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
For the quarterly period ended March 31,June 30, 2009
OR
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11848
REINSURANCE GROUP OF AMERICA, INCORPORATED
(Exact name of Registrant as specified in its charter)
   
MISSOURI
43-1627032
(State or other jurisdiction
(IRS employer
of incorporation or organization) 43-1627032
(IRS employer
identification number)
1370 Timberlake Manor Parkway
Chesterfield, Missouri 63017
(Address of principal executive offices)

(636) 736-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesþ Noo
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).Yeso Nooþ
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 filerþAccelerated filero
Non-accelerated filero
(Do not check if a smaller reporting company)
Smaller reporting companyo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
As of AprilJuly 30, 2009, 72,763,39872,775,364 shares of the registrant’s common stock were outstanding.
 
 

 


 

REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
TABLE OF CONTENTS
       
Item   Page
PART I — FINANCIAL INFORMATION
       
1 Financial Statements    
       
  Condensed Consolidated Balance Sheets (Unaudited) March 31, 2009 and December 31, 2008  3 
       
  Condensed Consolidated Statements of Income (Unaudited) Three months ended March 31, 2009 and 2008  4 
       
  Condensed Consolidated Statements of Cash Flows (Unaudited) Three months ended March 31, 2009 and 2008  5 
       
  Notes to Condensed Consolidated Financial Statements (Unaudited)  6 
       
 Management’s Discussion and Analysis of Financial Condition and Results of Operations  23 
       
 Quantitative and Qualitative Disclosures About Market Risk  56 
       
 Controls and Procedures  56 
       
PART II — OTHER INFORMATION
       
 Legal Proceedings  56 
       
 Risk Factors  56 
       
 Unregistered Sales of Equity Securities and Use of Proceeds  56 
       
 Exhibits  57 
       
  Signatures  58 
       
  Index to Exhibits  59 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2
Item
Page
PART I — FINANCIAL INFORMATION
1 Financial Statements
3
4
5
6
36
72
72
73
73
73
73
73
74
75
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
                
 March 31, December 31,  June 30, December 31, 
 2009 2008  2009 2008 
 (Dollars in thousands)  (Dollars in thousands) 
Assets
  
Fixed maturity securities:  
Available-for-sale at fair value (amortized cost of $9,873,449 and $9,382,848 at March 31, 2009 and December 31, 2008, respectively) $8,831,920 $8,531,804 
Available-for-sale at fair value (amortized cost of $10,345,860 and $9,382,848 at June 30, 2009 and December 31, 2008, respectively) $9,842,793 $8,531,804 
Mortgage loans on real estate 764,038 775,050  757,501 775,050 
Policy loans 1,081,030 1,096,713  1,085,752 1,096,713 
Funds withheld at interest 4,505,054 4,520,398  4,675,191 4,520,398 
Short-term investments 54,552 58,123  53,953 58,123 
Other invested assets 582,784 628,649  482,028 628,649 
          
Total investments 15,819,378 15,610,737  16,897,218 15,610,737 
Cash and cash equivalents 586,542 875,403  416,947 875,403 
Accrued investment income 118,140 87,424  119,411 87,424 
Premiums receivable and other reinsurance balances 657,647 640,235  743,643 640,235 
Reinsurance ceded receivables 746,736 735,155  738,926 735,155 
Deferred policy acquisition costs 3,602,857 3,610,334  3,615,456 3,610,334 
Other assets 103,014 99,530  117,748 99,530 
          
Total assets $21,634,314 $21,658,818  $22,649,349 $21,658,818 
          
  
Liabilities and Stockholders’ Equity
  
Future policy benefits $6,636,919 $6,431,530  $7,054,930 $6,431,530 
Interest-sensitive contract liabilities 7,613,489 7,690,942  7,454,907 7,690,942 
Other policy claims and benefits 1,956,834 1,923,018  2,046,887 1,923,018 
Other reinsurance balances 197,695 173,645  144,234 173,645 
Deferred income taxes 251,261 310,360  456,701 310,360 
Other liabilities 577,909 585,199  566,805 585,199 
Long-term debt 917,913 918,246  816,575 918,246 
Collateral finance facility 850,019 850,035  850,014 850,035 
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company 159,081 159,035  159,123 159,035 
          
Total liabilities 19,161,120 19,042,010  19,550,176 19,042,010 
  
Commitments and contingent liabilities (See Note 8)  
  
Stockholders’ Equity:  
Preferred stock (par value $.01 per share; 10,000,000 shares authorized; no shares issued or outstanding)      
Common stock (par value $.01 per share; 140,000,000 shares authorized; 73,363,398 shares issued at March 31, 2009 and December 31, 2008) 734 734 
Common stock (par value $.01 per share; 140,000,000 shares authorized; shares issued: 73,363,523 at June 30, 2009 and 73,363,398 at December 31, 2008) 734 734 
Warrants 66,912 66,914  66,912 66,914 
Additional paid-in-capital 1,455,022 1,450,041  1,457,711 1,450,041 
Retained earnings 1,691,292 1,682,087  1,841,497 1,682,087 
Accumulated other comprehensive income:  
 
Accumulated currency translation adjustment, net of income taxes  (3,050) 19,794  105,631 19,794 
Unrealized depreciation of securities, net of income taxes  (695,070)  (553,407)  (332,664)  (553,407)
Pension and postretirement benefits, net of income taxes  (14,456)  (14,658)  (14,373)  (14,658)
          
Total stockholders’ equity before treasury stock 2,501,384 2,651,505  3,125,448 2,651,505 
Less treasury shares held of 600,125 and 740,195 at cost at March 31, 2009 and December 31, 2008, respectively  (28,190)  (34,697)
Less treasury shares held of 588,573 and 740,195 at cost at June 30, 2009 and December 31, 2008, respectively  (26,275)  (34,697)
          
Total stockholders’ equity 2,473,194 2,616,808  3,099,173 2,616,808 
          
Total liabilities and stockholders’ equity $21,634,314 $21,658,818  $22,649,349 $21,658,818 
          
See accompanying notes to condensed consolidated financial statements (unaudited).

3


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                        
 Three months ended March 31,  Three months ended June 30, Six months ended June 30, 
 2009 2008  2009 2008 2009 2008 
 (Dollars in thousands, except per share data)  (Dollars in thousands, except per share data) 
Revenues:
  
Net premiums $1,346,047 $1,298,065  $1,375,181 $1,358,555 $2,721,228 $2,656,620 
Investment income, net of related expenses 223,196 199,526  284,636 254,868 507,832 454,394 
Investment related losses, net  (72,262)  (155,260)
Investment related gains (losses), net: 
Other-than-temporary impairments on fixed maturity securities  (36,942)  (548)  (71,337)  (5,699)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income 16,135  16,135  
Other investment related gains (losses), net 98,995  (6,531) 61,128  (156,640)
         
Total investment related gains (losses), net 78,188  (7,079) 5,926  (162,339)
Other revenues 33,859 17,936  75,161 36,262 109,020 54,198 
              
Total revenues 1,530,840 1,360,267  1,813,166 1,642,606 3,344,006 3,002,873 
         
Benefits and Expenses:
  
Claims and other policy benefits 1,169,744 1,119,512  1,123,696 1,128,827 2,293,440 2,248,339 
Interest credited 36,909 73,897  72,897 63,000 109,806 136,897 
Policy acquisition costs and other insurance expenses 198,801 16,262  308,403 189,272 507,204 205,534 
Other operating expenses 66,749 63,340  71,095 61,997 137,844 125,337 
Interest expense 22,117 23,094  19,595 21,580 41,712 44,674 
Collateral finance facility expense 2,314 7,474  2,057 6,966 4,371 14,440 
              
Total benefits and expenses 1,496,634 1,303,579  1,597,743 1,471,642 3,094,377 2,775,221 
         
Income from continuing operations before income taxes 34,206 56,688  215,423 170,964 249,629 227,652 
Provision for income taxes 10,916 20,099  62,244 60,158 73,160 80,257 
              
Income from continuing operations 23,290 36,589  153,179 110,806 176,469 147,395 
Discontinued operations:  
Loss from discontinued accident and health operations, net of income taxes   (5,084)   (104)   (5,188)
              
Net income $23,290 $31,505  $153,179 $110,702 $176,469 $142,207 
              
  
Basic earnings per share:
  
Income from continuing operations $0.32 $0.59  $2.11 $1.78 $2.43 $2.37 
Discontinued operations   (0.08)     (0.08)
              
Net income $0.32 $0.51  $2.11 $1.78 $2.43 $2.29 
              
 
Diluted earnings per share:
  
Income from continuing operations $0.32 $0.57  $2.10 $1.73 $2.42 $2.30 
Discontinued operations   (0.08)     (0.08)
              
Net income $0.32 $0.49  $2.10 $1.73 $2.42 $2.22 
              
 
Dividends declared per share
 $0.09 $0.09  $0.09 $0.09 $0.18 $0.18 
              
See accompanying notes to condensed consolidated financial statements (unaudited).

4


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                
 Three months ended March 31,  Six months ended June 30, 
 2009 2008  2009 2008 
 (Dollars in thousands)  (Dollars in thousands) 
Cash Flows from Operating Activities:
  
Net income $23,290 $31,505  $176,469 $142,207 
Adjustments to reconcile net income to net cash provided by operating activities:  
Change in operating assets and liabilities:  
Accrued investment income  (30,900)  (26,493)  (29,934)  (27,922)
Premiums receivable and other reinsurance balances  (47,375)  (49,386)  (55,706)  (92,232)
Deferred policy acquisition costs  (26,277)  (204,731) 50,801  (285,759)
Reinsurance ceded balances  (11,581)  (36,664)  (3,771)  (29,890)
Future policy benefits, other policy claims and benefits, and other reinsurance balances 384,229 330,732  437,355 468,180 
Deferred income taxes 35,531 43,762  46,667  (39,703)
Other assets and other liabilities, net  (1,633)  (48,290) 32,908 102,314 
Amortization of net investment premiums, discounts and other  (34,342)  (23,199)  (59,792)  (50,866)
Investment related losses, net 72,262 155,260   (5,926) 162,339 
Gain on repurchase of long-term debt  (38,875)  
Excess tax benefits from share-based payment arrangement  (1,442)  (3,547)  (1,452)  (3,732)
Other, net  (9,277) 19,566   (9,527) 21,394 
          
Net cash provided by operating activities 352,485 188,515  539,217 366,330 
  
Cash Flows from Investing Activities:
  
Sales of fixed maturity securities available-for-sale 423,107 575,587  1,268,318 1,237,413 
Maturities of fixed maturity securities available-for-sale 9,476 53,521  26,117 81,275 
Purchases of fixed maturity securities available-for-sale  (965,271)  (832,146)  (1,994,477)  (1,812,224)
Cash invested in policy loans  (9,508)  (9,054)
Cash invested in funds withheld at interest  (23,100)  (26,946)  (37,140)  (54,425)
Net increase on securitized lending activities  21,267   12,806 
Principal payments on mortgage loans on real estate 8,065 18,799  14,367 32,625 
Principal payments on policy loans 15,684 19,975  20,470 19,976 
Change in short-term investments and other invested assets 772  (76,318) 4,771  (118,431)
          
Net cash used in investing activities  (531,267)  (246,261)  (707,082)  (610,039)
  
Cash Flows from Financing Activities:
  
Dividends to stockholders  (6,537)  (5,585)  (13,085)  (11,190)
Repurchase of long-term debt  (39,960)  
Principal payments on long-term debt  (22,539)  
Purchases of treasury stock  (1,607)  (3,093)  (1,607)  (3,104)
Excess tax benefits from share-based payment arrangement 1,442 3,547  1,452 3,732 
Exercise of stock options, net 250 1,489  532 3,981 
Change in securities sold under agreements to repurchase and cash collateral for derivative positions  (52,955) 31,912   (143,353)  (30,094)
Excess payments on universal life and other investment type policies and contracts  (44,496)  (70,750)
Excess deposits (payments) on universal life and other investment type policies and contracts  (82,242) 237,503 
          
Net cash used in financing activities  (103,903)  (42,480)
Net cash provided by (used in) financing activities  (300,802) 200,828 
Effect of exchange rate changes on cash  (6,176)  (42) 10,211 1,219 
          
Change in cash and cash equivalents  (288,861)  (100,268)  (458,456)  (41,662)
Cash and cash equivalents, beginning of period 875,403 404,351  875,403 404,351 
          
Cash and cash equivalents, end of period $586,542 $304,083  $416,947 $362,689 
          
  
Supplementary information:  
Cash paid for interest $13,390 $20,824  $37,871 $52,128 
Cash paid for income taxes, net of refunds $3,847 $12,095  $13,009 $22,250 
See accompanying notes to condensed consolidated financial statements (unaudited).

5


REINSURANCE GROUP OF AMERICA, INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. The accompanying unaudited condensed consolidated financial statements of RGA and its subsidiaries (collectively, the “Company”) have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the three-month periodthree and six month periods ended March 31,June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. The Company has determined that there were no subsequent events that would require disclosure or adjustments to the accompanying condensed consolidated financial statements through July 31, 2009, the date the financial statements were issued. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2008 Annual Report on Form 10-K (“2008 Annual Report”) filed with the Securities and Exchange Commission on March 2, 2009.
The accompanying unaudited condensed consolidated financial statements include the accounts of Reinsurance Group of America, Incorporated and its subsidiaries. All intercompany accounts and transactions have been eliminated. The Company has reclassified the presentation of certain prior-period information to conform to the current presentation.
2. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share on income from continuing operations (in thousands, except per share information):
                        
 Three months ended Three months ended Six months ended
 March 31, 2009 March 31, 2008 June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
    
Earnings:  
Income from continuing operations (numerator for basic and diluted calculations) $23,290 $36,589  $153,179 $110,806 $176,469 $147,395 
Shares:  
Weighted average outstanding shares (denominator for basic calculation) 72,710 62,146  72,770 62,283 72,740 62,214 
Equivalent shares from outstanding stock options 174 2,084  169 1,699 172 1,892 
    
Denominator for diluted calculation 72,884 64,230  72,939 63,982 72,912 64,106 
Earnings per share:  
Basic $0.32 $0.59  $2.11 $1.78 $2.43 $2.37 
Diluted $0.32 $0.57  $2.10 $1.73 $2.42 $2.30 
    
The calculation of common equivalent shares does not include the impact of options or warrants having a strike or conversion price that exceeds the average stock price for the earnings period, as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent shares, as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period. For the three and six months ended March 31,June 30, 2009, approximately 1.5 million stock options and approximately 0.6 million performance contingent shares were excluded from the calculation. For the three and six months ended March 31,June 30, 2008, approximately 0.7 million stock options and approximately 0.4 million performance contingent shares were excluded from the calculation.

6


3. Comprehensive Income
The following schedule reflectstable presents the change in accumulatedcomponents of the Company’s other comprehensive income (loss)(dollars in thousands):

6

                 
  Three months ended June 30, Six months ended June 30,
  2009 2008 2009 2008
   
Net income $153,179  $110,702  $176,469  $142,207 
Other comprehensive income (loss), net of income tax:                
Unrealized investment losses, net of reclassification adjustment for losses included in net income  377,336   (119,696)  235,673   (265,692)
Reclassification adjustment for other-than-temporary losses excluded from net income  (10,488)     (10,488)   
Currency translation adjustments  108,681   11,920   85,837   (6,405)
Unrealized pension and postretirement benefit adjustment  83   117   285   269 
   
Comprehensive income (loss) $628,791  $3,043  $487,776  $(129,621)
   


The balance of and changes in each component of accumulated other comprehensive income (loss) for the six months ended June 30, 2009 are as follows(dollars in thousands):
         
  Three months ended
  March 31, 2009 March 31, 2008
   
Net income $23,290  $31,505 
Accumulated other comprehensive income (loss), net of income tax:        
Unrealized losses, net of reclassification adjustment for losses included in net income  (141,663)  (145,996)
Currency translation adjustments  (22,844)  (18,325)
Unrealized pension and postretirement benefit adjustment  202   152 
   
Comprehensive loss $(141,015) $(132,664)
   
                 
  Accumulated Other Comprehensive Income (Loss), Net of Income
  Tax
  Accumulated      
  Currency Unrealized Pension and  
  Translation Depreciation of Postretirement  
  Adjustments Securities Benefits Total
Balance, December 31, 2008 $19,794  $(553,407) $(14,658) $(548,271)
Change in component during the period  85,837   225,185   285   311,307 
Impact of adoption of FSP FAS 115-2 and FAS 124-2     (4,442)     (4,442)
   
Balance, June 30, 2009 $105,631  $(332,664) $(14,373) $(241,406)
   
4. Fair Value DisclosuresInvestments
The following table presents the carrying amountsCompany had total cash and estimated fair valuesinvested assets of the Company’s financial instruments$17.3 billion and $16.5 billion at March 31,June 30, 2009 and December 31, 2008. Fair values have been determined2008, respectively, as illustrated below (dollars in thousands):
         
  June 30, 2009 December 31, 2008
Fixed maturity securities, available-for-sale $9,842,793  $8,531,804 
Mortgage loans on real estate  757,501   775,050 
Policy loans  1,085,752   1,096,713 
Funds withheld at interest  4,675,191   4,520,398 
Short-term investments  53,953   58,123 
Other invested assets  482,028   628,649 
Cash and cash equivalents  416,947   875,403 
   
Total cash and invested assets $17,314,165  $16,486,140 
   
All investments held by using available market informationthe Company are monitored for conformance to the qualitative and quantitative limits prescribed by the valuation methodologies described in Note 6applicable jurisdiction’s insurance laws and regulations. In addition, the operating companies’ boards of directors periodically review their respective investment portfolios. The Company’s investment strategy is to maintain a predominantly investment-grade, fixed maturity portfolio, to provide adequate liquidity for expected reinsurance obligations, and to maximize total return through prudent asset management. The Company’s asset/liability duration matching differs between operating segments. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years. The average duration for all the Company’s portfolios, when consolidated, financial statements accompanyingranges between eight and ten years. See Note 4 - “Investments” in the Notes to Consolidated Financial Statements of the 2008 Annual Report. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts (dollars in thousands):
                 
  March 31, 2009 December 31, 2008
  Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
                 
Assets:                
Fixed maturity securities $8,831,920  $8,831,920  $8,531,804   8,531,804 
Mortgage loans on real estate  764,038   691,745   775,050   755,383 
Policy loans  1,081,030   1,081,030   1,096,713   1,096,713 
Funds withheld at interest  4,505,054   4,390,353   4,520,398   4,494,716 
Short-term investments  54,552   54,552   58,123   58,123 
Other invested assets  582,784   571,401   628,649   638,087 
Cash and cash equivalents  586,542   586,542   875,403   875,403 
Accrued investment income  118,140   118,140   87,424   87,424 
Reinsurance ceded receivables  118,156   48,315   115,445   11,233 
Liabilities:                
Interest-sensitive contract liabilities $5,580,634  $5,401,722  $5,664,488  $4,890,669 
Long-term and short-term debt  917,913   531,484   918,246   606,890 
Collateral finance facility  850,019   357,000   850,035   493,000 
Company-obligated mandatorily redeemable preferred securities  159,081   174,948   159,035   186,082 
Publicly traded fixed maturity securities are valued based upon quoted market prices or estimates from independent pricing services, independent broker quotes and pricing matrices. Private placement fixed maturity securities are valued based on the credit quality and duration of marketable securities deemed comparable byReport for additional information regarding the Company’s investment advisor, which may be of another issuer. The fair value of mortgage loans on real estate is estimated using discounted cash flows. Policy loans typically carry an interest rate that is adjusted annually based on a market index and therefore carrying value approximates fair value. The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in the agreement. When funds withheld are specifically identified in the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the short-term maturities of these instruments. Common and preferred equity investments and derivative financial instruments included in other invested assets are reflected at fair value on the consolidated balance sheets based primarily on quoted market prices, while limited partnership interests are carried at cost. The fair value of limited partnerships is based on net asset values. The carrying value for accrued investment income approximates fair value.investments.

7


Investment Income, Net of Related Expenses
Major categories of investment income, net of related expenses consist of the following (dollars in thousands):
                 
  Three months ended June 30, Six months ended June 30,
  2009 2008 2009 2008
   
Fixed maturity securities available-for-sale $150,916  $138,552  $290,097  $271,161 
Mortgage loans on real estate  11,379   12,210   22,956   24,690 
Policy loans  16,938   16,014   33,349   31,878 
Funds withheld at interest  102,524   82,582   152,986   111,892 
Short-term investments  1,283   934   2,001   2,130 
Other invested assets  5,967   8,433   15,165   20,093 
   
Investment revenue  289,007   258,725   516,554   461,844 
Investment expense  (4,371)  (3,857)  (8,722)  (7,450)
   
Investment income, net of related expenses $284,636  $254,868  $507,832  $454,394 
   
Investment Related Gains (Losses), Net
Investment related gains (losses), net consist of the following (dollars in thousands):
                 
  Three months ended June 30, Six months ended June 30,
  2009 2008 2009 2008
   
Fixed maturities and equity securities available for sale:                
Other-than-temporary impairment losses on fixed maturities $(36,942) $(548) $(71,337) $(5,699)
Portion of loss recognized in accumulated other comprehensive income (before taxes)  16,135      16,135    
   
Net other-than-temporary impairment losses on fixed maturities recognized in earnings  (20,807)  (548)  (55,202)  (5,699)
Impairment losses on equity securities        (5,430)  �� 
Gain on investment activity  25,281   5,928   37,511   16,009 
Loss on investment activity  (18,828)  (4,378)  (38,477)  (9,739)
Derivatives and other, net  92,542   (8,081)  67,524   (162,910)
   
Net gains (losses) $78,188  $(7,079) $5,926  $(162,339)
   
The carryingincrease in other-than-temporary impairments in 2009 is due to the continued turmoil in the U.S. and global financial markets which has resulted in bankruptcies, consolidations and government interventions. The increase in derivative gains is primarily due to a decrease in the fair value of embedded derivative liabilities associated with modified coinsurance and funds withheld treaties.
During the three months ended June 30, 2009 and 2008, the Company sold fixed maturity securities and equity securities with fair values of interest-sensitive contract liabilities exclude contracts$214.2 million and $250.6 million at losses of $18.8 million and $4.4 million, respectively, or at 91.9% and 98.3% of amortized cost, respectively. During the six months ended June 30, 2009 and 2008, the Company sold fixed maturity securities and equity securities with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities and related reinsurance ceded receivables is based on the cash surrender value of the liabilities, adjusted for recapture fees. The fair value of the Company’s long-term debt is estimated based on either quoted market prices or quoted market prices for the debt of corporations with similar credit quality. The fair values of the Company’s collateral finance facility$322.6 and company-obligated mandatorily redeemable preferred securities are estimated using discounted cash flows.
Statement$391.9 million at losses of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) defines fair value as the exchange price that would be received for an asset$38.5 million and $9.7 million, respectively, or paid to transfer a liability (an exit price)at 89.3% and 97.6% of amortized cost, respectively. The Company does not engage in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In accordance with SFAS 157, valuation techniques utilized by management for invested assetsshort-term buying and embedded derivatives reported at fair value are generally categorized into three types:
Market Approach.Market approach valuation techniques use prices and other relevant information from market transactions involving identical or comparable assets or liabilities. Valuation techniques consistent with the market approach include comparables and matrix pricing. Comparables use market multiples, which might lie in ranges with a different multiple for each comparable. The selectionselling of where within the range the appropriate multiple falls requires judgment, considering both quantitative and qualitative factors specific to the measurement. Matrix pricing is a mathematical technique used principally to value certain securities without relying exclusively on quoted prices for the specific securities but comparing the securities to benchmarkgenerate gains or comparable securities.losses.
Income Approach.Other-Than-Temporary ImpairmentsIncome approach valuation techniques convert future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. These techniques rely on current expectations of future amounts. Examples of income approach valuation techniques include present value techniques, option-pricing models and binomial or lattice models that incorporate present value techniques.
Cost Approach.Cost approach valuation techniques are based upon the amount that, at present, would be required to replace the service capacity of an asset, or the current replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset is determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility.
The three approaches described within SFAS 157 are consistent with generally accepted valuation methodologies. While all three approaches are not applicableCompany has a process in place to all assets or liabilities reported at fair value, where appropriateidentify fixed maturity and possible, one or more valuation techniques may be used. The selection of the valuation method(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgmentequity securities that could potentially have a credit impairment that is required. The Company performs regular analysis and review of the various methodologies utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also utilizes information from third parties, such as pricing services and brokers, to assist in determining fair values for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s financial statements. The Company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value.other-than-temporary. This process involves quantitativemonitoring market events that could impact issuers’ credit ratings, business climate, management changes, litigation and qualitative analysisgovernment actions and is overseenother similar factors. This process also involves monitoring late payments, pricing levels, downgrades by the Company’s investmentrating agencies, key financial ratios, financial statements, revenue forecasts and accounting personnel. Examples of procedures performed include, but are not limited to, initial and ongoing review of third party pricing services and methodologies, review of pricing trends and monitoring of recent trade information. In addition, the Company utilizes both internal and external cash flow modelsprojections as indicators of credit issues.
     The Company reviews all securities to analyzedetermine whether an other-than-temporary decline in value exists and whether losses should be recognized. The Company considers relevant facts and circumstances in evaluating whether a credit or interest rate-related impairment of a security is other-than-temporary. Relevant facts and circumstances considered include: (1) the reasonablenessextent and length of fair values utilizing credit spread and other market assumptions, where appropriate. As a result oftime the analysis, if the Company determines there is a more appropriate fair value based uponhas been below cost; (2) the available market data,reasons for the price received from the third party is adjusted accordingly.
For invested assets reported atdecline in fair value, when available, fair values are based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on the market valuation techniques described above, primarily a combination of the market approach, including matrix pricing and the income approach. The assumptions and inputs used by management in applying these methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and assumptions regarding liquidity and future cash flows.value;

8


(3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for fixed maturity securities, the Company’s intent to sell a security or whether it is more likely than not it will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity and for equity securities, its ability and intent to hold the security for a period of time that allows for the recovery in value. To the extent the Company determines that a security is deemed to be other-than-temporarily impaired, an impairment loss is recognized.
During the second quarter of 2009 the Company adopted the Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (“FSP FAS 115-2 and FAS 124-2”), which changes the recognition and presentation of other-than-temporary impairments. See Note 13 — “New Accounting Standards” for further discussion of the adoption. The significant inputsrecognition provisions within FSP FAS 115-2 and FAS 124-2 apply only to fixed maturity securities classified as available-for-sale and held-to-maturity, while the presentation and disclosure requirements of FSP FAS 115-2 and FAS 124-2 apply to both fixed maturity and equity securities.
Impairment losses on equity securities are recognized in net income. The way in which impairment losses on fixed maturity securities are recognized in the financial statements is dependent on the facts and circumstances related to the market standard valuation methodologiesspecific security. If the Company intends to sell a security or it is more likely than not that it would be required to sell a security before the recovery of its amortized cost, less any current period credit loss, it recognizes an other-than-temporary impairment in net income for certain typesthe difference between amortized cost and fair value. If the Company does not expect to recover the amortized cost basis, it does not plan to sell the security and if it is not more likely than not that it would be required to sell a security before the recovery of securities with reasonable levelsits amortized cost, less any current period credit loss, the recognition of price transparency are inputs that are observablethe other-than-temporary impairment is bifurcated. The Company recognizes the credit loss portion in net income and the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assetsnon-credit loss portion in active, liquid markets, quoted pricesaccumulated other comprehensive income (“AOCI”).
For the three months ended June 30, 2009, the Company recognized $20.8 million of credit related losses in markets that are not activevarious asset-backed and observable yieldsU.S. corporate securities. The Company estimates the amount of the credit loss component of a fixed maturity (debt) security impairment as the difference between amortized cost and spreads in the market.
When observable inputs are not available, the market standard valuation methodologies for determining the estimated fairpresent value of certain typesthe expected cash flows of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significantthe security. The present value is determined using the best estimate cash flows discounted at the effective interest rate implicit to the estimated fair value that are not observable insecurity at the marketdate of purchase or cannot be derived principally fromthe current yield to accrete an asset-backed or corroborated by observable market data. These unobservable inputs can be based in large partfloating rate security. The techniques and assumptions for establishing the best estimate cash flows vary depending on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputsthe type of security. The asset-backed securities’ cash flow estimates are based on assumptions deemed appropriate givensecurity-specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate fixed maturity security cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or the disposition of assets using security specific facts and circumstances including timing, security interests and are consistent with what other market participants would use when pricing such securities.loss severity.
The use of different methodologies, assumptions and inputs may have a material effectTotal other-than-temporary impairment losses on the estimated fair values of the Company’sfixed maturity securities holdings.
For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a market standard method, which includes an estimate of future equity option purchases and an adjustmentwere $36.9 million for the Company’s ownthree months ended June 30, 2009. The following table sets forth the amount of credit risk that takes into consideration the Company’s financial strength rating, also commonly referred to as a claims paying rating. The capital market inputs to the model, such as equity indexes, equity volatility, interest rates and the Company’s credit adjustment, are generally observable. However, the valuation models also use inputs requiring certain actuarial assumptions such as future interest margins, policyholder behavior, including future equity participation rates, and explicit risk margins related to non-capital market inputs, that are generally not observable and may require use of significant management judgment. Changes in interest rates, equity indices, equity volatility, the Company’s own credit risk, and actuarial assumptions regarding policyholder behavior may result in significant fluctuations in the value of embedded derivatives liabilities associated with equity-indexed annuity reinsurance treaties.
The fair value of embedded derivatives associated with funds withheld reinsurance treaties is determined based upon a total return swap methodology with reference to the fair value of the investmentsloss impairments on fixed maturity securities held by the ceding company that support the Company’s funds withheld at interest asset. The fair valueCompany as of the underlying assets is generally based on market observable inputs using market standard valuation methodologies. However,dates indicated, for which a portion of the valuation also requires certain significant inputs based on actuarial assumptions about policyholder behavior, which are generally not observable.OTTI loss was recognized in AOCI, and the corresponding changes in such amounts (dollars in thousands):
For the quarter ended March 31, 2009, the application of valuation methodologies applied to similar assets
     
  Three Months Ended 
  June 30, 2009 
Balance as of April 1, 2009 $(17,132)
Credit losses for which an other-than-temporary impairment was not previously recognized  (3,242)
Credit losses for which an other-than-temporary impairment was previously recognized  (3,562)
    
Balance as of June 30, 2009 $(23,936)
    
Fixed Maturities and liabilities has been consistent.Equity Securities Available-for-Sale
SFAS 157 also establishes a fair value hierarchy which requiresAs mentioned above, FSP FAS 115-2 and FAS 124-2 changes how an entity recognizes an other-than-temporary impairment for a fixed maturity security by separating the other-than-temporary impairment loss between the amount representing the credit loss and the amount relating to maximizeother factors, if the useCompany does not have the intent to sell or it more likely than not will not be required to sell prior to recovery of observable inputsthe amortized cost less any current period credit loss. Credit losses are recognized in net income and minimizelosses relating to other non-credit factors are recognized in AOCI and included in unrealized losses in the use of unobservable inputs when measuring fair value.2009 table below. The standard describes three levels of inputs that may be used to measure fair value:
Level 1Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities include investment securities and derivative contracts that are traded in exchange markets.
Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation methodologies and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. The Company’s Level 2 assets and liabilities include investment securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using market standard valuation methodologies. This category primarily includes U.S. and foreign corporate securities, Canadian and Canadian provincial government securities, and residential and commercial mortgage-backed securities, among others. Management values most of these securities using inputs that are market observable.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Level 3 assets and liabilities include financial instruments whose
following tables provide

9


value is determined using market standard valuation methodologies described above. When observable inputs are not available, the market standard methodologies for determining the estimated fair value of certaininformation relating to investments in fixed maturity securities and equity securities that trade infrequently, and therefore have little transparency, rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation and cannot be supported by reference to market activity. Even though unobservable, management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities. For the Company’s invested assets, this category generally includes U.S. and foreign corporate securities (primarily private placements), asset-backed securities (including those with exposure to subprime mortgages), and to a lesser extent, certain residential and commercial mortgage-backed securities, among others. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs associated with actuarial assumptions regarding policyholder behavior. Embedded derivatives are reported with the host instruments on the condensed consolidated balance sheet.
As required by SFAS 157, when inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest priority level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
Assets and liabilities measured at fair value on a recurring basissector as of March 31,June 30, 2009 and December 31, 2008 are summarized below((dollars in thousands).thousands):
                 
  March 31, 2009
      Fair Value Measurements Using:
  Total Level 1 Level 2 Level 3
   
Assets:                
Fixed maturity securities — available-for-sale:                
U.S. corporate securities $3,102,270  $  $2,295,713  $806,557 
Canadian and Canadian provincial governments  1,807,262      1,802,479   4,783 
Residential mortgage-backed securities  1,207,289      1,128,362   78,927 
Foreign corporate securities  1,148,472   1,703   871,432   275,337 
Asset-backed securities  385,205      137,163   248,042 
Commercial mortgage-backed securities  721,992      670,017   51,975 
U.S. government and agencies securities  3,771   3,718   53    
State and political subdivision securities  34,581   5,759      28,822 
Other foreign government securities  421,078   85,951   247,504   87,623 
   
Total fixed maturity securities — available-for-sale  8,831,920   97,131   7,152,723   1,582,066 
Funds withheld at interest — embedded derivatives  (553,313)        (553,313)
Short-term investments  11,863      10,158   1,705 
Other invested assets — equity securities  126,156   75,117   33,704   17,335 
Other invested assets — derivatives  173,086      173,086    
Reinsurance ceded receivable — embedded derivatives  61,544         61,544 
   
Total $8,651,256  $172,248  $7,369,671  $1,109,337 
   
                 
Liabilities:                
Interest sensitive contract liabilities — embedded derivatives $(733,864) $  $  $(733,864)
Other liabilities — derivatives  (18,940)     (18,940)   
   
Total $(752,804) $  $(18,940) $(733,864)
   
                         
June 30, 2009
                      Other-than-
              Estimated     temporary
  Amortized Unrealized Unrealized Fair % of impairment
  Cost Gains Losses Value Total in AOCI
Available-for-sale:                        
U.S. corporate securities $3,805,149  $73,700  $396,521  $3,482,328   35.4% $ 
Canadian and Canadian provincial governments  1,679,425   341,467   21,651   1,999,241   20.3    
Residential mortgage-backed securities  1,202,888   30,323   74,907   1,158,304   11.8   (13,415)
Foreign corporate securities  1,443,541   40,851   77,531   1,406,861   14.3    
Asset-backed securities  503,191   6,434   132,243   377,382   3.8   (5,220)
Commercial mortgage-backed securities  1,086,649   7,212   281,549   812,312   8.3   (4,333)
U.S. government and agencies  62,763   2,118      64,881   0.7    
State and political subdivisions  105,867   2,027   14,712   93,182   0.9    
Other foreign government securities  456,387   6,119   14,204   448,302   4.5    
   
Total fixed maturity securities $10,345,860  $510,251  $1,013,318  $9,842,793   100.0% $(22,968)
   
Non-redeemable preferred stock $163,300  $1,057  $46,825  $117,532   72.1%    
Common stock  48,378   644   3,488   45,534   27.9     
       
Total equity securities $211,678  $1,701  $50,313  $163,066   100.0%    
       
                     
December 31, 2008
              Estimated  
  Amortized Unrealized Unrealized Fair % of
  Cost Gains Losses Value Total
Available-for-sale:                    
U.S. corporate securities $3,577,116  $34,262  $598,745  $3,012,633   35.3%
Canadian and Canadian provincial governments  1,500,511   397,899   7,171   1,891,239   22.2 
Residential mortgage-backed securities  1,231,123   24,838   106,776   1,149,185   13.5 
Foreign corporate securities  1,112,018   14,335   152,920   973,433   11.4 
Asset-backed securities  484,577   2,098   147,297   339,378   4.0 
Commercial mortgage-backed securities  1,085,062   2,258   326,730   760,590   8.9 
U.S. government and agencies  7,555   876      8,431   0.1 
State and political subdivisions  46,537      7,883   38,654   0.4 
Other foreign government securities  338,349   20,062   150   358,261   4.2 
   
Total fixed maturity securities $9,382,848  $496,628  $1,347,672  $8,531,804   100.0%
   
Non-redeemable preferred stock $187,510  $49  $64,160  $123,399   77.4%
Common stock  40,582      4,607   35,975   22.6 
   
Total equity securities $228,092  $49  $68,767  $159,374   100.0%
   
As of June 30, 2009, the Company held securities with a fair value of $312.5 million issued by the Federal Home Loan Mortgage Corporation, $387.5 million issued by the Federal National Mortgage Corporation, $698.1 million that were issued by the Canadian province of Ontario, $545.3 million in one entity that were guaranteed by the Canadian province of Quebec, and $319.5 million issued by the Canadian province of Quebec, all of which exceeded 10% of consolidated stockholders’ equity. As of December 31, 2008, the Company held securities with a fair value of $383.0 million issued by the Federal Home Loan Mortgage Corporation, $396.2 million issued by the Federal National Mortgage Corporation, $661.2 million that were issued by the Canadian province of Ontario, $521.5 million in one entity that were guaranteed by the Canadian province of Quebec, and $275.1 million issued by the Canadian province of Quebec, all of which exceeded 10% of consolidated stockholders’ equity.

