annual statement - securian financialannual statement for the year 2011 of the minnesota life...

ANNUAL STATEMENT

OF THE

Minnesota Life Insurance Company

TO THE

Insurance Department

OF THE

STATE OF

FOR THE YEAR ENDED DECEMBER 31, 2011

LIFE AND ACCIDENT AND HEALTH

2011

LIFE AND ACCIDENT AND HEALTH COMPANIES - ASSOCIATION EDITION

ANNUAL STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2011OF THE CONDITION AND AFFAIRS OF THE

Minnesota Life Insurance Company NAIC Group Code 0869 0869 NAIC Company Code 66168 Employer's ID Number 41-0417830

(Current) (Prior)

Organized under the Laws of Minnesota , State of Domicile or Port of Entry Minnesota

Country of Domicile United States of America

Incorporated/Organized 08/06/1880 Commenced Business 08/06/1880

Statutory Home Office 400 Robert Street North , St. Paul , MN 55101-2098 (Street and Number) (City or Town, State and Zip Code)

Main Administrative Office 400 Robert Street North (Street and Number)

St. Paul , MN 55101-2098 , 651-665-3500 (City or Town, State and Zip Code) (Area Code) (Telephone Number)

Mail Address 400 Robert Street North , St. Paul , MN 55101-2098 (Street and Number or P.O. Box) (City or Town, State and Zip Code)

Primary Location of Books and Records 400 Robert Street North (Street and Number)

St. Paul , MN 55101-2098 , 651-665-4284 (City or Town, State and Zip Code) (Area Code) (Telephone Number)

Internet Website Address www.securian.com

Statutory Statement Contact John Edward Hageman , 651-665-4284 (Name) (Area Code) (Telephone Number)

[email protected] , 651-665-7938 (E-mail Address) (FAX Number)

OFFICERSChairman/President/CEO Robert Leo Senkler Treasurer David John LePlavy

Secretary Dennis Edward Prohofsky Executive VP & CFO Warren John Zaccaro

OTHER Rick Lynn Ayers # Vice President Vicki Lynn Bailey Vice President George Nicholas Battis Jr. Vice President

Leslie Joy Chapman # Senior VP & Chief Actuary Gary Roger Christensen Vice President Laurence Gerard Cochrane # Vice President George Ignatius Connolly Senior Vice President Jean Marie Delaney Nelson Senior Vice President Susan Lunseth Ebertz Vice President

Robert John Ehren Senior Vice President Craig John Frisvold Vice President Christopher Michael Hilger Executive Vice President Wilford James Kavanaugh Senior Vice President David Michael Kuplic Senior Vice President Richard Lee Manke Vice President

Anthony Joseph Martins Vice President Robert Magnus Olafson Senior Vice President Von Steven Peterson Senior Vice President Kathleen Louise Pinkett # Senior Vice President Dwayne Charles Radel Sr VP & Gen Counsel Christopher Roman Sebald Senior Vice President

David Anthony Seidel Vice President Bruce Paul Shay Executive Vice President Paul Ellsworth Rudeen Vice President Randy Fenton Wallake Executive VP & Vice Chair Mark Anthony Baltes # Vice President Nancy Rae Swanson # Vice President

DIRECTORS OR TRUSTEES Robert Leo Senkler Randy Fenton Wallake Warren John Zaccaro Sara Hietpas Gavin John Francis Grundhofer John Hadrath Hooley

Dennis Edward Prohofsky Dwayne Charles Radel Trudy Ann Rautio Mary Keith Brainerd John William Castro

SS:State of Minnesota County of Ramsey

The officers of this reporting entity being duly sworn, each depose and say that they are the described officers of said reporting entity, and that on the reporting period stated above, all of the herein described assets were the absolute property of the said reporting entity, free and clear from any liens or claims thereon, except as herein stated, and that this statement, together with related exhibits, schedules and explanations therein contained, annexed or referred to, is a full and true statement of all the assets and liabilities and of the condition and affairs of the said reporting entity as of the reporting period stated above, and of its income and deductions therefrom for the period ended, and have been completed in accordance with the NAIC Annual Statement Instructions and Accounting Practices and Procedures manual except to the extent that: (1) state law may differ; or, (2) that state rules or regulations require differences in reporting not related to accounting practices and procedures, according to the best of their information, knowledge and belief, respectively. Furthermore, the scope of this attestation by the described officers also includes the related corresponding electronic filing with the NAIC, when required, that is an exact copy (except for formatting differences due to electronic filing) of the enclosed statement. The electronic filing may be requested by various regulators in lieu of or in addition to the enclosed statement.

Robert Leo Senkler Dennis Edward Prohofsky David John LePlavy Chairman, President & CEO Secretary Treasurer

a. Is this an original filing? Yes [ ] No [ X ]Subscribed and sworn to before me this b. If no,

28 day of February 2012 1. State the amendment number Partial Amendment 1 2. Date filed 02/28/2011 3. Number of pages attached 29

Nicholas D. Boehland Notary Public January 13, 2014

ANNUAL STATEMENT FOR THE YEAR 2011 OF THE Minnesota Life Insurance Company

ASSETSCurrent Year Prior Year

1

Assets

2

Nonadmitted Assets

3Net Admitted Assets

(Cols. 1 - 2)

4Net Admitted

Assets

1. Bonds (Schedule D)

2. Stocks (Schedule D):

2.1 Preferred stocks

2.2 Common stocks

3. Mortgage loans on real estate (Schedule B):

3.1 First liens

3.2 Other than first liens

4. Real estate (Schedule A):

4.1 Properties occupied by the company (less $

encumbrances)

4.2 Properties held for the production of income (less

$ encumbrances)

4.3 Properties held for sale (less $

encumbrances)

5. Cash ($ , Schedule E - Part 1), cash equivalents

($ , Schedule E - Part 2) and short-term

investments ($ , Schedule DA)

6. Contract loans (including $ premium notes)

7. Derivatives (Schedule DB)

8. Other invested assets (Schedule BA)

9. Receivables for securities

10. Securities lending reinvested collateral assets (Schedule DL)

11. Aggregate write-ins for invested assets

12. Subtotals, cash and invested assets (Lines 1 to 11)

13. Title plants less $ charged off (for Title insurers

only)

14. Investment income due and accrued

15. Premiums and considerations:

15.1 Uncollected premiums and agents' balances in the course of collection

15.2 Deferred premiums and agents' balances and installments booked but

deferred and not yet due (including $

earned but unbilled premiums)

15.3 Accrued retrospective premiums

16. Reinsurance:

16.1 Amounts recoverable from reinsurers

16.2 Funds held by or deposited with reinsured companies

16.3 Other amounts receivable under reinsurance contracts

17. Amounts receivable relating to uninsured plans

18.1 Current federal and foreign income tax recoverable and interest thereon

18.2 Net deferred tax asset

19. Guaranty funds receivable or on deposit

20. Electronic data processing equipment and software

21. Furniture and equipment, including health care delivery assets

($ )

22. Net adjustment in assets and liabilities due to foreign exchange rates

23. Receivables from parent, subsidiaries and affiliates

24. Health care ($ ) and other amounts receivable

25. Aggregate write-ins for other than invested assets

26. Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 12 to 25)

27. From Separate Accounts, Segregated Accounts and Protected Cell Accounts

28. Total (Lines 26 and 27)

DETAILS OF WRITE-INS

1101.

1102.

1103.

1198. Summary of remaining write-ins for Line 11 from overflow page

1199. Totals (Lines 1101 thru 1103 plus 1198)(Line 11 above)

2501.

2502.

2503.



2


LIABILITIES, SURPLUS AND OTHER FUNDS1

Current Year2

Prior Year1. Aggregate reserve for life contracts $ (Exh. 5, Line 9999999) less $

included in Line 6.3 (including $ Modco Reserve) 2. Aggregate reserve for accident and health contracts (Exhibit 6, Line 17, Col. 1) (including $

Modco Reserve) 3. Liability for deposit-type contracts (Exhibit 7, Line 14, Col. 1) (including $ Modco Reserve) 4. Contract claims:

4.1 Life (Exhibit 8, Part 1, Line 4.4, Col. 1 less sum of Cols. 9, 10 and 11) 4.2 Accident and health (Exhibit 8, Part 1, Line 4.4, sum of Cols. 9, 10 and 11)

5. Policyholders’ dividends $ and coupons $ due and unpaid (Exhibit 4,Line 10)

6. Provision for policyholders’ dividends and coupons payable in following calendar year - estimated amounts:6.1 Dividends apportioned for payment (including $ Modco) 6.2 Dividends not yet apportioned (including $ Modco) 6.3 Coupons and similar benefits (including $ Modco)

7. Amount provisionally held for deferred dividend policies not included in Line 6 8. Premiums and annuity considerations for life and accident and health contracts received in advance less

$ discount; including $ accident and health premiums (Exhibit 1,Part 1, Col. 1, sum of lines 4 and 14)

9. Contract liabilities not included elsewhere: 9.1 Surrender values on canceled contracts 9.2 Provision for experience rating refunds, including the liability of $ accident and health

experience rating refunds of which $ is for medical loss ratio rebate per the Public Health Service Act

