UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-33808

SYMETRA FINANCIAL CORPORATION

Delaware (State or other jurisdiction of incorporation or organization)		20-0978027 (I.R.S. Employer Identification No.)

777 108th Avenue NE, Suite 1200
Bellevue, Washington 98004
(Address of principal executive offices, including zip code)

(425) 256-8000
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     As of August 10, 2010, the Registrant had 118,175,040 common voting shares outstanding, with a par value of $0.01 per share.

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION
Item 1: Financial Statements:
Consolidated Balance Sheets			3
Consolidated Statements of Income			4
Consolidated Statements of Stockholders’ Equity			5
Consolidated Statements of Cash Flows			6
Condensed Notes to Consolidated Financial Statements			7
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3: Quantitative and Qualitative Disclosures about Market Risk			60
Item 4: Controls and Procedures			60
PART II — OTHER INFORMATION
Item 1: Legal Proceedings			62
Item 1A: Risk Factors			62
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 6: Exhibits			64
Signatures			65
EX-10.1
EX-10.7
EX-10.16
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Forward-Looking Statements

          This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements, which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of current or historical facts included or referenced in this report that address activities, events or developments that we expect or anticipate will or may occur in the future, are forward-looking statements. The words “will,” “believe,” “intend,” “plan,” “expect,” “anticipate,” “project,” “estimate,” “predict” and similar expressions also are intended to identify forward-looking statements. These forward-looking statements include, among others, statements with respect to Symetra Financial Corporation’s:

•

estimates or projections of revenues, net income, net income per share, adjusted operating income, adjusted operating income per share, market share or other financial forecasts;

	•		trends in operations, financial performance and financial condition;
	•		financial and operating targets or plans; and
	•		business and growth strategy.

          These statements are based on certain assumptions and analyses made by Symetra in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors believed to be appropriate under the circumstances. Whether actual results and developments will conform to Symetra’s expectations and predictions is subject to a number of risks, uncertainties and contingencies that could cause actual results to differ materially from expectations, including, among others:

•

general economic, market or business conditions, including further economic downturns or other adverse conditions in the global and domestic capital and credit markets;

	•		the availability of capital and financing;
	•		potential investment losses;
	•		the effects of fluctuations in interest rates and a prolonged low interest rate environment;
	•		recorded reserves for future policy benefits and claims subsequently proving to be inadequate or inaccurate;
	•		deviations from assumptions used in setting prices for insurance and annuity products;
	•		market pricing and competitive trends related to insurance products and services;
	•		changes in amortization of deferred policy acquisition costs;
	•		financial strength or credit ratings downgrades;
	•		the continued availability and cost of reinsurance coverage;

•

changes in laws or regulations, or their interpretation, including those that could increase Symetra’s business costs and required capital levels;

	•		the ability of subsidiaries to pay dividends to Symetra;
	•		the effects of implementation of the Patient Protection and Affordable Care Act;
	•		the effects of implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act; and
	•		the risks that are described in Item 1A — “Risk Factors” in this report and Symetra’s 2009 Annual Report on Form 10-K.

          Consequently, all of the forward-looking statements made in this report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Symetra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Symetra or its business or operations. Symetra assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.

PART I — Financial Information

Item 1.		Financial Statements

CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share data)

		As of				As of
		June 30, 2010				December 31, 2009
		(Unaudited)
ASSETS
Investments:
Available-for-sale securities:
Fixed maturities, at fair value (cost: $19,618.7 and $18,553.7, respectively)		$	20,612.2			$	18,594.3
Marketable equity securities, at fair value (cost: $52.6 and $52.6, respectively)			43.9				36.7
Trading securities:
Marketable equity securities, at fair value (cost: $157.3 and $165.9, respectively)			141.0				154.1
Mortgage loans, net			1,340.3				1,201.7
Policy loans			72.3				73.9
Investments in limited partnerships (includes $32.1 and $24.7 measured at fair value, respectively)			136.9				110.2
Other invested assets			12.0				12.2
Total investments			22,358.6				20,183.1
Cash and cash equivalents			322.7				257.8
Accrued investment income			251.6				237.2
Accounts receivable and other receivables			81.9				70.1
Reinsurance recoverables			277.3				276.6
Deferred policy acquisition costs			199.0				250.4
Goodwill			27.3				26.3
Current income taxes recoverable			—				20.2
Deferred income tax assets, net			—				191.2
Other assets			74.0				84.5
Separate account assets			759.0				840.1
Total assets		$	24,351.4			$	22,437.5
LIABILITIES AND STOCKHOLDERS’ EQUITY
Funds held under deposit contracts		$	19,825.7			$	18,816.7
Future policy benefits			397.0				394.9
Policy and contract claims			120.7				125.6
Unearned premiums			14.0				12.1
Other policyholders’ funds			99.5				113.8
Notes payable			449.0				448.9
Deferred income tax liabilities, net			112.0				—
Other liabilities			231.7				252.1
Separate account liabilities			759.0				840.1
Total liabilities			22,008.6				21,004.2
Commitments and contingencies (Note 10)
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 750,000,000 shares authorized; 118,222,920 issued and 118,175,040 outstanding as of June 30, 2010; 92,729,455 issued and outstanding as of December 31, 2009			1.2				0.9
Additional paid-in capital			1,449.5				1,165.7
Retained earnings			391.6				316.4
Treasury stock, at cost; 47,880 and 0 shares as of June 30, 2010 and December 31, 2009, respectively			(0.6	)			—
Accumulated other comprehensive income (loss), net of taxes			501.1				(49.7	)
Total stockholders’ equity			2,342.8				1,433.3
Total liabilities and stockholders’ equity		$	24,351.4			$	22,437.5