10


                 
  December 31, 2008
      Fair Value Measurements Using:
  Total Level 1 Level 2 Level 3
   
Assets:                
Fixed maturity securities — available-for-sale:                
U.S. corporate securities $3,012,633  $  $2,196,348  $816,285 
Canadian and Canadian provincial governments  1,891,239      1,881,274   9,965 
Residential mortgage-backed securities  1,149,185      1,118,761   30,424 
Foreign corporate securities  973,433   1,714   795,111   176,608 
Asset-backed securities  339,378      107,509   231,869 
Commercial mortgage-backed securities  760,590      701,549   59,041 
U.S. government and agencies securities  8,431   3,072   5,359    
State and political subdivision securities  38,654   6,167      32,487 
Other foreign government securities  358,261   85,606   167,216   105,439 
   
Total fixed maturity securities — available-for-sale  8,531,804   96,559   6,973,127   1,462,118 
Funds withheld at interest — embedded derivatives  (512,888)        (512,888)
Short-term investments  570      218   352 
Other invested assets — equity securities  159,374   104,526   37,399   17,449 
Other invested assets — derivatives  206,341      206,341    
Reinsurance ceded receivable — embedded derivatives  66,716         66,716 
   
Total $8,451,917  $201,085  $7,217,085  $1,033,747 
   
                 
Liabilities:                
Interest sensitive contract liabilities — embedded derivatives $(807,431) $  $  $(807,431)
Other liabilities — derivatives  (10,189)     (10,189)   
   
Total $(817,620) $  $(10,189) $(807,431)
   
The amortized cost and estimated fair value of fixed maturity securities available-for-sale at June 30, 2009 are shown by contractual maturity for all securities except certain U.S. government agencies securities, which are distributed to maturity year based on the Company’s estimate of the rate of future prepayments of principal over the remaining lives of the securities. These estimates are developed using prepayment rates provided in broker consensus data. Such estimates are derived from prepayment rates experienced at the interest rate levels projected for the applicable underlying collateral and can be expected to vary from actual experience. Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AsAt June 30, 2009, the contractual maturities of March 31,investments in fixed maturity securities were as follows (dollars in thousands):
         
  Amortized Fair
  Cost Value
   
Available-for-sale:        
Due in one year or less $142,248  $142,339 
Due after one year through five years  1,384,320   1,364,941 
Due after five years through ten years  2,093,154   2,032,052 
Due after ten years  3,933,410   3,955,462 
Asset and mortgage-backed securities  2,792,728   2,347,999 
   
Total $10,345,860  $9,842,793 
   
The table below shows the major industry types and weighted average credit ratings, which comprise the U.S. and foreign corporate fixed maturity holdings at (dollars in thousands):
               
June 30, 2009
      Estimated     Average Credit
  Amortized Cost Fair Value % of Total Ratings
   
Finance $1,455,564  $1,210,725   24.8% A-
Industrial  1,747,020   1,684,020   34.4  BBB+
Foreign(1)
  1,443,541   1,406,861   28.8  A
Utility  596,283   581,099   11.9  BBB+
Other  6,282   6,484   0.1  A-
   
Total $5,248,690  $4,889,189   100.0% A-
   
               
December 31, 2008
      Estimated     Average Credit
  Amortized Cost Fair Value % of Total Ratings
   
Finance $1,475,205  $1,155,906   29.0% A
Industrial  1,520,330   1,339,200   33.6  BBB+
Foreign(1)
  1,112,018   973,433   24.4  A
Utility  542,737   480,809   12.1  BBB+
Other  38,844   36,718   0.9  AA-
   
Total $4,689,134  $3,986,066   100.0% A-
   
(1)Includes U.S. dollar-denominated debt obligations of foreign obligors and other foreign investments.
At June 30, 2009 and December 31, 2008, respectively, the Company classified approximately 17.9%had $1,063.6 million and 17.1%$1,416.4 million, respectively, of gross unrealized losses related to its fixed maturity securities in the Level 3 category in accordance with SFAS 157.and equity securities. These securities primarily consistare concentrated, calculated as a percentage of private placement corporate securities with an inactive trading market. Additionally, the Company has included asset-backed securities with sub-prime exposure in the Level 3 category due to the current market uncertainty associated with these securities and the Company’s utilization of information from third parties.
The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2009 and 2008(dollars in thousands).
                         
  Total Fair Value Measurements for the three months ended March 31, 2009
      Total gains/losses      
      (realized/unrealized) included in: Purchases, Transfers  
  Balance     Other issuances in and/or Balance
  January 1,     comprehensive and out of March 31,
  2009 Earnings, net income disposals Level 3 2009
   
Assets:                        
Fixed maturity securities available-for-sale $1,462,118  $(36,552) $8,423  $138,920  $9,157  $1,582,066 
Funds withheld at interest — embedded derivatives  (512,888)  (40,425)           (553,313)
Short-term investments  352   (566)  635   1,284      1,705 
Other invested assets — equity securities  17,449   (5,771)  4,393   1,078   186   17,335 
Reinsurance ceded receivable — embedded derivatives  66,716   (1,630)     (3,542)     61,544 
   
Total $1,033,747  $(84,944) $13,451  $137,740  $9,343  $1,109,337 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $(807,431) $57,805  $  $15,762  $  $(733,864)
   
Total $(807,431) $57,805  $  $15,762  $  $(733,864 
   
gross unrealized losses, as follows:

11


                         
  Total Fair Value Measurements for the three months ended March 31, 2008
      Total gains/losses        
      (realized/unrealized) included in:     Transfers  
  Balance     Other Purchases, in and/or Balance
  January 1,     comprehensive issuances and out of March 31,
  2008 Earnings, net loss disposals Level 3 2008
   
Assets:                        
Fixed maturity securities available-for-sale $1,500,054  $(7,110) $(36,121) $71,283  $(18,940) $1,509,166 
Funds withheld at interest — embedded derivatives  (85,090)  (148,528)           (233,618)
Other invested assets — equity securities  13,950   1   (479)  6,730      20,202 
Reinsurance ceded receivable — embedded derivatives  68,298   6,045      3,873      78,216 
   
Total $1,497,212  $(149,592) $(36,600) $81,886  $(18,940) $1,373,966 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $(531,160) $(43,678) $  $(10,734) $  $(585,572)
   
Total $(531,160) $(43,678) $  $(10,734) $  $(585,572)
   
         
  June 30, December 31,
  2009 2008
Sector:
        
U.S. corporate securities  42%  46%
Canadian and Canada provincial governments  2   1 
Residential mortgage-backed securities  7   7 
Foreign corporate securities  7   12 
Asset-backed securities  13   10 
Commercial mortgage-backed securities  27   23 
State and political subdivisions  2   1 
   
Total  100%  100%
   
         
Industry:
        
Finance  34%  33%
Asset-backed  12   10 
Industrial  12   19 
Mortgage-backed  34   31 
Government  5   1 
Utility  3   6 
   
Total  100%  100%
   
The tablesfollowing table presents the total gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,558 and 1,716 fixed maturity securities and equity securities as of June 30, 2009 and December 31, 2008, respectively, where the estimated fair value had declined and remained below summarize gainsamortized cost by the indicated amount (dollars in thousands):
                         
  June 30, 2009 December 31, 2008
      Gross         Gross  
  Number of Unrealized     Number of Unrealized  
  Securities Losses % of Total Securities Losses % of Total
   
Less than 20%  1,109  $310,047   29.1%  980  $324,390   22.9%
20% or more for less than six months  77   156,557   14.8   561   796,747   56.3 
20% or more for six months or greater  372   597,027   56.1   175   295,302   20.8 
   
Total  1,558  $1,063,631   100.0%  1,716  $1,416,439   100.0%
   
The investment securities in an unrealized loss position as of June 30, 2009 consisted of 1,558 securities with unrealized losses of $1,063.6 million. Of these unrealized losses, 83.0% were investment grade and losses29.1% were less than 20% below cost. The amount of the unrealized loss on these securities was primarily attributable to increases in interest rates, including a widening of credit default spreads. The increase in the number of securities at a loss greater than 20% or more for six months or greater reflects the continued effects of adverse economic conditions.
While all of these securities are monitored for potential impairment, the Company believes due to changesrecent market conditions and liquidity concerns, and the historically high levels of price volatility, the extent and duration of a decline in fair value including both realizedhave become less indicative of when the market may believe there has been credit deterioration with respect to an issuer. Under these current market conditions, the Company’s determination of whether a decline in value is other-than-temporary places greater emphasis on the Company’s analysis of the underlying credit versus the extent and unrealized gainsduration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and losses, recorded in earnings for Level 3 assetsanalyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as a potential indicator of credit deterioration as the severity and liabilities forduration of the three months ended March 31, 2009 and 2008(dollars in thousands).
                         
  Total Gains and Losses
  Classification of gains/losses (realized/unrealized) included in earnings for the three months
  ended March 31, 2009
                  Policy  
  Investment     Claims &     acquisition  
  income, net Investment other     costs and other  
  of related related gains policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale $1,321  $(37,873) $  $  $  $(36,552)
Funds withheld at interest — embedded derivatives     (40,425)           (40,425)
Short-term investments  7   (573)           (566)
Other invested assets — equity securities  (508)  (5,263)           (5,771)
Reinsurance ceded receivable — embedded derivatives              (1,630)  (1,630)
   
Total $820  $(84,134) $  $  $(1,630) $(84,944)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $35,213  $(1,567) $24,159  $  $57,805 
   
Total $  $35,213  $(1,567) $24,159  $  $57,805 
   
decline increases.

12


                             
  Total Gains and Losses
  Classification of gains/losses (realized/unrealized) included in earnings for the three months
  ended March 31, 2008
                      Policy  
  Investment         Claims     acquisition  
  income, net Investment     & other     costs and other  
  of related related gains Other policy Interest insurance  
  expenses (losses), net revenues benefits credited expenses Total
   
Assets:                            
Fixed maturity securities — available-for-sale $(188) $(6,922) $  $  $  $  $(7,110)
Funds withheld at interest — embedded derivatives     (148,528)              (148,528)
Other invested assets — equity securities  1                  1 
Reinsurance ceded receivable — embedded derivatives                 6,045   6,045 
   
Total $(187) $(155,450) $  $  $  $6,045  $(149,592)
   
                             
Liabilities:                            
Interest sensitive contract liabilities — embedded derivatives $  $(6,487)   $451  $(37,642) $  $(43,678)
   
Total $  $(6,487) $  $451  $(37,642) $  $(43,678)
   
The following tables below summarize changespresent the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in unrealized gains or losses recorded in earningsAOCI, for the three months ended March 31,1,558 and 1,716 fixed maturity securities and equity securities that have estimated fair values below amortized cost as of June��30, 2009 and December 31, 2008, for Level 3 assetsrespectively. These investments are presented by class and liabilities that were still held at March 31, 2009 and 2008(dollars in thousands).grade of security, as well as the length of time the related market value has remained below amortized cost.
                         
  Changes in Unrealized Gains and Losses
  Changes in unrealized gains/losses relating to assets and liabilities still held at the reporting
  date for the three months ended March 31, 2009
                  Policy  
  Investment     Claims &     acquisition  
  income, net Investment other     costs and other  
  of related related gains policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale $1,338  $(34,394) $  $  $  $(33,056)
Funds withheld at interest — embedded derivatives     (40,425)           (40,425)
Short-term investments  7   (408)           (401)
Other invested assets — equity securities  (508)  (4,283)           (4,791)
Reinsurance ceded receivable — embedded derivatives              492   492 
   
Total $837  $(79,510) $  $  $492  $(78,181)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $35,213  $(3,329) $16,413  $  $48,297 
   
Total $  $35,213  $(3,329) $16,413  $  $48,297 
   
                         
  As of June 30, 2009 
          Equal to or greater than    
  Less than 12 months  12 months  Total 
      Gross      Gross      Gross 
  Estimated  Unrealized  Estimated  Unrealized  Estimated  Unrealized 
(dollars in thousands) Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
Investment grade securities:
                        
U.S. corporate securities $460,442  $53,092  $1,370,743  $252,696  $1,831,185  $305,788 
Canadian and Canadian provincial governments  323,489   11,729   118,952   9,922   442,441   21,651 
Residential mortgage-backed securities  131,783   15,862   232,358   26,280   364,141   42,142 
Foreign corporate securities  329,259   21,486   237,533   46,620   566,792   68,106 
Asset-backed securities  51,225   13,426   204,070   95,932   255,295   109,358 
Commercial mortgage-backed securities  164,047   49,928   498,516   230,034   662,563   279,962 
State and political subdivisions  14,684   1,657   43,380   9,010   58,064   10,667 
Other foreign government securities  257,500   13,750   3,685   454   261,185   14,204 
       
Investment grade securities
  1,732,429   180,930   2,709,237   670,948   4,441,666   851,878 
       
                         
Non-investment grade securities:
                        
U.S. corporate securities  83,289   21,194   220,355   69,539   303,644   90,733 
Asset-backed securities  3,666   5,928   9,297   16,957   12,963   22,885 
Foreign corporate securities  8,089   3,583   18,451   5,842   26,540   9,425 
Residential mortgage-backed securities  26,943   12,811   33,294   19,954   60,237   32,765 
Commercial mortgage-backed securities        209   1,587   209   1,587 
State and political subdivisions        4,000   4,045   4,000   4,045 
       
Non-investment grade securities
  121,987   43,516   285,606   117,924   407,593   161,440 
       
Total fixed maturity securities
 $1,854,416  $224,446  $2,994,843  $788,872  $4,849,259  $1,013,318 
       
Non-redeemable preferred stock  25,146   5,847   89,751   40,979   114,897   46,826 
Common Stock  13,207   1,578   4,902   1,909   18,109   3,487 
       
Total equity securities
 $38,353  $7,425  $94,653  $42,888  $133,006  $50,313 
       
Total number of securities in an unrealized loss position
  516       1,042       1,558     
                      

13


                             
  Changes in Unrealized Gains and Losses
  Changes in unrealized gains/losses relating to assets and liabilities still held at the reporting date for the three
  months ended March 31, 2008
                      Policy  
                      acquisition  
  Investment Investment     Claims &     costs and  
  income, net related     Other     other  
  of related gains Other policy Interest insurance  
  expenses (losses), net revenues benefits credited expenses Total
   
 
Assets:                            
Fixed maturity securities — available-for-sale $(198) $(1,979) $  $  $  $  $(2,177)
Funds withheld at interest — embedded derivatives     (148,528)              (148,528)
Other invested assets — equity securities  1                  1 
Reinsurance ceded receivable — embedded derivatives                 7,811   7,811 
   
Total $(197) $(150,507) $  $  $  $7,811  $(142,893)
   
                             
Liabilities:                            
Interest sensitive contract liabilities — embedded derivatives $  $(6,487) $  $71  $(53,245) $  $(59,661)
   
Total $  $(6,487) $  $71  $(53,245) $  $(59,661)
   
                         
  As of December 31, 2008 
          Equal to or greater than    
  Less than 12 months  12 months  Total 
      Gross      Gross      Gross 
  Estimated  Unrealized  Estimated  Unrealized  Estimated  Unrealized 
(dollars in thousands) Fair Value  Losses  Fair Value  Losses  Fair Value  Losses 
Investment grade securities:
                        
U.S. corporate securities $1,407,547  $240,299  $810,115  $281,947  $2,217,662  $522,246 
Canadian and Canadian provincial governments  114,754   2,751   89,956   4,420   204,710   7,171 
Residential mortgage-backed securities  190,525   58,026   213,310   39,794   403,835   97,820 
Foreign corporate securities  508,102   82,490   140,073   59,816   648,175   142,306 
Asset-backed securities  118,608   40,139   173,505   99,147   292,113   139,286 
Commercial mortgage-backed securities  523,475   200,567   188,638   126,163   712,113   326,730 
State and political subdivisions  20,403   1,947   18,250   5,936   38,653   7,883 
Other foreign government securities  16,419   33   4,125   117   20,544   150 
       
Investment grade securities
  2,899,833   626,252   1,637,972   617,340   4,537,805   1,243,592 
       
                         
Non-investment grade securities:
                        
U.S. corporate securities  140,426   36,615   60,378   39,884   200,804   76,499 
Asset-backed securities  3,465   2,060   11,156   5,951   14,621   8,011 
Foreign corporate securities  24,637   7,227   2,032   3,387   26,669   10,614 
Residential mortgage-backed securities  8,089   5,944   4,496   3,012   12,585   8,956 
       
Non-investment grade securities
  176,617   51,846   78,062   52,234   254,679   104,080 
       
Total fixed maturity securities
 $3,076,450  $678,098  $1,716,034  $669,574  $4,792,484  $1,347,672 
       
Non-redeemable preferred stock  49,376   22,316   61,249   41,844   110,625   64,160 
Common Stock  11,804   4,607         11,804   4,607 
       
Total equity securities
 $61,180  $26,923  $61,249  $41,844  $122,429  $68,767 
       
Total number of securities in an unrealized loss position
  1,039       677       1,716     
                      
As of June 30, 2009, the Company does not intend to sell the fixed maturity securities and does not believe it is more likely than not that it will be required to sell the fixed maturity securities before the recovery of the fair value up to the current cost of the investment, which may be maturity. However, as facts and circumstances change, the Company may sell fixed maturity securities in the ordinary course of managing its portfolio to meet diversification, credit quality, yield enhancement, asset-liability management and liquidity requirements. As of June 30, 2009, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, from time to time if facts and circumstances change, the Company may sell equity securities in the ordinary course of managing its portfolio to meet diversification, credit quality and liquidity requirements.

14


5. Derivative Instruments
The following table presents the notional amounts and fair value of derivative instruments (dollars(dollars in thousands)thousands):
                        
 March 31, 2009 December 31, 2008                         
 Carrying Value/ Carrying Value/  June 30, 2009 December 31, 2008 
 Notional Fair Value Notional Fair Value  Carrying Value/ Carrying Value/ 
 Amount Assets Liabilities Amount Assets Liabilities  Notional Fair Value Notional Fair Value 
 Amount Assets Liabilities Amount Assets Liabilities 
Derivatives not designated as hedging instruments:
  
Interest rate swaps(1)
 $905,116 $116,097 $4,349 $672,716 $155,189 $241  $1,332,758 $45,486 $43,979 $672,716 $155,189 $241 
Financial futures(1)
 243,131   260,568    230,082   260,568   
Foreign currency forwards(1)
 31,300 71  31,300 2,209   40,500 1,243  31,300 2,209  
Consumer price index (“CPI”) swaps(1)
 110,140 321      128,460 1,094 196    
Credit default swaps(1)
 290,000  12,831 290,000  7,705  297,500 544 4,115 290,000  7,705 
Embedded derivatives in:  
Modified coinsurance or funds withheld arrangements(2)
   553,313   512,888    488,977   512,888 
Indexed annuity products(3)
  61,544 492,632  66,716 530,986  60,075 495,230  66,716 530,986 
Variable annuity products(3)
   241,232   276,445    79,995   276,445 
                          
Total non-hedging derivatives $1,579,687 $178,033 $1,304,357 $1,254,584 $224,114 $1,328,265  $2,029,300 $108,442 $1,112,492 $1,254,584 $224,114 $1,328,265 
                          
  
Derivatives designated as hedging instruments:
  
Interest rate swaps(1)
 $21,783 $ $1,760 $21,783 $ $2,243  $21,783 $ $778 $21,783 $ $2,243 
Foreign currency swaps(1)
 296,497 56,597  296,497 48,943   20,270 28  296,497 48,943  
                          
Total hedging derivatives $318,280 $56,597 $1,760 $318,280 $48,943 $2,243  $42,053 $28 $778 $318,280 $48,943 $2,243 
                          
Total derivatives
 $1,897,967 $234,630 $1,306,117 $1,572,864 $273,057 $1,330,508  $2,071,353 $108,470 $1,113,270 $1,572,864 $273,057 $1,330,508 
                          

14


 
(1) Carried on the Company’s consolidated balance sheets in other invested assets or as liabilities within other liabilities, at fair value.
 
(2) Embedded is included on the consolidated balance sheets with the host contract in funds withheld at interest, at fair value.
 
(3) Embedded liability is included on the consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. Embedded asset is included on the consolidated balance sheets in reinsurance ceded receivables.
Accounting for Derivative Instruments and Hedging Activities
As of March 31,June 30, 2009 and December 31, 2008, the Company held interest rate swaps that were designated and qualified as a fair value hedge of interest rate risk. As of March 31, 2009 and December 31, 2008, the Company held foreign currency swaps that were designated and qualified as a fair value hedge of a portion of its net investment in its Canada operation. AsThe Company’s foreign currency swaps, utilized to hedge a portion of its net investment in its Canada operation, outstanding as of March 31, 2009 were terminated on April 20, 2009. The unrealized gains related to the foreign currency swaps of $50.0 million continues to be reflected in accumulated other comprehensive income. As of June 30, 2009, the Company held foreign currency swaps that were designated and qualified as a fair value hedge of a portion of its net investment in its Australia operation. As of June 30, 2009 and December 31, 2008, the Company also had derivative instruments that were not designated as hedging instruments. See Note 2 — “Summary of Significant Accounting Policies” of the Company’s 2008 annual report on Form 10-K for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. The Company does not enter into derivative instruments for speculative purposes. Derivative instruments are carried at fair value and generally require an insignificant amount of cash at inception of the contract.

15


Fair Value Hedges
The Company designates and accounts for certain interest rate swaps that convert fixed rate investments to floating rate investments as fair value hedges when they have met the requirements of SFAS 133. The gain or loss on the hedged item attributable to the hedged benchmark interest rate and the offsetting gain or loss on the related interest rate swaps for the three and six months ended March 31,June 30, 2009 were (dollars(dollars in thousands)thousands):
                               
For the three months ended June 30, 2009For the three months ended June 30, 2009
Type of Derivative Hedge Gain Hedged Item   Derivative Hedge Gain Hedged Item  
Fair Value Gain (loss) (Loss) Gain (Loss) Hedged Item Gain Gain (loss) (Loss) Gain (Loss) Hedged Item Gain
Hedge Location Recognized Hedged Item Location (Loss) Recognized Location Recognized Hedged Item Location (Loss) Recognized
Interest rate swaps Investment related Fixed
rate
 Investment related  Investment related
gains (losses), net
 $982  Fixed rate fixed
maturity securities
 Investment related
gains (losses), net
 $(934)
 gains (losses), net $483 fixed maturity securities gains (losses), net $(521)           
For the six months ended June 30, 2009For the six months ended June 30, 2009
Type of Derivative Hedge Gain Hedged Item  
Fair Value Gain (loss) (Loss) Gain (Loss) Hedged Item Gain
Hedge Location Recognized Hedged Item Location (Loss) Recognized
Interest rate swaps Investment related
gains (losses), net
 $1,465  Fixed rate fixed
maturity securities
 Investment related
gains (losses), net
 $(1,456)
The Company’s investment related gains (losses), net representing the ineffective portion of all fair value hedges was immaterial for the three and six months ended March 31,June 30, 2009. The Company had no fair value hedges for the three monthsperiod ended March 31,June 30, 2008.
All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. There were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency swaps to hedge a portion of its net investment in its Canadian operationcertain foreign operations against adverse movements in exchange rates. A summary of the Company’s net investments in foreign operations (“NIFO”) hedges on ourits financial statements for the three and six months ended March 31,June 30, 2009 were (dollars(dollars in thousands)thousands):
                               
For the three months ended June 30, 2009For the three months ended June 30, 2009
Effective PortionEffective Portion Ineffective PortionEffective Portion Ineffective Portion
 Location of Gain Gain (Loss) Income   Gain (Loss) Income  
Type of Derivative (Loss) Reclassified from Statement   Derivative Location of Gain (Loss) Reclassified from Statement  
NIFO Gain (Loss) Reclassified From accumulated OCI into Location of Gain Ineffective Gain Gain (Loss) in Reclassified From accumulated OCI into Location of Gain Ineffective Gain
Hedge in OCI Accumulated OCI income (Loss) (Loss) in Income OCI Accumulated OCI income (Loss) (Loss) in Income
Foreign currency swaps $56,751 None $ Investment income $  $(6,491) None $— Investment income $—
           
For the six months ended June 30, 2009For the six months ended June 30, 2009
Effective PortionEffective Portion Ineffective Portion
 Gain (Loss) Income  
Type of Derivative Location of Gain (Loss) Reclassified from Statement  
NIFO Gain (Loss) in Reclassified From accumulated OCI into Location of Gain Ineffective Gain
Hedge OCI Accumulated OCI income (Loss) (Loss) in Income
Foreign currency
swaps
 $1,644  None $— Investment income $—
The Company measures ineffectiveness on the foreign currency swaps based upon the change in forward rates. There was no ineffectiveness recorded in the periods presented herein.

1516


The Company’s other comprehensive income for the three months ended March 31,June 30, 2009 and 2008, include losses of $6.5 million and $2.2 million, respectively, and gains of $8.2$1.6 million and $6.4$4.2 million for the six months ended June 30, 2009 and 2008, respectively, related to foreign currency swaps used to hedge its net investment in its Canada operation.and Australia operations. The cumulative foreign currency translation gain recorded in accumulated other comprehensive income related to these hedges was $56.8$50.3 million and $48.6 million at March 31,June 30, 2009 and December 31, 2008, respectively. When net investments in foreign operations are sold or substantially liquidated, the amounts in accumulated other comprehensive income are reclassified to the consolidated statements of income. A pro rata portion will be reclassified upon partial sale of the net investments in foreign operations.
Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging
The Company uses various other derivative instruments for risk management purposes that either do not qualify for hedge accounting treatment or have not currently been qualified by the Company for hedge accounting treatment, including derivatives used to economically hedge changes in the fair value of liabilities associated with the reinsurance of variable annuities with guaranteed living benefits. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), in the consolidated statements of income, except where otherwise noted. For the three months ended March 31,June 30, 2009 and 2008, the Company recognized as investment related losses, net, excluding embedded derivatives changes in fair value of $20.2$136.1 million and $0.2$3.7 million, respectively, and $156.3 million and $3.9 million for the six months ended June 30, 2009 and 2008, respectively, related to derivatives that do not qualify for hedge accounting.
Interest Rate Swaps
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date.
Financial Futures
Exchange-traded equity futures are used primarily to economically hedge liabilities embedded in certain variable annuity products assumed by the Company. In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different stock indices, and to post variation margin on a daily basis in an amount equal to the difference in the daily estimated fair values of those contracts. The Company enters into exchange-traded equity futures with regulated futures commission merchants that are members of the exchange.
Foreign Currency Swaps
Foreign currency swaps are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company also uses foreign currency swaps to hedge the foreign currency risk associated with certain of its net investments in foreign operations.
Foreign Currency Forwards
Foreign currency forwards are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date.

