if the Committee does not take any action within the aforesaid 90 day period. If a claim is denied or deemed denied and a review is desired, the Participant shall notify the Committee in writing within 60 days of the receipt of notice of denial or the date on which the claim is deemed to be denied, as the case may be. In requesting a review, the Participant may review the Plan or any document relating to it and submit any written issues and comments he may deem appropriate. The Committee shall then review the claim and provide a written decision within 60 days. This decision, if adverse to the Participant, shall state the specific reasons for the decision and shall include reference to specific provisions of the Plan and/or Agreement on which the decision is based. The Committee’s decision on review shall be final and binding.
ARTICLE VI
AMENDMENT
6.1 Power of Board. Except as hereinafter provided, the Board shall have the sole right and power to amend the Plan at any time and from time to time.
6.2 Limitation. The Board may not amend the Plan, without approval of the shareholders of the Company:
(a) in a manner which would cause Options which are intended to qualify as ISOs to fail to qualify;
(b) in a manner which would cause the Plan to fail to meet the requirements of Rule 16b-3 or Code Section 162(m); or
(c) in a manner which would violate applicable law.
 
5

ARTICLE VII
TERM AND TERMINATION
7.1 Term. The Plan shall commence as of the Effective Date and, subject to the terms of the Plan, including those requiring approval by the shareholders of the Company and those limiting the period over which ISOs or any other Benefits may be granted, shall continue in full force and effect until terminated.
7.2 Termination. The Plan may be terminated at any time by the Board.
ARTICLE VIII
MODIFICATION OR TERMINATION OF BENEFITS
8.1 General. Subject to the provisions of Section 8.2, the amendment or termination of the Plan shall not adversely affect a Participant’s right to any Benefit granted prior to such amendment or termination.
8.2 Committee’s Right. Any Benefit granted may be converted, modified, forfeited or cancelled, in whole or in part, by the Committee if and to the extent permitted in the Plan or applicable Agreement or with the consent of the Participant to whom such Benefit was granted.
ARTICLE IX
CHANGE OF CONTROL
9.1 Right of Committee. In order to maintain a Participant’s rights in the event of a Change in Control, the Committee, in its sole discretion, may, in any Agreement evidencing a Benefit, or at any time prior to, or simultaneously with or after a Change in Control, provide such protection as it may deem necessary. Without, in any way, limiting the generality of the foregoing sentence or requiring any specific protection, the Committee may:
(a) provide for the acceleration of any time periods relating to the exercise or realization of such Benefit so that such Benefit may be exercised or realized in full on or before a date fixed by the Committee;
(b) provide for the purchase of such Benefit, upon the Participant’s request, for an amount of cash equal to the amount which could have been attained upon the exercise or realization of such Benefit had such Benefit been currently exercisable or payable;
(c) make such adjustment to the Benefits then outstanding as the Committee deems appropriate to reflect such transaction or change; and/or
(d) cause the Benefits then outstanding to be assumed, or new Benefits substituted therefor, by the surviving corporation in such change.
 
6

ARTICLE X
AGREEMENTS AND CERTAIN BENEFITS
10.1 Grant Evidenced by Agreement. The grant of any Benefit under the Plan may be evidenced by an Agreement which shall describe the specific Benefit granted and the terms and conditions of the Benefit. The granting of any Benefit shall be subject to, and conditioned upon, the recipient’s execution of any Agreement required by the Committee. Except as otherwise provided in an Agreement, all capitalized terms used in the Agreement shall have the same meaning as in the Plan, and the Agreement shall be subject to all of the terms of the Plan.
10.2 Provisions of Agreement. Each Agreement shall contain such provisions that the Committee shall determine to be necessary, desirable and appropriate for the Benefit granted which may include, but not be limited to, the following with respect to any Benefit: description of the type of Benefit; the Benefit’s duration; its transferability; if an Option, the exercise price, the exercise period and the person or persons who may exercise the Option; the effect upon such Benefit of the Participant’s death or termination of employment; the Benefit’s conditions; when, if, and how any Benefit may be forfeited, converted into another Benefit, modified, exchanged for another Benefit, or replaced; and the restrictions on any Shares purchased or granted under the Plan.
10.3 Certain Benefits. Except as otherwise expressly provided in an Agreement, any Benefit granted to an individual who is subject to Section 16 of the Exchange Act shall be not transferable other than by will or the laws of descent and distribution and shall be exercisable during his lifetime only by him, his guardian or his legal representative.
ARTICLE XI
TANDEM AWARDS
11.1 Tandem Awards. Awards may be granted by the Committee in tandem. However, no Benefit may be granted in tandem with an ISO except SARs. 2
ARTICLE XII
PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING
12.1 Payment. Upon the exercise of an Option or in the case of any other Benefit that requires a payment to the Company, the amount due the Company is to be paid:
(a) in cash;
(b) by the tender to the Company of Shares owned by the optionee and registered in his name having a Fair Market Value equal to the amount due to the Company;

