UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
——————————————————————

FORM 10-Q
(Mark One)
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2013

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

For the transition period from        _                   to  _                        

Commission File Number: _001-35897_________________________________________________

ING U.S., Inc.
(Exact name of registrant as specified in its charter)
Delaware
52-1222820
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
230 Park Avenue
 
New York, New York
10169
(Address of principal executive offices)
(Zip Code)
(212) 309-8200
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes   o      No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer     o
Accelerated filer     o
Non-accelerated filer     x
Smaller reporting company      o
(Do not check if a smaller reporting company)
 

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At May 21, 2013 260,769,230 shares of Common Stock, $.01 par value, were outstanding.




1



ING U.S., Inc.
Form 10-Q for the period ended March 31, 2013



 
 
PAGE
PART I.
FINANCIAL INFORMATION (UNAUDITED)
 
 
 
 
Item 1.
Financial Statements:
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.
OTHER INFORMATION
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 
 
 
 
 



2



NOTE CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including "Management's Discussion and Analysis of Results of Operations and Financial Condition," contains statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements relating to trends in operations and financial results and the business and products of ING U.S., Inc. (the "Company"), as well as other statements including words such as "anticipate," "believe," "plan," "estimate," "expect," "intend" and other similar expressions. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects on us. Forward-looking statements are necessarily based on 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 are subject to change. These uncertainties and contingencies could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Factors that could cause such differences include, but are not limited to, those discussed in Part I, Item 2. "Management's Discussion and Analysis of Results of Operations and Financial Condition" and Part II, Item 1A. "Risk Factors" of this Form 10-Q as well as those discussed in "Risk Factors," "Management's Discussion and Analysis of Results of Operations and Financial Condition - Trends and Uncertainties" and "Business - Closed Blocks - Closed Blocks Variable Annuity" in the Company's Prospectus dated May 1, 2013, filed with the SEC pursuant to Rule 424(b)(1) under the Securities Act of 1933, as amended (the "Securities Act"), on May 3, 2013 (the "Prospectus").


3



PART I.        FINANCIAL INFORMATION

Item 1.        Financial Statements
ING U.S., Inc.
Condensed Consolidated Balance Sheets
March 31, 2013 (Unaudited) and December 31, 2012
(In millions, except share data)
 
March 31,
2013
 
December 31,
2012
Assets:
 
 
 
Investments:
 
 
 
Fixed maturities, available-for-sale, at fair value (amortized cost of $63,469.6 at 2013 and $62,955.4 at 2012)
$
70,622.9

 
$
70,910.3

Fixed maturities, at fair value using the fair value option
2,675.8

 
2,771.3

Equity securities, available-for-sale, at fair value (cost of $246.5 at 2013 and $297.9 at 2012)
282.3

 
340.1

Short-term investments
2,992.1

 
5,991.2

Mortgage loans on real estate, net of valuation allowance of $3.9 at 2013 and at 2012
8,949.4

 
8,662.3

Policy loans
2,204.4

 
2,200.3

Limited partnerships/corporations
468.5

 
465.1

Derivatives
2,077.0

 
2,374.5

Other investments
166.7

 
167.0

Securities pledged (amortized cost of $1,656.7 at 2013 and $1,470.0 at 2012)
1,774.7

 
1,605.5

Total investments
92,213.8

 
95,487.6

Cash and cash equivalents
2,787.7

 
1,786.8

Short-term investments under securities loan agreements, including collateral delivered
863.5

 
664.0

Accrued investment income
900.8

 
863.5

Reinsurance recoverable
7,151.0

 
7,379.3

Deferred policy acquisition costs, Value of business acquired
4,019.6

 
3,656.3

Sales inducements to contract holders
235.5

 
212.7

Goodwill and other intangible assets
341.8

 
348.5

Other assets
1,128.2

 
1,362.5

Assets related to consolidated investment entities:
 
 
 
Limited partnerships/corporations, at fair value
2,980.7

 
2,931.2

Cash and cash equivalents
1,054.8

 
440.8

Corporate loans, at fair value using the fair value option
4,043.1

 
3,559.3

Other assets
31.2

 
34.3

Assets held in separate accounts
103,098.3

 
97,667.4

Total assets
$
220,850.0

 
$
216,394.2




The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 

4
 

ING U.S., Inc.
Condensed Consolidated Balance Sheets
March 31, 2013 (Unaudited) and December 31, 2012
(In millions, except share data)

 
March 31,
2013
 
December 31,
2012
Liabilities and Shareholder's Equity:
 
 
 
Future policy benefits
$
15,061.5

 
$
15,493.6

Contract owner account balances
70,813.6

 
70,562.1

Payables under securities loan agreement, including collateral held
1,348.8

 
1,509.8

Short-term debt
321.2

 
1,064.6

Long-term debt
3,440.8

 
3,171.1

Funds held under reinsurance agreements
1,170.8

 
1,236.6

Derivatives
1,670.6

 
1,944.2

Pension and other post-employment provisions
906.6

 
903.2

Current income taxes
13.2

 
11.7

Deferred income taxes
921.6

 
1,042.7

Other liabilities
1,231.3

 
1,604.2

Liabilities related to consolidated investment entities:
 
 
 
Collateralized loan obligations notes, at fair value using the fair value option
4,448.1

 
3,829.4

Other liabilities
804.7

 
292.4

Liabilities related to separate accounts
103,098.3

 
97,667.4

Total liabilities
205,251.1

 
200,333.0

 
 
 
 
Shareholder's equity:
 
 
 
Common stock (900,000,000 shares authorized, 230,079,120 issued and 230,000,000 outstanding, net of 79,120 of Treasury shares; $0.01 par value per share )
2.3

 
2.3

Additional paid-in capital
22,909.9

 
22,917.6

Accumulated other comprehensive income
3,452.8

 
3,710.7

Retained earnings (deficit):
 
 
 
Appropriated-consolidated investment entities
0.2

 
6.4

Unappropriated
(12,974.1
)
 
(12,762.1
)
Total ING U.S., Inc. shareholder's equity
13,391.1

 
13,874.9

Noncontrolling interest
2,207.8

 
2,186.3

Total shareholder's equity
15,598.9

 
16,061.2

Total liabilities and shareholder's equity
$
220,850.0

 
$
216,394.2



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 

5
 

ING U.S., Inc.
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31, 2013 , and 2012 (Unaudited)
(In millions, except per share data)

 
Three Months Ended March 31,
 
2013
 
2012
Revenues:
 
 
 
Net investment income
$
1,198.7

 
$
1,277.4

Fee income
891.9

 
889.0

Premiums
471.9

 
461.6

Net realized gains (losses):
 
 
 
Total other-than-temporary impairments
(11.6
)
 
(7.3
)
Less: Portion of other-than-temporary impairments recognized in Other comprehensive income (loss)
(0.6
)
 
(0.4
)
Net other-than-temporary impairments recognized in earnings
(11.0
)
 
(6.9
)
Other net realized capital gains (losses)
(863.8
)
 
(1,243.0
)
Total net realized capital gains (losses)
(874.8
)
 
(1,249.9
)
Other revenue
95.6

 
89.0

Income (loss) related to consolidated investment entities:
 
 
 
Net investment income (loss)
44.2

 
34.9

Changes in fair value related to collateralized loan obligations
(8.9
)
 
(16.7
)
Total revenues
1,818.6

 
1,485.3

Benefits and expenses:
 
 
 
Policyholder benefits
540.5

 
448.1

Interest credited to contract owner account balance
520.9

 
570.1

Operating expenses
759.1

 
759.4

Net amortization of deferred policy acquisition costs and value of business acquired
130.5

 
173.7

Interest expense
44.4

 
24.3

Operating expenses related to consolidated investment entities:
 
 
 
Interest expense
36.8

 
22.2

Other expense
0.7

 
0.4

Total benefits and expenses
2,032.9

 
1,998.2

Income (loss) before income taxes
(214.3
)
 
(512.9
)
Income tax expense
11.2

 
7.9

Net income (loss)
(225.5
)
 
(520.8
)
Less: Net income (loss) attributable to noncontrolling interest
(13.5
)
 
(15.6
)
Net income (loss) available to ING U.S., Inc.'s common shareholder
$
(212.0
)
 
$
(505.2
)
Net income (loss) available to ING U.S., Inc.'s common shareholder per common share
$
(0.92
)
 
$
(2.20
)


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 

6
 

ING U.S., Inc.
Condensed Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31, 2013 , and 2012 (Unaudited)
(In millions)

 
Three Months Ended March 31,
 
2013
 
2012
Net income (loss)
$
(225.5
)
 
$
(520.8
)
Other comprehensive income (loss), before tax:
 
 
 
Unrealized gains/(losses) on securities
(399.9
)
 
(75.7
)
Other-than-temporary impairments
10.9

 
12.8

Pension and other postretirement benefits liability
(3.5
)
 
(3.8
)
Other comprehensive income (loss), before tax
(392.5
)
 
(66.7
)
Income tax (benefit) related to items of other comprehensive income (loss)
(134.6
)
 
(58.7
)
Other comprehensive income (loss), after tax
(257.9
)
 
(8.0
)
Comprehensive income (loss)
(483.4
)
 
(528.8
)
Less: Comprehensive income (loss) attributable to the noncontrolling interest
(13.5
)
 
(15.6
)
Comprehensive income (loss) attributable to ING U.S., Inc.'s common shareholder
$
(469.9
)
 
$
(513.2
)


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 

7
 

ING U.S., Inc.
 Condensed Consolidated Statements of Changes in Shareholder's Equity
For the Three Months Ended March 31, 2013 and 2012 (Unaudited)
(In millions)
 
Common
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings (Deficit)
 
Total
ING U.S., Inc.
Shareholder's
Equity
 
Noncontrolling
Interest
 
Total
Shareholder's
Equity
 
 
 
 
Appropriated
 
Unappropriated
 
 
 
Balance at January 1, 2013
$
2.3

 
$
22,917.6

 
$
3,710.7

 
$
6.4

 
$
(12,762.1
)
 
$
13,874.9

 
$
2,186.3

 
$
16,061.2

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
(212.0
)
 
(212.0
)
 
(13.5
)
 
(225.5
)
Other comprehensive income (loss), after tax
—

 
—

 
(257.9
)
 
—

 
—

 
(257.9
)
 
—

 
(257.9
)
Total comprehensive income (loss)
 
 


 


 


 


 
(469.9
)
 
(13.5
)
 
(483.4
)
Reclassification of noncontrolling interest


 
—

 
—

 
(6.2
)
 
—

 
(6.2
)
 
6.2

 
—

Employee related benefits
—

 
(7.7
)
 
—

 
—

 
—

 
(7.7
)
 
—

 
(7.7
)
Contribution from (Distribution to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
28.8

 
28.8

Balance at March 31, 2013
$
2.3

 
$
22,909.9

 
$
3,452.8

 
$
0.2

 
$
(12,974.1
)
 
$
13,391.1

 
$
2,207.8

 
$
15,598.9



 
Common
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained Earnings (Deficit)
 
Total
ING U.S., Inc.
Shareholder's
Equity
 
Noncontrolling
Interest
 
Total
Shareholder's
Equity
 
 
 
 
Appropriated
 
Unappropriated
 
 
 
Balance at January 1, 2012
$
2.3

 
$
22,865.2

 
$
2,595.0

 
$
126.5

 
$
(13,235.1
)
 
$
12,353.9

 
$
1,572.2

 
$
13,926.1

Comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
(505.2
)
 
(505.2
)
 
(15.6
)
 
(520.8
)
Other comprehensive income (loss), after tax
—

 
—

 
(8.0
)
 
—

 
—

 
(8.0
)
 
—

 
(8.0
)
Total comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
(513.2
)
 
(15.6
)
 
(528.8
)
Reclassification of noncontrolling interest
—

 
—

 
—

 
(16.7
)
 
—

 
(16.7
)
 
16.7

 
—

Employee related benefits
—

 
5.9

 
—

 
—

 
—

 
5.9

 
—

 
5.9

Contribution from (Distribution to) noncontrolling interest, net
—

 
—

 
—

 
—

 
—

 
—

 
59.6

 
59.6

Balance at March 31, 2012
$
2.3

 
$
22,871.1

 
$
2,587.0

 
$
109.8

 
$
(13,740.3
)
 
$
11,829.9

 
$
1,632.9

 
$
13,462.8



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 

8
 

ING U.S., Inc.
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2013, and 2012 (Unaudited)
(In millions)

 
Three Months Ended March 31,
 
2013
 
2012
Net cash (used in) provided by operating activities
$
(28.4
)
 
$
324.3

Cash Flows from Investing Activities:
 
 
 
Proceeds from the sale, maturity, disposal or redemption of:
 
 
 
Fixed maturities
4,455.8

 
5,838.7

Equity securities, available-for-sale
28.4

 
23.5

Mortgage loans on real estate
318.3

 
316.3

Loan - Dutch State obligation
—

 
145.3

Limited partnerships/corporations
18.0

 
63.1

Acquisition of:
 
 
 
Fixed maturities
(4,802.8
)
 
(4,233.3
)
Equity securities, available-for-sale
(9.4
)
 
(9.9
)
Mortgage loans on real estate
(581.4
)
 
(553.9
)
Limited partnerships/corporations
(9.8
)
 
(77.3
)
Short-term investments, net
2,999.1

 
499.4

Policy loans, net
(4.1
)
 
39.8

Derivatives, net
(1,089.6
)
 
(1,171.2
)
Other investments, net
11.8

 
(0.1
)
Sales from consolidated investment entities
573.8

 
181.5

Purchase of consolidated investment entities
(613.8
)
 
(380.0
)
Collateral received (delivered), net
(360.5
)
 
(209.4
)
Purchases of fixed assets, net
(6.6
)
 
(8.2
)
Other, net
—

 
(0.2
)
Net cash provided by investing activities
927.2

 
464.1

Cash Flows from Financing Activities:
 
 
 
Deposits received for investment contracts
$
2,936.2

 
$
4,251.2

Maturities and withdrawals from investment contracts
(2,996.6
)
 
(4,918.2
)
Proceeds from issuance of debt with maturities of more than three months
1,000.6

 
43.9

Repayment of debt with maturities of more than three months
(1,304.6
)
 
(47.6
)
Short-term debt
(169.7
)
 
129.1

Debt issuance costs
(6.5
)
 
—

Contributions from participants in consolidated investment entities
642.7

 
392.2

Net cash (used in) provided by financing activities
102.1

 
(149.4
)
Net increase in cash and cash equivalents
1,000.9

 
639.0

Cash and cash equivalents, beginning of period
1,786.8

 
638.0

Cash and cash equivalents, end of period
$
2,787.7

 
$
1,277.0

Supplemental cash flow information:
 
 
 
Income taxes paid, net
$
(3.2
)
 
$
(2.2
)
Interest paid
55.1

 
29.4


The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
 
 
 

9
 


ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 




1.    Business, Basis of Presentation and Significant Accounting Policies

Business

ING U.S., Inc. and its subsidiaries (collectively "the Company") is a financial services organization in the United States that offers a broad range of retirement services, annuities, investment management services, mutual funds, life insurance, group insurance and supplemental health products, guaranteed investment contracts, and funding agreements.

In 2009, ING Groep N.V. (“ING Group” or “ING”) announced the anticipated separation of its global banking and insurance businesses, including the divestiture of the Company. On May 7, 2013, ING U.S., Inc. completed the offering of 65,192,307 shares of its common stock, including the issuance and sale by ING U.S., Inc. of 30,769,230 shares of common stock and the sale by ING Insurance International B.V. (“ING International”), an indirect wholly owned subsidiary of ING Group and previously the sole stockholder of ING U.S., Inc. of 34,423,077 shares of outstanding common stock of ING U.S., Inc. (collectively, the “IPO"). Following the IPO, ING International owns 75% of the outstanding common stock of ING U.S., Inc. (before any exercise of the underwriters' option to acquire from ING International up to an additional 9,778,846 shares of ING U.S., Inc. common stock). ING International is a wholly owned subsidiary of ING Verzekeringen N.V. ("ING V"), which is a wholly owned subsidiary of ING Insurance Topholding N.V., which is a wholly owned subsidiary of ING Group, the ultimate parent company. ING is a global financial services holding company based in The Netherlands, with American Depository Shares listed on the New York Stock Exchange under the symbol "ING."

On April 11, 2013, the Company announced plans to rebrand in the future as Voya Financial. The Voya Financial identity is reflected in the Company's new ticker symbol (NYSE: VOYA).

The Company provides its principal products and services in three businesses (Retirement Solutions, Investment Management and Insurance Solutions) and reports results through five ongoing operating segments, including Retirement, Annuities, Investment Management, Individual Life and Employee Benefits. The Company also has a Corporate segment, which includes the financial data not directly related to the businesses and Closed Block segments. See the Segments Note to these Condensed Consolidated Financial Statements.

Basis of Presentation

On April 10, 2013, the Company's Board of Directors authorized the total number of shares of all classes of stock which the Company has the authority to issue to be 1,000,000,000 , of which 900,000,000 shares, par value $0.01 per share, are designated as common stock and a 100,000,000 shares, par value $0.01 per share, are designated as preferred stock. In addition, the Company's Board of Directors authorized a 2,295.248835 -for-1 split of the Company's common stock. These actions were subsequently approved by the Company's sole stockholder on April 10, 2013 and effected on April 11, 2013, resulting in 230,079,120 shares of common stock issued, including 79,120 of Treasury shares, and 230,000,000 shares of common stock outstanding and held by ING International, prior to the IPO. The accompanying Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements give retroactive effect to the stock split for all periods presented. There are no preferred shares issued or outstanding.

The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and are unaudited. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates.

The Condensed Consolidated Financial Statements include the accounts of ING U.S., Inc. and its subsidiaries, as well as partnerships (voting interest entities ("VOEs")) in which the Company has control and variable interest entities ("VIEs") for which the Company is the primary beneficiary. See the Consolidated Investment Entities Note to these Condensed Consolidated Financial Statements.



10



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Certain immaterial reclassifications have been made to prior year financial information to conform to the current year classifications. Intercompany transactions and balances have been eliminated.

The accompanying Condensed Consolidated Financial Statements reflect all adjustments (including normal, recurring adjustments) necessary to present fairly the financial position of the Company as of March 31, 2013 , its results of operations, comprehensive income, changes in shareholder's equity and cash flows for the three months ended March 31, 2013 and 2012 , in conformity with U.S. GAAP. Interim results are not necessarily indicative of full year performance. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements included in the Company's prospectus dated May 1, 2013, filed with the SEC pursuant to Rule 424(b)(1) under the Securities Act of 1933, as amended (the "Securities Act") on May 3, 2013 (the "Prospectus").

Adoption of New Pronouncements

Disclosures about Offsetting Assets and Liabilities
In December 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2011-11, "Balance Sheet (Accounting Standards Codification ("ASC") Topic 210): Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"), which requires an entity to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position, as well as instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.

In January 2013, the FASB issued ASU 2013-01, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities" ("ASU 2013-01"), which clarifies that the scope of ASU 2011-11 applies to derivatives accounted for in accordance with ASU Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement.

The provisions of ASU 2013-01 and ASU 2011-11 were adopted retrospectively by the Company on January 1, 2013. The adoption had no effect on the Company's financial condition, results of operations, or cash flows as the pronouncement only pertains to additional disclosure. The disclosures required by ASU 2011-11 and ASU 2013-01 are included in the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements.

Disclosures about Amounts Reclassified out of AOCI
In January 2013, the FASB issued ASU 2013-02, "Comprehensive Income (ASC Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts.

The provisions of ASU 2013-02 were adopted by the Company on January 1, 2013. The adoption had no effect on the Company's financial condition, results of operations, or cash flows as the pronouncement only pertains to additional disclosure. The disclosures required by ASU 2013-02, including comparative period disclosures, are included in the Accumulated Other Comprehensive Income Note to these Condensed Consolidated Financial Statements.

Future Adoption of Accounting Pronouncements

Joint and Several Liability Arrangements
In February 2013, the FASB issued ASU 2013-04, "Liabilities (ASC Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date” ("ASU 2013-04"), which requires an entity to measure obligations resulting from joint and several liable arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of (1) the amount the reporting entity agreed


11



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



to pay on the basis of its arrangement among its co-obligors and (2) any additional amount it expects to pay on behalf of its co-obligors. ASU 2013-04 also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations.

The provisions of ASU 2013-04 are effective for years, and interim periods within those years, beginning after December 15, 2013. The amendments should be applied retrospectively for those obligations resulting from joint and several liability arrangements that exist at the beginning of an entity's year of adoption. The Company is currently in the process of determining the impact of adoption of the provisions of ASU 2013-04.



12



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



2.      Investments (excluding Consolidated Investment Entities)

Fixed Maturities and Equity Securities

Available-for-sale and fair value option ("FVO") fixed maturities and equity securities were as follows as of March 31, 2013 :
 
Amortized Cost
 
Gross Unrealized Capital Gains
 
Gross Unrealized Capital Losses
 
Embedded Derivatives (2)
 
Fair Value
 
OTTI (3)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
5,186.3

 
$
575.2

 
$
4.0

 
$
—

 
$
5,757.5

 
$
—

U.S. government agencies and authorities
642.0

 
67.5

 
—

 
—

 
709.5

 
—

State, municipalities and political subdivisions
288.6

 
29.2

 
—

 
—

 
317.8

 
—

U.S. corporate securities
34,082.4

 
3,770.8

 
93.3

 
—

 
37,759.9

 
13.0

 
 
 
 
 
 
 
 
 
 
 
 
Foreign securities: (1)
 
 
 
 
 
 
 
 
 
 
 
Government
1,072.1

 
93.3

 
9.3

 
—

 
1,156.1

 
—

Other
13,601.1

 
1,393.9

 
41.1

 
—

 
14,953.9

 
—

Total foreign securities
14,673.2

 
1,487.2

 
50.4

 
—

 
16,110.0

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
4,941.3

 
578.7

 
17.0

 
138.0

 
5,641.0

 
1.1

Non-Agency
1,489.8

 
194.9

 
46.9

 
74.1

 
1,711.9

 
130.4

Total Residential mortgage-backed securities
6,431.1

 
773.6

 
63.9

 
212.1

 
7,352.9

 
131.5

Commercial mortgage-backed securities
4,301.4

 
515.8

 
4.0

 
—

 
4,813.2

 
4.4

Other asset-backed securities
2,197.1

 
116.7

 
53.2

 
(8.0
)
 
2,252.6

 
14.2

 
 
 
 
 
 
 
 
 
 
 
 
Total fixed maturities, including securities pledged
67,802.1

 
7,336.0

 
268.8

 
204.1

 
75,073.4

 
163.1

Less: Securities pledged
1,656.7

 
126.1

 
8.1

 
—

 
1,774.7

 
—

Total fixed maturities
66,145.4

 
7,209.9

 
260.7

 
204.1

 
73,298.7

 
163.1

 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
192.6

 
0.3

 
0.2

 
—

 
192.7

 
—

Preferred stock
53.9

 
35.7

 
—

 
—

 
89.6

 
—

Total equity securities
246.5

 
36.0

 
0.2

 
—

 
282.3

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total fixed maturities and equity securities investments
$
66,391.9

 
$
7,245.9

 
$
260.9

 
$
204.1

 
$
73,581.0

 
$
163.1

(1) Primarily U.S. dollar denominated.
(2) Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Represents Other-than Temporary-Impairments ("OTTI") reported as a component of Other comprehensive income.