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CPI Swaps
CPI swaps are used by the Company primarily to economically hedge liabilities embedded in certain insurance products assumed by the Company whose value is directly affected by changes in a designated benchmark consumer price index. In a CPI swap transaction, the Company agrees with another party to exchange the actual

16


amount of inflation realized over a specified period of time for a fixed amount of inflation determined at inception. These transactions are entered into pursuant to master agreements that provide for a single net payment or individual gross payments to be made by the counterparty at each due date. Most of these swaps will require a single payment to be made by one counterparty at the maturity date of the swap.
Credit Default Swaps
CertainThe Company invests in credit default swaps are used by the Company to diversify its credit risk exposure in certain portfolios. The Company’s currentThese credit default swap transactionsswaps are over-the-counter instruments in which the Company receives payments at specified intervals to insure credit risk on a portfolio of 125 U.S. investment-grade securities. If a credit event, as defined by the contract, occurs, generally the contract will require the swap to be settled gross by the delivery of par quantities or value of the referenced investment securities equal to the specified swap notional amount in exchange for the payment of cash amounts by the Company equal to the par value of the investment security surrendered.
The Company also purchases credit default swaps to hedge against a drop in bond prices due to credit concerns of certain bond issuers. If a credit event, as defined by the contract, occurs, it allows the Company to put the bond back to the counterparty at par.
Embedded Derivatives
The Company has certain embedded derivatives which are required to be separated from their host contracts and reported as derivatives. These host contracts include reinsurance treaties structured on a modified coinsurance or funds withheld basis. Additionally, the Company reinsures equity-indexed annuity and variable annuity contracts with benefits that are considered embedded derivatives, including guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits, and guaranteed minimum income benefits. The amounts related to embedded derivatives in modified coinsurance or funds withheld arrangements and variable annuity contracts included in investment related gains (losses), during for the three and six months ended March 31,June 30, 2009 and 2008 were losses of $(5.2) million, $(154.8) million, respectively. Afterare reflected in the associated amortization of DAC and taxes, the related amounts includedfollowing table (dollars in net income during the three months ended March 31, 2009 and 2008 were losses of $(27.1) million and $(20.0) million, respectively. The amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses during the three months ended March 31, 2009 and 2008 were gains (losses) of $21.7 million and $(14.0) million, respectively. After the associated amortization of DAC and taxes, the related amounts included in net income during the three months ended March 31, 2009 and 2008 were gains of $11.2 million and $6.2 million, respectively.thousands):
                 
  Three months ended June 30, Six months ended June 30,
  2009 2008 2009 2008
   
Embedded derivatives in modified coinsurance or funds withheld arrangements and variable annuity contracts included in investment related gains (losses) $225,574  $(6,095) $220,362  $(160,915)
After the associated amortization of DAC and taxes, the related amounts included in net income  (5,517)  2,703   (32,596)  (22,698)
                 
Amounts related to embedded derivatives in equity-indexed annuities included in benefits and expenses  (10,232)  (3,383)  11,465   (17,383)
After the associated amortization of DAC and taxes, the related amounts included in net income  (11,948)  3,897   (753)  10,108 
A summary of the effect of non-hedging derivatives, including embedded derivatives, on ourthe Company’s income statement for the three and six months ended March 31,June 30, 2009 is as follows (dollars(dollars in thousands)thousands):

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Type of Non-hedging DerivativeIncome Statement Location of Gain (Loss)Gain (Loss)
Interest rate swapsInvestment related gains (losses), net$(38,864)
Financial futuresInvestment related gains (losses), net22,311
Foreign currency forwardsInvestment related gains (losses), net(2,042)
CPI swapsInvestment related gains (losses), net310
Credit default swapsInvestment related gains (losses), net(1,911)
Embedded derivatives in:
Modified coinsurance or funds withheld arrangementsInvestment related gains (losses), net(40,425)
Indexed annuity productsPolicy acquisition costs and other insurance expenses(2,657)
Indexed annuity productsInterest credited24,353
Variable annuity productsInvestment related gains (losses), net35,213
Total non-hedging derivatives$  (3,712)
       
    Gain (Loss) 
    For the Three Months 
Type of Non-hedging Derivative Income Statement Location of Gain (Loss) Ended June 30, 2009 
Interest rate swaps Investment related gains (losses), net $(99,017)
Financial futures Investment related gains (losses), net  (48,059)
Foreign currency forwards Investment related gains (losses), net  1,164 
CPI swaps Investment related gains (losses), net  544 
Credit default swaps Investment related gains (losses), net  9,288 
Embedded derivatives in:      
Modified coinsurance or funds withheld arrangements Investment related gains (losses), net  64,337 
Indexed annuity products Policy acquisition costs and other insurance expenses  161 
Indexed annuity products Interest credited  (10,393)
Variable annuity products Investment related gains (losses), net  161,238 
      
Total non-hedging derivatives   $79,263 
      
       
    Gain (Loss) 
    For the Six Months 
Type of Non-hedging Derivative Income Statement Location of Gain (Loss) Ended June 30, 2009 
Interest rate swaps Investment related gains (losses), net $(137,881)
Financial futures Investment related gains (losses), net  (25,748)
Foreign currency forwards Investment related gains (losses), net  (878)
CPI swaps Investment related gains (losses), net  854 
Credit default swaps Investment related gains (losses), net  7,377 
Embedded derivatives in:      
Modified coinsurance or funds withheld arrangements Investment related gains (losses), net  23,912 
Indexed annuity products Policy acquisition costs and other insurance expenses  (2,496)
Indexed annuity products Interest credited  13,960 
Variable annuity products Investment related gains (losses), net  196,450 
      
Total non-hedging derivatives   $75,550 
      
Credit Risk
The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date. The credit exposure of the Company’s derivative transactions is represented by the fair value of contracts after consideration of any collateral received with a net positive fair value at the reporting date.

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The Company manages its credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures are affected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments.
The Company enters into various collateral arrangements, which require both the posting and accepting of collateral in connection with its derivative instruments. As of March 31,June 30, 2009, and December 31, 2008, the Company held cash collateral under its control of $106.8$9.7 million and $159.8 million, respectively. This unrestricted cash collateral is included in cash and cash equivalents and the obligation to return it is included in other liabilities in the consolidated balance sheets. From time to time, the Company has accepted collateral consisting of various securities,securities; however, there were no securities held as collateral as of March 31,June 30, 2009, and December 31, 2008. Collateral agreements contain attachment thresholds that vary depending on the posting party’s financial strength

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ratings. As of March 31,June 30, 2009, the Company had pledged collateral of $6.7 million to counterparties on swaps, which is included in other assets. There was no collateral posting requirements associated with $18.9 millionpledged to swap counterparties as of derivative liabilities.December 31, 2008.
In addition, the Company has exchange-traded futures, which require the maintenance of a margin account. As of March 31,June 30, 2009 and December 31, 2008, the Company’s margin account balances were $30.8Company pledged collateral of $24.1 and $25.9 million, respectively, which is included in cash and cash equivalents.
6. Investment Related GainsFair Value Disclosures
The following table presents the carrying amounts and Losses
Investment related gains and losses consistedestimated fair values of the followingCompany’s financial instruments at June 30, 2009 and December 31, 2008. Fair values have been determined by using available market information and the valuation techniques described in Note 6 of the consolidated financial statements accompanying the 2008 Annual Report. Considerable judgment is often required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein may not necessarily be indicative of amounts that could be realized in a current market exchange. The use of different assumptions or valuation techniques may have a material effect on the estimated fair value amounts ((dollars in thousands)thousands):
         
  Three months ended
  March 31, 2009 March 31, 2008
   
Fixed maturities and equity securities available-for-sale:        
Gain on investment activity $12,230  $10,080 
Loss on investment activity  (19,649)  (5,360)
Impairments  (39,825)  (5,150)
Derivatives and other, net  (25,018)  (154,830)
   
Net losses $(72,262) $(155,260)
   
                 
  June 30, 2009 December 31, 2008
      Estimated Fair     Estimated Fair
  Carrying Value Value Carrying Value Value
Assets:                
Fixed maturity securities $9,842,793  $9,842,793  $8,531,804  $8,531,804 
Mortgage loans on real estate  757,501   676,242   775,050   755,383 
Policy loans  1,085,752   1,085,752   1,096,713   1,096,713 
Funds withheld at interest  4,675,191   4,607,198   4,520,398   4,494,716 
Short-term investments  53,953   53,953   58,123   58,123 
Other invested assets  482,028   460,816   628,649   638,087 
Cash and cash equivalents  416,947   416,947   875,403   875,403 
Accrued investment income  119,411   119,411   87,424   87,424 
Reinsurance ceded receivables  110,470   53,852   115,445   11,233 
Liabilities:                
Interest-sensitive contract liabilities $5,611,202  $5,413,202  $5,664,488  $4,890,669 
Long-term and short-term debt  816,575   616,288   918,246   606,890 
Collateral finance facility  850,014   433,500   850,035   493,000 
Company-obligated mandatorily redeemable preferred securities  159,123   181,819   159,035   186,082 
Publicly traded fixed maturity securities are valued based upon quoted market prices or estimates from independent pricing services, independent broker quotes and pricing matrices. Private placement fixed maturity securities are valued based on the credit quality and duration of marketable securities deemed comparable by the Company’s investment advisor, which may be of another issuer. The increasefair value of mortgage loans on real estate is estimated using discounted cash flows. Policy loans typically carry an interest rate that is adjusted annually based on a market index and therefore carrying value approximates fair value. The carrying value of funds withheld at interest approximates fair value except where the funds withheld are specifically identified in impairmentsthe agreement. When funds withheld are specifically identified in 2009the agreement, the fair value is based on the fair value of the underlying assets which are held by the ceding company. The carrying values of cash and cash equivalents and short-term investments approximates fair values due to the continued turmoilshort-term maturities of these instruments. Common and preferred equity investments and derivative financial instruments included in other invested assets are reflected at fair value on the consolidated balance sheets based primarily on quoted market prices, while limited partnership interests are carried at cost. The fair value of limited partnerships is based on net asset values. The carrying value for accrued investment income approximates fair value.
The carrying and fair values of interest-sensitive contract liabilities exclude contracts with significant mortality risk. The fair value of the Company’s interest-sensitive contract liabilities and related reinsurance ceded receivables is based on the cash surrender value of the liabilities, adjusted for recapture fees. The fair value of the Company’s long-term debt is estimated based on either quoted market prices or quoted market prices for the debt of corporations with similar credit quality. The fair values of the Company’s collateral finance facility and company-obligated mandatorily redeemable preferred securities are estimated using discounted cash flows.

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Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements” (“SFAS 157”) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the U.S.principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In accordance with SFAS 157, valuation techniques utilized by management for invested assets and global financial marketsembedded derivatives reported at fair value are generally categorized into three types:
Market Approach.Market approach valuation techniques use prices and other relevant information from market transactions involving identical or comparable assets or liabilities. Valuation techniques consistent with the market approach include comparables and matrix pricing. Comparables use market multiples, which has resultedmight lie in bankruptcies, consolidationsranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering both quantitative and government interventions. The decrease in derivative lossesqualitative factors specific to the measurement. Matrix pricing is primarily duea mathematical technique used principally to value certain securities without relying exclusively on quoted prices for the specific securities but comparing the securities to benchmark or comparable securities.
Income Approach.Income approach valuation techniques convert future amounts, such as cash flows or earnings, to a declinesingle present amount, or a discounted amount. These techniques rely on current expectations of future amounts. Examples of income approach valuation techniques include present value techniques, option-pricing models and binomial or lattice models that incorporate present value techniques.
Cost Approach.Cost approach valuation techniques are based upon the amount that, at present, would be required to replace the service capacity of an asset, or the current replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset is determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility.
The three approaches described within SFAS 157 are consistent with generally accepted valuation techniques. While all three approaches are not applicable to all assets or liabilities reported at fair value, where appropriate and possible, one or more valuation techniques may be used. The selection of the valuation technique(s) to apply considers the definition of an exit price and the nature of the asset or liability being valued and significant expertise and judgment is required. The Company performs regular analysis and review of the various techniques utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also utilizes information from third parties, such as pricing services and brokers, to assist in determining fair values for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s financial statements. The Company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, initial and ongoing review of third party pricing services and techniques, review of pricing trends and monitoring of recent trade information. In addition, the Company utilizes both internal and external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.
For invested assets reported at fair value, when available, fair values are based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on the market valuation techniques described above, primarily a combination of the market approach, including matrix pricing and the income approach. The assumptions and inputs used by management in applying these techniques include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and assumptions regarding liquidity and future cash flows.
The significant inputs to the market standard valuation techniques for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market.
When observable inputs are not available, the market standard valuation techniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely

21


on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are consistent with what other market participants would use when pricing such securities.
The use of different techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings.
For embedded derivative liabilities associated with the underlying products in reinsurance treaties, primarily equity-indexed and variable annuity treaties, the Company utilizes a market standard technique, which includes an estimate of future equity option purchases and an adjustment for the Company’s own credit risk that takes into consideration the Company’s financial strength rating, also commonly referred to as a claims paying rating. The capital market inputs to the model, such as equity indexes, equity volatility, interest rates and the Company’s credit adjustment, are generally observable. However, the valuation models also use inputs requiring certain actuarial assumptions such as future interest margins, policyholder behavior, including future equity participation rates, and explicit risk margins related to non-capital market inputs, that are generally not observable and may require use of significant management judgment. Changes in interest rates, equity indices, equity volatility, the Company’s own credit risk, and actuarial assumptions regarding policyholder behavior may result in significant fluctuations in the value of embedded derivatives liabilities associated with equity-indexed annuity reinsurance treaties.
The fair value of embedded derivatives associated with modified coinsurance and funds withheld treaties.reinsurance treaties is determined based upon a total return swap technique with reference to the fair value of the investments held by the ceding company that support the Company’s funds withheld at interest asset. The fair value of the underlying assets is generally based on market observable inputs using market standard valuation techniques. However, the valuation also requires certain significant inputs based on actuarial assumptions about policyholder behavior, which are generally not observable.
For the quarter ended June 30, 2009, the application of valuation techniques applied to similar assets and liabilities has been consistent.
SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities include investment securities and derivative contracts that are traded in exchange markets.
Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions with significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market. The Company’s Level 2 assets and liabilities include investment securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose values are determined using market standard valuation techniques. This category primarily includes U.S. and foreign corporate securities, Canadian and Canadian provincial government securities, and residential and commercial mortgage-backed securities, among others. Management values most of these securities using inputs that are market observable.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using market standard valuation techniques described above. When observable inputs are not available, the market standard techniques for determining the estimated fair value of certain securities that trade infrequently, and therefore have little transparency, rely on inputs that are significant to the estimated fair value and that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation and cannot be supported by reference to market activity. Even though

22


unobservable, management believes these inputs are based on assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing similar assets and liabilities. For the Company’s invested assets, this category generally includes U.S. and foreign corporate securities (primarily private placements), asset-backed securities (including those with exposure to subprime mortgages), and to a lesser extent, certain residential and commercial mortgage-backed securities, among others. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs associated with actuarial assumptions regarding policyholder behavior. Embedded derivatives are reported with the host instruments on the condensed consolidated balance sheet.
As required by SFAS 157, when inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest priority level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, gains and losses for such assets and liabilities categorized within Level 3 may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2009 and December 31, 2008 are summarized below(dollars in thousands).
                     
  June 30, 2009    
      Fair Value Measurements Using:    
  Total Level 1 Level 2 Level 3    
       
Assets:                    
Fixed maturity securities — available-for-sale:                    
U.S. corporate securities $3,482,328  $  $2,636,803  $845,525     
Canadian and Canadian provincial governments  1,999,241      1,994,051   5,190     
Residential mortgage-backed securities  1,158,304      1,104,651   53,653     
Foreign corporate securities  1,406,861   2,312   1,109,838   294,711     
Asset-backed securities  377,382      149,605   227,777     
Commercial mortgage-backed securities  812,312      701,490   110,822     
U.S. government and agencies securities  64,881   64,828   53        
State and political subdivision securities  93,182   6,533   2,316   84,333     
Other foreign government securities  448,302   92,321   210,848   145,133     
       
Total fixed maturity securities — available-for-sale  9,842,793   165,994   7,909,655   1,767,144     
Funds withheld at interest — embedded derivatives  (488,977)        (488,977)    
Short-term investments  12,235      11,547   688     
Other invested assets — non-redeemable preferred stock  117,532   87,600   20,584   9,348     
Other invested assets — common stock  45,534   5,826   26,441   13,267     
Other invested assets — derivatives  48,395      48,395        
Reinsurance ceded receivable — embedded derivatives  60,075         60,075     
   
Total $9,637,587  $259,420  $8,016,622  $1,361,545     
       
                     
Liabilities:                    
Interest sensitive contract liabilities — embedded derivatives $(575,225) $  $  $(575,225)    
Other liabilities — derivatives  (49,068)     (49,068)       
       
Total $(624,293) $  $(49,068) $(575,225)    
       

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  December 31, 2008
      Fair Value Measurements Using:
  Total Level 1 Level 2 Level 3
   
Assets:                
Fixed maturity securities — available-for-sale:                
U.S. corporate securities $3,012,633  $  $2,196,348  $816,285 
Canadian and Canadian provincial governments  1,891,239      1,881,274   9,965 
Residential mortgage-backed securities  1,149,185      1,118,761   30,424 
Foreign corporate securities  973,433   1,714   795,111   176,608 
Asset-backed securities  339,378      107,509   231,869 
Commercial mortgage-backed securities  760,590      701,549   59,041 
U.S. government and agencies securities  8,431   3,072   5,359    
State and political subdivision securities  38,654   6,167      32,487 
Other foreign government securities  358,261   85,606   167,216   105,439 
   
Sub-total  8,531,804   96,559   6,973,127   1,462,118 
Funds withheld at interest — embedded derivatives  (512,888)        (512,888)
Short-term investments  570      218   352 
Other invested assets — non-redeemable preferred stock  123,399   99,527   18,479   5,393 
Other invested assets — common stock  35,975   4,999   18,920   12,056 
Other invested assets — derivatives  206,341      206,341    
Reinsurance ceded receivable — embedded derivatives  66,716         66,716 
   
Total $8,451,917  $201,085  $7,217,085  $1,033,747 
   
                 
Liabilities:                
Interest sensitive contract liabilities — embedded derivatives $(807,431) $  $  $(807,431)
Other liabilities — derivatives  (10,189)     (10,189)   
   
Total $(817,620) $  $(10,189) $(807,431)
   
As of June 30, 2009 and December 31, 2008, respectively, the Company classified approximately 18.0% and 17.1% of its fixed maturity securities in the Level 3 category in accordance with SFAS 157. These securities primarily consist of private placement corporate securities with an inactive trading market. Additionally, the Company has included asset-backed securities with sub-prime exposure in the Level 3 category due to the current market uncertainty associated with these securities and the Company’s utilization of information from third parties.
The Company monitors its investment securitiestables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2009 and 2008(dollars in thousands).
                         
  Total Fair Value Measurements for the three months ended June 30, 2009
      Total gains/losses      
      (realized/unrealized)      
      included in: Purchases,    
  Balance     Other issuances Transfers in Balance
  April 1, Earnings, comprehensive and and/or out of June 30,
  2009 net income disposals Level 3 2009
   
Assets:                        
Fixed maturity securities — available-for-sale                        
U.S. corporate securities $806,557  $(9,381) $75,776  $(28,809) $1,382  $845,525 
Canadian and Canadian provincial governments  4,783      5   402      5,190 
Residential mortgage-backed securities  78,927   (3,745)  (7,948)  (15,752)  2,171   53,653 
Foreign corporate securities  275,337   (441)  7,047   48,380   (35,612)  294,711 
Asset-backed securities  248,042   (1,990)  (13,540)  (4,897)  162   227,777 
Commercial mortgage-backed securities  51,975   142   21,280   (9,304)  46,729   110,822 
State and political subdivision securities  28,822   10   13,599   1,782   40,120   84,333 
Other foreign government securities  87,623   405   (2,807)  60,947   (1,035)  145,133 
   
Sub-total  1,582,066   (15,000)  93,412   52,749   53,917   1,767,144 

24


Continued
                         
  Total Fair Value Measurements for the three months ended June 30, 2009
      Total gains/losses      
      (realized/unrealized)      
      included in: Purchases,    
  Balance     Other issuances Transfers in Balance
  April 1, Earnings, comprehensive and and/or out of June 30,
  2009 net income disposals Level 3 2009
   
Funds withheld at interest — embedded derivatives  (553,313)  64,336            (488,977)
Short-term investments  1,705   109   (24)  (1,102)     688 
Other invested assets — non-redeemable preferred stock  4,292   116   2,965   (181)  2,156   9,348 
Other invested assets — common stock  13,043   303   (131)  73   (21)  13,267 
Reinsurance ceded receivable — embedded derivatives  61,544   1,040      (2,509)     60,075 
   
Total $1,109,337  $50,904  $96,222  $49,030  $56,052  $1,361,545 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $(733,864) $149,339  $  $9,300  $  $(575,225)
   
Total $(733,864) $149,339  $  $9,300  $  $(575,225)
   
                         
  Total Fair Value Measurements for the three months ended June 30, 2008
      Total gains/losses      
      (realized/unrealized) included in: Purchases,    
  Balance     Other issuances Transfers in Balance
  April 1,     comprehensive and and/or out of June 30,
  2008 Earnings, net loss disposals Level 3 2008
   
Assets:                        
Fixed maturity securities available-for-sale $1,509,166  $(442) $(41,661) $55,804  $(20,494) $1,502,373 
Funds withheld at interest — embedded derivatives  (233,618)  (11,452)           (245,070)
Other invested assets — equity securities  20,202   1   (1,241)  7,000   (14,623)  11,339 
Reinsurance ceded receivable — embedded derivatives  78,216   (1,459)     4,406      81,163 
   
Total $1,373,966  $(13,352) $(42,902) $67,210  $(35,117) $1,349,805 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $(585,572) $5,983  $  $(9,281) $  $(588,870)
   
Total $(585,572) $5,983  $  $(9,281) $  $(588,870)
   

25


                         
  Total Fair Value Measurements for the six months ended June 30, 2009
      Total gains/losses      
      (realized/unrealized)      
      included in: Purchases,    
  Balance     Other issuances Transfers in Balance
  January 1, Earnings, comprehensive and and/or out of June 30,
  2009 net income disposals Level 3 2009
   
Assets:                        
Fixed maturity securities — available-for-sale                        
U.S. corporate securities $816,285  $(27,801) $71,334  $(4,597) $(9,696) $845,525 
Canadian and Canadian provincial governments  9,965      (34)  4,321   (9,062)  5,190 
Residential mortgage-backed securities  30,424   (10,309)  12,195   (11,443)  32,786   53,653 
Foreign corporate securities  176,608   (2,113)  2,355   143,121   (25,260)  294,711 
Asset-backed securities  231,869   (12,678)  (8,649)  11,686   5,549   227,777 
Commercial mortgage-backed securities  59,041   53   19,186   (9,887)  42,429   110,822 
State and political subdivision securities  32,487   19   10,025   1,682   40,120   84,333 
Other foreign government securities  105,439   1,277   (4,578)  56,786   (13,791)  145,133 
   
Sub-total  1,462,118   (51,552)  101,834   191,669   63,075   1,767,144 
                         
Funds withheld at interest — embedded derivatives  (512,888)  23,911            (488,977)
                         
Short-term investments  352   (457)  611   182      688 
Other invested assets — non-redeemable preferred stock  5,393   (4,789)  7,448   (930)  2,226   9,348 
Other invested assets — common stock  12,056   (564)  (220)  1,900   95   13,267 
Reinsurance ceded receivable — embedded derivatives  66,716   (590)     (6,051)     60,075 
   
Total $1,033,747  $(34,041) $109,673  $186,770  $65,396  $1,361,545 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $(807,431) $207,144  $  $25,062  $  $(575,225)
   
Total $(807,431) $207,144  $  $25,062  $  $(575,225)
   
                         
  Total Fair Value Measurements for the six months ended June 30, 2008
      Total gains/losses      
      (realized/unrealized)      
      included in: Purchases,    
  Balance     Other issuances Transfers in Balance
  January 1,     comprehensive and and/or out of June 30,
  2008 Earnings, net loss disposals Level 3 2008
   
Assets:                        
                         
Fixed maturity securities available-for-sale $1,500,054  $(7,552) $(77,782) $127,087  $(39,434) $1,502,373 
Funds withheld at interest — embedded derivatives  (85,090)  (159,980)           (245,070)
Other invested assets — equity securities  13,950   2   (1,720)  13,730   (14,623)  11,339 
Reinsurance ceded receivable — embedded derivatives  68,298   4,586      8,279      81,163 
   
Total $1,497,212  $(162,944) $(79,502) $149,096  $(54,057) $1,349,805 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $(531,160) $(37,695) $  $(20,015) $  $(588,870)
   
Total $(531,160) $(37,695) $  $(20,015) $  $(588,870)
   

26


The tables below summarize gains and losses due to determine impairmentschanges in fair value, including both realized and evaluates factors such as financial condition ofunrealized gains and losses, recorded in earnings for Level 3 assets and liabilities for the issuer, payment performance,three and six months ended June 30, 2009 and 2008(dollars in thousands).
                         
  Total Gains and Losses
  Classification of gains/losses (realized/unrealized) included in earnings for the three
  months ended June 30, 2009
                  Policy  
                  acquisition  
  Investment     Claims     costs and  
  income, net of Investment & other     other  
  related related gains policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale                        
U.S. corporate securities $544  $(9,925) $  $  $  $(9,381)
Residential mortgage-backed securities  368   (4,113)           (3,745)
Foreign corporate securities  48   (489)           (441)
Asset-backed securities  1,901   (3,891)           (1,990)
Commercial mortgage-backed securities  245   (103)           142 
State and political subdivision securities  13   (3)           10 
Other foreign government securities  (217)  622            405 
   
Sub-total  2,902   (17,902)           (15,000)
Funds withheld at interest — embedded derivatives     64,336            64,336 
Short-term investments  234   (125)           109 
Other invested assets — non-redeemable preferred stock  2   114            116 
Other invested assets — common stock  303               303 
Reinsurance ceded receivable — embedded derivatives              1,040   1,040 
   
Total $3,441  $46,423  $  $  $1,040  $50,904 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $161,239  $606  $(12,506) $  $149,339 
   
Total $  $161,239  $606  $(12,506) $  $149,339 
   
                         
  Total Gains and Losses
  Classification of gains/losses (realized/unrealized) included in earnings for the three months ended
  June 30, 2008
                  Policy  
  Investment             acquisition costs  
  income, net Investment Claims &     and other  
  of related related gains other policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale $345  $(787) $  $  $  $(442)
Funds withheld at interest — embedded derivatives     (11,452)           (11,452)
                         
Other invested assets — equity securities  1               1 
Reinsurance ceded receivable — embedded derivatives              (1,459)  (1,459)
   
Total $346  $(12,239) $  $  $(1,459) $(13,352)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $7,428  $1,271  $(2,716) $  $5,983 
   
Total $  $7,428  $1,271  $(2,716) $  $5,983 
   

27


                         
  Total Gains and Losses
  Classification of gains/losses (realized/unrealized) included in earnings for the six months ended
  June 30, 2009
                  Policy  
                  acquisition  
  Investment     Claims     costs and  
  income, net of Investment & other     other  
  related related gains policy     insurance  
  expenses (losses), net benefits Interest credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale                        
U.S. corporate securities $813  $(28,614) $  $  $  $(27,801)
Residential mortgage-backed securities  440   (10,749)           (10,309)
Foreign corporate securities  90   (2,203)           (2,113)
Asset-backed securities  3,002   (15,680)           (12,678)
Commercial mortgage-backed securities  156   (103)           53 
State and political subdivision securities  21   (2)           19 
Other foreign government securities  (302)  1,579            1,277 
   
Sub-total  4,220   (55,772)           (51,552)
Funds withheld at interest — embedded derivatives     23,911            23,911 
Short-term investments  241   (698)           (457)
Other invested assets — non-redeemable preferred stock  (60)  (4,729)           (4,789)
Other invested assets — common stock  (142)  (422)           (564)
Reinsurance ceded receivable — embedded derivatives              (590)  (590)
   
Total $4,259  $(37,710) $  $  $(590) $(34,041)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $196,451  $(962) $11,655  $  $207,144 
   
Total $  $196,451  $(962) $11,655  $  $207,144 
   
                         
  Total Gains and Losses
  Classification of gains/losses (realized/unrealized) included in earnings for the six months ended June
  30, 2008
                  Policy  
  Investment             acquisition costs  
  income, net of Investment Claims &     and other  
  related related gains other policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale $157  $(7,709) $  $  $  $(7,552)
Funds withheld at interest — embedded derivatives     (159,980)           (159,980)
                         
Other invested assets — equity securities  2               2 
Reinsurance ceded receivable — embedded derivatives              4,586   4,586 
   
Total $159  $(167,689) $  $  $4,586  $(162,944)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $942  $1,721  $(40,358) $  $(37,695)
   
Total $  $942  $1,721  $(40,358) $  $(37,695)
   

28


The tables below summarize changes in unrealized gains or losses recorded in earnings for the length of timethree and the extent to which the market value has been below amortized cost, compliance with covenants, general market conditionssix months ended June 30, 2009 and industry sector, current intent2008 for Level 3 assets and ability to hold securitiesliabilities that were still held at June 30, 2009 and various other subjective factors. Based on management’s judgment, securities determined to have an other-than-temporary impairment2008(dollars in value are written down to fair value. See Note 2 — “Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements of the 2008 Annual Report for additional information on the Company’s policy regarding other-than-temporary impairments.thousands).
                         
  Changes in Unrealized Gains and Losses
  Changes in unrealized gains/losses relating to assets and liabilities still held at the
  reporting date for the three months ended June 30, 2009
                  Policy  
                  acquisition  
  Investment     Claims     costs and  
  income, net of Investment & other     other  
  related related gains policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale                        
U.S. corporate securities $509  $(7,045) $  $  $  $(6,536)
Residential mortgage-backed securities  366   (5,756)           (5,390)
Foreign corporate securities  45   (328)           (283)
Asset-backed securities  1,454   (7,451)           (5,997)
Commercial mortgage-backed securities  258   (227)           31 
State and political subdivision securities  13              13
Other foreign government securities  (213)              (213)
   
Sub-total  2,432   (20,807)           (18,375)
Funds withheld at interest — embedded derivatives     64,337            64,337 
Short-term investments  234               234 
Other invested assets — non-redeemable preferred stock  2               2 
Other invested assets — common stock  303               303 
Reinsurance ceded receivable — embedded derivatives              4,006   4,006 
   
Total $2,971  $43,530  $  $  $4,006  $50,507 
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $161,238  $(1,627) $(23,779) $  $135,832 
   
Total $  $161,238  $(1,627) $(23,779) $  $135,832 
   
                         
  Changes in Unrealized Gains and Losses
  Changes in unrealized gains/losses relating to assets and liabilities still held at the reporting date for
  the three months ended June 30, 2008
  Investment            
  income, net of Investment Claims &     Policy acquisition  
  related related gains other policy Interest costs and other  
  expenses (losses), net benefits credited insurance expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale $354  $(116) $  $  $  $238 
Funds withheld at interest — embedded derivatives     (11,452)           (11,452)
                         
Other invested assets — equity securities  1               1 
Reinsurance ceded receivable — embedded derivatives              (314)  (314)
   
Total $355  $(11,568) $  $  $(314) $(11,527)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $7,428  $2,419  $(19,845) $  $(9,998)
   
Total $  $7,428  $2,419  $(19,845) $  $(9,998)
   

29


                         
  Changes in Unrealized Gains and Losses
  Changes in unrealized gains/losses relating to assets and liabilities still held at the
  reporting date for the six months ended June 30, 2009
                  Policy  
                  acquisition  
  Investment     Claims     costs and  
  income, net of Investment & other     other  
  related related gains policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale                        
U.S. corporate securities $777  $(19,855) $  $  $  $(19,078)
Residential mortgage-backed securities  439   (12,981)           (12,542)
Foreign corporate securities  86   (1,305)           (1,219)
Asset-backed securities  2,550   (20,835)           (18,285)
Commercial mortgage-backed securities  169   (227)           (58)
State and political subdivision securities  21               21 
Other foreign government securities  (271)              (271)
   
Sub-total  3,771   (55,203)           (51,432)
Funds withheld at interest — embedded derivatives     23,912            23,912 
Short-term investments  241   (409)           (168)
Other invested assets — non-redeemable preferred stock  (60)  (3,858)           (3,918)
Other invested assets — common stock  (142)  (425)           (567)
Reinsurance ceded receivable — embedded derivatives              4,499   4,499 
   
Total $3,810  $(35,983) $  $  $4,499  $(27,674)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $196,451  $(4,956) $(7,366) $  $184,129 
   
Total $  $196,451  $(4,956) $(7,366) $  $184,129 
   
                         
  Changes in Unrealized Gains and Losses
  Changes in unrealized gains/losses relating to assets and liabilities still held at the reporting date for
  the six months ended June 30, 2008
                  Policy  
  Investment             acquisition costs  
  income, net of Investment Claims &     and other  
  related related gains other policy Interest insurance  
  expenses (losses), net benefits credited expenses Total
   
Assets:                        
Fixed maturity securities — available-for-sale $156  $(2,095) $  $  $  $(1,939)
Funds withheld at interest — embedded derivatives     (159,980)           (159,980)
                         
Other invested assets — equity securities  2               2 
Reinsurance ceded receivable — embedded derivatives              7,496   7,496 
   
Total $158  $(162,075) $  $  $7,496  $(154,421)
   
                         
Liabilities:                        
Interest sensitive contract liabilities — embedded derivatives $  $942  $2,489  $(73,090) $  $(69,659)
   
Total $  $942  $2,489  $(73,090) $  $(69,959)
   

30


7. Segment Information
The accounting policies of the segments are the same as those described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the 2008 Annual Report. Effective January 1, 2009, due to immateriality, the discontinued accident and health operations are included in the results of the Corporate and Other segment. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets. Investment income is allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.
The Company allocates capital to its segments based on an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a

18


result of the economic capital allocation process, a portion of investment income and investment related gains and losses are credited to the segments based on the level of allocated equity. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
Information related to total revenues, income (loss) from continuing operations before income taxes, and total assets of the Company for each reportable segment are summarized below(dollars in thousands).
                
