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SYMETRA FINANCIAL CORP - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

Edgar Online, Inc.
This discussion contains forward-looking statements that involve risk and
uncertainties. Our actual results may differ materially from those discussed in,
or implied by, any of the forward-looking statements as a result of various
factors, including but not limited to those listed under "Forward-Looking
Statements." You should read the following discussion in conjunction with Item 1
- "Condensed Financial Statements" included in this Form 10-Q, our Annual Report
for the year ended December 31, 2011, filed with the SEC on February 29, 2012
("2011 10-K"), as well as our current reports on Form 8-K and other publicly
available information. Our fiscal year ends on December 31 of each calendar
year.

Management considers certain non-GAAP financial measures, including adjusted
operating income, adjusted operating income per common share, pre-tax adjusted
operating income, adjusted book value, adjusted book value, as converted,
adjusted book value per common share, adjusted book value per common share, as
converted, average adjusted book value, and operating return on average equity
(ROAE) to be useful to investors in evaluating our financial performance and
condition. These measures have been reconciled to their most comparable GAAP
financial measures. For a definition and further discussion of these non-GAAP
measures, see Item 7 - "Management's Discussion and Analysis of Financial
Condition - Use of non-GAAP Financial Measures" in our 2011 10-K.

Historical financial information has been restated to reflect the retrospective
adoption of a new accounting standard for deferred acquisition costs on
January 1, 2012. See Note 2 to the accompanying unaudited interim condensed
consolidated financial statements for discussion of adoption of new accounting
pronouncements.

All dollar and share amounts, except per share data, are in millions unless otherwise stated.

Overview


We are a financial services company in the life insurance industry providing
employee benefits, annuities and life insurance through a national network of
benefits consultants, financial institutions and independent agents and
advisers. Our operations date back to 1957 and many of our distribution
relationships have been in place for decades.

Our Operations

We manage our business through three divisions composed of four business segments:


Benefits Division



• Benefits. We offer medical stop-loss insurance, limited benefit medical

plans, group life insurance, accidental death and dismemberment insurance

and disability income insurance mainly to employer groups of 50 to 5,000

individuals. In addition to our insurance products, we offer managing

general underwriter (MGU) and leave administration services.


Retirement Division


• Deferred Annuities. We offer fixed and variable deferred annuities to

Introducing Term 25 for the

consumers who want to accumulate tax-deferred assets for retirement.

• Income Annuities. We offer single premium income annuities (SPIAs) to

customers seeking a reliable source of retirement income or to protect

against outliving their assets during retirement, and structured

settlement annuities to fund third party personal injury settlements. In

addition, we offer funding services options to existing structured

         settlement clients.


Individual Life Division


• Individual Life. We offer an array of insurance products such as term and

universal life insurance (UL), including single premium life insurance

(SPL), bank-owned life insurance (BOLI) and corporate-owned life insurance

(COLI).



In addition, we have our Other segment, which consists primarily of investment
income on unallocated surplus, unallocated corporate expenses, interest expense
on debt, earnings related to our limited partnership interests, the results of
small, non-insurance businesses that are managed outside of our divisions, such
as our broker-dealer, and inter-segment elimination entries.



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See Note 11 to the accompanying unaudited interim condensed consolidated financial statements for the financial results of our segments.

Current Outlook


The third quarter of 2012 offered modest U.S. economic growth, despite continued
headwinds including European instability and weakness, and U.S. political
uncertainty. The political uncertainty in the U.S. is exacerbated by the
possibility of a "fiscal cliff" in early 2013, when automatic spending cuts and
tax increases are set to take effect unless a deficit reduction plan is
implemented. In addition, interest rates continue to be suppressed to
historically low levels by the Federal Reserve to support a stronger economic
recovery. Recently, in September 2012, the Federal Reserve announced plans to
purchase additional agency mortgage-backed securities at a rate of $40 billion
per month, which will continue to place downward pressure on interest rates. We
expect interest rates to remain low for the next two years, which combined with
tighter credit spreads will create continued pressure for our interest-sensitive
asset-based businesses, impacting sales of and margins on these products,
including fixed annuities, SPIAs, universal life insurance and BOLI.

To mitigate the risk of unfavorable consequences in this environment, such as
spread compression on our in-force business, we remain proactive in our
investment and product strategies, interest-crediting strategies and overall
asset-liability management practices. To manage our asset yield in this
environment, we have been and plan to continue increasing our investments in
commercial mortgage loans we underwrite. While interest rates on recently
written loans have decreased consistent with the overall level of interest
rates, they continue to be an attractive investment opportunity. Further, we
made additional progress on our investment strategy of selling lower yielding,
higher premium agency RMBS where the prepayment characteristics of these
securities had deteriorated. During the nine months ended September 30, 2012, we
sold $365.3 of these assets. In doing so, we were able to produce realized gains
while reducing our future reinvestment risk. We remain proactive in managing our
prepayment and reinvestment risk and may seek similar transactions in the fourth
quarter of 2012. Looking forward, we continue the pursuit of other investment
strategies to help us retain our interest margins in the current low interest
rate environment.

To manage our way through this uncertain environment and grow profitably, we
will continue to focus on the strategies outlined in Item 1 - "Business - Our
Strategies" in the 2011 10-K. Our 2012 focus is to continue executing on our
Grow & Diversify initiatives, while at the same time remaining focused on our
core businesses and maintaining our financial strength ratings.

We believe we have adequate levels of capital to support our current business
and to fund organic and transactional growth. Opportunities for organic growth
of our business and for strategic transactions have arisen as major players in
the life insurance industry have exited or announced plans to exit the life and
annuities marketplace. However, the success of these and other strategies may be
affected by the factors discussed in Item 1A - "Risk Factors" and other factors
as discussed herein.

Critical Accounting Policies and Estimates

Introducing Term 25 for the


The preparation of financial statements in conformity with GAAP requires
management to adopt accounting policies and make estimates and assumptions that
affect amounts reported and disclosed in the unaudited interim condensed
consolidated financial statements. The following accounting policies are those
we consider to be particularly critical to understanding our condensed financial
statements because their application places the most significant demands on our
ability to judge the effect of inherently uncertain matters on our financial
results:



  •   The evaluation of OTTI of investments;




  •   The valuation of investments at fair value;




    •    The balance, recoverability and amortization of deferred policy
         acquisition costs and deferred sales inducements; and



• The liabilities for future policy benefits and policy and contract claims.



In applying the Company's accounting policies, management makes subjective and
complex judgments that frequently require estimates about matters that are
inherently uncertain. Many of these policies, estimates and related judgments
are common in the insurance and financial services industries; others are
specific to the Company's businesses and operations. For all of these policies,
we caution that future events rarely develop exactly as forecasted, and our best
estimates may require adjustment.



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On January 1, 2012, we retrospectively adopted a new accounting standard related
to the deferral of policy acquisition costs. Our new policy regarding deferrable
costs, including the impact of retrospective adoption, is described below. This
new accounting standard did not impact the accounting for deferred sales
inducements.

Other than as described above, there have been no material changes to the critical accounting estimates listed above, which are described in Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" and Note 2 of the notes to the audited consolidated financial statements included in the 2011 10-K.

Deferred Policy Acquisition Costs (DAC)


Prior to the adoption of new accounting guidance, deferrable acquisition costs
were those that varied with and were primarily related to the acquisition of new
or renewal business, regardless of whether the efforts were successful or
unsuccessful. Under the new standard, we defer only costs that are directly
related to the successful acquisition or renewal of insurance contracts,
including:



  •   Commissions for successful contract acquisitions;




  •   Premium-based taxes and assessments;



• Distribution costs directly related to successful contract acquisition;

• Third-party underwriting costs related to contracts that are successfully

         acquired; and



• The portion of the salaries and benefits related to employee time spent on

the processing of successfully acquired new and renewal contracts.

Introducing Term 25 for the



All other acquisition-related costs, including costs incurred for soliciting
potential customers, managing distribution and underwriting functions, training,
administration, unsuccessful acquisition or renewal efforts, market research and
product development are not deferrable and are expensed in the period incurred.
Additionally, upon adoption, policy acquisition costs in our Benefits segment
are no longer being deferred, as the application of the new standard to the
short-duration contracts in this segment resulted in an immaterial net impact of
deferral of acquisition costs.

While we have restated DAC amortization to reflect the retrospective reduction
in costs deferred, our policies and methodology have not changed. For more
information on the impact of adoption, see Note 2 to the accompanying unaudited
interim condensed consolidated financial statements.

The following table summarizes our DAC asset balances by segment:



                                            As of September 30, 2012            As of December 31, 2011
                                                                                     (As adjusted)
Deferred Annuities                         $                    259.3          $                   265.5
Income Annuities                                                 43.5                               37.9
Individual Life                                                  66.7                               65.0

Total unamortized balance at end of
period                                                          369.5                              368.4
Accumulated effect of net unrealized
gains                                                          (223.4 )                           (182.4 )

Balance at end of period                   $                    146.1          $                   186.0



Amortization of DAC

We amortize DAC over the premium paying period or over the lives of the policies in proportion to the future estimated gross profits (EGPs) of each of these product lines, as follows:

• Deferred Annuities. The DAC amortization period is typically 20 years

              for deferred annuities, although most of the DAC amortization occurs
              within the first 10 years because the EGPs are highest during such
              period. It is common for deferred annuity policies to lapse after the
              surrender charge period expires.



• Income Annuities. The DAC amortization period for SPIAs, including

              structured settlement annuities, is the benefit payment 

period. The

              benefit payment periods vary by policy; however, 80% of the benefits
              will be paid over the next 45 years and nearly all benefits are paid
              within 80 years of contract issue.




         •    Individual Life. The DAC amortization period related to universal
              life policies is typically 25 years. DAC amortization related to our
              term life insurance policies is the premium paying period, which
              ranges from 10 to 30 years.




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To determine the EGPs, we make assumptions as to lapse and withdrawal rates,
expenses, interest margins, mortality experience, long-term equity market
returns and investment performance. Estimating future gross profits is a complex
process requiring considerable judgment and forecasting of events well into the
future.

Changes to assumptions can have a significant impact on DAC amortization. In the
event actual experience differs from our assumptions or our future assumptions
are revised, we adjust our EGPs, which could result in a significant increase in
amortization expense. EGPs are adjusted quarterly to reflect actual experience
to date. For example, for our deferred annuity products, if renewal crediting
rates are greater or lower than the renewal crediting rates we assumed in our
DAC asset amortization models, we would record a change in amortization expense
to reflect the change in our EGPs. For future assumptions we complete a study
and refine our estimates of future gross profits at least annually during the
third quarter. Upon completion of an assumption study, we revise our assumptions
to reflect our current best estimate, thereby changing our estimate of projected
EGPs used in the DAC asset amortization models. This is often referred to as
"unlocking" the DAC asset amortization model. In the quarter ended September 30,
2012, we recorded an unlocking adjustment of $2.6 which increased DAC
amortization, primarily in our Individual Life segment. The unlocking was driven
by lowering our assumptions for future interest margins, due to expected
investment yields in this low interest rate environment. We also revise future
assumptions as needed throughout the year if a significant transaction or trend
is identified that would warrant a change in those assumptions.

The following would generally cause an increase in DAC amortization expense:

Actual experience differs from our assumptions:




         •    increases to interest margins in the current period from increased
              yields or decreased crediting rates;




  •   increases to lapse and withdrawal rates in the current period;




  •   decreases to current period expense levels;




  •   significant investment prepayment related income;




  •   increases to equity market returns; and




  •   lower death claims.

Future assumption changes (unlocking):




         •    decreases in expected future interest margins due to increases in
              expected renewal crediting rates and/or decreases to expected
              investment yields;




  •   increases to expected future lapse and withdrawal rates;




  •   increases to future expected expense levels;




         •    significant investment prepayment activity, which results in
              decreased future interest margins;




  •   decreases to expected equity market returns; and




  •   higher expected future death claims.


We regularly conduct DAC recoverability analyses, where we compare the current
DAC asset balances with the estimated present value of future profitability of
the underlying business. The DAC asset balance is considered recoverable if the
present value of future profits is greater than the current DAC asset balance.

In connection with our recoverability analyses, we perform sensitivity analyses
on our most significant DAC asset balances, which currently relate to our
deferred annuity, universal life, and BOLI products, to capture the effect that
certain key assumptions have on DAC asset balances. The sensitivity tests are
performed independently, without consideration for any correlation among the key
assumptions. The following depicts the sensitivities for our deferred annuity,
universal life and BOLI DAC asset balances as of December 31, 2011:



• if we increased our future lapse and withdrawal rate assumptions by a

              factor of 10%, the DAC asset balance would decrease approximately
              $4.9;




         •    if we increased our future expense assumptions by a factor of 10%,
              the DAC asset balance would decrease approximately $0.5.




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In addition, depending on the amount and the type of new business written in the future, we may determine that other assumptions may produce significant variations in our financial results.


We adjust the unamortized DAC balance for the accumulated effect of net
unrealized gains or losses, which is recorded net of taxes in AOCI. This
adjustment reflects the impact on EGPs as if the unrealized investment gains and
losses had been realized as of the balance sheet date. Currently, our
available-for-sale portfolio is in a net unrealized gain position, primarily due
to the low interest rate environment, and the corresponding adjustment decreases
our DAC balance and AOCI. In periods of rising interest rates, the fair value of
our fixed maturities would generally decrease, and this may result in net
unrealized investment losses. In such circumstances, the DAC adjustment would
increase our DAC balance and increase AOCI. However, this adjustment is limited
to cumulative capitalized acquisition costs plus interest, which would be
$200.0, net of taxes of $130.0, in our Deferred Annuities segment, and $11.0,
net of taxes of $7.1, in our Individual Life segment as of December 31, 2011.

New Accounting Standards

For a discussion of recently adopted accounting pronouncements, see Note 2 to the accompanying unaudited interim condensed consolidated financial statements.

Sources of Revenues and Expenses


Our primary sources of revenues from our insurance operations are premiums, net
investment income and policy fees and contract charges. Our primary sources of
expenses from our insurance operations are policyholder benefits and claims,
interest credited to policyholder reserves and account balances, and general
business and operating expenses, net of DAC. We allocate shared service
operating expenses to each segment using multiple factors, including employee
headcount, allocated investments, account values and time study results. We also
generate net realized investment gains (losses) on sales or impairment of our
investments and changes in fair value on our equity trading portfolio.

Each of our four business segments maintains its own portfolio of invested
assets, which are managed in accordance with specific guidelines. The net
investment income and realized investment gains (losses) are reported in the
segment in which they occur. We also allocate surplus net investment income to
each segment using a risk-based capital formula. The unallocated portion of net
investment income is reported in the Other segment.

Revenues

Premiums

Premiums consist primarily of premiums from our medical stop-loss and individual term and whole life insurance products.

Net investment income


Net investment income represents the income earned on our investments, net of
investment expenses, including prepayment related income such as bond make-whole
payments. Net investment income also includes gains or losses from changes in
the fair value of our investments in private equity fund limited partnerships
and the amortization of tax credit investments.