13



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Available-for-sale and FVO fixed maturities and equity securities were as follows as of December 31, 2012 :
 
Amortized
Cost
 
Gross
Unrealized
Capital
Gains
 
Gross
Unrealized
Capital
Losses
 
Embedded
Derivatives (2)
 
Fair
 Value
 
OTTI (3)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
5,194.3

 
$
691.2

 
$
1.8

 
$
—

 
$
5,883.7

 
$
—

U.S. government agencies and authorities
645.4

 
78.8

 
—

 
—

 
724.2

 
—

State, municipalities and political subdivisions
320.2

 
32.6

 
—

 
—

 
352.8

 
—

U.S. corporate securities
32,986.1

 
4,226.6

 
48.8

 
—

 
37,163.9

 
13.4

 
 
 
 
 
 
 
 
 
 
 
 
Foreign securities (1) :
 
 
 
 
 
 
 
 
 
 
 
Government
1,069.4

 
125.2

 
4.6

 
—

 
1,190.0

 
—

Other
13,321.8

 
1,527.4

 
54.7

 
—

 
14,794.5

 
—

Total foreign securities
14,391.2

 
1,652.6

 
59.3

 
—

 
15,984.5

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Agency
5,071.6

 
633.3

 
14.8

 
156.0

 
5,846.1

 
1.2

Non-Agency
1,612.6

 
198.6

 
71.9

 
81.6

 
1,820.9

 
139.6

Total Residential mortgage-backed securities
6,684.2

 
831.9

 
86.7

 
237.6

 
7,667.0

 
140.8

Commercial mortgage-backed securities
4,438.9

 
513.6

 
6.1

 
—

 
4,946.4

 
4.4

Other asset-backed securities
2,536.4

 
128.4

 
90.0

 
(10.2
)
 
2,564.6

 
15.4

 
 
 
 
 
 
 
 
 
 
 
 
Total fixed maturities, including securities pledged
67,196.7

 
8,155.7

 
292.7

 
227.4

 
75,287.1

 
174.0

Less: Securities pledged
1,470.0

 
139.6

 
4.1

 
—

 
1,605.5

 
—

Total fixed maturities
65,726.7

 
8,016.1

 
288.6

 
227.4

 
73,681.6

 
174.0

 
 
 
 
 
 
 
 
 
 
 
 
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
194.4

 
13.2

 
1.0

 
—

 
206.6

 
—

Preferred stock
103.5

 
30.0

 
—

 
—

 
133.5

 
—

Total equity securities
297.9

 
43.2

 
1.0

 
—

 
340.1

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total fixed maturities and equity securities investments
$
66,024.6

 
$
8,059.3

 
$
289.6

 
$
227.4

 
$
74,021.7

 
$
174.0

(1) Primarily U.S. dollar denominated.
(2) Embedded derivatives within fixed maturity securities are reported with the host investment. The changes in fair value of embedded derivatives are reported in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Represents OTTI reported as a component of Other comprehensive income.



14



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The amortized cost and fair value of fixed maturities, including securities pledged, as of March 31, 2013 , are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called, or prepaid. Mortgage-backed securities ("MBS") and Other asset-backed securities ("ABS") are shown separately because they are not due at a single maturity date.
 
Amortized
Cost
 
Fair
Value
Due to mature:
 
 
 
One year or less
$
2,923.6

 
$
3,021.8

After one year through five years
14,250.2

 
15,205.4

After five years through ten years
18,184.4

 
19,830.3

After ten years
19,514.3

 
22,597.2

Mortgage-backed securities
10,732.5

 
12,166.1

Other asset-backed securities
2,197.1

 
2,252.6

Fixed maturities, including securities pledged
$
67,802.1

 
$
75,073.4


The investment portfolio is monitored to maintain a diversified portfolio on an ongoing basis. Credit risk is mitigated by monitoring concentrations by issuer, sector and geographic stratification and limiting exposure to any one issuer.

As of March 31, 2013 and December 31, 2012 , the Company did no t have any investments in a single issuer, other than obligations of the U.S. government and government agencies, with a carrying value in excess of 10% of the Company’s consolidated Shareholder’s equity.

The following tables set forth the composition of the U.S. and foreign corporate securities within the fixed maturity portfolio by industry category as of the dates indicated:
 
Amortized
Cost
 
Gross
Unrealized
Capital
Gains
 
Gross
Unrealized
Capital
Losses
 
Fair
Value
March 31, 2013
 
 
 
 
 
 
 
Communications
$
4,048.7

 
$
510.2

 
$
10.9

 
$
4,548.0

Financial
6,027.8

 
748.3

 
32.7

 
6,743.4

Industrial and other companies
27,160.9

 
2,621.1

 
66.8

 
29,715.2

Utilities
9,007.6

 
1,128.7

 
20.6

 
10,115.7

Transportation
1,438.5

 
156.4

 
3.4

 
1,591.5

Total
$
47,683.5

 
$
5,164.7

 
$
134.4

 
$
52,713.8

 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
Communications
$
3,609.5

 
$
563.4

 
$
2.4

 
$
4,170.5

Financial
5,912.9

 
749.4

 
46.7

 
6,615.6

Industrial and other companies
26,613.3

 
3,063.3

 
24.2

 
29,652.4

Utilities
8,893.1

 
1,210.5

 
28.9

 
10,074.7

Transportation
1,279.1

 
167.4

 
1.3

 
1,445.2

Total
$
46,307.9

 
$
5,754.0

 
$
103.5

 
$
51,958.4


The Company invests in various categories of collateralized mortgage obligations ("CMOs"), including CMOs that are not agency-backed, that are subject to different degrees of risk from changes in interest rates and defaults. The principal risks inherent in holding CMOs are prepayment and extension risks related to significant decreases and increases in interest rates resulting in the


15



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



prepayment of principal from the underlying mortgages, either earlier or later than originally anticipated. As of March 31, 2013 and December 31, 2012 , approximately 32.5% and 33.1% , respectively, of the Company’s CMO holdings, such as interest-only or principal-only strips were invested in those types of CMOs which are subject to more prepayment and extension risk than traditional CMOs.

Repurchase Agreements
 
The Company engages in dollar repurchase agreements with mortgage-backed securities ("dollar rolls") and repurchase agreements with other collateral types to increase its return on investments and improve liquidity. Such arrangements meet the requirements to be accounted for as financing arrangements. As of March 31, 2013 and December 31, 2012 , the Company did no t have any securities pledged in dollar rolls and repurchase agreement transactions.

The Company also enters into reverse repurchase agreements. These transactions involve a purchase of securities and an agreement to sell substantially the same securities as those purchased. As of March 31, 2013 and December 31, 2012 , the Company did no t have any securities pledged under reverse repurchase agreements.

Securities Lending

The Company engages in securities lending whereby certain domestic securities from its portfolio are loaned to other institutions for short periods of time. As of March 31, 2013 and December 31, 2012 , the fair value of loaned securities was $804.8 and $601.8 , respectively, and is included in Securities pledged on the Condensed Consolidated Balance Sheets. As of March 31, 2013 and December 31, 2012 , collateral retained by the lending agent and invested in liquid assets on the Company's behalf was $827.5 and $619.5 , respectively, and recorded in Short-term investments under securities loan agreement, including collateral delivered on the Condensed Consolidated Balance Sheets. As of March 31, 2013 and December 31, 2012 , liabilities to return collateral of $827.5 and $619.5 , respectively, were included in Payables under securities loan agreement, including collateral held on the Condensed Consolidated Balance Sheets.
 
Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of March 31, 2013 :
 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
U.S. Treasuries
$
72.6

 
$
4.0

 
$
—

 
$
—

 
$
—

 
$
—

 
$
72.6

 
$
4.0

U.S. corporate, state and municipalities
3,128.0

 
64.7

 
143.6

 
5.1

 
191.9

 
23.5

 
3,463.5

 
93.3

Foreign
968.5

 
22.5

 
47.1

 
4.3

 
191.7

 
23.6

 
1,207.3

 
50.4

Residential mortgage-backed
682.8

 
6.5

 
63.3

 
2.7

 
477.8

 
54.7

 
1,223.9

 
63.9

Commercial mortgage-backed
5.8

 
—

 
1.9

 
0.1

 
43.4

 
3.9

 
51.1

 
4.0

Other asset-backed
81.8

 
0.1

 
10.0

 
1.3

 
442.8

 
51.8

 
534.6

 
53.2

Total
$
4,939.5

 
$
97.8

 
$
265.9

 
$
13.5

 
$
1,347.6

 
$
157.5

 
$
6,553.0

 
$
268.8




16



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturity securities, including securities pledged, by market sector and duration were as follows as of December 31, 2012 :
 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
U.S. Treasuries
$
451.2

 
$
1.8

 
$
—

 
$
—

 
$
—

 
$
—

 
$
451.2

 
$
1.8

U.S. corporate, state and municipalities
1,333.4

 
19.2

 
116.5

 
3.0

 
231.2

 
26.6

 
1,681.1

 
48.8

Foreign
360.2

 
12.7

 
59.8

 
7.4

 
314.9

 
39.2

 
734.9

 
59.3

Residential mortgage-backed
369.3

 
6.4

 
42.0

 
2.1

 
585.1

 
78.2

 
996.4

 
86.7

Commercial mortgage-backed
22.0

 
0.2

 
15.3

 
1.7

 
44.4

 
4.2

 
81.7

 
6.1

Other asset-backed
70.2

 
—

 
7.0

 
1.2

 
609.2

 
88.8

 
686.4

 
90.0

Total
$
2,606.3

 
$
40.3

 
$
240.6

 
$
15.4

 
$
1,784.8

 
$
237.0

 
$
4,631.7

 
$
292.7


Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 89.5% and 88.3% of the average book value as of March 31, 2013 and December 31, 2012 , respectively.

Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged, for instances in which fair value declined below amortized cost by greater than or less than 20% for consecutive months as indicated in the tables below, were as follows as of the dates indicated:
 
Amortized Cost
 
Unrealized Capital Losses
 
Number of Securities
 
< 20%
 
> 20%
 
< 20%
 
> 20%
 
< 20%
 
> 20%
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Six months or less below amortized cost
$
5,279.7

 
$
16.2

 
$
126.0

 
$
3.9

 
474

 
16

More than six months and twelve months or less below amortized cost
594.0

 
41.3

 
37.4

 
11.3

 
119

 
9

More than twelve months below amortized cost
672.5

 
218.1

 
28.5

 
61.7

 
218

 
54

Total
$
6,546.2

 
$
275.6

 
$
191.9

 
$
76.9

 
811

 
79

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Six months or less below amortized cost
$
3,154.6

 
$
42.1

 
$
95.2

 
$
11.4

 
308

 
21

More than six months and twelve months or less below amortized cost
363.3

 
30.2

 
19.5

 
10.3

 
83

 
9

More than twelve months below amortized cost
940.1

 
394.1

 
35.9

 
120.4

 
221

 
95

Total
$
4,458.0

 
$
466.4

 
$
150.6

 
$
142.1

 
612

 
125




17



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Unrealized capital losses (including noncredit impairments) in fixed maturities, including securities pledged, by market sector for instances in which fair value declined below amortized cost by greater than or less than 20% were as follows as of the dates indicated:
 
Amortized Cost
 
Unrealized Capital Losses
 
Number of Securities
 
< 20%
 
> 20%
 
< 20%
 
> 20%
 
< 20%
 
> 20%
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
76.6

 
$
—

 
$
4.0

 
$
—

 
2

 
—

U.S. corporate, state and municipalities
3,527.0

 
29.8

 
82.6

 
10.7

 
218

 
1

Foreign
1,182.5

 
75.2

 
29.8

 
20.6

 
95

 
7

Residential mortgage-backed
1,195.5

 
92.3

 
37.4

 
26.5

 
393

 
54

Commercial mortgage-backed
53.1

 
2.0

 
3.7

 
0.3

 
10

 
1

Other asset-backed
511.5

 
76.3

 
34.4

 
18.8

 
93

 
16

Total
$
6,546.2

 
$
275.6

 
$
191.9

 
$
76.9

 
811

 
79

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasuries
$
453.0

 
$
—

 
$
1.8

 
$
—

 
3

 
—

U.S. corporate, state and municipalities
1,688.5

 
41.4

 
33.1

 
15.7

 
109

 
3

Foreign
684.9

 
109.3

 
24.1

 
35.2

 
50

 
14

Residential mortgage-backed
938.3

 
144.8

 
42.5

 
44.2

 
343

 
77

Commercial mortgage-backed
85.9

 
1.9

 
5.6

 
0.5

 
19

 
1

Other asset-backed
607.4

 
169.0

 
43.5

 
46.5

 
88

 
30

Total
$
4,458.0

 
$
466.4

 
$
150.6

 
$
142.1

 
612

 
125




18



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following tables summarize loan-to-value, credit enhancement and fixed floating rate details for RMBS and Other ABS in a gross unrealized loss position as of the dates indicated:
 
Loan-to-Value Ratio
 
Amortized Cost
 
Unrealized Capital Losses
March 31, 2013
< 20%
 
> 20%
 
< 20%
 
> 20%
RMBS and Other ABS (1)
 
 
 
 
 
 
 
Non-agency RMBS > 100%
$
374.2

 
$
103.9

 
$
26.0

 
$
27.3

Non-agency RMBS 90% - 100%
106.6

 
15.2

 
8.9

 
5.1

Non-agency RMBS 80% - 90%
91.3

 
23.3

 
8.7

 
5.1

Non-agency RMBS < 80%
306.5

 
12.6

 
14.7

 
3.9

Agency RMBS
737.4

 
11.2

 
12.3

 
3.3

Other ABS (Non-RMBS)
91.1

 
2.3

 
1.3

 
0.5

Total RMBS and Other ABS
$
1,707.1

 
$
168.5

 
$
71.9

 
$
45.2

 
 
 
 
 
 
 
 
 
Credit Enhancement Percentage
 
Amortized Cost
 
Unrealized Capital Losses
March 31, 2013
< 20%
 
> 20%
 
< 20%
 
> 20%
RMBS and Other ABS (1)
 
 
 
 
 
 
 
Non-agency RMBS 10% +
$
607.2

 
$
86.4

 
$
43.7

 
$
20.5

Non-agency RMBS 5% - 10%
94.9

 
2.2

 
3.1

 
0.6

Non-agency RMBS 0% - 5%
103.7

 
5.2

 
5.0

 
2.3

Non-agency RMBS 0%
72.8

 
61.2

 
6.5

 
18.0

Agency RMBS
737.4

 
11.2

 
12.3

 
3.3

Other ABS (Non-RMBS)
91.1

 
2.3

 
1.3

 
0.5

Total RMBS and Other ABS
$
1,707.1

 
$
168.5

 
$
71.9

 
$
45.2

 
 
 
 
 
 
 
 
 
Fixed Rate/Floating Rate
 
Amortized Cost
 
Unrealized Capital Losses
March 31, 2013
< 20%
 
> 20%
 
< 20%
 
> 20%
Fixed Rate
$
780.5

 
$
22.7

 
$
13.1

 
$
6.3

Floating Rate
926.6

 
145.8

 
58.8

 
38.9

Total
$
1,707.1

 
$
168.5

 
$
71.9

 
$
45.2

(1) For purposes of this table, subprime mortgages are included in Non-agency RMBS categories.


19



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



 
Loan-to-Value Ratio
 
Amortized Cost
 
Unrealized Capital Losses
December 31, 2012
< 20%
 
> 20%
 
< 20%
 
> 20%
RMBS and Other ABS (1)
 
 
 
 
 
 
 
Non-agency RMBS > 100%
$
562.3

 
$
203.8

 
$
39.5

 
$
58.0

Non-agency RMBS 90% - 100%
134.2

 
35.2

 
12.8

 
10.7

Non-agency RMBS 80% - 90%
78.9

 
46.9

 
7.5

 
12.1

Non-agency RMBS < 80%
288.9

 
17.5

 
14.0

 
5.5

Agency RMBS
398.0

 
8.1

 
11.0

 
3.8

Other ABS (Non-RMBS)
83.4

 
2.3

 
1.2

 
0.6

Total RMBS and Other ABS
$
1,545.7

 
$
313.8

 
$
86.0

 
$
90.7

 
 
 
 
 
 
 
 
 
Credit Enhancement Percentage
 
Amortized Cost
 
Unrealized Capital Losses
December 31, 2012
< 20%
 
> 20%
 
< 20%
 
> 20%
RMBS and Other ABS (1)
 
 
 
 
 
 
 
Non-agency RMBS 10% +
$
706.8

 
$
187.1

 
$
53.8

 
$
51.2

Non-agency RMBS 5% - 10%
187.6

 
2.2

 
6.8

 
0.7

Non-agency RMBS 0% - 5%
89.4

 
12.3

 
7.6

 
4.2

Non-agency RMBS 0%
80.5

 
101.8

 
5.6

 
30.2

Agency RMBS
398.0

 
8.1

 
11.0

 
3.8

Other ABS (Non-RMBS)
83.4

 
2.3

 
1.2

 
0.6

Total RMBS and Other ABS
$
1,545.7

 
$
313.8

 
$
86.0

 
$
90.7

 
 
 
 
 
 
 
 
 
Fixed Rate/Floating Rate
 
Amortized Cost
 
Unrealized Capital Losses
December 31, 2012
< 20%
 
> 20%
 
< 20%
 
> 20%
Fixed Rate
$
669.4

 
$
33.3

 
$
14.2

 
$
10.2

Floating Rate
876.3

 
280.5

 
71.8

 
80.5

Total
$
1,545.7

 
$
313.8

 
$
86.0

 
$
90.7

(1) For purposes of this table, subprime mortgages are included in Non-agency RMBS categories.

All investments with fair values less than amortized cost are included in the Company’s other-than-temporary impairments analysis, and impairments were recognized as disclosed in the "Evaluating Securities for Other-Than-Temporary Impairments" section below. The Company evaluates non-agency RMBS and ABS for "other-than-temporary impairments" each quarter based on actual and projected cash flows after considering the quality and updated loan-to-value ratios reflecting current home prices of underlying collateral, forecasted loss severity, the payment priority within the tranche structure of the security and amount of any credit enhancements. The Company's assessment of current levels of cash flows compared to estimated cash flows at the time the securities were acquired indicates the amount and the pace of projected cash flows from the underlying collateral has generally been lower and slower, respectively. However, since cash flows are typically projected at a trust level, the impairment review incorporates the security's position within the trust structure as well as credit enhancement remaining in the trust to determine whether an impairment is warranted. Therefore, while lower and slower cash flows will impact the trust, the effect on a particular security within the trust will be dependent upon the trust structure. Where the assessment continues to project full recovery of principal and interest on schedule, the Company has not recorded an impairment. Unrealized losses on below investment grade securities are principally related to RMBS (primarily Alt-A RMBS), and ABS (primarily subprime RMBS) largely due to economic and market uncertainties including concerns over unemployment levels, lower interest rate environment on floating rate securities


20



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



requiring higher risk premiums since purchase and valuations on residential real estate supporting non-agency RMBS. Based on this analysis, the Company determined that the remaining investments in an unrealized loss position were not other-than-temporarily impaired and therefore no further other-than-temporary impairment was necessary.

Fixed Maturity Securities Credit Quality - Ratings

Information about certain of the Company's fixed maturity securities holdings by NAIC designations is set forth in the following tables. Corresponding rating agency designation does not directly translate into NAIC designation, but represents the Company's best estimate of comparable ratings from rating agencies, including Fitch Ratings, Inc. ("Fitch"), Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's Ratings Services ("S&P"). If no rating is available from a rating agency, then an internally developed rating is used.

The fixed maturities in the Company's portfolio are generally rated by external rating agencies and, if not externally rated, are rated by the Company on a basis similar to that used by the rating agencies. Ratings are derived from three ARO ratings and are applied as follows based on the number of agency ratings received:

•
when three ratings are received, the middle rating is applied;
•
when two ratings are received, the lower rating is applied;
•
when a single rating is received, the ARO rating is applied; and
•
when ratings are unavailable, an internal rating is applied.

Subprime and Alt-A Mortgage Exposure

The Company does not originate or purchase subprime or Alt-A whole-loan mortgages. Subprime lending is the origination of loans to customers with weaker credit profiles. The Company defines Alt-A mortgages to include the following: residential mortgage loans to customers who have strong credit profiles but lack some element(s), such as documentation to substantiate income; residential mortgage loans to borrowers that would otherwise be classified as prime but whose loan structure provides repayment options to the borrower that increase the risk of default; and any securities backed by residential mortgage collateral not clearly identifiable as prime or subprime.

The Company's exposure to subprime mortgage-backed securities is primarily in the form of ABS structures collateralized by subprime residential mortgages and the majority of these holdings are included in Other ABS in the Fixed Maturities and Equity Securities section above. As of March 31, 2013 , the fair value and gross unrealized losses related to the Company's exposure to subprime mortgage-backed securities were $836.9 and $52.1 , respectively, representing 1.1% of total fixed maturities, including securities pledged, based on fair value. As of December 31, 2012 , the fair value and gross unrealized losses related to the Company's exposure to subprime mortgage-backed securities were $967.3 and $89.1 , respectively, representing 1.3% of total fixed maturities, including securities pledged, based on fair value.



21



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following tables summarize the Company’s exposure to subprime mortgage-backed securities by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total Subprime Mortgage-backed Securities
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
60.0
%
 
AAA
0.4
%
 
2007
29.1
%
 
2
6.5
%
 
AA
1.0
%
 
2006
32.5
%
 
3
22.9
%
 
A
5.8
%
 
2005 and prior
38.4
%
 
4
9.5
%
 
BBB
6.0
%
 
 
100.0
%
 
5
0.8
%
 
BB and below
86.8
%
 
 
 
 
6
0.3
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
60.3
%
 
AAA
1.1
%
 
2007
29.1
%
 
2
11.9
%
 
AA
1.0
%
 
2006
36.8
%
 
3
16.7
%
 
A
5.4
%
 
2005 and prior
34.1
%
 
4
8.1
%
 
BBB
6.0
%
 
 
100.0
%
 
5
2.8
%
 
BB and below
86.5
%
 
 
 
 
6
0.2
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 

The Company's exposure to Alt-A mortgages is included in Residential mortgage-backed securities in the "Fixed Maturities and Equity Securities" section above. As of March 31, 2013 , the fair value and gross unrealized losses related to the Company's exposure to Alt-A RMBS aggregated to $402.0 and $31.3 , respectively, representing 0.5% of total fixed maturities, including securities pledged, based on fair value. As of December 31, 2012 , the fair value and gross unrealized losses related to the Company's exposure to Alt-A RMBS aggregated to $411.3 and $47.9 , respectively, representing 0.5% of total fixed maturities, including securities pledged, based on fair value.