 Three months ended Six months ended
 June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
  
Total revenues
 
U.S. $1,109,382 $942,555 $2,011,658 $1,654,349 
Canada 195,743 192,430 365,547 363,383 
Europe & South Africa 188,661 194,205 369,348 391,757 
Asia Pacific 249,633 290,454 512,220 545,869 
Corporate & Other 69,747 22,962 85,233 47,515 
  
Total $1,813,166 $1,642,606 $3,344,006 $3,002,873 
                  
 Income (loss) from continuing                
 Total revenues operations before income taxes Three months ended Six months ended
 Three months ended March 31, Three months ended March 31, June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
 2009 2008 2009 2008  
Income (loss) from continuing operations before income taxes
 
U.S. $902,276 $711,794 $12,849 $15,285  $106,226 $109,166 $119,075 $124,451 
Canada 169,804 170,953 16,186 23,671  25,514 26,778 $41,700 50,449 
Europe & South Africa 180,687 197,552 8,535 6,043  12,363 17,041 20,898 23,084 
Asia Pacific 262,587 255,415 3,573 18,563  25,520 21,256 29,093 39,819 
Corporate and Other 15,486 24,553  (6,937)  (6,874)
Corporate & Other 45,800  (3,277) 38,863  (10,151)
    
Total $1,530,840 $1,360,267 $34,206 $56,688  $215,423 $170,964 $249,629 $227,652 
    
                
Total assets March 31, 2009 December 31, 2008 June 30, 2009 December 31, 2008
    
U.S. $15,030,739 $15,061,753  $15,104,236 $15,061,753 
Canada 2,464,024 2,710,187  2,527,133 2,710,187 
Europe & South Africa 1,086,888 1,134,990  1,263,236 1,134,990 
Asia Pacific 1,642,864 1,413,611  1,778,823 1,413,611 
Corporate and Other 1,409,799 1,338,277  1,975,921 1,338,277 
    
Total $21,634,314 $21,658,818  $22,649,349 $21,658,818 
    
8. Commitments and Contingent Liabilities
The Company has commitments to fund investments in limited partnerships in the amount of $109.9$105.5 million at March 31,June 30, 2009. The Company anticipates that the majority of these amounts will be invested over the next five years; however, contractually these commitments could become due at the request of the counterparties. Investments in limited partnerships are carried at cost and included in other invested assets in the condensed consolidated balance sheets.

31


The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. However, if such material litigation did arise, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s consolidated financial position and/or net income in a particular reporting period.
The Company has obtained letters of credit, issued by banks, in favor of various affiliated and unaffiliated insurance companies from which the Company assumes business. These letters of credit represent guarantees of performance under the reinsurance agreements and allow ceding companies to take statutory reserve credits. At March 31,June 30, 2009 and December 31, 2008, there were approximately $26.5$27.1 million and $26.6 million, respectively, of outstanding bank letters of credit in favor of third parties. Additionally, the Company utilizes letters of credit to secure reserve credits when it retrocedes business to its offshore subsidiaries, including RGA Americas Reinsurance Company, Ltd., RGA Reinsurance Company (Barbados) Ltd. and RGA Atlantic Reinsurance Company, Ltd. The Company cedes business to its offshore affiliates to help reduce the amount of regulatory capital required in certain jurisdictions, such as the U.S. and the United Kingdom. The capital required to support the business in the offshore affiliates reflects more realistic expectations than the original jurisdiction of the business, where capital requirements are often considered to be quite conservative. As of March 31,June 30, 2009 and December 31, 2008, $388.3$499.2 million and $428.8 million, respectively, in letters of credit from various banks were outstanding between the various subsidiaries of the Company. The Company maintains a syndicated revolving credit facility with an overall capacity of $750.0 million, which is scheduled to mature in MarchSeptember 2012. The Company may borrow cash and may obtain letters of credit in multiple currencies under this facility. As of March 31,June 30, 2009, the Company had $349.7$454.7 million in issued, but undrawn, letters of credit under this facility, which is included in the total above. Applicable

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letter of credit fees and fees payable for the credit facility depend upon the Company’s senior unsecured long-term debt rating. Fees associated with the Company’s other letters of credit are not fixed for periods in excess of one year and are based on the Company’s ratings and the general availability of these instruments in the marketplace.
RGA has issued guarantees to third parties on behalf of its subsidiaries’ performance for the payment of amounts due under certain credit facilities, reinsurance treaties and office lease obligations, whereby if a subsidiary fails to meet an obligation, RGA or one of its other subsidiaries will make a payment to fulfill the obligation. In limited circumstances, treaty guarantees are granted to ceding companies in order to provide them additional security, particularly in cases where RGA’s subsidiary is relatively new, unrated, or not of a significant size. Liabilities supported by the treaty guarantees, before consideration for any legally offsetting amounts due from the guaranteed party, totaled $280.8$325.9 million and $273.6 million as of March 31,June 30, 2009 and December 31, 2008, respectively, and are reflected on the Company’s condensed consolidated balance sheets in future policy benefits. Potential guaranteed amounts of future payments will vary depending on production levels and underwriting results. Guarantees related to trust preferred securities and credit facilities provide additional security to third parties should a subsidiary fail to make principal and/or interest payments when due. As of March 31,June 30, 2009, RGA’s exposure related to these guarantees was $159.1 million.
In addition, the Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.
9. Income Tax
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the six months ended June 30, 2009 is as follows (dollars in thousands):
         
      Unrecognized Tax Benefits That, If
  Total Unrecognized Tax Recognized, Would Affect The
  Benefits Effective Tax Rate
   
Balance at January 1, 2009 $206,665  $28,106 
Additions for tax positions of prior years  16,842    
Reductions for tax positions of prior years  (11,572)  (11,571)
Additions for tax positions of current year  1,969   1,968 
Reductions for tax positions of current year      
Settlements with tax authorities      
   
Balance at June 30, 2009 $213,904  $18,503 
   

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During the three months ended June 30, 2009, the Company recognized a tax benefit of approximately $12.0 million, including after-tax interest, related to the release of an uncertain tax position under FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”. Following the evaluation of new information that was not available in a previous financial reporting period, the Company now believes this position to be a highly certain tax position for which no uncertainty currently exists.
10. Employee Benefit Plans
The components of net periodic benefit costs were as follows(dollars in thousands):
                 
  Three months ended March 31,
  Pension Benefits Other Benefits
  2009 2008 2009 2008
Determination of net periodic benefit cost:
                
Service cost $912  $819  $158  $158 
Interest cost  745   586   159   145 
Expected rate of return on plan assets  (547)  (469)      
Amortization of prior service cost  7   7       
Amortization of prior actuarial loss  125   72   23   35 
   
Net periodic benefit cost $1,242  $1,015  $340  $338 
   
                     
  Three months ended Six months ended    
  June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008    
   
Net periodic pension benefit cost:
                    
Service cost $912  $661  $1,824  $1,480     
Interest cost  745   585   1,490   1,171     
Expected return on plan assets  (547)  (469)  (1,095)  (938)    
Amortization of prior service cost  8   147   15   154     
Amortization of prior actuarial (gain) loss  124   92   249   164     
   
Net periodic pension benefit cost $1,242  $1,016  $2,483  $2,031     
   
                     
Net periodic other benefits cost:
                    
Service cost $158  $157  $316  $315     
Interest cost  160   145   319   290     
Expected return on plan assets                
Amortization of prior service cost  46              
Amortization of prior actuarial (gain) loss  658   36   46   71     
   
Net periodic other benefits cost $1,022  $338  $681  $676     
   
The Company made pension contributions of $4.0 million during the first quarter of 2009 and expects this to make total contributions of $4.6 million in 2009.be the only contribution for the year.
10.11. Equity Based Compensation
Equity compensation expense was $3.5$2.9 million and $5.4$2.4 million in the second quarter of 2009 and 2008, respectively, and $6.5 million and $7.8 million in the first quartersix months of 2009 and 2008, respectively. In the first quarter of 2009, the Company granted 0.7 million stock options at $32.20 weighted average per share and 0.3 million performance contingent units to employees. Additionally, non-employee directors were granted a total of 7,600 shares of common stock. As of March 31,June 30, 2009, 1.91.8 million share options at $34.82$34.87 weighted average per share were vested and exercisable with a remaining weighted average exercise period of 3.83.9 years. As of March 31,June 30, 2009, the total compensation cost of non-vested awards not yet recognized in the financial statements was $24.9$23.2 million. It is estimated that these costs will vest over a weighted average period of 2.01.9 years.
11.12. Repurchase of Long-term Debt
During the second quarter of 2009, the Company repurchased $80.2 million face amount of its 6.75% junior subordinated debentures for $39.2 million. The debt was purchased by RGA Reinsurance Company, a subsidiary of RGA. As a result, the Company recorded a pre-tax gain of $38.9 million, after fees and unamortized discount, in other revenues in the second quarter of 2009.
13. New Accounting Standards
In AprilJune 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“SFAS 168”). On the effective date of this standard, FASB Accounting Standards Codification™ (“Codification”) will become the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company will adopt SFAS 168 on September 30, 2009 and will update all disclosures to reference Codification in its September 30, 2009 quarterly report.
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 amends Interpretation 46(R), “Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51”, as it relates to the assessment of a variable interest entity. It also requires additional

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disclosures to provide transparent information regarding the involvement in a variable interest entity. SFAS 167 is effective for fiscal years and interim periods beginning after November 15, 2009. The Company is currently evaluating the impact of SFAS 167 on its condensed consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 amends the application of SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125 “, as it relates to the transfers of financial assets. It also requires additional disclosures to address concerns regarding the transparency of transfers of financial assets. SFAS 166 is effective for fiscal years and interim periods beginning after November 15, 2009. The Company is currently evaluating the impact of SFAS 166 on its condensed consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 provides guidance on the Company’s assessment of subsequent events. It also requires the disclosure of the date through which subsequent events have been evaluated. SFAS 165 is effective for annual and interim periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the Company’s condensed consolidated financial statements. See Note 1 — “Organization and Basis of Presentation” for additional information.
In April 2009, the FASB issued Staff Position (“FSP”) FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 expands existing disclosures regarding fair value of financial instruments required in annual reports to interim periods. The disclosures required by FSP FAS 107-1 and APB 28-1 are effective for interim reporting periods ending after June 15, 2009. The Company is currently evaluating the impactadoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on itsthe Company’s condensed consolidated financial statements. The disclosures required by this FSP are provided in Note 6 — “Fair Value Disclosures”.

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In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly”, (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased.decreased in relation to normal market activity for the asset or liability and clarifies that the use of multiple valuation techniques may be appropriate. FSP FAS 157-4 also provides additional guidance on circumstances that may indicate a transaction is not orderly. Further, this FSP requires additional disclosures about fair value measurements in annual and interim reporting periods. FSP FAS 157-4 is effective prospectively for interim and annual reporting periods ending after June 15, 2009. The Company is currently evaluating the impactadoption of FSP FAS 157-4 did not have a material impact on itsthe Company’s condensed consolidated financial statements. The disclosures required by this FSP are provided in Note 6 — “Fair Value Disclosures”.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amends other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments (“OTTI”) on debt and equity securities in the financial statements. The recognition provisions within this FSP apply only to debt securities classified as available-for-sale and held-to-maturity, while the presentation and disclosure requirements apply to both debt and equity securities. An impaired debt security will be considered other-than-temporarily impaired if the Company has the intent to sell, or it more likely than not will be required to sell prior to recovery of the amortized cost. If the holder of a debt security does not expect recovery of the entire cost basis, even if there is no intention to sell the security, an OTTI has occurred. FSP FAS 115-2 and FAS 124-2 also changes how an entity recognizes an OTTI for a debt security by separating the loss between the amount representing the credit loss and the amount relating to other factors, if the Company does not have the intent to sell or it more likely than not will not be required to sell prior to recovery of the amortized cost less any current period credit loss. Credit losses will be recognized in net income and losses relating to other factors will be recognized in accumulated other comprehensive income (“AOCI”). If the Company has the intent to sell or it more likely than not will be required to sell before its recovery of amortized cost less any current period credit loss, the entire OTTI will continue to be recognized in net income. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The Company is currently evaluating the impactadoption of FSP FAS 115-2 and FAS 124-2 on its condensed consolidated financial statements.resulted in a net after-tax increase to retained earnings and a decrease to accumulated other comprehensive income of $4.4 million, as of April 1, 2009. The disclosures required by this FSP are provided in Note 4 — “Investments”.

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In January 2009, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“EITF 99-20-1”). EITF 99-20-1 provides guidance on determining other-than-temporary impairments on securities subject to EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”. The primary effect of EITF 99-20-1 was to remove the requirement that a holder attempt to determine the underlying cash flows on an asset-backed security based on the assumptions that a market participant would make in determining the current fair value of the instrument. Instead, the focus has been placed on determining the estimated cash flows as determined by the holder for all sources including its own comprehensive credit analysis. The provisions of EITF 99-20-1 were required to be applied prospectively for interim periods and fiscal years ending after December 15, 2008. The Company’s adoption of EITF 99-20-1 did not have a significant impact on how the Company values its structured investment securities.
In December 2008, the FASB issued FSP No. FAS 132(r)-1, “Employers Disclosures about Postretirement Benefit Plan Assets” (“FSP 132(r)-1”). FSP 132(r)-1 provides guidance for disclosure of the types of assets and associated risks in retirement plans. The new disclosures are designed to provide additional insight into the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period, significant concentrations of risk within plan assets and how investment decisions are made, including factors necessary to understanding investment policies and strategies. The disclosures about plan assets required by FSP 132(r)-1 is effective for financial statements with fiscal years ending after December 15, 2009. The Company is currently evaluating the impact of FSP 132(r)-1 on its condensed consolidated financial statements.
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective upon issuance on October 10, 2008, including prior periods for which financial statements had not been issued. The Company did not consider it necessary to change any valuation techniques as a result of FSP 157-3. The Company also adopted FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”) which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities that are recorded at fair value on a nonrecurring basis. The effective date was delayed until January 1, 2009 and impacts balance sheet items including nonfinancial assets and liabilities in a business combination and the impairment testing of goodwill and long-lived assets. The adoption of FSP 157-2 did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161 in the first quarter of 2009.

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In February 2008, the FASB issued FSP No. FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP 140-3”). FSP 140-3 provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. FSP 140-3 is effective prospectively for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of FSP 140-3 did not have a material impact on the Company’s condensed consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations — A Replacement of FASB Statement No. 141” (“SFAS 141(r)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). SFAS 141(r) establishes principles and requirements for how an acquirer recognizes and measures certain items in a business combination, as well as disclosures about the nature and financial effects of a business combination. SFAS 160 establishes accounting and reporting standards surrounding noncontrolling interest, or minority interests, which are the portions of equity in a subsidiary not attributable, directly or indirectly, to a parent. The pronouncements are effective for fiscal years beginning on or after December 15, 2008 and apply prospectively to business combinations. Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied. The adoption of SFAS 141(r) and SFAS 160 did not have a material impact on the Company’s condensed consolidated financial statements.
12. Subsequent Event
On April 29, 2009, the Company repurchased $80.2 million face amount of its 6.75% junior subordinated debentures for $39.2 million. The Company will record a pretax gain of $40.2 million, after fees, for the period ended June 30, 2009.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking and Cautionary Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, among others, statements relating to projections of the strategies, earnings, revenues, income or loss, ratios, future financial performance, and growth potential of the Company. The words “intend,” “expect,” “project,” “estimate,” “predict,” “anticipate,” “should,” “believe,” and other similar expressions also are intended to identify forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance, and achievements could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements.
Numerous important factors could cause actual results and events to differ materially from those expressed or implied by forward-looking statements including, without limitation, (1) adverse capital and credit market conditions and their impact on the Company’s liquidity, access to capital and cost of capital, (2) the impairment of other financial institutions and its effect on the Company’s business, (3) requirements to post collateral or make payments due to declines in market value of assets subject to the Company’s collateral arrangements, (4) the fact that the determination of allowances and impairments taken on the Company’s investments is highly subjective, (5) adverse changes in mortality, morbidity, lapsation or claims experience, (6) changes in the Company’s financial strength and credit ratings and the effect of such changes on the Company’s future results of operations and financial condition, (7) inadequate risk analysis and underwriting, (8) general economic conditions or a prolonged economic downturn affecting the demand for insurance and reinsurance in the Company’s current and planned markets, (9) the availability and cost of collateral necessary for regulatory reserves and capital, (10) market or economic conditions that adversely affect the value of the Company’s investment securities or result in the impairment of all or a portion of the value of certain of the Company’s investment securities, that in turn could affect regulatory capital, (11) market or economic conditions that adversely affect the Company’s ability to make timely sales of investment securities, (12) risks inherent in the Company’s risk management and investment strategy, including changes in investment portfolio yields due to interest rate or credit quality changes, (13) fluctuations in U.S. or foreign currency exchange rates, interest rates, or securities and real estate markets, (14) adverse litigation or arbitration results, (15) the adequacy of reserves, resources and accurate information relating to settlements, awards and terminated and discontinued lines of business, (16) the stability of and actions by governments and economies in the markets in which the Company operates, (17) competitive factors and competitors’ responses to the Company’s initiatives, (18) the success of the Company’s clients, (19) successful execution of the Company’s entry into new markets, (20) successful development and introduction of new products and distribution opportunities, (21) the Company’s ability to successfully integrate and operate reinsurance business that the Company acquires, (22) regulatory action that may be taken by state Departments of Insurance with respect to the Company, (23) the Company’s dependence on third parties, including those insurance companies and reinsurers to which the Company cedes some reinsurance, third-party investment managers and others, (24) the threat of natural disasters, catastrophes, terrorist attacks, epidemics or pandemics anywhere in the world where the Company or its clients do business, (25) changes in laws, regulations, and accounting standards applicable to the Company, its subsidiaries, or its business, (26) the effect of the Company’s status as an insurance holding company and regulatory restrictions on its ability to pay principal of and interest on its debt obligations, and (27) other risks and uncertainties described in this document and in the Company’s other filings with the Securities and Exchange Commission (“SEC”).
Forward-looking statements should be evaluated together with the many risks and uncertainties that affect the Company’s business, including those mentioned in this document and the cautionary statements described in the periodic reports the Company files with the SEC. These forward-looking statements speak only as of the date on which they are made. The Company does not undertake any obligations to update these forward-looking statements, even though the Company’s situation may change in the future. The Company qualifies all of its forward-looking statements by these cautionary statements. For a discussion of these risks and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements, you are advised to see Item 1A — “Risk Factors” in the 2008 Annual Report.

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Overview
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. RGA and its subsidiaries (collectively, the “Company”) are primarily engaged in the life reinsurance business, which involves reinsuring life insurance policies that are often in force for the remaining lifetime of the underlying individuals insured, with premiums earned typically over a period of 10 to 30 years. Each year, however, a portion of the business under existing treaties terminates due to, among other things, lapses or surrenders of underlying policies, deaths of policyholders, and the exercise of recapture options by ceding companies.
The Company derives revenues primarily from renewal premiums from existing reinsurance treaties, new business premiums from existing or new reinsurance treaties, income earned on invested assets, and fees earned from financial reinsurance transactions. The Company believes that industry trends have not changed materially from those discussed in its 2008 Annual Report.
The Company’s profitability primarily depends on the volume and amount of death claims incurred and its ability to adequately price the risks it assumes. While death claims are reasonably predictable over a period of years, claims become less predictable over shorter periods and are subject to significant fluctuation from quarter to quarter and year to year. The maximum amount of coverage the Company retains per life is $8.0 million. Claims in excess of this retention amount are retroceded to retrocessionaires; however, the Company remains fully liable to the ceding company for the entire amount of risk it assumes. The Company believes its sources of liquidity are sufficient to cover potential claims payments on both a short-term and long-term basis.
The Company measures performance based on income or loss from continuing operations before income taxes for each of its five segments. The Company’s U.S., Canada, Europe & South Africa and Asia Pacific operations provide traditional life reinsurance to clients. The Company’s U.S. operations also provide asset-intensive and financial reinsurance products. The Company also provides insurers with critical illness reinsurance in its Canada, Europe & South Africa and Asia Pacific operations. Asia Pacific operations also provide financial reinsurance. The Corporate and Other segment results include the corporate investment activity, general corporate expenses, interest expense of RGA, operations of RGA Technology Partners, Inc., a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry, Argentine privatized pension business in run-off, investment income and expense associated with the Company’s collateral finance facility and the provision for income taxes. Effective January 1, 2009, due to immateriality, the discontinued accident and health operations are included in the results of the Corporate and Other segment. Prior to 2009, the results of the Company’s discontinued accident and health operations were reflected as discontinued operations.
The Company allocates capital to its segments based on an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in RGA’s businesses. As a result of the economic capital allocation process, a portion of investment income and investment related gains and losses are credited to the segments based on the level of allocated equity. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
Results of Operations
Consolidated income from continuing operations before income taxes decreased $22.5increased $44.5 million, or 39.7%26.0%, inand $22.0 million, or 9.7%, for the first quarter ofthree and six months ended June 30, 2009, as compared to the same periodperiods in 2008. The decreaseThese increases were due to the recognition of a gain on the repurchase of long-term debt of $38.9 million, recognized in other revenues, increased net premiums in the first quarter reflectsU.S. and Canada segments and increased investment income. Offsetting the increases were an increase in investment related losses due to the recognition of investment impairments adverse mortality experience and unfavorable foreign currency fluctuations. Offsetting these negative income items were increases in investment income, U.S. segment net premiums and a slight decrease in the unrealized loss due to unfavorable changes in the value of embedded derivatives within the U.S. segment. Foreign currency exchange fluctuations resulted in a decrease to income from continuing operations before income taxes of approximately $13.6$12.7 million and $26.3 million for the second quarter and first quartersix months of 2009, compared to 2008.respectively.
The Company recognizes unrealized gains and losses due to changes in the value of embedded derivatives on modified coinsurance or funds withheld treaties, equity-indexed annuity treaties (“EIAs”) and variable annuity products. The change in the value of embedded derivatives related to reinsurance treaties written on a modified coinsurance or funds withheld basis are

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funds withheld basis are subject to the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 133 Implementation Issue No. B36, “Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments” (“Issue B36”). The unrealized gains and losses associated with Issue B36, after adjustment for deferred acquisition costs, had a favorable effect on income before income taxes of $31.9$19.0 million inand $50.9 million for the second quarter and first quartersix months of 2009, respectively, as compared to the first quarter ofsame periods in 2008. Changes in risk free rates used in the present value calculations of embedded derivatives associated with EIAs affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with EIAs, after adjustment for deferred acquisition costs and retrocession, had a favorable effect on income before income taxes of $16.5$1.3 million and $17.8 million in the second quarter and first quartersix months of 2009, respectively, as compared to the first quarter ofsame periods in 2008. The change in the Company’s liability for variable annuities associated with guaranteed minimum living benefits affect the amount of unrealized gains and losses the Company recognizes. The unrealized gains and losses associated with guaranteed minimum living benefits, after adjustment for deferred acquisition costs, had an unfavorable effect on income before income taxes of $42.8$23.3 million and $66.1 million in the second quarter and first quartersix months of 2009, respectively, as compared to the first quarter ofsame periods in 2008.
The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs and retrocession, resulted in a decrease of approximately $3.0 million and an increase of approximately $2.6 million in consolidated income from continuing operations before income taxes of approximately $5.6 million in the second quarter and first quartersix months of 2009, respectively, as compared to the first quarter ofsame periods in 2008. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, Company management believes it is helpful to distinguish between the effects of changes in these embedded derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited.
Consolidated net premiums increased $48.0$16.6 million, or 3.7%1.2%, and $64.6 million, or 2.4%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008, due to growth in life reinsurance in force in the U.S. segment. Foreign currency fluctuations unfavorably affected net premiums by approximately $144.7$103.2 million and $247.9 million for the first quarter ofthree and six months ended June 30, 2009, as compared to the same periods in 2008. Consolidated assumed insurance in force decreased slightly to $2.1 trillion$2,219.3 billion as of March 31,June 30, 2009 from $2.2 trillion$2,239.5 billion as of March 31,June 30, 2008 due to the effects of unfavorable currency fluctuations. The Company added new business production, measured by face amount of insurance in force, of $85.2$61.4 billion and $76.4$71.6 billion during the second quarter of 2009 and 2008, respectively, and $146.6 billion and $148.0 billion during the first quartersix months of 2009 and 2008, respectively. Management believes industry consolidation, reduced capital levels in the life insurance industry and the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced.
Consolidated investment income, net of related expenses, increased $23.7$29.8 million, or 11.9%11.7%, and $53.4 million, or 11.8%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008, primarily due to market value changes related to the Company’s funds withheld at interest investment related to the reinsurance of certain equity-indexed annuity products, which are substantially offset by a corresponding change in interest credited to policyholder account balances resulting in a negligible effect on net income. The second quarter and first quarter increasesix months increases in investment income also reflectsreflect a larger average invested asset base offset by a lower effective investment portfolio yield. Average invested assets at amortized cost for the first quarter ofat June 30, 2009 totaled $12.8$12.7 billion, a 10.7%10.5% increase over March 31,June 30, 2008. The average yield earned on investments, excluding funds withheld, was 5.57% indecreased to 5.79%, for the firstsecond quarter of 2009 andfrom 6.07% for the second quarter of 2008. The average yield earned on investments, excluding funds withheld, decreased to 5.70% for the first six months of 2009 from 6.06% for the first quartersix months of 2008. The average yield will vary from quarter to quarter and year to year depending on a number of variables, including the prevailing interest rate and credit spread environment, changes in the mix of the underlying investments and cash balances, and the timing of dividends and distributions on certain investments.
InvestmentTotal investment related losses,gains (losses), net decreased $83.0increased $85.3 million or 53.5%,and $168.3 million, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decrease inincrease for the firstsecond quarter is primarily due to a reduced net loss onfavorable changes in the embedded derivatives related to Issue B36 and guaranteed minimum living benefits of $149.6$231.7 million offset by an increase in investment impairments, net of $35.1non-credit adjustments, of $20.3 million and net hedging losses related to the liabilities associated with guaranteed minimum living benefits of $18.8$137.0 million. The increase for the first six months is due to favorable changes in the embedded derivatives related to Issue B36

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and guaranteed minimum living benefits of $381.3 million offset by an increase in investment impairments, net of non-credit related adjustments, of $49.5 million and net hedging losses related to the liabilities associated with guaranteed minimum living benefits of $154.8 million. See the discussion ofNote 4 — “Investments” and Note 5 — “Derivatives” in the “Liquidity and Capital Resources” section of Management’s Discussion and AnalysisNotes to Condensed Consolidated Financial Statements for additional information on the impairment losses.losses and derivatives. Investment income and investment related gains and losses are allocated to the operating segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes.
The effective tax rate on a consolidated basis was 31.9%28.9% and 35.5%35.2% for the firstsecond quarter of 2009 and 2008, respectively, and 29.3% and 35.3% for the first six months of 2009 and 2008, respectively. TheseThe 2009 effective tax rates were affected by the ongoing applicationrecognition of a previously uncertain tax position under FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109” and by the

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earnings of non-U.S. subsidiaries in which the Company is permanently reinvested whose statutory tax rates are less than the U.S. statutory tax rate.
Critical Accounting Policies
The Company’s accounting policies are described in the Summary of Significant Accounting Policies in Note 2 of the consolidated financial statements accompanying the 2008 Annual Report. The Company believes its most critical accounting policies include the capitalization and amortization of deferred acquisition costs (“DAC”); the establishment of liabilities for future policy benefits, other policy claims and benefits, including incurred but not reported claims; the valuation of fixed maturity investments, embedded derivatives and investment impairments, if any; accounting for income taxes; and the establishment of arbitration or litigation reserves. The balances of these accounts require extensive use of assumptions and estimates, particularly related to the future performance of the underlying business.
Additionally, for each of the Company’s reinsurance contracts, it must determine if the contract provides indemnification against loss or liability relating to insurance risk, in accordance with applicable accounting standards. The Company must review all contractual features, particularly those that may limit the amount of insurance risk to which the Company is subject or features that delay the timely reimbursement of claims. If the Company determines that the possibility of a significant loss from insurance risk will occur only under remote circumstances, it records the contract under a deposit method of accounting with the net amount receivable or payable reflected in premiums receivable and other reinsurance balances or other reinsurance liabilities on the condensed consolidated balance sheets. Fees earned on the contracts are reflected as other revenues, as opposed to net premiums, on the condensed consolidated statements of income.
Differences in experience compared with the assumptions and estimates utilized in the justification of the recoverability of DAC, in establishing reserves for future policy benefits and claim liabilities, or in the determination of other-than-temporary impairments to investment securities can have a material effect on the Company’s results of operations and financial condition.
Deferred Acquisition Costs (“DAC”)
Costs of acquiring new business, which vary with and are primarily related to the production of new business, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. DAC amounts reflect the Company’s expectations about the future experience of the business in force and include commissions and allowances as well as certain costs of policy issuance and underwriting. Some of the factors that can affect the carrying value of DAC include mortality assumptions, interest spreads and policy lapse rates. For traditional life and related coverages, the Company performs periodic tests to determine that DAC remains recoverable, and the cumulative amortization is re-estimated and, if necessary, adjusted by a cumulative charge or credit to current operations. For its asset-intensive business, the Company updates the estimated gross profits with actual gross profits each reporting period, resulting in an increase or decrease to DAC to reflect the difference in the actual gross profits versus the previously estimated gross profits.

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Liabilities for Future Policy Benefits and Other Policy Liabilities
Liabilities for future policy benefits under long-term life insurance policies (policy reserves) are computed based upon expected investment yields, mortality and withdrawal (lapse) rates, and other assumptions, including a provision for adverse deviation from expected claim levels. The Company primarily relies on its own valuation and administration systems to establish policy reserves. The policy reserves the Company establishes may differ from those established by the ceding companies due to the use of different mortality and other assumptions. However, the Company relies upon its ceding company clients to provide accurate data, including policy-level information, premiums and claims, which is the primary information used to establish reserves. The Company’s administration departments work directly with its clients to help ensure information is submitted by them in accordance with the reinsurance contracts. Additionally, the Company performs periodic audits of the information provided by ceding companies. The Company establishes reserves for processing backlogs with a goal of clearing all backlogs within a ninety-day period. The backlogs are usually due to data errors the Company discovers or computer file compatibility issues, since much of the data reported to the Company is in electronic format and is uploaded to its computer systems.