9.3 Other amounts payable on reinsurance including $ assumed and $ceded

9.4 Interest maintenance reserve (IMR, Line 6) 10. Commissions to agents due or accrued-life and annuity contracts $ accident and health

$ and deposit-type contract funds $ 11. Commissions and expense allowances payable on reinsurance assumed 12. General expenses due or accrued (Exhibit 2, Line 12, Col. 6) 13. Transfers to Separate Accounts due or accrued (net) (including $ accrued for expense

allowances recognized in reserves, net of reinsured allowances) 14. Taxes, licenses and fees due or accrued, excluding federal income taxes (Exhibit 3, Line 9, Col. 5) 15.1 Current federal and foreign income taxes including $ on realized capital gains (losses) 15.2 Net deferred tax liability 16. Unearned investment income 17. Amounts withheld or retained by company as agent or trustee 18. Amounts held for agents' account, including $ agents' credit balances 19. Remittances and items not allocated 20. Net adjustment in assets and liabilities due to foreign exchange rates 21. Liability for benefits for employees and agents if not included above 22. Borrowed money $ and interest thereon $ 23. Dividends to stockholders declared and unpaid 24. Miscellaneous liabilities:

24.01 Asset valuation reserve (AVR, Line 16, Col. 7) 24.02 Reinsurance in unauthorized companies 24.03 Funds held under reinsurance treaties with unauthorized reinsurers 24.04 Payable to parent, subsidiaries and affiliates 24.05 Drafts outstanding 24.06 Liability for amounts held under uninsured plans 24.07 Funds held under coinsurance 24.08 Derivatives 24.09 Payable for securities 24.10 Payable for securities lending 24.11 Capital notes $ and interest thereon $

25. Aggregate write-ins for liabilities 26. Total Liabilities excluding Separate Accounts business (Lines 1 to 25) 27. From Separate Accounts Statement 28. Total Liabilities (Lines 26 and 27) 29. Common capital stock 30. Preferred capital stock 31. Aggregate write-ins for other than special surplus funds 32. Surplus notes 33. Gross paid in and contributed surplus (Page 3, Line 33, Col. 2 plus Page 4, Line 51.1, Col. 1) 34. Aggregate write-ins for special surplus funds 35. Unassigned funds (surplus) 36. Less treasury stock, at cost:

36.1 shares common (value included in Line 29 $ ) 36.2 shares preferred (value included in Line 30 $ )

37. Surplus (Total Lines 31+32+33+34+35-36) (including $ in Separate Accounts Statement) 38. Totals of Lines 29, 30 and 37 (Page 4, Line 55) 39. Totals of Lines 28 and 38 (Page 2, Line 28, Col. 3)

DETAILS OF WRITE-INS2501.2502.2503.2598. Summary of remaining write-ins for Line 25 from overflow page 2599. Totals (Lines 2501 thru 2503 plus 2598)(Line 25 above)3101.3102.3103.3198. Summary of remaining write-ins for Line 31 from overflow page 3199. Totals (Lines 3101 thru 3103 plus 3198)(Line 31 above)3401.3402.3403.3498. Summary of remaining write-ins for Line 34 from overflow page 3499. Totals (Lines 3401 thru 3403 plus 3498)(Line 34 above)

3


SUMMARY OF OPERATIONS1

Current Year2

Prior Year1. Premiums and annuity considerations for life and accident and health contracts (Exhibit 1, Part 1, Line 20.4, Col. 1, less

Col. 11) 2. Considerations for supplementary contracts with life contingencies 3. Net investment income (Exhibit of Net Investment Income, Line 17) 4. Amortization of interest maintenance reserve (IMR, Line 5) 5. Separate Accounts net gain from operations excluding unrealized gains or losses 6. Commissions and expense allowances on reinsurance ceded (Exhibit 1, Part 2, Line 26.1, Col. 1) 7. Reserve adjustments on reinsurance ceded 8. Miscellaneous Income:

8.1 Income from fees associated with investment management, administration and contract guarantees from Separate Accounts

8.2 Charges and fees for deposit-type contracts 8.3 Aggregate write-ins for miscellaneous income

9. Total (Lines 1 to 8.3) 10. Death benefits 11. Matured endowments (excluding guaranteed annual pure endowments) 12. Annuity benefits (Exhibit 8, Part 2, Line 6.4, Cols. 4 + 8) 13. Disability benefits and benefits under accident and health contracts 14. Coupons, guaranteed annual pure endowments and similar benefits 15. Surrender benefits and withdrawals for life contracts 16. Group conversions 17. Interest and adjustments on contract or deposit-type contract funds 18. Payments on supplementary contracts with life contingencies 19. Increase in aggregate reserves for life and accident and health contracts 20. Totals (Lines 10 to 19) 21. Commissions on premiums, annuity considerations, and deposit-type contract funds (direct business only) (Exhibit 1, Part

2, Line 31, Col. 1) 22. Commissions and expense allowances on reinsurance assumed (Exhibit 1, Part 2, Line 26.2, Col. 1) 23. General insurance expenses (Exhibit 2, Line 10, Cols. 1, 2, 3 and 4) 24. Insurance taxes, licenses and fees, excluding federal income taxes (Exhibit 3, Line 7, Cols. 1 + 2 + 3) 25. Increase in loading on deferred and uncollected premiums 26. Net transfers to or (from) Separate Accounts net of reinsurance27. Aggregate write-ins for deductions 28. Totals (Lines 20 to 27) 29. Net gain from operations before dividends to policyholders and federal income taxes (Line 9 minus Line 28) 30. Dividends to policyholders 31. Net gain from operations after dividends to policyholders and before federal income taxes (Line 29 minus Line 30) 32. Federal and foreign income taxes incurred (excluding tax on capital gains) 33. Net gain from operations after dividends to policyholders and federal income taxes and before realized capital gains or

(losses) (Line 31 minus Line 32) 34. Net realized capital gains (losses) (excluding gains (losses) transferred to the IMR) less capital gains tax of

$ (excluding taxes of $ transferred to the IMR) 35. Net income (Line 33 plus Line 34)

CAPITAL AND SURPLUS ACCOUNT36. Capital and surplus, December 31, prior year (Page 3, Line 38, Col. 2) 37. Net income (Line 35) 38. Change in net unrealized capital gains (losses) less capital gains tax of $ 39. Change in net unrealized foreign exchange capital gain (loss) 40. Change in net deferred income tax 41. Change in nonadmitted assets 42. Change in liability for reinsurance in unauthorized companies 43. Change in reserve on account of change in valuation basis, (increase) or decrease (Exh. 5A, Line 9999999, Col. 4) 44. Change in asset valuation reserve 45. Change in treasury stock (Page 3, Lines 36.1 and 36.2, Col. 2 minus Col. 1) 46. Surplus (contributed to) withdrawn from Separate Accounts during period 47. Other changes in surplus in Separate Accounts Statement 48. Change in surplus notes 49. Cumulative effect of changes in accounting principles 50. Capital changes:

50.1 Paid in 50.2 Transferred from surplus (Stock Dividend) 50.3 Transferred to surplus

51. Surplus adjustment:51.1 Paid in 51.2 Transferred to capital (Stock Dividend) 51.3 Transferred from capital 51.4 Change in surplus as a result of reinsurance

52. Dividends to stockholders 53. Aggregate write-ins for gains and losses in surplus 54. Net change in capital and surplus for the year (Lines 37 through 53) 55. Capital and surplus, December 31, current year (Lines 36 + 54) (Page 3, Line 38)

DETAILS OF WRITE-INS08.301.08.302.08.303.08.398. Summary of remaining write-ins for Line 8.3 from overflow page 08.399. Totals (Lines 08.301 thru 08.303 plus 08.398)(Line 8.3 above)2701.2702.2703.2798. Summary of remaining write-ins for Line 27 from overflow page 2799. Totals (Lines 2701 thru 2703 plus 2798)(Line 27 above)5301.5302.5303.5398. Summary of remaining write-ins for Line 53 from overflow page 5399. Totals (Lines 5301 thru 5303 plus 5398)(Line 53 above)

4


CASH FLOW1

Current Year

2

Prior Year

Cash from Operations

1. Premiums collected net of reinsurance

2. Net investment income

3. Miscellaneous income

4. Total (Lines 1 through 3)

5. Benefit and loss related payments

6. Net transfers to Separate Accounts, Segregated Accounts and Protected Cell Accounts

7. Commissions, expenses paid and aggregate write-ins for deductions

8. Dividends paid to policyholders

9. Federal and foreign income taxes paid (recovered) net of $ tax on capital gains (losses)

10. Total (Lines 5 through 9)

11. Net cash from operations (Line 4 minus Line 10)

Cash from Investments

12. Proceeds from investments sold, matured or repaid:

12.1 Bonds

12.2 Stocks

12.3 Mortgage loans

12.4 Real estate

12.5 Other invested assets

12.6 Net gains or (losses) on cash, cash equivalents and short-term investments

12.7 Miscellaneous proceeds

12.8 Total investment proceeds (Lines 12.1 to 12.7)

13. Cost of investments acquired (long-term only):

13.1 Bonds

13.2 Stocks

13.3 Mortgage loans

13.4 Real estate

13.5 Other invested assets

13.6 Miscellaneous applications

13.7 Total investments acquired (Lines 13.1 to 13.6)

14. Net increase (decrease) in contract loans and premium notes

15. Net cash from investments (Line 12.8 minus Line 13.7 minus Line 14)

Cash from Financing and Miscellaneous Sources

16. Cash provided (applied):

16.1 Surplus notes, capital notes

16.2 Capital and paid in surplus, less treasury stock

16.3 Borrowed funds

16.4 Net deposits on deposit-type contracts and other insurance liabilities

16.5 Dividends to stockholders

16.6 Other cash provided (applied)

17. Net cash from financing and miscellaneous sources (Lines 16.1 to 16.4 minus Line 16.5 plus Line 16.6)

RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

18. Net change in cash, cash equivalents and short-term investments (Line 11, plus Lines 15 and 17)

19. Cash, cash equivalents and short-term investments:

19.1 Beginning of year

19.2 End of year (Line 18 plus Line 19.1)

Note: Supplemental disclosures of cash flow information for non-cash transactions:

5


ANALYSIS OF OPERATIONS BY LINES OF BUSINESS1 2 Ordinary 6 Group Accident and Health 12

Total Industrial Life

3

Life Insurance

4

Individual Annuities

5Supplementary

ContractsCredit Life (Group

and Individual)

7Life Insurance

(a)

8

Annuities

9

Group

10Credit (Group and

Individual)

11

Other

Aggregate of All Other Lines of

Business

1. Premiums and annuity considerations for life and accident and health contracts

2. Considerations for supplementary contracts with life contingencies 3. Net investment income 4. Amortization of Interest Maintenance Reserve (IMR) 5. Separate Accounts net gain from operations excluding unrealized gains or

losses 6. Commissions and expense allowances on reinsurance ceded 7. Reserve adjustments on reinsurance ceded 8. Miscellaneous Income:

8.1 Fees associated with income from investment management, administration and contract guarantees from Separate Accounts

8.2 Charges and fees for deposit-type contracts 8.3 Aggregate write-ins for miscellaneous income

9. Totals (Lines 1 to 8.3)

10. Death benefits 11. Matured endowments (excluding guaranteed annual pure endowments) 12. Annuity benefits 13. Disability benefits and benefits under accident and health contracts 14. Coupons, guaranteed annual pure endowments and similar benefits 15. Surrender benefits and withdrawals for life contracts 16. Group conversions 17. Interest and adjustments on contract or deposit-type contract funds 18. Payments on supplementary contracts with life contingencies 19. Increase in aggregate reserves for life and accident and health contracts 20. Totals (Lines 10 to 19) 21. Commissions on premiums, annuity considerations and deposit-type

contract funds (direct business only) 22. Commissions and expense allowances on reinsurance assumed 23. General insurance expenses 24. Insurance taxes, licenses and fees, excluding federal income taxes 25. Increase in loading on deferred and uncollected premiums 26. Net transfers to or (from) Separate Accounts net of reinsurance27. Aggregate write-ins for deductions 28. Totals (Lines 20 to 27)

29. Net gain from operations before dividends to policyholders and federal income taxes (Line 9 minus Line 28)

30. Dividends to policyholders 31. Net gain from operations after dividends to policyholders and before federal

income taxes (Line 29 minus Line 30) 32. Federal income taxes incurred (excluding tax on capital gains) 33. Net gain from operations after dividends to policyholders and federal income

taxes and before realized capital gains or (losses) (Line 31 minus Line 32) DETAILS OF WRITE-INS

08.301.08.302.08.303.08.398. Summary of remaining write-ins for Line 8.3 from overflow page 08.399. Totals (Lines 08.301 thru 08.303 plus 08.398) (Line 8.3 above)

2701.2702.2703.2798. Summary of remaining write-ins for Line 27 from overflow page 2799. Totals (Lines 2701 thru 2703 plus 2798) (Line 27 above)

(a) Includes the following amounts for FEGLI/SGLI: Line 1 , Line 10 , Line 16 , Line 23 , Line 24

6


ANALYSIS OF INCREASE IN RESERVES DURING THE YEAR1 2 Ordinary 6 Group


3

Life Insurance

4


5Supplementary

ContractsCredit Life (Group and

Individual)

7

Life Insurance

8

Annuities

Involving Life or Disability Contingencies (Reserves)

(Net of Reinsurance Ceded)

1. Reserve December 31, prior year

2. Tabular net premiums or considerations

3. Present value of disability claims incurred XXX

4. Tabular interest

5. Tabular less actual reserve released

6. Increase in reserve on account of change in valuation basis

7. Other increases (net)

8. Totals (Lines 1 to 7)

9. Tabular cost XXX

10. Reserves released by death XXX XXX XXX

11. Reserves released by other terminations (net)

12. Annuity, supplementary contract and disability payments involving life contingencies

13. Net transfers to or (from) Separate Accounts

14. Total Deductions (Lines 9 to 13)

15. Reserve December 31, current year

7


EXHIBIT OF NET INVESTMENT INCOME1 2

Collected During Year Earned During Year 1. U.S. Government bonds (a)1.1 Bonds exempt from U.S. tax (a)1.2 Other bonds (unaffiliated) (a)1.3 Bonds of affiliates (a)2.1 Preferred stocks (unaffiliated) (b)2.11 Preferred stocks of affiliates (b)2.2 Common stocks (unaffiliated) 2.21 Common stocks of affiliates 3. Mortgage loans (c)4. Real estate (d)5 Contract loans 6 Cash, cash equivalents and short-term investments (e)7 Derivative instruments (f)8. Other invested assets 9. Aggregate write-ins for investment income

10. Total gross investment income11. Investment expenses (g)12. Investment taxes, licenses and fees, excluding federal income taxes (g)13. Interest expense (h)14. Depreciation on real estate and other invested assets (i)15. Aggregate write-ins for deductions from investment income 16. Total deductions (Lines 11 through 15) 17. Net investment income (Line 10 minus Line 16)

DETAILS OF WRITE-INS0901.0902.0903.0998. Summary of remaining write-ins for Line 9 from overflow page 0999. Totals (Lines 0901 thru 0903 plus 0998) (Line 9, above)1501.1502.1503.1598. Summary of remaining write-ins for Line 15 from overflow page 1599. Totals (Lines 1501 thru 1503 plus 1598) (Line 15, above)

(a) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued interest on purchases.

(b) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued dividends on purchases.

(c) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued interest on purchases.

(d) Includes $ for company’s occupancy of its own buildings; and excludes $ interest on encumbrances.

(e) Includes $ accrual of discount less $ amortization of premium and less $ paid for accrued interest on purchases.

(f) Includes $ accrual of discount less $ amortization of premium.

(g) Includes $ investment expenses and $ investment taxes, licenses and fees, excluding federal income taxes, attributable tosegregated and Separate Accounts.

(h) Includes $ interest on surplus notes and $ interest on capital notes.

(i) Includes $ depreciation on real estate and $ depreciation on other invested assets.

EXHIBIT OF CAPITAL GAINS (LOSSES)1

Realized Gain (Loss) On Sales or Maturity

2

Other Realized Adjustments

3

Total RealizedCapital Gain (Loss)

(Columns 1 + 2)

4

Change inUnrealized

Capital Gain (Loss)

5

Change in Unrealized Foreign Exchange Capital Gain (Loss)

1. U.S. Government bonds 1.1 Bonds exempt from U.S. tax 1.2 Other bonds (unaffiliated) 1.3 Bonds of affiliates 2.1 Preferred stocks (unaffiliated) 2.11 Preferred stocks of affiliates 2.2 Common stocks (unaffiliated) 2.21 Common stocks of affiliates 3. Mortgage loans 4. Real estate 5. Contract loans 6. Cash, cash equivalents and short-term investments 7. Derivative instruments 8. Other invested assets 9. Aggregate write-ins for capital gains (losses)

10. Total capital gains (losses)DETAILS OF WRITE-INS

0901.0902.0903.0998. Summary of remaining write-ins for Line 9 from

overflow page 0999. Totals (Lines 0901 thru 0903 plus 0998) (Line 9,

above)

8


EXHIBIT - 1 PART 1 - PREMIUMS AND ANNUITY CONSIDERATIONS FOR LIFE AND ACCIDENT AND HEALTH CONTRACTS1 2 Ordinary 5 Group Accident and Health 11


3

Life Insurance

4IndividualAnnuities

Credit Life (Group and Individual)

6

Life Insurance

7

Annuities

8

Group

9Credit (Group and

Individual)

10

Other


BusinessFIRST YEAR (other than single)

1. Uncollected 2. Deferred and accrued 3. Deferred , accrued and uncollected:

3.1 Direct 3.2 Reinsurance assumed 3.3 Reinsurance ceded 3.4 Net (Line 1 + Line 2)

4. Advance 5. Line 3.4 - Line 4 6. Collected during year:

6.1 Direct 6.2 Reinsurance assumed 6.3 Reinsurance ceded 6.4 Net

7. Line 5 + Line 6.4 8. Prior year (uncollected + deferred and accrued - advance) 9. First year premiums and considerations:

9.1 Direct 9.2 Reinsurance assumed 9.3 Reinsurance ceded 9.4 Net (Line 7 - Line 8)

SINGLE10. Single premiums and considerations:


RENEWAL11. Uncollected 12. Deferred and accrued 13. Deferred, accrued and uncollected:

13.1 Direct 13.2 Reinsurance assumed 13.3 Reinsurance ceded 13.4 Net (Line 11 + Line 12)

14. Advance 15. Line 13.4 - Line 14 16. Collected during year:


17. Line 15 + Line 16.4 18. Prior year (uncollected + deferred and accrued - advance) 19. Renewal premiums and considerations:

19.1 Direct 19.2 Reinsurance assumed 19.3 Reinsurance ceded 19.4 Net (Line 17 - Line 18)

TOTAL20. Total premiums and annuity considerations:

20.1 Direct 20.2 Reinsurance assumed 20.3 Reinsurance ceded 20.4 Net (Lines 9.4 + 10.4 + 19.4)

9


EXHIBIT - 1 PART 2 - DIVIDENDS AND COUPONS APPLIED, REINSURANCE COMMISSIONSAND EXPENSE ALLOWANCES AND COMMISSIONS INCURRED (Direct Business Only)

1 2 Ordinary 5 Group Accident and Health 11


3

Life Insurance

4

IndividualAnnuities

Credit Life (Group and Individual)

6

Life Insurance

7

Annuities

8

Group

9

Credit (Group and Individual)

10

Other


Business

DIVIDENDS AND COUPONS APPLIED

(included in Part 1)

21. To pay renewal premiums

22. All other

REINSURANCE COMMISSIONS AND

EXPENSE ALLOWANCES INCURRED

23. First year (other than single):

23.1 Reinsurance ceded

23.2 Reinsurance assumed

23.3 Net ceded less assumed

24. Single:




25. Renewal:




26. Totals:

26.1 Reinsurance ceded (Page 6, Line 6)

26.2 Reinsurance assumed (Page 6, Line 22)


COMMISSIONS INCURRED

(direct business only)

27. First year (other than single)

28. Single

29. Renewal

30. Deposit-type contract funds

31. Totals (to agree with Page 6, Line 21)

10


EXHIBIT 2 - GENERAL EXPENSESInsurance 5 6

1 Accident and Health 4

Life2

Cost Containment3

All OtherAll Other Lines of

Business Investment Total

1. Rent 2. Salaries and wages 3.11 Contributions for benefit plans for employees 3.12 Contributions for benefit plans for agents 3.21 Payments to employees under non-funded benefit plans 3.22 Payments to agents under non-funded benefit plans 3.31 Other employee welfare 3.32 Other agent welfare 4.1 Legal fees and expenses 4.2 Medical examination fees 4.3 Inspection report fees 4.4 Fees of public accountants and consulting actuaries 4.5 Expense of investigation and settlement of policy claims 5.1 Traveling expenses 5.2 Advertising 5.3 Postage, express, telegraph and telephone 5.4 Printing and stationery 5.5 Cost or depreciation of furniture and equipment 5.6 Rental of equipment 5.7 Cost or depreciation of EDP equipment and software 6.1 Books and periodicals 6.2 Bureau and association fees 6.3 Insurance, except on real estate 6.4 Miscellaneous losses 6.5 Collection and bank service charges 6.6 Sundry general expenses 6.7 Group service and administration fees 6.8 Reimbursements by uninsured plans 7.1 Agency expense allowance 7.2 Agents’ balances charged off (less $

recovered) 7.3 Agency conferences other than local meetings 9.1 Real estate expenses 9.2 Investment expenses not included elsewhere 9.3 Aggregate write-ins for expenses

10. General expenses incurred (a)11. General expenses unpaid December 31, prior year 12. General expenses unpaid December 31, current year 13. Amounts receivable relating to uninsured plans, prior year 14. Amounts receivable relating to uninsured plans, current year 15. General expenses paid during year (Lines 10+11-12-13+14)

DETAILS OF WRITE-INS09.301.09.302.09.303.09.398. Summary of remaining write-ins for Line 9.3 from overflow page09.399. Totals (Lines 09.301 thru 09.303 plus 09.398) (Line 9.3 above)

(a) Includes management fees of $ to affiliates and $ to non-affiliates.

EXHIBIT 3 - TAXES, LICENSES AND FEES (EXCLUDING FEDERAL INCOME TAXES)Insurance 4 5

1

Life

2

Accident and Health

3All Other Lines of

Business Investment Total

1. Real estate taxes 2. State insurance department licenses and fees 3. State taxes on premiums 4. Other state taxes, including $

for employee benefits 5. U.S. Social Security taxes 6. All other taxes 7. Taxes, licenses and fees incurred 8. Taxes, licenses and fees unpaid December 31, prior year 9. Taxes, licenses and fees unpaid December 31, current

year10. Taxes, licenses and fees paid during year (Lines 7 + 8 - 9)

EXHIBIT 4 - DIVIDENDS OR REFUNDS1

Life2

Accident and Health1. Applied to pay renewal premiums 2. Applied to shorten the endowment or premium-paying period 3. Applied to provide paid-up additions 4. Applied to provide paid-up annuities 5. Total Lines 1 through 4 6. Paid in cash 7. Left on deposit 8. Aggregate write-ins for dividend or refund options 9. Total Lines 5 through 8

10. Amount due and unpaid 11. Provision for dividends or refunds payable in the following calendar year 12. Terminal dividends 13. Provision for deferred dividend contracts 14. Amount provisionally held for deferred dividend contracts not included in Line 13 15. Total Lines 10 through 14 16. Total from prior year 17. Total dividends or refunds (Lines 9 + 15 - 16)

DETAILS OF WRITE-INS0801.0802.0803.0898. Summary of remaining write-ins for Line 8 from overflow page 0899. Totals (Lines 0801 thru 0803 plus 0898) (Line 8 above)

11


EXHIBIT 5 - AGGREGATE RESERVE FOR LIFE CONTRACTS1

Valuation Standard

2

Total

3

Industrial

4

Ordinary

5Credit

(Group and Individual)

6

Group0100001.0100002.0100003.0100004.0100005.0100006.0100007.0100008.0100009.0100010.0100011.0100012.0100013.0100014.0100015.0100016.0100017.0100018.0100019.0100020.

0100021.0100022.0100023.0100024.0100025.0100026.0100027.

0100028.0100029.0100030.0100031.0100032.0100033.0100034.0100035.0100036.0100037.0100038.0100039.0100040.0100041.0100042.0100043.0100044.0100045.0100046.0100047.0100048.0100049.0100050.0100051.0100052.0100053.0100054.0100055.0199997. Totals (Gross)0199998. Reinsurance ceded0199999. Life Insurance: Totals (Net)0200001. XXX XXX0200002. XXX XXX0200003. XXX XXX0200004. XXX XXX0200005. XXX XXX0200006. XXX XXX0200007. XXX XXX0200008. XXX XXX0200009. XXX XXX0200010. XXX XXX0200011. XXX XXX0200012. XXX XXX0200013. XXX XXX0200014. XXX XXX0200015. XXX XXX0200016. XXX XXX0200017. XXX XXX0200018. XXX XXX0200019. XXX XXX0200020. XXX XXX0200021. XXX XXX0200022. XXX XXX0200023. XXX XXX0200024. XXX XXX0200025. XXX XXX0200026. XXX XXX0200027. XXX XXX0200028. XXX XXX0200029. XXX XXX0200030. XXX XXX0200031. XXX XXX

12



Valuation Standard

2

Total

3

Industrial

4

Ordinary

5Credit


6

Group0200032. XXX XXX0200033. XXX XXX0200034. XXX XXX0200035. XXX XXX0200036. XXX XXX0200037. XXX XXX0200038. XXX XXX0200039. XXX XXX0200040. XXX XXX0200041. XXX XXX0200042. XXX XXX0200043. XXX XXX0200044. XXX XXX0200045. XXX XXX0200046. XXX XXX0200047. XXX XXX0200048. XXX XXX0200049. XXX XXX0200050. XXX XXX0200051. XXX XXX0200052. XXX XXX0200053. XXX XXX0200054. XXX XXX0200055. XXX XXX0200056. XXX XXX0200057. XXX XXX0200058. XXX XXX0200059. XXX XXX0200060. XXX XXX0200061. XXX XXX0200062. XXX XXX0200063. XXX XXX0200064. XXX XXX0200065. XXX XXX0200066. XXX XXX0200067. XXX XXX0200068. XXX XXX0200069. XXX XXX0200070. XXX XXX0200071. XXX XXX0200072. XXX XXX0200073. XXX XXX0200074. XXX XXX0200075. XXX XXX0200076. XXX XXX0200077. XXX XXX0200078. XXX XXX0200079. XXX XXX0200080. XXX XXX0200081. XXX XXX0200082. XXX XXX0200083. XXX XXX0200084. XXX XXX0200085. XXX XXX0200086. XXX XXX0200087. XXX XXX0200088. XXX XXX0200089. XXX XXX0200090. XXX XXX0200091. XXX XXX0200092. XXX XXX0200093. XXX XXX0200094. XXX XXX0200095. XXX XXX0200096. XXX XXX0200097. XXX XXX0200098. XXX XXX0200099. XXX XXX0200100. XXX XXX0200101. XXX XXX0200102. XXX XXX0200103. XXX XXX0200104. XXX XXX0200105. XXX XXX0200106. XXX XXX0200107. XXX XXX0200108. XXX XXX0200109. XXX XXX0200110. XXX XXX0200111. XXX XXX0200112. XXX XXX0200113. XXX XXX0200114. XXX XXX0299997. Totals (Gross) XXX XXX0299998. Reinsurance ceded XXX XXX0299999. Annuities: Totals (Net) XXX XXX0300001.0300002.0300003.0300004.0300005.