22



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following tables summarize the Company’s exposure to Alt-A residential mortgage-backed securities by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total Alt-A Mortgage-backed Securities
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
42.4
%
 
AAA
0.1
%
 
2007
20.8
%
 
2
11.4
%
 
AA
0.5
%
 
2006
26.0
%
 
3
23.2
%
 
A
2.0
%
 
2005 and prior
53.2
%
 
4
18.7
%
 
BBB
3.4
%
 
 
100.0
%
 
5
3.6
%
 
BB and below
94.0
%
 
 
 
 
6
0.7
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
34.1
%
 
AAA
0.2
%
 
2007
20.4
%
 
2
11.9
%
 
AA
1.2
%
 
2006
25.9
%
 
3
18.8
%
 
A
1.5
%
 
2005 and prior
53.7
%
 
4
26.9
%
 
BBB
4.1
%
 
 
100.0
%
 
5
7.5
%
 
BB and below
93.0
%
 
 
 
 
6
0.8
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 

Commercial Mortgage-backed and Other Asset-backed Securities

As of March 31, 2013 and December 31, 2012 , the fair value of the Company’s CMBS totaled $4.8 billion and $4.9 billion , respectively. As of March 31, 2013 and December 31, 2012 , the gross unrealized losses related to CMBS totaled $4.0 and $6.1 , respectively. CMBS investments represent pools of commercial mortgages that are broadly diversified across property types and geographical areas.



23



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following tables summarize the Company’s exposure to CMBS holdings by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total CMBS
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
98.1
%
 
AAA
37.0
%
 
2008
0.2
%
 
2
1.5
%
 
AA
16.5
%
 
2007
37.6
%
 
3
0.3
%
 
A
11.6
%
 
2006
30.7
%
 
4
0.1
%
 
BBB
18.0
%
 
2005 and prior
31.5
%
 
5
—
%
 
BB and below
16.9
%
 
 
100.0
%
 
6
—
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
98.3
%
 
AAA
38.1
%
 
2008
0.3
%
 
2
1.4
%
 
AA
17.2
%
 
2007
37.4
%
 
3
0.2
%
 
A
11.2
%
 
2006
30.2
%
 
4
0.1
%
 
BBB
17.8
%
 
2005 and prior
32.1
%
 
5
—
%
 
BB and below
15.7
%
 
 
100.0
%
 
6
—
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 

As of March 31, 2013 and December 31, 2012 , the fair value of the Company's Other ABS, excluding subprime exposure, totaled $1.4 billion and $1.6 billion , respectively. As of March 31, 2013 and December 31, 2012 , the gross unrealized losses related to Other ABS, excluding subprime exposure, totaled $1.9 and $1.8 , respectively.

As of March 31, 2013 , Other ABS was also broadly diversified both by type and issuer with credit card receivables, nonconsolidated collateralized loan obligations and automobile receivables, comprising 41.4% , 3.8% and 33.0% , respectively, of total Other ABS, excluding subprime exposure. As of December 31, 2012 , Other ABS was also broadly diversified both by type and issuer with credit card receivables, nonconsolidated collateralized loan obligations and automobile receivables, comprising 40.5% , 4.1% and 33.3% , respectively, of total Other ABS, excluding subprime exposure.



24



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following tables summarize the Company’s exposure to Other ABS holdings, excluding subprime exposure, by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total Other ABS
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
98.3
%
 
AAA
92.2
%
 
2013
1.9
%
 
2
0.9
%
 
AA
2.0
%
 
2012
22.7
%
 
3
0.1
%
 
A
4.1
%
 
2011
12.7
%
 
4
—
%
 
BBB
0.9
%
 
2010
5.7
%
 
5
—
%
 
BB and below
0.8
%
 
2009
2.1
%
 
6
0.7
%
 
 
100.0
%
 
2008
6.0
%
 
 
100.0
%
 
 
 
 
2007 and prior
48.9
%
 
 
 
 
 
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
97.7
%
 
AAA
91.9
%
 
2012
24.6
%
 
2
1.7
%
 
AA
0.9
%
 
2011
14.9
%
 
3
0.1
%
 
A
4.9
%
 
2010
5.8
%
 
4
—
%
 
BBB
1.7
%
 
2009
2.1
%
 
5
—
%
 
BB and below
0.6
%
 
2008
5.9
%
 
6
0.5
%
 
 
100.0
%
 
2007
18.4
%
 
 
100.0
%
 
 
 
 
2006 and prior
28.3
%
 
 
 
 
 
 
 
 
100.0
%

Troubled Debt Restructuring

The Company invests in high quality, well performing portfolios of commercial mortgage loans and private placements. Under certain circumstances, modifications are granted to these contracts. Each modification is evaluated as to whether a troubled debt restructuring has occurred. A modification is a troubled debt restructure when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the face amount or maturity amount of the debt as originally stated, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. A valuation allowance may have been recorded prior to the quarter when the loan is modified in a troubled debt restructuring. Accordingly, the carrying value (net of the specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. As of March 31, 2013 , the Company had no private placement troubled debt restructurings and no commercial mortgage loan troubled debt restructurings. As of December 31, 2012 , the Company had one private placement troubled debt restructuring with a pre-modification carrying value of $1.2 , which was written down to zero and no commercial mortgage loan troubled debt restructurings.

As of March 31, 2013 and December 31, 2012 , the Company had no commercial mortgage loans or private placements modified in a troubled debt restructuring with a subsequent payment default.

Mortgage Loans on Real Estate
 
The Company's mortgage loans on real estate are all commercial mortgage loans held for investment, which are reported at amortized cost, less impairment write-downs and allowance for losses. The Company diversifies its commercial mortgage loan portfolio by geographic region and property type to reduce concentration risk. The Company manages risk when originating commercial mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate.


25



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Subsequently, the Company continuously evaluates all mortgage loans based on relevant current information including an appraisal of loan-specific credit quality, property characteristics and market trends. Loan performance is monitored on a loan specific basis through the review of submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review ensures properties are performing at a consistent and acceptable level to secure the debt.

The following table summarizes the Company's investment in mortgage loans as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
Commercial mortgage loans
$
8,953.3

 
$
8,666.2

Collective valuation allowance
(3.9
)
 
(3.9
)
Total net commercial mortgage loans
$
8,949.4

 
$
8,662.3


There were no impairments taken on the mortgage loan portfolio for the three months ended March 31, 2013 and 2012 .

The following table summarizes the activity in the allowance for losses for all commercial mortgage loans for the periods indicated:
 
Three Months Ended
 
Twelve Months Ended
 
March 31, 2013
 
December 31, 2012
Collective valuation allowance for losses, beginning of period
$
3.9

 
$
4.4

Addition to (reduction of) allowance for losses
—

 
(0.5
)
Collective valuation allowance for losses, end of period
$
3.9

 
$
3.9


The carrying values and unpaid principal balances of impaired mortgage loans were as follows as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
Impaired loans with allowances for losses
$
—

 
$
—

Impaired loans without allowances for losses
16.8

 
16.8

Subtotal
16.8

 
16.8

Less: Allowances for losses on impaired loans
—

 
—

Impaired loans, net
$
16.8

 
$
16.8

Unpaid principal balance of impaired loans
$
31.9

 
$
31.9


The following table presents information on restructured loans, loans 90 days or more past due and loans in foreclosure as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
Troubled debt restructured loans (1)
$
—

 
$
—

Loans 90 days or more past due, interest no longer accruing, at amortized cost (1)
—

 
—

Loans in foreclosure, at amortized cost (1)
9.0

 
9.0

Unpaid principal balance of loans 90 days or more past due, interest no longer accruing
—

 
—

(1) Amounts included in Troubled debt restructured loans, Loans 90 days or more past due and Loans in foreclosure, which were also impaired, are included in the Impaired loans, average investment during the period as shown in the table below.

There were four mortgage loans in the Company's portfolio in process of foreclosure as of March 31, 2013 and December 31, 2012 with a total amortized cost of $9.0 . There were no other loans in arrears with respect to principal and interest as of March 31, 2013 and December 31, 2012 .



26



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following table presents information on the average investment during the period in impaired loans and interest income recognized on impaired and troubled debt restructured loans for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Impaired loans, average investment during period (book value)
$
16.9

 
$
44.6

Interest income recognized on impaired loans, on an accrual basis
0.2

 
0.4

Interest income recognized on impaired loans, on a cash basis
0.2

 
0.5

Interest income recognized on troubled debt restructured loans, on an accrual basis
—

 
0.4


Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.0 indicates that property’s operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above.

The following table presents the LTV ratios as of the dates indicated:
 
March 31, 2013 (1)
 
December 31, 2012 (1)
Loan-to-Value Ratio:
 
 
 
0% - 50%
$
1,913.7

 
$
1,987.9

50% - 60%
2,437.7

 
2,425.2

60% - 70%
4,136.2

 
3,736.1

70% - 80%
431.3

 
481.7

80% and above
34.4

 
35.3

Total Commercial mortgage loans
$
8,953.3

 
$
8,666.2

(1) Balances do not include allowance for mortgage loan credit losses.

The following table presents the DSC ratios as of the dates indicated:
 
March 31, 2013 (1)
 
December 31, 2012 (1)
Debt Service Coverage Ratio:
 
 
 
Greater than 1.5x
$
6,114.6

 
$
5,953.7

1.25x - 1.5x
1,454.0

 
1,336.3

1.0x - 1.25x
1,016.8

 
992.7

Less than 1.0x
359.0

 
374.6

Commercial mortgage loans secured by land or construction loans
8.9

 
8.9

Total Commercial mortgage loans
$
8,953.3

 
$
8,666.2

(1) Balances do not include allowance for mortgage loan credit losses.



27



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Properties collateralizing mortgage loans are geographically dispersed throughout the United States, as well as diversified by property type, as reflected in the following tables as of the dates indicated:
 
March 31, 2013 (1)
 
December 31, 2012 (1)
 
Gross Carrying Value
 
% of
Total
 
Gross Carrying Value
 
% of
Total
Commercial Mortgage Loans by U.S. Region:
 
 
 
 
 
 
 
Pacific
$
2,025.5

 
22.7
%
 
$
1,973.9

 
22.8
%
South Atlantic
1,725.9

 
19.3
%
 
1,687.6

 
19.4
%
Middle Atlantic
1,000.5

 
11.2
%
 
1,059.5

 
12.2
%
East North Central
1,020.1

 
11.4
%
 
962.8

 
11.1
%
West South Central
1,301.6

 
14.5
%
 
1,176.3

 
13.6
%
Mountain
800.9

 
8.9
%
 
718.2

 
8.3
%
West North Central
535.0

 
6.0
%
 
537.5

 
6.2
%
New England
334.8

 
3.7
%
 
334.6

 
3.9
%
East South Central
209.0

 
2.3
%
 
215.8

 
2.5
%
Total Commercial mortgage loans
$
8,953.3

 
100.0
%
 
$
8,666.2

 
100.0
%
(1) Balances do not include allowance for mortgage loan credit losses.

 
March 31, 2013 (1)
 
December 31, 2012 (1)
 
Gross Carrying Value
 
% of
Total
 
Gross Carrying Value
 
% of
Total
Commercial Mortgage Loans by Property Type:
 
 
 
 
 
 
 
Industrial
$
3,385.2

 
37.7
%
 
$
3,361.5

 
38.8
%
Retail
2,609.9

 
29.2
%
 
2,350.2

 
27.1
%
Office
1,243.3

 
13.9
%
 
1,284.7

 
14.8
%
Apartments
935.8

 
10.5
%
 
952.1

 
11.0
%
Hotel/Motel
324.1

 
3.6
%
 
280.6

 
3.2
%
Mixed Use
101.1

 
1.1
%
 
74.0

 
0.9
%
Other
353.9

 
4.0
%
 
363.1

 
4.2
%
Total Commercial mortgage loans
$
8,953.3

 
100.0
%
 
$
8,666.2

 
100.0
%
(1) Balances do not include allowance for mortgage loan credit losses.

The following table sets forth the breakdown of mortgages by year of origination as of the dates indicated:
 
March 31, 2013 (1)
 
December 31, 2012 (1)
Year of Origination:
 
 
 
2013
$
580.8

 
$
—

2012
1,797.0

 
1,821.0

2011
1,915.5

 
1,940.8

2010
418.7

 
429.9

2009
174.5

 
175.1

2008
670.8

 
725.1

2007 and prior
3,396.0

 
3,574.3

Total Commercial mortgage loans
$
8,953.3

 
$
8,666.2

(1) Balances do not include allowance for mortgage loan credit losses.



28



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Evaluating Securities for Other-Than-Temporary Impairments

The Company performs a regular evaluation, on a security-by-security basis, of its available-for-sale securities holdings, including fixed maturity securities and equity securities in accordance with its impairment policy in order to evaluate whether such investments are other-than-temporarily impaired.

The following tables identify the Company's credit-related and intent-related impairments included in the Condensed Consolidated Statements of Operations, excluding impairments included in Other comprehensive income (loss) by type for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
 
Impairment
 
No. of
Securities
 
Impairment
 
No. of
Securities
U.S. corporate
$
—

 
—

 
$
0.4

 
1

Foreign (1)
—

 
—

 
0.8

 
2

Residential mortgage-backed
3.6

 
74

 
3.3

 
62

Commercial mortgage-backed
0.1

 
2

 
1.7

 
1

Other asset-backed (2)
7.3

 
2

 
0.7

 
3

Total
$
11.0

 
78

 
$
6.9

 
69

(1) Primarily U.S. dollar denominated.
(2) Includes loss on real estate owned that is classified as Other assets on the Condensed Consolidated Balance Sheets.

The above tables include $3.6 and $3.8 of write-downs related to credit impairments for the three months ended March 31, 2013 and 2012 , respectively, in Other-than-temporary impairments, which are recognized in the Condensed Consolidated Statements of Operations. The remaining $7.4 and $3.1 and in write-downs for the three months ended March 31, 2013 and 2012 , respectively, are related to intent impairments.

The following tables summarize these intent impairments, which are also recognized in earnings, by type for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
 
Impairment
 
No. of
Securities
 
Impairment
 
No. of
Securities
U.S. corporate
$
—

 
—

 
$
0.4

 
1

Foreign (1)
—

 
—

 
0.8

 
2

Commercial mortgage-backed
0.1

 
2

 
1.7

 
1

Other asset-backed
7.3

 
2

 
0.2

 
1

Total
$
7.4

 
4

 
$
3.1

 
5

(1)  Primarily U.S. dollar denominated.

The Company may sell securities during the period in which fair value has declined below amortized cost for fixed maturities or cost for equity securities. In certain situations, new factors, including changes in the business environment, can change the Company’s previous intent to continue holding a security. Accordingly, these factors may lead the Company to record additional intent related capital losses.

The fair value of fixed maturities with OTTI as of March 31, 2013 and December 31, 2012 was $8.2 billion and $9.0 billion , respectively.



29



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following tables identify the amount of credit impairments on fixed maturities for which a portion of the OTTI loss was recognized in Other comprehensive income (loss) and the corresponding changes in such amounts for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Balance at January 1
$
114.7

 
$
133.9

Additional credit impairments:
 
 
 
On securities not previously impaired
0.2

 
0.1

On securities previously impaired
3.0

 
3.3

Reductions:
 
 
 
Securities sold, matured, prepaid or paid down
(5.5
)
 
(6.8
)
Balance at March 31
$
112.4

 
$
130.5


Net Investment Income

The following table summarizes Net investment income for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Fixed maturities
$
1,012.6

 
$
1,084.1

Equity securities, available-for-sale
2.6

 
3.2

Mortgage loans on real estate
118.2

 
123.7

Policy loans
29.9

 
30.7

Short-term investments and cash equivalents
0.9

 
0.8

Other
35.9

 
35.7

Gross investment income
1,200.1

 
1,278.2

Less: Investment expenses
1.4

 
0.8

Net investment income
$
1,198.7

 
$
1,277.4


As of March 31, 2013 and December 31, 2012 , the Company had $0.2 and $0.3 , respectively, of investments in fixed maturities which produced no net investment income. Fixed maturities are moved to a non-accrual status immediately when the investment defaults.

Net Realized Capital Gains (Losses)

Net realized capital gains (losses) are comprised of the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to the credit-related and intent-related other-than-temporary impairment of investments. Realized investment gains and losses are also primarily generated from changes in fair value of embedded derivatives within product guarantees and fixed maturities, changes in fair value of fixed maturities recorded at FVO and changes in fair value including accruals on derivative instruments, except for effective cash flow hedges. The cost of the investments on disposal is generally determined based on first-in-first-out ("FIFO") methodology.



30



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Net realized capital gains (losses) were as follows for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Fixed maturities, available-for-sale, including securities pledged
$
9.4

 
$
128.3

Fixed maturities, at fair value option
(107.6
)
 
(125.1
)
Equity securities, available-for-sale
0.2

 
2.6

Derivatives
(1,099.7
)
 
(1,668.4
)
Embedded derivative - fixed maturities
(23.3
)
 
(16.2
)
Embedded derivative - product guarantees
346.3

 
430.1

Other investments
(0.1
)
 
(1.2
)
Net realized capital gains (losses)
$
(874.8
)
 
$
(1,249.9
)
After-tax net realized capital gains (losses)
$
(568.7
)
 
$
(874.4
)

Proceeds from the sale of fixed maturities and equity securities, available-for-sale and the related gross realized gains and losses, before tax, were as follows for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Proceeds on sales
$
3,212.7

 
$
4,252.7

Gross gains
42.0

 
142.0

Gross losses
14.4

 
10.1


3.      Derivative Financial Instruments

The Company enters into the following types of derivatives:

Interest rate caps : The Company uses interest rate cap contracts to hedge the interest rate exposure arising from duration mismatches between assets and liabilities. Interest rate caps are also used to hedge interest rate exposure if rates rise above a specified level. Such increases in rates will require the Company to incur additional expenses. The future payout from the interest rate caps fund this increased exposure. The Company pays an upfront premium to purchase these caps. The Company utilizes these contracts in qualifying hedging relationships as well as non-qualifying hedging relationships.

Interest rate swaps : Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and/or liabilities. Interest rate swaps are also used to hedge the interest rate risk associated with the value of assets it owns or in an anticipation of acquiring them. Using interest rate swaps, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest payments, calculated by reference to an agreed upon notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made to/from the counterparty at each due date. The Company utilizes these contracts in qualifying hedging relationships as well as non-qualifying hedging relationships.

Foreign exchange swaps : The Company uses foreign exchange or currency swaps to reduce the risk of change in the value, yield or cash flows associated with certain foreign denominated invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows against U.S. dollar cash flows at regular periods, typically quarterly or semi-annually. The Company utilizes these contracts in non-qualifying hedging relationships.

Credit default swaps : Credit default swaps are used to reduce credit loss exposure with respect to certain assets that the Company owns, or to assume credit exposure on certain assets that the Company does not own. Payments are made to or received from the counterparty at specified intervals. In the event of a default on the underlying credit exposure, the Company will either receive a


31



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



payment (purchased credit protection) or will be required to make a payment (sold credit protection) equal to the par minus recovery value of the swap contract. The Company utilizes these contracts in non-qualifying hedging relationships.

Total return swaps : The Company uses total return swaps as a hedge against a decrease in variable annuity account values, which are invested in certain indices. Using total return swaps, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of assets or a market index and the LIBOR rate, calculated by reference to an agreed upon notional principal amount. No cash is exchanged at the onset of the contracts. Cash is paid and received over the life of the contract based upon the terms of the swaps. The Company utilizes these contracts in non-qualifying hedging relationships.
 
Currency forwards : The Company uses currency forward contracts to hedge policyholder liabilities associated with the variable annuity contracts which are linked to foreign indices. The currency fluctuations may result in a decrease in account values, which would increase the possibility of the Company incurring an expense for guaranteed benefits in excess of account values. The Company utilizes these contracts in non-qualifying hedging relationships.

Forwards : The Company uses forward contracts to hedge certain invested assets against movement in interest rates, particularly mortgage rates. The Company uses To Be Announced securities as an economic hedge against rate movements. The Company utilizes forward contracts in non-qualifying hedging relationships.

Futures : Futures contracts are used to hedge against a decrease in certain equity indices. Such decreases may result in a decrease in variable annuity account values which would increase the possibility of the Company incurring an expense for guaranteed benefits in excess of account values. The Company also uses futures contracts as a hedge against an increase in certain equity indices. Such increases may result in increased payments to the holders of the fixed index annuity ("FIA") contracts. The Company enters into exchange traded futures with regulated futures commissions that are members of the exchange. The Company also posts initial and variation margin with the exchange on a daily basis. The Company utilizes exchange-traded futures in non-qualifying hedging relationships.

Swaptions : A swaption is an option to enter into a swap with a forward starting effective date. The Company uses swaptions to hedge the interest rate exposure associated with the minimum crediting rate and book value guarantees embedded in the retirement products that the Company offers. Increases in interest rates will generate losses on assets that are backing such liabilities. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. Swaptions are also used to hedge against an increase in the interest rate benchmarked crediting strategies within FIA contracts. Such increases may result in increased payments to contract holders of FIA contracts and the interest rate swaptions offset this increased exposure. The Company pays a premium when it purchases the swaption. The Company utilizes these contracts in non-qualifying hedging relationships.

Options : The Company uses put options to manage the equity, interest rate and equity volatility risk of the economic liabilities associated with certain variable annuity minimum guaranteed living benefits. The Company also uses call options to hedge against an increase in various equity indices. Such increases may result in increased payments to the holders of the FIA contracts. The Company pays an upfront premium to purchase these options. The Company utilizes these options in non-qualifying hedging relationships.

Variance swaps : The Company uses variance swaps to manage equity volatility risk on the economic liabilities associated with certain minimum guaranteed living benefits. An increase in the equity volatility results in a higher valuations of such liabilities. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on the changes in equity volatility over a defined period. The Company utilizes equity variance swaps in non-qualifying hedging relationships.

Managed custody guarantees ("MCG") : The Company issues certain credited rate guarantees on externally managed variable bond funds that represent stand-alone derivatives. The market value is partially determined by, among other things, levels of or changes in interest rates, prepayment rates and credit ratings/spreads.

Embedded derivatives : The Company also invests in certain fixed maturity instruments and has issued certain annuity products that contain embedded derivatives whose market value is at least partially determined by, among other things, levels of or changes in domestic and/or foreign interest rates (short-term or long-term), exchange rates, prepayment rates, equity rates, or credit ratings/spreads. In addition, the Company has entered into a coinsurance with a funds withheld arrangement which contains an embedded


32



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



derivative whose fair value is based on the change in the fair value of the underlying assets held in trust. The embedded derivatives for certain fixed maturity instruments, certain annuity products and coinsurance with funds withheld arrangements are reported with the host contract in investments, in Future policy benefits or Funds held under reinsurance agreements, respectively, on the Condensed Consolidated Balance Sheets. Changes in the fair value of embedded derivatives within fixed maturity investments and within annuity products are recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. Changes in fair value of embedded derivatives with reinsurance agreements are reported in Policyholder benefits in the Condensed Consolidated Statements of Operations.

The Company's use of derivatives is limited mainly to economic hedging to reduce the Company's exposure to cash flow variability of assets and liabilities, interest rate risk, credit risk, exchange rate risk, and market risk. It is the Company's policy not to offset amounts recognized for derivative instruments and amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral arising from derivative instruments executed with the same counterparty under a master netting arrangement, which provides the Company with the legal right of offset.