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The Company periodically reviews actual historical experience and relative anticipated experience compared to the assumptions used to establish aggregate policy reserves. Further, the Company establishes premium deficiency reserves if actual and anticipated experience indicates that existing aggregate policy reserves, together with the present value of future gross premiums, are not sufficient to cover the present value of future benefits, settlement and maintenance costs and to recover unamortized acquisition costs. The premium deficiency reserve is established through a charge to income, as well as a reduction to unamortized acquisition costs and, to the extent there are no unamortized acquisition costs, an increase to future policy benefits. Because of the many assumptions and estimates used in establishing reserves and the long-term nature of the Company’s reinsurance contracts, the reserving process, while based on actuarial science, is inherently uncertain. If the Company’s assumptions, particularly on mortality, are inaccurate, its reserves may be inadequate to pay claims and there could be a material adverse effect on its results of operations and financial condition.
Other policy claims and benefits include claims payable for incurred but not reported losses, which are determined using case-basis estimates and lag studies of past experience. These estimates are periodically reviewed and any adjustments to such estimates, if necessary, are reflected in current operations. The time lag from the date of the claim or death to the date when the ceding company reports the claim to the Company can be several months and can vary significantly by ceding company and business segment. The Company updates its analysis of incurred but not reported claims, including lag studies, on a periodic basis and adjusts its claim liabilities accordingly. The adjustments in a given period are generally not significant relative to the overall policy liabilities.
Valuation of Fixed Maturity Securities
The Company primarily invests in fixed maturity securities, including bonds and redeemable preferred stocks. These securities are classified as available-for-sale and accordingly are carried at fair value on the condensed consolidated balance sheets. The difference between amortized cost and fair value is reflected as an unrealized gain or loss, less applicable deferred taxes as well as related adjustments to deferred acquisition costs, if applicable, in accumulated other comprehensive income (“AOCI”) in stockholders’ equity. The determinations of fair value may require extensive use of assumptions and inputs. In addition, other-than-temporary impairment losses related to non-credit factors are recognized in AOCI.
The Company performs regular analysis and review of the various methodologies,techniques, assumptions and inputs utilized in determining fair value to ensure that the valuation approaches utilized are appropriate and consistently applied, and that the various assumptions are reasonable. The Company also utilizes information from third parties, such as pricing services and brokers, to assist in determining fair values for certain assets and liabilities; however, management is ultimately responsible for all fair values presented in the Company’s financial statements. The Company performs analysis and review of the information and prices received from third parties to ensure that the prices represent a reasonable estimate of the fair value. This process involves quantitative and qualitative analysis and is overseen by the Company’s investment and accounting personnel. Examples of procedures performed include, but are not limited to, initial and ongoing review of third party pricing services and methodologies,techniques, review of pricing trends and monitoring of recent trade information. In addition, the Company utilizes both internal and

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external cash flow models to analyze the reasonableness of fair values utilizing credit spread and other market assumptions, where appropriate. As a result of the analysis, if the Company determines there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly.
When available, fair values are based on quoted prices in active markets that are regularly and readily obtainable. Generally, these are very liquid investments and the valuation does not require management judgment. When quoted prices in active markets are not available, fair value is based on market standard valuation techniques, primarily a combination of a market approach, including matrix pricing and an income approach. The assumptions and inputs used by management in applying these methodologiestechniques include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity, estimated duration and assumptions regarding liquidity and future cash flows.
The significant inputs to the market standard valuation methodologiestechniques for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active, liquid markets, quoted prices in markets that are not active and observable yields and spreads in the market.

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When observable inputs are not available, the market standard valuation methodologiestechniques for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management judgment or estimation, and cannot be supported by reference to market activity. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are consistent with what other market participants would use when pricing such securities.
The use of different methodologies,techniques, assumptions and inputs may have a material effect on the estimated fair values of the Company’s securities holdings.
Additionally, the Company evaluates its intent to sell fixed maturity securities and abilitywhether it is more likely than not that it will be required to holdsell fixed maturity securities, along with factors such as the financial condition of the issuer, payment performance, the extent to which the market value has been below amortized cost, compliance with covenants, general market and industry sector conditions, and various other factors. Securities, based on management’s judgments, with an other-than-temporary impairment in value are written down to management’s estimate of fair value.
Valuation of Embedded Derivatives
The Company reinsures certain annuity products that contain terms that are deemed to be embedded derivatives, primarily equity-indexed annuities and variable annuities with guaranteed minimum benefits. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). If the instrument would not be accounted for in its entirety at fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted forreported separately. Such embedded derivatives are carried on the condensed consolidated balance sheets at fair value with the host contract.
The valuation of the various embedded derivatives requires complex calculations based on actuarial and capital market inputs assumptions related to estimates of future cash flows. Such assumptions include, but are not limited to, assumptions regarding equity market performance, equity market volatility, interest rates, credit spreads, benefits and related contract charges, mortality, lapses, withdrawals, benefit selections and non-performance risk. These assumptions have a significant impact on the value of the embedded derivatives. For example, independent future decreases in equity market returns, future decreases in interest rates and future increases in equity market volatilities would increase the value of the embedded derivative associated with guaranteed minimum withdrawal benefits on variable annuities, resulting in an increase in investment related losses. See “Market Risk” disclosures in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information.

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Additionally, reinsurance treaties written on a modified coinsurance or funds withheld basis are subject to the provisions of SFAS 133 Implementation Issue No. B36, “Embedded Derivatives: Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit Risk Exposures That Are Unrelated or Only Partially Related to the Creditworthiness of the Obligor under Those Instruments” (“Issue B36”). The majority of the Company’s funds withheld at interest balances are associated with its reinsurance of annuity contracts, the majority of which wereare subject to the provisions of Issue B36. Management believes the embedded derivative feature in each of these reinsurance treaties is similar to a total return swap on the assets held by the ceding companies. The valuation of the Issue B36 embedded derivative is sensitive to the credit spread environment. Increases in credit spreads result in a decrease in value of the embedded derivative and therefore an increase in investment related losses. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the U.S. Asset-Intensive Segment for additional information.
Income Taxes
Income taxes represent the net amount of income taxes that the Company expects to pay to or receive from various taxing jurisdictions in connection with its operations. The Company provides for federal, state and foreign income

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taxes currently payable, as well as those deferred due to temporary differences between the financial reporting and tax bases of assets and liabilities. The Company’s accounting for income taxes represents management’s best estimate of various events and transactions.
Deferred tax assets and liabilities resulting from temporary differences between the financial reporting and tax bases of assets and liabilities are measured at the balance sheet date using enacted tax rates expected to apply to taxable income in the years the temporary differences are expected to reverse.
Due to the recent turmoil in the financial markets, the ability of the Company to realize its deferred tax assets has taken on heightened importance. The realization of deferred tax assets depends upon the existence of sufficient taxable income within the carryback or carryforward periods under the tax law in the applicable tax jurisdiction. The Company has significant deferred tax assets related to net operating and capital losses. Most of the Company’s exposure related to its deferred tax assets are within legal entities that file a consolidated United States federal income tax return. The Company has projected its ability to utilize its net operating losses and has determined that all of these losses will be utilized prior to their expiration. The Company has also done extensive analysis of its capital losses and has determined that sufficient unrealized capital gains exist within its investment portfolios that would offset any capital loss realized. It is also the Company’s intention to hold all unrealized loss securities until maturity or until their market value recovers.
The Company will establish a valuation allowance when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determination, consideration is given to, among other things, the following:
(i)future taxable income exclusive of reversing temporary differences and carryforwards;
(ii)future reversals of existing taxable temporary differences;
(iii)taxable income in prior carryback years; and
(iv)(i) future taxable income exclusive of reversing temporary differences and carryforwards;
(ii) future reversals of existing taxable temporary differences;
(iii) taxable income in prior carryback years; and
(iv) tax planning strategies.
The Company may be required to change its provision for income taxes in certain circumstances. Examples of such circumstances include when the ultimate deductibility of certain items is challenged by taxing authorities, when it becomes clear that certain items will not be challenged, or when estimates used in determining valuation allowances on deferred tax assets significantly change or when receipt of new information indicates the need for adjustment in valuation allowances. Additionally, future events such as changes in tax legislation could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the condensed consolidated financial statements in the period these changes occur.
Arbitration and Litigation Reserves
The Company at times is a party to various litigation and arbitrations. The Company cannot predict or determine the ultimate outcome of any pending litigation or arbitrations or even provide useful ranges of potential losses. However, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s consolidated financial position and/or net income in a particular reporting period.

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Further discussion and analysis of the results for 2009 compared to 2008 are presented by segment.
U.S. OPERATIONS
U.S. operations consist of two major sub-segments: Traditional and Non-Traditional. The Traditional sub-segment primarily specializes in mortality-risk reinsurance. The Non-Traditional sub-segment consists of Asset-Intensive and Financial Reinsurance.
For the three months ended June 30, 2009
                 
      Non-Traditional Total
      Asset- Financial U.S.
(dollars in thousands) Traditional Intensive Reinsurance Operations
   
Revenues:
                
Net premiums $807,181  $1,639  $  $808,820 
Investment income (loss), net of related expenses  104,616   105,167   (99)  209,684 
Investment related gains (losses), net:                
Other-than-temporary impairments on fixed maturity securities  (29,384)  (1,935)  (69)  (31,388)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income  13,344   1,044   31   14,419 
Other investment related gains (losses), net  (894)  86,665   76   85,847 
   
Total investment related gains (losses), net  (16,934)  85,774   38   68,878 
Other revenues  920   16,962   4,118   22,000 
   
Total revenues  895,783   209,542   4,057   1,109,382 
   
                 
Benefits and expenses:
                
Claims and other policy benefits  668,870   (341)     668,529 
Interest credited  15,701   57,169      72,870 
Policy acquisition costs and other insurance expenses  115,325   130,504   262   246,091 
Other operating expenses  12,600   2,265   801   15,666 
   
Total benefits and expenses  812,496   189,597   1,063   1,003,156 
   
                 
Income before income taxes $83,287  $19,945  $2,994  $106,226 
   
For the three months ended June 30, 2008
                 
      Non-Traditional Total
      Asset- Financial U.S.
(dollars in thousands) Traditional Intensive Reinsurance Operations
   
Revenues:
                
Net premiums $752,831  $1,592  $  $754,423 
Investment income, net of related expenses  97,462   80,920   356   178,738 
Investment related gains (losses), net:                
Other-than-temporary impairments on fixed maturity securities  (93)  (443)     (536)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income            
Other investment related gains (losses), net  (544)  (8,601)  (2)  (9,147)
   
Total investment related gains (losses), net  (637)  (9,044)  (2)  (9,683)
Other revenues  552   14,211   4,314   19,077 
   
Total revenues  850,208   87,679   4,668   942,555 
   
                 
Benefits and expenses:
                
Claims and other policy benefits  624,310   865      625,175 
Interest credited  14,924   47,995      62,919 
                 
Policy acquisition costs and other insurance expenses  103,231   27,086   250   130,567 
Other operating expenses  12,121   1,840   767   14,728 
   
Total benefits and expenses  754,586   77,786   1,017   833,389 
   
                 
Income before income taxes $95,622  $9,893  $3,651  $109,166 
   

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For the threesix months ended March 31,June 30, 2009
(dollars in thousands)
                                
   Non-Traditional Total Non-Traditional Total
 Asset- Financial U.S. Asset- Financial U.S.
 Traditional Intensive Reinsurance Operations Traditional Intensive Reinsurance Operations
    
Revenues:
  
Net premiums $786,748 $1,709 $ $788,457  $1,593,929 $3,348 $ $1,597,277 
Investment income (loss), net of related expenses 102,561 55,827  (65) 158,323  207,177 160,994  (164) 368,007 
Investment related gains (losses), net  (38,228)  (28,572) 32  (66,768)
Investment related gains (losses), net:     
Other-than-temporary impairments on fixed maturity securities  (51,949)  (5,787)  (129)  (57,865)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income 13,344 1,044 31 14,419 
Other investment related gains (losses), net  (16,557) 61,945 168 45,556 
  
Total investment related gains (losses), net  (55,162) 57,202 70 2,110 
Other revenues 570 15,123 6,571 22,264  1,490 32,085 10,689 44,264 
    
Total revenues 851,651 44,087 6,538 902,276  1,747,434 253,629 10,595 2,011,658 
  
  
Benefits and expenses:
  
Claims and other policy benefits 695,932 1,274  697,206  1,364,802 933  1,365,735 
Interest credited 15,233 21,628  36,861  30,934 78,797  109,731 
Policy acquisition costs and other insurance expenses 91,533 45,309 338 137,180  206,858 175,813 600 383,271 
Other operating expenses 14,603 2,898 679 18,180  27,203 5,163 1,480 33,846 
    
Total benefits and expenses 817,301 71,109 1,017 889,427  1,629,797 260,706 2,080 1,892,583 
   
 
Income (loss) before income taxes $34,350 $(27,022) $5,521 $12,849  $117,637 $(7,077) $8,515 $119,075 
    
For the threesix months ended March 31,June 30, 2008
(dollars in thousands)
                                
   Non-Traditional Total Non-Traditional Total
   Asset- Financial U.S. Asset- Financial U.S.
 Traditional Intensive Reinsurance Operations Traditional Intensive Reinsurance Operations
    
Revenues:
  
Net premiums $725,393 $1,663 $ $727,056  $1,478,224 $3,255 $ $1,481,479 
Investment income, net of related expenses 97,431 25,031 40 122,502  194,893 105,951 396 301,240 
Investment related losses, net  (2,508)  (149,554)  (1)  (152,063)
Investment related gains (losses), net: 
Other-than-temporary impairments on fixed maturity securities  (838)  (1,772)  (2)  (2,612)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income     
Other investment related gains (losses), net  (2,307)  (156,826)  (1)  (159,134)
  
Total investment related gains (losses), net  (3,145)  (158,598)  (3)  (161,746)
Other revenues 60 11,495 2,744 14,299  612 25,706 7,058 33,376 
    
Total revenues 820,376  (111,365) 2,783 711,794  1,670,584  (23,686) 7,451 1,654,349 
   
 
Benefits and expenses:
  
Claims and other policy benefits 651,850 185  652,035  1,276,160 1,050  1,277,210 
Interest credited 14,790 58,968  73,758  29,714 106,963  136,677 
Policy acquisition costs and other insurance expenses 86,050  (131,750) 198  (45,502)
Policy acquisition costs and other insurance expenses (income) 189,281  (104,664) 448 85,065 
Other operating expenses 13,238 2,334 646 16,218  25,359 4,174 1,413 30,946 
    
Total benefits and expenses 765,928  (70,263) 844 696,509  1,520,514 7,523 1,861 1,529,898 
   
 
Income (loss) before income taxes $54,448 $(41,102) $1,939 $15,285  $150,070 $(31,209) $5,590 $124,451 
    
Income (loss) before income taxes for the U.S. operations segment decreased by $2.4$2.9 million, or 15.9%2.7%, and $5.4 million, or 4.3%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decrease for the three month and six month period can primarily be attributed to investment related losses associated with investment impairments recognized in the first quarterhalf of 2009 and guaranteed minimum benefits riders associated with the Company’s reinsurance of variable annuities, after adjustment for deferred acquisition costs.2009. See the discussion ofNote 4 — “Investments” in the “Liquidity and Capital Resources” section of Management’s Discussion and AnalysisNotes to Condensed Consolidated Financial Statements for additional information on the impairment losses. Investment related losses, after adjustment for related deferred acquisition costs and excluding guaranteed minimum benefit riders and Issue B36 increased $44.5 million.$16.0 million and $60.4 million for the second quarter and first six months of 2009, respectively. Investment related losses associated with guaranteed minimum benefits riders increased $16.2 $17.3 million and $33.5

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million, after adjustment for deferred acquisition costs.costs, for the second quarter and first six months, respectively. Offsetting these decreases in income was a favorable change in Issue B36, of $31.9 million net of deferred acquisition costs, of $19.0 million and an increase in net premiums due to growth in total business in force.$50.9 million, for the second quarter and first six months of 2009, respectively.
Traditional Reinsurance
The U.S. Traditional sub-segment provides life reinsurance to domestic clients for a variety of life products through yearly renewable term, coinsurance and modified coinsurance agreements. These reinsurance arrangements may involve either facultative or automatic agreements. This sub-segment added new business production, measured by face amount of insurance in force, of $25.8 billion and $35.5 billion during the second quarter, and $34.7$61.3 billion and $70.2 billion during the first quartersix months of 2009 and 2008, respectively. Management believes industry consolidation, reduced capital levels in the life insurance industry and

30


the established practice of reinsuring mortality risks should continue to provide opportunities for growth, albeit at rates less than historically experienced.
Income before income taxes for the U.S. Traditional sub-segment decreased by $20.1$12.3 million, or 36.9%,12.9% and decreased by $32.4 million, or 21.6% for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decrease in the second quarter and first quartersix months was due to an increase in investment related losses of $35.7 million.$16.3 million and $52.0 million, respectively. Offsetting these losses was a growth in overall business in force. The increase in investment related losses for the first quarter was mostly due to the aforementioned investment impairments recognized in the first quarter of 2009.
Net premiums for the U.S. Traditional sub-segment grew $61.4$54.4 million, or 8.5%7.2%, and $115.7 million, or 7.8% for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. This increaseThese increases in net premiums waswere driven primarily by the growth of total U.S. Traditional business in force, which totaled $1.3 trillion of face amount as of March 31,June 30, 2009. This represents a 3.1%1.8% increase over the amount in force on March 31,June 30, 2008.
Net investment income increased $5.1$7.2 million, or 5.3%7.3%, and $12.3 million, or 6.3%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. This increaseThese increases can be primarily attributed to growth in the invested asset base. Investment related losses increased $35.7$16.3 million and $52.0 million, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The increase in investment related losses for the first quarter was due to the aforementioned investment impairments, net of non-credit adjustments, recognized in the first quarter of 2009.
Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Claims and other policy benefits as a percentage of net premiums (“loss ratios”) were 88.5% and 89.9%82.9% for the firstsecond quarter of 2009 and 2008, and 85.6% and 86.3% for the six months ended June 30, 2009 and 2008, respectively. While theThe loss ratio improved year over year, claims were still higher than expected inis unchanged when compared to the prior quarter; however, the first quartersix months of 2009.2009 reflect slightly better mortality experience than 2008. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal volatility that is inherent in the business.
Interest credited expense increased $0.4$0.8 million, or 3.0%5.2%, and $1.2 million, or 4.1%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. This increase isThese increases are the result of one treaty that had a slight increase in its asset base with a credited loan rate remaining constant at 5.6% for 2008 and 2009. Interest credited in this case relates to amounts credited on cash value products which also have a significant mortality component.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 11.6%14.3% and 11.9%13.7% for the firstsecond quarter of 2009 and 2008, respectively, and 13.0% and 12.8% for the six months ended June 30, 2009 and 2008, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels within coinsurance-type arrangements. In addition, the amortization pattern of previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary. Finally, the mix of first year coinsurance business versus yearly renewable term business can cause the percentage to fluctuate from period to period.
Other operating expenses increased $1.4$0.5 million, or 10.3%4.0%, and $1.8 million, or 7.3%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. Other operating expenses, as a percentage of net

45


premiums were 1.9%1.6% and 1.8%1.7%, respectively, for the firstsecond quarter and six months ended March 31,June 30, 2009 and 2008. The expense ratio can fluctuate from period to period.
Asset-Intensive Reinsurance
The U.S. Asset-Intensive sub-segment assumes investment risk within underlying annuities and corporate-owned life insurance policies. Most of these agreements are coinsurance, coinsurance with funds withheld or modified coinsurance of non-mortality risks whereby the Company recognizes profits or losses primarily from the spread between the investment income earned and the interest credited on the underlying deposit liabilities.
LossIncome before income taxes for this sub-segment decreasedincreased by $14.1$10.1 million, and $24.1 million for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decreaseincrease for the three month periodsecond quarter and first six months can be primarily attributed to the favorable change in the value of embedded derivatives under Issue B36 of $31.9$19.0 million and $50.9 million, respectively, coupled with a favorable change in the present value calculations of embedded derivatives associated with EIAs of $16.5$1.3 million and $17.8 million, respectively, both after adjustments for related deferred acquisition costs. In addition, for the second quarter, positive equity market performance contributed to the increase over the prior year, primarily reflected in the Company’s variable annuity products. Offsetting these amounts for both the second quarter and first six months of 2009 was an increase in losses

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related to guaranteed minimum benefits, of $16.2 million and an increase in investment related losses of $8.8 million, both net of related deferred acquisition costs.
In accordance with the provisions of Issue B36, the Company recorded an increase in value of the embedded derivative liability of $40.4 million for the three months ended March 31 2009, which is reflected within investment related losses, net. The amount represents a non-cash, unrealized change in value, offset in part by a reduction in policy acquisition costs and other insurance expenses associated with an adjustment of related deferred acquisition costs totaling $39.7 million loss before income taxes. Significant fluctuations may occur as the fair value of the embedded derivatives is tied primarily to the movements in credit spreads. Additionally, the Company uses risk free rates, in accordance with FAS 157, to discount the fair value of estimated future equity option purchases associated with its reinsurance of EIAs (a component of the embedded derivative), which affects the fair value of the embedded derivative liability. In the first quarter of 2009, the Company recorded a decrease in the fair value of the embedded liability of $8.1 million, which was recorded as a reduction of interest credited, offset by related deferred acquisition costs and related hedging activity, of $17.3 million and $33.5 million, respectively. The combined changes in these three types of embedded derivatives, after adjustment for deferred acquisition costs, retrocession and hedging, resulted in a increase of $(5.8)approximately $3.0 million for a net gainand $35.2 million in Asset Intensive income before income taxes in the second quarter and first six months of $2.3 million.2009, respectively, as compared to the same periods in 2008. These fluctuations do not affect current cash flows, crediting rates or spread performance on the underlying treaties. Therefore, Company management believes it is helpful to distinguish between the effects of changes in these embedded derivatives and the primary factors that drive profitability of the underlying treaties, namely investment income, fee income, and interest credited. Additionally, over the expected life of the underlying treaties, management expects the cumulative effect of the impact of changes in risk free rates used in the present value calculations of embedded derivatives associated with EIAs andInvestment related losses, excluding Issue B36 to be immaterial.and variable annuities, net of related deferred acquisition costs and related hedging activity, increased $8.5 million for the first six months of 2009.
Excluding the impact of changes in risk free rates and credit spreads used in the present value calculations of embedded derivatives associated with EIAs and Issue B36,related hedging activities discussed above, income before income taxes increased $7.1 million and decreased $34.3$11.2 million, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decreaseincrease in 2009 over prior yearthe second quarter can mainly be attributed to the Company’s reinsurance of variable annuities with guaranteed living benefits. Improvementimprovement in the broader U.S. financial markets lead to a decrease of $35.2 million inand its impact on the fair value ofunderlying annuity account values reinsured by the liability related to guaranteed minimum benefits.Company. The gains associated with the decrease in the fair valuefirst six months is primarily related to investment impairments, net of the liability were more than offset by losses on derivatives instruments of $12.7 million used to hedge the liability and DAC adjustments of $38.4 million, therefore resulting in a loss year over year. DAC is amortized in line with actual and expected future profits on the business. Therefore, the gain from the hedge program (the difference between the decrease in the fair value of the liability of $35.2 million and the losses on the derivative instruments used to hedge the liability of $12.7 million) in the current period resulted in higher DAC amortization.non-credit adjustments.
Total revenues, which are comprised primarily of investment income and investment related losses, net, increased $155.5$121.9 million and $277.3 million for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. ThisThe increase for both periods is primarily due to a $108.1the $75.8 million and $183.9 million reduction in the losslosses associated with embedded derivatives subject to Issue B36, which are included in other investment related losses,gains (losses), net. Excluding the losses associated with embedded derivatives subject to Issue B36, revenue increased $47.3$46.1 million and $93.4 million for the first quarter.second quarter and six month periods, respectively. This increase is primarily due to an increase in investment income related to equity option income on a funds withheld equity-indexed annuity treaty. The increase in investment income related to options is mostly offset by a corresponding increase in interest credited. Additionally, investment related gains associated with guaranteed minimum benefits contributed $23.7$18.9 million and $42.6 million to the increase in the second quarter and first three months.six months, respectively. Investment impairments in the first six months of 2009 partially offset some of this increase.
The average invested asset base supporting this sub-segment grew to $5.1$5.0 billion in the firstsecond quarter of 2009 from $4.8$4.9 billion in the firstsecond quarter of 2008. The growth in the asset base is driven primarily by new business written on an existing equity-indexed and variable annuity treaties. In addition, a new fixed annuity transaction was executed in the second quarter of 2008 and a new guaranteed investment contract was executed in the third quarter of 2008, together adding approximately $700.0 million to the asset base of this sub-segment.treaty. As of March 31,June 30, 2009, $3.4 billion of the invested assets were funds withheld at interest, of which 90.5%95.1% is associated with one client.
Total benefits and expenses, which are comprised primarily of interest credited and policy acquisition costs, increased $141.4$111.8 million and $253.2 million for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. Contributing to these increases was an increase in policy acquisition costs related to embedded derivatives subject to Issue B36 of $76.2$56.8 million and $133.0 million coupled with an increase in policy acquisition costs associated with guaranteed minimum benefits of $40.0 million.$36.2 million and $76.2 million for the second

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quarter and first six months, respectively. The current market environment has created a situation in which income earned related to guaranteed minimum benefits is more than offset by DAC unlocking, and thus results in reduced income for this sub-segment. These increases were partially offset by a decrease in interestInterest credited of $37.3 million forincreased quarter over quarter and decreased year over year. In both the three

32


month period. Thesecond quarter and first six months, the portion of interest credited related to market value changes in certain equity-indexed annuity products increased year over year and was mostly offset in investment income. This increase, while only slightly offset quarter over quarter, was more than offset year over year by a decrease year over year in interest credited related to the change in the fair value of the EIA embedded liability as discussed above.
Financial Reinsurance
The U.S. Financial Reinsurance sub-segment income consists primarily of net fees earned on financial reinsurance transactions. The majority of the financial reinsurance risks are assumed by the U.S. segment and retroceded to other insurance companies or brokered business in which the Company does not participate in the assumption of risk. The fees earned from financial reinsurance contracts are reflected in other revenues, and the fees paid to retrocessionaires are reflected in policy acquisition costs and other insurance expenses. Fees earned on brokered business are reflected in other revenues.
Income before income taxes decreased by $0.7 million, or 18.0%, and increased by $3.6$2.9 million, or 52.3%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The increase in the three month periodfirst six months can be primarily attributed to a one time fee received at inception of a new treaty signed in the first quarter of 2009. At March 31,June 30, 2009 and 2008, the amount of reinsurance provided, as measured by pre-tax statutory surplus was $0.7 billion and $0.5 billion.billion, respectively. The pre-tax statutory surplus amounts indicated include all business assumed or brokered by the Company in the U.S. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.
CANADA OPERATIONS
The Company conducts reinsurance business in Canada through RGA Life Reinsurance Company of Canada (“RGA Canada”), a wholly-owned subsidiary. RGA Canada assists clients with capital management activity and mortality and morbidity risk management, and is primarily engaged in traditional individual life reinsurance, as well as creditor, critical illness, and group life and health reinsurance. Creditor insurance covers the outstanding balance on personal, mortgage or commercial loans in the event of death, disability or critical illness and is generally shorter in duration than traditional life insurance.
For the three months ended March 31, (dollars in thousands)
                        
 2009 2008 For the three months ended For the six months ended
  
(dollars in thousands) June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
  
Revenues:
  
Net premiums $138,056 $138,992  $154,862 $139,530 $292,918 $278,522 
Investment income, net of related expenses 30,360 36,033  32,115 35,692 62,475 71,725 
Investment related losses, net  (309)  (4,085)
Investment related gains (losses), net: 
Other-than-temporary impairments on fixed maturity securities  (44)   (76)  (1)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income 20  20  
Other investment related gains (losses), net 9,408 4,004 9,131  (80)
  
Total investment related gains (losses), net 9,384 4,004 9,075  (81)
Other revenues 1,697 13   (618) 13,204 1,079 13,217 
    
Total revenues 169,804 170,953  195,743 192,430 365,547 363,383 
   
Benefits and expenses:
  
Claims and other policy benefits 115,635 115,271  128,312 134,146 243,947 249,417 
Interest credited 48 139  27 81 75 220 
Policy acquisition costs and other insurance expenses 33,067 26,426  36,367 25,526 69,434 51,952 
Other operating expenses 4,868 5,446  5,523 5,899 10,391 11,345 
    
Total benefits and expenses 153,618 147,282  170,229 165,652 323,847 312,934 
   
 
Income before income taxes $16,186 $23,671  $25,514 $26,778 $41,700 $50,449 
    
Income before income taxes decreased by $7.5$1.3 million, or 31.6%4.7%, and $8.7 million, or 17.3%, for the three and six months ended March 31June 30, 2009, as compared to the same periodperiods in 2008. In the first three months of 2009, weakness in the Canadian dollar resulted in a decrease in income before income taxes of $5.2 million. The remaining decrease was primarily$5.5 million and $10.7 million in the resultsecond quarter and

47


first six months of 2009, respectively. In addition, the segment’s results reflect adverse mortality experience compared to the prior yearyear’s favorable mortality experience and the absence of the favorable net effect totaling $2.5 million of income before income taxes from the recapture of a retroceded block of creditor business recognized in 2008, offset by a decrease of $3.8 millionan increase in net investment related losses, net.gains of $5.4 million and $9.2 million for the three and six months of 2009, compared to 2008.
Net premiums decreasedincreased by $0.9$15.3 million, or 0.7%11.0%, and $14.4 million, or 5.2%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. A weaker Canadian dollar resulted in a decrease in net premiums of approximately $32.7$23.0 million and $55.6 million in the second quarter and first quartersix months of 2009 compared to 2008. This decrease was largely offset by new business from both new and existing treaties. In addition, an increase in premiums from creditor treaties contributed $9.9$27.5 million and $46.2 million in the second quarter and first quartersix months of 2009.2009, respectively. Creditor and group life and health premiums represented 28.3%31.2% and 18.4% of net premiums infor the first

33


second quarter of 2009.2009 and 2008, respectively and 30.1% and 19.7% for the six months ended June 30, 2009 and 2008 respectively. Premium levels can be significantly influenced by large transactions, mix of business and reporting practices of ceding companies and therefore may fluctuate from period to period.
Net investment income decreased $5.7$3.6 million, or 15.7%10.0%, and $9.3 million, or 12.9%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. A weaker Canadian dollar resulted in a decrease in net investment income of approximately $7.5$5.3 million and $12.8 million in the second quarter and first quartersix months of 2009 compared to 2008. Investment income and investment related gains and losses are allocated to the segments based upon average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments. The increase in investment income, excluding the impact of foreign exchange, was mainly the result of an increase in the allocated asset base due to growth in the underlying business volume.
Other revenues decreased by $13.8 million, and $12.1 million, for the three and six months ended June 30, 2009, as compared to the same periods in 2008. The decreases in 2009 were primarily the result of a fee earned in 2008 of $12.9 million from the recapture of a previously retroceded block of creditor business.
Loss ratios for this segment were 83.8%82.9% and 82.9%96.1% for the firstsecond quarter of 2009 and 2008, respectively, and 83.3% and 89.6% for the six months ended June 30, 2009 and 2008, respectively. The loss ratios on creditor reinsurance business are normally lower than traditional reinsurance, while allowances are normally higher as a percentage of premiums. Loss ratios for creditor business were 44.1% and 90.4% for the second quarter of 2009 and 2008, respectively, and 42.8% and 64.1% for the six months ended June 30, 2009 and 2008, respectively. The decreases in 2009 were primarily the result of the release of retroceded reserves of $10.4 million from the aforementioned recapture in 2008. Excluding creditor business, the loss ratios for this segment were 99.4%98.6% and 93.2%97.3% for the firstsecond quarter of 2009 and 2008, respectively.respectively, and 99.0% and 95.3% for the six months ended June 30, 2009 and 2008. The higher loss ratioratios in 2009 isare primarily the result of worseadverse mortality experience compared to the prior year.year’s favorable mortality experience. Historically, the loss ratio increased primarily as the result of several large permanent level premium in force blocks assumed in 1997 and 1998. These blocks are mature blocks of permanent level premium business in which mortality as a percentage of net premiums is expected to be higher than historical ratios. The nature of permanent level premium policies requires the Company to set up actuarial liabilities and invest the amounts received in excess of early-year mortality costs to fund claims in the later years when premiums, by design, continue to be level as compared to expected increasing mortality or claim costs. Claims and other policy benefits, as a percentage of net premiums and investment income were 68.7%68.6% and 65.9%76.6% in the firstsecond quarter of 2009 and 2008, respectively, and 68.6% and 71.2% for the six months ended June 30, 2009 and 2008, respectively.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 24.0%23.5% and 19.0%18.3% for the firstsecond quarter of 2009 and 2008, respectively, and 23.7% and 18.7% for the six months ended June 30, 2009, 2008, respectively. Policy and acquisition costs and other insurance expenses as a percentage of net premiums for creditor business were 54.4%51.5% and 49.3%45.9% for the firstsecond quarter of 2009 and 2008, respectively, 52.9% and 47.7% for the six months ended June 30, 2009 and 2008, respectively. Excluding foreign exchange and creditor business, policy acquisition costs and other insurance expenses as a percentage of net premiums were 12.8%12.1% and 11.7%12.5% for the firstsecond quarter of 2009 and 2008.2008, respectively, and 12.4% and 12.1% for the six months ended June 30, 2009 and 2008, respectively. Overall, while these ratios are expected to remain in a predictable range, they may fluctuate from period to period due to varying allowance levels significantly caused by the mix of first year coinsurance business versus yearly renewable term business.and product mix. In addition, the amortization pattern of

48


previously capitalized amounts, which are subject to the form of the reinsurance agreement and the underlying insurance policies, may vary.
Other operating expenses decreased by $0.6$0.4 million, or 10.6%6.4%, and $1.0 million, or 8.4%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. A weaker Canadian dollar contributed approximately $0.9$0.7 million and $1.6 million to the decrease in other operating expenses in the second quarter and first threesix months of 2009, compared to 2008.respectively. Other operating expenses as a percentage of net premiums were 3.6% and 4.2% for the second quarter of 2009 and 2008, respectively, and 3.5% and 3.9%4.1% for the first quarter ofsix months ended June 30, 2009 and 2008, respectively.
EUROPE & SOUTH AFRICA OPERATIONS
The Europe & South Africa segment has operations in France, Germany, India, Italy, Mexico, Poland, Spain, South Africa and the United Kingdom (“UK”). The segment provides life reinsurance for a variety of products through yearly renewable term and coinsurance agreements, and reinsurance of critical illness coverage. Reinsurance agreements may be either facultative or automatic agreements covering primarily individual risks and in some markets, group risks.