Policy fees, contract charges and other

Policy fees, contract charges and other includes cost of insurance (COI) charges on our UL and BOLI policies, mortality expense, surrender and other administrative charges to policyholders, revenues from our non-insurance businesses, and reinsurance allowance fees.

Net realized investment gains (losses)

Net realized investment gains (losses) mainly consists of realized gains (losses) from sales of our investments, realized losses from investment impairments, changes in fair value on our trading portfolio and changes in fair value of our FIA options and related FIA embedded derivative.

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Benefits and Expenses

Policyholder benefits and claims

Policyholder benefits and claims consist of benefits paid and reserve activity on medical stop-loss, individual life and BOLI policies.

Interest credited


Interest credited represents interest credited to policyholder reserves and
contract holder general account balances, the impact of mortality and funding
services activity within our Income Annuities segment, and the amortization of
deferred sales inducement assets.

Other underwriting and operating expenses

Other underwriting and operating expenses represent non-deferrable costs related to the acquisition and ongoing maintenance of insurance and investment contracts, including certain non-deferrable commissions, policy issuance expenses and other business and administrative operating costs.

Interest expense


Interest expense primarily includes interest on corporate debt, the impact of
interest rate hedging activities on the debt and amortization of debt issuance
costs.

Amortization of deferred policy acquisition costs


We defer as assets certain commissions, distribution costs and other
underwriting costs that are directly related to the successful acquisition of
new and renewal business. Amortization of previously capitalized DAC is recorded
as an expense.

Use of non-GAAP Financial Measures


Certain tables and related disclosures in this report include non-GAAP financial
measures. We believe these measures provide useful information to investors in
evaluating our financial performance or condition. The non-GAAP financial
measures discussed below are not substitutes for their most directly comparable
GAAP measures. The adjustments made to derive these non-GAAP measures are
important to understanding our overall results of operations and financial
position and, if evaluated without proper context, these non-GAAP measures
possess material limitations. Therefore, our management and board of directors
also separately review the items excluded from or added to the most directly
comparable GAAP measures to arrive at these non-GAAP measures. In addition,
management and our board of directors also analyze each of the comparable GAAP
measures in connection with their review of our results of operations and
financial position.



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For a full discussion of each non-GAAP measure, see Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Use of non-GAAP Financial Measures" in our 2011 10-K.



                                                                 As of                 As of
                                                             September 30,          December 31,
                                                                 2012                   2011
                                                                                   (As adjusted)
Total stockholders' equity                                  $       3,641.2        $      3,114.9
Less: AOCI                                                          1,404.3               1,027.3

Adjusted book value*                                                2,236.9               2,087.6
Add: Assumed proceeds from exercise of warrants                       218.1                 218.1

Adjusted book value, as converted*                          $       2,455.0 

$ 2,305.7



Book value per common share(1)                              $         26.37 

$ 22.64



Adjusted book value per common share(2)*                    $         18.78 

$ 17.60

Adjusted book value per common share, as converted(3)* $ 17.78

       $        16.75





                                                             For the Twelve Months Ended
                                                        September 30,            December 31,
                                                             2012                    2011
                                                                                 (As adjusted)
Return on stockholders' equity, or ROE                              7.6 %                   7.2 %
Net income(4)                                          $          248.1         $         195.8
Average stockholders' equity(5)                                 3,266.3                 2,710.2

Operating return on average equity, or ROAE*                        9.5 %                   9.5 %
Adjusted operating income(6)*                          $          203.5         $         190.2
Average adjusted book value(7)*                                 2,138.1                 2,002.4



* Represents a non-GAAP measure.

(1) Book value per common share is calculated as stockholders' equity divided by

outstanding common shares and shares subject to outstanding warrants totaling

138.096 and 137.613 as of September 30, 2012 and December 31, 2011,

respectively.

(2) Adjusted book value per common share is calculated as adjusted book value

divided by outstanding common shares totaling 119.120 and 118.637 as of

September 30, 2012 and December 31, 2011, respectively.

(3) Adjusted book value per common share, as converted is calculated as adjusted

book value plus the assumed proceeds from exercise of warrants, divided by

outstanding common shares and shares subject to outstanding warrants totaling

    138.096 and 137.613 as of September 30, 2012 and December 31, 2011,
    respectively. The warrants, which will expire in August 2014, have an
    exercise price of $11.49.

(4) Net income for the most recent twelve months is used in the calculation of

ROE. For the twelve months ended September 30, 2012, this consisted of

quarterly net income of $55.2, $43.8, $75.4 and $73.7.

(5) Ending stockholder's equity balances for the most recent five quarters are

used in the calculation of ROE. As of September 30, 2012, stockholder's

equity for the most recent five quarters was $3,641.2, $3,378.4, $3,154.7,

$3,114.9 and $3,042.2. As of December 31, 2011, stockholder's equity for the

most recent five quarters was $3,114.9, $3,042.2, $2.627.3, $2,410.2 and

$2,356.6.

(6) Adjusted operating income for the most recent twelve months is used in the

calculation of operating ROAE. For the twelve months ended September 30,

2012, this consisted of quarterly adjusted operating income of $45.9, $47.2,

$59.3 and $51.1. Adjusted operating income consists of net income, less

after-tax net realized gains (losses), plus after-tax net realized and

unrealized gains (losses) related to our FIA product. For the twelve months

ended September 30, 2012, the net quarterly reconciling amounts were $9.3,

$(3.4), $16.1, and $22.6. For the twelve months ended December 31, 2011,

adjusted operating income was $190.2, with a net reconciling amount of $5.6.

(7) Ending adjusted book values for the most recent five quarters are used in the

calculation of operating ROAE. Adjusted book value consists of stockholders'

equity, less AOCI. As of September 30, 2012, adjusted book value for the most

recent five quarters was $2,236.9, $2,190.4, $2,154.6, $2,087.6 and $2,021.1.

AOCI, for the most recent five quarters was $1,404.3, $1,188.0, $1,000.1,

$1,027.3 and $1,021.1. As of December 31, 2011, adjusted book value of the

most recent five quarters was $2,087.6, $2,021.0, $2,017.6, $1,966.5 and

$1,919.0. AOCI, for the most recent five quarters was $1,027.3, $1,021.1,

$609.7, $443.7 and $437.6.




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Results of Operations

The following discussion should be read in conjunction with our unaudited interim condensed consolidated financial statements and the related condensed notes.

Total Company

Set forth below is a summary of our consolidated financial results. The variances noted in the total company and segment tables should be interpreted as increases or (decreases), respectively.



                                               Three Months Ended                    QTD                      Nine Months Ended                     YTD
                                                 September 30,                   Variance (%)                   September 30,                   Variance (%)
                                          2012                2011              2012 vs. 2011            2012                2011              2012 vs. 2011
                                                          (As adjusted)                                                  (As adjusted)
Revenues:
Premiums                                $   154.1        $         150.5                   2.4 %       $   451.2        $         390.8                  15.5 %
Net investment income                       312.3                  315.5                  (1.0 )           952.0                  937.7                   1.5
Policy fees, contract charges, and
other                                        47.1                   45.5                   3.5             142.2                  136.1                 

4.5

Net realized investment gains
(losses):
Net impairment losses recognized in
earnings                                    (13.3 )                 (4.9 )                   *             (25.2 )                 (8.6 )               

*

Other net realized investment gains
(losses)                                     28.8                  (51.7 )                   *              60.2                  (18.3 )               

*


Total net realized investment gains
(losses)                                     15.5                  (56.6 )                   *              35.0                  (26.9 )                   *

Total revenues                              529.0                  454.9                  16.3           1,580.4                1,437.7                   9.9
Benefits and expenses:
Policyholder benefits and claims            111.1                  109.4                   1.6             320.8                  285.4                  12.4
Interest credited                           235.4                  229.3                   2.7             695.2                  682.7                   1.8
Other underwriting and operating
expenses                                     88.9                   82.6                   7.6             264.5                  230.6                  14.7
Interest expense                              8.2                    8.0                   2.5              24.6                   24.0                   2.5
Amortization of deferred policy
acquisition costs                            17.9                   15.0                  19.3              49.1                   47.7                   2.9

Total benefits and expenses                 461.5                  444.3                   3.9           1,354.2                1,270.4                   6.6

Income from operations before
income taxes                                 67.5                   10.6                     *             226.2                  167.3                  35.2

Total provision for income taxes             12.3                    0.1                     *              51.8                   45.2                  14.6

Net income                              $    55.2        $          10.5                     * %       $   174.4        $         122.1                  42.8 %


Net income per common share(1):
Basic                                   $    0.40        $          0.08                     * %       $    1.26        $          0.89                  41.6 %
Diluted                                 $    0.40        $          0.08                     *         $    1.26        $          0.89                  41.6

Weighted-average common shares
outstanding:
Basic                                     138.091                137.559                   0.4 %         137.986                137.459                   0.4 %
Diluted                                   138.094                137.571                   0.4           137.990                137.470                   0.4

Non-GAAP Financial Measures:
Adjusted operating income               $    45.9        $          46.9                  (2.1 )%      $   152.4        $         139.1                 

9.6 %



Adjusted operating income per
common share:
Basic                                   $    0.33        $          0.34                  (2.9 )%      $    1.10        $          1.01                   8.9 %
Diluted                                 $    0.33        $          0.34                  (2.9 )       $    1.10        $          1.01                   8.9

Reconciliation to net income:
Net income                              $    55.2        $          10.5                     *         $   174.4        $         122.1                 

42.8

Less: Net realized investment gains
(losses) (net of taxes of $5.4,
$(19.8), $12.2 and $(9.4))                   10.1                  (36.8 )                   *              22.8                  (17.5 )               

*

Add: Net realized gains (losses) -
FIA (net of taxes of $0.3, $(0.2),
$0.3 and $(0.2))                              0.8                   (0.4 )                   *               0.8                   (0.5 )                   *

Adjusted operating income               $    45.9        $          46.9                  (2.1 )%      $   152.4        $         139.1                   9.6 %





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* Represents percentage variances that are not meaningful or are explained

through the discussion of other variances.

(1) Basic and diluted net income per common share includes all participating

securities, such as warrants and unvested restricted shares, based on the

application of the two-class method. Diluted net income per common share also

includes the dilutive impact of non-participating securities, to the extent

dilutive, such as stock options and shares estimated to be issued under the

employee stock purchase plan, based on application of the treasury stock

method. Antidilutive awards were excluded from the computation of dilutive

net income per share.



The following table sets forth pre-tax adjusted operating income, by segment:



                                                      Three Months Ended                  QTD                   Nine Months Ended                  YTD
                                                         September 30,                Variance (%)                September 30,                Variance (%)
                                                  2012               2011            2012 vs. 2011          2012              2011            2012 vs. 2011
                                                                 (As adjusted)                                            (As adjusted)
Segment pre-tax adjusted operating income
(loss):
Benefits                                        $    16.7       $          21.9               (23.7 )%    $    58.1      $          54.9                 5.8 %
Deferred Annuities                                   24.0                  26.5                (9.4 )          73.6                 68.3                 7.8
Income Annuities                                      8.6                   7.1                21.1            39.9                 28.6                39.5
Individual Life                                      13.8                  12.8                 7.8            41.5                 47.2               (12.1 )
Other                                               (10.0 )                (1.7 )                 *           (20.8 )               (5.5 )                 *

Pre-tax adjusted operating income(1)            $    53.1       $          66.6               (20.3 )%    $   192.3      $         193.5               

(0.6 )%


Add: Net realized investment gains (losses),
excluding FIA                                        14.4                 (56.0 )                 *            33.9                (26.2 )            

*


Income from operations before incomes taxes     $    67.5       $          10.6                   * %     $   226.2      $         167.3                35.2 %




* Represents percentage variances that are not meaningful or are explained

through the discussion of other variances.

(1) Represents a non-GAAP measure.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary of Results


Net income increased $44.7 driven by realized gains on our investment portfolio,
compared to realized losses in the third quarter of 2011. This was partially
offset by a decrease in pre-tax adjusted operating income. In addition, the
provision for income taxes increased $12.2 on higher pre-tax income, offset by
benefits from higher levels of tax credit investments.

Net realized investment gains (losses) increased $72.1. This was driven by
mark-to-market net gains on our trading securities. Net gains on trading
securities were $25.0 for the three months ended September 30, 2012 compared to
losses of $52.1 for the three months ended September 30, 2011. This was
partially offset by an increase in impairments, which were $13.3 for third
quarter 2012, compared to $4.9 for third quarter 2011. For further discussion of
our investment results and portfolio refer to - "Investments."

The provision for income taxes increased $12.2, driven by fluctuations in net
realized investment gains (losses). The effective tax rate increased to 18.2%
for three months ended September 30, 2012, compared to 0.9% for the same period
in 2011. The difference between our effective rate and the federal tax rate is
primarily due to benefits from our tax credit investments in relation to our
overall income levels. Quarterly, we adjust our provision to reflect our
estimated annual effective tax rate. In the fourth quarter 2012 and full year
2012, we expect our effective income tax rate to be in the low- to mid-20%
range. This is lower than in recent years as a result of increased tax credit
investments.

Further discussion of adjusted operating income drivers described above:


Pre-tax adjusted operating income decreased $13.5 due to declines in two of our
four business segments, as well as higher losses in our Other segment. Earnings
in our business segments were constrained by higher operating expenses, which
increased mainly due to higher employee-related and professional services
expenses associated with our Grow & Diversify initiatives.

Our Benefits segment's profitability decreased $5.2 over third quarter 2011
levels, driven by a higher loss ratio and higher expenses related to the build
out of our group life and disability income insurance business, one of our
Grow & Diversify initiatives. The loss ratio increased to 65.5% for the three
months ended September 30, 2012, compared to 63.6% in the prior-year period.

Our Deferred Annuities segment's profitability decreased $2.5, driven by lower
interest spreads and increased expenses related to our Symetra True Variable
AnnuitySM (True VA) product, one of our Grow & Diversify initiatives that
launched in June 2012.



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Our Income Annuities segment's profitability increased $1.5 on favorable mortality experience and lower expenses, which was partially offset by decreased funding services activity.


Our Individual Life segment's profitability increased $1.0 primarily due to a
higher BOLI ROA, partially offset by higher individual life claims and higher
amortization of DAC due to unlocking of future assumptions, related to a
decrease in future expected investment yields.

Our Other segment's losses increased $8.3 primarily due to lower net investment income related to our tax credit and alternative investments.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary of Results

Net income increased $52.3 as a result of realized gains on our investment portfolio, compared to realized losses in the nine months ended September 30, 2011.


Net realized investment gains increased $61.9, driven by mark-to-market net
gains on our trading securities. Net gains on trading securities were $33.6 for
the nine months ended September 30, 2012 compared to losses of $47.6 for the
same period in 2011. This was partially offset by a $16.6 increase in
impairments, which were $25.2 through third quarter of 2012, compared to $8.6
through the third quarter of 2011. For further discussion of our investment
results and portfolio refer to - "Investments."