The notional amounts and fair values of derivatives were as follows as of the dates indicated :
 
March 31, 2013
 
December 31, 2012
 
Notional
Amount
 
Asset
Fair
Value
 
Liability
Fair
Value
 
Notional
Amount
 
Asset
Fair
Value
 
Liability
Fair
Value
Derivatives: Qualifying for hedge accounting (1)
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
937.5

 
$
188.0

 
$
—

 
$
1,000.0

 
$
215.4

 
$
—

Fair value hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
1,282.9

 
—

 
187.0

 
291.1

 
—

 
16.4

Derivatives: Non-qualifying for hedge accounting (1)
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (2)
70,679.3

 
1,700.6

 
1,314.3

 
69,719.2

 
1,981.1

 
1,545.0

Foreign exchange contracts
1,811.9

 
16.1

 
84.8

 
1,985.8

 
11.3

 
95.0

Equity contracts
13,935.1

 
127.2

 
53.5

 
14,890.4

 
103.4

 
235.1

Credit contracts
3,086.0

 
45.1

 
31.0

 
3,106.0

 
63.3

 
52.7

Managed custody guarantees
N/A

 
—

 
—

 
N/A

 
—

 
—

Embedded derivatives:
 
 
 
 
 
 
 
 
 
 
 
Within fixed maturity investments
N/A

 
204.1

 
—

 
N/A

 
227.4

 
—

Within annuity products
N/A

 
—

 
3,268.3

 
N/A

 
—

 
3,571.7

Within reinsurance agreements
N/A

 
—

 
154.8

 
N/A

 
—

 
169.5

Total
 
 
$
2,281.1

 
$
5,093.7

 
 
 
$
2,601.9

 
$
5,685.4

(1) Open derivative contracts are reported as Derivatives assets or liabilities on the Condensed Consolidated Balance Sheets at fair value.
(2) As of March 31, 2013 , includes a notional amount, asset fair value and liability fair value for interest rate caps of $6.5 billion , $52.9 and $10.5 , respectively. As of December 31, 2012 , includes a notional amount, asset fair value and liability fair value for interest rate caps of $4.5 billion , $17.7 and $0.6 , respectively.
N/A - Not Applicable

The maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for forecasted transactions is through the fourth quarter of 2016.



33



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Although the Company has not elected to net its derivative exposures, the notional amounts and fair values of derivatives eligible for offset were as follows as of the dates indicated :
 
March 31, 2013
 
Notional Amount
 
Assets Fair Value
 
Liability Fair Value
Credit contracts
$
3,086.0

 
$
45.1

 
$
31.0

Equity contracts
3,927.1

 
124.8

 
23.0

Foreign exchange contracts
1,811.9

 
16.1

 
84.8

Interest rate contracts
72,899.7

 
1,888.6

 
1,501.3

 
 
 
$
2,074.6

 
$
1,640.1

 
 
 
 
 
 
Counterparty netting (1)
 
 
$
(1,088.4
)
 
$
(1,088.4
)
Cash collateral netting (2)
 
 
(579.9
)
 
(62.3
)
Securities collateral netting (2)
 
 
(163.2
)
 
(383.8
)
Net receivables/payables
 
 
$
243.1

 
$
105.6

(1) Represents the netting of receivable balances with payable balances for the same counterparty under enforceable netting agreements.
(2) Represents the netting of collateral received and posted on a counterparty basis under credit support agreements.

 
December 31, 2012
 
Notional Amount
 
Assets Fair Value
 
Liability Fair Value
Credit contracts
$
3,106.0

 
$
63.3

 
$
52.7

Equity contracts
3,967.0

 
79.1

 
19.1

Foreign exchange contracts
1,985.8

 
11.3

 
95.0

Interest rate contracts
71,010.3

 
2,196.5

 
1,561.4

 
 
 
$
2,350.2

 
$
1,728.2

 
 
 
 
 
 
Counterparty netting (1)
 
 
$
(1,126.9
)
 
$
(1,126.9
)
Cash collateral netting (2)
 
 
(943.4
)
 
(85.7
)
Securities collateral netting (2)
 
 
(68.6
)
 
(395.6
)
Net receivables/payables
 
 
$
211.3

 
$
120.0

(1) Represents the netting of receivable balances with payable balances for the same counterparty under enforceable netting agreements.
(2) Represents the netting of collateral received and posted on a counterparty basis under credit support agreements.

Collateral

Under the terms of the Company’s Over-The-Counter Derivative International Swaps and Derivatives Association, Inc. ("ISDA") agreements, the Company may receive from, or deliver to, counterparties, collateral to assure that all terms of the ISDA agreements will be met with regard to the Credit Support Annex ("CSA"). The terms of the CSA call for the Company to pay interest on any cash received equal to the Federal Funds rate. To the extent cash collateral is received and delivered, it is included in Payables under securities loan agreements, including collateral held and Short-term investments under securities loan agreements, including collateral delivered, respectively, on the Condensed Consolidated Balance Sheets and is reinvested in short-term investments. Collateral held is used in accordance with the CSA to satisfy any obligations. Investment grade bonds owned by the Company are the source of noncash collateral posted, which is reported in Securities pledged on the Condensed Consolidated Balance Sheets. As of March 31, 2013 , the Company held $521.3 of net cash collateral related to derivative contracts. As of March 31, 2013 , the Company delivered $24.2 and $11.8 of cash collateral related to derivative contracts and credit facilities, respectively. As of December 31, 2012 , the Company held $890.3 of net cash collateral related to derivative contracts. As of December 31, 2012 , the Company delivered $32.8 and $11.8 of cash collateral related to derivative contracts and credit facilities, respectively. In


34



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



addition, as of March 31, 2013 and December 31, 2012 , the Company delivered securities as collateral of $969.8 and $1.0 billion , respectively.

Net realized gains (losses) on derivatives were as follows for the periods indicated :
 
Three Months Ended March 31,
 
2013
 
2012
Derivatives: Qualifying for hedge accounting (1)
 
 
 
Cash flow hedges:
 
 
 
Interest rate contracts
$
0.1

 
$
—

Fair value hedges:
 
 
 
Interest rate contracts
1.3

 
(1.4
)
Derivatives: Non-qualifying for hedge accounting (2)
 
 
 
Interest rate contracts
(256.0
)
 
(445.5
)
Foreign exchange contracts
87.1

 
(12.3
)
Equity contracts
(939.1
)
 
(1,228.8
)
Credit contracts
6.9

 
19.6

Managed custody guarantees
—

 
1.0

Embedded derivatives:
 
 
 
Within fixed maturity investments (2)
(23.3
)
 
(16.2
)
Within annuity products (2)
346.3

 
429.1

Within reinsurance agreements (3)
14.7

 
1.0

Total
$
(762.0
)
 
$
(1,253.5
)
(1) Changes in value for effective fair value hedges are recorded in Other net realized capital gains (losses). Changes in fair value upon disposal for effective cash flow hedges are amortized through Net investment income and the ineffective portion is recorded in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2013 and 2012 , ineffective amounts were immaterial.
(2) Changes in value are included in Other net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(3) Changes in value are included in Policyholder benefits in the Condensed Consolidated Statements of Operations.

Credit Default Swaps

As of March 31, 2013 , the fair values of credit default swaps of $45.1 and $31.0 were included in Derivatives assets and Derivatives liabilities, respectively, on the Condensed Consolidated Balance Sheets. As of December 31, 2012 , the fair values of credit default swaps of $63.3 and $52.7 were included in Derivatives assets and Derivatives liabilities, respectively, on the Condensed Consolidated Balance Sheets. As of March 31, 2013 and December 31, 2012 , the maximum potential future net exposure to the Company was $1.1 billion , net of purchased protection of $1.0 billion on credit default swaps.

4.      Fair Value Measurements (excluding Consolidated Investment Entities)

Fair Value Measurement

The Company categorizes its financial instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique, pursuant to the Fair Value Measurements and disclosures of the FASB ASC Topic 820. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3), as described in the Fair Value Measurements Note in the Consolidated Financial Statements included in the Company's Prospectus. If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

When available, the estimated fair value of financial instruments is based on quoted prices in active markets that are readily and regularly obtainable. When quoted prices in active markets are not available, the determination of estimated fair value is based


35



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



on market standard valuation methodologies, including discounted cash flow methodologies, matrix pricing, or other similar techniques.

The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 :
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
U.S. Treasuries
$
5,039.3

 
$
718.2

 
$
—

 
$
5,757.5

U.S. government agencies and authorities
—

 
709.5

 
—

 
709.5

U.S. corporate, state and municipalities
—

 
37,520.9

 
556.8

 
38,077.7

Foreign (1)
—

 
16,002.7

 
107.3

 
16,110.0

Residential mortgage-backed securities
—

 
7,264.6

 
88.3

 
7,352.9

Commercial mortgage-backed securities
—

 
4,813.2

 
—

 
4,813.2

Other asset-backed securities
—

 
2,151.7

 
100.9

 
2,252.6

Total fixed maturities, including securities pledged
5,039.3

 
69,180.8

 
853.3

 
75,073.4

Equity securities, available-for-sale
217.4

 
5.5

 
59.4

 
282.3

Derivatives:
 
 
 
 
 
 
 
Interest rate contracts
5.5

 
1,883.1

 
—

 
1,888.6

Foreign exchange contracts
—

 
16.1

 
—

 
16.1

Equity contracts
2.4

 
59.3

 
65.5

 
127.2

Credit contracts
—

 
14.1

 
31.0

 
45.1

Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements
6,602.0

 
41.3

 
—

 
6,643.3

Assets held in separate accounts
97,454.5

 
5,641.6

 
2.2

 
103,098.3

Total assets
$
109,321.1

 
$
76,841.8

 
$
1,011.4

 
$
187,174.3

Percentage of Level to total
58.4
%
 
41.1
%
 
0.5
%
 
100.0
%
Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Annuity product guarantees:
 
 
 
 
 
 
 
FIA
$
—

 
$
—

 
$
1,561.7

 
$
1,561.7

GMAB/GMWB/GMWBL (2)
—

 
—

 
1,628.6

 
1,628.6

Stabilizer and MCGs
—

 
—

 
78.0

 
78.0

Other derivatives:
 
 
 
 
 
 
 
Interest rate contracts
—

 
1,501.3

 
—

 
1,501.3

Foreign exchange contracts
—

 
84.8

 
—

 
84.8

Equity contracts
30.5

 
23.0

 
—

 
53.5

Credit contracts
—

 
—

 
31.0

 
31.0

Embedded derivative on reinsurance
—

 
154.8

 
—

 
154.8

Total liabilities
$
30.5

 
$
1,763.9

 
$
3,299.3

 
$
5,093.7

(1) Primarily U.S. dollar denominated.
(2) Guaranteed minimum accumulation benefits ("GMAB"), Guaranteed minimum withdrawal benefits ("GMWB") and Guaranteed minimum withdrawal benefits with life payouts ("GMWBL").



36



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following table presents the Company’s hierarchy for its assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 :
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
U.S. Treasuries
$
5,220.5

 
$
663.2

 
$
—

 
$
5,883.7

U.S. government agencies and authorities
—

 
724.2

 
—

 
724.2

U.S. corporate, state and municipalities
—

 
36,992.5

 
524.2

 
37,516.7

Foreign (1)
—

 
15,880.3

 
104.2

 
15,984.5

Residential mortgage-backed securities
—

 
7,592.9

 
74.1

 
7,667.0

Commercial mortgage-backed securities
—

 
4,946.4

 
—

 
4,946.4

Other asset-backed securities
—

 
2,449.4

 
115.2

 
2,564.6

Total fixed maturities, including securities pledged
5,220.5

 
69,248.9

 
817.7

 
75,287.1

Equity securities, available-for-sale
264.2

 
20.1

 
55.8

 
340.1

Derivatives:
 
 
 
 
 
 
 
Interest rate contracts
—

 
2,196.5

 
—

 
2,196.5

Foreign exchange contracts
—

 
11.3

 
—

 
11.3

Equity contracts
24.3

 
55.9

 
23.2

 
103.4

Credit contracts
—

 
10.9

 
52.4

 
63.3

Cash and cash equivalents, short-term investments and short-term investments under securities loan agreements
8,365.4

 
76.6

 
—

 
8,442.0

Assets held in separate accounts
91,928.5

 
5,722.6

 
16.3

 
97,667.4

Total assets
$
105,802.9

 
$
77,342.8

 
$
965.4

 
$
184,111.1

Percentage of Level to total
57.5
%
 
42.0
%
 
0.5
%
 
100.0
%
Liabilities:
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
Annuity product guarantees:
 
 
 
 
 
 
 
FIA
$
—

 
$
—

 
$
1,434.3

 
$
1,434.3

GMAB/GMWB/GMWBL
—

 
—

 
2,035.4

 
2,035.4

Stabilizer and MCGs
—

 
—

 
102.0

 
102.0

Other derivatives:
 
 
 
 
 
 
 
Interest rate contracts
1.6

 
1,559.8

 
—

 
1,561.4

Foreign exchange contracts
—

 
95.0

 
—

 
95.0

Equity contracts
216.0

 
19.1

 
—

 
235.1

Credit contracts
—

 
—

 
52.7

 
52.7

Embedded derivative on reinsurance
—

 
169.5

 
—

 
169.5

Total liabilities
$
217.6

 
$
1,843.4

 
$
3,624.4

 
$
5,685.4

(1) Primarily U.S. dollar denominated.

Valuation of Financial Assets and Liabilities at Fair Value

Certain assets and liabilities are measured at estimated fair value on the Company’s Condensed Consolidated Balance Sheets. The Company defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The exit price and the transaction (or entry) price will be the same at initial recognition in many circumstances.


37



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



However, in certain cases, the transaction price may not represent fair value. The fair value of a liability is based on the amount that would be paid to transfer a liability to a third-party with an equal credit standing. Fair value is required to be a market-based measurement which is determined based on a hypothetical transaction at the measurement date, from a market participant’s perspective. The Company considers three broad valuation techniques when a quoted price is unavailable: (i) the market approach, (ii) the income approach and (iii) the cost approach. The Company determines the most appropriate valuation technique to use, given the instrument being measured and the availability of sufficient inputs. The Company prioritizes the inputs to fair valuation techniques and allows for the use of unobservable inputs to the extent that observable inputs are not available.

The Company utilizes a number of valuation methodologies to determine the fair values of its financial assets and liabilities in conformity with the concepts of "exit price" and the fair value hierarchy as prescribed in ASC Topic 820. Valuations are obtained from third-party commercial pricing services, brokers and industry-standard, vendor-provided software that models the value based on market observable inputs. The valuations obtained from third-party commercial pricing services are non-binding. The Company reviews the assumptions and inputs used by third-party commercial pricing services for each reporting period in order to determine an appropriate fair value hierarchy level. The documentation and analysis obtained from third-party commercial pricing services are reviewed by the Company, including in-depth validation procedures confirming the observability of inputs. The valuations are reviewed and validated monthly through the internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades, or monitoring of trading volumes.

Transfers in and out of Level 1 and 2

There were no securities transferred between Level 1 and Level 2 for the three months ended March 31, 2013 and 2012 . The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.

Level 3 Financial Instruments

The fair values of certain assets and liabilities are determined using prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (i.e., Level 3 as defined by ASC Topic 820), including but not limited to liquidity spreads for investments within markets deemed not currently active. These valuations, whether derived internally or obtained from a third-party, use critical assumptions that are not widely available to estimate market participant expectations in valuing the asset or liability. In addition, the Company has determined, for certain financial instruments, an active market is such a significant input to determine fair value that the presence of an inactive market may lead to classification in Level 3. In light of the methodologies employed to obtain the fair values of financial assets and liabilities classified as Level 3, additional information is presented below.


38


ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the three months ended March 31, 2013 :
 
Fair Value
as of
January 1
 
Total
Realized/Unrealized
Gains (Losses)
Included in:
 
Purchases
 
Issuances
 
Sales
 

Settlements
 
Transfers
in to
Level 3 (2)
 
Transfers
out of
Level 3 (2)
 
Fair Value
as of
March 31
 
Change In
Unrealized
Gains
(Losses)
Included in
Earnings (3)
 
 
Net
Income
 
OCI
 
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate, state and municipalities
$
524.2

 
$
(0.1
)
 
$
2.2

 
$
50.1

 
$
—

 
$
—

 
$
(13.5
)
 
$
58.5

 
$
(64.6
)
 
$
556.8

 
$
(0.1
)
Foreign
104.2

 
—

 
4.8

 
—

 
—

 
—

 
(1.7
)
 
—

 
—

 
107.3

 
—

Residential mortgage-backed securities
74.1

 
(1.8
)
 
—

 
16.0

 
—

 
—

 
(0.2
)
 
0.2

 
—

 
88.3

 
(1.8
)
Other asset-backed securities
115.2

 
5.9

 
(0.7
)
 
—

 
—

 
—

 
(19.5
)
 
0.3

 
(0.3
)
 
100.9

 
3.7

Total fixed maturities including securities pledged
817.7

 
4.0

 
6.3

 
66.1

 
—

 
—

 
(34.9
)
 
59.0

 
(64.9
)
 
853.3

 
1.8

Equity securities, available-for-sale
55.8

 
(0.3
)
 
1.8

 
2.0

 
—

 
(1.9
)
 
—

 
51.8

 
(49.8
)
 
59.4

 
—

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIA (1)
(1,434.3
)
 
(123.7
)
 
—

 
—

 
(15.1
)
 
—

 
11.4

 
—

 
—

 
(1,561.7
)
 
—

GMAB/GMWB/GMWBL (1)
(2,035.4
)
 
444.5

 
—

 
—

 
(37.8
)
 
—

 
0.1

 
—

 
—

 
(1,628.6
)
 
—

Stabilizer and MCGs (1)
(102.0
)
 
25.5

 
—

 
(1.5
)
 
—

 
—

 
—

 
—

 
—

 
(78.0
)
 
—

Other derivatives, net
22.9

 
44.7

 
—

 
6.3

 
—

 
—

 
(8.4
)
 
—

 
—

 
65.5

 
37.6

Assets held in separate accounts (4)
16.3

 
—

 
—

 
0.2

 
—

 
(6.6
)
 
—

 
2.2

 
(9.9
)
 
2.2

 
—

(1) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis. These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.
(2) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(3) For financial instruments still held as of March 31, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(4) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which result in a net zero impact on net income for the Company.


39


ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 

The following table summarizes the change in fair value of the Company’s Level 3 assets and liabilities and transfers in and out of Level 3 for the three months ended March 31, 2012 :
 
Fair Value
as of
January 1
 
Total
Realized/Unrealized
Gains (Losses)
Included in:
 
Purchases
 
Issuances
 
Sales
 

Settlements
 
Transfers
in to
Level 3 (2)
 
Transfers
out of
Level 3 (2)
 
Fair Value
as of
March 31
 
Change In
Unrealized
Gains
(Losses)
Included in
Earnings (3)
 
 
Net
Income
 
OCI
 
 
 
 
 
 
 
 
Fixed maturities, including securities pledged:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. corporate, state and municipalities
$
520.6

 
$
—

 
$
0.8

 
$
0.5

 
$
—

 
$
—

 
$
(22.3
)
 
$
70.7

 
$
—

 
$
570.3

 
$
—

Foreign
160.6

 
1.8

 
(0.6
)
 
—

 
—

 
(11.2
)
 
(1.8
)
 
—

 
(78.8
)
 
70.0

 
—

Residential mortgage-backed securities
186.6

 
(1.8
)
 
1.3

 
—

 
—

 
—

 
(1.2
)
 
—

 
(91.7
)
 
93.2

 
(0.3
)
Other asset-backed securities
104.5

 
5.2

 
2.8

 
—

 
—

 
(4.5
)
 
(0.4
)
 
—

 
—

 
107.6

 
5.3

Total fixed maturities including securities pledged
972.3

 
5.2

 
4.3

 
0.5

 
—

 
(15.7
)
 
(25.7
)
 
70.7

 
(170.5
)
 
841.1

 
5.0

Equity securities, available-for-sale
67.6

 
—

 
(0.3
)
 
5.0

 
—

 
(5.6
)
 
—

 
—

 
—

 
66.7

 
(0.3
)
Derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Product guarantees:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FIA (1)
(1,304.9
)
 
(188.6
)
 
—

 
—

 
(28.6
)
 
—

 
29.9

 
—

 
—

 
(1,492.2
)
 
—

GMAB/GMWB/GMWBL (1)
(2,272.2
)
 
468.1

 
—

 
—

 
(38.0
)
 
—

 
0.1

 
—

 
—

 
(1,842.0
)
 
—

Stabilizer and MCGs (1)
(221.0
)
 
150.6

 
—

 
(1.6
)
 
—

 
—

 
—

 
—

 
—

 
(72.0
)
 
—

Other derivatives, net
(24.8
)
 
11.3

 
—

 
5.8

 
—

 
—

 
43.1

 
—

 
(5.4
)
 
30.0

 
15.6

Assets held in separate accounts (4)
16.1

 
0.3

 
—

 
14.8

 
—

 
(8.3
)
 
—

 
0.2

 
—

 
23.1

 
0.4

(1) All gains and losses on Level 3 liabilities are classified as realized gains (losses) for the purpose of this disclosure because it is impracticable to track realized and unrealized gains (losses) separately on a contract-by contract basis. These amounts are included in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations.
(2) The Company's policy is to recognize transfers in and transfers out as of the beginning of the reporting period.
(3) For financial instruments still held as of March 31, amounts are included in Net investment income and Total net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.
(4) The investment income and realized gains (losses) and change in unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which result in a net zero impact on net income for the Company.


40



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



For the three months ended March 31, 2013 and 2012 , the transfers in and out of Level 3 for fixed maturities and separate accounts as well as equity securities for the three months ended March 31, 2013 , were due to the variation in inputs relied upon for valuation each quarter. Securities that are primarily valued using independent broker quotes when prices are not available from one of the commercial pricing services are reflected as transfers into Level 3. When securities are valued using more widely available information, the securities are transferred out of Level 3 and into Level 1 or 2, as appropriate.

The fair value of certain options and swap contracts were valued using observable inputs, and such options and swap contracts were transferred from Level 3 to Level 2 for the three months ended March 31, 2012 .

Significant Unobservable Inputs

Quantitative information about the significant unobservable inputs used in the Company's Level 3 fair value measurements of its annuity product guarantees is presented in the following sections and table.

The Company's Level 3 fair value measurements of its fixed maturities, equity securities available-for-sale and equity and credit derivative contracts are primarily based on broker quotes for which the quantitative detail of the unobservable inputs is neither provided nor reasonably corroborated, thus negating the ability to perform a sensitivity analysis. The Company performs a review of broker quotes by performing a monthly price variance comparison and back tests broker quotes to recent trade prices.

Significant unobservable inputs used in the fair value measurements of GMABs, GMWBs and GMWBLs include long-term equity implied volatility, correlations between the rate of return on policyholder funds and between interest rates and equity returns, nonperformance risk, mortality and policyholder behavior assumptions, such as benefit utilization, lapses and partial withdrawals.

Significant unobservable inputs used in the fair value measurements of FIAs include nonperformance risk and lapses. Such inputs are monitored quarterly.

The significant unobservable inputs used in the fair value measurement of the Stabilizer embedded derivatives and MCG derivative are interest rate implied volatility, nonperformance risk, lapses and policyholder deposits. Such inputs are monitored quarterly.