See accompanying notes.

CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Revenues:
Premiums		$	115.5			$	116.8			$	234.5			$	236.3
Net investment income			297.1				283.1				584.0				545.8
Policy fees, contract charges, and other			41.8				40.7				82.3				80.3
Net realized investment gains (losses):
Total other-than-temporary impairment losses on securities			(2.7	)			(72.2	)			(20.6	)			(123.8	)
Less: portion of losses recognized in other comprehensive income			1.2				43.7				9.4				67.5
Net impairment losses recognized in earnings			(1.5	)			(28.5	)			(11.2	)			(56.3	)
Other net realized investment gains (losses)			(8.5	)			31.2				8.0				16.0
Total net realized investment gains (losses)			(10.0	)			2.7				(3.2	)			(40.3	)
Total revenues			444.4				443.3				897.6				822.1
Benefits and expenses:
Policyholder benefits and claims			83.3				82.1				169.5				176.5
Interest credited			221.5				213.1				440.0				408.7
Other underwriting and operating expenses			64.2				62.0				123.8				125.0
Interest expense			7.9				8.0				15.9				15.9
Amortization of deferred policy acquisition costs			17.0				11.9				32.4				22.6
Total benefits and expenses			393.9				377.1				781.6				748.7
Income from operations before income taxes			50.5				66.2				116.0				73.4
Provision (benefit) for income taxes:
Current			17.4				9.6				27.3				11.5
Deferred			(2.7	)			9.6				6.6				9.8
Total provision for income taxes			14.7				19.2				33.9				21.3
Net income		$	35.8			$	47.0			$	82.1			$	52.1
Net income per common share:
Basic		$	0.26			$	0.42			$	0.61			$	0.47
Diluted		$	0.26			$	0.42			$	0.61			$	0.47
Weighted-average number of common shares outstanding:
Basic			137.019				111.622				134.035				111.622
Diluted			137.038				111.622				134.056				111.622
Cash dividends declared per common share		$	0.05				—			$	0.05				—

See accompanying notes.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In millions)
(Unaudited)

																		Accumulated
						Additional								Treasury				Other				Total
		Common				Paid-in				Retained				Stock,				Comprehensive				Stockholders'
		Stock				Capital				Earnings				at Cost				Income (Loss)				Equity
Balances as of January 1, 2009		$	0.9			$	1,165.5			$	172.4			$	—			$	(1,052.6	)		$	286.2
Cumulative effect adjustment — new accounting guidance (net of taxes: $(8.4))			—				—				15.7				—				(15.7	)			—
Comprehensive income, net of taxes:
Net income			—				—				52.1				—				—				52.1
Other comprehensive income (net of taxes: $229.1)			—				—				—				—				425.4				425.4
Total comprehensive income, net of taxes																							477.5
Balances as of June 30, 2009		$	0.9			$	1,165.5			$	240.2			$	—			$	(642.9	)		$	763.7
Balances as of January 1, 2010		$	0.9			$	1,165.7			$	316.4			$	—			$	(49.7	)		$	1,433.3
Common stock issued (net of issuance costs: $20.6)			0.3				282.2				—				—				—				282.5
Comprehensive income, net of taxes:
Net income			—				—				82.1				—				—				82.1
Other comprehensive income (net of taxes: $296.5)			—				—				—				—				550.8				550.8
Total comprehensive income, net of taxes																							632.9
Stock-based compensation			—				1.6				—				(0.6	)			—				1.0
Dividends declared			—				—				(6.9	)			—				—				(6.9	)
Balances as of June 30, 2010		$	1.2			$	1,449.5			$	391.6			$	(0.6	)		$	501.1			$	2,342.8