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For the three months ended March 31, (dollars inthousands)
                        
     For the three months ended For the six months ended
 2009 2008
(dollars in thousands) June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
    
Revenues:
  
Net premiums $173,256 $189,196  $180,017 $185,490 $353,273 $374,686 
Investment income, net of related expenses 6,749 7,551  8,120 8,778 14,869 16,329 
Investment related gains, net 422 745 
Investment related gains (losses), net: 
Other-than-temporary impairments on fixed maturity securities  (1,094)  (5)  (1,857)  (34)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income 496  496  
Other investment related gains (losses), net 584  (126) 1,769 648 
  
Total investment related gains (losses), net  (14)  (131) 408 614 
Other revenues 260 60  538 68 798 128 
    
Total revenues 180,687 197,552  188,661 194,205 369,348 391,757 
   
 
Benefits and expenses:
  
Claims and other policy benefits 144,218 158,535  147,018 144,460 291,236 302,995 
Interest credited     
Policy acquisition costs and other insurance expenses 10,817 17,230  10,369 16,026 21,186 33,256 
Other operating expenses 17,117 15,744  18,911 16,678 36,028 32,422 
    
Total benefits and expenses 172,152 191,509  176,298 177,164 348,450 368,673 
   
 
Income before income taxes $8,535 $6,043  $12,363 $17,041 $20,898 $23,084 
    
Income before income taxes increaseddecreased by $2.5$4.7 million, or 41.2%27.5% and by $2.2 million, or 9.5%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The increase for the first quarter was primarily due to a decrease in claims and other policy benefits and a decrease in policy acquisition costs and other insurance expenses. Unfavorable foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling approximately $4.4$1.8 million and $6.2 million for the second quarter and first quartersix months of 2009, comparedrespectively. The decrease in income before income taxes for the second quarter was primarily due to 2008.a decrease in net premiums, an increase in claims and other policy benefits which was partially offset by a decrease in policy acquisition costs and other insurance expenses. The decrease in the six month income before income taxes was primarily due to the unfavorable foreign currency exchange fluctuation partially offset by a decrease in policy acquisition costs and other insurance expenses.
Net premiums decreased $15.9$5.5 million, or 8.4%3.0%, and $21.4 million, or 5.7%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. During 2009, there was an unfavorable foreign currency exchange fluctuation, particularly from the British pound, the euro and the South African rand weakening against the U.S. dollar when compared to the same periodperiods in 2008, which decreased net premiums by approximately $56.9$41.2 million in the firstsecond quarter of 2009, and $98.1 million for the six months ended June 30, 2009, as compared to the same periodperiods in 2008. The unfavorable foreign currency exchange fluctuation wasfluctuations were largely offset by an increase in net premiums that was primarily the result of new business from both new and existing treaties.

49


A significant portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage, primarily in the UK. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Net premiums earned from this coverage totaled $46.3$52.7 million and $60.4$67.3 million in the firstsecond quarter of 2009 and 2008, respectively, and $99.0 million and $127.7 million for the six months ended June 30, 2009 and 2008, respectively. Premium levels are significantly influenced by large transactions and reporting practices of ceding companies and therefore can fluctuate from period to period.
Net investment income decreased $0.8$0.7 million, or 10.6%7.5%, and $1.5 million, or 8.9%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. This decreaseThese decreases can be primarily attributed to a decrease in the portfolio return. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Loss ratios for this segment were 83.2%81.7% and 83.8%77.9% for the firstsecond quarter of 2009 and 2008, respectively, and 82.4% and 80.9% for the six months ended June 30, 2009 and 2008, respectively. The decreaseincrease in the loss ratio for second quarter and for the threesix months ended March 31, 2009 was primarily due to unfavorable claims experience in South Africa during the first quarter 2008. While the loss ratio improved slightly year over year, claim levels in the current quarter were higher then expected.UK. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal volatility that is inherent in the business.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 6.2%5.8% and 9.1%8.6% for the firstsecond quarter of 2009 and 2008, respectively, and 6.0% and 8.9% for the six months ended June 30, 2009 and 2008, respectively. These percentages fluctuate due to timing of client company reporting, variations in the mixture of business being reinsured and the relative maturity of the business. In addition, as the segment grows, renewal premiums, which have lower allowances than first-year premiums, represent a greater percentage of the total net premiums.
Other operating expenses increased $1.4$2.2 million, or 8.7%13.4%, and $3.6 million, or 11.1%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. Other operating expenses as a percentage of net premiums totaled 9.9%10.5% and 8.3%9.0% for the firstsecond quarter of 2009 and 2008, respectively, and 10.2% and 8.7% for the six months ended June 30, 2009 and 2008, respectively. These increases were due to higher costs associated with maintaining and supporting the segment’s increase in business over the past several years and the Company’s recent

35


expansion into central Europe. The Company believes that sustained growth in net premiums should lessen the burden of start-up expenses and expansion costs over time.
ASIA PACIFIC OPERATIONS
The Asia Pacific segment has operations in Australia, Hong Kong, Japan, Malaysia, Singapore, New Zealand, South Korea, Taiwan and mainland China. The principal types of reinsurance for this segment include life, critical illness, disability income, superannuation, and financial reinsurance. Superannuation is the Australian government mandated compulsory retirement savings program. Superannuation funds accumulate retirement funds for employees, and in addition, offer life and disability insurance coverage. Reinsurance agreements may be either facultative or automatic agreements covering primarily individual risks and in some markets, group risks.
For the three months ended March 31, (dollars in thousands)
                 
  For the three months ended For the six months ended
(dollars in thousands) June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
   
Revenues:
                
Net premiums $229,430  $277,716  $473,158  $518,651 
Investment income, net of related expenses  14,877   12,397   27,574   23,811 
Investment related losses, net:                
Other-than-temporary impairments on fixed maturity securities  (2,029)  (7)  (3,951)  (54)
Other-than temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income  832      832    
Other investment related gains (losses), net  2,052   (1,503)  407   (942)
   
Total investment related gains (losses), net  855   (1,510)  (2,712)  (996)
Other revenues  4,471   1,851   14,200   4,403 
   
Total revenues  249,633   290,454   512,220   545,869 
   

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 2009 2008 For the three months ended For the six months ended
  
Revenues:
 
Net premiums $243,728 $240,935 
Investment income, net of related expenses 12,697 11,414 
Investment related gains (losses), net  (3,567) 514 
Other revenues 9,729 2,552 
  
Total revenues 262,587 255,415 
Continued June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
   
Benefits and expenses:
  
Claims and other policy benefits 212,414 193,669  179,556 225,011 391,970 418,680 
Policy acquisition costs and other insurance expenses 30,429 28,081  26,526 28,386 56,955 56,467 
Other operating expenses 16,171 15,102  18,031 15,801 34,202 30,903 
    
Total benefits and expenses 259,014 236,852  224,113 269,198 483,127 506,050 
   
 
Income before income taxes $3,573 $18,563  $25,520 $21,256 $29,093 $39,819 
    
Income before income taxes increased by $4.3 million, or 20.1%, and decreased by $15.0$10.7 million, or 80.8%26.9%, for the three and six months ended March 31,June 30, 2009, as compared to the same periods in 2008. Favorable results, primarily due to lower than expected claims and benefits in Japan, contributed to the increase in income before income taxes for the second quarter 2009 when compared to the same period in 2008. Unfavorable results from operations throughoutin the segment,first quarter 2009, primarily duerelated to increased claims and other policy benefits contributedthroughout the segment, compared to better than expected results in the first quarter of 2008, led to the decrease in income before income taxes forunfavorable variance between the first quartersix months of 2009, as compared to the same period in 2008. Unfavorable foreign currency exchange fluctuations resulted in a decrease to income before income taxes totaling approximately $1.0$3.0 million and $4.0 million for the second quarter and first quartersix months of 2009, compared to 2008.respectively.
Net premiums grew $2.8decreased $48.3 million, or 1.2%17.4%, and $45.5 million, or 8.8%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. ThisDecreased premiums in Korea, Taiwan and New Zealand were partially offset by premium growth was primarily the result of increases in the volume of business in Japan, Taiwan and Australia. Premiums in Japan increasedKorea, Taiwan and New Zealand decreased by $4.9$61.6 million in the firstsecond quarter of 2009, and by $65.5 million for the six months ended June 30, 2009, as compared to the same period in 2008. Premiums in Taiwan increased by $1.9 million in the first quarter of 2009, as compared to the same periodperiods in 2008. Premiums in Australia increased by $1.5$12.7 million in the firstsecond quarter of 2009, and by $14.3 million for the six months ended June 30, 2009, as compared to the same periodperiods in 2008. Premium levels are significantly influenced by large transactions and reporting practices of ceding companies and can fluctuate from period to period.
Foreign currencies in certain significant markets, particularly the Australian dollar, New Zealand dollar, Korean won and Taiwanese dollar, have weakened against the U.S. dollar during 2009 compared to 2008. The overall effect of changes in local Asia Pacific segment currencies was a decrease in net premiums of approximately $55.2$39.1 million and $94.3 million for the second quarter and first quartersix months of 2009, compared to 2008.respectively. The unfavorable foreign currency exchange fluctuation was largelypartially offset by an increase in net premiums that was primarily the result of new business from both new and existing treaties.
A portion of the net premiums for the segment, in each period presented, relates to reinsurance of critical illness coverage. This coverage provides a benefit in the event of the diagnosis of a pre-defined critical illness. Reinsurance of critical illness in the Asia Pacific operations is offered primarily in South Korea, Australia and Hong Kong. Net premiums earned from this coverage totaled $54.2$29.2 million and $45.9$67.4 million in the firstsecond quarter of 2009 and 2008, respectively and $83.4 million and $113.2 million for the first six months of 2009 and 2008, respectively. Premium levels are significantly influenced by large transactions and reporting practices of ceding companies and can fluctuate from period to period.
Net investment income increased $1.3$2.5 million, or 11.2%20.0%, and $3.8 million, or 15.8%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. This increase can be primarily attributed to growth in the invested asset base. Investment income and investment related gains and losses are allocated to the various operating segments based on average assets and related capital levels deemed appropriate to support the segment business volumes. Investment

36


performance varies with the composition of investments and the relative allocation of capital to the operating segments.
Other revenues increased by $7.2$2.6 million, or 281.2%,and $9.8 million for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The primary source of other revenues is fees from financial reinsurance treaties in Japan. At March 31,June 30, 2009 and 2008, the amount of reinsurance assumed from client companies, as measured by pre-tax statutory surplus, was $0.6$0.5 billion and $0.7$0.6 billion, respectively. Fees earned from this business can vary significantly depending on the size of the transactions and the timing of their completion and therefore can fluctuate from period to period.
Loss ratios for this segment were 87.2%78.3% and 80.4%81.0% for the firstsecond quarter of 2009 and 2008, respectively and 82.8% and 80.7% for the six months ended June 30, 2009 and 2008, respectively. The increasedecrease in the loss ratio for

51


the firstsecond quarter of 2009 compared to 2008 is primarily attributable to highlower claim levels in Korea in 2009 compared to 2008. The increase in the loss ratio for the six months ended June 30, 2009 compared to 2008 is primarily due to increased first quarter claims in Australia, New Zealand, Taiwan and Japan. Although reasonably predictable over a period of years, death claims can be volatile over shorter periods. Management views recent experience as normal volatility that is inherent in the business. Loss ratios will fluctuate due to timing of client company reporting, variations in the mixture of business being reinsured and the relative maturity of the business.
Policy acquisition costs and other insurance expenses as a percentage of net premiums were 12.5%11.6% and 11.7%10.2% for the firstsecond quarter of 2009 and 2008, respectively, and 12.0% and 10.9% for the six months ended June 30, 2009 and 2008, respectively. The ratio of policy acquisition costs and other insurance expenses as a percentage of net premiums should generally decline as the business matures; however, the percentage does fluctuate periodically due to timing of client company reporting and variations in the mixture of business being reinsured.
Other operating expenses increased $1.1$2.2 million, or 7.1%14.1%, and $3.3 million, or 10.7%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. Other operating expenses as a percentage of net premiums totaled 6.6%7.9% and 6.3%5.7% for the firstsecond quarter of 2009 and 2008, respectively and 7.2% and 6.0% for the six months ended June 30, 2009 and 2008, respectively. The timing of premium flows and the level of costs associated with the entrance into and development of new markets in the growing Asia Pacific segment may cause other operating expenses as a percentage of net premiums to fluctuate over periods of time.
CORPORATE AND OTHER
Corporate and Other revenues include investment income from invested assets not allocated to support segment operations and undeployed proceeds from the Company’s capital raising efforts, in addition to unallocated investment related gains and losses. Corporate expenses consist of the offset to capital charges allocated to the operating segments within the policy acquisition costs and other insurance expenses line item, unallocated overhead and executive costs, and interest expense related to debt and the $225.0 million of 5.75% Company-obligated mandatorily redeemable trust preferred securities. Additionally, Corporate and Other includes results from RGA Technology Partners, Inc., a wholly-owned subsidiary that develops and markets technology solutions for the insurance industry, the Company’s Argentine privatized pension business, which is currently in run-off, the investment income and expense associated with the Company’s collateral finance facility and an insignificant amount of direct insurance operations in Argentina. Effective January 1, 2009, due to immateriality, the discontinued accident and health operations are included in the results of the Corporate and Other segment.
For the three months ended March 31,(dollars in thousands)
                 
  For the three months ended For the six months ended
(dollars in thousands) June 30, 2009 June 30, 2008 June 30, 2009 June 30, 2008
   
Revenues:
                
Net premiums $2,052  $1,396  $4,602  $3,282 
Investment income, net of related expenses  19,840   19,263   34,907   41,289 
Investment related gains (losses), net                
Other-than-temporary impairments on fixed maturity securities  (2,387)     (7,588)  (2,998)
Other-than-temporary impairments on fixed maturity securities transferred to accumulated other comprehensive income  368      368    
Other investment related gains (losses), net  1,104   241   4,265   2,868 
   
Total investment related gains (losses), net  (915)  241   (2,955)  (130)
Other revenues  48,770   2,062   48,679   3,074 
   
Total revenues  69,747   22,962   85,233   47,515 
   
                 
Benefits and expenses:
                
Claims and other policy benefits  281   35   552   37 
Policy acquisition costs and other insurance expenses (income)  (10,950)  (11,233)  (23,642)  (21,206)
Other operating expenses  12,964   8,891   23,377   19,721 
Interest expense  19,595   21,580   41,712   44,674 
Collateral finance facility expense  2,057   6,966   4,371   14,440 
   
Total benefits and expenses  23,947   26,239   46,370   57,666 
   
                 
Income (loss) before income taxes $45,800  $(3,277) $38,863  $(10,151)
   
         
  2009 2008
   
Revenues:
        
Net premiums $2,550  $1,886 
Investment income, net of related expenses  15,067   22,026 
Investment related losses, net  (2,040)  (371)
Other revenues  (91)  1,012 
   
Total revenues  15,486   24,553 
         
Benefits and expenses:
        
Claims and other policy benefits  271   2 
Policy acquisition costs and other insurance expenses  (12,692)  (9,973)
Other operating expenses  10,413   10,830 
Interest expense  22,117   23,094 
Collateral finance facility expense  2,314   7,474 
   
Total benefits and expenses  22,423   31,427 
         
Loss before income taxes $(6,937) $(6,874)
   

37


LossIncome before income taxes increased by $0.1$49.1 million or 0.9%,and $49.0 million, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The increase for the firstsecond quarter is primarily due to a $1.7 $46.7

52


million increase in investment related losses due to impairments,other revenues, a $7.0 million decrease in investment income, offset in large part by a $5.2$4.9 million decrease in collateral finance facility expense a $2.7 million decrease in policy acquisition costs and other insurance expenses and a $1.0$2.0 million decrease in interest expense.expense slightly offset by a $4.1 million increase in other expenses. The increase for the first six months is primarily due to a $45.6 million increase in other revenues, a $10.1 million decrease in collateral finance facility expense and a $3.0 million decrease in interest expense slightly offset by a $6.4 million decrease in net investment income and a $3.7 million increase in other expenses. The large increase in other revenues for the second quarter and first six months is primarily related to the recognition of a gain on the repurchase of long-term debt of $38.9 million and a $4.8 million foreign exchange gain on the repayment of debt related to the Company’s credit facility denominated in British pounds.
Total revenues decreasedincreased by $9.1$46.8 million, or 36.9%203.7%, and $37.7 million, or 79.4%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decreaseincrease for the firstsecond quarter was due to the increase in other revenues associated with the gains from the debt repurchase and repayment, as described above. The increase for the first six months was due to the second quarter gains but was slightly offset by a $7.0 million decrease in net investment income. The decrease in investment income is largely due to lower investment returns on variable interest investments used to fund the Company’s collateral finance facility and a $1.7 million increase in investment related losses due to impairments.which is offset by the lower collateral finance facility expense.
Total benefits and expenses decreased by $9.0$2.3 million, or 28.7%8.7%, and $11.3 million, or 19.6%, for the three and six months ended March 31,June 30, 2009, as compared to the same periodperiods in 2008. The decrease for the firstsecond quarter was primarily due to a $5.2$4.9 million decrease in collateral finance facility expense related to substantially reduced variable interest rates in the current year, decreased interest expense of $2.0 million due to lower debt outstanding from the debt repurchase and repayment and lower interest provisions for income taxes related to FIN 48. These decreases were largely offset by a $4.1 million increase in other expenses, primarily due to increased equity compensation. The decrease for the first six months was primarily due to a $10.1 million decrease in collateral finance facility expense due to substantiallythe reduced variable interest rates in the current year. Policy acquisition costs and other insurance expenses also decreased $2.7 million in the first quarter, primarily due to increased charges to the operating segments for the use of capitalyear and decreased interest expense of $1.0$3.0 million primarily due to lower debt outstanding from the debt repurchase and repayment, and lower interest provisions for income taxes related to FIN 48. These decreases were partially offset by a $3.7 million increase in other expenses due to increased equity compensation.
Discontinued Operations
Effective January 1, 2009, due to immateriality, the discontinued accident and health operations are included in the results of the Corporate and Other segment. The discontinued accident and health operations reported a loss, net of taxes, of $5.1$5.2 million for the first quartersix months of 2008 due to the settlement of a disputed claim in which the Company paid $5.8 million in excess of the amount held in reserve. The calculation of the claim reserve liability for the entire portfolio of accident and health business requires management to make estimates and assumptions that affect the reported claim reserve levels. As of March 31,June 30, 2009, there are no arbitrations or claims disputes associated with the Company’s discontinued accident and health operations, and the remaining runoff activity of this business is not expected to be significant.
Liquidity and Capital Resources
Current Market Environment
During 2008, the capital and credit markets experienced extreme volatility and disruption. Since September 2008 through the end of the first quarter of 2009, the volatility and disruptions intensified significantly. This was driven by, among other things, heightened concerns over conditions in the U.S. housing and mortgage markets, the availability and cost of credit, the health of U.S. and global financial institutions, a decline in business and consumer confidence and increased unemployment. Turmoil in the U.S. and global financial markets resulted in bankruptcies, consolidations and government interventions. While there has been some improvement in the U.S. and global financial markets during the second quarter of 2009, the recovery is slow as investors remain cautious.
The recent market conditions have adversely affected the Company’s results of operations and financial position. DuringFrom the third quarter of 2008 andthrough the first quartersix months of 2009, the Company incurred significant investment related losses as a result of impairments. In addition, resultsResults of operations in 2008 and 2009also reflected a significant increase in unrealized losses due to an unfavorable change in the value of embedded derivatives which are a direct result of widening credit spreads and changes in the risk-free rates in the U.S. debt markets. Additionally, grossHowever, results of operations for the first six months of 2009 reflect a favorable change in the value of these embedded derivatives as credit spreads tightened significantly in the second quarter. Gross unrealized losses in the Company’s fixed maturity and equity securities available-for-sale increased significantly tohave

53


improved from $1,552.8 million and $1,416.4 million at March 31, 2009 and $1,416.4 million at December 31, 2008 respectively.to $1,063.6 million at June 30, 2009. While the gross unrealized losses at June 30, 2009 have improved, they remain significantly higher than the amount of $486.7 million at June 30, 2008.
The Company continues to be in a position to hold its investment securities until recovery, provided it remains comfortable with the credit of the issuer. The Company’s operations do not rely on short-term funding or commercial paper, and therefore, to date, it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future. The Company has selectively reduced its exposure to distressed security issuers through security sales. In addition, the U.S. government, and governments in many foreign markets where the Company operates, have responded to address market imbalances and taken meaningful steps intended to eventually restore confidence. Although management believes the Company’s current capital base is adequate to support its business at current operating levels, it continues to monitor new business opportunities and any associated new capital needs that could arise from the changing financial landscape.

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The Holding Company
RGA is a holding company whose primary uses of liquidity include, but are not limited to, the immediate capital needs of its operating companies associated with the Company’s primary businesses, dividends paid by RGA to its shareholders, interest payments on its indebtedness, and repurchases of RGA common stock under a plan approved by the board of directors. The primary sources of RGA’s liquidity include proceeds from its capital raising efforts, interest income on undeployed corporate investments, interest income received on surplus notes with two operating subsidiaries, and dividends from operating subsidiaries. As the Company continues its expansion efforts, RGA will continue to be dependent on these sources of liquidity.
The Company believes that it has sufficient liquidity to fund its cash needs under various scenarios that include the potential risk of the early recapture of a reinsurance treaty by the ceding company and significantly higher than expected death claims. Historically, the Company has generated positive net cash flows from operations. However, in the event of significant unanticipated cash requirements beyond normal liquidity, the Company has multiple liquidity alternatives available based on market conditions and the amount and timing of the liquidity need. These options include borrowings under committed credit facilities, secured borrowings, the ability to issue long-term debt, capital securities or common equity and, if necessary, the sale of invested assets.
Cash Flows
The Company’s net cash flows provided by operating activities for the three monthsperiods ended March 31,June 30, 2009 and 2008 were $352.5$539.2 million and $188.5$366.3 million, respectively. Cash flows from operating activities are affected by the timing of premiums received, claims paid, and working capital changes. The $164.0$172.9 million net increase in operating cash flows during the threesix months of 2009 compared to the same period in 2008 was primarily a result of cash inflows related to premiums and investment income increasing and cash outflows related to claims, acquisition costs, income taxes and other operating expenses decreasing. Cash from premiums and investment income increased $50.0$101.2 million and $19.3$51.4 million, respectively, while operating cash outlays decreased by $94.7$20.3 million for the current threesix month period. The Company believes the short-term cash requirements of its business operations will be sufficiently met by the positive cash flows generated. Additionally, the Company believes it maintains a high quality fixed maturity portfolio that can be sold, if necessary, to meet the Company’s short- and long-term obligations.
Net cash used in investing activities forwere $707.1 million and $610.0 million in the threefirst six months ended March 31,of 2009 and 2008 were $531.3 million and $246.3 million,the comparable prior-year period, respectively. The sales and purchases of fixed maturity securities are related to the management of the Company’s investment portfolios and the investment of excess cash generated by operating and financing activities.
Net cash used inprovided by (used in) financing activities forwas $(300.8) million and $200.8 million in the threefirst six months ended March 31,of 2009 and 2008, were $103.9 million and $42.5, respectively. The increase in cash used in financing activities was primarilylargely due to a $53.0$113.3 million decrease in the cash collateral received under derivative contracts due to a change in the value of the underlying derivatives.derivatives, $62.5 million related to the repurchase and repayment of long-term debt. The remaining increase in cash used in financing activities is primarily due to payments under investment type contracts.

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Debt and Preferred Securities
As of March 31,June 30, 2009 and December 31, 2008, the Company had $917.9$816.6 million and $918.2 million, respectively, in outstanding borrowings under its debt agreements and was in compliance with all covenants under those agreements.
The Company maintains three revolving credit facilities. The largest is a syndicated credit facility with an overall capacity of $750.0 million that expires in September 2012. The Company may borrow cash and may obtain letters of credit in multiple currencies under this facility. As of March 31,June 30, 2009, the Company had no cash borrowings outstanding and $349.7$454.7 million in issued, but undrawn, letters of credit under this facility. The Company’s other credit facilities consist of a £15.0 million credit facility that expires in May 2010, with an outstanding balance of £15.0 million ($21.5 million) as of March 31, 2009,2011, and an A$50.0 million Australian credit facility that expires in March 2011, both with no outstanding balancebalances as of March 31,June 30, 2009.
As of March 31,June 30, 2009, the average interest rate on all long-term and short-term debt outstanding, excluding the Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely junior subordinated debentures of the Company (“Trust Preferred Securities”), was 6.27%6.34%. Interest is expensed on the face amount, or $225 million, of the Trust Preferred Securities at a rate of 5.75%.
Collateral Finance Facility
In June 2006, RGA’s subsidiary, Timberlake Financial, L.L.C. (“Timberlake Financial”), issued $850.0 million of

39


Series A Floating Rate Insured Notes due June 2036 in a private placement. The notes were issued to fund the collateral requirements for statutory reserves required by the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX) on specified term life insurance policies reinsured by RGA Reinsurance Company (“RGA Reinsurance”). Proceeds from the notes, along with a $112.8 million direct investment by the Company, have been deposited into a series of trust accounts that collateralize the notes and are not available to satisfy the general obligations of the Company. Interest on the notes will accrue at an annual rate of 1-month LIBOR plus a base rate margin, payable monthly. The payment of interest and principal on the notes is insured by a monoline insurance company through a financial guaranty insurance policy. The notes represent senior, secured indebtedness of Timberlake Financial without legal recourse to RGA or its other subsidiaries. Timberlake Financial will rely primarily upon the receipt of interest and principal payments on a surplus note and dividend payments from its wholly-owned subsidiary, Timberlake Reinsurance Company II (“Timberlake Re”), a South Carolina captive insurance company, to make payments of interest and principal on the notes. The ability of Timberlake Re to make interest and principal payments on the surplus note and dividend payments to Timberlake Financial is contingent upon South Carolina regulatory approval, the return on Timberlake Re’s investment assets and the performance of specified term life insurance policies with guaranteed level premiums retroceded by RGA’s subsidiary, RGA Reinsurance, to Timberlake Re.
Asset / Liability Management
The Company actively manages its cash and invested assets using an approach that is intended to balance quality, diversification, asset/liability matching, liquidity and investment return. The goals of the investment process are to optimize after-tax, risk-adjusted investment income and after-tax, risk-adjusted total return while managing the assets and liabilities on a cash flow and duration basis.
The Company has established target asset portfolios for each major insurance product, which represent the investment strategies intended to profitably fund its liabilities within acceptable risk parameters. These strategies include objectives for effective duration, yield curve sensitivity and convexity, liquidity, asset sector concentration and credit quality.
The Company’s liquidity position (cash and cash equivalents and short-term investments) was $641.1$470.9 million and $933.5 million at March 31,June 30, 2009 and December 31, 2008, respectively. The decrease in the Company’s liquidity position from December 31, 2008 is primarily due to the timing of investment activity. Liquidity needs are determined from valuation analyses conducted by operational units and are driven by product portfolios. Periodic evaluations of demand liabilities and short-term liquid assets are designed to adjust specific portfolios, as well as their durations and maturities, in response to anticipated liquidity needs.
The Company occasionally enters into sales of investment securities under agreements to repurchase the same securities. These arrangements are used for purposes of short-term financing. There were no securities subject to these agreements outstanding at March 31,June 30, 2009 and December 31, 2008. The Company also occasionally enters into arrangements to purchase securities under agreements to resell the same securities. Amounts outstanding, if any, are reported in cash and cash equivalents. These agreements are primarily used as yield enhancement alternatives to

55


other cash equivalent investments. There were no agreements outstanding at March 31,June 30, 2009 and December 31, 2008. Further, the Company occasionally enters into securities lending agreements whereby certain securities are loaned to third parties, primarily major brokerage firms, in order to earn additional yield. The Company requires a minimum of 102% of the fair value of the loaned securities as collateral in the form of either cash or securities held by the Company or a trust. The cash collateral is reported in cash and the offsetting collateral repayment obligation is reported in other liabilities. There were no securities lending agreements outstanding at March 31,June 30, 2009 and December 31, 2008.
RGA Reinsurance is a member of the Federal Home Loan Bank of Des Moines (“FHLB”) and holds $18.9 million of common stock of the FHLB, which is included in other invested assets on the Company’s condensed consolidated balance sheets. RGA Reinsurance occasionally enters into traditional funding agreements with the FHLB, but had no outstanding traditional funding agreements with the FHLB at March 31,June 30, 2009 and December 31, 2008.
In addition, RGA Reinsurance has also entered into a funding agreement with the FHLB under a guaranteed investment contract whereby RGA Reinsurance has issued the funding agreement in exchange for cash and for which the FHLB has been granted a blanket lien on RGA Reinsurance’s commercial mortgage-backed securities used to collateralize RGA Reinsurance’s obligations under the funding agreement. RGA Reinsurance maintains control over these pledged assets, and may use, commingle, encumber or dispose of any portion of the collateral as

40


long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. The funding agreement and the related security agreement represented by this blanket lien provide that upon any event of default by RGA Reinsurance, the FHLB’s recovery is limited to the amount of RGA Reinsurance’s liability under the outstanding funding agreement. The amount of the Company’s liability for the funding agreements with the FHLB under guaranteed investment contracts was $199.3 million at March 31,June 30, 2009 and December 31, 2008, which is included in interest sensitive contract liabilities. The advance on this agreement is collateralized primarily by commercial mortgage-backed securities.
Future Liquidity and Capital Needs
Based on the historic cash flows and the current financial results of the Company, subject to any dividend limitations which may be imposed by various insurance regulations, management believes RGA’s cash flows from operating activities, together with undeployed proceeds from its capital raising efforts, including interest and investment income on those proceeds, interest income received on surplus notes with two operating subsidiaries, and its ability to raise funds in the capital markets, will be sufficient to enable RGA to make dividend payments to its shareholders, to make interest payments on its senior indebtedness, Trust Preferred Securities and junior subordinated notes, repurchase RGA common stock under the board of director approved plan and meet its other obligations.
A sustained general economic downturn or a downturn in the equity and other capital markets could adversely affect the market for many annuity and life insurance products. Because the Company obtains substantially all of its revenues through reinsurance arrangements that cover a portfolio of life insurance products, as well as annuities, its business could be harmed if the market for annuities or life insurance were adversely affected for an extended period of time.
Investments
The Company had total cash and invested assets of $16.4$17.3 billion and $16.5 billion at March 31,June 30, 2009 and December 31, 2008, respectively, as illustrated below (dollars in thousands):
        
         June 30, 2009 December 31, 2008
 March 31, 2009 December 31, 2008  
Fixed maturity securities, available-for-sale $8,831,920 $8,531,804  $9,842,793 $8,531,804 
Mortgage loans on real estate 764,038 775,050  757,501 775,050 
Policy loans 1,081,030 1,096,713  1,085,752 1,096,713 
Funds withheld at interest 4,505,054 4,520,398  4,675,191 4,520,398 
Short-term investments 54,552 58,123  53,953 58,123 
Other invested assets 582,784 628,649  482,028 628,649 
Cash and cash equivalents 586,542 875,403  416,947 875,403 
    
Total cash and invested assets $16,405,920 $16,486,140  $17,314,165 $16,486,140 
    
The following table presents consolidated average invested assets at amortized cost, net investment income and

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investment yield, excluding funds withheld. Funds withheld assets are primarily associated with the reinsurance of annuity contracts on which the Company earns a spread. Fluctuations in the yield on funds withheld assets are generally offset by a corresponding adjustment to the interest credited on the liabilities (dollars in thousands).
                                    
