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GREAT WEST LIFE & ANNUITY INSURANCE CO - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 14, 2014

General

As used in this Form 10-Q, the "Company" refers to Great-West Life & Annuity Insurance Company, a stock life insurance company originally organized on March 28, 1907 and domiciled in the state of Colorado, and its subsidiaries.

This Form 10-Q contains forward-looking statements. Forward-looking statements are statements not based on historical information and that relate to future operations, strategies, financial results, or other developments. In particular, statements using words such as "may," "would," "could," "should," "estimates," "expected," "anticipate," "believe," or words of similar import generally involve forward-looking statements. Without limiting the foregoing, forward-looking statements include statements that represent the Company's beliefs concerning future or projected levels of sales of its products, investment spreads or yields, or the earnings or profitability of the Company's activities.

Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. Some of these risks are described in "Risk Factors" in Item 1A of this report. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be global or national in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation and others of which may relate to the Company specifically, such as credit, volatility and other risks associated with its investment portfolio and other factors. Readers should also consider other matters, including any risks and uncertainties, discussed in documents filed by the Company and certain of its subsidiaries with the Securities and Exchange Commission.

The following discussion addresses the Company's results of operations for the three months ended March 31, 2014 compared with the same period in 2013. The discussion should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2013, under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," to which the reader is directed for additional information.

On January 1, 2013, the Company terminated its reinsurance agreement with an affiliate, The Canada Life Assurance Company ("CLAC"), pursuant to which it had ceded certain participating life business on a coinsurance basis. As a result of that termination, on January 1, 2013, the Company recorded the following increases (decreases) in its statement of income in connection with the termination of the reinsurance agreement:

(In millions) Premium income $ 42 Other revenue 7 Total 49 Increase in future policy benefits 41 Dividends to policyholders 1 Total 42 Participating policyholders' net income before income taxes 7 Income tax expense 2 Participating policyholders' income 5



Provision for policyholders' share of earnings on participating business 5 Net income available to shareholder

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Participating policyholders share in the financial results of the participating business in the form of policyholder dividends. The policyholder dividends can be distributed directly to the policyholders in the form of cash or through an increase in benefits such as paid-up additions. The participating policyholder earnings that cannot be distributed to the Company's shareholder and have not been distributed to participating policyholders are not included in the Company's net income and are reflected in liabilities in undistributed earnings on participating business in the Company's balance sheets. As such, the transaction above had no impact on net income available to the Company's shareholder.

On March 20, 2014, Great-West Lifeco Inc. announced its intent to combine the retirement business of Putnam Investments, an affiliate of the Company, with the retirement business of the Company. Management is still assessing the form of the combination. The Putnam Investments retirement business comprises 375 clients with approximately 199,000 participants and $15 billion in assets.

On April 3, 2014, the Company announced it has reached an agreement to acquire the J.P. Morgan Retirement Plan Services large-market recordkeeping business. The transaction is expected to close during the third quarter pending regulatory approval. The J.P. Morgan Retirement Plan Services business comprises 200 clients with approximately 1.9 million participants and $167 billion in assets. It also includes the more than 1,000 personnel affiliated with J.P. Morgan Retirement Plan Services, including sales staff, consultant relations, relationship managers and client service specialists.

The Company employs hedging strategies for the purpose of managing the interest rate, foreign currency exchange rate and equity market risks impacting the Company's business. For some derivative instruments, hedge accounting is not elected; therefore all gains or losses from these transactions are recorded in the consolidated statement of income. As a result, fluctuations in interest rates, foreign currencies or equity markets may cause the Company to experience volatility in net income.

Company Results of Operations



Three months ended March 31, 2014 compared with the three months ended March 31, 2013

The following is a summary of certain financial data of the Company:

Three months ended March 31, Income statement data (In millions) 2014 2013 Premium income $ 132 $ 178 Fee income 167 147 Other revenue - 7 Net investment income 300 286 Realized investment gains (losses), net 27 15 Total revenues 626 633 Policyholder benefits 306 345 Operating expenses 175 183 Total benefits and expenses 481 528 Income before income taxes 145 105 Income tax expense 50 38 Net income $ 95 $ 67



The Company's consolidated net income increased by $28 million, or 42%, to $95 million for the three months ended March 31, 2014 when compared to 2013. The increase in earnings is due to increases in fees, net investment income and net realized investment gains (losses), net, and a decrease in operating expenses.