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)

		For the Six Months Ended
		June 30,
		2010				2009
Cash flows from operating activities
Net income		$	82.1			$	52.1
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment losses			3.2				40.3
Accretion and amortization of invested assets, net			18.9				8.5
Accrued interest on bonds			(21.5	)			(16.6	)
Amortization and depreciation			11.5				7.4
Deferred income tax provision			6.6				9.8
Interest credited on deposit contracts			440.0				408.7
Mortality and expense charges and administrative fees			(51.2	)			(50.2	)
Changes in:
Accrued investment income			(14.4	)			(24.1	)
Deferred policy acquisition costs, net			(35.1	)			(76.2	)
Other receivables			2.8				(13.9	)
Future policy benefits			2.1				2.2
Policy and contract claims			(4.9	)			(0.8	)
Current income taxes recoverable			22.3				18.7
Other assets and liabilities			(27.0	)			(5.5	)
Other, net			1.4				0.1
Total adjustments			354.7				308.4
Net cash provided by operating activities			436.8				360.5
Cash flows from investing activities
Purchases of:
Fixed maturities and marketable equity securities			(2,397.7	)			(2,110.7	)
Other invested assets and investments in limited partnerships			(23.4	)			(19.3	)
Issuances of mortgage loans			(179.6	)			(86.0	)
Issuances of policy loans			(8.6	)			(8.9	)
Maturities, calls, paydowns, and other			892.7				649.5
Securities lending collateral returned, net			—				59.6
Sales of:
Fixed maturities and marketable equity securities			441.7				138.4
Other invested assets and investments in limited partnerships			6.3				2.9
Repayments of mortgage loans			37.5				35.8
Repayments of policy loans			9.7				9.3
Other, net			(1.8	)			3.9
Net cash used in investing activities			(1,223.2	)			(1,325.5	)
Cash flows from financing activities
Policyholder account balances:
Deposits			1,215.9				1,655.6
Withdrawals			(621.2	)			(671.4	)
Securities lending collateral paid, net			—				(59.6	)
Proceeds from issuance of common stock			282.5				—
Cash dividends paid on common stock			(6.9	)			—
Acquisition of treasury stock			(0.6	)			—
Other, net			(18.4	)			7.4
Net cash provided by financing activities			851.3				932.0
Net increase (decrease) in cash and cash equivalents			64.9				(33.0	)
Cash and cash equivalents at beginning of period			257.8				468.0
Cash and cash equivalents at end of period		$	322.7			$	435.0
Supplemental disclosures of cash flow information
Non-cash transactions during the period:
Investments in limited partnerships and capital obligations incurred		$	20.2			$	9.2
Bond exchanges			72.7				27.4

See accompanying notes.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

1. Description of Business

     Symetra Financial Corporation is a Delaware corporation that, through its subsidiaries, offers group and individual insurance products and retirement products, including annuities, marketed through benefits consultants, financial institutions and independent agents and advisors in all states and the District of Columbia. The Company’s principal products include medical stop-loss insurance, fixed and variable deferred annuities, single premium immediate annuities and individual life insurance. The accompanying interim financial statements include, on a consolidated basis, the accounts of Symetra Financial Corporation and its subsidiaries, which are collectively referred to as “Symetra Financial” or “the Company.”

     On January 27, 2010, the Company completed an initial public offering (IPO) of its common stock at an offering price of $12.00 per share. The IPO included 25.260 newly issued shares of common stock sold by the Company, and 9.700 existing shares of common stock sold by selling stockholders. The Company received net proceeds from the offering of $282.5. The Company did not receive any proceeds from the sale of shares by the selling stockholders.

2. Summary of Significant Accounting Policies

  Basis of Presentation and Use of Estimates

     The interim consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (GAAP), including the rules and regulations of the Securities and Exchange Commission (SEC), for interim reporting. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that may affect the amounts reported in the interim consolidated financial statements and accompanying notes. These interim consolidated financial statements are unaudited but in management’s opinion include all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation.

     The interim consolidated financial statements include the accounts of Symetra Financial Corporation and its subsidiaries that are wholly owned, directly or indirectly. All significant intercompany transactions and balances have been eliminated. Certain reclassifications have been made to prior year financial information to conform to the current period presentation. For the three and six months ended June 30, 2009, this included reclassifications of $25.8 and $51.8, respectively, related to cost of insurance charges on universal life-type (UL) contracts from premium revenues to policy fees, contract charges and other revenues on the consolidated statements of income. These reclassifications did not change total revenues or amounts previously reported as other revenues that are now included in policy fees, contract charges and other.