12.1



Valuation Standard

2

Total

3

Industrial

4

Ordinary

5Credit


6

Group0300006.0300007.0300008.0300009.0300010.0300011.0300012.0300013.0300014.0300015.0300016.0300017.0300018.0300019.0300020.0300021.0300022.0300023.0300024.0300025.0300026.0300027.0300028.0300029.0300030.0300031.0300032.0300033.0300034.0300035.0300036.0300037.0300038.0300039.0300040.0399997. Totals (Gross)0399998. Reinsurance ceded0399999. SCWLC: Totals (Net)0400001.0400002.0400003.0499997. Totals (Gross)0499998. Reinsurance ceded0499999. Accidental Death Benefits: Totals (Net)0500001.0500002.0500003.0500004.0500005.0500006.0500007.0500008.0599997. Totals (Gross)0599998. Reinsurance ceded0599999. Disability-Active Lives: Totals (Net)0600001.0600002.0600003.0600004.0600005.0600006.0600007.0600008.0600009.0600010.0600011.0600012.0600013.0600014.0600015.0699997. Totals (Gross)0699998. Reinsurance ceded0699999. Disability-Disabled Lives: Totals (Net)0700001.0700002.0700003.0700004.0700005.

0700006.0700007.

0700008.0700009.

0799997. Totals (Gross)0799998. Reinsurance ceded0799999. Miscellaneous Reserves: Totals (Net)9999999. Totals (Net) - Page 3, Line 1

12.2


EXHIBIT 5 - INTERROGATORIES

1.1 Has the reporting entity ever issued both participating and non-participating contracts?

1.2 If not, state which kind is issued.

2.1 Does the reporting entity at present issue both participating and non-participating contracts?

2.2 If not, state which kind is issued.

3. Does the reporting entity at present issue or have in force contracts that contain non-guaranteed elements?If so, attach a statement that contains the determination procedures, answers to the interrogatories and an actuarial opinion as described in the instructions.

4. Has the reporting entity any assessment or stipulated premium contracts in force?If so, state:4.1 Amount of insurance? $4.2 Amount of reserve? $4.3 Basis of reserve:

4.4 Basis of regular assessments:

4.5 Basis of special assessments:

4.6 Assessments collected during the year $

5. If the contract loan interest rate guaranteed in any one or more of its currently issued contracts is less than 5%, not in advance, state the contract loan rate guarantees on any such contracts.

6. Does the reporting entity hold reserves for any annuity contracts that are less than the reserves that would be held on a standard basis?

6.1 If so, state the amount of reserve on such contracts on the basis actually held: $

6.2 That would have been held (on an exact or approximate basis) using the actual ages of the annuitants; the interest rate(s) used in 6.1; and the same mortality basis used by the reporting entity for the valuation of comparable annuity benefits issued to standard lives. If the reporting entity has no comparable annuity benefits for standard lives to be valued, the mortality basis shall be the table most recently approved by the state of domicile for valuing individual annuity benefits: $

Attach statement of methods employed in their valuation.

7. Does the reporting entity have any Synthetic GIC contracts or agreements in effect as of December 31 of the current year?

7.1 If yes, state the total dollar amount of assets covered by these contracts or agreements $

7.2 Specify the basis (fair value, amortized cost, etc.) for determining the amount:

7.3 State the amount of reserves established for this business: $

7.4 Identify where the reserves are reported in the blank:

EXHIBIT 5A - CHANGES IN BASES OF VALUATION DURING THE YEAR1 Valuation Basis 4

Description of Valuation Class

2

Changed From

3

Changed To

Increase in Actuarial Reserve Due to

Change

9999999 - Total (Column 4, only)

NONE

13


EXHIBIT 6 - AGGREGATE RESERVES FOR ACCIDENT AND HEALTH CONTRACTS1 2 3 4 Other Individual Contracts

TotalGroup Accident

and Health

Credit Accidentand Health

(Group and Individual)CollectivelyRenewable

5

Non-Cancelable

6Guaranteed Renewable

7Non-Renewable for

Stated Reasons Only

8

Other Accident Only

9

All Other

ACTIVE LIFE RESERVE

1. Unearned premium reserves

2. Additional contract reserves (a)

3. Additional actuarial reserves-Asset/Liability analysis

4. Reserve for future contingent benefits

5. Reserve for rate credits

6. Aggregate write-ins for reserves

7. Totals (Gross)

8. Reinsurance ceded

9. Totals (Net)

CLAIM RESERVE

10. Present value of amounts not yet due on claims

11. Additional actuarial reserves-Asset/Liability analysis

12. Reserve for future contingent benefits

13. Aggregate write-ins for reserves

14. Totals (Gross)

15. Reinsurance ceded

16. Totals (Net)

17. TOTAL (Net)

18. TABULAR FUND INTEREST


0601.

0602.

0603.


0699. TOTALS (Lines 0601 thru 0603 plus 0698) (Line 6 above)

1301.

1302.

1303.


1399. TOTALS (Lines 1301 thru 1303 plus 1398) (Line 13 above)(a) Attach statement as to valuation standard used in calculating this reserve, specifying reserve bases, interest rates and methods.

Group additional reserves are stabilization reserves credited with current interest as well as 4.5%, disability income reserves based on 1987 GLDT, two year preliminary term reserves based on 1985 CIDA and modified 1959 tables, active life reserves for the return of premium benefit are two-year preliminary term reserves based upon the 1996 ADB and the 1960 CSG Table, an active life reserves for disability income and waiver of premium benefits are net level premium reserves based upon the 1987, CGDT and 1980 CSO Table. Individual reserves are based on a modified 1985 Commissioners Individual Disability Table A at 4%-5%, or a 1956 Iner-company Hospital - Surgical Table at 3% and a gross premium valuation is the basis for major medical reserves.

14


EXHIBIT 7 - DEPOSIT TYPE CONTRACTS1

Total

2

GuaranteedInterest Contracts

3

Annuities Certain

4

Supplemental Contracts

5Dividend

Accumulations or Refunds

6Premium and

OtherDeposit Funds

1. Balance at the beginning of the year before reinsurance

2. Deposits received during the year

3. Investment earnings credited to the account

4. Other net change in reserves

5. Fees and other charges assessed

6. Surrender charges

7. Net surrender or withdrawal payments

8. Other net transfers to or (from) Separate Accounts

9. Balance at the end of current year before reinsurance (Lines 1+2+3+4-5-6-7-8)

10. Reinsurance balance at the beginning of the year

11. Net change in reinsurance assumed

12. Net change in reinsurance ceded

13. Reinsurance balance at the end of the year (Lines 10+11-12)

14. Net balance at the end of current year after reinsurance (Lines 9 + 13)

15


EXHIBIT 8 - CLAIMS FOR LIFE AND ACCIDENT AND HEALTH CONTRACTSPART 1 - Liability End of Current Year

1 2 Ordinary 6 Group Accident and Health


3

Life Insurance

4


5Supplementary


and Individual)

7

Life Insurance

8

Annuities

9

Group

10Credit (Group and

Individual)

11

Other

1. Due and unpaid:

1.1 Direct



1.4 Net

2. In course of settlement:

2.1 Resisted 2.11 Direct



2.14 Net (b) (b) (b) (b)

2.2 Other 2.21 Direct



2.24 Net (b) (b) (b) (b) (b) (b) (b)

3. Incurred but unreported:

3.1 Direct



3.4 Net (b) (b) (b) (b) (b) (b) (b)

4. TOTALS 4.1 Direct



4.4 Net (a) (a) (a)

(a) Including matured endowments (but not guaranteed annual pure endowments) unpaid amounting to $ in Column 2, $ in Column 3 and $ in Column 7.

(b) Include only portion of disability and accident and health claim liabilities applicable to assumed "accrued" benefits. Reserves (including reinsurance assumed and net of reinsurance ceded) for unaccrued benefits for Ordinary Life Insurance $

Individual Annuities $ , Credit Life (Group and Individual) $ , and Group Life $ , are included in Page 3, Line 1, (See Exhibit 5, Section on Disability Disabled Lives); and for Group Accident and Health $

Credit (Group and Individual) Accident and Health $ , and Other Accident and Health $ are included in Page 3, Line 2 (See Exhibit 6, Claim Reserve).