The provision for income taxes increased $6.6 on higher pre-tax earnings,
partially offset by a lower effective tax rate due to an increase in tax credit
investments and the related benefits. The effective tax rate was 22.9% for the
nine months ended September 30, 2012 compared to 27.0% for the same period in
2011. For the full year 2012, we expect an overall effective income tax rate in
the low- to mid-20% range, which is lower than in recent years as a result of
increased tax credit investments.

Further discussion of adjusted operating income drivers described above:


Pre-tax adjusted operating income was relatively flat year-over-year. We
experienced earnings increases in three of our four business segments, offset by
higher losses in our Other segment. Our earnings results reflect a $33.9
increase in other underwriting and operating expenses over 2011 expense levels.
This is primarily due to higher employee-related and professional services
expenses related to our Grow & Diversify initiatives.

Our Benefits segment's profitability increased $3.2 for the nine months ended
September 30, 2012, compared to the same period in 2011. This was driven by a
larger block of medical stop-loss business, a result of organic growth from
strong sales, as well as premium related to the block of business acquired in
July 2011. The loss ratio improved slightly to 64.2% for the nine months ended
September 30, 2012, compared to 64.4% for the same period in 2011. This was
partially offset by higher expenses related to our group life and disability
income business, a Grow & Diversify initiative.

Our Deferred Annuities segment's profitability increased $5.3 as the investment
margin (net investment income less interest credited) increased $11.0. This was
driven by a higher year-over-year interest spread on increased fixed account
values, which was partially offset by higher expenses primarily related to our
True VA product.

Our Income Annuities segment's profitability increased $11.3 on mortality gains
of $13.8 during the first nine months of 2012, compared to mortality gains of
$4.2 for the same period in 2011, as well as contributions from higher
year-over-year interest spreads.

Our Individual Life segment's profitability decreased $5.7, driven by higher
individual claims, increased employee-related expenses, primarily related to the
implementation of our Grow & Diversify initiatives, and an unfavorable impact
from our DAC unlocking. These were partially offset by growth in our BOLI ROA.

Our Other segment's losses increased $15.3 primarily due to lower net investment income related to our tax credit investments.

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Division Operating Results


The results of operations and selected operating metrics for our five segments
(Benefits, Deferred Annuities, Income Annuities, Individual Life and Other) for
the three and nine months ended September 30, 2012 and 2011 are set forth in the
following respective sections.

Benefits


The following table sets forth the results of operations relating to our
Benefits segment:



                                                      Three Months Ended                 QTD                   Nine Months Ended                 YTD
                                                         September 30,               Variance (%)                September 30,               Variance (%)
                                                   2012              2011           2012 vs. 2011           2012             2011           2012 vs. 2011
                                                                 (As adjusted)                                           (As adjusted)
Operating revenues:
Premiums                                        $    144.9      $         140.8                2.9 %     $    423.3     $         360.6               17.4 %
Net investment income                                  5.5                  4.6               19.6             16.2                13.2               22.7
Policy fees, contract charges, and other               1.9                  3.8              (50.0 )            8.4                10.8              (22.2 )

Total operating revenues                             152.3                149.2                2.1            447.9               384.6               16.5
Benefits and expenses:
Policyholder benefits and claims                      94.9                 89.6                5.9            271.8               232.4               

17.0

Other underwriting and operating expenses             40.7                 37.7                8.0            118.0                97.3               21.3

Total benefits and expenses                          135.6                127.3                6.5            389.8               329.7               18.2

Segment pre-tax adjusted operating income       $     16.7      $          21.9              (23.7 )%    $     58.1     $          54.9                5.8 %


The following table sets forth selected historical operating metrics relating to our Benefits segment for the three and nine months ended:




                                             Three Months Ended                        Nine Months Ended
                                                September 30,                            September 30,
                                        2012                 2011                 2012                2011
                                                         (As adjusted)                            (As adjusted)
Loss ratio(1)                              65.5 %                  63.6 %            64.2 %                 64.4 %
Expense ratio(2)                           27.9                    26.0              27.8                   26.2

Combined ratio(3)                          93.4                    89.6              92.0                   90.6

Medical stop-loss - loss ratio(4)          66.4                    65.4              64.7                   66.0
Total sales(5)                        $    31.3         $          20.1        $    133.6        $          92.2



(1) Loss ratio represents policyholder benefits and claims incurred divided by

premiums earned.

(2) Expense ratio is equal to other underwriting and operating expenses of our

insurance operations divided by premiums earned.

(3) Combined ratio is equal to the sum of the loss ratio and the expense ratio.

(4) Medical stop-loss - loss ratio represents medical stop-loss policyholder

benefits and claims incurred divided by medical stop-loss premiums earned.

(5) Total sales represents annualized first-year premiums net of first year

policy lapses.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary of Results


Segment pre-tax adjusted operating income decreased $5.2, primarily the result
of increased expenses related to the continued build-out of Symetra's group life
and disability income insurance business, and a higher loss ratio. The loss
ratio for the third quarter of 2012 increased to 65.5%, compared to 63.6% for
the same period in 2011.

In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.




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Operating Revenues


Premiums increased $4.1 driven by organic growth of our medical stop-loss
business, partially offset by a reduction in premiums from the block of business
acquired in July 2011. We retained approximately 50% of policies from this
block, which was below our expectations, although the loss ratio was better than
expected.

Benefits and Expenses

Policyholder benefits and claims increased $5.3 driven by growth in our medical
stop-loss business. The loss ratio for the third quarter of 2012 increased
compared to the same period in 2011, which primarily reflects an increase in the
severity of stop-loss claims.

The $3.0 increase in other underwriting and operating expenses was driven mainly
by expenses related to expansion of our group life and disability operations as
part of our Grow & Diversify strategy. Also contributing to the increase was
higher incentive compensation on a larger block of business.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary of Results


Segment pre-tax adjusted operating income increased $3.2, primarily the result
of a relatively flat loss ratio on a larger medical stop-loss block of business,
offset by increased operating expenses primarily related to the expansion of our
group life and disability operations. The loss ratio for the nine months ended
September 30, 2012, improved slightly, to 64.2%, compared to 64.4% for the same
period in 2011.

In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.


Operating Revenues

Premiums increased $62.7 driven by organic growth from strong 2012 sales, as
well as premiums related to the medical stop-loss block of business acquired in
July 2011.

Benefits and Expenses

Policyholder benefits and claims increased $39.4 driven by growth in our medical stop-loss business, including the block of business acquired in July 2011.


The $20.7 increase in other underwriting and operating expenses was driven by
expenses related to the expansion of our group life and disability operations as
part of our Grow & Diversify strategy, and higher commissions and incentive
compensation due to growth in our business.



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Deferred Annuities


The following table sets forth the results of operations relating to our
Deferred Annuities segment:



                                             Three Months Ended                  QTD                   Nine Months Ended                  YTD
                                                September 30,                Variance (%)                September 30,                Variance (%)
                                          2012              2011            2012 vs. 2011           2012             2011            2012 vs. 2011
                                                        (As adjusted)                                            (As adjusted)
Operating revenues:
Net investment income                  $    135.6      $         132.9                 2.0 %     $    405.2     $         384.2                 5.5 %
Policy fees, contract charges, and
other                                         5.1                  4.9                 4.1             15.3                15.5                (1.3 )
Net realized gains (losses) - FIA             1.1                 (0.6 )                 *              1.1                (0.7 )                 *

Total operating revenues                    141.8                137.2                 3.4            421.6               399.0                 5.7
Benefits and expenses:
Policyholder benefits and claims               -                   0.6              (100.0 )             -                  0.5              (100.0 )
Interest credited                            85.2                 80.7                 5.6            248.2               238.2                 4.2
Other underwriting and operating
expenses                                     19.5                 17.1                14.0             59.7                50.8                17.5
Amortization of deferred policy
acquisition costs                            13.1                 12.3                 6.5             40.1                41.2                (2.7 )

Total benefits and expenses                 117.8                110.7                 6.4            348.0               330.7                 5.2

Segment pre-tax adjusted operating
income                                 $     24.0      $          26.5                (9.4 )%    $     73.6     $          68.3                 7.8 %




* Represents percentage variances that are not meaningful or are explained

through the discussion of other variances.



The following table sets forth selected historical operating metrics relating to
our Deferred Annuities segment as of, or for the three and nine months ended:



                                          Three Months Ended            Nine Months Ended
                                            September 30,                 September 30,
                                         2012            2011          2012          2011

Account values - Fixed annuities $ 10,987.2$ 10,422.4 Account values - Variable annuities 734.3

           670.9
Interest spread(1)                          1.83 %          1.92 %       1.88 %         1.86 %

Base earned yield                           4.82            5.04         4.87           5.07
Base credited yield                         3.04            3.20         3.03           3.24

Base interest spread(2)                     1.78            1.84         1.84           1.83

Total sales(3)                        $    166.5      $    393.6      $ 845.8      $ 1,458.5



(1) Interest spread is the difference between the net investment yield and the

credited rate to policyholders. The net investment yield is the approximate

yield on invested assets in the general account attributed to the segment.

The credited rate is the approximate rate credited on policyholder fixed

account values. Interest credited is subject to contractual terms, including

minimum guarantees. Interest is credited on a daily basis and therefore

quarters with more/less days of interest reduces/increases interest spread

and base interest spread.

(2) Base interest spread is the interest spread adjusted to exclude items that

can vary significantly from period to period due to a number of factors and,

therefore, may contribute to results that are not indicative of the

underlying trends. This is primarily the impact of asset prepayments, such as

bond make whole premiums, the MBS prepayment speed adjustment, and deferred

sales inducement unlocking. Interest is credited on a daily basis and

therefore quarters with more/less days of interest reduces/increases interest

spread and base interest spread.

(3) Total sales represent deposits for new policies net of first year policy

lapses and/or surrenders.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary of Results


Segment pre-tax adjusted operating income decreased $2.5 primarily driven by a
lower interest margin and higher operating expenses associated with our True VA
product, launched in June 2012. The interest margin decreased due to a lower
year-over-year interest spread on lower investment yields, partially offset by
higher fixed annuities account values.

In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.




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Operating Revenues


Net investment income increased $2.7, driven by a $0.7 billion increase in
average invested assets from increased fixed annuities account values. This was
partially offset by overall lower yields on our fixed maturities, driven by
purchases of lower yielding assets and prepayments on higher yielding assets.
Additionally, prepayment-related income increased $0.7, to $2.5 for the three
months ended September 30, 2012 compared to $1.8 for the same period in 2011.

Benefits and Expenses


Interest credited increased $4.5, primarily due to a $0.7 billion increase in
average fixed annuities account values and a $1.0 unfavorable impact from DSI
unlocking in the third quarter of 2012. Other underwriting and operating
expenses increased $2.4 primarily related to expenses associated with our True
VA product.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary of Results


Segment pre-tax adjusted operating income increased $5.3, primarily driven by
higher fixed annuities account values, which increased $0.6 billion to $11.0
billion, and a stable year-over-year interest spread. These results were
partially offset by higher operating expenses related to our True VA product.

In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.


Operating Revenues

Net investment income increased $21.0, driven by a $1.0 billion increase in
average invested assets from increased fixed annuities account values.
Additionally, prepayment-related income increased $2.7, to $4.8 for the nine
months ended September 30, 2012 compared to $2.1 for the same period in 2011.
This income growth was partially offset by lower yields on recent fixed maturity
purchases and commercial mortgage loan originations, and prepayments of higher
yielding assets.

Benefits and Expenses

Interest credited increased $10.0, primarily due to a $0.9 billion increase in
average fixed annuities account values. DAC amortization, which normally
increases as account values increase, decreased $1.1 as a result of lower lapses
than previously assumed in our models. Other underwriting and operating expenses
increased $8.9, primarily related to expenses associated with our True VA
product.

Income Annuities


The following table sets forth the results of operations relating to our Income
Annuities segment:



                                        Three Months Ended             QTD               Nine Months Ended             YTD
                                           September 30,           Variance (%)            September 30,           Variance (%)
                                         2012          2011       2012 vs. 2011           2012         2011       2012 vs. 2011
Operating revenues:
Net investment income                 $    100.9      $ 101.9               (1.0 )%    $    309.5     $ 309.2                0.1 %
Policy fees, contract charges, and
other                                        1.7          0.6                  *              4.9         1.2                  *

Total operating revenues                   102.6        102.5                0.1            314.4       310.4                1.3
Benefits and expenses:
Interest credited                           87.7         88.1               (0.5 )          255.1       261.4               (2.4 )
Other underwriting and operating
expenses                                     5.4          6.7              (19.4 )           17.0        18.5               (8.1 )
Amortization of deferred policy
acquisition costs                            0.9          0.6               50.0              2.4         1.9               26.3

Total benefits and expenses                 94.0         95.4               (1.5 )          274.5       281.8               (2.6 )

Segment pre-tax adjusted operating
income                                $      8.6      $   7.1               21.1 %     $     39.9     $  28.6               39.5 %




* Represents percentage variances that are not meaningful or are explained

through the discussion of other variances.




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The following table sets forth selected historical operating metrics relating to our Income Annuities segment as of, or for the three and nine months ended:



                                          Three Months Ended           Nine Months Ended
                                            September 30,                September 30,
                                         2012           2011           2012          2011
  Reserves(1)                          $ 6,576.7      $ 6,618.9
  Interest spread(2)                        0.56 %         0.53 %         0.61 %       0.53 %
  Base earned yield                         6.04           6.13           6.10         6.11
  Base credited yield                       5.52           5.59           5.56         5.60

  Base interest spread(3)                   0.52           0.54           0.54         0.51

  MBS prepayment speed adjustment(4)   $     0.2      $    (0.2 )    $     0.4      $   0.9
  Mortality gains (losses)(5)                2.0           (1.4 )         13.8          4.2
  Total sales(6)                            49.5           64.6          200.6        167.8



(1) Reserves represent the present value of future income annuity benefits and

assumed expenses, discounted by the assumed interest rate. This metric

represents the amount of our in-force book of business.

(2) Interest spread is the difference between the net investment yield and the

credited rate to policyholders. The net investment yield is the approximate

yield on invested assets in the general account attributed to the segment.

The credited rate is the approximate rate credited on policyholder reserves.

(3) Base interest spread is the interest spread adjusted to exclude items that

can vary significantly from period to period due to a number of factors and,

therefore, may contribute to yields that are not indicative of the underlying

trends. This is primarily the impact of asset prepayments, such as bond make

whole premiums and the MBS prepayment speed adjustment.

(4) MBS prepayment speed adjustment is the impact to net investment income due to

the change in prepayment speeds on the underlying collateral of

mortgage-backed securities.

(5) Mortality gains (losses) represent the difference between actual and expected

reserves released on our life contingent annuities.