Premium income decreased by $46 million, or 26%, to $132 million for the three months ended March 31, 2014 when compared to 2013. This decrease is primarily related to the Company's Individual Markets segment which is driven by the $42 million received in 2013 in conjunction with the termination of the reinsurance agreement with CLAC. The Other segment had a decrease of $6 million due to lapses on a block of 10-year term policies whose original term ended in 2013.

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Fee income increased by $20 million, or 14%, to $167 million for the three months ended March 31, 2014 when compared to 2013. The increase is primarily related to improved variable fee income resulting from increased average asset levels driven by higher average equity market levels. The equity market performance is evidenced by the 21% increase in the average S&P 500 index during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.

Other revenue decreased by $7 million for the three months ended March 31, 2014 when compared to 2013 as a result of the termination of the reinsurance agreement with CLAC in 2013.

Net investment income increased by $14 million, or 5%, to $300 million during the three months ended March 31, 2014 when compared to 2013. The primary driver of the change is a $12 million increase in investment income earned on bonds, mortgages and policy loans as a result of higher invested assets balances partially offset by lower yields. Additionally, there was a $6 million and $4 million increase in unrealized gains from derivatives and bonds, respectively, and a $4 million increase in investment income earned on other investments. The increase in net investment income was partially offset by a $12 million decrease in unrealized gains from forward settling TBA security agreements.

Realized investment gains (losses), net, increased by $12 million, or 80%, to $27 million during the three months ended March 31, 2014 when compared to 2013. The fluctuation is driven primarily by the increase in gains of $17 million on forward settling TBA security transactions offset by a decrease in gains of $5 million on bonds and derivatives.

Total benefits and expenses decreased by $47 million, or 9%, to $481 million for the three months ended March 31, 2014 when compared to 2013 primarily due to lower policyholder benefits. The decrease in benefits and expenses is attributable to the $40 million decrease in the Company's Individual Markets segment driven by benefits expense incurred in 2013 in conjunction with the termination of the reinsurance agreement with CLAC. The Retirement Services segment had a decrease of $5 million primarily driven by lower DAC amortization as a result of actual gross profits coming in lower than previously estimated gross profits.

Income tax expense increased by $12 million, or 32%, to $50 million for the three months ended March 31, 2014 when compared to 2013 primarily due to an increase in net income before tax.

Individual Markets Segment Results of Operations

Three months ended March 31, 2014 compared with the three months ended March 30, 2013

The following is a summary of certain financial data of the Individual Markets segment:

Three months ended March 31, Income statement data (In millions) 2014 2013 Premium income $ 112 $ 154 Fee income 24 23 Other revenue - 7 Net investment income 186 177 Realized investment gains (losses), net 7 9 Total revenues 329 370 Policyholder benefits 239 278 Operating expenses 35 36 Total benefits and expenses 274 314 Income before income taxes 55 56 Income tax expense 19 22 Net income $ 36 $ 34 38



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Net income for the Individual Markets segment increased by $2 million, or 6%, to $36 million during the three months ended March 31, 2014 when compared to 2013. The increase in earnings is primarily due to higher net investment income driven by higher invested assets partially offset by a decrease in other revenues.

Premium income decreased by $42 million, or 27%, to $112 million for the three months ended March 31, 2014 when compared to 2013. This decrease is primarily driven by the $42 million received in 2013 in conjunction with the termination of the reinsurance agreement with CLAC.

Fee income remained relatively consistent, increasing $1 million, or 4%, to $24 million for the three months ended March 31, 2014 when compared to 2013.

Other revenue decreased by $7 million for the three months ended March 31, 2014 when compared to 2013 as a result of the termination of the reinsurance agreement with CLAC in 2013.

Net investment income increased by $9 million, or 5%, to $186 million for the three months ended March 31, 2014 when compared to 2013. The primary driver of the change is a $5 million increase in investment income earned on bonds, mortgages and policy loans as a result of higher invested assets balances partially offset by lower yields. Additionally, there was a $2 million increase in unrealized gains from bonds and a $2 million increase in investment income earned on other investments.