 March 31, Three months ended June 30, Six months ended June 30,
 Increase/ Increase/ Increase/
 2009 2008 (Decrease) 2009 2008 (Decrease) 2009 2008 (Decrease)
    
Average invested assets amortized cost $12,776,598 $11,539,433  10.7%
Average invested assets at amortized cost $12,976,510 $11,696,386  10.9% $12,737,497 $11,531,787  10.5%
 
Net investment income 174,300 170,899  2.0% 183,823 173,587  5.9% 358,123 344,487  4.0%
 
Investment yield (ratio of net investment income to average invested assets)  5.57%  6.06% (49)bps  5.79%  6.07% (28) bps  5.70%  6.06% (36) bps
Investment yield decreased for the three months ended March 31,June 30, 2009, as the decline of certain key indices such as LIBOR, resulted in lower investment returns on the Company’s floating rate investments. In addition, recent economic conditions, notably the tightening of credit, has resulted in new mandates to maintain a higher level of liquidity. Thus, the Company invested in highly liquid assets with shorter maturities than what was previously held in the portfolio, which, has also contributed to the decrease in the average yield of the portfolio.
All investments held by RGA and its subsidiaries are monitored for conformance to the qualitative and quantitative limits prescribed by the applicable jurisdiction’s insurance laws and regulations. In addition, the operating

41


companies’ boards of directors periodically review their respective investment portfolios. The Company’s investment strategy is to maintain a predominantly investment-grade, fixed maturity portfolio, to provide adequate liquidity for expected reinsurance obligations, and to maximize total return through prudent asset management. The Company’s asset/liability duration matching differs between operating segments. Based on Canadian reserve requirements, the Canadian liabilities are matched with long-duration Canadian assets. The duration of the Canadian portfolio exceeds twenty years. The average duration for all the Company’s portfolios, when consolidated, ranges between eight and ten years. See Note 4 — “Investments” in the Notes to Consolidated Financial Statements of the 2008 Annual Report for additional information regarding the Company’s investments.
Fixed Maturities and Equity Securities Available-for-Sale
The amortized cost, gross unrealized gains and losses, and estimated fair values offollowing tables provide information relating to investments in fixed maturity securities and equity securities the percentage that eachby sector represents by the total fixed maturity securities holdings and by the total equity securities holdings at March 31,as of June 30, 2009 and December 31, 2008 are as follows (dollars in thousands):
                                            
March 31, 2009
June 30, 2009June 30, 2009
 Other-than
 Estimated   Estimated temporary
 Amortized Unrealized Unrealized Fair % of Amortized Unrealized Unrealized Fair % of impairments
 Cost Gains Losses Value Total Cost Gains Losses Value Total in AOCI(1)
Available-for-sale:  
U.S. corporate securities $3,779,317 $18,970 $696,017 $3,102,270  35.1% $3,805,149 $73,700 $396,521 $3,482,328  35.4% $ 
Canadian and Canadian provincial governments 1,498,249 326,243 17,230 1,807,262 20.5  1,679,425 341,467 21,651 1,999,241 20.3  
Residential mortgage-backed securities 1,244,713 36,791 74,215 1,207,289 13.7  1,202,888 30,323 74,907 1,158,304 11.8  (13,415)
Foreign corporate securities 1,293,068 15,836 160,432 1,148,472 13.0  1,443,541 40,851 77,531 1,406,861 14.3  
Asset-backed securities 511,088 4,538 130,421 385,205 4.3  503,191 6,434 132,243 377,382 3.8  (5,220)
Commercial mortgage-backed securities 1,087,722 4,621 370,351 721,992 8.2  1,086,649 7,212 281,549 812,312 8.3  (4,333)
U.S. government and agencies 3,306 465  3,771   62,763 2,118  64,881 0.7  
State and political subdivisions 46,440  11,859 34,581 0.4  105,867 2,027 14,712 93,182 0.9  
Other foreign government securities 409,546 14,019 2,487 421,078 4.8  456,387 6,119 14,204 448,302 4.5  
    
Total fixed maturity securities $9,873,449 $421,483 $1,463,012 $8,831,920  100.0% $10,345,860 $510,251 $1,013,318 $9,842,793  100.0% $(22,968)
    
Non-redeemable preferred stock $175,594 $94 $86,463 $89,225  70.7% $163,300 $1,057 $46,825 $117,532  72.1% 
Common stock 40,200 75 3,344 36,931 29.3  48,378 644 3,488 45,534 27.9 
     
Total equity securities $215,794 $169 $89,807 $126,156  100.0% $211,678 $1,701 $50,313 $163,066  100.0% 
     

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(1)See Note 4 — “Investments” under Fixed Maturities and Equity Securities Available-for-Sale in the Notes to Condensed Consolidated Financial Statements for additional information regarding AOCI.
                     
December 31, 2008
              Estimated  
  Amortized Unrealized Unrealized Fair % of
  Cost Gains Losses Value Total
Available-for-sale:                    
U.S. corporate securities $3,577,116  $34,262  $598,745  $3,012,633   35.3%
Canadian and Canadian provincial governments  1,500,511   397,899   7,171   1,891,239   22.2 
Residential mortgage-backed securities  1,231,123   24,838   106,776   1,149,185   13.5 
Foreign corporate securities  1,112,018   14,335   152,920   973,433   11.4 
Asset-backed securities  484,577   2,098   147,297   339,378   4.0 
Commercial mortgage-backed securities  1,085,062   2,258   326,730   760,590   8.9 
U.S. government and agencies  7,555   876      8,431   0.1 
State and political subdivisions  46,537      7,883   38,654   0.4 
Other foreign government securities  338,349   20,062   150   358,261   4.2 
   
Total fixed maturity securities $9,382,848  $496,628  $1,347,672  $8,531,804   100.0%
   
Non-redeemable preferred stock $187,510  $49  $64,160  $123,399   77.4%
Common stock  40,582      4,607   35,975   22.6 
   
Total equity securities $228,092  $49  $68,767  $159,374   100.0%
   
The Company’s fixed maturity securities are invested primarily in commercial and industrial bonds, public utilities, U.S. and Canadian government securities, as well as mortgage- and asset-backed securities. As of March 31,June 30, 2009 and December 31, 2008, approximately 96.0%95.1% and 96.7%, respectively, of the Company’s consolidated investment

42


portfolio of fixed maturity securities was investment grade. Important factors in the selection of investments include diversification, quality, yield, total rate of return potential and call protection. The relative importance of these factors is determined by market conditions and the underlying product or portfolio characteristics. Cash equivalents are invested in high-grade money market instruments. The largest asset class in which fixed maturities were invested was in corporate securities, including commercial, industrial, finance and utility bonds, which represented approximately 48.1%49.7% of fixed maturity securities as of March 31,June 30, 2009, compared to 46.7% at December 31, 2008. The table below shows the major industry types and weighted average credit ratings, which comprise the U.S. and foreign corporate fixed maturity holdings at (dollars in thousands):
                                
March 31, 2009
June 30, 2009June 30, 2009
 Amortized Estimated Average Estimated Average Credit
 Cost Fair Value % of Total Credit Ratings Amortized Cost Fair Value % of Total Ratings
    
Finance $1,402,093 $982,155  23.1% A  $1,455,564 $1,210,725  24.8% A- 
Industrial 1,736,425 1,537,898 36.2 BBB+ 1,747,020 1,684,020 34.4 BBB+
Foreign (1) 1,293,068 1,148,472 27.0 A  1,443,541 1,406,861 28.8 A 
Utility 602,973 551,523 13.0 BBB+ 596,283 581,099 11.9 BBB+
Other 37,826 30,694 0.7 AA- 6,282 6,484 0.1 A- 
    
Total $5,072,385 $4,250,742  100.0% A-  $5,248,690 $4,889,189  100.0% A- 
    
                                
December 31, 2008
 Amortized Estimated Average Estimated Average Credit
 Cost Fair Value % of Total Credit Ratings Amortized Cost Fair Value % of Total Ratings
    
Finance $1,475,205 $1,155,906  29.0% A  $1,475,205 $1,155,906  29.0% A 
Industrial 1,520,330 1,339,200 33.6 BBB+ 1,520,330 1,339,200 33.6 BBB+
Foreign (1) 1,112,018 973,433 24.4 A  1,112,018 973,433 24.4 A 
Utility 542,737 480,809 12.1 BBB+ 542,737 480,809 12.1 BBB+
Other 38,844 36,718 0.9 AA- 38,844 36,718 0.9 AA-
    
Total $4,689,134 $3,986,066  100.0% A-  $4,689,134 $3,986,066  100.0% A- 
    

58


 
(1) Includes U.S. dollar-denominated debt obligations of foreign obligors and other foreign investments.
The National Association of Insurance Commissioners (“NAIC”) assigns securities quality ratings and uniform valuations called “NAIC Designations” which are used by insurers when preparing their annual statements. The NAIC assigns designations to publicly traded as well as privately placed securities. The designations assigned by the NAIC range from class 1 to class 6, with designations in classes 1 and 2 generally considered investment grade (BBB or higher rating agency designation). NAIC designations in classes 3 through 6 are generally considered below investment grade (BB or lower rating agency designation).
As of March 31, 2009 and December 31, 2008, respectively, the Company classified approximately 17.9% and 17.1% of its fixed maturity securities in the Level 3 category in accordance with SFAS 157 (refer to Note 4 — “Fair Value Disclosures” in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities with an inactive trading market. Additionally, the Company has included asset-backed securities with subprime exposure in the Level 3 category due to the current market uncertainty associated with these securities and the Company’s utilization of information from third parties.
The quality of the Company’s available-for-sale fixed maturity securities portfolio, as measured at fair value and by the percentage of fixed maturity securities invested in various ratings categories, relative to the entire available-for-sale fixed maturity security portfolio, at March 31,June 30, 2009 and December 31, 2008 was as follows (dollars in thousands):

43


                                                      
 March 31, 2009  December 31, 2008  June 30, 2009 December 31, 2008
NAICNAIC Rating Agency Amortized Estimated % of Amortized Estimated    Rating Agency Amortized Estimated % of Amortized Estimated % of
DesignationDesignation Designation Cost Fair Value Total  Cost Fair Value % of Total  Designation Cost Fair Value Total Cost Fair Value Total
1 AAA/AA/A $7,334,295 $7,153,398  72.6% $7,001,968 $6,607,730  77.4%
2 BBB 2,377,473 2,212,591 22.5 1,991,276 1,649,513 19.3 
3 BB 413,840 322,158 3.3 268,276 195,088 2.3 
4 B 134,827 94,647 1.0 77,830 50,064 0.6 
5 CCC and lower 79,407 53,901 0.5 33,945 22,538 0.3 
6 In or near default 6,018 6,098 0.1 9,553 6,871 0.1 
1  AAA/AA/A $7,045,700 $6,597,484  74.7% $7,001,968 $6,607,730  77.4%      
2  BBB 2,284,836 1,877,063 21.3 1,991,276 1,649,513 19.3  Total $10,345,860 $9,842,793  100.0% $9,382,848 $8,531,804  100.0%
3  BB 386,137 260,276 2.9 268,276 195,088 2.3       
4  B 88,213 53,946 0.6 77,830 50,064 0.6 
5  CCC and lower 61,502 36,804 0.4 33,945 22,538 0.3 
6  In or near default 7,061 6,347 0.1 9,553 6,871 0.1 
      
   Total $9,873,449 $8,831,920  100.0% $9,382,848 $8,531,804  100.0%
      
The Company’s fixed maturity portfolio includes structured securities. The following table shows the types of structured securities the Company held at (dollars in thousands):
                                
 March 31, 2009 December 31, 2008 June 30, 2009 December 31, 2008
 Amortized Estimated Amortized Estimated Amortized Estimated Amortized Estimated
 Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value
Residential mortgage-backed securities:  
Agency $796,869 $829,447 $851,507 $868,479  $736,056 $760,316 $851,507 $868,479 
Non-agency 447,844 377,842 379,616 280,706  466,832 397,988 379,616 280,706 
    
Total residential mortgage-backed securities 1,244,713 1,207,289 1,231,123 1,149,185  1,202,888 1,158,304 1,231,123 1,149,185 
Commercial mortgage-backed securities 1,087,722 721,992 1,085,062 760,590  1,086,649 812,312 1,085,062 760,590 
Asset-backed securities 511,088 385,205 484,577 339,378  503,191 377,382 484,577 339,378 
    
Total $2,843,523 $2,314,486 $2,800,762 $2,249,153  $2,792,728 $2,347,998 $2,800,762 $2,249,153 
    
The residential mortgage backed securities include agency-issued pass-through securities, collateralized mortgage obligations, a majority of which are guaranteed or otherwise supported by the Federal Home Loan Mortgage Corporation, Federal National Mortgage Association, or the Government National Mortgage Association. As of March 31,June 30, 2009 and December 31, 2008, the weighted average credit rating was “AA+”. The principal risks inherent in holding mortgage-backed securities are prepayment and extension risks, which will affect the timing of when cash will be received and are dependent on the level of mortgage interest rates. Prepayment risk is the unexpected increase in principal payments, primarily as a result of owner refinancing. Extension risk relates to the unexpected slowdown in principal payments. In addition, mortgage-backed securities face default risk should the borrower be unable to pay the contractual interest or principal on their obligation. The Company monitors its mortgage-backed securities to mitigate exposure to the cash flow uncertainties associated with these risks.
As of March 31,June 30, 2009 and December 31, 2008, the Company had exposure to commercial mortgage-backed securities with amortized costs totaling $1,596.7$1,557.9 million and $1,573.4 million, and estimated fair values of $1,107.9$1,167.8 million and $1,143.3 million, respectively. Those amounts include exposure to commercial mortgage-backed securities held directly in the Company’s investment portfolios within fixed maturity securities, as well as securities held by ceding companies that support the Company’s funds withheld at interest investment. The securities are highly rated with weighted average S&P credit ratings of approximately “AA+” at March 31,June 30, 2009 and December 31, 2008.

59


Approximately 75.5%82.7% and 76.3%83.7%, based on estimated fair value, were classified in the “AAA” category at March 31,June 30, 2009 and December 31, 2008, respectively. The Company recorded an other-than-temporary impairment of $0.2 million, net of non-credit adjustments, in its direct investments in commercial mortgage-backed securities for the second quarter and first six months ended June 30, 2009. The Company did not record any other-than-temporary impairments in its direct investments in commercial mortgage-backed securities during the first quartersix months of 2009 or 2008, respectively.2008. The following tables summarize the securities by rating and underwriting year at March 31,June 30, 2009 and December 31, 2008 (dollars in thousands):
                         
  June 30, 2009
  AAA AA A
      Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $213,506  $217,090  $23,388  $18,839  $20,031  $12,285 
2004  46,946   42,224   2,357   1,218   11,557   4,668 
2005  194,808   148,261   2,536   818   40,840   21,082 
2006  291,833   235,305   24,155   12,230   20,563   12,931 
2007  366,769   286,517   40,750   8,505   67,497   17,921 
2008  35,410   32,891   33,605   21,797   9,628   2,139 
2009  3,942   3,962             
   
Total $1,153,214  $966,250  $126,791  $63,407  $170,116  $71,026 
   
                         
  BBB Below Investment Grade Total
    Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $5,674  $5,601  $23,390  $17,549  $285,989  $271,364 
2004              60,860   48,110 
2005  23,282   15,258   3,589   726   265,055   186,145 
2006  18,958   9,850   17,532   10,070   373,041   280,386 
2007  10,170   7,223         485,186   320,166 
2008        5,159   838   83,802   57,665 
2009              3,942   3,962 
   
Total $58,084  $37,932  $49,670  $29,183  $1,557,875  $1,167,798 
   
                         
  December 31, 2008
  AAA AA A
      Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $250,720  $254,690  $24,276  $17,518  $28,432  $16,744 
2004  50,245   46,737   2,147   999   10,603   3,835 
2005  200,140   136,101   2,530   682   54,173   30,079 
2006  306,478   234,575   16,219   6,074   45,346   31,379 
2007  362,226   256,163   50,648   14,343   59,013   20,636 
2008  30,017   28,501   23,387   10,698   18,342   11,186 
   
Total $1,199,826  $956,767  $119,207  $50,314  $215,909  $113,859 
   

4460


                                                
March 31, 2009
Continued December 31, 2008
 AAA AA A BBB Below Investment Grade Total
 Estimated Estimated Estimated Estimated Estimated Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $236,597 $241,379 $24,642 $19,591 $23,571 $14,142  $18,144 $11,938 $ $ $321,572 $300,890 
2004 50,560 45,563 2,352 1,124 11,528 4,296      62,995 51,571 
2005 210,372 135,564 2,533 755 54,179 29,328  3,679 776   260,522 167,638 
2006 292,923 210,546 21,888 10,352 32,905 21,502  15,283 8,709 1,305 941 384,631 281,678 
2007 370,613 241,694 50,753 12,593 59,212 19,074      471,887 291,142 
2008 38,522 36,068 19,108 8,919 16,570 8,943      71,746 50,385 
2009 5,228 5,255     
    
Total $1,204,815 $916,069 $121,276 $53,334 $197,965 $97,285  $37,106 $21,423 $1,305 $941 $1,573,353 $1,143,304 
    
                         
  BBB Below Investment Grade Total
      Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
 
2003 & Prior $24,124  $13,836  $  $  $308,934  $288,948 
2004              64,440   50,983 
2005  3,690   1,465         270,774   167,112 
2006  13,824   7,768   18,130   10,379   379,670   260,547 
2007              480,578   273,361 
2008  12,842   7,777         87,042   61,707 
2009              5,228   5,255 
   
Total $54,480  $30,846  $18,130  $10,379  $1,596,666  $1,107,913 
   
                         
December 31, 2008
  AAA AA A
      Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
 
2003 & Prior $250,720  $254,690  $24,276  $17,518  $28,432  $16,744 
2004  50,245   46,737   2,147   999   10,603   3,835 
2005  200,140   136,101   2,530   682   54,173   30,079 
2006  306,478   234,575   16,219   6,074   45,346   31,379 
2007  362,226   256,163   50,648   14,343   59,013   20,636 
2008  30,017   28,501   23,387   10,698   18,342   11,186 
   
Total $1,199,826  $956,767  $119,207  $50,314  $215,909  $113,859 
   
                         
  BBB Below Investment Grade Total
      Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
 
2003 & Prior $18,144  $11,938  $  $  $321,572  $300,890 
2004              62,995   51,571 
2005  3,679   776         260,522   167,638 
2006  15,283   8,709   1,305   941   384,631   281,678 
2007              471,887   291,142 
2008              71,746   50,385 
   
Total $37,106  $21,423  $1,305  $941  $1,573,353  $1,143,304 
   

45


Asset-backed securities include credit card and automobile receivables, subprime and Alt-A securities, home equity loans, manufactured housing bonds and collateralized debt obligations. The Company’s asset-backed securities are diversified by issuer and contain both floating and fixed rate securities and had a weighted average credit rating of “AA” at March 31,June 30, 2009 and December 31, 2008. The Company owns floating rate securities that represent approximately 19.2%20.3% and 20.0% of the total fixed maturity securities at March 31,June 30, 2009 and December 31, 2008, respectively. These investments have a higher degree of income variability than the other fixed income holdings in the portfolio due to the floating rate nature of the interest payments. The Company holds these investments to match specific floating rate liabilities primarily reflected in the condensed consolidated balance sheets as collateral finance facility. In addition to the risks associated with floating rate securities, principal risks in holding asset-backed securities are structural, credit and capital market risks. Structural risks include the securities’ priority in the issuer’s capital structure, the adequacy of and ability to realize proceeds from collateral, and the potential for prepayments. Credit risks include consumer or corporate credits such as credit card holders, equipment lessees, and corporate obligors. Capital market risks include general level of interest rates and the liquidity for these securities in the marketplace.
As of March 31,June 30, 2009 and December 31, 2008, the Company held investments in securities with subprime mortgage exposure with amortized costs totaling $202.5$207.3 million and $230.1 million, and estimated fair values of $126.6$107.8 million and $147.8 million, respectively. Those amounts include exposure to subprime mortgages through securities held directly in the Company’s investment portfolios within asset-backed securities, as well as securities backing the Company’s funds withheld at interest investment. The securities are highly rated with weighted average S&P credit ratings of approximately “A”“A+” at March 31,June 30, 2009 and “AA-” at December 31, 2008. Additionally, the Company has largely avoided directly investing in securities originated since the second half of 2005, which management believes was a period of lessened underwriting quality. During the threesecond quarter and first six months ended March 31,June 30, 2009, the Company recorded $13.4$7.4 million and $20.8 million, respectively, of other-than-temporary write-downsimpairments, net of non-credit adjustments, in its subprime portfolio due primarily to the increased likelihood that some or all of the remaining scheduled principal and interest payments on select securities will not be received. The Company did not record any other-than-temporary write-downsimpairments in its subprime portfolio during the threefirst six months ended March 31,June 30, 2008. The following tables summarize the securities by rating and underwriting year at March 31,June 30, 2009 and December 31, 2008 (dollars in thousands):
                                                
March 31, 2009
 June 30, 2009
 AAA AA A AAA AA A
 Estimated Estimated Estimated Estimated Estimated Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $10,616 $7,543 $1,102 $570 $1,748 $696  $8,316 $6,400 $2,005 $1,166 $7,926 $4,294 
2004   14,945 9,884 32,593 25,223  8,458 6,001 16,719 10,161 21,305 10,808 
2005 25,386 19,843 32,779 23,779 13,972 7,730  17,030 12,137 32,254 18,765 14,040 4,116 
2006     3,370 1,638      4,989 1,801 
2007        6,607 2,850     
2008              
2009        7,024 7,024     
    
Total $36,002 $27,386 $48,826 $34,233 $51,683 $35,287  $47,435 $34,412 $50,978 $30,092 $48,260 $21,019 
    

4661


                         
Continued March 31, 2009
  BBB Below Investment Grade Total
      Estimated     Estimated     Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
 
2003 & Prior $5,623  $3,230  $798  $80  $19,887  $12,119 
2004        3,371   3,367   50,909   38,474 
2005  18,362   9,239   18,086   1,696   108,585   62,287 
2006  4,500   2,081   579   575   8,449   4,294 
2007  888   318   13,819   9,141   14,707   9,459 
2008                  
2009                  
   
Total $29,373  $14,868  $36,653  $14,859  $202,537  $126,633 
   
                         
  December 31, 2008
  AAA AA A
      Estimated     Estimated   Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
 
2003 & Prior $11,007  $9,116  $6,509  $4,320  $1,813  $1,227 
2004        21,220   13,437   33,728   26,228 
2005  37,134   27,793   36,424   26,471   6,514   2,582 
2006  135   134   4,500   2,076   4,998   1,991 
2007        888   283       
2008                  
   
Total $48,276  $37,043  $69,541  $46,587  $47,053  $32,028 
   
                        
Continued June 30, 2009
 BBB Below Investment Grade Total
 Estimated Estimated Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $ $ $1,172 $188 $19,419 $12,048 
2004   2,954 3,089 49,436 30,059 
2005 15,737 8,218 27,251 3,985 106,312 47,221 
2006 4,500 2,080 1,279 249 10,768 4,130 
2007 887 306 6,895 4,131 14,389 7,287 
2008       
2009     7,024 7,024 
  
Total $21,124 $10,604 $39,551 $11,642 $207,348 $107,769 
  
                        
                  December 31, 2008
 BBB Below Investment Grade Total AAA AA A  
 Estimated Estimated Estimated Estimated Estimated Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $413 $77 $807 $106 $20,549 $14,846  $11,007 $9,116 $6,509 $4,320 $1,813 $1,227 
2004   7,900 5,727 62,848 45,392    21,220 13,437 33,728 26,228 
2005 11,908 6,529 17,905 5,739 109,885 69,114  37,134 27,793 36,424 26,471 6,514 2,582 
2006 3,442 2,618 3,287 449 16,362 7,268  135 134 4,500 2,076 4,998 1,991 
2007   19,588 10,880 20,476 11,163    888 283   
2008              
    
Total $15,763 $9,224 $49,487 $22,901 $230,120 $147,783  $48,276 $37,043 $69,541 $46,587 $47,053 $32,028 
   
                        
 BBB Below Investment Grade Total
 Estimated Estimated Estimated
Underwriting Year Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
2003 & Prior $413 $77 $807 $106 $20,549 $14,846 
2004   7,900 5,727 62,848 45,392 
2005 11,908 6,529 17,905 5,739 109,885 69,114 
2006 3,442 2,618 3,287 449 16,362 7,268 
2007   19,588 10,880 20,476 11,163 
2008       
  
Total $15,763 $9,224 $49,487 $22,901 $230,120 $147,783 
  
Alternative residential mortgage loans (“Alt-A”) are a classification of mortgage loans where the risk profile of the borrower falls between prime and sub-prime. At March 31,June 30, 2009 and December 31, 2008, the Company’s Alt-A residential mortgage-backed securities exposure was $201.9$152.3 million and $197.7 million, respectively, with an unrealized loss of $28.7$45.8 million and $39.9 million, respectively. 77.3%81.8% of the Alt-A securities were rated “BBB” or better as of March 31,June 30, 2009. This amount includes securities directly held by the Company and securities backing the Company’s funds withheld at interest investment. For the threesecond quarter and first six months ended March 31,June 30, 2009, the Company recorded other-than-temporary impairments, net of $5.6non-credit adjustments, of $4.6 million and $10.1 million, respectively, in its Alt-A portfolio due primarily to the increased likelihood that some or all of the remaining scheduled principal and interest payments on select securities will not be received. The Company did not record any other-than-temporary write-downsimpairments in its Alt-A portfolio during the threesix months ended March 31,June 30, 2008.
The Company’s fixed maturity and funds withheld portfolios include approximately $511.8$537.5 million in estimated fair

47


value of securities that are insured by various financial guarantors, or less than five percent of consolidated investments. The securities are diversified between municipal bonds and asset-backed securities with well diversified collateral pools. The Company invests in insured collateralized debt obligation (“CDO”) structures backing subprime investments of approximately $0.1$0.2 million at March 31,June 30, 2009. The insured securities are primarily investment grade, at issuance, without the benefit of the insurance provided by the financial guarantor and therefore the Company does not expect to incur significant realized losses as a result of the recent financial difficulties

62


encountered by several of the financial guarantors. In addition to the insured securities, the Company held investment-grade securities issued by four of the financial guarantors totaling $13.4 million in amortized cost.
The Company does not invest in the common equity securities of Fannie Mae and Freddie Mac, both government sponsored entities; however, as of March 31,June 30, 2009, the Company holds in its general portfolio a book value of $50.7$5.7 million amortized cost in direct exposure in the form of senior unsecured and preferred securities. Additionally, as of March 31,June 30, 2009, the portfolios held by the Company’s ceding companies that support its funds withheld asset contain about $351.6include approximately $344.7 million in amortized cost of direct unsecured holdings and no equity exposure. As of March 31,June 30, 2009, indirect exposure in the form of secured, structured mortgaged securities issued by Fannie Mae and Freddie Mac totals about $1.0 billionapproximately $966.5 million in amortized cost across the Company’s general and funds withheld portfolios. Including the funds withheld portfolios, the Company’s direct holdings in the form of preferred securities total a book value of $0.7 million. As a result of the U.S government intervention and cessation of dividend payments, the Company recorded an other-than-temporary impairment of its preferred holdings of Fannie Mae and Freddie Mac totaling $12.2 million in 2008. The Company did not record any further other-than-temporary impairments on its preferred holdings of Fannie Mae and Freddie Mac in 2009.
The Company monitors its fixed maturity securities and equity securities to determine impairments in value and evaluates factors such as financial condition of the issuer, payment performance, the length of time and the extent to which the market value has been below amortized cost, compliance with covenants, general market conditions and industry sector, current intent and ability to hold securities and various other subjective factors. Based on management’s judgment, securities determined to have an other-than-temporary impairment in value are written down to fair value. The Company recorded $39.8$20.8 million and $60.6 million in other-than-temporary write-downsimpairments on fixed maturity securities, net of non-credit adjustments, and equity securities for the threesecond quarter and first six months ended March 31, 2009.of 2009, respectively. The write-downsimpairments are due primarily to the continued turmoil in the U.S. and global financial markets which has resulted in bankruptcies, consolidations and government interventions. The Company recorded $5.2$0.5 million and $5.7 million in other-than-temporary write-downsimpairments on fixed maturity securities and equity securities for the threesecond quarter and first six months ended March 31, 2008.of 2008, respectively. The table below summarizes impairment write-downsother-than-temporary impairments, net of non-credit adjustments, for the three-month period ended March 31,second quarter and first six months of 2009 (dollars in thousands).
        
     For Three Months For Six Months
Asset Class Impairment  Ended June 30, 2009 Ended June 30, 2009
Subprime / Alt-A / Other structured securities $20,609  $13,434 $34,043 
Below investment grade corporate securities 13,785  7,373 21,159 
Equity securities 5,431   5,430 
     
Total $39,825  $20,807 $60,632 
     
During the three months ended March 31,June 30, 2009 and 2008, the Company sold fixed maturity securities and equity securities with fair values of $108.4$214.2 million and $141.3$250.6 million at losses of $22.0$18.8 million and $8.9$4.4 million, respectively, or at 83.1%91.9% and 94.1%98.3% of book value,amortized cost, respectively. Generally, suchDuring the six months ended June 30, 2009 and 2008, the Company sold fixed maturity securities and equity securities with fair values of $322.6 million and $391.9 million at losses are insignificant in relation to theof $38.5 million and $9.7 million, respectively, or at 89.3% and 97.6% of amortized cost, basis of the investment and are largely due to changes in interest rates from the time the security was purchased. The securities are classified as available-for-sale in order to meet the Company’s operational and other cash flow requirements.respectively. The Company does not engage in short-term buying and selling of securities to generate gains or losses.
At March 31,June 30, 2009 and December 31, 2008, the Company had $1,552.8$1,063.6 million and $1,416.4 million, respectively, of gross unrealized losses related to its fixed maturity and equity securities. These securities are concentrated, calculated as a percentage of gross unrealized losses, as follows:

4863


                
 March 31, December 31, June 30, December 31,
 2009 2008 2009 2008
Sector:
  
U.S. corporate securities  51%  46%  42%  46%
Canadian and Canada provincial governments 1 1  2 1 
Residential mortgage-backed securities 5 7  7 7 
Foreign corporate securities 10 12  7 12 
Asset-backed securities 8 10  13 10 
Commercial mortgage-backed securities 24 23  27 23 
State and political subdivisions 1 1  2 1 
    
Total  100%  100%  100%  100%
    
 
Industry:
  
Finance  39%  33%  34%  33%
Asset-backed 8 10  12 10 
Industrial 17 19  12 19 
Mortgage-backed 29 31  34 31 
Government 2 1  5 1 
Utility 4 6  3 6 
Other 1  
    
Total  100%  100%  100%  100%
    
The following table presents the total gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for 1,7941,558 and 1,716 fixed maturity securities and equity securities as of March 31,June 30, 2009 and December 31, 2008, respectively, where the estimated fair value had declined and remained below amortized cost by the indicated amount (dollars in thousands):
                                                
 March 31, 2009 December 31, 2008 June 30, 2009 December 31, 2008
 Gross Gross   Gross Gross  
 Number of Unrealized Number of Unrealized   Number of Unrealized Number of Unrealized  
 Securities Losses % of Total Securities Losses % of Total Securities Losses % of Total Securities Losses % of Total
    
Less than 20% 1,075 $321,366  20.7% 980 $324,390  22.9% 1,109 $310,047  29.1% 980 $324,390  22.9%
20% or more for less than six months 280 417,560 26.9 561 796,747 56.3  77 156,557 14.8 561 796,747 56.3 
20% or more for six months or greater 439 813,893 52.4 175 295,302 20.8  372 597,027 56.1 175 295,302 20.8 
    
Total 1,794 $1,552,819  100.0% 1,716 $1,416,439  100.0% 1,558 $1,063,631  100.0% 1,716 $1,416,439  100.0%
    
The investment securities in an unrealized loss position as of March 31,June 30, 2009 consisted of 1,7941,558 securities with unrealized losses of $1,552.8$1,063.6 million. Of these unrealized losses, 86.4%83.0% were investment grade and 20.7%29.1% were less than 20% below cost. The amount of the unrealized loss on these securities was primarily attributable to increases in interest rates, including a widening of credit default spreads. The increase in the number of securities at a loss greater than 20% or more for six months or greater reflects the continued effects of adverse economic conditions.
While all of these securities are monitored for potential impairment, the Company believes due to recent market conditions and liquidity concerns, and the historically high levels of price volatility, the extent and duration of a decline in value have become less indicative of when the market may believe there has been credit deterioration with respect to an issuer. Under these current market conditions, the Company’s experience indicatesdetermination of whether a decline in value is other-than-temporary places greater emphasis on the Company’s analysis of the underlying credit versus the extent and duration of a decline in value. The Company’s credit analysis of an investment includes determining whether the issuer is current on its contractual payments, evaluating whether it is probable that the first two categories do not presentCompany will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment. The Company continues to consider valuation declines as great a risk of impairment, and often, fair values recover over time. These securities have generally been adversely affected by overall economic conditions, primarily an increase in the interest rate environment, including a wideningpotential indicator of credit default spreads.deterioration as the severity and duration of the decline increases.