2Former Section 11.1 deleted and former Section 11.2 renumbered as 11.1 by Sixth Amendment on May 8, 2011.
 
7

(c) in other property, rights and credits, including the Participant’s promissory note if permitted under applicable law; or
(d) by any combination of the payment methods specified in (a), (b) and (c) above.
Notwithstanding, the foregoing, any method of payment other than (a) may be used only with the consent of the Committee or if and to the extent so provided in an Agreement. The proceeds of the sale of Common Stock purchased pursuant to an Option and any payment to the Company for other Benefits shall be added to the general funds of the Company or to the Shares held in treasury, as the case may be, and used for the corporate purposes of the Company as the Board shall determine.
12.2 Dividend Equivalents. Grants of Benefits in Shares or Share equivalents may include dividend equivalent payments or dividend credit rights.
12.3 Deferral. The right to receive any Benefit under the Plan may, at the request of the Participant, be deferred for such period and upon such terms as the Committee shall determine, which may include crediting of interest on deferrals of cash and crediting of dividends on deferrals denominated in Shares.
12.4 Withholding. The Company, at the time any distribution is made under the Plan, whether in cash or in Shares, may withhold from such distribution any amount necessary to satisfy federal, state and local income tax withholding requirements with respect to such distribution. Such withholding may be in cash or in Shares.
ARTICLE XIII
OPTIONS
13.1 Types of Options. It is intended that both ISOs and NQSOs may be granted by the Committee under the Plan.
13.2 Shares for ISOs. The number of Shares for which ISOs may be granted on or after the Effective Date shall not exceed 150,000 Shares.
13.3 Grant of ISOs and Option Price. Each ISO must be granted to an Employee and granted within ten years from the Effective Date. The purchase price for Shares under any ISO shall be no less than the Fair Market Value of the Shares at the time the Option is granted.
13.4 Other Requirements for ISOs. The terms of each Option which is intended to qualify as an ISO shall meet all requirements of Section 422 of the Code.
13.5 NQSOs. The terms of each NQSO shall provide that such Option will not be treated as an ISO. The purchase price for Shares under any NQSO shall be equal to or greater than the Fair Market Value of the Shares at the time the Option is granted.
13.6 Determination by Committee. Except as otherwise provided in Section 13.2 through Section 13.5, the terms of all Options shall be determined by the Committee.