(6) Total sales represent deposits for new policies net of first year policy

lapses and/or surrenders.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary of Results

Segment pre-tax adjusted operating income increased $1.5 primarily due to favorable mortality experience and a decline in expenses, partially offset by lower income from funding services activity.

In addition to the drivers discussed above, we consider the following information regarding benefits and expenses useful in understanding our results.

Operating Revenues

Net investment income decreased $1.0 driven by a decrease in yields and a decline in average invested assets. Policy fees, contract charges, and other increased $1.1 primarily from fee revenue earned on sales of third-party structured settlements.

Benefits and Expenses


Interest credited decreased $0.4 driven primarily by favorable mortality
experience as we experienced mortality gains of $2.0 in the third quarter of
2012, compared to losses of $1.4 in the third quarter of 2011. Mortality
experience is volatile and can fluctuate significantly from quarter to quarter.
Favorable mortality experience was partially offset by decreased funding
services activity.



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Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary of Results

Segment pre-tax adjusted operating income increased $11.3 primarily due to mortality gains of $13.8 during the nine months ended September 30, 2012, compared to gains of $4.2 for the same period in 2011. Higher base interest spreads on slightly lower reserves also contributed to the improved earnings.

In addition to the drivers discussed above, we consider the following information regarding benefits and expenses useful in understanding our results.

Operating Revenues

Policy fees, contract charges, and other increased $3.7 primarily from fee revenue earned on sales of third-party structured settlements.

Benefits and Expenses


Interest credited decreased $6.3 driven by favorable mortality experience. Also
contributing to the decline was lower interest credited, driven by a decline in
crediting rates on slightly lower reserves. This was partially offset by
decreased funding services activity.

Individual Life


The following table sets forth the results of operations relating to our
Individual Life segment:



                                             Three Months Ended                  QTD                     Nine Months Ended                  YTD
                                               September 30,                 Variance (%)                  September 30,                Variance (%)
                                         2012               2011            2012 vs. 2011            2012              2011            2012 vs. 2011
                                                        (As adjusted)                                              (As adjusted)
Operating revenues:
Premiums                              $      9.2       $           9.7                (5.2 )%     $     27.9      $          30.2                (7.6 )%
Net investment income                       71.1                  70.3                 1.1             214.5                212.6                 0.9
Policy fees, contract charges, and
other                                       32.7                  30.9                 5.8              97.0                 92.5                 4.9

Total operating revenues                   113.0                 110.9                 1.9             339.4                335.3                 1.2
Benefits and expenses:
Policyholder benefits and claims            16.2                  19.2               (15.6 )            49.0                 52.5                (6.7 )
Interest credited                           62.9                  61.1                 2.9             193.4                185.0                 4.5
Other underwriting and operating
expenses                                    16.2                  15.7                 3.2              48.9                 46.0                 6.3
Amortization of deferred policy
acquisition costs                            3.9                   2.1                85.7               6.6                  4.6                43.5

Total benefits and expenses                 99.2                  98.1                 1.1             297.9                288.1                 3.4

Segment pre-tax adjusted operating
income                                $     13.8       $          12.8                7.8  %      $     41.5      $          47.2               (12.1 )%





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The following table sets forth selected historical operating metrics relating to our Individual Life segment as of, or for the three and nine months ended:




                                      Three Months Ended           Nine Months Ended
                                        September 30,                September 30,
                                     2012           2011           2012           2011
      Individual insurance:
      Individual claims(1)         $    13.9      $    13.0      $    44.7       $ 40.8
      UL account value(2)              717.3          659.1
      UL interest spread(3)             1.44 %         1.51 %         1.61 %       1.64 %
      UL base interest spread(4)        1.58           1.68           1.64         1.68
      Individual sales(5)          $     1.6      $     3.3      $     7.8       $  8.6
      BOLI:
      BOLI account value(2)        $ 4,621.9      $ 4,474.2
      BOLI ROA(6)                       1.07 %         0.82 %         1.02 %       0.97 %
      BOLI base ROA(7)                  1.02           0.85           0.95         0.98
      BOLI sales(8)                $      -       $      -       $     2.0       $   -



(1) Individual claims represents incurred claims, net of reinsurance, on our term

and universal life policies.

(2) UL account value and BOLI account value represent our liabilities to our

policyholders. UL account values include SPL account values of $209.2 and

$140.2 as of September 30, 2012 and 2011, respectively.

(3) UL interest spread, excluding SPL, is the difference between the net

investment yield and the credited rate to policyholders. The net investment

yield is the approximate yield on invested assets in the general account

attributed to UL policies. The credited rate is the approximate rate credited

on UL policyholder fixed account values. Interest credited is subject to

contractual terms, including minimum guarantees.

(4) UL base interest spread, excluding SPL, is UL interest spread adjusted to

exclude items that can vary significantly from period to period due to a

number of factors and, therefore, may contribute to results that are not

indicative of the underlying trends. This is primarily the impact of asset

prepayments, such as bond make whole premiums, the MBS prepayment speed

adjustment, bonus interest unlocking and reserve adjustments.

(5) Individual sales represents annualized first year premiums for recurring

premium products and 10% of new single premium deposits, net of first year

policy lapses and/or surrenders.

(6) BOLI ROA is a measure of the gross margin on our BOLI book of business. This

metric is calculated as the difference between our BOLI revenue earnings rate

and our BOLI policy benefits rate. The revenue earnings rate is calculated as

revenues divided by average invested assets. The policy benefits rate is

calculated as total policy benefits divided by average account value. The

policy benefits used in this metric do not include expenses.

(7) BOLI base ROA is BOLI ROA adjusted to exclude items that can vary

significantly from period to period due to a number of factors and,

therefore, may contribute to yields that are not indicative of the underlying

trends. This is primarily the impact of asset prepayments, such as bond make

whole premiums, the MBS prepayment speed adjustment, and reserve adjustments.

(8) BOLI sales represents 10% of new BOLI total deposits.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary of Results

Segment pre-tax adjusted operating income increased $1.0 primarily driven by a higher BOLI base ROA as a result of lower BOLI claims, partially offset by higher individual claims experience and an unfavorable impact from DAC unlocking.

In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.


Operating Revenues

Net investment income increased $0.8, driven by an increase in average invested
assets, primarily related to BOLI and UL account values. This was partially
offset by lower yields in 2012 on asset purchases, including reinvestment, over
the past twelve months.

Policy fees, contract charges, and other increased $1.8 due to higher COI and administrative fees on larger blocks of business for our UL and BOLI products.




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Benefits and Expenses

Benefit-related expenses (policyholder benefits and claims, and interest credited) decreased $1.2, primarily due to lower BOLI claims. This was partially offset by higher claims on our individual life insurance business and an increase in incurred interest on higher BOLI and UL account values.

Amortization of deferred acquisition costs increased $1.8 primarily due to an unfavorable impact from unlocking of assumptions in the third quarter 2012, related to future investment yields.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary of Results


Segment pre-tax adjusted operating income decreased $5.7 primarily driven by
higher individual claims experience, and higher expenses related to our Grow &
Diversify initiatives.

In addition to the drivers discussed above, we consider the following information regarding operating revenues and benefits and expenses useful in understanding our results.


Operating Revenues

Premiums decreased $2.3 due to lapses on our term business.

Net investment income increased $1.9 due to an increase in average invested assets, primarily related to higher BOLI and UL account values. This was partially offset by lower yields during the nine months ended September 30, 2012, compared to the same period in 2011, which was the result of lower yields on asset purchases over the past twelve months.

Benefits and Expenses


Benefit-related expenses increased $4.9. This was primarily driven by higher
claims on our individual insurance products, as well as an increase in interest
credited on higher BOLI and UL account values. These were partially offset by
lower claims on our BOLI block of business.

Other underwriting and operating expenses increased $2.9 due to higher employee-related expenses, primarily due to the implementation of our Grow & Diversify initiatives.


Amortization of deferred acquisition costs increased $2.0 primarily due to an
unfavorable impact in the third quarter of 2012 from unlocking of assumptions
related to future investment yields.



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Other


The following table sets forth the results of operations relating to our Other
segment:



                                       Three Months Ended              QTD              Nine Months Ended              YTD
                                          September 30,            Variance (%)           September 30,            Variance (%)
                                        2012           2011       2012 vs.

2011 2012 2011 2012 vs. 2011 Operating revenues: Net investment income (loss) $ (0.8 ) $ 5.8

                   * %    $      6.6      $ 18.5               (64.3 )%
Policy fees, contract charges, and
other                                       5.7          5.3                 7.5            16.6        16.1                 3.1

Total operating revenues                    4.9         11.1               (55.9 )          23.2        34.6               (32.9 )
Benefits and expenses:
Interest credited                          (0.4 )       (0.6 )              33.3            (1.5 )      (1.9 )              21.1
Other underwriting and operating
expenses                                    7.1          5.4                31.5            20.9        18.0                16.1
Interest expense                            8.2          8.0                 2.5            24.6        24.0                 2.5

Total benefits and expenses                14.9         12.8                16.4 %          44.0        40.1                 9.7 %

Segment pre-tax adjusted operating
loss                                 $    (10.0 )     $ (1.7 )                 *      $    (20.8 )    $ (5.5 )                 *




* Represents percentage variances that are not meaningful or are explained

through the discussion of other variances.

Three Months Ended September 30, 2012 Compared to the Three Months Ended September 30, 2011

Summary of Results


Our Other segment reported pre-tax adjusted operating losses of $10.0 for the
third quarter of 2012 compared with losses of $1.7 for the same period in 2011.
This decline in results was primarily due to lower net investment income mainly
related to tax credit and alternative investments.

Amortization of tax credit investments, which is recorded as a reduction to net
investment income, increased over 2011 due to higher levels of investments in
these assets. Additionally, in the third quarter of 2012, we had higher
amortization of our tax credit investments based on the acceleration of tax
deductions of certain partnerships. Tax credit investments reduce investment
income, but provide tax benefits that help decrease our effective tax rate. See
"Investments - Investments in Limited Partnerships - Tax Credit Investments" for
further information.

Nine Months Ended September 30, 2012 Compared to the Nine Months Ended September 30, 2011

Summary of Results


Our Other segment reported pre-tax adjusted operating losses of $20.8 for the
nine months ended September 30, 2012 compared with losses of $5.5 for the same
period in 2011. This decline in results was primarily due to lower net
investment income, mainly related to higher levels of tax credit investments and
the higher amortization in the third quarter discussed above.

Investments


Our investment portfolio is structured with the objective of supporting the
expected cash flows of our liabilities and producing stable returns over the
long term. The composition of our portfolio reflects our asset management
philosophy of protecting principal and receiving appropriate reward for risk.
Our investment portfolio mix as of September 30, 2012 consisted in large part of
high quality fixed maturities and commercial mortgage loans we originated, as
well as a smaller allocation of high yield fixed maturities, marketable equity
securities, investments in limited partnerships (primarily tax credit
investments and private equity funds) and other investments. Our
marked-to-market portfolio of securities, also referred to as our equity and
equity-like investments, mainly support investment strategies including asset
and liability matching strategies for certain long-duration insurance products.
These equity and equity-like investments include common stock, investments in
REITs and convertible bonds. We believe that prudent levels of equity and
equity-like investments offer enhanced long-term, after-tax total returns to
support a portion of our longest duration liabilities.



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The following table presents the composition of our investment portfolio:




                                             As of September 30, 2012                 As of December 31, 2011
                                            Amount             % of Total            Amount            % of Total
Types of Investments
Fixed maturities,
available-for-sale:
Public                                  $      22,704.3               82.6 %     $     21,968.8               83.9 %
Private                                           916.6                3.3                936.4                3.6
Marketable equity securities,
available-for-sale(1)                              48.4                0.2                 50.3                0.2
Marketable equity securities,
trading(2)                                        535.8                2.0                381.7                1.4
Mortgage loans, net                             2,939.8               10.7              2,517.6                9.6
Policy loans                                       67.0                0.2                 69.0                0.3
Investments in limited
partnerships(3):
Private equity funds                               29.0                0.1                 27.8                0.1
Tax credit investments                            213.2                0.8                199.1                0.8
Other invested assets                              38.2                0.1                 21.0                0.1

Total                                   $      27,492.3              100.0 %     $     26,171.7              100.0 %




(1) Primarily includes non-redeemable preferred stock.

(2) Includes investments in common stock, including REITs, and investments in

mutual funds.

(3) Investments in private equity funds are carried at fair value, while our

limited partnership interests related to tax credit investments are carried

at amortized cost.



The increase in invested assets during the first nine months of 2012 is
primarily due to portfolio growth generated by sales of fixed deferred annuities
and an increase in the net unrealized gain position of our available-for-sale
fixed maturities. As of September 30, 2012 and December 31, 2011, we had net
unrealized gains of $2.5 billion and $1.8 billion, respectively, on our fixed
maturity portfolio.

Investment Returns

Net Investment Income

Return on invested assets is an important element of our financial results. The
following table sets forth the income yield and net investment income, excluding
realized investment gains (losses), for each major investment category:



                                          For the Three Months Ended                 For the Three Months Ended
                                              September 30, 2012                         September 30, 2011
                                        Yield(1)                Amount             Yield(1)               Amount
Types of Investments
Fixed maturities,
available-for-sale                             5.23 %        $      276.9                5.38 %        $      282.5
Marketable equity securities,
available-for-sale                             4.42                   0.6                4.45                   0.6
Marketable equity securities,
trading                                        2.73                   3.3                2.60                   2.3
Mortgage loans, net                            6.05                  43.9                6.64                  36.0
Policy loans                                   5.60                   1.0                3.85                   0.7
Investments in limited
partnerships:
Private equity funds                          (1.58 )                (0.1 )             26.42                   1.7
Tax credit investments(2)                    (10.82 )                (7.6 )             (6.13 )                (3.3 )
Other income producing assets(3)               2.79                   1.8                2.06                   1.5

Gross investment income before
investment expenses                            5.07                 319.8                5.33                 322.0
Investment expenses                           (0.12 )                (7.5 )             (0.11 )                (6.5 )

Net investment income                          4.95 %        $      312.3                5.22 %        $      315.5




(1) Yields are determined based on monthly averages calculated using beginning

and end-of-period balances. Yields for fixed maturities are based on

amortized cost. Yields for equity securities, including investments in

limited partnerships, are based on cost. Yields for all other asset types are

based on carrying values.

(2) The negative yield from these tax credit investments is offset by U.S.

federal income tax benefits. The total benefit to net income was $4.3 and

$1.4 for the three months ended September 30, 2012 and 2011, respectively.

(3) Other income producing assets includes other invested assets, short-term

    investments and cash and cash equivalents.