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The following tables present the estimated fair values and gross unrealized losses, including other-than-temporary impairment losses reported in AOCI, for the 1,7941,558 and 1,716 fixed maturity securities and equity securities that have estimated fair values below amortized cost as of March 31,June 30, 2009 and December 31, 2008, respectively. These investments are presented by class and grade of security, as well as the length of time the related market value has remained below amortized cost.
                         
  As of June 30, 2009
          Equal to or greater than  
(dollars in thousands) Less than 12 months 12 months Total
      Gross     Gross     Gross
  Estimated Unrealized Estimated Unrealized Estimated Unrealized
  Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
                        
U.S. corporate securities $460,442  $53,092  $1,370,743  $252,696  $1,831,185  $305,788 
Canadian and Canadian provincial governments  323,489   11,729   118,952   9,922   442,441   21,651 
Residential mortgage-backed securities  131,783   15,862   232,358   26,280   364,141   42,142 
Foreign corporate securities  329,259   21,486   237,533   46,620   566,792   68,106 
Asset-backed securities  51,225   13,426   204,070   95,932   255,295   109,358 
Commercial mortgage-backed securities  164,047   49,928   498,516   230,034   662,563   279,962 
State and political subdivisions  14,684   1,657   43,380   9,010   58,064   10,667 
Other foreign government securities  257,500   13,750   3,685   454   261,185   14,204 
       
Investment grade securities
  1,732,429   180,930   2,709,237   670,948   4,441,666   851,878 
       
                         
Non-investment grade securities:
                        
U.S. corporate securities  83,289   21,194   220,355   69,539   303,644   90,733 
Asset-backed securities  3,666   5,928   9,297   16,957   12,963   22,885 
Foreign corporate securities  8,089   3,583   18,451   5,842   26,540   9,425 
Residential mortgage-backed securities  26,943   12,811   33,294   19,954   60,237   32,765 
Commercial mortgage-backed securities        209   1,587   209   1,587 
State and political subdivisions        4,000   4,045   4,000   4,045 
       
Non-investment grade securities
  121,987   43,516   285,606   117,924   407,593   161,440 
       
Total fixed maturity securities
 $1,854,416  $224,446  $2,994,843  $788,872  $4,849,259  $1,013,318 
       
Non-redeemable preferred stock  25,146   5,847   89,751   40,979   114,897   46,826 
Common stock  13,207   1,578   4,902   1,909   18,109   3,487 
       
Total equity securities
 $38,353  $7,425  $94,653  $42,888  $133,006  $50,313 
       
Total number of securities in an unrealized loss position
  516       1,042       1,558     
                         

4965


                         
  As of March 31, 2009
          Equal to or greater than  
  Less than 12 months 12 months Total
      Gross     Gross     Gross
  Estimated Unrealized Estimated Unrealized Estimated Unrealized
(dollars in thousands) Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
                        
U.S. corporate securities $1,137,224  $172,194  $1,141,332  $399,942  $2,278,556  $572,136 
Canadian and Canadian provincial governments  242,153   8,484   106,505   8,746   348,658   17,230 
Residential mortgage-backed securities  105,818   21,388   275,684   37,384   381,502   58,772 
Foreign corporate securities  486,332   53,748   219,760   89,413   706,092   143,161 
Asset-backed securities  90,759   20,779   189,007   86,683   279,766   107,462 
Commercial mortgage-backed securities  419,538   212,518   234,307   156,252   653,845   368,770 
State and political subdivisions  5,945   547   25,637   6,288   31,582   6,835 
Other foreign government securities  97,393   2,195   3,524   292   100,917   2,487 
       
Investment grade securities
  2,585,162   491,853   2,195,756   785,000   4,780,918   1,276,853 
       
                         
Non-investment grade securities:
                        
U.S. corporate securities  128,276   36,070   120,981   87,811   249,257   123,881 
Asset-backed securities  7,853   5,788   10,407   17,171   18,260   22,959 
Foreign corporate securities  20,208   7,090   12,383   10,181   32,591   17,271 
Residential mortgage-backed securities  16,312   4,411   11,301   11,032   27,613   15,443 
Commercial mortgage-backed securities        213   1,581   213   1,581 
State and political subdivisions        3,000   5,024   3,000   5,024 
       
Non-investment grade securities
  172,649   53,359   158,285   132,800   330,934   186,159 
       
Total fixed maturity securities
 $2,757,811  $545,212  $2,354,041  $917,800  $5,111,852  $1,463,012 
       
Equity securities
 $49,880  $30,666  $48,636  $59,141  $98,516  $89,807 
       
Total number of securities in an unrealized loss position
  929       865       1,794     
                   
                         
  As of December 31, 2008
          Equal to or greater than  
  Less than 12 months 12 months Total
      Gross     Gross     Gross
  Estimated Unrealized Estimated Unrealized Estimated Unrealized
(dollars in thousands) Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
                        
U.S. corporate securities $1,407,547  $240,299  $810,115  $281,947  $2,217,662  $522,246 
Canadian and Canadian provincial governments  114,754   2,751   89,956   4,420   204,710   7,171 
Residential mortgage-backed securities  190,525   58,026   213,310   39,794   403,835   97,820 
Foreign corporate securities  508,102   82,490   140,073   59,816   648,175   142,306 
Asset-backed securities  118,608   40,139   173,505   99,147   292,113   139,286 
Commercial mortgage-backed securities  523,475   200,567   188,638   126,163   712,113   326,730 
State and political subdivisions  20,403   1,947   18,250   5,936   38,653   7,883 
Other foreign government securities  16,419   33   4,125   117   20,544   150 
       
Investment grade securities
  2,899,833   626,252   1,637,972   617,340   4,537,805   1,243,592 
       

50


                        
Continued As of December 31, 2008
 Equal to or greater than  
 Less than 12 months 12 months Total                        
 Gross Gross Gross As of December 31, 2008
 Estimated Unrealized Estimated Unrealized Estimated Unrealized Equal to or greater than  
(dollars in thousands) Fair Value Losses Fair Value Losses Fair Value Losses Less than 12 months 12 months Total
 Gross Gross Gross
 Estimated Unrealized Estimated Unrealized Estimated Unrealized
 Fair Value Losses Fair Value Losses Fair Value Losses
Investment grade securities:
 
U.S. corporate securities $1,407,547 $240,299 $810,115 $281,947 $2,217,662 $522,246 
Canadian and Canadian provincial governments 114,754 2,751 89,956 4,420 204,710 7,171 
Residential mortgage-backed securities 190,525 58,026 213,310 39,794 403,835 97,820 
Foreign corporate securities 508,102 82,490 140,073 59,816 648,175 142,306 
Asset-backed securities 118,608 40,139 173,505 99,147 292,113 139,286 
Commercial mortgage-backed securities 523,475 200,567 188,638 126,163 712,113 326,730 
State and political subdivisions 20,403 1,947 18,250 5,936 38,653 7,883 
Other foreign government securities 16,419 33 4,125 117 20,544 150 
      
Investment grade securities
 2,899,833 626,252 1,637,972 617,340 4,537,805 1,243,592 
      
Non-investment grade securities:
  
U.S. corporate securities 140,426 36,615 60,378 39,884 200,804 76,499  140,426 36,615 60,378 39,884 200,804 76,499 
Asset-backed securities 3,465 2,060 11,156 5,951 14,621 8,011  3,465 2,060 11,156 5,951 14,621 8,011 
Foreign corporate securities 24,637 7,227 2,032 3,387 26,669 10,614  24,637 7,227 2,032 3,387 26,669 10,614 
Residential mortgage-backed securities 8,089 5,944 4,496 3,012 12,585 8,956  8,089 5,944 4,496 3,012 12,585 8,956 
            
Non-investment grade securities
 176,617 51,846 78,062 52,234 254,679 104,080  176,617 51,846 78,062 52,234 254,679 104,080 
            
Total fixed maturity securities
 $3,076,450 $678,098 $1,716,034 $669,574 $4,792,484 $1,347,672  $3,076,450 $678,098 $1,716,034 $669,574 $4,792,484 $1,347,672 
            
Equity securities
 $61,180 $26,923 $61,249 $41,844 $122,429 $68,767 
Non-redeemable preferred stock 49,376 22,316 61,249 41,844 110,625 64,160 
Common stock 11,804 4,607   11,804 4,607 
      
Total equity securities
 $61,180 $26,923 $61,249 $41,844 $122,429 $68,767 
            
Total number of securities in an unrealized loss position
 1,039 677 1,716  1,039 677 1,716 
              
As of March 31,June 30, 2009, the Company hasdoes not intend to sell the abilityfixed maturity securities and intentdoes not believe it is more likely than not that it will be required to hold these investmentsell the fixed maturity securities untilbefore the recovery of the fair value up to the current cost of the investment, which may be maturity. However, from time to time whenas facts and circumstances arise,change, the Company may sell fixed maturity securities in the ordinary course of managing its portfolio to meet diversification, credit quality, yield enhancement, asset-liability management and liquidity requirements. As of June 30, 2009, the Company has the ability and intent to hold the equity securities until the recovery of the fair value up to the current cost of the investment. However, from time to time if facts and circumstances change, the Company may sell equity securities in the ordinary course of managing its portfolio to meet diversification, credit quality and liquidity requirements.
As of June 30, 2009 and December 31, 2008, respectively, the Company classified approximately 18.0% and 17.1% of its fixed maturity securities in the Level 3 category in accordance with SFAS 157 (refer to Note 4 — “Fair Value Disclosures” in the Notes to Condensed Consolidated Financial Statements for additional information). These securities primarily consist of private placement corporate securities with an inactive trading market. Additionally, the Company has included asset-backed securities with subprime exposure in the Level 3 category due to the current market uncertainty associated with these securities and the Company’s utilization of information from third parties.
Mortgage Loans on Real Estate
Mortgage loans represented approximately 4.4% and 4.7% of the Company’s cash and invested assets as of March 31,June 30, 2009 and December 31, 2008, respectively. The Company’s mortgage loan portfolio consists principally of

66


investments in U.S.-based commercial offices, light industrial properties and retail locations. The mortgage loan portfolio is diversified by geographic region and property type.
Valuation allowances on mortgage loans are established based upon losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The valuation allowances are established after management considers, among other things, the value of underlying collateral and payment capabilities of debtors. Any subsequent adjustments to the valuation allowances will be treated as investment gains or losses. Information regarding the Company’s loan valuation allowances for mortgage loans as of March 31,June 30, 2009 is as follows (dollars in thousands):
        
 Three Months Ended  Six Months Ended 
 March 31, 2009  June 30, 2009 
Balance, beginning of period $526  $526 
Additions 1,288  2,557 
Deductions  (401)  (401)
      
Balance, end of period $1,413  $2,682 
      
Information regarding the portion of the Company’s mortgage loans that were impaired as of March 31,June 30, 2009 and December 31, 2008 is as follows (dollars in thousands):
        
         June 30, 2009 December 31, 2008 
 March 31, 2009 December 31, 2008   
Impaired loans with valuation allowances $12,338 $3,853  $12,332 $3,853 
Impaired loans without valuation allowances 2,097 18,125  2,082 18,125 
          
Subtotal 14,435 21,978  14,414 21,978 
Less: Valuation allowances on impaired loans 1,413 526  2,682 526 
          
Impaired loans $13,022 $21,452  $11,732 $21,452 
          
The Company’s average investment in impaired loans was $3.6 million and $3.7 million for the three months ended March 31, 2009 and 2008, respectively.as of June 30, 2009. Interest income on impaired loans was $0.2 million and $1.3 million for the three and six months ended March 31, 2009 and 2008, respectively.June 30, 2009. There were no impaired loans during the first six months of 2008.

51

Policy Loans


Policy loans comprised approximately 6.6%6.3% and 6.7% of the Company’s cash and invested assets as of March 31,June 30, 2009 and December 31, 2008, respectively, substantially all of which are associated with one client. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. Because policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In addition, the Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.
Funds Withheld at Interest
Funds withheld at interest comprised approximately 27.5%27.0% and 27.4% of the Company’s cash and invested assets as of March 31,June 30, 2009 and December 31, 2008, respectively. For agreements written on a modified coinsurance basis and certain agreements written on a coinsurance basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company, and are reflected as funds withheld at interest on the Company’s condensed consolidated balance sheet. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances with amounts owed to the Company from the ceding company. Interest accrues to these assets at rates defined by the treaty terms. The Company is subject to the investment performance on the withheld assets, although it does not directly control them. These assets are primarily fixed maturity investment securities and pose risks similar to the fixed maturity securities the Company owns. The underlying portfolios also include options related to equity-indexed annuity products. The market value changes associated with these investments have caused some volatility in reported investment income. This is largely offset by a corresponding change in interest credited, with minimal impact on income before taxes. To mitigate risk, the Company helps set the investment guidelines followed by the ceding company and monitors

67


compliance. Ceding companies with funds withheld at interest had an average rating of “A” at March 31,June 30, 2009 and “A+” at December 31, 2008. Certain ceding companies maintain segregated portfolios for the benefit of the Company.
Other Invested Assets
Other invested assets represented approximately 3.5%2.8% and 3.8% of the Company’s cash and invested assets as of March 31,June 30, 2009 and December 31, 2008, respectively. Other invested assets include equity securities, non-redeemable preferred stocks, limited partnership interests, structured loans and derivative contracts. Carrying values of these assets as of March 31,June 30, 2009 and December 31, 2008 are as follows (dollars in thousands):
                
 March 31, 2009 December 31, 2008 June 30, 2009 December 31, 2008
    
Equity securities $36,931 $35,975  $45,534 $35,975 
Non-redeemable preferred stock 89,225 123,399  117,532 123,399 
Limited partnerships 142,118 140,077  143,917 140,077 
Structured loans 109,418 101,380  131,831 101,380 
Derivatives 173,086 206,341  17,529 206,341 
Other 32,006 21,477  25,685 21,477 
    
Total other invested assets $582,784 $628,649  $482,028 $628,649 
    
The Company recorded $5.4 million indid not record any other-than-temporary write-downsimpairments on equity securities in the second quarter of 2009, but recorded other-than-temporary impairments of $5.4 million in the first threesix months of 2009. The Company did not record any other-than-temporary write-downsimpairments on its other invested assetsequity securities in the first threesix months of 2008. The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date less collateral held by the Company. The credit exposure of the Company’s derivative transactions is represented by the fair value of contracts with a net positive fair value position at the reporting date. At March 31,June 30, 2009, the Company had credit exposure of $173.1$17.5 million related to its derivative contracts of which $106.8$9.7 million were collateralized with cash collateral from the counterparty. The decrease in the Company’s credit exposure since December 31, 2008 is due to the termination of its foreign currency swap used to hedge its investment in its Canada operation.

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Contractual Obligations
From December 31, 2008 to March 31,June 30, 2009, the Company’s obligation for long-term debt, including interest decreased by $438.9 million primarily due to the interest related to the repurchase of $80.2 million face amount of its 6.75% junior subordinated debentures due 2065 and the repayment of the Company’s £15.0 million credit facility. In addition, the value of the Company’s obligation for payables for collateral received under derivative contracts decreased by $53.0$150.1 million due to a change in the value of the underlying derivatives. There were no other material changes in the Company’s contractual obligations from those reported in the 2008 Annual Report.
Mortality Risk Management
In the event that mortality or morbidity experience develops in excess of expectations, some reinsurance treaties allow for increases to future premium rates. Other treaties include experience refund provisions, which may also help reduce RGA’s mortality risk. In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of claims paid by ceding reinsurance to other insurance enterprises or retrocessionaires under excess coverage and coinsurance contracts. In the U.S., the Company retains a maximum of $8.0 million of coverage per individual life. In certain limited situations, due to the acquisition of in force blocks of business, the Company has retained more than $8.0 million per individual policy. In total, there are 196 such cases of over-retained policies, for amounts averaging $2.4$3.0 million over the Company’s normal retention limit. The largest amount over-retained on any one life is $10.1$6.3 million. The Company enters into agreements with other reinsurers to help mitigate the risk related to the over-retained policies. For other countries, particularly those with higher risk factors or smaller books of business, the Company systematically reduces its retention. The Company has a number of retrocession arrangements whereby certain business in force is retroceded on an automatic or facultative basis.
The Company maintains a catastrophe insurance program (“Program”) that renews on MarchSeptember 7th of each year. The current Program began September 7, 2008, and covers events involving 10 or more insured deaths from a single

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occurrence. The Company retains the first $10 million in claims, the Program covers the next $50 million in claims, and the Company retains all claims in excess of $60 million. The Program covers reinsurance programs worldwide and includes losses due to acts of terrorism, including terrorism losses due to nuclear, chemical and/or biological events. The Program excludes losses from earthquakes occurring in California and also excludes losses from pandemics. The Program is insured by eleven insurance companies and Lloyd’s Syndicates, with no single entity providing more than $10 million of coverage.
Counterparty Risk — Reinsurance
In the normal course of business, the Company seeks to limit its exposure to reinsurance contracts by ceding a portion of the reinsurance to other insurance companies or reinsurers. Should a counterparty not be able to fulfill its obligation to the Company under a reinsurance agreement, the impact could be material to the Company’s financial condition and results of operations.
Generally, RGA’s insurance subsidiaries retrocede amounts in excess of their retention to RGA Reinsurance, RGA Reinsurance Company (Barbados) Ltd., RGA Americas Reinsurance Company, Ltd., RGA Worldwide Reinsurance Company, Ltd. or RGA Atlantic Reinsurance Company, Ltd. External retrocessions are arranged through the Company’s retrocession pools for amounts in excess of its retention. As of March 31,June 30, 2009, all retrocession pool members in this excess retention pool reviewed by the A.M. Best Company were rated “A-”, the fourth highest rating out of fifteen possible ratings, or better. For a majority of the retrocessionaires that are not rated, letters of credit or trust assets have been given as additional security in favor of RGA Reinsurance. In addition, the Company performs annual financial and in force reviews of its retrocessionaires to evaluate financial stability and performance.
The Company has never experienced a material default in connection with retrocession arrangements, nor has it experienced any material difficulty in collecting claims recoverable from retrocessionaires; however, no assurance can be given as to the future performance of such retrocessionaires or as to the recoverability of any such claims.
The Company relies upon its clients to provide timely, accurate information. The Company may experience volatility in its earnings as a result of erroneous or untimely reporting from its clients. The Company works closely with its clients and monitors this risk in an effort to minimize its exposure.
Market Risk
Market risk is the risk of loss that may occur when fluctuations in interest and currency exchange rates and equity and commodity prices change the value of a financial instrument. Since both derivative and nonderivative financial

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instruments have market risk, the Company’s risk management extends beyond derivatives to encompass all financial instruments held. The Company is primarily exposed to interest rate risk, including credit spreads, and foreign currency risk.
Interest rate risk arises from many of the Company’s primary activities, as the Company invests substantial funds in interest-sensitive assets and also has certain interest-sensitive contract liabilities. The Company manages interest rate risk and credit risk to maximize the return on the Company’s capital effectively and to preserve the value created by its business operations. As such, certain management monitoring processes are designed to minimize the impact of sudden and sustained changes in interest rates on fair value, cash flows, and interest income.
The Company is subject to foreign currency translation, transaction, and net income exposure. The Company manages its exposure to currency principally by matching invested assets with the underlying reinsurance liabilities to the extent possible. As of March 31,June 30, 2009, the Company had in place a net investment hedge of a portion of its investment in CanadaAustralian operations. Translation differences resulting from translating foreign subsidiary balances to U.S. dollars are reflected in stockholders’ equity on the condensed consolidated balance sheets. The Company generally does not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). The majority of the Company’s foreign currency transactions are denominated in Canadian dollars, British pounds, Australian dollars, Japanese yen, Korean won, euros and the South African rand.
The Company reinsures variable annuities including those with guaranteed minimum benefits and guaranteed minimum death benefits (“GMDB”), guaranteed minimum income benefits (“GMIB”), guaranteed minimum accumulation benefits (“GMAB”) and guaranteed minimum withdrawal benefits (“GMWB”). The table below

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provides a summary of variable annuity account values and the fair value of the guaranteed benefits as of March 31,June 30, 2009 and December 31, 2008.
         
(dollars in millions) March 31, 2009 December 31, 2008
   
No guaranteed minimum benefits $1,041.3  $1,063.1 
GMDB only  58.3   53.5 
GMIB only  4.3   3.9 
GMAB only  47.5   43.7 
GMWB only  1,179.7   795.0 
GMDB / WB  315.6   287.1 
Other  26.0   24.3 
   
Total variable annuity account values $2,672.7  $2,270.6 
   
         
Fair value of guaranteed living benefits $241.2  $276.4 
(dollars in millions)
         
  June 30, 2009 December 31, 2008
   
No guaranteed minimum benefits $1,090.3  $1,063.1 
GMDB only  65.4   53.5 
GMIB only  4.8   3.9 
GMAB only  53.7   43.7 
GMWB only  1,326.9   795.0 
GMDB / WB  361.4   287.1 
Other  29.5   24.3 
   
Total variable annuity account values $2,932.0  $2,270.6 
   
         
Fair value of guaranteed living benefits $80.0  $276.4 
There has been no significant change in the Company’s quantitative or qualitative aspects of market risk during the quarter ended March 31,June 30, 2009 from that disclosed in the 2008 Annual Report.
New Accounting Standards
In AprilJune 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (“SFAS 168”). On the effective date of this standard, FASB Accounting Standards Codification™ (“Codification”) will become the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company will adopt SFAS 168 on September 30, 2009 and will update all disclosures to reference Codification in its September 30, 2009 quarterly report.
In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS 167”). SFAS 167 amends Interpretation 46(R), “Consolidation of Variable Interest Entities (revised December 2003)—an interpretation of ARB No. 51”, as it relates to the assessment of a variable interest entity. It also requires additional disclosures to provide transparent information regarding the involvement in a variable interest entity. SFAS 167 is effective for fiscal years and interim periods beginning after November 15, 2009. The Company is currently evaluating the impact of SFAS 167 on its condensed consolidated financial statements.
In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets—an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 amends the application of SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement No. 125 “, as it relates to the transfers of financial assets. It also requires additional disclosures to address concerns regarding the transparency of transfers of financial assets. SFAS 166 is effective for fiscal years and interim periods beginning after November 15, 2009. The Company is currently evaluating the impact of SFAS 166 on its condensed consolidated financial statements.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS 165”). SFAS 165 provides guidance on the Company’s assessment of subsequent events. It also requires the disclosure of the date through which subsequent events have been evaluated. SFAS 165 is effective for annual and interim periods ending after June 15, 2009. The adoption of SFAS 165 did not have a material impact on the Company’s condensed consolidated financial statements. See Note 1 — “Organization and Basis of Presentation” in the Notes to Condensed Consolidated Financial Statements for additional information.
In April 2009, the FASB issued Staff Position (“FSP”) FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 expands existing disclosures regarding fair value of financial instruments required in annual reports to interim periods. The disclosures required by FSP FAS 107-1 and APB 28-1 are effective for interim reporting periods ending after June 15, 2009. The Company is currently evaluating the impactadoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on its the Company’s

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condensed consolidated financial statements. The disclosures required by this FSP are provided in Note 6 — “Fair Value Disclosures” in the Notes to Condensed Consolidated Financial Statements.
In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for Asset or Liability Have Significantly Decreased and Identifying Transactions That are Not Orderly”, (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the asset or liability have significantly decreased.decreased in relation to normal market activity for the asset or liability and clarifies that the use of multiple valuation techniques may be appropriate. FSP FAS 157-4 also provides additional guidance on circumstances that may indicate a transaction is not orderly. Further, this FSP requires additional disclosures about fair value measurements in annual and interim reporting periods. FSP FAS 157-4 is effective prospectively for interim and annual reporting periods ending after June 15, 2009. The Company is currently evaluating the impactadoption of FSP FAS 157-4 did not have a material impact on itsthe Company’s condensed consolidated financial statements. The disclosures required by this FSP are provided in Note 6 — “Fair Value Disclosures” in the Notes to Condensed Consolidated Financial Statements.

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In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”, (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amends other-than-temporary impairment guidance in GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments (“OTTI”) on debt and equity securities in the financial statements. The recognition provisions within this FSP apply only to debt securities classified as available-for-sale and held-to-maturity, while the presentation and disclosure requirements apply to both debt and equity securities. An impaired debt security will be considered other-than-temporarily impaired if the Company has the intent to sell, or it more likely than not will be required to sell prior to recovery of the amortized cost. If the holder of a debt security does not expect recovery of the entire cost basis, even if there is no intention to sell the security, an OTTI has occurred. FSP FAS 115-2 and FAS 124-2 arealso changes how an entity recognizes an OTTI for a debt security by separating the loss between the amount representing the credit loss and the amount relating to other factors, if the Company does not have the intent to sell or it more likely than not will not be required to sell prior to recovery of the amortized cost less any current period credit loss. Credit losses will be recognized in net income and losses relating to other factors will be recognized in accumulated other comprehensive income (“AOCI”). If the Company has the intent to sell or it more likely than not will be required to sell before its recovery of amortized cost less any current period credit loss, the entire OTTI will continue to be recognized in net income. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009. The Company is currently evaluating the impactadoption of FSP FAS 115-2 and FAS 124-2 on its condensed consolidated financial statements.resulted in a net after-tax increase to retained earnings and a decrease to accumulated other comprehensive income of $4.4 million, as of April 1, 2009. The disclosures required by this FSP are provided in Note 4 — “Investments” in the Notes to Condensed Consolidated Financial Statements.
In January 2009, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“EITF 99-20-1”). EITF 99-20-1 provides guidance on determining other-than-temporary impairments on securities subject to EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets”. The primary effect of EITF 99-20-1 was to remove the requirement that a holder attempt to determine the underlying cash flows on an asset-backed security based on the assumptions that a market participant would make in determining the current fair value of the instrument. Instead, the focus has been placed on determining the estimated cash flows as determined by the holder for all sources including its own comprehensive credit analysis. The provisions of EITF 99-20-1 were required to be applied prospectively for interim periods and fiscal years ending after December 15, 2008. The Company’s adoption of EITF 99-20-1 did not have a significant impact on how the Company values its structured investment securities.
In December 2008, the FASB issued FSP No. FAS 132(r)-1, “Employers Disclosures about Postretirement Benefit Plan Assets” (“FSP 132(r)-1”). FSP 132(r)-1 provides guidance for disclosure of the types of assets and associated risks in retirement plans. The new disclosures are designed to provide additional insight into the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets, the effect of fair value measurements using significant unobservable inputs on changes in plan assets for the period, significant concentrations of risk within plan assets and how investment decisions are made, including factors necessary to understanding investment policies and strategies. The disclosures about plan assets required by FSP 132(r)-1 is

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effective for financial statements with fiscal years ending after December 15, 2009. The Company is currently evaluating the impact of FSP 132(r)-1 on its condensed consolidated financial statements.
In October 2008, the FASB issued FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”). FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective upon issuance on October 10, 2008, including prior periods for which financial statements had not been issued. The Company did not consider it necessary to change any valuation techniques as a result of FSP 157-3. The Company also adopted FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”) which delayed the effective date of SFAS 157 for certain nonfinancial assets and liabilities that are recorded at fair value on a nonrecurring basis. The effective date was delayed until January 1, 2009 and impacts balance sheet items including nonfinancial assets and liabilities in a business combination and the impairment testing of goodwill and long-lived assets. The adoption of FSP 157-2 did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133” (“SFAS 161”). SFAS 161 requires enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161 in the first quarter of 2009.
In February 2008, the FASB issued FSP No. FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions” (“FSP 140-3”). FSP 140-3 provides guidance for evaluating whether to account for a transfer of a financial asset and repurchase financing as a single transaction or as two separate transactions. FSP 140-3 is effective prospectively for financial statements issued for fiscal years beginning after November 15, 2008. The adoption of FSP 140-3 did not have a material impact on the Company’s condensed consolidated financial statements.

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In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations — A Replacement of FASB Statement No. 141” (“SFAS 141(r)”) and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”). SFAS 141(r) establishes principles and requirements for how an acquirer recognizes and measures certain items in a business combination, as well as disclosures about the nature and financial effects of a business combination. SFAS 160 establishes accounting and reporting standards surrounding noncontrolling interest, or minority interests, which are the portions of equity in a subsidiary not attributable, directly or indirectly, to a parent. The pronouncements are effective for fiscal years beginning on or after December 15, 2008 and apply prospectively to business combinations. Presentation and disclosure requirements related to noncontrolling interests must be retrospectively applied. The adoption of SFAS 141(r) and SFAS 160 did not have a material impact on the Company’s condensed consolidated financial statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3.Quantitative and Qualitative Disclosures About Market Risk
See “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Market Risk” which is included herein.
ITEM 4. Controls and Procedures
ITEM 4.Controls and Procedures
The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.
There was no change in the Company’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the quarter ended March 31,June 30, 2009, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 1.Legal Proceedings
The Company is subject to litigation in the normal course of its business. The Company currently has no material litigation. However, if such material litigation did arise, it is possible that an adverse outcome on any particular arbitration or litigation situation could have a material adverse effect on the Company’s consolidated financial position and/or net income in a particular reporting period.
ITEM 1A. Risk Factors
ITEM 1A.Risk Factors
There have been no material changes from the risk factors previously disclosed in the Company’s 2008 Annual Report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes the Company’s repurchase activity of its common stock during the first quarter ended March 31, 2009:
                 
          Total Number of Maximum Number
  Total Number of     Shares Purchased as of Shares that May
  Shares Purchased Average Price Paid Part of Publicly Yet Be Purchased
  (1) per Share Announced Plans Under the Plans
January 1, 2009 — January 31, 2009  2,280  $42.82       
                 
February 1, 2009 — February 28, 2009  42,976  $35.11       
(1)ITEM 2. In January 2009 the Company net settled — issuing 6,548 shares from treasuryUnregistered Sales of Equity Securities and repurchasing from recipients 2,280 shares in settlementUse of income tax withholding requirements incurred by the recipients of an equity incentive award. In February 2009 the Company net settled — issuing 164,630 shares from treasury andProceeds

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repurchasing from recipients 42,976 shares in settlement of income tax withholding requirements incurred by the recipients of an equity incentive award.
Under a board of directors approved plan, the Company may purchase at its discretion up to $50 million of its common stock on the open market. As of March 31,June 30, 2009, the Company had purchased 225,500 shares of treasury stock under this program at an aggregate price of $6.6 million. All purchases were made during 2002. The Company generally uses treasury shares to support the future exercise of options granted under its stock option plans.
ITEM 6. Exhibits
ITEM 4.Submission of Matters to a Vote of Security Holders
The Company’s Annual Meeting of Shareholders was held on May 20, 2009. At the Annual Meeting, the following proposals were voted upon by the shareholders as indicated below:
(1)Election of the following Directors for terms expiring in 2011:
         
Directors Voted For Withheld
 
John F. Danahy  65,164,682   1,557,384 
Arnould W.A. Boot  65,164,035   1,558,031 
Election of the following Directors for terms expiring in 2012:
         
Directors Voted For Withheld
 
Stuart I. Greenbaum  62,774,781   3,947,285 
A. Greig Woodring  65,165,747   1,556,319 
(2)Proposal to ratify appointment of Deloitte and Touche LLP as the Company’s independent auditor for the fiscal year ended December 31, 2009:
             
  Voted For Voted Against Abstain
   64,413,753   3,289,003   19,312 
ITEM 6.Exhibits
See index to exhibits.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
     
 Reinsurance Group of America, Incorporated
 
 
 By:  /s/ A. Greig Woodring      May 5,July 31, 2009 
  A. Greig Woodring  
  President & Chief Executive Officer
(Principal Executive Officer) 
 
 
   
 By:  /s/ Jack B. Lay      May 5,July 31, 2009 
  Jack B. Lay  
  Senior Executive Vice President &
Chief Financial Officer
(Principal Financial and Accounting Officer) 
 

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INDEX TO EXHIBITS
   
Exhibit  
Number Description
 
3.1 Amended and Restated Articles of Incorporation, incorporated by reference to Exhibit 3.1 of Current Report on Form 8-K filed November 25, 2008.
   
3.2 Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 of Current Report on Form 8-K filed November 25, 2008.
   
31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
   
31.2 Certification of Chief Financial Officer pursuant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
   
32.1 Certification of Chief Executive Officer pursuant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.
   
32.2 Certification of Chief Financial Officer pursuant pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

5975