Realized investment gains (losses), net, decreased by $2 million, or 22%, to $7 million during the three months ended March 31, 2014 when compared to 2013. The increase is primarily driven by an increase in gains of $3 million on bonds.

Total benefits and expenses decreased by $40 million, or 13%, to $274 million during the three months ended March 31, 2014 when compared to 2013. The change in benefits and expenses is primarily attributable to a $41 million benefits expense incurred in 2013 in conjunction with the termination of the reinsurance agreement with CLAC.

Income tax expense decreased by $3 million, or 14%, to $19 million during the three months ended March 31, 2014 when compared to 2013 primarily due to a decrease in net income before tax.

Retirement Services Segment Results of Operations

Three months ended March 31, 2014 compared with the three months ended March 31, 2013

The following is a summary of certain financial data of the Retirement Services segment:

Three months ended March 31, Income statement data (In millions) 2014 2013 Premium income $ 1 $ - Fee income 142 123 Net investment income 101 97 Realized investment gains (losses), net 20 6 Total revenues 264 226 Policyholder benefits 48 45 Operating expenses 125 133 Total benefits and expenses 173 178 Income before income taxes 91 48 Income tax expense 31 16 Net income $ 60 $ 32



Net income for the Retirement Services segment increased by $28 million, or 88%, to $60 million for the three months ended March 31, 2014 when compared to 2013. The increase in earnings is primarily due to higher realized gains from forward settling TBA security transactions and higher fee income due to increased average asset levels driven by higher average equity market levels.

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Fee income increased by $19 million, or 15%, to $142 million for the three months ended March 31, 2014 when compared to 2013. The increase is primarily related to improved variable fee income due to increased average asset levels driven by higher average equity market levels. The equity market performance is evidenced by a 21% increase in the average S&P 500 index during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013.

Net investment income increased by $4 million, or 4%, to $101 million for the three months ended March 31, 2014 when compared to 2013. The primary driver of the change is a $6 million increase in investment income earned on bonds, mortgages and policy loans as a result of higher invested assets balances partially offset by lower yields and a $5 million increase in unrealized gains from derivatives. Additionally, there was a $2 million increase in unrealized gains from bonds and a $2 million increase in investment income earned on other investments. The increase in net investment income was partially offset by an $11 million decrease in unrealized gains from forward settling TBA security agreements.

Realized investment gains (losses), net, increased by $14 million to $20 million for the three months ended March 31, 2014 when compared to 2013. The fluctuation is driven primarily by a $14 million increase in gains from forward settling TBA security transactions.

Total benefits and expenses decreased by $5 million, or 3%, to $173 million for the three months ended March 31, 2014 when compared to 2013. The decrease in benefits and expenses is primarily attributable to an $8 million, or 6%, decrease in operating expenses due to lower DAC amortization as a result of actual gross profits coming in lower than previously estimated gross profits. This was partially offset by higher asset-based commissions.

Income tax expense increased by $15 million, or 94%, to $31 million during the three months ended March 31, 2014 when compared to 2013. The increase is primarily due to the increase in net income before income taxes.

Other Segment Results of Operations

Three months ended March 31, 2014 compared with the three months ended March 31, 2013

The following is a summary of certain financial data of the Company's Other segment:

Three months ended March 31, Income statement data (In millions) 2014 2013 Premium income $ 19 $ 25 Fee income 1 1 Net investment income 13 12 Total revenues 33 38 Policyholder benefits 19 21 Operating expenses 15 16 Total benefits and expenses 34 37 (Loss) income before income taxes (1 ) 1 Income tax expense - - Net (loss) income $ (1 ) $ 1



Net (loss) income for the Company's Other segment decreased by $2 million from income of $1 million to a loss of $1 million in 2014. Premium income decreased by $6 million due to lapses on a block of 10-year term policies whose original term ended in 2013. Offsetting the decrease is a decrease of $2 million in policyholder benefits as a result of more surrenders in 2014 as compared to 2013, as well as a decrease in operating expenses as a result of lower commissions.

Investment Operations



The Company's primary investment objective is to acquire assets with duration and cash flow characteristics reflective of its liabilities, while meeting industry, size, issuer and geographic diversification standards. Formal liquidity and credit quality parameters have also been established.

