## Balance Sheet Caption / Nature of Critical Accounting Estimate 

## Valuation of fixed maturity investments 

Most fixed maturities are classified as available for sale and are carried at fair value with changes in fair value recorded in accumulated other comprehensive income (loss) within shareholders’ equity. 

Fair value is defined as the price at which an asset could be exchanged in an orderly transaction between market participants at the balance sheet date. 

The determination of fair value for a financial instrument requires management judgment. The degree of judgment involved generally correlates to the level of pricing readily observable in the markets. Financial instruments with quoted prices in active markets or with market observable inputs to determine fair value, such as public securities, generally require less judgment. Conversely, private placements including more complex securities that are traded infrequently are typically measured using pricing models that require more judgment as to the inputs and assumptions used to estimate fair value. There may be a number of alternative inputs to select, based on an understanding of the issuer, the structure of the security and overall market conditions. In addition, these factors are inherently variable in nature as they change frequently in response to market conditions. Approximately two-thirds of the Company’s fixed maturities are public securities, and one-third are private placement securities. 

See Note 11 to the Consolidated Financial Statements for a discussion of the Company’s fair value measurements and the procedures performed by management to determine that the amounts represent appropriate estimates. 

## Assessment of ‘‘other-than-temporary’’ impairments of fixed maturities 

To determine whether a fixed maturity’s decline in fair value below its amortized cost is other than temporary, the Company must evaluate the expected recovery in value and its intent to sell or the likelihood of a required sale of the fixed maturity prior to an expected recovery. To make this determination, the Company considers a number of general and specific factors including the regulatory, economic and market environment, length of time and severity of the decline, and the financial health and specific near term prospects of the issuer. 

See Notes 2 (C) and 12 to the Consolidated Financial Statements for additional discussion of the Company’s review of declines in fair value, including information regarding the Company’s accounting policies for fixed maturities. 

## Segment Reporting 

The Company measures the financial results of its segments using ‘‘segment earnings (loss)’’, which is defined as shareholders’ income (loss) from continuing operations excluding after-tax realized investment gains and losses. ‘‘Adjusted income from operations’’ for each segment is defined as segment earnings excluding special items and the results of the Company’s GMIB business. Adjusted income from operations is the primary measure of profitability used by the 

## Effect if Different Assumptions Used 

Typically, the most significant input in the measurement of fair value is the market interest rate used to discount the estimated future cash flows from the instrument. Such market rates are derived by calculating the appropriate spreads over comparable U.S. Treasury securities, based on the credit quality, industry and structure of the asset. 

If the spreads used to calculate fair value changed by 100 basis points, the fair value of the total fixed maturity portfolio of $17.7 billion would change by approximately $1.1 billion. 

For all fixed maturities with cost in excess of their fair value, if this excess was determined to be other-than-temporary, shareholders’ net income for the year ended December 31, 2012 would have decreased by approximately $20 million after-tax. 

Company’s management because it presents the underlying results of operations of the segment and permits analysis of trends. Each segment provides a reconciliation between segment earnings and adjusted income from operations. 

Effective December 31, 2012, the Company changed its reporting segments. See the Introduction section of the MD&A and Note 23 to the Consolidated Financial Statements for additional information. 