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For the three months ended September 30, 2012, net investment income decreased
1.0% compared to the same period in 2011, driven by a decrease in the total net
investment yield, partially offset by an increase in invested assets on sales of
our fixed deferred annuities. Yields decreased to 4.95% for the three months
ended September 30, 2012 from 5.22% for the same period in 2011. This reduction
reflects the prolonged low interest rate environment. In an attempt to mitigate
the effects of this, we continued to increase our underwriting of commercial
mortgage loans, which generally provide higher yields than fixed maturities. We
focus on originating loans at a consistent spread to comparable U.S. Treasuries.
For the three months ended September 30, 2012, we originated loans at a spread
over U.S. Treasuries of approximately 340bp, compared with an approximate 300bp
spread over U.S. Treasuries for the same period in 2011. While our spread has
increased, U.S. Treasury rates have declined substantially to historically low
levels, which in combination with the origination of $1.5 billion in mortgage
loans over the past two years, has led to a decline in our overall mortgage loan
yields.

We continue to experience prepayment activity and related prepayment income as a
result of the low interest rate environment. Prepayment-related income includes
make-whole premiums and consent fees on early calls or tenders of fixed
maturities, prepayment speed adjustments on structured securities, and
prepayment fees on our commercial mortgage loans. This income generated
approximately 9 basis points (bps) of yield in the three months ended
September 30, 2012, compared to 2bps in the same period in 2011. Prepayment
activity usually stems from higher-yielding investments, resulting in cash
inflows which are then typically reinvested into lower-yielding new assets,
placing downward pressure on our investment income and interest spreads.

In June 2012, U.S. banking regulators announced that, beginning in 2013, trust
preferred securities (TruPS) issued by banks would no longer be treated as Tier
1 Capital. Many TruPS have features that allow the issuer to call the security
at par upon a regulatory event such as this. As of September 30, 2012, $92.7 of
these callable securities, on an amortized cost basis, have been redeemed. We
have remaining holdings of $151.8, and we may experience additional calls of
these securities in 2012. Generally, we do not expect to receive prepayment
related income on these redemptions.

The following table sets forth the income yield and net investment income, excluding realized investment gains (losses) for each major investment category:



                                         For the Nine Months Ended                 For the Nine Months Ended
                                             September 30, 2012                        September 30, 2011
                                       Yield(1)               Amount             Yield(1)               Amount
Types of Investments
Fixed maturities,
available-for-sale                           5.31 %        $      842.6                5.46 %        $      852.3
Marketable equity securities,
available-for-sale                           5.77                   2.3                5.78                   2.3
Marketable equity securities,
trading                                      2.78                   8.9                2.59                   5.4
Mortgage loans, net                          6.14                 126.5                6.42                  95.2
Policy loans                                 5.61                   2.9                5.14                   2.7
Investments in limited
partnerships:
Private equity and hedge funds               2.91                   0.5               18.11                   4.1
Tax credit investments(2)                   (8.15 )               (16.5 )             (6.23 )                (9.6 )
Other income producing assets(3)             2.62                   5.7                1.71                   4.2

Gross investment income before
investment expenses                          5.18                 972.9                5.37                 956.6
Investment expenses                         (0.11 )               (20.9 )             (0.11 )               (18.9 )

Net investment income                        5.07 %        $      952.0                5.26 %        $      937.7




(1) Yields are determined based on monthly averages calculated using beginning

and end-of-period balances. Yields for fixed maturities are based on

amortized cost. Yields for equity securities, including investments in

limited partnerships, are based on cost. Yields for all other asset types are

based on carrying values.

(2) The negative yield from these tax credit investments is offset by U.S.

federal income tax benefits. The total benefit to net income was $13.0 and

$5.8 for the nine months ended September 30, 2012 and 2011, respectively.

(3) Other income producing assets includes other invested assets, short-term

investments and cash and cash equivalents.



For the nine months ended months ended September 30, 2012, net investment income
increased 1.5% compared to the same period in 2011, driven by an increase in
invested assets on sales of our fixed deferred annuities. The income increase
driven by growth in invested assets was partially offset by a decrease in the
total net investment yield, which decreased to 5.07% for the nine months ended
September 30, 2012 from 5.26% for the same period in 2011. This reduction
reflects the prolonged low interest rate environment. Yields on fixed maturity
purchases in the nine months ended September 30, 2012 were approximately 250 bps
lower than the average yield on existing fixed maturity investments. In an
attempt to mitigate the effects of this, we continued to increase our
underwriting of commercial mortgage loans. Additionally, prepayment-related
income generated 7bps of yield in the first nine months of 2012, compared to
2bps of yield in the same period in 2011.



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Net Realized Investment Gains (Losses)


The following table sets forth the detail of our net realized investment gains
(losses) before taxes:



                                          For the Three Months Ended                    For the Nine Months Ended
                                                 September 30,                                September 30,
                                         2012                   2011                  2012                   2011
                                                            (As adjusted)                                (As adjusted)
Gross realized gains on sales of
fixed maturities                     $        7.4          $           2.3        $       40.4          $          34.7
Gross realized losses on sales
of fixed maturities                          (6.4 )                     -                (14.3 )                   (7.6 )

Impairments:
Public fixed maturities(1)                   (8.0 )                   (0.4 )             (10.2 )                   (1.0 )
Private fixed maturities                       -                        -                   -                        -

Total credit-related                         (8.0 )                   (0.4 )             (10.2 )                   (1.0 )
Other                                        (5.3 )                   (4.5 )             (15.0 )                   (7.6 )

Total impairments                           (13.3 )                   (4.9 )             (25.2 )                   (8.6 )

Net gains (losses) on trading
securities                                   25.0                    (52.1 )              33.6                    (47.6 )

Other net investment gains
(losses)(2):
Other gross gains                             6.7                     10.9                15.0                     23.6
Other gross losses                           (3.9 )                  (12.8 )             (14.5 )                  (21.4 )

Net realized investment gains
(losses) before taxes                $       15.5          $         (56.6 )      $       35.0          $         (26.9 )




(1) Public fixed maturities include publicly traded securities and highly

marketable private placements for which there is an actively traded market.

(2) This primarily consists of changes in fair value on derivatives instruments,

gains (losses) on calls and redemptions, and the impact of net realized

investment gains (losses) on DAC and DSI.



In the third quarter 2012, our portfolio produced net realized gains of $15.5 as
compared to net realized losses of $56.6 for the same period in 2011, primarily
due to a $77.1 increase in mark-to-market gains on our equity trading portfolio.
Our equity trading portfolio had gains of $25.0 in the three months ended
September 30, 2012, compared to losses of $52.1 in 2011. This performance was
consistent with the movement in the S&P 500 in each period. Refer to the -
"Return on Equity-like Investments" section for a comparison of our portfolio
performance to the relevant benchmarks. The improvement in our equity portfolio
was partially offset by an $8.4 increase in impairments.

For the nine months ended September 30, 2012, our portfolio produced net
realized gains of $35.0, as compared to losses of $26.9 for the same period in
2011, primarily due to an $81.2 increase in mark-to-market gains on our equity
trading portfolio. Our equity trading portfolio had gains of $33.6 in the nine
months ended September 30, 2012, compared to losses of $47.6 in 2011, each
primarily driven by activity in the third quarter. The improvement in our equity
portfolio was partially offset by a $16.6 increase in impairments.

Impairments


We monitor our investments for indicators of impairment. When evaluating a
security for possible impairment, we consider several factors, which are
described in more detail in Note 4 to the accompanying unaudited interim
condensed consolidated financial statements. Impairments for the three months
ended September 30, 2012 were driven by credit losses, including a $6.9
impairment of one corporate security in the utilities sector. Additionally, we
incurred a $4.7 impairment on holdings we intend to sell related to one issuer.

For the nine months ended September 30, 2012, impairments were driven by write-downs of securities we intend to sell, including impairments of $12.4 related to two holdings. For those issuers for which we recorded a credit-related impairment during 2012, we had remaining holdings with an amortized cost of $78.9 and a fair value of $76.8 as of September 30, 2012. We believe the amortized cost of these securities is recoverable, based on our estimated recovery values.




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Fixed Maturity Securities


Fixed maturities represented approximately 86% and 88% of invested assets as of
September 30, 2012 and December 31, 2011, respectively. The majority of our
fixed maturities are invested in highly marketable or publicly traded
securities. We invest in privately placed fixed maturities to enhance the
overall value of the portfolio and obtain higher yields than can ordinarily be
obtained with comparable public market securities. As of September 30, 2012,
privately placed fixed maturities represented 3.9% of our total fixed maturity
portfolio at fair value.

Fixed Maturity Securities Credit Quality


The Securities Valuation Office, or SVO, of the NAIC, evaluates the investments
of insurers for regulatory reporting purposes and assigns fixed maturity
securities to one of the six categories called "NAIC Designations." NAIC
designations of "1" or "2" include fixed maturities considered investment grade,
which generally include securities rated BBB- or higher by Standard & Poor's.
NAIC designations of "3" through "6" are referred to as below investment grade,
which generally include securities rated BB+ or lower by Standard & Poor's. In
recent years, the NAIC adopted a modeling approach to determine the NAIC
designation for RMBS and CMBS securities. As a result, the NAIC designation for
structured securities may not correspond to the Standard & Poor's designations
described.

The following table presents our fixed maturities by NAIC designation and S&P
equivalent credit ratings, as well as the percentage of total fixed maturities,
based upon fair value that each designation comprises:



                                                     As of September 30, 2012                        As of December 31, 2011
                                            Amortized         Fair         % of Total       Amortized         Fair         % of Total
                                               Cost          Value         Fair Value          Cost          Value         Fair Value
NAIC:   S&P Equivalent:
1       AAA, AA, A                          $ 12,381.1     $ 14,031.0             59.4 %    $ 12,684.8     $ 13,987.6             61.1 %
2       BBB                                    7,505.2        8,350.2             35.4         6,792.9        7,409.5             32.3

        Total investment grade                19,886.3       22,381.2             94.8        19,477.7       21,397.1             93.4

3       BB                                       626.0          659.6              2.8           902.9          897.8              3.9
4       B                                        457.9          462.8              1.9           549.4          507.5              2.2
5       CCC & lower                              115.8          101.7              0.4           124.4           96.2              0.4
6       In or near default                        24.2           15.6              0.1             7.0            6.6              0.1

        Total below investment grade           1,223.9        1,239.7              5.2         1,583.7        1,508.1              6.6

Total                                       $ 21,110.2     $ 23,620.9            100.0 %    $ 21,061.4     $ 22,905.2            100.0 %



Below investment grade securities comprised 5.2% and 6.6% of our fixed
maturities portfolio as of September 30, 2012 and December 31, 2011,
respectively. The decline in the relative amount of below investment grade fixed
maturities is primarily due to securities that were called or redeemed during
2012, or were upgraded to investment grade. We held NAIC 5 and 6 designated
securities with gross unrealized losses of $26.8 as of September 30, 2012, of
which $17.9, or 66.8%, related to three issuers. Our analysis of these issuers,
including management's best estimates of future cash flows where appropriate,
supports the recoverability of amortized cost.

Certain of our fixed maturities are supported by guarantees from monoline bond
insurers, the majority of which are municipal bonds. As of September 30, 2012,
fixed maturities with monoline guarantees had an amortized cost of $509.1 and a
fair value of $547.1, with gross unrealized losses of $1.8, compared to an
amortized cost of $513.4 and a fair value of $543.4, with gross unrealized
losses of $4.2 as of December 31, 2011. As of September 30, 2012, $513.0, or
93.8%, of the fair value of fixed maturities supported by guarantees from
monoline bond insurers had investment grade credit ratings both with the
monoline insurance and on a standalone basis. The credit ratings in the table
above reflect, where applicable, the guarantees provided by monoline bond
insurers.



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Fixed Maturity Securities and Unrealized Gains and Losses by Security Sector


The following table sets forth the fair value of our fixed maturities by sector,
as well as the associated gross unrealized gains and losses and the percentage
of total fixed maturities that each sector comprises as of the dates indicated:



                                                                         As of September 30, 2012
                                         Cost or          Gross            Gross                             % of
                                        Amortized       Unrealized       Unrealized          Fair         Total Fair         OTTI
                                           Cost           Gains            Losses           Value           Value          in AOCI
Security Sector
Corporate securities:
Consumer discretionary                  $  1,901.6     $      207.0     $       (3.2 )    $  2,105.4              8.9 %    $   (0.7 )
Consumer staples                           2,429.5            352.2             (3.7 )       2,778.0             11.8          (1.8 )
Energy                                       849.6            120.0             (1.0 )         968.6              4.1            -
Financials                                 1,715.1            157.5            (32.3 )       1,840.3              7.8          (0.7 )
Health care                                1,356.4            202.6             (0.5 )       1,558.5              6.6          (1.7 )
Industrials                                2,872.5            433.2             (4.1 )       3,301.6             14.0           0.5
Information technology                       335.8             52.2             (0.1 )         387.9              1.6            -
Materials                                  1,373.0            151.7            (14.8 )       1,509.9              6.4         (11.0 )
Telecommunication services                   707.4             88.7             (3.3 )         792.8              3.4          (0.8 )
Utilities                                  1,673.9            261.7            (10.6 )       1,925.0              8.1          (0.9 )

Total corporate securities                15,214.8          2,026.8            (73.6 )      17,168.0             72.7         (17.1 )
U.S. government and agencies                 123.2              6.0               -            129.2              0.5          (0.1 )
State and political subdivisions             704.2             40.3             (0.4 )         744.1              3.1          (0.1 )
Residential mortgage-backed
securities:
Agency                                     2,569.9            257.7             (0.5 )       2,827.1             12.0            -
Non-agency:
Prime                                        228.8             13.5             (1.5 )         240.8              1.0         (11.8 )
Alt-A                                         79.5              3.8             (0.5 )          82.8              0.4          (1.3 )

Total residential mortgage-backed
securities                                 2,878.2            275.0             (2.5 )       3,150.7             13.4         (13.1 )
Commercial mortgage-backed securities      1,710.9            179.7             (1.6 )       1,889.0              8.0          (1.5 )
Other debt obligations                       478.9             61.7             (0.7 )         539.9              2.3            -

Total                                   $ 21,110.2     $    2,589.5     $      (78.8 )    $ 23,620.9            100.0 %    $  (31.9 )





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                                                                         As of December 31, 2011
                                        Cost or          Gross            Gross                             % of
                                       Amortized       Unrealized       Unrealized          Fair         Total Fair         OTTI
                                          Cost           Gains            Losses           Value           Value          in AOCI
Security Sector
Corporate securities:
Consumer discretionary                 $  1,578.6     $      138.5     $       (8.1 )    $  1,709.0              7.5 %    $   (0.7 )
Consumer staples                          2,409.3            308.3             (6.9 )       2,710.7             11.8          (1.4 )
Energy                                      768.4             94.9             (4.0 )         859.3              3.8            -
Financials                                1,882.1             90.5            (93.3 )       1,879.3              8.2          (0.7 )
Health care                               1,280.3            156.6             (3.3 )       1,433.6              6.3          (1.8 )
Industrials                               2,865.6            342.6            (10.8 )       3,197.4             14.0           0.4
Information technology                      355.2             39.0             (0.2 )         394.0              1.7            -
Materials                                 1,270.3            110.5            (24.9 )       1,355.9              5.9         (11.4 )
Telecommunication services                  666.4             66.9            (17.6 )         715.7              3.1          (0.8 )
Utilities                                 1,719.2            223.0            (15.9 )       1,926.3              8.4          (0.1 )

Total corporate securities               14,795.4          1,570.8           (185.0 )      16,181.2             70.7         (16.5 )
U.S. government and agencies                 82.0              5.2               -             87.2              0.3          (0.1 )
State and political subdivisions            609.1             28.0             (1.8 )         635.3              2.8          (0.1 )
Residential mortgage-backed
securities:
Agency                                    3,019.5            243.8             (0.5 )       3,262.8             14.2            -
Non-agency:
Prime                                       278.3              8.3            (13.8 )         272.8              1.2         (25.7 )
Alt-A                                        90.6              2.1             (3.3 )          89.4              0.4          (8.2 )

Total residential mortgage-backed
securities                                3,388.4            254.2            (17.6 )       3,625.0             15.8         (33.9 )
Commercial mortgage-backed
securities                                1,698.1            143.0             (4.1 )       1,837.0              8.0          (2.6 )
Other debt obligations                      488.4             52.9             (1.8 )         539.5              2.4          (4.1 )

Total                                  $ 21,061.4     $    2,054.1     $     (210.3 )    $ 22,905.2            100.0 %    $  (57.3 )



During the nine months ended September 30, 2012, we increased our investments in
corporate securities with cash generated from sales, primarily of fixed deferred
annuities. We have mainly purchased investment grade corporate securities, with
a focus on obtaining appropriate yields and duration to match our policyholder
liabilities while retaining quality.