8

13.7 Limitation on Shares Covered by Options. The maximum number of Shares with respect to which such Options may be granted to any Participant in any 1 year period shall not exceed 200,000 shares. For purposes of the preceding sentence, the Shares covered by an Option that is cancelled shall count against the maximum number of Shares, and, if the exercise price under an Option is reduced, the transaction shall be treated as a cancellation of the Option and a grant of a new Option.
ARTICLE XIV
SARS
14.1 Grant and Payment. The Committee may grant SARs. Upon electing to receive payment of a SAR, a Participant shall receive payment in cash, in Common Stock, or in any combination of cash and Common Stock, as the Committee shall determine.
14.2 Grant of Tandem Award. The Committee may grant SARs in tandem with an Option, in which case: the exercise of the Option shall cause a correlative reduction in SARs standing to a Participant’s credit which were granted in tandem with the Option; and the payment of SARs shall cause a correlative reduction of the Shares under such Option.
14.3 ISO Tandem Award. When SARs are granted in tandem with an ISO, the SARs shall have such terms and conditions as shall be required for the ISO to qualify as an ISO.
14.4 Payment of Award. SARs shall be paid, to the extent payment is elected by the Participant (and is otherwise due and payable), as soon as practicable after the date on which such election is made.
14.5 Limitation on SARs. The maximum number of SARs which may be granted to any Participant in any 1 year period shall not exceed 200,000 SARs. For purposes of the preceding sentence, any SARs that are cancelled shall count against the maximum number of SARs, and, if the Fair Market Value of a Share on which the appreciation under a SAR will be calculated is reduced, the transaction shall be treated as a cancellation of the SAR and a grant of a new SAR. 3
ARTICLE XV
RESTRICTED STOCK
15.1 Description. The Committee may grant Benefits in Shares available under ARTICLE III of the Plan as Restricted Stock. Shares of Restricted Stock shall be issued and delivered at the time of the grant but shall be subject to forfeiture until provided otherwise in the applicable Agreement or the Plan. Each certificate representing Shares of Restricted Stock shall bear a legend referring to the Plan and the risk of forfeiture of the Shares and stating that such Shares are nontransferable until all restrictions have been satisfied and the legend has been removed. The grantee shall be entitled to full voting and dividend rights with respect to all shares of Restricted Stock from the date of grant.

3As amended by Seventh Amendment on May 18, 2011.

9

15.2 Cost of Restricted Stock. Grants of Shares of Restricted Stock shall be made at a per Share cost to the Participant equal to par value.
15.3 Non-Transferability. Shares of Restricted Stock shall not be transferable until after the removal of the legend with respect to such Shares.
ARTICLE XVI
PERFORMANCE SHARES
16.1 Description. Performance Shares are the right of an individual to whom a grant of such Shares is made to receive Shares or cash equal to the Fair Market Value of such Shares at a future date in accordance with the terms of such grant. Generally, such right shall be based upon the attainment of targeted profit and/or performance objectives.
16.2 Grant. The Committee may grant an award of Performance Shares. The number of Performance Shares and the terms and conditions of the grant shall be set forth in the applicable Agreement.
ARTICLE XVII
CASH AWARDS
17.1 Grant. The Committee may grant Cash Awards at such times and (subject to Section 17.2) in such amounts as it deems appropriate.
17.2 Limitation on Amount. The Amount of any Cash Award in any Fiscal Year to any Participant who is subject to Section 16 of the Exchange Act shall not exceed the greater of $100,000 or 50% of his cash compensation (excluding any Cash Award under this ARTICLE XVII) for such Fiscal Year.
17.3 Restrictions. Cash Awards may be subject or not subject to conditions (such as an investment requirement), restricted or nonrestricted, vested or subject to forfeiture and may be payable currently or in the future or both.
ARTICLE XVIII
OTHER STOCK BASED AWARDS AND OTHER BENEFITS
18.1 Other Stock Based Awards. The Committee shall have the right to grant Other Stock Based Awards which may include, without limitation, the grant of Shares based on certain conditions, the payment of cash based on the performance of the Common Stock, and the grant of securities convertible into Shares.
18.2 Other Benefits. The Committee shall have the right to provide types of Benefits under the Plan in addition to those specifically listed, if the Committee believes that such Benefits would further the purposes for which the Plan was established.
ARTICLE XIX
MISCELLANEOUS PROVISIONS

10

19.1 Underscored References. The underscored references contained in the Plan are included only for convenience, and they shall not be construed as a part of the Plan or in any respect affecting or modifying its provisions.
19.2 Number and Gender. The masculine and neuter, wherever used in the Plan, shall refer to either the masculine, neuter or feminine; and, unless the context otherwise requires, the singular shall include the plural and the plural the singular.
19.3 Governing Law. This Plan shall be construed and administered in accordance with the laws of the State of Missouri.
19.4 Purchase for Investment. The Committee may require each person purchasing Shares pursuant to an Option or other award under the Plan to represent to and agree with the Company in writing that such person is acquiring the Shares for investment and without a view to distribution or resale. The certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under all applicable laws, rules and regulations, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions.
19.5 No Employment Contract. The adoption of the Plan shall not confer upon any Employee any right to continued employment nor shall it interfere in any way with the right of the Employer to terminate the employment of any of its Employees at any time.
19.6 No Effect on Other Benefits. The receipt of Benefits under the Plan shall have no effect on any benefits to which a Participant may be entitled from the Employer, under another plan or otherwise, or preclude a Participant from receiving any such benefits.
 