Following is a description of selected inputs:

Equity / Interest Rate Volatility : A term-structure model is used to approximate implied volatility for the equity indices for GMAB, GMWB and GMWBL fair value measurements and swap rates for the Stabilizer and MCG fair value measurements. Where no implied volatility is readily available in the market, an alternative approach is applied based on historical volatility.

Correlations : Integrated interest rate and equity scenarios are used in GMAB, GMWB and GMWBL fair value measurements to better reflect market interest rates and interest rate volatility correlations between equity and fixed income fund groups and between equity fund groups and interest rates. The correlations are based on historical fund returns and swap rates from external sources.

Nonperformance Risk: For the estimate of the fair value of embedded derivatives associated with our product guarantees, the Company uses a blend of observable, similarly rated peer company credit default swap spreads, adjusted to reflect the credit quality of the individual insurance subsidiary that issued the guarantee and the priority of policyholder claims.

Actuarial Assumptions : Management regularly reviews actuarial assumptions, which are based on the Company's experience and periodically reviewed against industry standards. Industry standards and Company experience may be limited on certain products.



41



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following table presents the unobservable inputs for Level 3 fair value measurements as of March 31, 2013 :
 
 
Range (1)
 
Unobservable Input
 
GMWB / GMWBL
 
GMAB
 
FIA
 
Stabilizer / MCG
 
Long-term equity implied volatility
 
15% to 25%
 
15% to 25%
 
-
 
-
 
Interest rate implied volatility
 
-
 
-
 
-
 
0% to 3.3%
 
Correlations between:
 
 
 
 
 
 
 
 
 
Equity Funds
 
50% to 98%
 
50% to 98%
 
-
 
-
 
Equity and Fixed Income Funds
 
-20% to 44%
 
-20% to 44%
 
-
 
-
 
Interest Rates and Equity Funds
 
-30% to -16%
 
-30% to -16%
 
-
 
-
 
Nonperformance risk
 
0.01% to 1.3%
 
0.01% to 1.3%
 
0.01% to 1.3%
 
0.01% to 1.3%
 
Actuarial Assumptions:
 
 
 
 
 
 
 
 
 
Benefit Utilization
 
85% to 100%
(2)  
-
 
-
 
-
 
Partial Withdrawals
 
0% to 10%
 
0% to 10%
 
-
 
-
 
Lapses
 
0.08% to 32%
(3)  
0.08% to 31%
(3)  
0% to 10%
(3)  
0% to 55%
(4)  
Policyholder Deposits (5)
 
-
 
-
 
-
 
0% to 60%
(4)  
Mortality
 
-
(6)  
-
(6)  
-
 
-
 
(1)  
Represents the range of reasonable assumptions that management has used in its fair value calculations.
(2) Those policyholders who have elected systematic withdrawals are assumed to continue taking withdrawals. As a percent of account value, 26% are taking systematic withdrawals. Of those policyholders who are not taking withdrawals, we assume that 85% will begin systematic withdrawals after a delay period. The utilization function varies by policyholder age and policy duration. Interactions with lapse and mortality also affect utilization. The utilization rate for GMWB and GMWBL tends to be lower for younger contract owners and contracts that have not reached their maximum accumulated GMWB and GMWBL benefit amount. There is also a lower utilization rate, though indirectly, for contracts that are less “in the money” (i.e., where the notional benefit amount is in excess of the account value) due to higher lapses. Conversely, the utilization rate tends to be higher for contract owners near or beyond retirement age and contracts that have accumulated their maximum GMWB or GMWBL benefit amount. There is also a higher utilization rate, though indirectly, for contracts which are highly “in the money”. The chart below provides the GMWBL account value by current age group and average expected delay times from the associated attained age group as of March 31, 2013 (account value amounts are in $ billions).
 
 
Account Values
 
 
Attained Age Group
 
In the Money
 
Out of the Money
 
Total
 
Average Expected Delay (Years)
< 60
 
$
3.0

 
$
0.8

 
$
3.8

 
5.5
60-69
 
6.3

 
1.3

 
7.6

 
1.8
70+
 
4.1

 
0.6

 
4.7

 
0.1
 
 
$
13.4

 
$
2.7

 
$
16.1

 
2.6
(3)
Lapse rates tend to be lower during the contractual surrender charge period and higher after the surrender charge period ends; the highest lapse rates occur in the year immediately after the end of the surrender charge period. We make dynamic adjustments to lower the lapse rates for contracts that are more “in the money.” The table below shows an analysis of policy account values according to whether they are in or out of the surrender charge period and to whether they are "in the money" or "out of the money" as of March 31, 2013 (account value amounts are in $ billions).
 
 
 
GMAB
 
GMWB/GMWBL
 
Moneyness
 
Account Value
 
Lapse Range
 
Account Value
 
Lapse Range
During Surrender Charge Period
 
 
 
 
 
 
 
 
 
 
In the Money**
 
$
—

 
0.08% to 8.2%
 
$
7.0

 
0.08% to 5.8%
 
Out of the Money
 
—

 
0.41% to 12%
 
2.2

 
0.35% to 12%
After Surrender Charge Period
 
 
 
 
 
 
 
 
 
 
In the Money**
 
—

 
2.4% to 22%
 
6.5

 
1.5% to 17%
 
Out of the Money
 
0.1

 
12% to 31%
 
1.2

 
3.2% to 32%
** The low end of the range corresponds to policies that are highly "in the money." The high end of the range corresponds to the policies that are close to zero in terms of "in the moneyness."


42



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



(4)  
Stabilizer contracts with recordkeeping agreements have a different range of lapse and policyholder deposit assumptions from Stabilizer (Investment only) and MCG contracts as shown below:
 
Percentage of Plans
 
Overall Range of Lapse Rates
 
Range of Lapse Rates for 85% of Plans
 
Overall Range of Policyholder Deposits
 
Range of Policyholder Deposits for 85% of Plans
Stabilizer (Investment Only) and MCG Contracts
87
%
 
0-30%
 
0-15%
 
0-55%
 
0-20%
Stabilizer with Recordkeeping Agreements
13
%
 
0-55%
 
0-25%
 
0-60%
 
0-30%
Aggregate of all plans
100
%
 
0-55%
 
0-25%
 
0-60%
 
0-30%
(5)  
Measured as a percentage of assets under management or assets under administration.
(6)  
The mortality rate is based on the Annuity 2000 Basic table with mortality improvements.

The following table presents the unobservable inputs for Level 3 fair value measurements as of December 31, 2012 :
 
 
Range (1)
 
Unobservable Input
 
GMWB / GMWBL
 
GMAB
 
FIA
 
Stabilizer / MCG
 
Long-term equity implied volatility
 
15% to 25%

 
15% to 25%

 
—

 
—

 
Interest rate implied volatility
 
—

 
—

 
—

 
0% to 4.0%

 
Correlations between:
 
 
 
 
 
 
 
 
 
Equity Funds
 
50% to 98%

 
50% to 98%

 
—

 
—

 
Equity and Fixed Income Funds
 
-20% to 44%

 
-20% to 44%

 
—

 
—

 
Interest Rates and Equity Funds
 
-25% to -16%

 
-25% to -16%

 
—

 
—

 
Nonperformance risk
 
0.10% to 1.3%

 
0.10% to 1.3%

 
0.10% to 1.3%

 
0.10% to 1.3%

 
Actuarial Assumptions:
 
 
 
 
 
 
 
 
 
Benefit Utilization
 
85% to 100%

(2)  
—

 
—

 
—

 
Partial Withdrawals
 
0% to 10%

 
0% to 10%

 
—

 
—

 
Lapses
 
0.08% to 32%

(3)  
0.08% to 31%

(3)  
0% to 10%

(3)  
0% to 55%

(4)  
Policyholder Deposits (5)
 
—

 
—

 
—

 
0% to 60%

(4)  
Mortality
 
—

(6)  
—

(6)  
—

 
—

 
(1)  
Represents the range of reasonable assumptions that management has used in its fair value calculations.
(2) Those policyholders who have elected systematic withdrawals are assumed to continue taking withdrawals. As a percent of account value, 26% are taking systematic withdrawals. Of those policyholders who are not taking withdrawals, we assume that 85% will begin systematic withdrawals after a delay period. The utilization function varies by policyholder age and policy duration. Interactions with lapse and mortality also affect utilization. The utilization rate for GMWB and GMWBL tends to be lower for younger contract owners and contracts that have not reached their maximum accumulated GMWB and GMWBL benefit amount. There is also a lower utilization rate, though indirectly, for contracts that are less “in the money” (i.e., where the notional benefit amount is in excess of the account value) due to higher lapses. Conversely, the utilization rate tends to be higher for contract owners near or beyond retirement age and contracts that have accumulated their maximum GMWB or GMWBL benefit amount. There is also a higher utilization rate, though indirectly, for contracts which are highly “in the money”. The chart below provides the GMWBL account value by current age group and average expected delay times from the associated attained age group as of December 31, 2012 (account value amounts are in $ billions).
 
 
Account Values
 
 
Attained Age Group
 
In the Money
 
Out of the Money
 
Total
 
Average Expected Delay (Years)
< 60
 
$
3.5

 
$
0.3

 
$
3.8

 
5.5
60-69
 
7.0

 
0.4

 
7.4

 
1.9
70+
 
4.3

 
0.1

 
4.4

 
0.2
 
 
$
14.8

 
$
0.8

 
$
15.6

 
2.8


43



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



(3)
Lapse rates tend to be lower during the contractual surrender charge period and higher after the surrender charge period ends; the highest lapse rates occur in the year immediately after the end of the surrender charge period. We make dynamic adjustments to lower the lapse rates for contracts that are more “in the money.” The table below shows an analysis of policy account values according to whether they are in or out of the surrender charge period and to whether they are "in the money" or "out of the money" as of December 31, 2012 (account value amounts are in $ billions).
 
 
 
GMAB
 
GMWB/GMWBL
 
Moneyness
 
Account Value
 
Lapse Range
 
Account Value
 
Lapse Range
During Surrender Charge Period
 
 
 
 
 
 
 
 
 
 
In the Money**
 
$
—

 
0.08% to 8.2%
 
8.8

 
0.08% to 5.8%
 
Out of the Money
 
—

 
0.41% to 12%
 
0.9

 
0.35% to 12%
After Surrender Charge Period
 
 
 
 
 
 
 
 
 
 
In the Money**
 
—

 
2.4% to 22%
 
6.2

 
1.5% to 17%
 
Out of the Money
 
0.1

 
12% to 31%
 
0.6

 
3.2% to 32%
** The low end of the range corresponds to policies that are highly "in the money." The high end of the range corresponds to the policies that are close to zero in terms of "in the moneyness."
(4)  
Stabilizer contracts with recordkeeping agreements have a different range of lapse and policyholder deposit assumptions from Stabilizer (Investment only) and MCG contracts as shown below:
 
Percentage of Plans
 
Overall Range of Lapse Rates
 
Range of Lapse Rates for 85% of Plans
 
Overall Range of Policyholder Deposits
 
Range of Policyholder Deposits for 85% of Plans
Stabilizer (Investment Only) and MCG Contracts
87
%
 
0-30%
 
0-15%
 
0-55%
 
0-20%
Stabilizer with Recordkeeping Agreements
13
%
 
0-55%
 
0-25%
 
0-60%
 
0-30%
Aggregate of all plans
100
%
 
0-55%
 
0-25%
 
0-60%
 
0-30%
(5)  
Measured as a percentage of assets under management or assets under administration.
(6)  
The mortality rate is based on the Annuity 2000 Basic table with mortality improvements.

Generally, the following will cause an increase (decrease) in the GMAB, GMWB and GMWBL embedded derivative fair value liabilities:

•
An increase (decrease) in long-term equity implied volatility
•
An increase (decrease) in equity-interest rate correlations
•
A decrease (increase) in nonperformance risk
•
A decrease (increase) in mortality
•
An increase (decrease) in benefit utilization
•
A decrease (increase) in lapses

Changes in fund correlations may increase or decrease the fair value depending on the direction of the movement and the mix of funds. Changes in partial withdrawals may increase or decrease the fair value depending on the timing and magnitude of withdrawals.

Generally, the following will cause an increase (decrease) in the FIA embedded derivative fair value liability:

•
A decrease (increase) in nonperformance risk
•
A decrease (increase) in lapses

Generally, the following will cause an increase (decrease) in the derivative and embedded derivative fair value liabilities related to Stabilizer and MCG contracts:

•
An increase (decrease) in interest rate volatility
•
A decrease (increase) in nonperformance risk
•
A decrease (increase) in lapses
•
A decrease (increase) in policyholder deposits



44



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The Company notes the following interrelationships:

•
Higher long-term equity implied volatility is often correlated with lower equity returns, which will result in higher in-the-moneyness, which in turn, results in lower lapses due to the dynamic lapse component reducing the lapses. This increases the projected number of policies that are available to use the GMWBL benefit and may also increase the fair value of the GMWBL.

•
Generally, an increase (decrease) in benefit utilization will decrease (increase) lapses for GMWB and GMWBL.

•
Generally, an increase (decrease) in interest rate volatility will increase (decrease) lapses of Stabilizer and MCG contracts due to dynamic participant behavior.



45



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Other Financial Instruments

The carrying values and estimated fair values of the Company’s financial instruments as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Assets:
 
 
 
 
 
 
 
Fixed maturities, including securities pledged
$
75,073.4

 
$
75,073.4

 
$
75,287.1

 
$
75,287.1

Equity securities, available-for-sale
282.3

 
282.3

 
340.1

 
340.1

Mortgage loans on real estate
8,949.4

 
9,215.2

 
8,662.3

 
8,954.8

Policy loans
2,204.4

 
2,204.4

 
2,200.3

 
2,200.3

Limited partnerships/corporations
468.5

 
468.5

 
465.1

 
465.1

Cash, cash equivalents, short-term investments and short-term investments under securities loan agreements
6,643.3

 
6,643.3

 
8,442.0

 
8,442.0

Derivatives
2,077.0

 
2,077.0

 
2,374.5

 
2,374.5

Other investments
166.7

 
173.5

 
167.0

 
173.7

Assets held in separate accounts
103,098.3

 
103,098.3

 
97,667.4

 
97,667.4

Liabilities:
 
 
 
 
 
 
 
Investment contract liabilities:
 
 
 
 
 
 
 
Funding agreements without fixed maturities and deferred annuities (1)
49,798.5

 
55,996.7

 
50,133.7

 
56,851.0

Funding agreements with fixed maturities and guaranteed investment contracts
3,924.5

 
3,826.2

 
3,784.0

 
3,671.0

Supplementary contracts, immediate annuities and other
3,131.4

 
3,473.5

 
3,109.2

 
3,482.3

Derivatives:
 
 
 
 
 
 
 
Annuity product guarantees:
 
 
 
 
 
 
 
FIA
1,561.7

 
1,561.7

 
1,434.3

 
1,434.3

GMAB / GMWB / GMWBL
1,628.6

 
1,628.6

 
2,035.4

 
2,035.4

Stabilizer and MCGs
78.0

 
78.0

 
102.0

 
102.0

Other derivatives
1,670.6

 
1,670.6

 
1,944.2

 
1,944.2

Short-term debt
321.2

 
323.6

 
1,064.6

 
1,070.6

Long-term debt
3,440.8

 
3,677.2

 
3,171.1

 
3,386.2

Embedded derivatives on reinsurance
154.8

 
154.8

 
169.5

 
169.5

(1) Certain amounts included in Funding agreements without fixed maturities and deferred annuities are also reflected within the Annuity product guarantees section of the table above.

The following disclosures are made in accordance with the requirements of ASC Topic 825 which requires disclosure of fair value information about financial instruments, whether or not recognized at fair value on the Condensed Consolidated Balance Sheets, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates, in many cases, could not be realized in immediate settlement of the instrument.



46



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



ASC Topic 825 excludes certain financial instruments, including insurance contracts and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The following valuation methods and assumptions were used by the Company in estimating the fair value of the following financial instruments, which are not carried at fair value on the Condensed Consolidated Balance Sheets:

Mortgage loans on real estate : The fair values for mortgage loans on real estate are estimated on a monthly basis using discounted cash flow analyses and rates currently being offered in the marketplace for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. Mortgage loans on real estate are classified as Level 3.

Policy loans : The fair value of policy loans approximates to the carrying value of the loans. Policy loans are collateralized by the cash surrender value of the associated insurance contracts and are classified as Level 2.

Limited partnerships/corporations : The fair value for these investments, primarily private equity fund of funds and hedge funds, is based on actual or estimated Net Asset Value ("NAV") information, as provided by the investee and are classified as Level 3.

Other investments : Federal Home Loan Bank ("FHLB") stock is carried at cost and periodically evaluated for impairment based on ultimate recovery of par value and is classified as Level 1.

Investment contract liabilities :

Funding agreements without a fixed maturity and deferred annuities : Fair value is estimated as the mean present value of stochastically modeled cash flows associated with the contract liabilities taking into account assumptions about contract holder behavior. The stochastic valuation scenario set is consistent with current market parameters and discount is taken using stochastically evolving risk-free rates in the scenarios plus an adjustment for nonperformance risk. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3.

Funding agreements with a fixed maturity and guaranteed investment contracts : Fair value is estimated by discounting cash flows, including associated expenses for maintaining the contracts, at rates, which are risk-free rates plus an adjustment for nonperformance risk. These liabilities are classified as Level 2.

Supplementary contracts and immediate annuities: Fair value is estimated as the mean present value of the single deterministically modeled cash flows associated with the contract liabilities discounted using stochastically evolving short risk-free rates in the scenarios plus an adjustment for nonperformance risk. The valuation is consistent with current market parameters. Margins for non-financial risks associated with the contract liabilities are also included. These liabilities are classified as Level 3.

Short-term debt and Long-term debt : Estimated fair value of the Company’s short-term and long-term debt is based upon discounted future cash flows using a discount rate approximating the current market rate, incorporating nonperformance risk. Short-term debt is classified as Level 1 and Level 2 and long-term debt is classified as Level 2.

Fair value estimates are made at a specific point in time, based on available market information and judgments about various financial instruments, such as estimates of timing and amounts of future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized capital gains (losses). In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instruments. In evaluating the Company’s management of interest rate, price and liquidity risks, the fair values of all assets and liabilities should be taken into consideration, not only those presented above.



47



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



5.      Deferred Policy Acquisition Costs and Value of Business Acquired

Activity within deferred policy acquisition costs ("DAC") and value of business acquired ("VOBA") was as follows for the periods indicated :
 
DAC
 
VOBA
 
Total
Balance at January 1, 2013
$
3,221.6

 
$
434.7

 
$
3,656.3

Deferrals of commissions and expenses
104.5

 
3.3

 
107.8

Amortization:
 
 

 
 
Amortization
(174.8
)
 
(36.6
)
 
(211.4
)
Interest accrued (1)
58.4

 
22.5

 
80.9

Net amortization included in Condensed Consolidated Statements of Operations
(116.4
)
 
(14.1
)
 
(130.5
)
Change in unrealized capital gains/losses on available-for-sale securities
262.0

 
124.0

 
386.0

Balance at March 31, 2013
$
3,471.7

 
$
547.9

 
$
4,019.6

 
 
 
 
 
 
 
DAC
 
VOBA
 
Total
Balance at January 1, 2012
$
3,666.9

 
$
685.4

 
$
4,352.3

Deferrals of commissions and expenses
154.3

 
4.8

 
159.1

Amortization:
 
 
 
 
 
Amortization
(188.4
)
 
(67.0
)
 
(255.4
)
Interest accrued (1)
58.4

 
23.3

 
81.7

Net amortization included in Condensed Consolidated Statements of Operations
(130.0
)
 
(43.7
)
 
(173.7
)
Change in unrealized capital gains/losses on available-for-sale securities
12.6

 
19.2

 
31.8

Balance at March 31, 2012
$
3,703.8

 
$
665.7

 
$
4,369.5

(1) Interest accrued at the following rates for DAC: 1.7% to 7.4% during 2013 and 1.5% to 8.0% during 2012 . Interest accrued at the following rates for VOBA: 2.0% to 7.5% during 2013 and 2.0% to 7.4% during 2012 .

6.     Shareholder's Equity and Dividend Restrictions

Common Stock

The Company did not have any shares issued or acquired for the three months ended March 31, 2013 and 2012 .

Dividend Restrictions

The states in which the insurance subsidiaries of ING U.S., Inc. are domiciled impose certain restrictions on the subsidiaries' ability to pay dividends to their parent. These restrictions are based in part on the prior year's statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior approval. Dividends in larger amounts, or "extraordinary" dividends, are subject to approval by the insurance commissioner of the state of domicile of the insurance subsidiary proposing to pay the dividend.

Under the insurance laws applicable to ING U.S., Inc.'s insurance subsidiaries domiciled in Connecticut, Colorado, Indiana, Iowa and Minnesota, an "extraordinary" dividend or distribution is defined as a dividend or distribution that, together with other dividends and distributions made within the preceding twelve months, exceeds the greater of (i) 10% of the insurer's policyholder surplus as of the preceding December 31, or (ii) the insurer's net gain from operations for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting principles. New York has similar restrictions, except that New York's statutory definition of "extraordinary" dividend or distribution is an aggregate amount in any calendar year that exceeds the lesser of (i) 10% of policyholder's surplus for the twelve-month period ending the preceding December 31, or (ii)


48



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



the insurer's net gain from operations for the twelve-month period ending the preceding December 31, not including realized capital gains. In addition, under the insurance laws of Connecticut, Colorado, Iowa and Minnesota, no dividend or other distribution exceeding an amount equal to a domestic insurance company's earned surplus may be paid without the domiciliary insurance regulator's prior approval.

Dividend Payment

In March and April 2013, in response to requests made in 2012 and refreshed in 2013, ING U.S., Inc.'s insurance subsidiaries domiciled in Colorado, Connecticut, Iowa and Minnesota received approvals or notices of non-objection, as the case may be, from their respective domiciliary insurance regulators to make extraordinary distributions to ING U.S., Inc. or Lion Connecticut Holdings Inc. (“Lion Holdings”), a wholly owned subsidiary of ING U.S., Inc., in the aggregate amount of $1.434 billion , contingent upon completion of the IPO and the use of the extraordinary distribution funds solely for Company operations. The approved distributions of $1.434 billion were made on May 8, 2013. See the Subsequent Events Note to these Condensed Consolidated Financial Statements.

Reclassification of Statutory Negative Unassigned Funds

On May 8, 2013, insurance subsidiaries domiciled in Colorado, Iowa and Minnesota each reset, on a one-time basis, their respective negative unassigned funds account as of December 31, 2012 (as reported in their respective 2012 statutory annual statements) to zero (with an offsetting reduction in gross paid-in capital and contributed surplus). These resets were made pursuant to permitted practices in accordance with statutory accounting practices granted by their respective domiciliary insurance regulators. These permitted practices have no impact on total capital and surplus of these insurance subsidiaries and will be reflected in their second quarter statutory financial statements. See the Subsequent Events Note to these Condensed Consolidated Financial Statements.