Our fixed maturities holdings are diversified by industry and issuer. As of
September 30, 2012, there was $32.3 of gross unrealized losses in financial
sector securities, compared to $93.3 as of December 31, 2011. The losses were
primarily associated with long dated subordinated, hybrid, and preferred
securities, and the securities' prices reflect relatively wide financial sector
credit spreads. Financial sector credit spreads were wider at December 31, 2011
due to heightened concerns over the European debt crisis and its potential
impact on the industry. Improvement in gross unrealized losses can also be
attributed to generally lower interest rates, particularly intermediate and
long-term rates, and tendered securities. Additionally, as of September 30,
2012, $13.3 of the gross unrealized losses were related to a single holding.
Based on our analysis of this security, as well as our other financial sector
holdings in an unrealized loss position, we expect to recover the entire
amortized cost.

The portfolio does not have significant exposure to any single issuer. As of
September 30, 2012 and December 31, 2011, the fair value of our ten largest
corporate securities holdings was $1,592.2 and $1,505.0, respectively, or 9.3%
of total corporate securities at both periods. The fair value of our largest
exposure to a single issuer of corporate securities was $241.2, or 1.4% of total
corporate securities, as of September 30, 2012. All of the securities related to
this issuer have an NAIC rating of 2 or higher. As of December 31, 2011, the
fair value of our largest exposure to a single issuer of corporate securities
was $221.5, or 1.4% of total corporate securities, all of which had an NAIC
rating of 2 or higher.



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Fixed Maturity Securities in European Countries

The following table summarizes our exposure to fixed maturities in European countries, denominated in U.S. dollars and separated into sovereign debt, financial industry and other corporate debt. The country designation is based on the issuer's country of incorporation.



                                                                     As of September 30, 2012
                                     Sovereign       Financial        Other           Total            % of         Amortized
                                       Debt          Industry       Corporate       Fair Value       Exposure          Cost
European Countries:
United Kingdom                      $        -      $      21.2     $    512.8     $      534.0           36.5 %    $    466.8
Netherlands                                  -               -           484.3            484.3           33.1           438.1
Luxembourg                                   -               -           114.1            114.1            7.8           100.7
Switzerland                                  -            109.8             -             109.8            7.5           101.5
France                                       -             18.5           89.8            108.3            7.4           100.8
Sweden                                       -               -            51.0             51.0            3.5            43.0
Germany                                      -             10.5            8.6             19.1            1.3            20.7
Italy                                        -               -            14.5             14.5            1.0            13.3
Belgium                                      -               -             7.6              7.6            0.5             7.1
Norway                                       -              0.7            6.4              7.1            0.5             6.1
Greece                                       -               -             4.4              4.4            0.3             4.0
Austria                                      -               -             4.1              4.1            0.3             3.9
Spain                                        -               -             2.7              2.7            0.2             2.8
Ireland                                      -               -             1.1              1.1            0.1             1.0
Portugal                                    0.8              -              -               0.8             -              0.9

Total                               $       0.8     $     160.7     $  1,301.4     $    1,462.9          100.0 %    $  1,310.7



As of September 30, 2012, the fair value of our fixed maturities in European
countries was 6.2% of our total fixed maturities portfolio. Our gross unrealized
losses on these securities were $8.9 as of September 30, 2012. The fair value of
our ten largest European security holdings was $892.4, or 3.8% of the fixed
maturities portfolio. The fair value of our largest single issuer exposure to a
European country was $124.8, or 0.5% of the portfolio.

Effective July 1, 2012, Washington state, our primary state of domicile,
increased the percentage of assets our primary insurance subsidiary is able to
invest in foreign securities to 20%, from 10%, of statutory admitted assets.
This opportunity provides us with additional flexibility to invest in
high-quality foreign corporate securities with a focus on investment grade
securities. We expect to take advantage of these new limits with purchases of
foreign corporate securities beginning in the fourth quarter of 2012.

Fixed Maturity Securities by Contractual Maturity Date


As of September 30, 2012 and December 31, 2011, approximately 21% of the fair
value of our fixed maturity portfolio was held in mortgage-backed securities,
and approximately 21% was held in securities that are due after ten years, which
we consider to be longer duration assets. As of December 31, 2011, approximately
24% of the fair value of our fixed maturity portfolio was held in
mortgage-backed securities, and approximately 23% was held in securities that
are due after ten years.

Fixed maturities in these categories primarily back long duration reserves in
our Income Annuities segment, which can exceed a period of 30 years. As of
September 30, 2012 and December 31, 2011, approximately 70% and 78%,
respectively, of the gross unrealized losses on our investment portfolio related
to these longer duration assets, which fluctuate more significantly with changes
in interest rates and credit spreads. Refer to Note 4 to the accompanying
unaudited interim condensed consolidated financial statements for a table
summarizing the amortized cost and fair value of fixed maturities by contractual
years to maturity as of September 30, 2012.

Mortgage-Backed Securities


As of September 30, 2012, our fixed maturity securities portfolio included $5.0
billion of residential and commercial mortgage-backed securities at fair value.
The residential and commercial real estate markets were significantly impacted
by the financial crisis and recession, but have recently stabilized. Non-agency
mortgage-backed securities in the 2006 through 2008 vintage years were generally
the most affected by the financial crisis, due to weaker underwriting standards
and an issuance date closest to the market peak. Our mortgage-backed securities
are primarily agency securities, which account for approximately 65% of the
portfolio. Additionally, approximately 28% of our mortgage-backed securities are
AAA rated, non-agency securities in the most senior tranche of the structure
type.



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All of our RMBS and CMBS securities have prepayment options. Prepayments that
vary from our estimates in amount or timing cause fluctuations in our yields due
to an acceleration or deceleration of unamortized premium or discount associated
with the securities in our portfolio. These adjustments, which relate primarily
to RMBS, are recorded in net investment income in our results of operations and
create volatility between periods. Refer to the RMBS section below for
additional discussion.

Residential Mortgage-Backed Securities (RMBS)


We classify our investments in RMBS as agency, prime, Alt-A, and subprime.
Agency RMBS are guaranteed or otherwise supported by the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, or the
Government National Mortgage Association. Prime RMBS have underlying loans to
the most credit-worthy customers with high-quality credit profiles. Alt-A RMBS
have overall credit quality between prime and subprime, based on a review of
their underlying mortgage loans and factors such as credit scores and financial
ratios.

The following table sets forth the fair value of the Company's investment in
agency, prime, and Alt-A RMBS and the percentage of total invested assets they
represent:



                                           As of September 30, 2012                          As of December 31, 2011
                                                             % of Total                                       % of Total
                                    Fair Value             Invested Assets            Fair Value            Invested Assets
Agency                            $       2,827.1                       10.3 %      $      3,262.8                       12.5 %
Non-agency:
Prime                                       240.8                        0.9                 272.8                        1.0
Alt-A                                        82.8                        0.3                  89.4                        0.3

Subtotal non-agency                         323.6                        1.2                 362.2                        1.3

Total                             $       3,150.7                       11.5 %      $      3,625.0                       13.8 %



The following table sets forth the total fair value, and amortized cost of our
non-agency RMBS by year of origination (vintage) and credit quality, based on
highest rating by Moody's, S&P, or Fitch.



                                                           As of September 30, 2012
                                                         Highest Rating Agency Rating
                                                                                                            Total as of
                                                                                   BB and                  December 31,
                                          AAA         AA         A        BBB       Below       Total          2011
Vintage:
2007                                         -          -          -        -         17.1        17.1              21.4
2006                                         -          -          -        -         72.9        72.9              94.5
2005                                         -          -         2.9       -         89.7        92.6             104.7
2004 and prior                            103.4        9.9       12.0       -          0.4       125.7             148.3

Total amortized cost                    $ 103.4     $  9.9     $ 14.9     $ -      $ 180.1     $ 308.3     $       368.9

Net unrealized gains (losses)               3.3        0.3        0.5       -         11.2        15.3              (6.7 )

Total fair value                        $ 106.7     $ 10.2     $ 15.4     $ -      $ 191.3     $ 323.6     $       362.2



On a fair value basis, as of September 30, 2012, our Alt-A portfolio was 89.2%
fixed rate collateral and 10.8% hybrid adjustable rate mortgages, or ARMs, with
no exposure to option ARMs. Generally, fixed rate mortgages have had better
credit performance than ARMs, with lower delinquencies and defaults on the
underlying collateral.

As of September 30, 2012, our Alt-A, prime and total non-agency RMBS had an
estimated weighted-average credit enhancement of 13.2%, 7.0% and 8.6%,
respectively. Credit enhancement refers to the weighted-average percentage of
the outstanding capital structure that is subordinate in the priority of cash
flows and absorbs losses first. We believe our credit enhancement will help
mitigate losses on these securities.

As of September 30, 2012 and December 31, 2011, 64.5% and 59.9%, respectively,
of the fair value of our non-agency RMBS had super senior subordination. The
super senior class has priority over all principal and interest cash flows and
will not experience any loss of principal until lower levels are written down to
zero. Therefore, the majority of our RMBS investments have less exposure to
defaults and delinquencies in the underlying collateral than if we held the more
subordinated classes.



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As of September 30, 2012, our RMBS had gross unamortized premiums and discounts
of $54.4 and $70.0, respectively. Changes in prepayment speeds, which are based
on prepayment activity of the underlying mortgages, create volatility in our net
investment income because they accelerate or decelerate our amortization of the
unamortized premiums and discounts. The impact to net investment income is
dependent on whether the securities are at a discount or premium and whether the
prepayment speeds increase or decrease.

The following table provides additional information on our RMBS prepayment exposure, by type and vintage:



                                                                                                                                                Prepayment Speed
                                                                      As of September 30, 2012                                                     Adjustment
                                                                                                                                       Three Months           Nine Months
                                                      Unrealized                                                      Average              Ended                 Ended
                                     Amortized          Gains/           Fair           Gross          Gross          Mortgage         September 30,         September 30,
                                        Cost           (Losses)          Value         Discount       Premium        Loan Rate             2012                  2012
Agency:
CMO:
2012                                 $    106.5      $        4.1      $   110.6      $      2.7      $   (2.3 )            3.6 %     $            -        $            -
2011                                      285.7              25.9          311.6            11.1          (2.3 )            3.5                   0.2                   0.3
2010                                      475.3              61.1          536.4            13.9          (8.9 )            4.5                    -                    0.3
2009                                      195.3              25.9          221.2             2.0          (2.1 )            4.8                    -                    0.1
2008                                        3.3               0.2            3.5              -             -               5.7                    -                     -
2007                                       16.5               1.0           17.5             0.8            -               6.5                    -                   (0.1 )
2006                                       17.2               0.8           18.0              -             -               6.7                    -                     -
2005                                       44.9               6.2           51.1             0.3            -               6.4                    -                     -
2004 and prior                            487.0              72.5          559.5            13.3          (4.8 )            6.2                   0.4                   1.0

Total Agency CMO                     $  1,631.7      $      197.7      $ 1,829.4      $     44.1      $  (20.4 )            4.9 %     $           0.6       $           1.6

Passthrough:
2012                                 $     32.2      $        0.5      $    32.7      $       -       $   (1.3 )            3.4 %     $            -        $            -
2011                                       28.9               1.1           30.0              -           (1.2 )            3.8                    -                     -
2010                                      192.8              11.0          203.8             0.1          (7.5 )            4.7                    -                    0.1
2009                                      548.5              32.9          581.4              -          (22.0 )            5.8                   0.1                   0.2
2008                                       35.7               3.3           39.0              -           (0.7 )            6.3                    -                     -
2007                                       26.4               2.4           28.8             0.1          (0.6 )            6.4                    -                     -
2006                                        8.6               0.9            9.5             0.1            -               6.5                    -                     -
2005                                        9.8               1.3           11.1             0.5          (0.1 )            5.2                    -                     -
2004 and prior                             55.3               6.1           61.4             0.9          (0.4 )            5.8                    -                     -

Total Agency Passthrough             $    938.2      $       59.5      $   997.7      $      1.7      $  (33.8 )            5.5 %     $           0.1       $           0.3

Total Agency RMBS                    $  2,569.9      $      257.2      $ 2,827.1      $     45.8      $  (54.2 )            5.1 %     $           0.7       $           1.9


Non-Agency:
2008 - 2012                          $       -       $         -       $      -       $       -       $     -                -  %     $            -        $            -
2007                                       17.1               2.7           19.8             5.4            -               6.0                    -                     -
2006                                       72.9               4.1           77.0            11.0            -               6.0                    -                    1.3
2005                                       92.6               4.7           97.3             4.9            -               5.7                    -                    0.2
2004 and prior                            125.7               3.8          129.5             2.9          (0.2 )            5.9                   0.1                   0.3

Total Non-Agency RMBS                $    308.3      $       15.3      $   323.6      $     24.2      $   (0.2 )            5.9 %     $           0.1       $           1.8


Total RMBS                           $  2,878.2      $      272.5      $ 3,150.7      $     70.0      $  (54.4 )            5.2 %     $           0.8       $           3.7



There are various U.S. government initiatives through the Making Home Affordable
program that may result in higher than expected prepayments on our RMBS
portfolio. For example, changes to HARP (Home Affordable Refinance Program),
which targets borrowers whose mortgages are owned or guaranteed by Freddie Mac
or Fannie Mae, are current on their mortgages, and have loan-to-values exceeding
80% among other qualifying requirements, went into effect in early
2012. Additionally, the extension of HAMP (Home Affordable Modification
Program), which targets employed borrowers facing financial hardship to reduce
their mortgage payments through 2013, may impact prepayments. We continually
monitor the underlying collateral in our RMBS to manage our prepayment exposure.