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The Company follows rigorous procedures to control interest rate risk and observes strict asset and liability matching guidelines. These guidelines ensure that even under changing market conditions, the Company's assets should meet the cash flow and income requirements of its liabilities. Using dynamic modeling to analyze the effects of a range of possible market changes upon investments and policyholder benefits, the Company works to ensure that its investment portfolio is appropriately structured to fulfill financial obligations to its policyholders.

A summary of the Company's general account investment assets and the assets as a percentage of total general account investments follows:

(In millions) March 31, 2014 December 31, 2013 Fixed maturities, available-for-sale $ 16,569 61.3 % $ 18,470 69.6 % Fixed maturities, held for trading 359 1.3 % 336 1.3 % Mortgage loans on real estate 3,183 11.8 % 3,134 11.8 % Policy loans 4,183 15.5 % 4,185 15.8 % Short-term investments, available-for-sale 2,662 9.8 % 294 1.1 % Limited partnership and other corporation interests 70 0.2 % 79 0.3 % Other investments 17 0.1 % 18 0.1 % Total investments $ 27,043 100.0 % $ 26,516 100.0 %



The March 31, 2014 fixed maturities, available-for-sale amount decreased as compared to December 31, 2013 as the Company sold government agency mortgage-backed security ("MBS") pools to enter into forward settling TBA contracts which are treated as derivatives. There is a corresponding increase in short-term investments, available-for-sale as the Company holds these investments in order to settle the forward settling TBA contracts.

Fixed Maturity Investments



Fixed maturity investments include public and privately placed corporate bonds, government bonds and mortgage-backed and asset-backed securities. Included in available-for-sale fixed maturities are perpetual debt investments which primarily consist of junior subordinated debt instruments that have no stated maturity date but pay fixed or floating interest in perpetuity. The Company's strategy related to mortgage-backed and asset-backed securities is to focus on those investments with low prepayment risk and minimal credit risk.

Private placement investments are generally less marketable than publicly traded assets, yet they typically offer enhanced covenant protection that allows the Company, if necessary, to take appropriate action to protect its investment.

The Company believes that the cost of the additional monitoring and analysis required by private placement investments is more than offset by their enhanced yield.

One of the Company's primary objectives is to ensure that its fixed maturity portfolio is maintained at a high average credit quality to limit credit risk. All securities are internally rated by the Company on a basis intended to be similar to that of the rating agencies. The Company's internal rating methodology generally takes into account ratings from Standard & Poor's Ratings Services, Fitch Ratings and Moody's Investor Services, Inc. In addition, the National Association of Insurance Commissioners ("NAIC") implemented a ratings methodology for residential mortgage-backed securities ("RMBS"), commercial mortgage-backed securities ("CMBS") and other structured securities. The Company may also utilize inputs from this ratings process to develop its internal rating.

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The distribution of the Company's fixed maturity portfolio by the Company's internal credit rating is summarized as follows:

Credit Rating March 31, 2014 December 31, 2013 AAA 18.8 % 28.4 % AA 17.3 % 15.3 % A 31.4 % 26.5 % BBB 31.4 % 28.6 % BB and below (Non-investment grade) 1.1 % 1.2 % Total 100.0 % 100.0 %



The March 31, 2014 AAA rating percentage decreased as compared to December 31, 2013 as the Company sold AAA rated government agency MBS pools to enter into forward settling TBA contracts which are treated as derivatives.

The following table contains the sector distribution of the Company's corporate fixed maturity investment portfolio, calculated as a percentage of fixed maturities: Sector March 31, 2014 December 31, 2013 Utility 18.4 % 18.5 % Finance 9.8 % 10.0 % Consumer 9.8 % 9.9 % Natural resources 5.2 % 5.2 % Transportation 3.0 % 3.0 % Other 11.0 % 11.1 %



Fair Value Measurement of Fixed Maturity Investments Classified as Available-for-Sale

Each fixed maturity investment is categorized in a hierarchy based on the observability of inputs into the valuation methodology with Level 3 being the least observable. Management uses some judgment in determining the observability of valuation inputs. Level 3 assets at March 31, 2014 were $253 million, or 1%, of total net assets and liabilities carried at fair value compared to Level 3 assets of $260 million, or 1%, at December 31, 2013. The decrease in Level 3 assets is primarily due to principal reductions.