7.      Accumulated Other Comprehensive Income

Shareholder’s equity included the following components of AOCI as of the dates indicated:
 
March 31,
 
2013
 
2012
Fixed maturities, net of OTTI
$
7,067.2

 
$
5,489.5

Equity securities, available-for-sale
35.8

 
44.5

Derivatives
201.5

 
145.7

DAC/VOBA adjustment on available-for-sale securities
(2,397.6
)
 
(2,170.5
)
Sales inducements adjustment on available-for-sale securities
(119.0
)
 
(95.3
)
Other
(28.8
)
 
(40.0
)
Unrealized capital gains (losses), before tax
4,759.1

 
3,373.9

Deferred income tax asset (liability)
(1,363.4
)
 
(857.7
)
Net unrealized capital gains (losses)
3,395.7

 
2,516.2

Pension and other postretirement benefits liability, net of tax
57.1

 
70.8

AOCI
$
3,452.8

 
$
2,587.0




49



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Changes in AOCI, including the reclassification adjustments recognized in the Condensed Consolidated Statements of Operations were as follows for the periods indicated:
 
Three Months Ended March 31, 2013
 
Before-Tax Amount
 
Income Tax
 
After-Tax Amount
Available-for-sale securities:
 
 
 
 
 
Fixed maturities
$
(792.1
)
 
$
274.4

 
$
(517.7
)
Equity securities
(6.3
)
 
2.2

 
(4.1
)
Other
11.6

 
(4.1
)
 
7.5

OTTI
10.9

 
(3.8
)
 
7.1

Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations
(14.6
)
 
5.1

 
(9.5
)
DAC/VOBA
386.0

(1)  
(135.1
)
 
250.9

Sales inducements
28.4

 
(9.9
)
 
18.5

Change in unrealized gains/losses on available-for-sale securities
(376.1
)
 
128.8

 
(247.3
)
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Derivatives
(12.7
)
(2)  
4.5

 
(8.2
)
Adjustments for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations
(0.2
)
 
0.1

 
(0.1
)
Change in unrealized gains/losses on derivatives
(12.9
)
 
4.6

 
(8.3
)
 
 
 
 
 
 
Pension and other postretirement benefits liability:
 
 
 
 
 
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations
(3.5
)
(3)  
1.2

 
(2.3
)
Change in pension and other postretirement benefits liability
(3.5
)
 
1.2

 
(2.3
)
Change in Other comprehensive income (loss)
$
(392.5
)
 
$
134.6

 
$
(257.9
)
(1) See the Deferred Policy Acquisition Costs and Value of Business Acquired Note to these Condensed Consolidated Financial Statements for additional information.
(2) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.
(3) See the Employee Benefits Obligations Note to these Condensed Consolidated Financial Statements for amounts reported in Net Periodic (Benefit) Costs.



50



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



 
Three Months Ended March 31, 2012
 
Before-Tax Amount
 
Income Tax
 
After-Tax Amount
Available-for-sale securities:
 
 
 
 
 
Fixed maturities
$
59.5

 
$
14.6

(4)  
$
74.1

Equity securities
11.3

 
(4.0
)
 
7.3

Other
(6.8
)
 
2.4

 
(4.4
)
OTTI
12.8

 
(4.5
)
 
8.3

Adjustments for amounts recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations
(129.6
)
 
45.4

 
(84.2
)
DAC/VOBA
31.8

(1)  
(11.1
)
 
20.7

Sales inducements
(15.0
)
 
5.2

 
(9.8
)
Change in unrealized gains/losses on available-for-sale securities
(36.0
)
 
48.0

 
12.0

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Derivatives
(26.9
)
(2)  
9.4

 
(17.5
)
Adjustments for amounts recognized in Net investment income in the Condensed Consolidated Statements of Operations
—

 
—

 
—

Change in unrealized gains/losses on derivatives
(26.9
)
 
9.4

 
(17.5
)
 
 
 
 
 
 
Pension and other postretirement benefits liability:
 
 
 
 
 
Amortization of prior service cost recognized in Operating expenses in the Condensed Consolidated Statements of Operations
(3.8
)
(3)  
1.3

 
(2.5
)
Change in pension and other postretirement benefits liability
(3.8
)
 
1.3

 
(2.5
)
Change in Other comprehensive income (loss)
$
(66.7
)
 
$
58.7

 
$
(8.0
)
(1) See the Deferred Policy Acquisition Costs and Value of Business Acquired Note to these Condensed Consolidated Financial Statements for additional information.
(2) See the Derivative Financial Instruments Note to these Condensed Consolidated Financial Statements for additional information.
(3) See the Employee Benefits Obligations Note to these Condensed Consolidated Financial Statements for amounts reported in Net Periodic (Benefit) Costs.
(4) Amount includes $33.0 release of valuation allowance. See Income Taxes Note to these Condensed Consolidated Financial Statements for additional information.



51



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



8.      Income Taxes

Income taxes were different from the amount computed by applying the federal income tax rate to income (loss) before income taxes for the following reasons for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Income (loss) before income taxes
$
(214.3
)
 
$
(512.9
)
Tax rate
35.0
%
 
35.0
%
Income tax expense (benefit) at federal statutory rate
(75.0
)
 
(179.5
)
Tax effect of:
 
 
 
Valuation allowance
104.2

 
217.2

Dividend received deduction  
(21.9
)
 
(18.6
)
Audit settlement
(2.1
)
 
(0.6
)
State tax expense (benefit)
4.1

 
(17.3
)
Noncontrolling interest
4.7

 
5.5

Tax credits  
(4.6
)
 
(3.8
)
Non-deductible expenses
4.3

 
4.4

Other
(2.5
)
 
0.6

Income tax expense (benefit)
$
11.2

 
$
7.9


Valuation allowances are provided when it is considered unlikely that deferred tax assets will be realized. As of March 31, 2013 and December 31, 2012 , the Company had valuation allowances of $3.4 billion and $3.3 billion , respectively, that was allocated to continuing operations and $(288.5) as of the end of each period that was allocated to other comprehensive income related to realized and unrealized capital losses.

For the three months ended March 31, 2013 and 2012 , the total increases (decreases) in the valuation allowance were $104.2 and $184.2 , respectively. For the quarters ended March 31, 2013 and 2012 , there were increases of $104.2 and $217.2 , respectively, in the valuation allowance that were allocated to continuing operations and (decreases) of $0.0 and $(33.0) that were allocated to Other comprehensive income.

Tax Regulatory Matters

Recently, the IRS completed its examination of the Company's returns through tax year 2011 . The 2011 audit settlement did not have a material impact on the financial statements. The Company is currently under audit by the IRS for tax years 2012 and 2013 and it is expected that the examination of tax year 2012 will be finalized within the next twelve months. The Company and the IRS have agreed to participate in the Compliance Assurance Program for the tax years 2012 and 2013. The Company is also under examination by various state agencies.

The Company does not expect any material changes to the unrecognized tax benefits within the next year.

9.      Employee Benefit Arrangements

Pension, Other Postretirement Benefit Plans and Other Benefit Plans

ING U.S., Inc.'s subsidiaries maintain both qualified and non-qualified defined benefit pension plans (the “Plans”). The qualified plans generally cover all employees. The non-qualified plans cover certain employees and sales representatives who meet specified eligibility requirements. Prior to January 2012, certain participants earned benefits under a final average pension formula using compensation and length of service to determine the accrued pension benefit. Effective January 1, 2012, all participants earned benefits under a cash balance pension formula that provides a benefit credit equal to 4% of eligible compensation of the participant.


52



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 




In addition to providing qualified retirement benefit plans, the Company provides certain supplemental retirement benefits to eligible employees, non-qualified pension plans for insurance sales representatives who have entered into a career agent agreement and certain other individuals. These plans are non-qualified defined benefit plans which means all benefits are payable from the general assets of the sponsoring company. The Company also offers deferred compensation plans for eligible employees, eligible career agents and certain other individuals who meet the eligibility criteria.

ING U.S., Inc.'s subsidiaries also provide other post-employment and post-retirement employee benefits to certain employees. These are primarily post-retirement healthcare and life insurance benefits to retired employees and other eligible dependents and post-employment/pre-retirement plans provided to employees and former employees.

The components of net periodic benefit cost were as follows for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
 
2013
 
2012
 
Pension Plans
 
Other Postretirement Benefits
Net Periodic (Benefit) Costs:
 
 
 
 
 
 
 
Service cost
$
11.3

 
$
9.8

 
$
—

 
$
—

Interest cost
22.1

 
22.5

 
0.4

 
0.3

Expected return on plan assets
(25.3
)
 
(22.5
)
 
—

 
—

Amortization of prior service cost (credit)
(2.6
)
 
(3.0
)
 
(0.9
)
 
(0.8
)
Net periodic (benefit) costs
$
5.5

 
$
6.8

 
$
(0.5
)
 
$
(0.5
)

Defined Contribution Plans

Certain of the Company’s subsidiaries sponsor defined contribution plans. The largest defined contribution plan is the ING Americas Savings Plan and ESOP ("The Savings Plan"). Substantially all employees of the Company are eligible to participate, other than the Company’s agents. The Savings Plan allows eligible participants to defer into the Savings Plan a specified percentage of eligible compensation on a pretax and/or after-tax basis, subject to IRS limits. The Company matches such pretax contributions, up to a maximum of 6% of eligible compensation. All matching contributions are subject to a 4 year graded vesting schedule.

10.      Financing Agreements

Short-term Debt

The following table summarizes the Company’s short-term debt including the weighted average interest rate on short-term borrowings outstanding as of the dates indicated:
 
 
 
 
 
Weighted Average Rate
 
March 31, 2013
 
December 31, 2012
 
March 31, 2013
 
December 31, 2012
Commercial paper
$
4.0

 
$
192.0

 
1.10
%
 
1.22
%
Current portion of long-term debt (1)
317.2

 
872.6

 
4.19
%
 
2.42
%
Total
$
321.2

 
$
1,064.6

 
 
 
 
(1) See "Affiliated Financing Agreements" in the Related Party Transactions Note to these Condensed Consolidated Financial Statements.

Commercial Paper

The Company has a commercial paper program with an authorized capacity of $3.0 billion , which is guaranteed by ING V. The Company pays ING V 10 basis points ("bps") on the outstanding balance of the commercial paper program as a fee for this guarantee. The Company’s commercial paper borrowings have generally been used to fund the working capital needs of the Company’s subsidiaries and provide short-term liquidity.


53



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 




Guaranteed Debt

The following amounts guaranteed by ING Group or ING V are included with the Company’s debt obligations as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
Commercial paper
$
4.0

 
$
192.0

Lion Connecticut Holdings Inc. debentures (1)
637.2

 
636.9

Total
$
641.2

 
$
828.9

(1) ING Group is guarantor to outstanding legacy debt securities originally issued by Aetna Services, Inc. (formerly Aetna Life and Casualty).

Long-term Debt

The following table summarizes the carrying value of the Company’s long-term debt securities issued and outstanding as of the dates indicated:
 
Maturity
 
March 31, 2013
 
December 31, 2012
2.20% Syndicated Bank Term Loan, due 2014 (1)
04/20/2014
 
$
425.0

 
$
1,350.0

6.75% Lion Connecticut Holdings Inc. debentures, due 2013 (2)
09/15/2013
 
138.5

 
138.3

7.25% Lion Connecticut Holdings Inc. debentures, due 2023 (2)
08/15/2023
 
158.2

 
158.1

7.63% Lion Connecticut Holdings Inc. debentures, due 2026 (2)
08/15/2026
 
231.9

 
231.9

8.42% Equitable of Iowa Companies Capital Trust II Notes, due 2027
04/01/2027
 
13.9

 
13.9

6.97% Lion Connecticut Holdings Inc. debentures, due 2036 (2)
08/15/2036
 
108.6

 
108.6

2.54% Lion Connecticut Holdings Inc. Floating Rate Note, due 2016
04/29/2016
 
500.0

 
500.0

1.00% Windsor Property Loan
06/14/2027
 
4.9

 
4.9

0.96% Surplus Floating Rate Note
12/31/2037
 
—

 
359.3

0.93% Surplus Floating Rate Note (3)
06/30/2037
 
329.1

 
329.1

5.5% Senior Notes, due 2022
07/15/2022
 
849.6

 
849.6

2.9% Senior Notes, due 2018
02/15/2018
 
998.3

 
—

Subtotal
 
 
3,758.0

 
4,043.7

Less: Current portion of long-term debt
 
 
317.2

 
872.6

Total
 
 
$
3,440.8

 
$
3,171.1

(1) On Ma y 21, 2 013, the outstanding loan balance was repaid.  
(2) Guaranteed by ING Group.
(3) On April 19, 2013, the note was repaid.

As of March 31, 2013 and December 31, 2012 , the Company was in compliance with all debt covenants.

Unsecured senior debt which consists of senior notes, fixed rate notes and other notes with varying interest rates rank highest in priority, followed by subordinated debt which consists of junior subordinated debt securities. Payments of interest and principal on the Company's surplus notes, which are subordinate to all other obligations at the issuer operating insurance company level and senior to obligations issued at ING U.S., Inc., may be made only with the prior approval of the insurance department of the state of domicile.

On July 13, 2012, the Company issued $850.0 in 5.5% unsecured Senior Notes due 2022 (the "2022 Notes") in a private placement with registration rights. The 2022 Notes are guaranteed by Lion Holdings. Interest is paid semi-annually, in arrears, on each January 15 and July 15, commencing on January 15, 2013.



54



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



On February 11, 2013, the Company issued $1.0 billion of unsecured 2.9% Senior Notes due 2018 in a private placement with registration rights (the “2018 Notes”). The 2022 Notes are guaranteed by Lion Holdings. Interest is paid semi-annually, in arrears, on each February 15 and August 15, commencing on August 15, 2013. ING Financial Markets, LLC, an affiliate, served as Joint Book Running Manager and was paid $0.3 for its services.

Under the Registration Rights Agreements associated with the 2022 Notes and the 2018 Notes, the Company and Lion Holdings agreed to use reasonable best efforts to cause a registration statement to be filed with the SEC within 365 days after the date of note issuance, or; if earlier, within 30 days after the effectiveness of any registration statement filed by the Company covering the IPO of the Company's equity securities. The registration statement will cover the offer to the holders of the notes to exchange the notes for new notes containing terms identical to the notes except for transfer restrictions.

During the three months ended March 31, 2013 , the Company made payments totaling $850.0 on the Syndicated Bank Term Loan from the proceeds of the 2018 Notes.

Aetna Notes

ING Group guarantees various debentures of Lion Holdings that were assumed by Lion Holdings in connection with the Company's acquisition of Aetna's life insurance and related businesses in 2000 (the “Aetna Notes”). Concurrent with the completion of the Company's IPO, the Company entered into a shareholder agreement with ING Group that governs certain aspects of the Company's continuing relationship. The Company agreed in the shareholder agreement to reduce the aggregate outstanding principal amount of Aetna Notes to:

•
no more than $400.0 as of December 31, 2015;
•
no more than $300.0 as of December 31, 2016;
•
no more than $200.0 as of December 31, 2017;
•
no more than $100.0 as of December 31, 2018;
•
and zero as of December 31, 2019.

The reduction in principal amount of Aetna Notes can be accomplished, at the Company's option, through redemptions, repurchases or other means, but will also be deemed to have been reduced to the extent the Company posts collateral with a third-party collateral agent, for the benefit of ING Group, which may consist of cash collateral; certain investment-grade debt instruments; a letter of credit meeting certain requirements; or senior debt obligations of ING Group or a wholly owned subsidiary of ING Group (other than the Company or its subsidiaries).

If the Company fails to reduce the outstanding principal amount of the Aetna Notes, the Company agreed to pay a quarterly fee (ranging from 0.5% per quarter for 2016 to 1.25% per quarter for 2019) to ING Group based on the outstanding principal amount of Aetna Notes which exceed the limits set forth above.

Surplus Notes

On November 1, 2007 Whisperingwind II, LLC, an indirect wholly owned subsidiary of the Company, entered into a Variable Funding Surplus Note Purchase Agreement (the "WWII Purchase Agreement") with Structured Asset Repackaged Trust II, 2005-B (the "STARTS Trust"), a Delaware statutory business trust organized by HSBC Securities (USA), Inc. ("HSBC"), as part of an insurance securitization transaction. Under the WWII Purchase Agreement, Whisperingwind II is provided opportunity for issuance and sale, and for the STARTS Trust to purchase one or more floating rate variable funding surplus notes ("WWII Note"). On December 31, 2012, the Company executed a binding letter of intent with a third party reinsurer on behalf of RLI and Whisperingwind II, LLC, its indirect wholly owned subsidiary, to enter into a novation and recapture agreement related to an existing insurance securitization transaction. As a result, the carrying amount of the WWII Note of $359.3 was paid in full on January 3, 2013, and was cancelled.

On June 29, 2007, Whisperingwind III, LLC, an indirect wholly owned subsidiary of the Company, entered into a Variable Funding Surplus Note Purchase Agreement (the “WWIII Purchase Agreement”) with Structured Asset Repackaged Trust II, 2007-ING WWIII (the “WWIII STARTS Trust”), a Delaware statutory business trust organized by HSBC, as part of an insurance securitization transaction, supporting reserves ceded under a reinsurance agreement with an affiliate. Under the WWIII Purchase Agreement,


55



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Whisperingwind III is provided opportunity for issuance and sale, and for the WWIII STARTS Trust to purchase one or more floating rate variable funding surplus notes (the “WWIII Note”) up to an aggregate principal commitment amount of $498.8 with an available commitment period extending through June 30, 2037. Principal and interest repayments cannot be made without prior written approval (or written confirmation of non-disapproval) of the South Carolina Director of Insurance. In anticipation of receiving regulatory approval to redeem the WWIII Note, and upon the agreement of the ceding insurer, WWIII replaced the surplus note with LOCs totaling $305.0 . Upon receiving regulatory approval, on April 19, 2013 WWIII executed a Redemption and Cancellation Agreement with WWIII STARTS Trust to redeem the WWIII Note in full. The carrying amount of the WWIII Note $329.1 was paid in full on April 19, 2013, and was cancelled.

Credit Facilities

The Company maintains credit facilities used primarily for collateral required under affiliated reinsurance transactions and also for general corporate purposes. As of March 31, 2013 , unsecured and uncommitted credit facilities totaled $3.4 billion , unsecured and committed credit facilities totaled $8.9 billion and secured facilities totaled $275.0 . Of the aggregate $12.6 billion ( $4.5 billion with ING Bank, N.V. ("ING Bank", an affiliate)) capacity available, the Company utilized $8.5 billion ( $2.7 billion with ING Bank) in credit facilities outstanding as of March 31, 2013 . Total fees associated with credit facilities for the three months ended March 31, 2013 , and 2012 were $45.4 and $55.2 , respectively.



56



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The following table outlines the Company's credit facilities, their dates of expiration, capacity and utilization as of March 31, 2013 :
 
Secured/ Unsecured
 
Committed/ Uncommitted
 
Expiration
 
Capacity
 
Utilization
 
Unused Commitment
Obligor / Applicant
 
 
 
 
 
 
 
 
 
 
 
ING U.S., Inc. (1) (2)
Unsecured
 
Committed
 
4/20/2015
 
$
3,500.0

 
$
2,220.8

 
$
1,279.2

ING U.S., Inc. / Security Life of Denver International Limited, Roaring River LLC (1)
Unsecured
 
Uncommitted
 
2/28/2013
 
1,605.0

 
15.0

 
—

Security Life of Denver International Limited (1)(3)
Unsecured
 
Uncommitted
 
12/31/2031
 
1,500.0

 
1,500.0

 
—

ING U.S., Inc. / Security Life of Denver International Limited
Unsecured
 
Committed
 
8/19/2021
 
750.0

 
750.0

 
—

ING U.S., Inc. / Security Life of Denver International Limited
Unsecured
 
Committed
 
11/9/2021
 
750.0

 
750.0

 
—

Security Life of Denver International Limited (1)
Unsecured
 
Committed
 
12/31/2013
 
825.0

 
825.0

 
—

ING U.S., Inc. / Security Life of Denver International Limited
Unsecured
 
Committed
 
12/27/2022
 
500.0

 
500.0

 
—

ING U.S., Inc. / Security Life of Denver International Limited (1)
Unsecured
 
Uncommitted
 
6/30/2013
 
300.0

 
225.6

 
—

ReliaStar Life Insurance Company
Secured
 
Committed
 
Conditional
 
265.0

 
265.0

 
—

ING U.S., Inc. / Security Life of Denver International Limited
Unsecured
 
Committed
 
12/31/2025
 
475.0

 
475.0

 
—

ING U.S., Inc.
Unsecured
 
Uncommitted
 
Various dates
 
2.1

 
2.1

 
—

ING U.S., Inc.
Secured
 
Uncommitted
 
Various dates
 
10.0

 
4.7

 
—

ING U.S., Inc. / Roaring River III LLC
Unsecured
 
Committed
 
6/30/2022
 
1,151.2

 
488.0

 
663.2

ING U.S., Inc. / Roaring River II LLC
Unsecured
 
Committed
 
12/31/2019
 
995.0

 
485.0

 
510.0

Total
 
 
 
 
 
 
$
12,628.3

 
$
8,506.2

 
$
2,452.4

 
 
 
 
 
 
 
 
 
 
 
 
Secured facilities
 
 
 
 
 
 
$
275.0

 
$
269.7

 
$
—

Unsecured and uncommitted
 
 
 
 
 
 
3,407.1

 
1,742.7

 
—

Unsecured and committed
 
 
 
 
 
 
8,946.2

 
6,493.8

 
2,452.4

Total
 
 
 
 
 
 
$
12,628.3

 
$
8,506.2

 
$
2,452.4

 
 
 
 
 
 
 
 
 
 
 
 
ING Bank
 
 
 
 
 
 
$
4,480.0

 
$
2,724.2

 
$
91.4

(1) Refer to the Related Party Transactions Note to these Condensed Consolidated Financial Statements for information.
(2) On April 16, 2013, $305.0 of additional LOCs were issued to replace the WWIII Note which was cancelled.
(3) On May 14, 2013, the $1.5 billion contingent capital LOC facility was terminated. See the Subsequent Events Note to these Condensed Consolidated Financial Statements.



57



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



11.      Commitments and Contingencies

Commitments

Through the normal course of investment operations, the Company commits to either purchase or sell securities, mortgage loans, or money market instruments, at a specified future date and at a specified price or yield. The inability of counterparties to honor these commitments may result in either a higher or lower replacement cost. Also, there is likely to be a change in the value of the securities underlying the commitments.

As of March 31, 2013 , the Company had off-balance sheet commitments to purchase investments equal to their fair value of $801.6 , of which $247.1 relates to consolidated investment entities. As of December 31, 2012 , the Company had off balance sheet commitments to purchase investments equal to their fair value of $890.1 , of which $254.9 relates to consolidated investment entities.

Insurance Company Guaranty Fund Assessments

Insurance companies are assessed the costs of funding the insolvencies of other insurance companies by the various state guaranty associations, generally based on the amount of premiums companies collect in that state.

The Company accrues the cost of future guaranty fund assessments based on estimates of insurance companies insolvencies provided by the National Organization of Life and Health Insurance Guaranty Associations and the amount of premiums written in each state. The Company has estimated this undiscounted liability, which is included in Other liabilities on the Condensed Consolidated Balance Sheets, to be $51.2 and $51.3 as of March 31, 2013 and December 31, 2012 , respectively. The Company has also recorded an asset in Other assets on the Condensed Consolidated Balance Sheets of $20.9 as of March 31, 2013 and December 31, 2012 for future credits to premium taxes.