     These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the SEC. The consolidated balance sheet as of December 31, 2009 was derived from audited consolidated financial statements as of that date but certain information and footnotes required by GAAP for complete financial statements have been excluded. Operating results for the three- and six-month periods ended June 30, 2010 are not necessarily indicative of the results that may be expected for the twelve months ended December 31, 2010.

     During the first quarter of 2010, the Company revised its estimate for bonus interest reserves on one of its universal life products. This bonus interest is not earned by the contractholder if the policy’s credited rate is equal to the guaranteed minimum. Due to the negative impact the low interest rate environment has had on investment yields, the credited interest rate is being adjusted downward to the guaranteed minimum rate over the next nine months. As a result, for the six months ended June 30, 2010, income from operations before income taxes increased $7.4. The impact on net income for the same period was $4.8, or $0.03 per share of common stock.

  Adoption of New Accounting Pronouncements

  ASC 810-10 (formerly SFAS No. 167), Amendments to FASB Interpretation No. 46(R)

     In June 2009, the FASB issued SFAS No. 167 (ASC 810-10), Amendments to FASB Interpretation No. 46(R), which provides guidance for determining whether an entity is a variable interest entity (VIE); assessing which enterprise, if any, has a controlling financial interest in a VIE; and providing additional disclosures about involvement with such entities. This guidance changed the basis for determining the primary beneficiary of a VIE from a quantitative analysis to a primarily qualitative analysis and requires

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

reassessment of this determination at each reporting period. The Company adopted this guidance on January 1, 2010, and it did not change the Company’s previous conclusions regarding its VIEs, which consist primarily of investments in limited partnerships.

     Based on the analysis of its investments in VIEs, the Company does not meet the definition of “primary beneficiary” for any of these VIEs, as it lacks the power to direct the activities of its VIEs, and therefore has not consolidated these entities. The maximum exposure to loss as a result of the Company’s involvement in its VIEs, which includes unfunded commitments, was $166.3 and $147.3 as of June 30, 2010 and December 31, 2009, respectively.

  ASU 2010-6, Improving Disclosures about Fair Value Measurement

     In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820) — Improving Disclosures about Fair Value Measurement. The guidance in this ASU requires additional disclosures about an entity’s fair value measurements, including information about inputs to Level 2 measurements, gross transfers into and out of Levels 1 and 2, and information about activity for Level 3 measurements on a gross basis. It also clarifies the level of disaggregation required for existing fair value disclosures. The Company adopted this guidance on January 1, 2010, except for the provisions regarding activity for Level 3 measurements presented on a gross basis, which will be adopted on January 1, 2011, as provided for in the guidance. See Note 5 for the Company’s disclosures related to fair value measurements.

  Accounting Pronouncements Not Yet Adopted

  ASU 2010-15, How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments

     In April 2010, the FASB issued ASU 2010-15, Financial Services — Insurance (Topic 944) — How Investments Held through Separate Accounts Affect an Insurer’s Consolidation Analysis of Those Investments. This guidance clarifies that an insurer should only consider its ownership interests held within its general account when determining if it holds a controlling interest, thus excluding interests held in a separate account from the analysis. It does not change the guidance for consolidating investments when the general account holds a controlling interest. The Company will adopt this guidance on January 1, 2011, which will not change the Company’s current practice of excluding ownership interests held in its separate account from its consolidation analysis.

  ASU 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

     In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310) — Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This guidance requires increased disclosure about financing receivables, including credit risk exposures and the allowance for credit losses; however, it does not change how credit losses are measured or recognized. It requires, on a disaggregated basis, new disclosures regarding allowances for credit losses, the credit quality of financing receivables, and loan impairments. The Company is evaluating the new disclosure requirements to determine the extent to which they will impact its financial statements. The Company’s mortgage loans are considered financing receivables. The Company will include the required disclosures in its financial statements for the year ended December 31, 2010.

3. Earnings Per Share

     Basic earnings per share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Diluted earnings per share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period, adjusted for the potential issuance of common stock, if dilutive.

     The outstanding warrants, exercisable for 18.976 common shares, are considered participating securities or potential common stock securities that are included in weighted-average common shares outstanding for purposes of computing basic and diluted earnings per share using the two-class method. The warrants are considered participating securities or potential common stock securities because the terms of the agreements entitle the holders to receive any dividends declared on the common stock concurrently with the holders of outstanding shares of common stock, on a one-to-one basis.