11

Appendix A4
All Performance Shares granted pursuant to Article XVI of this Plan, and any other compensation granted pursuant to this Plan that is intended to constitute performance based compensation within the meaning of Section 162(m)(4)(C) of the Code, shall be subject to attainment of one or more of the performance objectives as described in this Appendix A. This Appendix A sets forth all applicable performance objectives upon which a grant of Performance Shares under Sections 16.1 and 16.2 of the Plan or any other Benefit may be conditioned.
The performance objectives for a particular Benefit shall be established in writing in the applicable Agreement. The performance objectives may be expressed in terms of overall Company performance or the performance of a Subsidiary, division, business unit, or an individual. The performance objectives may be stated in terms of absolute levels or relative to another company or companies or to an index or indices.
The performance objectives shall be based upon any one or more of the performance criteria set forth below and shall not be based on any other formal or informal performance criteria:
•    operating earnings or income; operating earnings per share; net income; total or net revenues; gross or net premiums; shareholder return and/or value; retained earnings; book value or book value per share; gross or net margin; profit returns and margins; operating or net cash flow; financial return ratios; return on equity; return on average adjusted equity; return on assets; return on invested capital; earnings per share growth; change in embedded value; embedded value of new business;
•    budget achievement; expenses; expense control; market capitalization; stock price; market share; working capital; cash available to Company from a subsidiary or subsidiaries; dividends; ratings; business trends; economic value added; and
•    product development; client development; leadership; project progress; project completion; quality; customer satisfaction; diversity and corporate governance.”

4Appendix A adopted by Fifth Amendment on May 21, 2008.
 
12

Exhibit 10.2
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the “Agreement”) dated as of August 2, 2013, is made by and between Reinsurance Group of America, Incorporated, a Missouri corporation (“RGA”) and                                   (“Indemnitee”).
RECITALS
A. Indemnitee is an officer and/or director of RGA and in such capacity is performing a valuable service for RGA.
B. The Second Restated Articles of Incorporation of RGA requires RGA to indemnify its directors and officers to the maximum extent permitted by law, and indemnification is also authorized by Section 351.355 of The General and Business Corporation Law of Missouri (the “Indemnification Statute”).
C. The Second Restated Articles of Incorporation of RGA and the Indemnification Statute, under which RGA is organized, expressly provide that the indemnification provisions set forth therein are not exclusive, and contemplate that contracts may be entered into between RGA and its directors and officers with respect to indemnification.
D. In accordance with the authorization provided by the Second Restated Articles of Incorporation of RGA and the Indemnification Statute, directors and officers liability insurance (“D&O Insurance”) has been purchased covering certain liabilities which may be incurred by RGA’s directors and officers in the performance of their services for RGA, subsidiaries of RGA, and other enterprises.
E. RGA recognizes that competent and experienced persons are reluctant to serve as directors or officers of corporations unless they are protected by comprehensive liability insurance or indemnification, or both, due to increased exposure to litigation costs and risks resulting from their service to such corporations, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors and officers.
F. The statutes and judicial decisions regarding the duties of directors and officers are often difficult to apply, ambiguous, or conflicting, and therefore fail to provide such directors and officers with adequate, reliable knowledge of legal risks to which they are exposed or information regarding the proper course of action take.
G. RGA and Indemnitee recognize that plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors and officers.
 