Restricted Assets

The Company is required to maintain assets on deposit with various regulatory authorities to support its insurance operations. The Company may also post collateral in connection with certain securities lending, repurchase agreements, funding agreements, credit facilities and derivative transactions. The components of the fair value of the restricted assets were as follows as of the dates indicated :
 
March 31, 2013
 
December 31, 2012
Fixed maturity collateral pledged to FHLB
$
3,404.8

 
$
3,400.9

FHLB restricted stock (1)
144.4

 
144.6

Other fixed maturities-state deposits
287.4

 
262.1

Securities pledged (2)
1,774.7

 
1,605.5

Total restricted assets
$
5,611.3

 
$
5,413.1

(1) Included in Other investments in the Condensed Consolidated Balance Sheets.
(2) Includes the fair value of loaned securities of $804.8 and $601.8 as of March 31, 2013 and December 31, 2012 , respectively, which is included in Securities pledged on the Condensed Consolidated Balance Sheets. In addition, as of March 31, 2013 and December 31, 2012 , the Company delivered securities as collateral of $969.8 and $1.0 billion , respectively, which was included in Securities pledged in the Condensed Consolidated Balance Sheets.

Federal Home Loan Bank Funding Agreements

The Company is a member of the FHLB of Des Moines and the FHLB of Topeka and is required to pledge collateral that backs funding agreements issued to the FHLB. As of March 31, 2013 and December 31, 2012 , the Company had $2.6 billion in non-putable funding agreements, which are included in Contract owner account balances on the Condensed Consolidated Balance Sheets. As of March 31, 2013 and December 31, 2012 , the Company had $265.0 , in LOCs issued by the FHLBs. As of March 31, 2013 and December 31, 2012 , assets with a market value of approximately $3.1 billion, collateralized the FHLB funding agreements. As of March 31, 2013 and December 31, 2012 , assets with a market value of approximately $338.5 and $336.5 , respectively, collateralized the FHLB LOCs. Assets pledged to the FHLBs are included in Fixed maturities, available-for-sale, on the Condensed Consolidated Balance Sheets.


58



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 




Litigation and Regulatory Matters    

The Company is a defendant in a number of litigation matters arising from the conduct of its business, both in the ordinary course and otherwise. In some of these matters, claimants seek to recover very large or indeterminate amounts, including compensatory, punitive, treble and exemplary damages. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages and other relief. Claimants are not always required to specify the monetary damages they seek or they may be required only to state an amount sufficient to meet a court's jurisdictional requirements. Moreover, some jurisdictions allow claimants to allege monetary damages that far exceed any reasonable possible verdict. The variability in pleading requirements and past experience demonstrates that the monetary and other relief that may be requested in a lawsuit or claim often bears little relevance to the merits or potential value of a claim. Litigation against the Company includes a variety of claims including negligence, breach of contract, fraud, violation of regulation or statute, breach of fiduciary duty, negligent misrepresentation, failure to supervise, elder abuse and other torts.

As with other financial services companies, the Company periodically receives informal and formal requests for information from various state and federal governmental agencies and self-regulatory organizations in connection with inquiries and investigations of the products and practices of the Company or the financial services industry. It is the practice of the Company to cooperate fully in these matters.

The outcome of a litigation or regulatory matter and amount or range of potential loss is difficult to forecast and estimating potential losses requires significant management judgment. It is not possible to predict the ultimate outcome or to provide reasonably possible losses or ranges of losses for all pending regulatory matters and litigation. While it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known, management believes that the outcome of pending litigation and regulatory matters is not likely to have such an effect. However, given the large and indeterminate amounts sought and the inherent unpredictability of such matters, it is possible that an adverse outcome in certain of the Company's litigation or regulatory matters could, from time to time, have a material adverse effect upon the Company's results of operations or cash flows in a particular quarterly or annual period.

For some matters, the Company is able to estimate a possible range of loss. For such matters in which a loss is probable, an accrual has been made. This paragraph contains an estimate of reasonably possible losses above any amounts accrued. For matters where the Company, however, believes a loss is reasonably possible, but not probable, no accrual is required. For matters for which an accrual has been made, but there remains a reasonably possible range of loss in excess of the amounts accrued, the estimate reflects the reasonably possible range of loss in excess of the accrued amounts. For matters for which a reasonably possible (but not probable) range of loss exists, the estimate reflects the reasonably possible and unaccrued loss or range of loss. As of March 31, 2013 , the Company estimates the aggregate range of reasonably possible losses, in excess of any amounts accrued for these matters as of such date, to be up to approximately $100.0 .

For other matters, the Company is currently not able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from plaintiffs and other parties, investigation of factual allegations, rulings by a court on motions or appeals, analysis by experts and the progress of settlement discussions. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation and regulatory contingencies and updates the Company's accruals, disclosures and reasonably possible losses or ranges of loss based on such reviews.

Litigation against the Company includes a case styled Healthcare Strategies, Inc., Plan Administrator of the Healthcare Strategies Inc. 401(k) Plan  v. ING Life Insurance and Annuity Company (U.S.D.C. D. CT, filed February 22, 2011), in which sponsors of 401(k) plans governed by the Employee Retirement Income Security Act ("ERISA") claim that ILIAC has entered into revenue sharing agreements with mutual funds and others in violation of the prohibited transaction rules of ERISA. Among other things, the plaintiffs seek disgorgement of all revenue sharing payments and profits earned in connection with such payments, an injunction barring the practice of revenue sharing, and attorney fees. On September 26, 2012, the district court certified the case as a class action in which the named plaintiffs represent approximately 15,000 similarly situated plan sponsors. ILIAC denies the allegations and is vigorously defending this litigation.



59



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Regulatory matters include considerable regulatory scrutiny regarding whether and to what extent life insurance companies are using the United States Social Security Administration's Death Master File ("SSDMF") to proactively ascertain when customers have deceased and to pay benefits even where no claim for benefits has been made. The Company has received industry-wide and company-specific inquiries and is engaged in multi-state market conduct examinations with respect to its claims settlement practices, including its use of Personal Transition Accounts and of the SSDMF and compliance with unclaimed property laws. A majority of states are conducting an audit of the Company's compliance with unclaimed property laws. The Company also has been reviewing whether benefits are owed and whether reserves are adequate in instances where an insured appears to have died, but no claim for death benefits has been made. Some of the investigations, exams, inquiries and audits could result in regulatory action against the Company. The potential outcome of such action is difficult to predict but could subject the Company to adverse consequences, including, but not limited to, settlement payments, additional payments to beneficiaries and additional escheatment of funds deemed abandoned under state laws. The investigations may also result in fines and penalties and changes to the Company's procedures for the identification and escheatment of abandoned property and other financial liability.

12.      Related Party Transactions

In the normal course of business, the Company enters into various transactions with affiliated companies. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions.

The following tables summarize income and expense from transactions with related parties for the periods indicated :
 
Three Months Ended March 31,
 
2013
 
2012
 
Income
 
Expense
 
Income
 
Expense
ING V
$
0.4

 
$
3.3

 
$
0.5

 
$
0.8

ING Group
4.2

 
5.0

 
—

 
10.0

ING Bank
(0.4
)
 
18.4

 
10.6

 
33.4

Other
3.6

 
3.7

 
3.8

 
1.5

Total
$
7.8

 
$
30.4

 
$
14.9

 
$
45.7


Assets and liabilities from transactions with related parties as of the dates indicated are shown in the following table:
 
March 31, 2013
 
December 31, 2012
 
Assets
 
Liabilities
 
Assets
 
Liabilities
ING V
$
0.4

 
$
501.9

 
$
0.3

 
$
501.9

ING Group
9.5

 
0.8

 
3.4

 
0.1

ING Bank
36.3

 
43.5

 
33.6

 
33.6

Other
3.6

 
1.8

 
2.2

 
1.1

Total
$
49.8

 
$
548.0

 
$
39.5

 
$
536.7


The material agreements whereby the Company generates revenues and expenses with affiliated entities are as follows:

Credit Facilities

The Company is a borrower in several credit facility agreements with ING Bank, in which ING Bank provides LOC capacity. The Company had accrued payables of $17.1 and $18.4 as of March 31, 2013 and December 31, 2012 , respectively. The Company incurred expenses of $17.7 and $32.0 for the three months ended March 31, 2013 and 2012 , respectively.

On December 31, 2011, Security Life of Denver International Limited ("SLDI") entered into a $1.5 billion contingent capital LOC facility with ING Bank to support its reinsurance obligations to ING USA Annuity and Life Insurance Company (“ING USA”), another of the Company's wholly-owned subsidiaries, related to variable annuity cessions from ING USA to SLDI. The contingent capital LOC facility was unconditional and irrevocable and pursuant to its terms, was to expire on December 31, 2031.



60



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Following the deposit by SLDI of contributed capital as cash collateral into a funds withheld trust account to support its reinsurance obligations to ING USA, the $1.5 billion contingent capital LOCs issued under the contingent capital LOC facility were cancelled and on May 14, 2013, the $1.5 billion contingent capital LOC facility was terminated. See the Subsequent Events Note to these Condensed Consolidated Financial Statements.

Derivatives

The Company is party to several derivative contracts with ING V and ING Bank and one or more of ING Bank's subsidiaries. Each of these contracts were entered into as a result of a competitive bid, which included unaffiliated counterparties. The Company is exposed to various risks relating to its ongoing business operations, including but not limited to interest rate risk, foreign currency risk and equity market risk. To manage these risks, the Company uses various strategies, including derivatives contracts, certain of which are with related parties, such as interest rate swaps, equity options and currency forwards.

As of March 31, 2013 and December 31, 2012 , the outstanding notional amounts were $2.3 billion (consisting of interest rate swaps of $2.1 billion and equity options of $222.3 ) and $2.1 billion (consisting of interest rate swaps of $1.9 billion and equity options of $265.7 ), respectively. As of March 31, 2013 and December 31, 2012 , the market values for these contracts were $7.1 and $15.6 , respectively. For the three months ended March 31, 2013 , and 2012 , the Company recorded net realized capital gains (losses) of $(1.4) and $7.5 , respectively, with ING Bank and ING V.

The Company has sold protection under certain credit default swap derivative contracts that are supported by a guarantee provided by ING V. As of March 31, 2013 and December 31, 2012 , the maximum potential future exposure to the Company on credit default swaps supported by the ING V guarantee was $1.0 billion .

13.      Consolidated Investment Entities

The Company provides investment management services to and has transactions with, various collateralized loan obligations, private equity funds, single strategy hedge funds, insurance entities, securitizations and other investment entities in the normal course of business. In certain instances, the Company serves as the investment manager, making day-to-day investment decisions concerning the assets of these entities. These entities are considered to be either VIEs or VOEs and the Company evaluates its involvement with each entity to determine whether consolidation is required.

Certain investment entities are consolidated under VIE or VOE consolidation guidance. The Company consolidates entities under the VIE guidance when it is determined that the Company is the primary beneficiary of these entities. The Company consolidates certain entities under the VOE guidance when it acts as the controlling general partner and the limited partners have no substantive rights to impact ongoing governance and operating activities.

With the exception of guarantees issued by the Company in relation to collateral support for reinsurance contracts, the Company has no right to the benefits from, nor does it bear the risks associated with these investments beyond the Company’s direct equity and debt investments in and management fees generated from these investment products. Such direct investments amounted to approximately $606.9 and $600.0 as of March 31, 2013 and December 31, 2012 , respectively. If the Company were to liquidate, the assets held by consolidated investment entities would not be available to the general creditors of the Company as a result of the liquidation.

Consolidated Investments

Collateral Loan Obligations ("CLO") Entities

Certain subsidiaries of the Company structure and manage CLO entities created for the sole purpose of offering investors various maturity and risk characteristics by issuing multiple tranches of collateralized debt. The notes issued by the CLO entities are backed by diversified portfolios consisting primarily of senior secured floating rate leveraged loans.

The Company provides collateral management services to the CLO entities. In return for providing management services, the Company earns investment management fees and contingent performance fees. The Company has invested in certain of the entities, generally taking an ownership position in the unrated junior subordinated tranches. The CLO entities are structured and managed


61



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



similarly but have differing fee structures and initial capital investments made by the Company. The Company’s ownership interests and management and contingent performance fees were assessed to determine if the Company is the primary beneficiary of these entities.

As of March 31, 2013 and December 31, 2012 , the Company consolidated 10 CLOs and 9 CLOs, respectively.

Private Equity Funds and Single Strategy Hedge Funds (Limited Partnerships)

The Company invests in and manages various limited partnerships, including private equity funds and single strategy hedge funds. The Company, as a general partner or managing member of certain sponsored investment funds, is generally presumed to control the limited partnerships unless the limited partners have the substantive ability to remove the general partner without cause based upon a simple majority vote, or can otherwise dissolve the partnership, or have substantive participating rights over decision-making of the partnerships.

As of March 31, 2013 and December 31, 2012 , the Company consolidated 35 funds, which were structured as partnerships.

The following table summarizes the components of the consolidated investment entities, excluding collateral support for certain reinsurance contracts, as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
Assets of Consolidated Investment Entities
 
 
 
VIEs - CLO entities:
 
 
 
Cash and cash equivalents
$
1,000.9

 
$
360.6

Corporate loans, at fair value using the fair value option
4,043.1

 
3,559.3

Total CLO entities
5,044.0

 
3,919.9

VOEs - Private equity funds and single strategy hedge funds:
 
 
 
Cash and cash equivalents
53.9

 
80.2

Limited partnerships/corporations, at fair value
2,980.7

 
2,931.2

Other assets
31.2

 
34.3

Total investment funds
3,065.8

 
3,045.7

Total assets of consolidated investment entities
$
8,109.8

 
$
6,965.6

 
 
 
 
Liabilities of Consolidated Investment Entities
 
 
 
VIEs - CLO entities:
 
 
 
CLO notes, at fair value using the fair value option
$
4,448.1

 
$
3,829.4

Other liabilities
510.9

 
—

Total CLO entities
4,959.0

 
3,829.4

VOEs - Private equity funds and single strategy hedge funds:
 
 
 
Other liabilities
293.8

 
292.4

Total investment funds
293.8

 
292.4

Total liabilities of consolidated investment entities
$
5,252.8

 
$
4,121.8


Fair Value Measurement

Upon consolidation of CLO entities, the Company elected to apply the FVO for financial assets and financial liabilities held by these entities and continued to measure these assets (primarily corporate loans) and liabilities (debt obligations issued by CLO entities) at fair value in subsequent periods. The Company has elected the FVO to more closely align its accounting with the economics of its transactions and allows the Company to more effectively align changes in the fair value of CLO assets with a commensurate change in the fair value of CLO liabilities.


62



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 




Investments held by consolidated private equity funds and single strategy hedge funds are measured and reported at fair value in the Company's Condensed Consolidated Financial Statements. Changes in the fair value of consolidated investment entities are recorded as a separate line item within Income (loss) related to consolidated investment entities in the Company’s Condensed Consolidated Statements of Operations.

The methodology for measuring the fair value and fair value hierarchy classification of financial assets and liabilities of consolidated investment entities is consistent with the methodology and fair value hierarchy rules applied by the Company to its investment portfolio. Refer to the Fair Value Measurement section of the Business, Basis of Presentation and Significant Policies Note included in the Consolidated Financial Statements in the Company's Prospectus.

As discussed in more detail below, the Company utilizes valuations obtained from third-party commercial pricing services, brokers and investment sponsors or third-party administrators that supply NAV (or its equivalent) per share used as a practical expedient. The valuations obtained from brokers and third-party commercial pricing services are non-binding. These valuations are reviewed on a monthly or quarterly basis (dependent on the type of fund or product).  Procedures include, but are not limited to, a review of underlying fund investor reports, review of top and worst performing funds requiring further scrutiny, review of variance from prior periods and review of variance from benchmarks, where applicable.  In addition, the Company considers both macro and fund specific events which may impact the latest NAV supplied and determines if further adjustments of value should be made. Such changes, if any, are subject to senior management review.

When a price cannot be obtained from a commercial pricing service, independent broker quotes are solicited. Securities priced using independent broker quotes are classified as Level 3. Broker quotes and prices obtained from pricing services are reviewed and validated through an internal valuation committee price variance review, comparisons to internal pricing models, back testing to recent trades, or monitoring of trading volumes.

Cash and Cash Equivalents

The carrying amounts for cash reflect the assets’ fair values. The fair value for cash equivalents is determined based on quoted market prices. These assets are classified as Level 1.

VIEs - CLO Entities

Corporate loans - Corporate loan investments, which comprise the majority of consolidated CLO portfolio collateral, are senior secured corporate loans from a variety of industries, including, but not limited to, the aerospace and defense, broadcasting, technology, utilities, household products, healthcare, oil and gas and finance industries. Corporate loans mature at various dates between 2013 and 2022, pay interest at LIBOR or PRIME plus a spread of up to 10.0% and typically range in credit rating categories from AA+ down to unrated. As of March 31, 2013 and December 31, 2012 , the unpaid principal balance exceeded the fair value of the corporate loans by approximately $2.7 and $26.9 , respectively. Less than 1% of the collateral assets are in default as of March 31, 2013 and December 31, 2012 .

The fair values for corporate loans are determined using independent commercial pricing services. Fair value measurement based on pricing services may be classified in Level 2 or Level 3 depending on the type, complexity, observability and liquidity of the asset being measured. The inputs used by independent commercial pricing services, such as benchmark yields and credit risk adjustments, are those that are derived principally from or corroborated by observable market data. Hence, the fair value measurement of corporate loans priced by independent pricing service providers is classified within Level 2 of the fair value hierarchy.

CLO notes - The CLO notes are backed by a diversified loan portfolio consisting primarily of senior secured floating rate leveraged loans. Repayment risk is segmented into tranches with credit ratings of these tranches reflecting both the credit quality of underlying collateral as well as how much protection a given tranche is afforded by tranches that are subordinate to it. The most subordinated tranche bears the first loss and receives the residual payments, if any.  The interest rates are generally variable rates based on LIBOR plus a pre-defined spread, which varies from 0.22% for the more senior tranches to 7.00% for the more subordinated tranches. CLO notes mature at various dates between 2020 and 2024 and have a weighted average maturity of 9.1 years. The outstanding balance on the notes issued by consolidated CLOs exceeds their fair value by approximately $98.7 and $99.6 as of


63



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



March 31, 2013 and December 31, 2012 , respectively. The investors in this debt are not affiliated with the Company and have no recourse to the general credit of the Company for this debt.

The fair values of the CLO notes including subordinated tranches in which the Company retains an ownership interest are obtained from a third-party commercial pricing service. The service combines the modeling of projected cash flow activity and the calibration of modeled results with transactions that have taken place in the specific debt issue as well as debt issues with similar characteristics. Several of the more significant inputs to the models including default rate, recovery rate, prepayment rate and discount margin, are determined primarily based on the nature of the investments in the underlying collateral pools and cannot be corroborated by observable market data. Accordingly, CLO notes are classified within Level 3 of the fair value hierarchy.

The Company reviews the detailed prices including comparisons to prior periods for reasonableness. The Company utilizes a formal pricing challenge process to request a review of any price during which time the vendor examines its assumptions and relevant market inputs to determine if a price change is warranted.

Other liabilities - On March 28, 2013, the Company launched a CLO backed by a diversified portfolio consisting mostly of senior secured floating rate leveraged loans. As of March 31, 2013, investment totaling $510.9 were purchased and the value of these loans are carried at fair value on the Condensed Consolidated Balance Sheets within Assets related to consolidated investment entities. Based on anticipated settlement in April 2013, the corresponding securities payable is reflected within Liabilities related to consolidated investment entities.

The following table presents significant unobservable inputs for Level 3 fair value measurements as of March 31, 2013 :
Assets and Liabilities
 
Fair Value
 
Valuation Technique
 
Unobservable Inputs
CLO Notes
 
$
4,448.1

 
Discounted Cash Flow
 
Default Rate
 
 
 
 
 
 
Recovery Rate
 
 
 
 
 
 
Prepayment Rate
 
 
 
 
 
 
Discount Margin

The following narrative indicates the sensitivity of inputs:

•
Default Rate: An increase (decrease) in the expected default rate would likely increase (decrease) the discount margin (increase risk premium) used to value the CLO notes and, as a result, would potentially decrease the value of the CLO notes; however, if an increase in the expected default rates does not have a subsequent change in the discount margin used to value the CLO notes, then an increase in default rate would potentially increase the value of the CLO notes as the expected weighted average life ("WAL") of the CLO notes would decrease.
•
Recovery rate: A decrease (increase) in the expected recovery of defaulted assets would potentially decrease (increase) the valuation of CLO notes.
•
Prepayment Rate: A decrease (increase) in the expected rate of collateral prepayments would potentially decrease (increase) the valuation of CLO notes as the expected WAL would increase.
•
Discount Margin (spread over LIBOR): An increase (decrease) in the discount margin used to value the CLO notes would decrease (increase) the value of the CLO notes.

VOEs - Private Equity Funds and Single Strategy Hedge Funds

Limited partnerships, at fair value, primarily represent the Company's investments in private equity funds and single strategy hedge funds. The fair value for these investments is estimated based on the NAV from the latest financial statements of these funds, provided by the fund's investment manager or third-party administrator. Investments in these funds typically may not be fully redeemed at NAV within 90 days because of inherent restrictions on near-term redemptions. Therefore, these investments are classified within Level 3 of the fair value hierarchy.

These consolidated investments are mostly private equity funds spread across 35 limited partnerships that focus on the primary or secondary market. The limited partnerships invest in private equity funds and, at times, make strategic co-investments directly into private equity companies, including, but not limited to, buyout, venture capital, distressed and mezzanine.


64



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 




Private Equity Funds
As prescribed in ASC Topic 820, the unit of account for these investments is the interest in the investee fund.  The Company owns an undivided interest in the fund portfolio and does not have the ability to dispose of individual assets and liabilities in the fund portfolio. Rather, the Company would be required to redeem or dispose of its entire interest in the investee fund. There is no current active market for interests in underlying private equity funds.

Valuation is generally based on the valuations provided by the fund's general partner or investment manager. The valuations typically reflect the fair value of the Company's capital account balance of each fund investment, including unrealized capital gains (losses), as reported in the financial statements of the respective investee fund as of the respective year end or the latest available date. In circumstances where fair values are not provided, the Company seeks to determine the fair value of fund investments based upon other information provided by the fund's general partner or investment manager or from other sources.

The fair value of securities received in-kind from fund investments is determined based on the restrictions around the securities.

•
Unrestricted, publicly traded securities are valued at the closing public market price on the reporting date;
•
Restricted, publicly traded securities may be valued at a discount from the closing public market price on the reporting date, depending on the circumstances; and
•
Privately held securities are valued by the directors/general partner of the investee fund, based on a variety of factors, including the price of recent transactions in the company's securities and the company's earnings, revenue and book value.