     The Company has issued restricted stock to certain employees that are included in the computation of earnings per share, weighted for the portion of the period the shares were outstanding. Certain of the restricted shares are considered participating securities because the terms of the agreements entitle the holders to receive any dividends declared on the common stock concurrently with the holders of outstanding shares of common stock, on a one-to-one basis. Participating restricted stock is included in basic and

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

diluted earnings per share based on the application of the two-class method. Non-participating restricted stock is included in diluted earnings per share based on the application of the treasury stock method.

     For the three and six months ended June 30, 2010, 1.750 stock options were excluded from the computation of diluted earnings per share, based on the application of the treasury stock method, because they were antidilutive.

     The following table presents information relating to the Company’s calculations of basic and diluted earnings per share:

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Numerator:
Net income, as reported		$	35.8			$	47.0			$	82.1			$	52.1
Denominator:
Weighted-average common shares outstanding — basic			137.019				111.622				134.035				111.622
Add: Dilutive effect of restricted stock			0.019				—				0.021				—
Weighted-average common shares outstanding — diluted			137.038				111.622				134.056				111.622
Net income per common share:
Basic		$	0.26			$	0.42			$	0.61			$	0.47
Diluted		$	0.26			$	0.42			$	0.61			$	0.47

4. Investments

     The following tables summarize the Company’s available-for-sale fixed maturities and marketable equity securities. The other-than-temporary impairments (OTTI) in accumulated other comprehensive income (loss) (AOCI) represent the amount of cumulative non-credit OTTI losses transferred to, or recorded in, AOCI for securities that also had a credit-related impairment.

		Cost or				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair				OTTI in
		Cost				Gains				Losses				Value				AOCI
As of June 30, 2010
Fixed maturities:
U.S. government and agencies		$	116.3			$	6.7			$	—			$	123.0			$	(0.1	)
State and political subdivisions			482.7				7.0				(17.9	)			471.8				(0.7	)
Corporate securities			13,426.8				987.4				(237.8	)			14,176.4				(25.5	)
Residential mortgage-backed securities			3,667.7				195.5				(57.0	)			3,806.2				(42.2	)
Commercial mortgage-backed securities			1,722.4				116.8				(9.7	)			1,829.5				(3.7	)
Other debt obligations			202.8				17.0				(14.5	)			205.3				(3.9	)
Total fixed maturities			19,618.7				1,330.4				(336.9	)			20,612.2				(76.1	)
Marketable equity securities, available-for-sale			52.6				0.2				(8.9	)			43.9				—
Total		$	19,671.3			$	1,330.6			$	(345.8	)		$	20,656.1			$	(76.1	)

		Cost or				Gross				Gross
		Amortized				Unrealized				Unrealized				Fair				OTTI in
		Cost				Gains				Losses				Value				AOCI
As of December 31, 2009
Fixed maturities:
U.S. government and agencies		$	41.6			$	2.4			$	(0.1	)		$	43.9			$	(0.1	)
State and political subdivisions			518.4				1.9				(37.3	)			483.0				(1.3	)
Corporate securities			12,454.8				487.5				(393.7	)			12,548.6				(32.8	)
Residential mortgage-backed securities			3,532.1				105.3				(101.0	)			3,536.4				(39.9	)
Commercial mortgage-backed securities			1,805.6				44.5				(60.7	)			1,789.4				(4.0	)
Other debt obligations			201.2				9.4				(17.6	)			193.0				(3.8	)
Total fixed maturities			18,553.7				651.0				(610.4	)			18,594.3				(81.9	)
Marketable equity securities, available-for-sale			52.6				0.1				(16.0	)			36.7				—
Total		$	18,606.3			$	651.1			$	(626.4	)		$	18,631.0			$	(81.9	)

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

     The following tables summarize gross unrealized losses and fair values of the Company’s available-for-sale investments. For fixed maturities, gross unrealized losses include the portion of OTTI recorded in AOCI. The tables are aggregated by investment category and present separately those securities that have been in a continuous unrealized loss position for less than twelve months and for twelve months or more.