16


EXHIBIT 8 - CLAIMS FOR LIFE AND ACCIDENT AND HEALTH CONTRACTSPART 2 - Incurred During the Year

1 2 Ordinary 6 Group Accident and Health

TotalIndustrial Life

(a)

3Life Insurance

(b)

4


5Supplementary


and Individual)

7Life Insurance

(c)

8

Annuities

9

Group

10Credit (Groupand Individual)

11

Other

1. Settlements During the Year:

1.1 Direct



1.4 Net (d)

2. Liability December 31, current year from Part 1:

2.1 Direct



2.4 Net

3. Amounts recoverable from reinsurers December 31, current year

4. Liability December 31, prior year:

4.1 Direct



4.4 Net

5. Amounts recoverable from reinsurers December 31, prior year

6. Incurred Benefits

6.1 Direct



6.4 Net

(a) Including matured endowments (but not guaranteed annual pure endowments) amounting to $ in Line 1.1, $ in Line 1.4.

$ in Line 6.1, and $ in Line 6.4.

(b) Including matured endowments (but not guaranteed annual pure endowments) amounting to $ in Line 1.1, $ in Line 1.4.


(c) Including matured endowments (but not guaranteed annual pure endowments) amounting to $ in Line 1.1, $ in Line 1.4.


(d) Includes $ premiums waived under total and permanent disability benefits.

17


EXHIBIT OF NON-ADMITTED ASSETS1

Current Year Total Nonadmitted Assets

2

Prior Year Total Nonadmitted Assets

3Change in Total

Nonadmitted Assets (Col. 2 - Col. 1)

1. Bonds (Schedule D)

2. Stocks (Schedule D):

2.1 Preferred stocks

2.2 Common stocks

3. Mortgage loans on real estate (Schedule B):

3.1 First liens

3.2 Other than first liens

4. Real estate (Schedule A):

4.1 Properties occupied by the company

4.2 Properties held for the production of income

4.3 Properties held for sale

5. Cash (Schedule E - Part 1), cash equivalents (Schedule E - Part 2) and short-term investments (Schedule DA)

6. Contract loans

7. Derivatives (Schedule DB)

8. Other invested assets (Schedule BA)

9. Receivables for securities

10. Securities lending reinvested collateral assets (Schedule DL)

11. Aggregate write-ins for invested assets

12. Subtotals, cash and invested assets (Lines 1 to 11)

13. Title plants (for Title insurers only)

14. Investment income due and accrued

15. Premiums and considerations:

15.1 Uncollected premiums and agents' balances in the course of collection

15.2 Deferred premiums, agents' balances and installments booked but deferred and not yet due

15.3 Accrued retrospective premiums

16. Reinsurance:

16.1 Amounts recoverable from reinsurers

16.2 Funds held by or deposited with reinsured companies

16.3 Other amounts receivable under reinsurance contracts

17. Amounts receivable relating to uninsured plans

18.1 Current federal and foreign income tax recoverable and interest thereon

18.2 Net deferred tax asset

19. Guaranty funds receivable or on deposit

20. Electronic data processing equipment and software

21. Furniture and equipment, including health care delivery assets

22. Net adjustment in assets and liabilities due to foreign exchange rates

23. Receivables from parent, subsidiaries and affiliates

24. Health care and other amounts receivable

25. Aggregate write-ins for other than invested assets

26. Total assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 12 to 25)

27. From Separate Accounts, Segregated Accounts and Protected Cell Accounts

28. Total (Lines 26 and 27)


1101.

1102.

1103.



2501.

2502.

2503.



18

19

ANNUAL STATEMENT FOR THE YEAR 2011 OF THE MINNESOTA LIFE INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies A. Accounting Practices

The accompanying statutory financial statements of Minnesota Life Insurance Company (the Company) have been prepared in accordance with accounting practices prescribed or permitted by the Minnesota Department of Commerce. The Minnesota Department of Commerce recognizes statutory accounting practices prescribed or permitted by the state of Minnesota for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under the Minnesota Insurance Law. Prescribed statutory accounting practices are those practices that are incorporated directly or by reference in state laws, regulations and general administrative rules applicable to all insurance enterprises domiciled in a particular state. Permitted statutory accounting practices include practices not prescribed by the domiciliary state, but allowed by the domiciliary state regulatory authority. The National Association of Insurance Commissioners’ (NAIC) Accounting Practices and Procedures Manual (NAIC SAP) has been adopted as a component of prescribed or permitted practices by the state of Minnesota. The state has adopted the prescribed accounting practices found in NAIC SAP, without modification.

The Company has received a permitted practice from the Minnesota Department of Commerce to use a modified 1959 accidental death benefit (ADB) table. The Company also holds certain reserves in excess of what is prescribed in Appendix A-820 Minimum Life and Annuity Reserve Standards of the NAIC SAP. The holding of these more conservative reserves is considered a prescribed practice by the Minnesota Department of Commerce.

A reconciliation of the Company’s net income and capital and surplus between NAIC SAP and practices prescribed and permitted by the state of Minnesota is shown below: 12/31/2011 12/31/2010

1. Net Income, Minnesota State basis: $ 123,331,152 $ 96,633,000

2. State Prescribed Practices (Income): Company holds reserves in excess of prescribed reserves per A-280

$ 2,281,000

$ 4,037,000

3. State Permitted Practices (Income): Permitted use of modified 1959 ADB Table

$ 1,463,000

$ (825,000)

4. Net Income, NAIC SAP:

$ 127,075,152

$ 99,845,000

5. Statutory Surplus, Minnesota State basis:

$ 2,037,133,792

$ 1,939,214,952

6. State Prescribed Practices (Surplus): Company holds reserves in excess of prescribed reserves per A-820

$ 11,350,000

$ 9,069,000

7. State Prescribed Practices (Surplus): Permitted use of modified 1959 ADB Table

$ (2,931,000)

$ (4,394,000)

8. Statutory Surplus, NAIC SAP

$ 2,045,552,792

$ 1,943,889,952

B. Use of Estimates

The preparation of financial statements in conformity with statutory accounting practices requires management to make certain estimates and assumptions that affect reported assets and liabilities, including reporting or disclosure of contingent assets and liabilities as of the date of the statements of admitted assets, liabilities and capital and surplus and the reported amounts of revenue and expenses during the reporting period. Future events, including but not limited to changes in mortality, morbidity, interest rates and asset valuations, could cause actual results to differ from the estimates used in the financial statements and such changes in estimates are generally recorded on the statements of operations in the period in which they are made. The most significant estimates include those used in determining policy reserves, valuation of and impairment losses on investments, valuation allowances and impairments on mortgage loans on real estate, federal income taxes, and pension and other postretirement employee benefits. Although some variability is inherent in these estimates, the recorded amounts reflect management’s best estimates based on facts and circumstances as of the statement of admitted assets, liabilities and capital and surplus date. Management believes the amounts provided are appropriate.

19.1



(1) Summary of Significant Accounting Policies (continued)

C. Accounting Policies

Premiums are credited to revenue over the premium paying period of the policies, with the exception of single and flexible premium contracts which are credited to revenue when received from the policyholder. Annuity considerations, investment management, administration and contract guarantee fees are recognized as revenue when received. Any premiums due that are not yet paid, and premiums paid on other than an annual basis, are included in premiums deferred and uncollected on the statutory statements of admitted assets, liabilities and capital and surplus. Benefits and expenses, including acquisition costs related to acquiring new and renewal business, are charged to operations as incurred. Acquisition expenses incurred are reduced for ceding allowances received or receivable. Dividends on participating policies and other discretionary payments are declared by the Board of Directors based upon actuarial determinations that take into consideration current mortality, interest earnings, expense factors and federal income taxes. Dividends are generally recognized as expenses when declared by the Board of Directors and up to one year in advance of the payout dates.

Insurance liabilities are reported after the effects of ceded reinsurance. Reinsurance recoverables represent amounts due from reinsurers for paid and unpaid benefits, expense reimbursements, prepaid premiums and future policy benefits. Reinsurance premiums ceded and recoveries on benefits and claims incurred are deducted from the respective income and expense accounts.

Real estate is carried at cost less accumulated depreciation, adjusted for any other than temporary impairment (OTTI) losses taken. Estimated losses are directly recorded to the carrying value of the asset and recorded as realized losses in the statements of operations.

Policy loans are carried at the outstanding loan balance less amounts unsecured by the cash surrender value of the policy. Accrued interest on policy loans over 90 days is non-admitted.

1. The Company considers all money-market funds, commercial paper, and bonds purchased in the current year

with original maturity dates of less than twelve months to be short-term investments. Short-term investments are stated at amortized cost, which approximates fair value. The Company places its cash and cash equivalents with high quality financial institutions and, at time, these balances may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. The Company considers short-term investments that are readily convertible to known amounts of cash and have an original maturity date of three months or less to be cash equivalents.

2. Bonds are valued as prescribed by the NAIC. Bonds not backed by other loans are generally carried at cost,

adjusted for the amortization of premiums, accretion of discounts, and any OTTI. Premiums and discounts are amortized and accreted over the estimated lives of the related bonds based on the interest yield method. Prepayment penalties are recorded to net investment income when collected. When the Company has determined an OTTI has occurred, the security is written-down to fair value. If the impairment is deemed to be non-interest related, an OTTI is recorded in earnings. For interest related declines, an OTTI is recorded when the Company has the intent to sell or does not have the ability to hold the bond until the forecasted recovery occurs. Many criteria are considered during this process including but not limited to, the length of time and the extent to which the current fair value has been below the amortized cost of the security, specific credit issues such as collateral, financial prospects related to the issuer, the Company’s intent to sell the security and the current economic conditions. Bonds that have been assigned the NAIC category 6 designation are carried at the lower of cost or NAIC fair value.