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During the nine months ended September 30, 2012, we strategically sold $365.3 of
lower yielding, higher premium agency RMBS securities for gains totaling $19.9
while reducing future reinvestment risk. We plan to continue to manage our
prepayment and reinvestment risk through similar transactions during 2012.

Commercial Mortgage-Backed Securities (CMBS)

The following table sets forth the fair value of our investment in CMBS and the percentage of total invested assets they represent:




                                          As of September 30, 2012                         As of December 31, 2011
                                                            % of Total                                       % of Total
                                    Fair Value            Invested Assets           Fair Value            Invested Assets
Agency                            $         427.4                      1.6 %      $         521.0                       2.0 %
Non-Agency                                1,461.6                      5.3                1,316.0                       5.0

Total                             $       1,889.0                      6.9 %      $       1,837.0                       7.0 %



The following table sets forth the total fair value, and amortized cost of our
non-agency CMBS by credit quality and vintage. There were 11 securities having a
fair value of $324.3 and an amortized cost of $277.3 that were rated A by S&P,
while Moody's and/or Fitch rated them AAA.



                                                           As of September 30, 2012
                                                         Highest Rating Agency Rating
                                                                                                              Total as of
                                                                                  BB and                     December 31,
                                         AAA          AA         A       BBB       Below         Total           2011
Vintage:
2012                                  $   200.0     $   -      $  -      $ -      $    -       $   200.0     $          -
2011                                      136.1         -         -        -           -           136.1             115.7
2010                                        1.1         -         -        -           -             1.1               1.2
2009                                         -          -         -        -           -              -                 -
2008                                       51.0       18.8        -        -           -            69.8              69.7
2007                                      396.1         -         -        -           -           396.1             422.1
2006                                      159.0         -         -        -         11.6          170.6             170.0
2005                                      228.6         -         -        -           -           228.6             258.7
2004 and prior                             99.5         -        1.9       -          4.5          105.9             165.0

Total amortized cost                  $ 1,271.4     $ 18.8     $ 1.9     $

- $ 16.1$ 1,308.2$ 1,202.4


Net unrealized gains (losses)             149.5        4.1       0.1       -         (0.3 )        153.4             113.6

Total fair value                      $ 1,420.9     $ 22.9     $ 2.0     $ -      $  15.8      $ 1,461.6     $     1,316.0



As of September 30, 2012, our CMBS portfolio was highly concentrated in the most
senior tranches, with 96.1% of our AAA-rated securities in the most senior
tranche, based on amortized cost, and had significant credit enhancement. The
senior class has priority over the mezzanine and junior classes to all principal
and interest cash flows and will not experience any loss of principal until both
the entire mezzanine and junior tranches are written down to zero.



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The following tables set forth the amortized cost of our AAA non-agency CMBS by
type and vintage:



                                                                     As of September 30, 2012
                                                                                                                     Total AAA
                                            Super Senior                           Other Structures                Securities at
                                  Super                                   Other          Other                       Amortized
                                 Senior       Mezzanine      Junior      Senior       Subordinate      Other           Cost
Vintage:
2012                             $ 173.7     $        -      $    -      $  10.2     $          -      $ 16.1     $         200.0
2011                                  -               -           -        136.1                -          -                136.1
2010                                  -               -           -          1.1                -          -                  1.1
2009                                  -               -           -           -                 -          -                   -
2008                                51.0              -           -           -                 -          -                 51.0
2007                               392.2              -           -          3.9                -          -                396.1
2006                               159.0              -           -           -                 -          -                159.0
2005                               129.5            24.5          -         74.6                -          -                228.6
2004 and prior                        -               -           -         90.2               9.3         -                 99.5

Total                            $ 905.4     $      24.5     $    -      $ 316.1     $         9.3     $ 16.1     $       1,271.4


                                                                     As of December 31, 2011
Total                            $ 760.4     $      27.1     $    -      $ 347.0     $        27.6     $   -      $       1,162.1



The weighted-average credit enhancement of our CMBS, adjusted to remove defeased
loans, as of September 30, 2012 was 30.1%. We believe this additional credit
enhancement is significant, especially in the event of a deep real estate
downturn during which losses would be expected to increase substantially.



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The following table provides additional information on our CMBS prepayment exposure by type and vintage:



                                                                                                                                                 Prepayment Speed
                                                                      As of September 30, 2012                                                      Adjustment
                                                                                                                                       Three Months            Nine Months
                                                      Unrealized                                                      Average              Ended                  Ended
                                     Amortized          Gains/           Fair           Gross          Gross          Mortgage         September 30,          September 30,
                                        Cost           (Losses)          Value         Discount       Premium        Loan Rate             2012                   2012
Agency:
CMO:
2012                                 $       -       $         -       $      -       $       -       $     -                -  %     $            -         $            -
2011                                       44.7               2.3           47.0              -           (1.2 )            4.9                    -                      -
2010                                       10.1               1.8           11.9              -           (0.1 )            5.3                    -                      -
2009                                       10.6               1.8           12.4              -             -               6.5                    -                      -
2008                                       28.2               0.7           28.9              -           (1.0 )            4.9                    -                      -
2007                                       52.4               1.5           53.9              -           (2.5 )            5.7                  (0.1 )                 (0.2 )
2006                                       45.8                -            45.8              -           (2.3 )            5.8                  (0.1 )                 (0.1 )
2005                                       30.8               1.0           31.8              -           (1.3 )            5.8                    -                      -
2004 and prior                             98.8               9.7          108.5              -           (2.8 )            6.8                    -                    (0.2 )

Total Agency CMO                     $    321.4      $       18.8      $   340.2      $       -       $  (11.2 )            5.9 %     $          (0.2 )      $          (0.5 )

Passthrough:
2005 - 2012                          $       -       $         -       $      -       $       -       $     -                -  %     $            -         $            -
2004 and prior                             81.3               5.9           87.2             0.2          (2.2 )            7.4                    -                      -

Total Agency Passthrough             $     81.3      $        5.9      $    87.2      $      0.2      $   (2.2 )            7.4 %     $            -         $            -

Total CMBS Agency                    $    402.7      $       24.7      $   427.4      $      0.2      $  (13.4 )            6.2 %     $          (0.2 )      $          (0.5 )


Non-Agency:
2012                                 $    200.0      $        7.0      $   207.0      $       -       $   (4.3 )            4.8 %     $            -         $            -
2011                                      136.1               8.6          144.7              -           (1.5 )            5.5                    -                      -
2010                                        1.1               0.1            1.2              -             -               4.0                    -                      -
2009                                         -                 -              -               -             -                -                     -                      -
2008                                       69.8               8.8           78.6             1.4          (0.2 )            6.0                    -                      -
2007                                      396.1              67.0          463.1            14.3          (0.3 )            5.8                   0.1                    0.1
2006                                      170.6              28.7          199.3             6.5          (0.8 )            5.9                    -                     0.1
2005                                      228.6              29.8          258.4             6.4            -               5.4                   0.2                    0.1
2004 and prior                            105.9               3.4          109.3             0.5          (1.4 )            6.0                    -                      -

Total CMBS Non-Agency                $  1,308.2      $      153.4      $ 1,461.6      $     29.1      $   (8.5 )            5.6 %     $           0.3        $           0.3


Total CMBS                           $  1,710.9      $      178.1      $ 1,889.0      $     29.3      $  (21.9 )            5.7 %     $           0.1        $          (0.2 )


Return on Equity-Like Investments

Prospector Partners, LLC, or Prospector, manages a portfolio of equity and
equity-like investments, the majority of which are publicly traded common stock
and convertible securities. We believe that these investments are suitable for
funding certain long duration liabilities in our Income Annuities segment and,
on a limited basis, in our surplus portfolio. These securities are recorded at
fair value, with changes in fair value recorded in net realized investment gains
(losses). The common stock securities are included in trading marketable equity
securities and the convertible securities are included in fixed maturities on
our consolidated balance sheets.

The following table compares our total gross return on common stock and
convertible securities in the Prospector portfolio to the benchmark S&P 500
Total Return Index for the three and nine months ended September 30, 2012 and
2011.



                                    Three Months Ended            Nine Months Ended
                                       September 30,                September 30,
                                    2012           2011           2012           2011
     Common stock                      9.8 %        (13.6 )%          8.4 %       (9.9 )%
     Convertible securities            1.7 %         (7.9 )%          4.9 %       (8.4 )%
     S&P 500 Total Return Index        6.3 %        (13.9 )%         16.4 %       (8.7 )%




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Return on Real Estate-Related Investments


Beginning in the second quarter of 2011, we implemented an investment strategy
focusing on real estate-related investments to enhance funding the long duration
liabilities in our Income Annuities segment. The investments for this strategy
primarily consist of investments in REITs, which are included in trading
marketable equity securities, on our consolidated balance sheets. As of
September 30, 2012, the real estate-related investments had a fair value of
$161.6. For the three and nine months ended September 30, 2012, the real
estate-related investments had a total gross return of 0.3% and 9.4%
respectively, compared with the REIT Index (FTSE NAREIT All Equity REITS Index)
result of 0.0% and 10.0% respectively.

Other


In the second quarter 2012, we provided a $103.0 initial investment in the
Symetra Mutual Funds Trust, which holds mutual funds available to our True VA
policyholders. This investment in mutual funds is included in trading marketable
equity securities on our consolidated balance sheets.

Mortgage Loans


Our mortgage loan department originates commercial mortgages and manages our
existing commercial mortgage loan portfolio. Our commercial mortgage loan
holdings are secured by first-mortgage liens on income-producing commercial real
estate. All loans are underwritten consistently to our standards based on
loan-to-value (LTV) ratios and debt service coverage ratios (DSCR) based on
income and detailed market, property and borrower analysis using our long-term
experience in commercial mortgage lending. A large majority of our loans have
personal guarantees and all loans are inspected and evaluated annually. We
diversify our mortgage loans by geographic region, loan size and scheduled
maturities. On our consolidated balance sheets, mortgage loans are reported net
of an allowance for losses, deferred loan origination costs, and unearned
mortgage loan fees; however, the following tables exclude these items.

We specialize in originating loans of $1.0 to $5.0. We believe a disciplined
increase in our mortgage loan portfolio will help maintain the overall quality
of our investment portfolio and obtain appropriate yields to match our
policyholder liabilities. We continue to increase our investments in mortgage
loans to improve our overall investment yields. This strategy has resulted in
increased net investment yields when compared to fixed maturity investments. We
originated $166.8 and $586.3 of mortgage loans during the three and nine months
ended September 30, 2012, respectively, and expect strong originations for the
remainder of 2012.

As of September 30, 2012 and December 31, 2011, 71.7% and 71.6% of our mortgage
loans were under $5.0 and our average loan balance was $2.4 and $2.4,
respectively. As of September 30, 2012 and December 31, 2011, our largest loan
balance was $13.0 and $12.4, respectively.

Credit Quality


We use the LTV and DSCR ratios as our primary metrics to assess mortgage loan
quality. These factors are also considered in our evaluation of our allowance
for mortgage loan losses. For more information and further discussion of our
allowance for mortgage loan losses, see Note 5 to our unaudited interim
condensed consolidated financial statements. The following table sets forth the
LTV ratios for our gross mortgage loan portfolio:



                                           As of September 30, 2012                 As of December 31, 2011
                                          Carrying                                Carrying
                                           Value             % of Total            Value             % of Total
Loan-to-Value Ratio:
< or = 50%                             $        952.0               32.3 %     $        805.7               31.9 %
51% - 60%                                       838.6               28.5                689.3               27.3
61% - 70%                                       806.3               27.4                720.6               28.5
71% - 75%                                       168.1                5.7                121.1                4.8
76% - 80%                                        72.1                2.4                 58.8                2.3
81% - 100%                                       87.8                3.0                 89.6                3.6
> 100%                                           22.1                0.7                 40.1                1.6

Total                                  $      2,947.0              100.0 %     $      2,525.2              100.0 %



The LTV ratio compares the amount of the loan to the estimated fair value of the
underlying property collateralizing the loan. In the year of funding, LTV ratios
are calculated using independent appraisals performed by Member of the Appraisal
Institute (MAI)



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designated appraisers. Subsequent to the year of funding, LTV ratios are updated
annually using internal valuations based on property income and estimated market
capitalization rates. Property income estimates are typically updated during the
third quarter of each year. Market capitalization rates are updated during the
first quarter based on geographic region, property type and economic climate.
LTV ratios greater than 100% indicate that the loan amount is greater than the
collateral value. A smaller LTV ratio generally indicates a higher quality loan.

The following table sets forth the carrying value and weighted-average LTV
ratios for our mortgage loan portfolio by year of origination, as of
September 30, 2012:



                                                                  Weighted
                                 Carrying       % of Total        Average
                                   Value          Value             LTV
             Origination Year:
             2012                $   595.6             20.2 %          54.3 %
             2011                    944.5             32.1            59.0
             2010                    551.5             18.7            54.6
             2009                    226.5              7.7            53.9
             2008                    188.5              6.4            59.6
             2007                    120.1              4.1            62.8
             2006                     85.5              2.9            58.8
             2005                     68.7              2.3            60.3
             2004 and prior          166.1              5.6            39.6

             Total               $ 2,947.0            100.0 %          55.9 %



As we increase the volume of originations, we focus on maintaining our
disciplined underwriting approach. The weighted average LTV ratio was 54.3% and
57.1% for loans funded during the nine months ended September 30, 2012 and the
year ended December 31, 2011, respectively. For loans originated in the nine
months ended September 30, 2012, 30.8% had an LTV ratio of 50% or less, and no
loans had an LTV ratio of more than 75%. For loans originated in the year ended
December 31, 2011, 23.2% had an LTV ratio of 50% or less, and no loans had an
LTV ratio of more than 75%. The weighted-average LTV ratio for our entire
portfolio was 55.9% and 57.1% as of September 30, 2012 and December 31, 2011,
respectively.

The following table sets forth the DSCR for our gross mortgage loan portfolio:



                                                As of September 30, 2012                 As of December 31, 2011
                                              Carrying                                 Carrying
                                               Value             % of Total             Value             % of Total
Debt Service Coverage Ratio:
> or = 1.60                                $      1,660.2                56.3 %     $      1,310.8               51.9 %
1.40 - 1.59                                         552.1                18.7                566.5               22.4
1.20 - 1.39                                         416.9                14.1                369.7               14.7
1.00 - 1.19                                         207.5                 7.1                157.4                6.3
0.85 - 0.99                                          37.0                 1.3                 39.0                1.5
< 0.85                                               73.3                 2.5                 81.8                3.2

Total                                      $      2,947.0               100.0 %     $      2,525.2              100.0 %



The DSCR compares the amount of rental income a property is generating to the
amount of the mortgage payments due on the property. DSCRs are calculated using
the most current annual operating history for the collateral. As of
September 30, 2012 and December 31, 2011, the mortgage loan portfolio had
weighted-average DSCRs of 1.77 and 1.72, respectively. For loans originated
during the nine months ended September 30, 2012 and the year ended December 31,
2011, 73.1% and 56.0%, respectively, had a DSCR of 1.60 or more. As of
September 30, 2012, loans with an aggregate carrying value of $110.3 had a DSCR
of less than 1.00. The average outstanding principal balance of these loans was
$1.5. As of September 30, 2012, no loans were in default.