		Less Than 12 Months												12 Months or More
						Gross												Gross
		Fair				Unrealized				# of				Fair				Unrealized				# of
		Value				Losses				Securities				Value				Losses				Securities
As of June 30, 2010
Fixed maturities:
State and political subdivisions		$	—			$	—				—			$	283.9			$	(17.9	)			43
Corporate securities			560.5				(45.1	)			104				1,567.2				(192.7	)			175
Residential mortgage-backed securities			50.6				(0.7	)			12				350.7				(56.3	)			58
Commercial mortgage-backed securities			6.6				(0.2	)			5				86.9				(9.5	)			22
Other debt obligations			—				—				—				26.8				(14.5	)			7
Total fixed maturities		$	617.7			$	(46.0	)			121			$	2,315.5			$	(290.9	)			305
Marketable equity securities, available-for-sale			—				—				—				22.9				(8.9	)			4
Total		$	617.7			$	(46.0	)			121			$	2,338.4			$	(299.8	)			309

		Less Than 12 Months												12 Months or More
						Gross												Gross
		Fair				Unrealized				# of				Fair				Unrealized				# of
		Value				Losses				Securities				Value				Losses				Securities
As of December 31, 2009
Fixed maturities:
U.S. government and agencies		$	2.2			$	(0.1	)			1			$	—			$	—				—
State and political subdivisions			67.7				(1.9	)			18				299.7				(35.4	)			49
Corporate securities			1,404.0				(33.4	)			151				2,504.0				(360.3	)			291
Residential mortgage-backed securities			579.9				(9.4	)			30				404.6				(91.6	)			65
Commercial mortgage-backed securities			94.9				(1.4	)			11				622.8				(59.3	)			44
Other debt obligations			11.4				(0.2	)			3				28.2				(17.4	)			8
Total fixed maturities		$	2,160.1			$	(46.4	)			214			$	3,859.3			$	(564.0	)			457
Marketable equity securities, available-for-sale			—				—				—				36.3				(16.0	)			5
Total		$	2,160.1			$	(46.4	)			214			$	3,895.6			$	(580.0	)			462

     Based on National Association of Insurance Commissioners (NAIC) ratings, as of June 30, 2010 and December 31, 2009, the Company held below-investment-grade fixed maturities with fair values of $1,030.8 and $1,032.1, respectively, and amortized costs of $1,129.5 and $1,165.1, respectively. These holdings amounted to 5.0% and 5.6% of the Company’s investments in fixed maturities at fair value as of June 30, 2010 and December 31, 2009, respectively.

     The following table summarizes the amortized cost and fair value of fixed maturities as of June 30, 2010, by contractual years to maturity. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties.

		Amortized				Fair
		Cost				Value
One year or less		$	706.4			$	717.1
Over one year through five years			3,181.3				3,380.9
Over five years through ten years			5,008.8				5,403.3
Over ten years			5,193.8				5,328.6
Residential mortgage-backed securities			3,667.7				3,806.2
Commercial mortgage-backed securities.			1,722.4				1,829.5
Other asset-backed securities			138.3				146.6
Total fixed maturities		$	19,618.7			$	20,612.2

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

     The following table summarizes the Company’s net investment income:

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Fixed maturities		$	280.4			$	263.6			$	551.4			$	514.4
Marketable equity securities, available-for-sale			1.1				1.3				1.7				1.7
Marketable equity securities, trading			0.8				0.6				1.5				1.2
Mortgage loans			20.9				16.1				39.7				32.1
Policy loans			1.1				1.1				2.2				2.2
Investments in limited partnerships			(2.6	)			4.1				(3.8	)			2.6
Other			0.7				1.1				1.8				1.3
Total investment income			302.4				287.9				594.5				555.5
Investment expenses			(5.3	)			(4.8	)			(10.5	)			(9.7	)
Net investment income		$	297.1			$	283.1			$	584.0			$	545.8

     The following table summarizes the Company’s net realized investment gains (losses):

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Fixed maturities:
Gross gains on sales		$	7.0			$	5.8			$	17.4			$	6.2
Gross losses on sales			(0.2	)			(1.6	)			(1.3	)			(2.2	)
Other-than-temporary impairments			(1.5	)			(28.5	)			(11.2	)			(56.3	)
Other(1)			(0.1	)			3.6				2.2				(0.6	)
Total fixed maturities			5.2				(20.7	)			7.1				(52.9	)
Marketable equity securities, trading(2)			(8.8	)			19.6				(1.2	)			4.3
Other invested assets			(4.8	)			0.1				(6.2	)			(1.5	)
Deferred policy acquisition costs adjustment			(1.6	)			3.7				(2.9	)			9.8
Net realized investment gains (losses)		$	(10.0	)		$	2.7			$	(3.2	)		$	(40.3	)

     Other-Than-Temporary Impairments

     The Company’s review of investment securities for OTTI includes both quantitative and qualitative criteria. Quantitative criteria include the length of time and amount that each security is in an unrealized loss position (i.e., is underwater) and, for fixed maturities, whether expected future cash flows indicate a credit loss exists.