1

H. RGA believes that it is unfair for its directors and officers to assume the risk of huge judgments and other expenses which may occur in cases in which the director or officer received no personal profit and in cases where the director or officer was not culpable.
I. RGA, after reasonable investigation, has determined that policies of D&O Insurance may be inadequate in certain circumstances to cover all possible exposure from which Indemnitee should be protected. RGA believes that the interests of RGA and its shareholders would best be served by a combination of such insurance and the indemnification by RGA of the directors and officers of RGA. To provide such protection and thereby induce Indemnitee to serve or continue to serve as a director and/or officer of RGA, RGA has determined and agreed to enter into this Agreement with Indemnitee.
J. The Board of Directors has determined that contractual indemnification as set forth herein is not only reasonable and prudent but necessary to promote the best interests of RGA and its shareholders.
K. RGA desires and has requested Indemnitee to serve or continue to serve as a director and/or officer of RGA free from undue concern for claims for damages arising out of or related to such services.
L. Indemnitee is willing to serve, or continue to serve, or to provide additional service as a director and/or officer of RGA or for or on behalf of RGA, only on the condition that Indemnitee is furnished the indemnity provided for herein.
NOW THEREFORE, in consideration of the premises and Indemnitee’s service as a director and/or officer of RGA after the date hereof, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, RGA and Indemnitee, intending to be legally bound, hereby agree as follows:
 
 	1.	Definitions	
In this Agreement the following terms have the following meanings:
(a) The term “another enterprise” shall mean any corporation (other than RGA), partnership, joint venture, trust, limited liability company, employee benefit plan or other legal entity or enterprise.
(b) The term “defense” when used with respect to any proceeding shall include investigations of any proceeding as well as appeals in any proceeding and shall also include defense by way of cross claim or counterclaim.
(c) The term “expenses” means all direct and indirect costs (including, without limitation, attorneys’ fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, appeal bonds, and all other disbursements or out-of-pocket expenses) actually and reasonably

incurred in connection with (i) any proceeding or (ii) establishing or enforcing any right to indemnification or advancement of expenses under this Agreement, applicable law, any other agreement or provision of RGA’s Articles of Incorporation or Bylaws now or hereafter in effect or otherwise; provided, however, that “expenses” shall not include any judgment, fines or amount paid in settlement. The term “expenses” shall include reasonable compensation for time spent by Indemnitee for which Indemnitee is not otherwise compensated by RGA or any other source, provided that the rate of compensation and estimated time involved is approved by RGA’s Board of Directors.
(d) The term “judgments, fines and amounts paid in settlement” shall be broadly construed and shall include, without limitation, all direct and indirect payments of any type or nature whatsoever, as well as any penalties or excise taxes assessed on a person with respect to an employee benefit plan.
(e) The term “proceeding” shall mean, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, or the giving of testimony in, any threatened, pending or completed claim, action, suit or proceeding (including those by or in the right of RGA or a subsidiary of RGA) whether civil, criminal, administrative or investigative or otherwise and whether formal or informal.
(f) The term “serving at the request of RGA” shall include, without limitation, any service as a director, officer, employee or agent of RGA or a subsidiary of RGA which imposes duties on, or involves services by, Indemnitee with respect to any employee benefit plan, its participants or beneficiaries.
(g) “RGA” shall include, without limitation and in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued.
(h) A “director or officer of RGA” shall include a director or officer of a subsidiary of RGA, a “director and/or officer of RGA” shall include a director and/or officer of a subsidiary of RGA”, and “RGA’s directors and officers” shall include directors and officers of RGA’s subsidiaries.
 
 	2.	Indemnification — General	
RGA shall indemnify and hold harmless Indemnitee to the fullest extent permitted or authorized by applicable law. The term “applicable law” means (i) the Indemnification Statute as in effect on the date hereof and as thereafter amended (but in the case of any such amendment, only

to the extent such amendment permits RGA to provide broader indemnification rights than the Indemnification Statute permitted RGA to provide immediately prior to such amendment) and (ii) any other statutory indemnification provisions adopted after the date hereof.
 
 	3.	Additional Indemnification	
Notwithstanding any limitation on indemnity pursuant to Section 2, RGA shall indemnify Indemnitee and hold Indemnitee harmless from and against any and all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with any proceeding to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party by reason of the fact that Indemnitee is or was at any time a director, officer, employee or agent of RGA, or is or was serving or at any time serves at the request of RGA as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise.
 
 	4.	Partial Indemnification	
If Indemnitee is entitled under any provision of this Agreement to indemnification by RGA for some or a portion of any expenses or liabilities of any type whatsoever (including, but not limited to, attorneys’ fees, judgments, fines and amounts paid in settlement), but is not entitled, however, to indemnification for the total amount thereof, RGA shall nevertheless indemnify the Indemnitee for the portion thereof to which the Indemnitee is so entitled.
 