3. Common stocks are carried at NAIC fair value except that investments in stocks of uncombined subsidiaries

and affiliates in which the Company has an interest of 10% or more are carried on the equity basis. Stocks without a NAIC market value are nonadmitted unless a permitted NAIC outside pricing source is obtained. For common stocks an OTTI is recorded when the Company has the intent to sell the investment. When an OTTI has occurred, the entire difference between NAIC fair value and the common stock’s cost is charged to earnings. Common stocks that have been in an unrealized loss position of greater than 20% for longer than six months are reviewed specifically using available third party information based on the investee’s current financial condition, liquidity, near-term recovery prospects, and other factors. In addition, common stocks that have an unrealized loss position greater than $100,000 are reviewed based on the individual characteristics of the stock. All other stocks with significant unrealized losses are also reviewed on the same basis for impairment. The Company recognizes dividend income on unaffiliated common stocks upon declaration of the dividend.

4. Preferred stocks are carried at cost less any OTTI adjustments. 5. Mortgage loans are carried at the outstanding principal balances, net of unamortized premiums and

discounts. Premiums and discounts are amortized and accreted over the terms of the mortgage loans based on the interest yield method. The Company provides valuation allowances for impairments of mortgage loans on a specific identification basis. Mortgage loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. When the Company determines that a loan is impaired, a provision for loss is estimated equal to the difference between the carrying value and fair value of the collateral less estimated costs. Changes in the valuation allowance are recorded in unrealized capital gains (losses), net of federal income taxes on the statements of admitted assets, liabilities and capital and surplus.

19.2




The Company continues to record interest on those impaired mortgage loans that it believes to be collectible as due and accrued investment income. Any loans that have income 180 days or more past due continue to accrue income, but report all due and accrued income as a non-admitted asset. Past due interest on loans that are uncollectible is written off and no further interest is accrued. Any cash received for interest on impaired loans is recorded as income when collected. Prepayment penalties are recorded to net investment income when collected.

6. Loan-backed securities are stated at either amortized cost or the lower of amortized cost or discounted cash

flows. The Company’s loan-backed securities are reviewed quarterly and as a result the carrying value of a loan-backed security may be reduced to reflect changes in valuation resulting from discounted cash flow information. Loan-backed securities which have been assigned the NAIC category 6 designation are written down to the appropriate NAIC fair value. The Company uses a third-party pricing service in assisting the Company’s determination of the fair value of most loan-backed securities. An internally developed pricing model using a commercial software application is used to price a small number of holdings. The retrospective adjustment method is used to record investment income on all non-impaired securities except for interest-only securities or other non-investment grade securities where the yield had become negative. Investment income is recorded using the prospective method on these securities. Loan-backed securities that have been impaired are amortized to a new undiscounted cash flow if the security has recovered.

For loan-backed securities, the Company recognizes income using a constant effective yield method based on prepayment assumptions obtained from an outside service provider or upon analyst review of the underlying collateral and the estimated economic life of the securities. When estimated prepayments differ from the anticipated prepayments, the effective yield is recalculated to reflect actual prepayments to date and anticipated future payments. Any resulting adjustment is included in net investment income. In addition, recoveries of impaired securities undiscounted cash flows are amortized up from book value to the improved undiscounted cash flow to the new estimated prepayment window. All other investment income is recorded using the interest method without anticipating the impact of prepayment.

7. Investments in subsidiary companies are accounted for using the equity method and are carried as

investments in affiliated common stock or as other invested assets in the case of limited liability companies, in the statutory statements of admitted assets. The Company records changes in equity in its subsidiaries as credits or charges to capital and surplus. Insurance subsidiaries are recorded using statutory accounting principles. Non-insurance subsidiaries not engaged in prescribed insurance related activities are recorded using audited generally accepted accounting principles (GAAP) results. Non-insurance subsidiaries engaged in prescribed insurance activities are recorded using audited GAAP results with certain statutory basis adjustments.

8. Alternative investments include private equity funds, mezzanine debt funds and hedge funds investing in

limited partnerships are carried on the statutory statements of admitted assets at the amount invested, adjusted to recognize the Company’s ownership share of the earnings or losses of the investee after the date of acquisition, adjusted for any distributions received. In-kind distributions are recorded as a return of capital for the cost basis of the stock received. Any adjustments recorded directly to unassigned surplus of the investee are recorded, based on the Company’s ownership share, as an adjustment to the amount invested and as unrealized capital gains or losses. The valuation of private equity investments is recorded based on the partnership financial statements from the previous quarter, with audited GAAP or tax financial statements being provided annually to support the underlying valuations. The Company believes this valuation process represents the best available estimate, however, to the extent that market conditions fluctuate significantly, any change in the following quarter partnership financial statements could be material to the Company’s unrealized gains or losses included in unassigned surplus. The Company evaluates partnership financial statements received subsequent to December 31 up to the annual statement print date for material fluctuations in order to determine if an adjustment should be recorded as of December 31. These investments are included in the other invested assets category on the statutory statements of admitted assets. Alternative investments which have been in an unrealized loss position of greater than 20% for longer than two years are analyzed on a fund by fund basis using current and forecasted expectations for future fund performance, the age of the fund, general partner commentary and underlying investments within the fund. If facts and circumstances indicate that the value of the investment will not recover in a reasonable time period, the cost of the investment is written down and an OTTI is recorded in realized gains and losses on the statements of operations.

9. The Company uses a variety of derivatives, including swaps, futures, floors and option contracts, to manage

the risks associated with cash flows or changes in estimated fair values related to the Company’s financial instruments. The Company currently enters into derivative transactions that do not qualify for hedge accounting or in certain cases, elects not to utilize hedge accounting.

Changes in derivative instruments carried at fair value are recorded in net unrealized capital gains (losses) on

the statutory statements of capital and surplus. Interest income generated by derivative instruments is reported in net realized capital gains (losses) on the statutory statements of operations.

The significant inputs to the pricing models for most over-the-counter derivatives are inputs that are

observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain over-the-counter derivatives may 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. Significant inputs that are unobservable

19.3




generally include: independent broker quotes and inputs that are outside the observable portion of the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. In general, all over-the-counter derivatives are compared to an outside broker quote when available and are reviewed in detail through the Company’s valuation oversight group.

The credit risk of the obligor is considered in determining the estimated fair value for all over-the-counter

derivatives after taking into account the effects of netting agreements and collateral arrangements. Counterparty credit risk of the derivative instruments are monitored closely by the Company along with concentration of similar counterparty credit risks in other assets of the investment portfolio.

The Company also enters into certain foreign currency derivative transactions that do not meet hedge

accounting criteria. The primary purpose of the Company’s foreign currency economic hedging activities is to manage the foreign exchange risk inherent in the elapsed time between trade processing and trade settlement in its international equity portfolios. The Company uses short-duration spot contracts in its efforts to minimize this risk.

The Company holds “To-Be-Announced” (TBA) Government National Mortgage Association forward contracts that require the Company to take delivery of a mortgage-backed security at a settlement date in the future. A majority of the TBAs are settled at the first available period allowed under the contract. However, the deliveries of some of the Company’s TBA securities happen at a later date, thus extending the forward contract date. These securities are reported at amortized cost as derivatives. Instruments on the statement of admitted assets. Several life insurance and annuity products in the Company’s liability portfolio contain investment guarantees that create economic exposure to equity and interest rate risks. These guarantees take the form of guaranteed withdrawal benefits on variable annuities, a guaranteed payout floor on a variable payout annuity, and equity linked interest credits on both fixed annuity and fixed universal life products. The Company uses economic hedges including futures contracts, interest rate swaps and exchanges trade options, in its efforts to minimize the financial risk associated with these product guarantees. The Company enters into interest rate futures contracts to manage duration within certain total return managed portfolios within the general account.

10. Not applicable 11. The liability for unpaid losses and loss adjustment expenses includes an amount for losses incurred but

unreported, based on past experience, as well as an amount for reported but unpaid losses, which is calculated on a case-by-case basis. Such liabilities are necessarily based on assumptions and estimates. While management believes that the amount is adequate, the ultimate liability may be in excess or less than the amount estimated. The methods, including key assumptions, of making such estimates and for establishing the resulting liability are continually reviewed and any adjustments are reflected in the period such change in estimate is made. The liability for unpaid accident and health claims and claim adjustment expenses, net of reinsurance, is included in accident and health policy reserves and policy claims in process of settlement on the statements of liabilities, surplus and other funds.

12. The Company has not modified its capitalization policy from the prior period. 13. Not applicable

(2) Accounting Changes and Corrections of Errors

Not applicable

(3) Business Combinations and Goodwill

A. Statutory Purchase Method 1. The Company purchased a 100% interest of Balboa Life Insurance Company (BLIC) and its wholly owned

subsidiary Balboa Life Insurance Company (BLICNY) on October 1, 2011. BLIC is licensed in 49 states and BLICNY is licensed in New York.