     While all securities are monitored for impairment, the Company’s experience indicates that securities for which the cost or amortized cost exceeds fair value by less than 20% do not represent a significant risk of impairment and, often, fair values recover over time as the factors that caused the declines improve. If the estimated fair value has declined and remained below cost or amortized cost by 20% or more, the Company further analyzes the decrease in fair value to determine whether it is an other-than-temporary decline. To make this determination for each security, the Company considers, among other factors:

	•		Extent and duration of the decline in fair value below cost or amortized cost;
	•		The financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations, earnings potential or compliance with terms and covenants of the security;
	•		Changes in the financial condition of the security’s underlying collateral;
	•		Any downgrades of the security by a rating agency;

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

	•		Any reduction or elimination of dividends or nonpayment of scheduled interest payments;
	•		Other indications that a credit loss has occurred; and
	•		The Company’s intent to sell a fixed maturity or whether it is more likely than not the Company will be required to sell the fixed maturity prior to recovery of its amortized cost, considering any regulatory developments and the Company’s liquidity needs.

     For fixed maturities, if the Company determines that the present value of the cash flows expected to be collected is less than the amortized cost of the security (i.e., a credit loss exists), the Company concludes that an OTTI has occurred. In order to determine the amount of the credit loss, the Company calculates the recovery value by performing a discounted cash flow analysis based on the current expectations of future cash flows it expects to recover. The discount rate is the effective interest rate implicit in the underlying fixed maturity. The effective interest rate is the original yield for corporate securities, or current yield for mortgage-backed securities.

     Determination of Credit Losses on Corporate Securities

     To determine the recovery value, credit loss and intent to sell for a corporate security, the Company performs an analysis related to the underlying issuer including, but not limited to, the following:

	•		Fundamentals of the issuer to determine what the Company would recover if the issuer were to file for bankruptcy, compared to the price at which the market is trading;
	•		Fundamentals of the industry in which the issuer operates;
	•		Earnings multiples for the given industry or sector of the industry that the issuer operates within, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation;
	•		Expected cash flows of the issuer;
	•		Expectations regarding defaults and recovery rates;
	•		Changes to the rating of the security by a rating agency; and
	•		Additional market information.

     Determination of Credit Losses on Mortgage-backed Securities

     To determine the recovery value, credit loss and intent to sell for a mortgage-backed security, including residential-, commercial- and other asset-backed securities, the Company performs an analysis related to the underlying issuer including, but not limited to, the following:

	•		Discounted cash flow analysis based on the current and future cash flows the Company expects to recover;
	•		Level of creditworthiness;
	•		Delinquency ratios and loan-to-value ratios;
	•		Average cumulative collateral loss, vintage year and level of subordination;
	•		Susceptibility to fair value fluctuations due to changes in the interest rate environment;
	•		Susceptibility to reinvestment risk in cases where market yields are lower than the book yield earned;
	•		Susceptibility to reinvestment risk in cases where market yields are higher than the book yields earned and the Company’s expectation of the sale of such security; and
	•		Susceptibility to variability of prepayments.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The following table presents the severity and duration of the gross unrealized losses on the Company’s underwater available-for-sale securities:

		As of June 30, 2010								As of December 31, 2009
						Gross								Gross
		Fair				Unrealized				Fair				Unrealized
		Value				Losses				Value				Losses
Fixed maturities
Underwater by 20% or more:
Less than 6 consecutive months		$	137.6			$	(43.8	)		$	103.4			$	(28.4	)
6 consecutive months or more			187.6				(93.2	)			517.9				(229.5	)
Total underwater by 20% or more			325.2				(137.0	)			621.3				(257.9	)
All other underwater fixed maturities			2,608.0				(199.9	)			5,398.1				(352.5	)
Total underwater fixed maturities		$	2,933.2			$	(336.9	)		$	6,019.4			$	(610.4	)
Marketable equity securities, available-for-sale
Underwater by 20% or more:
6 consecutive months or more		$	1.7			$	(4.4	)		$	35.6			$	(15.9	)
Total underwater by 20% or more			1.7				(4.4	)			35.6				(15.9	)
All other underwater marketable equity securities, available-for-sale			21.2				(4.5	)			0.7				(0.1	)
Total underwater marketable equity securities, available-for-sale		$	22.9			$	(8.9	)		$	36.3			$	(16.0	)

          As of June 30, 2010 and December 31, 2009, investment grade securities totaled $38.2 and $136.9, respectively, which composed 41.0%, and 59.7%, respectively, of the gross unrealized losses on fixed maturities underwater by 20% or more for six months or more. Unrealized losses on investment grade securities are principally related to changes in interest rates or changes in the issuer and the sector-related credit spreads since the securities were acquired.