Securities Lending, Reverse Repurchase Agreements and Cash Collateral Reinvestment Practices

Cash collateral related to the securities lending program and reverse repurchase agreements is invested in U.S. Government or U.S. Government Agency securities. In addition, the securities lending agent indemnifies the Company against borrower risk, meaning that the lending agent agrees contractually to replace securities not returned due to a borrower default. As of March 31, 2014 and December 31, 2013, the Company had $100 million and $27 million, respectively, of securities out on loan and $600 million and zero, respectively, in short-term reverse repurchase agreements, all of which are fully collateralized as described above. The Company does not enter into these types of transactions for liquidity purposes, but rather for yield enhancement on its investment portfolio.

Mortgage Loans on Real Estate



The Company's mortgage loans on real estate are comprised exclusively of domestic commercial collateralized real estate loans. The mortgage loan portfolio is diversified with regard to geographical markets and commercial real estate property types within the United States. The Company originates, directly or through correspondents, real estate mortgages with the intent to hold to maturity. The Company's portfolio includes loans which are fully amortizing, amortizing with a balloon balance at maturity, interest only to maturity and interest only for a number of years followed by an amortizing period. During the three months ended March 31, 2014 and the year ended December 31, 2013, the Company originated 5 and 45 new loans with aggregate principal balances of $89 million and $562 million, respectively.

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Table of Contents Derivatives



The Company uses certain derivatives, such as futures, swaps and interest rate swaptions, for purposes of managing the interest rate, foreign currency exchange rate and equity market risks impacting the Company's business. These derivatives, when taken alone, may subject the Company to varying degrees of market and credit risk; however, since used for hedging purposes, these instruments are intended to reduce risk. For derivative instruments where hedge accounting is not elected, changes in interest rates, foreign currencies or equity markets may generate derivative gains or losses which may cause the Company to experience volatility in net income. The Company also uses forward settling TBA securities to gain exposure to the investment risk and return of agency mortgage-backed securities (pass-throughs). These transactions enhance the return on the Company's investment portfolio and provide a more liquid and cost effective method of achieving these goals than purchasing or selling individual agency mortgage-backed pools. The Company controls the credit risk of its over-the-counter derivative contracts through credit approvals, limits, monitoring procedures and in most cases, requiring collateral. Risk of loss is generally limited to the portion of the fair value of derivative instruments that exceeds the value of the collateral held and not to the notional or contractual amounts of the derivatives.

Summary of Critical Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires the Company's management to adopt accounting policies to enable them to make a significant variety of accounting and actuarial estimates and assumptions. These estimates and assumptions affect, among other things, the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Actual results can differ from the amounts previously estimated, which were based on information available at the time the estimates were made.

Critical accounting estimates are those that management believes are important to the portrayal of the Company's results of operations and financial condition and which require them to make difficult, subjective and/or complex judgments. Critical accounting estimates cover accounting and actuarial matters that are inherently uncertain because the future resolution of such matters is unknown. Many of these policies, estimates and related judgments are common in the insurance and financial services industries. The Company believes that its most critical accounting estimates include the following:

† Valuation of investments and derivatives in the absence of quoted market values;

† Impairment of investments; † Accounting for derivative financial instruments; † Valuation of policy benefit liabilities; and † Valuation of DAC



A discussion of each of these critical accounting policies may be found in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, under Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

Application of Recent Accounting Pronouncements

See Note 3 to the accompanying condensed consolidated financial statements for a discussion of the application of recent accounting pronouncements.

Liquidity and Capital Resources

Liquidity refers to a company's ability to generate sufficient cash flows to meet the needs of its operations. The Company manages its operations to create stable, reliable and cost-effective sources of cash flows to meet all of its obligations.