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Composition of Mortgage Loans

The following table sets forth the gross carrying value of our investments in mortgage loans by geographic region:



                     As of September 30, 2012                As of December 31, 2011
                    Carrying                               Carrying
                     Value             % of Total           Value             % of Total
    Region:
    California   $        865.1               29.4 %    $        813.7               32.2 %
    Texas                 323.8               11.0               265.2               10.5
    Washington            311.8               10.6               304.8               12.1
    Illinois              131.6                4.5               105.6                4.2
    Florida               126.9                4.3                87.8                3.5
    Other               1,187.8               40.2               948.1               37.5

    Total        $      2,947.0              100.0 %    $      2,525.2              100.0 %


The following table sets forth the gross carrying value of our investments in mortgage loans by property type:




                                                As of September 30, 2012                 As of December 31, 2011
                                              Carrying                                 Carrying
                                               Value             % of Total             Value             % of Total
Property Type:
Shopping centers and retail                $      1,412.9                47.9 %     $      1,190.6               47.1 %
Office buildings                                    717.5                24.3                628.9               24.9
Industrial                                          568.5                19.3                503.7               19.9
Multi-family                                        132.4                 4.5                113.4                4.5
Other                                               115.7                 4.0                 88.6                3.6

Total                                      $      2,947.0               100.0 %     $      2,525.2              100.0 %


Maturity Date of Mortgage Loans

The following table sets forth our gross carrying value of our investments in mortgage loans by contractual maturity date:




                                              As of September 30, 2012                 As of December 31, 2011
                                             Carrying                                Carrying
                                              Value             % of Total            Value             % of Total
Years to Maturity:
Due in one year or less                   $         16.9                0.6 %     $         18.7                0.7 %
Due after one year through five years              201.0                6.8                154.0                6.1
Due after five years through ten years           1,525.4               51.8              1,322.5               52.4
Due after ten years                              1,203.7               40.8              1,030.0               40.8

Total                                     $      2,947.0              100.0 %     $      2,525.2              100.0 %



Prior to the maturity dates shown above, the majority of our mortgage loans have
one or more specified rate resetting windows during which the loan typically can
be prepaid without a fee. During these windows we expect that a substantial
portion of these loans will either be reset or refinanced at market terms given
the current low interest rate environment. These loan features are considered in
our asset-liability management and we align our expected mortgage loan cash
flows and duration with the amount and timing of liability cash outflows.
Additionally, our loan terms usually allow borrowers to prepay their mortgage
loan prior to the stated maturity or outside specified rate resetting windows.
Prepayments are driven by factors specific to the activities of our borrowers as
well as the interest rate environment. However, the vast majority of our
mortgage loans contain yield maintenance prepayment provisions that we believe
mitigate prepayments in a low interest rate environment.



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Investments in Limited Partnerships - Tax Credit Investments


We invest in limited partnership interests related to tax credit investments,
which are typically 15-year investments that provide tax credits in the first
ten years. We amortize these investments over the period in which partnership
losses are expected to be recognized. The amortization schedule for each
investment is updated periodically as new information related to the amount and
timing of losses is received. Although these investments decrease our net
investment income over time on a pre-tax basis, they provide us with significant
tax benefits, which decrease our effective tax rate. The following table sets
forth the impact the amortization of our investments and related tax credits had
on net income:



                                          For the Three Months Ended               For the Nine Months Ended
                                                September 30,                            September 30,
                                          2012                 2011                2012                 2011
Amortization related to tax credit
investments, net of taxes              $      (5.0 )        $      (2.1 )      $      (10.8 )        $      (6.3 )
Realized losses related to tax
credit investments, net of taxes              (0.2 )                 -                 (0.8 )                 -
Tax credits                                    9.5                  3.5                24.6                 12.1

Impact to net income                   $       4.3          $       1.4        $       13.0          $       5.8


The following table provides the future estimated impact to net income:



                                                   Impact to Net
                                                      Income
                 Remainder of 2012                $           4.6
                 2013                                        20.2
                 2014                                        20.2
                 2015 and beyond                             51.3

                 Estimated impact to net income   $          96.3



The tax credits from our investments in limited partnerships occur in the first
10 years, with the largest portions provided in the middle years. A significant
amount of our investments are entering these middle years and we expect the
future impact to net income to continue to grow next year.

Liquidity and Capital Resources


Symetra conducts its operations through its operating subsidiaries, and our
liquidity requirements primarily have been and will continue to be met by funds
from such subsidiaries. Dividends from its subsidiaries are Symetra's principal
sources of cash to pay dividends and meet its obligations, including payments of
principal and interest on notes payable and tax obligations.

We have paid and intend to pay quarterly cash dividends on our common stock and
warrants. During the nine months ended September 30, 2012, we declared and paid
three quarterly cash dividends of $0.07 per share, each. The declaration and
payment of future dividends to holders of our common stock will be at the
discretion of our board of directors. See "- Dividends" below for further
discussion.

We actively manage our liquidity in light of changing market, economic and business conditions and we believe that our liquidity levels are more than adequate to cover our exposures, as evidenced by the following:

• As of September 30, 2012 we had $23.5 billion of liquid assets, which

includes cash, cash equivalents, short-term investments, publicly traded

         fixed maturities and public equity securities.




    •    While certain policy lapses and surrenders occur in the normal course of

business, these lapses and surrenders have not increased materially from

management expectations. Additionally, although surrenders and withdrawals

         exceeded deposits in our Deferred Annuities segment during the third
         quarter of 2012, we were able to fund these withdrawals through readily
         available liquid assets.



• As of September 30, 2012, we had the ability to borrow, on an unsecured

basis, up to a maximum principal amount of $300.0 under a revolving line

         of credit arrangement.



• We continued to generate strong cash flows from operations, which grew by

$22.9 to $745.9 for the nine months ended September 30, 2012, from $723.0

         for the nine months ended September 30, 2011.



• As of September 30, 2012 our primary life insurance company, Symetra Life

Insurance Company, had an estimated risk-based capital ratio of

approximately 485%. This provides adequate capital levels for growth of

         our business.




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Liquidity Requirements and Sources of Liquidity


The liquidity requirements of our insurance subsidiaries principally relate to
the liabilities associated with their various insurance and investment products,
operating costs and expenses, the payment of dividends to the holding company,
and payment of income taxes. Liabilities arising from insurance and investment
products include the payment of benefits, as well as cash payments in connection
with policy and contract surrenders and withdrawals and policy loans.
Historically, Symetra's insurance subsidiaries have used cash flows from
operations, cash flows from invested assets and sales of investment securities
to fund their liquidity requirements.

In managing the liquidity of our insurance operations, we also consider the risk
of policyholder and contract holder withdrawals of funds earlier than assumed
when selecting assets to support these contractual obligations. We use surrender
charges and other contract provisions to mitigate the extent, timing and
profitability impact of withdrawals of funds by customers from annuity contracts
and deposit liabilities. The following table sets forth withdrawal
characteristics of our general account policyholder liabilities, composed of
annuity reserves, deposit liabilities and policy and contract claim liabilities,
net of reinsurance recoverables:



                                           As of September 30, 2012                 As of December 31, 2011
                                          Amount             % of Total            Amount            % of Total
Illiquid Liabilities
Structured settlements & other
SPIAs(1)                              $       6,596.8               28.3 %     $      6,605.4               29.0 %
Deferred annuities with 5-year
payout provision or MVA(2)                      313.9                1.3                372.3                1.6
Traditional insurance (net of
reinsurance)(3)                                 175.5                0.8                180.1                0.8
Group health & life (net of
reinsurance)(3)                                 133.9                0.6                127.5                0.6

Total illiquid liabilities                    7,220.1               31.0              7,285.3               32.0

Somewhat Liquid Liabilities
Bank-owned life insurance
(BOLI)(4)                                     4,709.2               20.2              4,575.9               20.1
Deferred annuities with surrender
charges of 5% or higher                       6,640.0               28.5              6,984.4               30.7
Universal life with surrender
charges of 5% or higher                         289.4                1.3                250.5                1.0

Total somewhat liquid liabilities            11,638.6               50.0             11,810.8               51.8

Fully Liquid Liabilities
Deferred annuities with surrender
charges of:
3% up to 5%                                   1,132.1                4.9                710.7                3.1
Less than 3%                                    224.1                1.0                142.9                0.6
No surrender charges(5)                       2,602.2               11.2              2,346.9               10.3
Universal life with surrender
charges less than 5%                            444.4                1.8                444.8                2.0
Other(6)                                         22.1                0.1                 37.3                0.2

Total fully liquid liabilities                4,424.9               19.0              3,682.6               16.2

Total(7)                              $      23,283.6              100.0 %     $     22,778.7              100.0 %




(1) These contracts cannot be surrendered. The benefits are specified in the

contracts as fixed amounts, primarily to be paid over the next several

decades.

(2) In a liquidity crisis situation, we could invoke the five-year payout

provision so that the contract value with interest is paid out ratably over

five years.

(3) Represents incurred but not reported claim liabilities. The surrender value

on these contracts is generally zero.

(4) The biggest deterrent to surrender is the taxation on the gain within these

contracts, which includes a 10% non-deductible penalty tax. Banks can

exchange certain of these contracts with other carriers, tax-free. However, a

significant portion of this business does not qualify for this tax-free

treatment due to the employment status of the original covered employees and

charges may be applicable.

(5) Approximately half of the account value has been with us for many years, due

to guaranteed minimum interest rates of 4.0 - 4.5% that are significantly

higher than those currently offered on new business, which range from 1.0 -

1.5%. Given the current low interest rate environment, we do not expect

significant changes in the persistency of this business.

(6) Represents BOLI, traditional insurance, and Group health and life reported

claim liabilities.

(7) Represents the sum of funds held under deposit contracts, future policy

benefits and policy and contract claims on the consolidated balance sheets,

excluding other policyholder related liabilities and reinsurance recoverables

    of $229.6 and $232.9 as of September 30, 2012 and December 31, 2011,
    respectively.




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Liquid Assets


Symetra's insurance subsidiaries maintain investment strategies intended to
provide adequate funds to pay benefits without forced sales of investments.
Products having liabilities with longer durations, such as certain life
insurance policies and structured settlement annuities, are matched with
investments having similar estimated lives such as long-term fixed maturities,
mortgage loans and marketable equity securities. Shorter-term liabilities are
matched with fixed maturities that have short- and medium-terms. In addition,
our insurance subsidiaries hold highly liquid, high quality, shorter-term
investment securities and other liquid investment-grade fixed maturities and
cash equivalents to fund anticipated operating expenses, surrenders and
withdrawals.

We define liquid assets to include cash, cash equivalents, short-term
investments, publicly traded fixed maturities and public equity securities. As
of September 30, 2012 and December 31, 2011, our insurance subsidiaries had
liquid assets of $23.4 billion and $22.5 billion, respectively, and Symetra had
liquid assets of $131.4 and $114.6, respectively. The portion of total company
liquid assets comprised of cash and cash equivalents and short-term investments
was $244.2 and $245.1 as of September 30, 2012 and December 31, 2011,
respectively. The increase in our insurance subsidiaries' liquid assets was
primarily the result of sales of deferred annuities during the first three
quarters of 2012.

We consider attributes of the various categories of liquid assets (for example,
type of asset and credit quality) in evaluating the adequacy of our insurance
operations' liquidity under a variety of stress scenarios. We believe that the
liquidity profile of our assets is sufficient to satisfy liquidity requirements,
including under foreseeable stress scenarios.

Given the size and liquidity profile of our investment portfolio, we believe
that claim experience varying from our projections does not constitute a
significant liquidity risk. Our asset/liability management program takes into
account the expected cash flows on investments and expected claim payments as
well as the specific nature and risk profile of the liabilities. Historically,
there has been limited variation between the expected cash flows on our
investments and the payment of claims.

Dividends


We declared and paid a quarterly dividend of $0.07 per common share during the
first, second and third quarters of 2012, for a total payout of $29.0. On
November 6, 2012, we declared a quarterly dividend of $0.07 per common share to
shareholders and warrant holders of record on November 20, 2012, for an
approximate total of $9.7 to be paid on or about December 7, 2012.

Cash Flows


The following table sets forth a summary of our consolidated cash flows for the
dates indicated:



                                                            For the Nine Months Ended
                                                                  September 30,
                                                            2012                 2011

Net cash flows provided by operating activities $ 745.9

   $     723.0
Net cash flows used in investing activities                   (618.1 )           (1,388.7 )
Net cash flows provided by (used in) financing
activities                                                    (131.7 )              573.9


Operating Activities

Cash flows from our operating activities are primarily driven by the amounts and
timing of cash received for premiums on our group medical stop-loss and term
life insurance products, income on our investments, including dividends and
interest, as well as the amounts and timing of cash disbursed for our payment of
policyholder benefits and claims, underwriting and operating expenses and income
taxes.

Net cash provided by operating activities for the nine months ended
September 30, 2012 increased $22.9 over the same period in 2011. This increase
was primarily the result of favorable underwriting results on a growing book of
medical stop-loss business, an increase in net investment income driven by
higher average assets and a lower commission expense due to lower sales of fixed
deferred annuities. The increase was partially offset by higher operating
expenses as we execute on our Grow & Diversify strategies.



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Investing Activities


Cash flows from our investing activities are primarily driven by the amounts and
timing of cash received from our sales of investments and from maturities and
calls of fixed maturity securities, as well as the amounts and timing of cash
disbursed for purchases of investments and funding of mortgage loan
originations.

Net cash used in investing activities for the nine months ended September 30,
2012 decreased $770.6 over the same period in 2011. This decrease was primarily
the result of lower purchases of fixed maturities, related to a decline in sales
of fixed deferred annuities, and higher sales of fixed maturities, related to
active management of our portfolio to increase investment yields.

Financing Activities


Cash flows from our financing activities are primarily driven by the amounts and
timing of cash received from deposits into certain life insurance and annuity
policies and proceeds from our issuances of debt and common stock, as well as
the amounts and timing of cash disbursed to fund withdrawals from certain life
insurance and annuity policies, and dividend distributions to our stock and
warrant holders.

Net cash used in financing activities for the nine months ended September 30,
2012 was 131.7, in comparison to cash provided by financing activities of $573.9
over the same period in 2011. This change was primarily driven by lower
policyholder deposits, mainly on fixed deferred annuities. In addition, there
were higher deferred annuity policyholder withdrawals, which we anticipate as
policies move out of the surrender charge period.
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