 	5.	Insurance	
RGA may, but is not obligated to, obtain D&O Insurance as may be or become available in reasonable amounts from established and reputable insurers with respect to which Indemnitee is named as an insured. Notwithstanding any other provision of the Agreement, the Company shall not be obligated to indemnify Indemnitee for expenses or liabilities of any type which have been paid directly to or on behalf of Indemnitee by D&O Insurance. If RGA has D&O Insurance in effect at the time RGA receives from Indemnitee any notice of the commencement of a proceeding, RGA shall give prompt notice of the commencement of such proceeding to the insurer(s) in accordance with the procedures set forth in the applicable policy or policies. RGA shall thereafter take all necessary or desirable action to cause such insurer(s) to pay, to or on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy or policies.
 
 	6.	Limitations on Certain Indemnification	
Notwithstanding any other provisions of this Agreement to the contrary, RGA shall not indemnify or hold Indemnitee harmless:
(a) for amounts indemnified by RGA other than pursuant to this Agreement and amounts paid pursuant to policies of D&O Insurance;

(b) in respect to remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law;
(c) if a final judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of RGA pursuant to Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local law;
(d) from or on account of Indemnitee’s conduct which is finally adjudged by a court having jurisdiction in the matter to have been knowingly fraudulent, deliberately dishonest or to have constituted willful misconduct;
(e) if a final adjudication by a court having jurisdiction in the matter shall determine that such indemnification is not lawful;
(f) in respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except in respect to proceedings brought to establish or enforce a right to indemnification under this Agreement, or any other statute or law or otherwise as required under the Indemnification Statute, if Indemnitee is successful in whole or in part, but such indemnification or advancement of expenses may be provided by RGA in specific cases if the Board of Directors finds it to be appropriate; or
(g) in connection with proceedings or claims involving the enforcement of non-compete and/or non-disclosure agreements or the non-compete and/or non-disclosure provisions of employment, consulting or similar agreements that Indemnitee may be a party to with RGA, any subsidiary of RGA or any other applicable foreign or domestic corporation, partnership, joint venture, trust or other enterprise, if any.
 
 	7.	Notification and Defense of Claim	
After receipt by Indemnitee of notice of the commencement of, or the threat of the commencement of, any proceeding, Indemnitee shall promptly notify RGA if Indemnitee believes that indemnification with respect thereto may be sought from RGA under this Agreement; provided, however, that the failure of Indemnitee to provide such notification shall not diminish Indemnitee’s indemnification hereunder, except to the extent that RGA can demonstrate that it was actually prejudiced as a result thereof. With respect to any such proceeding as to which Indemnitee notifies RGA of the commencement thereof or the threat of the commencement thereof:
(a) RGA will be entitled to participate therein at its own expense.
(b) Except as otherwise provided in the next paragraph, RGA, jointly with any other indemnifying party similarly notified, will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from RGA to Indemnitee of RGA’s election to assume the defense thereof, RGA will not be liable to Indemnitee under this Agreement for any

legal or other expenses subsequently incurred by Indemnitee in the defense thereof other than reasonable costs of investigation or as noted in the next paragraph of this subsection (b).
Indemnitee may employ Indemnitee’s own counsel in such proceeding but the fees and expenses of such counsel incurred after notice from RGA of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by RGA, (ii) RGA shall have reasonably concluded that there may be a conflict of interest between RGA and Indemnitee in the conduct of the defense of such proceeding, or (iii) RGA shall not in fact have employed counsel to assume the defense of such proceeding, in each of which cases the reasonable fees and expenses of Indemnitee’s counsel shall be at the expense of RGA.
(c) RGA shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any proceeding effected without RGA’s written consent. RGA shall not settle any proceeding in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither RGA nor Indemnitee will unreasonably withhold their consent to any proposed settlement.
 