The principal sources of the Company's liquidity are premiums and contract deposits, fees, investment income and investment maturities and sales. Funds provided from these sources are reasonably predictable and normally exceed liquidity requirements for payment of policy benefits, payments to policy and contractholders in

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connection with surrenders and withdrawals and general expenses. However, since the timing of available funds cannot always be matched precisely to commitments, imbalances may arise when demands for funds exceed those on hand. A primary liquidity concern regarding cash flows from operations is the risk of early policyholder and contractholder withdrawals. A primary liquidity concern regarding investment activity is the risk of defaults and market volatility. In addition, a demand for funds may arise as a result of the Company taking advantage of current investment opportunities. The sources of the funds that may be required in such situations include the issuance of commercial paper or other debt instruments. Management believes that the liquidity profile of its assets is sufficient to satisfy the liquidity requirements of reasonably foreseeable scenarios.

Generally, the Company has met its operating requirements by utilizing cash flows from operations and maintaining appropriate levels of liquidity in its investment portfolio. Liquidity for the Company has remained strong, as evidenced by the amounts of short-term investments and cash that totaled $249 million and $302 million as of March 31, 2014 and December 31, 2013, respectively. The March 31, 2014 short-term investments included above exclude amounts held to settle TBA forward contracts. In addition, 99% of the fixed maturity portfolio carried an investment grade rating at March 31, 2014 and December 31, 2013, thereby providing significant liquidity to the Company's overall investment portfolio.

The Company continues to be well capitalized, with sufficient borrowing capacity. Additionally, the Company anticipates that cash on hand and expected net cash generated by operating activities will exceed the forecasted needs of the business over the next 12 months. The Company's financial strength provides the capacity and flexibility to enable it to raise funds in the capital markets through the issuance of commercial paper. The Company had $99 million of commercial paper outstanding at March 31, 2014 and December 31, 2013. The commercial paper has been given a rating of A-1+ by Standard & Poor's Ratings Services and a rating of P-1 by Moody's Investors Service, each being the highest rating available. Through the recent financial market volatility, the Company continued to have the ability to access the capital markets for funds. The loss of this access in the future would not have a significant impact to the Company's liquidity as commercial paper is not used to fund daily operations and is an insignificant amount in relation to total invested assets.

The Company also has available a revolving credit facility agreement, which expires on March 1, 2018, in the amount of $50 million for general corporate purposes. The Company had no borrowings under this credit facility as of or during the three months ended March 31, 2014. The Company does not anticipate the need for borrowings under this facility and the loss of its availability would not significantly impact its liquidity.

Capital resources provide protection for policyholders and financial strength to support the underwriting of insurance risks and allow for continued business growth. The amount of capital resources that may be needed is determined by the Company's senior management and Board of Directors, as well as by regulatory requirements. The allocation of resources to new long-term business commitments is designed to achieve an attractive return, tempered by considerations of risk and the need to support the Company's existing business.

Off-Balance Sheet Arrangements

The Company makes commitments to fund partnership interests, mortgage loans on real estate and other investments in the normal course of its business. The amounts of these unfunded commitments at March 31, 2014 and December 31, 2013 were $145 million and $197 million, respectively. The precise timing of the fulfillment of the commitment cannot be predicted; however, these amounts are due within one year of the dates indicated. There are no other obligations or liabilities arising from such arrangements that are reasonably likely to become material.

The Company participates in a short-term reverse repurchase program for the purpose of enhancing the total return on its investment portfolio. This type of transaction involves the purchase of securities with a simultaneous agreement to sell similar securities at a future date at an agreed-upon price. In exchange, the financial institutions put non-cash collateral on deposit with a third-party custodian on behalf of the Company. The amount of securities purchased in connection with these transactions was $600 million and zero at March 31, 2014 and December 31, 2013, respectively. Non-cash collateral on deposit with the third-party custodian on the Company's behalf was $612 million and zero at March 31, 2014 and December 31, 2013, respectively, which cannot be sold or re-pledged and which has not been recorded on the condensed consolidated balance sheets.

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The Company participates in a securities lending program in which the Company lends securities that are held as part of its general account investment portfolio to third parties for the purpose of enhancing the total return on its investment portfolio. The Company generally requires initial collateral in an amount greater than or equal to 102% of the fair value of domestic securities loaned and 105% of foreign securities loaned. The Company received securities with a fair value of $7 million and $9 million as collateral at March 31, 2014 and December 31, 2013, respectively, which have not been recorded on the condensed consolidated balance sheets.


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