2. The transaction was accounted for as a statutory purchase. 3. The cost of this transaction including an estimated true-up calculation was $46,800,000 resulting in goodwill in

the amount of $6,800,000. True-up is currently being finalized and may result in immaterial differences in goodwill.

4. Goodwill amortization related to the purchase of BLIC was $339,000 for the year ended December 31, 2011.

B. Not applicable

C. Not applicable

D. Not applicable

19.4



(4) Discontinued Operations

Not applicable

(5) Investments

A. Mortgage Loans

1. The maximum and minimum lending rates for mortgage loans by category during 2011 were:

a. Commercial loans: 8.79% and 4.45%, respectively

2. None

3. The maximum percentage of any one loan to the value of security at the time of the loan, exclusive of insured

or guaranteed or purchase money mortgages, was 83%.

12/31/2011 12/31/2010 4. Mortgages held with interest more than 180 days

past due with a recorded investment, excluding accrued interest $ 0 $ 0

a. Total interest due on mortgages with interest more than 180 days past due: $ 0 $ 0

5. Taxes, assessments and any amounts advanced and not included in the mortgage loan total $ 0 $ 0 6. Current year impaired loans with a related allowance for credit losses $ 0 $ 0 a. Related allowance for credit losses $ 0 $ 0 7. Impaired mortgage loans without an allowance for credit losses $ 8,420,455 $ 0 8. Average recorded investment in impaired loans $ 4,210,228 $ 0 9. Interest income recognized during the period the

loans were impaired $ 0 $ 0 10. Amount of interest income recognized on a cash basis during the period the loans were impaired $ 0 $ 0 12/31/2011 12/31/2010 11. Allowance for credit losses: a. Balance at beginning of period $ 0 $ 100,000 b. Additions to allowance $ 1,400,000 $ 0 c. Direct write-downs charged against the allowance $ 1,400,000 $ 30,816 d. Recoveries of amounts previously charged off $ 0 $ 69,184 e. Balance at end of year $ 0 $ 0 12. The Company records interest on impaired loans that it believes are collectible as due and accrued

investment income. Any loans that have income 180 days or more past due continue to accrue income, but report all due and accrued income as a nonadmitted asset. Past due interest on loans that are uncollectible is written off, and no further interest is accrued. Any cash received for interest on impaired loans is recorded as admitted income when collected.

B. Debt Restructuring

12/31/2011 12/31/2010

1. The total recorded investment in restructured loans $ 10,228,819 $ 10,228,819

2. The realized capital losses related to these loans $ 0 $ 0

3. Total contractual commitments to extend credit to debtors owing receivables whose terms have been modified in troubled debt restructurings

$ 0 $ 0

19.5



(5) Investments (continued)

4. The Company accrues interest income on impaired loans to the extent it is deemed collectible (delinquent less than 90 days) and the loan continues to perform under its original or restructured contractual terms. Interest income on non-performing loans is generally recognized on a cash basis.

C. Not applicable D. Loan-Backed Securities

1. Prepayment assumptions for single class and multi-class mortgage-backed/asset-backed securities were

obtained from Bloomberg when available. Other payment speed assumptions for a small number of holdings were reviewed with the appropriate affiliated company analyst by evaluating the underlying collateral.

2. Other-than-temporary impairments (OTTI) recorded in 2011 on loan-backed and structured securities of $11,290,943 was due to the present value of cash flows expected to be collected being less than the amortized cost basis of the securities. Additionally, the Company recognized OTTI totaling $1,401,449 based on management’s intent to sell securities that were in unrealized loss position as of June 30, 2011. The Company did not recognize any OTTI due to the inabililty or lack of intent to retain a security for a period of time sufficient to recover the full amount of the initial investment in the security.

The current year OTTI due to intent to sell or inability or lack of intent to retain the investment for a period of time sufficient to recover the amortized cost basis:

OTTI Recognized in 1st Quarter

Amortized

Cost Before OTTI

Interest-

Related (Unrealized)

Loss

Non-interest Loss

(OTTI)

1Q11 Fair Value

A. Intent to sell - - - -

B. Inability or lack of intent to retain the investment for a period of time sufficient to recover the amortized cost basis

- - - -

OTTI Recognized in 2nd Quarter

Amortized

Cost Before OTTI

Interest-


Loss

Non-interest Loss

(OTTI)

2Q11 Fair Value

A. Intent to sell 17,984,625 (26,548) (1,401,449) 16,556,628


- - - -

OTTI Recognized in 3rd Quarter

Amortized

Cost Before OTTI

Interest-


Loss

Non-interest Loss

(OTTI)

3Q11 Fair Value



- - - -

OTTI Recognized in 4th Quarter

Amortized

Cost Before OTTI

Interest-


Loss

Non-interest Loss

(OTTI)

4Q11 Fair Value



- - - -

3. The detail for securities currently held by the Company with a recognized OTTI due to the present value of

cash flows expected to be collected being less than the amortized cost of the security:

CUSIP

Book Adjusted Carrying

Value Before Current

Period OTTI

Present Value of

Projected Cash Flows

Recognized OTTI

Amortized Cost

After OTTI

Fair Value at Time of OTTI

Date of Financial Statement

Where Reported

19.6




19.7




4. All impaired securities (fair value is less than cost or amortized cost) for which an OTTI has not been

recognized in earnings as a realized loss (including securities with a recognized OTTI for non-interest related declines when a non-recognized interest related impairment remains) as of December 31, 2011:

Aggregate

Less than 12

Months

12 Months or

Longer A. Gross Unrealized Losses (29,060,489) (5,119,982) (23,940,507)

B. Fair Value of Securities with Unrealized Losses

320,162,002 142,418,398 177,743,604

5. The Company has the intent and ability to retain its current loan-backed security holdings. The Company

has analyzed loan-backed security holdings with unrealized losses and has bifurcated the loss between interest-related and non-interest related impairment. Guidance instructs that OTTI is applied for non-interest related impairment only.

E. Reverse Repurchase Agreement and/or Securities Lending Transactions

1. The Company participates in a securities lending program where it receives collateral assets in exchange for loaned securities. When these loan transactions occur, the lending broker provides cash collateral equivalent to 102% to 105% of the market value of the loaned securities. This collateral is deposited with a lending agent who invests the collateral on behalf of the Company and the offsetting liability is included in payable for securities lending on the statement of liabilities, surplus and other funds. The fair value of the collateral was $43,892,381 at December 31, 2011. The Company has pledged $0 of its assets as collateral as of December 31, 2011.

2. The Company has pledged $52,982,001 of its assets as collateral as of December 31, 2011 related to reverse repurchase agreements.

3. Collateral received

Securities Lending

Fair Value

a) Open $ -

b) 30 days or less 75,437,803

c) 31 to 60 days -

d) 61 to 90 days -

e) Greater than 90 days -

f) Sub-Total $ 75,437,803

g) Securities Received -

h) Total Collateral Received $ 75,437,803

a. The aggregate fair value of all securities from the sale, trade or use of the accepted collateral (reinvested collateral) was $0 as of December 31, 2011.

b. The reporting entity receives primarily cash collateral in an amount in excess of the fair value of the

securities lent. The reporting entity reinvests the cash collateral into higher-yielding securities than the securities which the reporting entity has lent to other entities under the arrangement.

19.8




4. Not applicable

5. Collateral Reinvestement

a. Aggregate amount cash collateral reinvested:

Securities Lending

Amortized Cost Fair Value a) Open $ - $ -

b) 30 days or less 23,001,416 23,001,416

c) 31 to 60 days - -

d) 61 to 90 days - -

e) 91 to 120 days - -

f) 121 to 180 days - -

g) 181 days to 365 days 7,032,182 8,024,347

h) 1 to 2 years - -

i) 2-3 years - -

j) Greater than 3 years 12,333,496 12,866,618

k) Sub-Total $ 42,367,094 $ 43,892,381

l) Securities Received - -

m) Total Collateral Received $ 42,367,094 $ 43,892,381

b. The Company’s sources of cash that it uses to return the cash collateral is dependent upon the liquidity of the current market conditions. The Company has adequate sources of liquidity that could be sold and used to pay for the collateral calls that could come due under a worst case scenario.

F. None G. Investments in low-income housing tax credits

1. The Company has committed $1,000,000 to Georgia Affordable Housing. The investment has six years of unexpired tax credits remaining.

2. The Georgia Affordable Housing investment is not currently subject to any regulatory reviews. This

investment included certain performance guarantees. The state tax credits are expected to be recovered over the remaining six years.

3. None 4. Not applicable 5. Not applicable

(6) Joint Ventures, Partnerships and Limited Liability Companies

A. None B. The Company recognized the following other-than-temporary impairments for its investments in joint ventures,

partnerships and limited liability companies during 2011:

1. Private equities (includes 12 companies): $6,980,000 These impairments were recorded based on a review of future projected cash flows for these investments.

(7) Investment Income

A. Due and accrued income was excluded from investment income on the following bases:

Bonds – in default: $139,000 Mortgages - interest past due on loans in p

annual statement - securian financialannual statement for the year 2011 of the minnesota life...

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