 	8.	Advancement of Expenses	
Except as otherwise provided herein, RGA shall advance any expenses actually and reasonably incurred by Indemnitee in connection with the investigation, defense, settlement and/or appeal of any proceeding to which Indemnitee is a party or is threatened to be made a party by reason of the fact that Indemnitee is or was a director, officer, employee or agent of RGA or a subsidiary of RGA, or is or was serving at the request or on behalf of RGA or a subsidiary of RGA as a director, officer, employee or agent of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or another enterprise, provided RGA receives an undertaking from the Indemnitee agreeing to repay such amounts advanced in the event it is ultimately determined that the Indemnitee is not entitled to be indemnified by RGA therefor. The advances to be made hereunder shall be paid by RGA to or on behalf of the Indemnitee promptly and in any event within thirty (30) days following delivery of a written request therefor by Indemnitee to RGA and a copy of the invoices requested to be paid.
 
 	9.	Enforcement	
(a) In the event that Indemnitee is required to bring any action to enforce any rights or to collect any money due under this Agreement, RGA shall advance Indemnitee’s expenses; provided, however, that if Indemnitee is not successful in such action, in whole or in part, Indemnitee shall reimburse RGA for all of Indemnitee’s expenses so advanced.
(b) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for herein is held by a court of competent jurisdiction to be unavailable to Indemnitee in whole or in part, it is agreed that, in such event, RGA shall to the fullest extent permitted by Missouri law, contribute to the payment of the Indemnitee’s expenses, judgments, fines and amounts paid in settlement with respect to any proceeding in an amount that is just and equitable in the circumstances, taking into account, among other things, contributions by other

directors and officers of RGA or others pursuant to indemnification agreements or otherwise; provided that, without limiting the generality of the foregoing, such contribution shall not be required where such holding by the court is due to Indemnitee having intentionally caused or intentionally contributed to the injury complained of with the knowledge that such injury would occur.
(c) RGA shall indemnify Indemnitee against all expenses actually and reasonably incurred in connection with any hearing or proceeding under this Section 9, if Indemnitee is successful in whole or in part.
 
 	10.	Continuation of Indemnity	
All agreements and obligations of RGA contained herein shall continue during the period Indemnitee is a director or officer of RGA (or is or was serving at the request or on behalf of RGA or a subsidiary of RGA as a director, officer, employee or agent of another enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any possible proceeding by reason of the fact that Indemnitee was a director or officer of RGA or serving in any other capacity referred to herein.
 
 	11.	Other Rights and Remedies	
The indemnification and other rights provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under any provision of law, RGA’s Second Restated Articles of Incorporation, RGA’s Bylaws, other agreement, vote of shareholders or disinterested directors or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while occupying any of the positions or having any of the relationships referred to in this Agreement, and shall continue after Indemnitee has ceased to occupy such position or have such relationship.
 
 	12.	Subrogation	
In the event of payment under this Agreement, RGA shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may reasonably be necessary to secure such rights, including the execution of such documents necessary to enable RGA effectively to bring suit to enforce such rights. RGA shall pay or reimburse all reasonable expenses incurred by Indemnitee in connection with such subrogation.
 
 	13.	Severability	
If any provision of this Agreement shall be held to be invalid, illegal or unenforceable (i) the validity, legality and enforceability of the remaining provisions of this Agreement shall not be in any way affected or impaired thereby, and (ii) to the fullest extent possible, the provisions of this Agreement shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

 	14.	Modification and Waiver	
No supplement or amendment of this Agreement shall be binding unless executed in writing by both of the parties. No waiver of any of the provisions of this Agreement shall be binding unless executed in writing by the person making the waiver nor shall such waiver constitute a continuing waiver.
 
 	15.	Notices	
All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed or if (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:
 
 	(a)	If to Indemnitee, to:	

 

                                                                      
or to such other address as may be furnished in writing to RGA by Indemnitee;
 
 	(b)	If to RGA, to:	
Reinsurance Group of America, Incorporated
1370 Timberlake Manor Parkway
Chesterfield, Missouri 63017-6039
Attn: General Counsel
or to such other address as may have been furnished in writing to Indemnitee by RGA.
 
 	16.	Governing Law	
This Agreement shall in all respects be construed in accordance with and governed by the substantive laws of the State of Missouri, without reference to its choice of law rules.
 