          The Company reviewed its investments in fixed maturities with unrealized losses as of June 30, 2010 in accordance with its impairment policy. The Company’s evaluation determined, after the recognition of other-than-temporary impairments, that the remaining declines in fair value were temporary, as the Company did not intend to sell these fixed maturities and it was not more likely than not that the Company will be required to sell the fixed maturities before recovery of amortized cost. This conclusion is supported by the Company’s spread analysis, cash flow modeling and expected continuation of contractually required principal and interest payments.

          As of June 30, 2010, the Company did not intend to sell its underwater available-for-sale marketable equity securities, primarily consisting of non-redeemable preferred stock, and it had the intent and ability to hold them until recovery. Based on this analysis, including an evaluation of the near term prospects of the issuers, the Company concluded that the declines in fair value of these securities were temporary.

          Changes in the amount of credit-related OTTI recognized in net income where the portion related to other factors was recognized in other comprehensive income (loss) were as follows:

		For the Three Months Ended								For the Six Months Ended
		June 30,								June 30,
		2010				2009				2010				2009
Balance, beginning of period		$	69.5			$	86.1			$	69.6			$	73.0
Increases recognized in the current period:
For which an OTTI was not previously recognized			0.5				11.1				6.5				21.3
For which an OTTI was previously recognized			0.9				2.2				2.4				10.6
Decreases attributable to:
Securities sold or paid down during the period			(2.4	)			(7.6	)			(10.0	)			(7.7	)
Previously recognized credit losses on securities impaired during the period due to a change in intent to sell(1)			—				(17.4	)			—				(22.8	)
Balance, end of period		$	68.5			$	74.4			$	68.5			$	74.4

5. Fair Value of Financial Instruments

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in millions, except per share data, unless otherwise stated)
(Unaudited)

          The Company determines the fair value of its financial instruments based on the fair value hierarchy, which requires an entity to maximize its use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

          The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest-level input that is significant to the fair value measurement. The Company’s financial assets recorded at fair value on the consolidated balance sheets are categorized as follows:

•

Level 1 — Unadjusted quoted prices in active markets for identical instruments. This level primarily consists of exchange-traded marketable equity securities and actively traded mutual fund investments.

•

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable or whose significant value drivers are observable. This level includes those financial instruments that are valued using industry-standard pricing methodologies, models or other valuation methodologies. All significant inputs are observable, derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the market place. Financial instruments in this category primarily include certain public and private corporate fixed maturities, government or agency securities and certain mortgage-backed securities.

•

Level 3 — Instruments whose significant value drivers are unobservable. This comprises financial instruments for which fair value is estimated based on industry-standard pricing methodologies and internally developed models utilizing significant inputs not based on or corroborated by readily available market information. In limited circumstances, this category may also utilize non-binding broker quotes. This category primarily consists of certain less liquid fixed maturities, including corporate private placement securities, investments in private equity and hedge funds and trading securities where the Company cannot corroborate the significant valuation inputs with market observable data.

          The following tables present the financial instruments carried at fair value under the valuation hierarchy described above for assets accounted for at fair value on a recurring basis. The Company has no financial liabilities accounted for at fair value on a recurring basis:

		As of June 30, 2010
		Fair Value				Level 1				Level 2				Level 3				Level 3 Percent
Types of Investments
Fixed maturities, available-for-sale:
U.S. government and agencies		$	123.0			$	—			$	123.0			$	—				—
State and political subdivisions			471.8				—				464.2				7.6				0.0	%
Corporate securities			14,176.4				—				13,268.4				908.0				4.2
Residential mortgage-backed securities			3,806.2				—				3,729.1				77.1				0.4
Commercial mortgage-backed securities			1,829.5				—				1,797.9				31.6				0.1
Other debt obligations			205.3				—				194.6				10.7				0.1
Total fixed maturities, available-for-sale			20,612.2				—				19,577.2				1,035.0				4.8
Marketable equity securities, available-for-sale			43.9				42.1				—				1.8				0.0
Marketable equity securities, trading			141.0				140.3				—				0.7				0.0
Investments in limited partnerships(1)			32.1				—				—				32.1				0.2
Other invested assets			5.2				2.7				—				2.5				0.0
Total investments			20,834.4				185.1				19,577.2				1,072.1				5.0
Separate account assets			759.0				759.0				—				—				—
Total		$	21,593.4			$	944.1			$	19,577.2			$	1,072.1				5.0	%