 	17.	Other Rights and Remedies	
The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under RGA’s Articles of Incorporation, Bylaws or the Indemnification Statute or otherwise, and nothing herein shall be deemed to diminish or otherwise restrict Indemnitee’s right to indemnification under any such other provision. To the extent applicable law or the Articles of Incorporation or the Bylaws of RGA, as in effect on the date hereof or at any time in the future, permit greater indemnification than as provided for in this Agreement, the parties hereto agree that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such law or provision

of the Articles of Incorporation or Bylaws and this Agreement shall be deemed amended without any further action by RGA or Indemnitee to grant such greater benefits.
 
 	18.	Heirs, Successors and Assigns	
This Agreement shall be binding upon and inure to the benefit of and be enforceable against and by the parties hereto and their respective successors, assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of RGA), spouses, heirs and personal and legal representatives. RGA shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all, substantially all, or a substantial part, of the business and/or assets of RGA, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that RGA would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director, officer, employee or agent of RGA or of another enterprise at the request of RGA. This Agreement shall not be deemed to create any obligation on the part of Indemnitee to continue to serve in any such capacity. No assignment or succession (whether direct or indirect by purchase, merger, consolidation, or otherwise) shall relieve RGA of its obligations hereunder.
 
 	19.	Agreement to Serve	
Indemnitee agrees to serve and/or continue to serve as an director and/or officer of RGA, at its will (or under separate agreement, if such agreement now or hereafter exists), so long as he or she is duly appointed or elected and qualified in accordance with the applicable provisions of the Articles of Incorporation and Bylaws of RGA, any subsidiary of RGA, or any applicable other foreign or domestic corporation, partnership, limited liability company, joint venture, trust or other enterprise, or until such time as he or she tenders his or her resignation in writing, provided, however, that nothing contained in this Agreement is intended to create any right to continued employment by Indemnitee in any capacity.
 
 	20.	Miscellaneous	
(a) The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or affect the construction thereof.
(b) RGA expressly confirms and agrees that is has entered into this Agreement and assumed the obligations imposed on RGA hereby in order to induce Indemnitee to become or to continue as a director and/or officer of RGA and acknowledges that Indemnitee is relying upon this Agreement in continuing in such capacity or capacities.
(c) In the event of any ambiguity, vagueness or other matter involving the interpretation or meaning of this Agreement, this Agreement shall be liberally construed so as to provide to Indemnitee the full benefits set out herein.

(d) This Agreement supercedes any prior indemnification agreement between Indemnitee and RGA or its predecessors or subsidiaries.
This INDEMNIFICATION AGREEMENT is entered into on the day and year first above written.

 	 	 	 	 	
 	 	REINSURANCE GROUP OF AMERICA, INCORPORATED	
 	 	 	
 	 	By:	 	 	
 	 	Name:	 	A Greig Woodring	
 	 	Title:	 	President and Chief Executive Officer	
 	 	
 	 	INDEMNITEE	
 	 	 	
 	 	By:	 	 	
 	 	Name:	 	 	

Exhibit 31.1
CEO CERTIFICATION
I, A. Greig Woodring, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reinsurance Group of America, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2013	 	 	  	/s/ A. Greig Woodring	
 	 	 	  	A. Greig Woodring	
 	 	 	  	President & Chief Executive Officer	

Exhibit 31.2
CFO CERTIFICATION
I, Jack B. Lay, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Reinsurance Group of America, Incorporated;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 5, 2013	 	 	  	/s/ Jack B. Lay	
 	 	 	  	Jack B. Lay	
 	 	 	  	Senior Executive Vice President
& Chief Financial Officer	

Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Reinsurance Group of America, Incorporated and subsidiaries, (the “Company”), for the quarterly period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), A. Greig Woodring, Chief Executive Officer of the Company, certifies, to his best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 5, 2013	 	 	  	/s/ A. Greig Woodring	
 	 	 	  	A. Greig Woodring	
 	 	 	  	President & Chief Executive Officer	

Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Reinsurance Group of America, Incorporated and subsidiaries, (the “Company”), for the quarterly period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Jack B. Lay, Chief Financial Officer of the Company, certifies, to his best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 	 	Date: August 5, 2013	 	 	 	 	 	/s/ Jack B. Lay	
 	 	 	 	 	 	 	 	Jack B. Lay	
 	 	 	 	 	 	 	 	Chief Financial Officer	
 	 	 	 	 	 	 	 	& Senior Executive Vice President