As of March 31, 2013 and December 31, 2012 , certain private equity funds maintained revolving lines of credit of $325.3 , which renew annually and bear interest at LIBOR/EURIBOR plus 235-250 bps.  The lines of credit are used for funding transactions before capital is called from investors, as well as for the financing of certain purchases.  The private equity funds generally may borrow an amount that does not exceed the lessor of a certain percentage of the funds' undrawn commitments or undrawn commitments plus 350% asset coverage from the invested assets of the funds.  As of March 31, 2013 and December 31, 2012 , outstanding borrowings amount to $288.4 . The borrowings are reflected in Liabilities related to consolidated investment entities - other liabilities on the Condensed Consolidated Balance Sheets. The borrowings are carried at an amount equal to the unpaid principal balance.

Private Equity Companies
In the case of direct investments or co-investments in private equity companies, the Company initially recognizes investments at cost and subsequently adjusts investments to fair value. On a quarterly basis, the Company reviews the general partner or lead investor's valuation of the investee company, taking into account other available information, such as indications of a market value through subsequent issues of capital or transactions between third-parties, performance of the investee company during the period and public, comparable companies' analysis, where appropriate.



65



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The fair value hierarchy levels of consolidated investment entities as of March 31, 2013 are presented in the table below:
 
Level 1
 
Level 2
 
Level 3
 
Fair Value Measurements
Assets
 
 
 
 
 
 
 
VIEs - CLO entities:
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,000.9

 
$
—

 
$
—

 
$
1,000.9

Corporate loans, at fair value using the fair value option
—

 
4,043.1

 
—

 
4,043.1

VOEs - Private equity funds and single strategy hedge funds:
 
 
 
 
 
 
 
Cash and cash equivalents
53.9

 
—

 
—

 
53.9

Limited partnerships/corporations, at fair value
—

 
—

 
2,980.7

 
2,980.7

Total assets, at fair value
$
1,054.8

 
$
4,043.1

 
$
2,980.7

 
$
8,078.6

Liabilities
 
 
 
 
 
 
 
VIEs - CLO entities:
 
 
 
 
 
 
 
CLO notes, at fair value using the fair value option
$
—

 
$
—

 
$
4,448.1

 
$
4,448.1

Total liabilities, at fair value
$
—

 
$
—

 
$
4,448.1

 
$
4,448.1


The fair value hierarchy levels of consolidated investment entities as of December 31, 2012 are presented in the table below:
 
Level 1
 
Level 2
 
Level 3
 
Fair Value Measurements
Assets
 
 
 
 
 
 
 
VIEs - CLO entities:
 
 
 
 
 
 
 
Cash and cash equivalents
$
360.6

 
$
—

 
$
—

 
$
360.6

Corporate loans, at fair value using the fair value option
—

 
3,559.3

 
—

 
3,559.3

VOEs - Private equity funds and single strategy hedge funds:
 
 
 
 
 
 
 
Cash and cash equivalents
80.2

 
—

 
—

 
80.2

Limited partnerships/corporations, at fair value
—

 
—

 
2,931.2

 
2,931.2

Total assets, at fair value
$
440.8

 
$
3,559.3

 
$
2,931.2

 
$
6,931.3

Liabilities
 
 
 
 
 
 
 
VIEs - CLO entities:
 
 
 
 
 
 
 
CLO notes, at fair value using the fair value option
$
—

 
$
—

 
$
3,829.4

 
$
3,829.4

Total liabilities, at fair value
$
—

 
$
—

 
$
3,829.4

 
$
3,829.4


Level 3 assets primarily include investments in private equity funds and single strategy hedge funds held by the consolidated VOEs, while the Level 3 liabilities consist of CLO notes. Transfers of investments out of Level 3 and into Level 2 or Level 1, if any, are recorded as of the beginning of the period in which the transfer occurred. During the three months ended March 31, 2013 and 2012 , there were no transfers in or out of Level 3, or transfers between Level 1 and Level 2.



66



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The reconciliation of the beginning and ending fair value measurements for Level 3 assets and liabilities using significant unobservable inputs for the three months ended March 31, 2013 :
 
Beginning
Balance
January 1
 
Purchases
 
Sales
 
Gains (Losses)
Included in the Condensed Consolidated
Statement of Operations
 
Ending
Balance
March 31
Assets
 
 
 
 
 
 
 
 
 
VOEs - Private equity funds and single strategy hedge funds:
 
 
 
 
 
 
 
 
 
Limited partnerships/corporations, at fair value
$
2,931.2

 
$
65.9

 
$
(0.6
)
 
$
(15.8
)
 
$
2,980.7

Total assets, at fair value
$
2,931.2

 
$
65.9

 
$
(0.6
)
 
$
(15.8
)
 
$
2,980.7

Liabilities
 
 
 
 
 
 
 
 
 
VIEs - CLO entities:
 
 
 
 
 
 
 
 
 
CLO notes, at fair value using the fair value option
$
(3,829.4
)
 
$
(612.9
)
 
$
0.9

 
$
(6.7
)
 
$
(4,448.1
)
Total liabilities, at fair value
$
(3,829.4
)
 
$
(612.9
)
 
$
0.9

 
$
(6.7
)
 
$
(4,448.1
)

The reconciliation of the beginning and ending fair value measurements for Level 3 assets and liabilities using significant unobservable inputs for the three months ended March 31, 2012 is presented in the table below:
 
Beginning
Balance
January 1
 
Purchases
 
Sales
 
Gains (Losses)
Included in the Condensed Consolidated
Statement of Operations
 
Ending
Balance
March 31
Assets
 
 
 
 
 
 
 
 
 
VOEs - Private equity funds and single strategy hedge funds:
 
 
 
 
 
 
 
 
 
Limited partnerships/corporations, at fair value
$
2,860.3

 
$
100.9

 
$
(17.0
)
 
$
6.4

 
$
2,950.6

Total assets, at fair value
$
2,860.3

 
$
100.9

 
$
(17.0
)
 
$
6.4

 
$
2,950.6

Liabilities
 
 
 
 
 
 
 
 
 
VIEs - CLO entities:
 
 
 
 
 
 
 
 
 
CLO notes, at fair value using the fair value option
$
(2,057.1
)
 
$
(362.0
)
 
$
0.5

 
$
(73.1
)
 
$
(2,491.7
)
Total liabilities, at fair value
$
(2,057.1
)
 
$
(362.0
)
 
$
0.5

 
$
(73.1
)
 
$
(2,491.7
)

Deconsolidation of Certain Investment Entities

During the three months ended March 31, 2013 and 2012 , the Company did no t deconsolidate any investment entities.



67



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Nonconsolidated VIEs

CLO Entities

In addition to the consolidated CLO entities, the Company also holds variable interest in certain CLO entities which are not consolidated as it has been determined that the Company is not the primary beneficiary. With these CLO entities, the Company serves as the investment manager and receives investment management fees and contingent performance fees. Generally, the Company does not hold any interest in the nonconsolidated CLO entities. The Company has never provided, and is not obligated to provide, any financial or other support to these entities.

The Company will review its assumptions on a periodic basis to determine if conditions have changed such that the projection of these contingent fees becomes significant enough to reconsider the Company's consolidation status as variable interest holder. As of March 31, 2013 and December 31, 2012 , the Company did no t hold any ownership interests in these unconsolidated CLOs.

The following table presents the carrying amounts of total assets and liabilities of the VIEs in which the Company has concluded that it holds a variable interest, but is not the primary beneficiary as of the dates indicated. The Company determines its maximum exposure to loss to be: (i) the amount invested in the debt or equity of the VIE and (ii) other commitments and guarantees to the VIE.
 
March 31, 2013
 
December 31, 2012
Carrying amount
$
—

 
$
—

Maximum exposure to loss
—

 
—

Assets of nonconsolidated investment entities
1,779.4

 
1,792.2

Liabilities of nonconsolidated investment entities
1,770.3

 
1,772.9


Investment Funds

The Company manages or holds investments in certain private equity funds and single strategy hedge funds. With these entities, the Company serves as the investment manager and is entitled to receive investment management fees and contingent performance fees that are generally expected to be insignificant. Although the Company has the power to direct the activities that significantly impact the economic performance of the funds, it does not hold a significant variable interest in any of these funds and, as such, does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Accordingly, the Company is not considered the primary beneficiary and did not consolidate any of these investment funds.

In addition, the Company does not consolidate the funds, in which its involvement takes a form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner's interest does not provide the Company with any substantive kick-out or participating rights, which would overcome the presumption of control by the general partner.

Securitizations    

The Company invests in various tranches of securitization entities, including RMBS, CMBS and ABS. Through its investments, the Company is not obligated to provide any financial or other support to these entities. Each of the RMBS, CMBS and ABS entities are thinly capitalized by design and considered VIEs. The Company's involvement with these entities is limited to that of a passive investor. The Company has no unilateral right to appoint or remove the servicer, special servicer, or investment manager, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor does the Company function in any of these roles. The Company, through its investments or other arrangements, does not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, the Company is not the primary beneficiary and will not consolidate any of the RMBS, CMBS and ABS entities in which it holds investments. These investments are accounted for as investments available-for-sale as described in the Fair Value Measurements Note to these Condensed Consolidated Financial Statements and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS which are accounted for under the FVO whose change in fair value is reflected in Other net realized gains (losses) in the Condensed Consolidated


68



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Statements of Operations. The Company’s maximum exposure to loss on these structured investments is limited to the amount of its investment. Refer to the Investments (excluding Consolidated Investment Entities) Note of these Condensed Consolidated Financial Statements for details regarding the carrying amounts and classifications of these assets.

14.      Segments

The Company provides its principal products and services in three ongoing businesses and reports results through five ongoing segments as follows:
Business
 
Segment
Retirement Solutions
 
Retirement
Annuities
Investment Management

 
Investment Management
Insurance Solutions
 
Individual Life
Employee Benefits

The Company also has a Corporate segment, which includes the financial data not directly related to the businesses and Closed Block segments, which include non-strategic products that are in run-off and no longer being actively marketed and sold.

These segments reflect the manner by which the Company’s chief operating decision maker views and manages the business. The following is a brief description of these segments, as well as Corporate and Closed Block segments.

Retirement Solutions

The Retirement Solutions business provides its products through two segments: Retirement and Annuities. The Retirement segment provides tax-deferred, employer-sponsored retirement savings plans and administrative services in corporate, education, healthcare and government markets, as well as rollover IRAs and other retail financial products. The Annuities segment primarily provides fixed and indexed annuities, tax-qualified mutual fund custodial products and payout annuities for pre-retirement wealth accumulation and post-retirement income management sold through multiple channels.

Investment Management

The Investment Management business provides investment products and retirement solutions through a broad range of traditional and alternative asset classes, geographies and styles, in separate accounts, pooled accounts, annuity portfolios and mutual funds. Products and services are offered to institutional clients, including public, corporate and union retirement plans, endowments and foundations and insurance companies, as well as individual investors and affiliated U.S. businesses and are distributed through the Company's direct sales force, consultant channel and intermediary partners (such as banks, broker-dealers and independent financial advisers).

Insurance Solutions

The Insurance Solutions business provides its products through two segments: Individual Life and Employee Benefits. The Individual Life segment provides wealth protection and transfer opportunities through universal, variable, whole life and term products, distributed through independent channels to meet the needs of a broad range of customers from the middle market through affluent market segments. The Employee Benefits segment provides stop loss, group life, voluntary employee paid and disability products to mid-sized and large businesses.

Corporate

Corporate includes corporate operations and corporate level assets and financial obligations. The Corporate segment includes investment income on assets backing surplus in excess of amounts held at the segment level, financing and interest expenses, other items not allocated to segments, such as certain expenses and liabilities of employee benefit plans and intercompany eliminations.



69



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Closed Blocks

Closed Blocks include the Closed Block Variable Annuity, Closed Block Institutional Spread Products and Closed Block Other, which are in run-off. Closed Block Variable Annuity and Closed Block Institutional Spread Products (which issues guaranteed investment contracts and funding agreements) are no longer being actively marketed and sold, but are managed to protect regulatory and rating agency capital from equity market movements. The Closed Block Other segment mainly consists of the contingent consideration and loss related to the 2010 sale of three of the Company’s broker dealers and the amortization of the deferred gain related to the divestment of Group Reinsurance in 2010 via reinsurance and the Individual Reinsurance segment that was divested in 2004 via reinsurance.

Measurement

Operating earnings before income taxes is an internal measure used by management to evaluate segment performance. The Company uses the same accounting policies and procedures to measure segment operating earnings before income taxes as it does for consolidated net income (loss). Operating earnings before income taxes does not replace net income (loss) as the U.S. GAAP measure of the Company’s consolidated results of operations. However, the Company believes that the definitions of operating earnings before income taxes provide users with a more valuable measure of its business and segment performances and enhance the understanding of the Company’s performance by highlighting performance drivers. Each segment’s income (loss) before income taxes is calculated by making adjustments for the following items:

•
Net investment gains (losses), net of related amortization of DAC, VOBA, sales inducements and unearned revenue. Net investment gains (losses) include gains (losses) on the sale of securities, impairments, changes in the fair value of investments using the FVO unrelated to the implied loan-backed security income recognition for certain mortgage-backed obligations and changes in the fair value of derivative instruments, excluding realized gains (losses) associated with swap settlements and accrued interest;
•
Net guaranteed benefit hedging gains (losses), which include changes in the fair value of derivatives related to guaranteed benefits, net of related reserve increases (decreases) and net of related amortization of DAC, VOBA and sales inducements, less the estimated cost of these benefits. The estimated cost, which is reflected in operating results, reflects the expected cost of these benefits if markets perform in line with the Company's long-term expectations and includes the cost of hedging. All other derivative and reserve changes related to guaranteed benefits are excluded from operating results, including the impacts related to changes in the Company's nonperformance spread;
•
Income (loss) related to business exited through reinsurance or divestment;
•
Income (loss) attributable to noncontrolling interests;
•
Income (loss) related to early extinguishments of debt;
•
Impairment of goodwill, value of management contract rights and value of customer relationships acquired;
•
Immediate recognition of net actuarial gains (losses) related to the Company’s pension and other post-employment benefit obligations and gains (losses) from plan amendments and curtailments; and
•
Other items, including restructuring expenses (severance, lease write-offs, etc.), integration expenses related to the Company’s acquisition of CitiStreet and certain third-party expenses related to the anticipated divestment of the Company by ING Group.

Operating earnings before income taxes also does not reflect the results of operations of the Company's Closed Block Variable Annuity segment, since this segment is managed to focus on protecting regulatory and rating agency capital rather than achieving operating metrics. When the Company presents the adjustments to Income (loss) before income taxes on a consolidated basis, each adjustment excludes the relative portions attributable to the Company's Closed Block Variable Annuity segment.



70



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The summary below reconciles operating earnings before income taxes for the segments to Income (loss) before income
taxes for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
Retirement Solutions:
 
 
 
Retirement
$
137.8

 
$
123.9

Annuities
54.3

 
36.4

Investment Management
30.1

 
33.0

Insurance Solutions:
 
 
 
Individual Life
50.8

 
55.0

Employee Benefits
12.4

 
15.6

Total Ongoing Businesses
285.4

 
263.9

Corporate
(50.1
)
 
(48.4
)
Closed Blocks:
 
 
 
Closed Block Institutional Spread Products
22.1

 
22.1

Closed Block Other
(0.7
)
 
2.2

Closed Blocks
21.4

 
24.3

Total operating earnings before income taxes
256.7

 
239.8

 
 
 
 
Adjustments:
 
 
 
Closed Block Variable Annuity
(477.1
)
 
(907.7
)
Net investment gains (losses) and related charges and adjustments
41.8

 
60.3

Net guaranteed benefit hedging gains (losses) and related charges and adjustments
3.1

 
137.4

Loss related to businesses exited through reinsurance or divestment
(16.9
)
 
(12.6
)
Income (loss) attributable to noncontrolling interests
(13.5
)
 
(15.6
)
Other adjustments to operating earnings
(8.4
)
 
(14.5
)
Income (loss) before income taxes
$
(214.3
)
 
$
(512.9
)

Operating revenues is a measure of the Company's segment revenues. The Company calculates operating revenues by adjusting each segment's revenues for the following items:

•
Net realized investment gains (losses) and related charges and adjustments include gains (losses) on the sale of securities, impairments, changes in the fair value of investments using the FVO unrelated to the implied loan-backed security income recognition for certain mortgage-backed obligations and changes in the fair value of derivative instruments, excluding realized gains (losses) associated with swap settlements and accrued interest. These are net of related amortization of unearned revenue;
•
Gain (loss) on change in fair value of derivatives related to guaranteed benefits include changes in the fair value of derivatives related to guaranteed benefits, less the estimated cost of these benefits. The estimated cost, which is reflected in operating results, reflects the expected cost of these benefits if markets perform in line with the Company's long-term expectations and includes the cost of hedging. All other derivative and reserve changes related to guaranteed benefits are excluded from operating revenues, including the impacts related to changes in the Company's nonperformance spread;
•
Revenues related to businesses exited through reinsurance or divestment;
•
Revenues attributable to noncontrolling interests; and
•
Other adjustments to operating revenues primarily reflect fee income earned by the Company's broker-dealers for sales of non-proprietary products, which are reflected net of commission expense in the Company's segments’ operating revenues, as well as other items where the income is passed on to third parties.



71



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



Operating revenues also do not reflect the revenues of the Company's Closed Block Variable Annuity segment, since this segment is managed to focus on protecting regulatory and rating agency capital rather than achieving operating metrics. When the Company presents the adjustments to Total revenues on a consolidated basis, each adjustment excludes the relative portions attributable to the Company's Closed Block Variable Annuity segment.

The summary below reconciles operating revenues for the segments to Total revenues for the periods indicated :
 
Three Months Ended March 31,
 
2013
 
2012
Retirement Solutions:
 
 
 
Retirement
$
583.2

 
$
580.4

Annuities
307.6

 
351.2

Investment Management
131.9

 
130.6

Insurance Solutions:
 
 
 
Individual Life
687.1

 
712.0

Employee Benefits
318.1

 
313.3

Total Ongoing Businesses
2,027.9

 
2,087.5

Corporate
17.1

 
14.2

Closed Blocks:
 
 
 
Closed Block Institutional Spread Products
38.3

 
43.0

Closed Block Other
7.2

 
10.4

Closed Blocks
45.5

 
53.4

Total operating revenues
2,090.5

 
2,155.1

 
 
 
 
Adjustments:
 
 
 
Closed Block Variable Annuity
(444.0
)
 
(978.8
)
Net realized investment gains (losses) and related charges and adjustments
30.4

 
103.3

Gain (loss) on change in fair value of derivatives related to guaranteed benefits
20.6

 
125.3

Revenues related to businesses exited through reinsurance or divestment
(12.1
)
 
7.5

Revenues (loss) attributable to noncontrolling interests
40.3

 
21.3

Other adjustments to operating revenues
92.9

 
51.6

Total revenues
$
1,818.6

 
$
1,485.3


Segment Information

The following is a summary of certain financial information for the Company’s segments for the periods indicated .

The Investment Management segment revenues include the following intersegment revenues, primarily consisting of asset-based management and administration fees.
 
Three Months Ended March 31,
 
2013
 
2012
Investment management intersegment revenues
$
39.3

 
$
40.1




72



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The summary below presents Total assets for the Company’s segments as of the dates indicated :
 
March 31, 2013
 
December 31, 2012
Retirement Solutions:
 
 
 
Retirement
$
90,230.1

 
$
86,504.3

Annuities
27,172.9

 
27,718.6

Investment Management
418.2

 
498.5

Insurance Solutions:
 
 
 
Individual Life
25,750.2

 
25,319.0

Employee Benefits
2,584.2

 
2,657.0

Total Ongoing Businesses
146,155.6

 
142,697.4

Corporate
5,270.4

 
5,593.4

Closed Blocks:
 
 
 
Closed Block Variable Annuity
49,001.4

 
49,157.6

Closed Block Institutional Spread Products
5,034.2

 
4,392.2

Closed Block Other
7,932.2

 
8,239.1

Closed Blocks
61,967.8

 
61,788.9

Total assets of segments
213,393.8

 
210,079.7

Noncontrolling interest
7,456.2

 
6,314.5

Total assets
$
220,850.0

 
$
216,394.2


15.      Subsequent Events

Stock Split

On April 10, 2013, the Company's Board of Directors authorized the total number of shares of all classes of stock which the Company has the authority to issue to be 1,000,000,000 , of which 900,000,000 shares, par value $0.01 per share, are designated as common stock and a 100,000,000 shares, par value $0.01 per share, are designated as preferred stock. In addition, the Company's Board of Directors authorized a 2,295.248835 -for-1 split of the Company's common stock, resulting in 230,079,120 shares of common stock issued, including 79,120 of Treasury shares, and 230,000,000 shares of common stock outstanding and held by ING International, prior to the IPO. These actions were subsequently approved by the Company's sole stockholder on April 10, 2013 and effected on April 11, 2013. The accompanying Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements give retroactive effect to the stock split for all periods presented. There are no preferred shares issued or outstanding.

Initial Public Offering

On May 7, 2013, ING U.S., Inc. completed the offering of 65,192,307 shares of its common stock, including the issuance and sale by ING U.S., Inc. of 30,769,230 shares of common stock and the sale by ING International, an indirect wholly owned subsidiary of ING Group and previously the sole stockholder of ING U.S., Inc. of 34,423,077 shares of outstanding common stock of ING U.S., Inc. Following the IPO, ING International owns 75% of the outstanding common stock of ING U.S., Inc. (before any exercise of the underwriters' option to acquire from ING International up to an additional 9,778,846 shares of ING U.S., Inc. common stock). The initial public offering price of the shares sold in the IPO was $19.50 per share. The Company received net proceeds of $569.9 after deducting underwriting fees of $21.8 and estimated offering costs of $8.3 , and used the net proceeds received from the IPO to fund certain capital management activities. The Company did not receive any proceeds from the sale of shares by ING International.

Upon closing of the IPO, the Deal Incentive Awards granted to certain employees were automatically converted into 2,003,614 shares of restricted common stock issued under the 2013 Omnibus Employee Incentive Plan (the "Omnibus Plan"). Additionally, 1,271,322 shares of 2013 restricted common stock granted under the AIH Equity Compensation Plan and 6,629,294 of the 2013


73



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



LSPP awards from ING Group were automatically converted into 537,911 and 2,804,730 , respectively, of comparable equity awards issued by the Company under the Omnibus Plan. Total common shares awarded or issued by the Company under this conversion plan amounted to 5,346,255 .

On May 7, 2013, the Company issued to ING Group warrants to purchase up to 26,050,846 shares of the Company's common stock equal in the aggregate to 9.99% of the issued and outstanding shares of common stock at that date. The initial exercise price of the warrants is $48.75 per share of common stock (which is equal to 250% of the per share public offering price), subject to adjustments, including for stock dividends, certain cash dividends, subdivisions, combinations, reclassifications and non-cash distributions. The warrants provide for, upon the occurrence of certain change of control events affecting the Company, an increase in the number of shares to which a warrant holder is entitled upon payment of the aggregate exercise price of the warrant. The warrants are exercisable from May 7, 2014 to May 7, 2023, provided that they are not exercisable by ING Group or any of its affiliates before January 1, 2017. The warrants are not subject to any contractual restrictions on transfer. However, initially, the warrants are subject to the lock-up arrangement entered into by ING Group with the underwriters. The warrants are exercisable in accordance with their terms before January 1, 2017, by holders other than ING Group or its affiliates, if any.

Extraordinary Dividends and Termination of Contingent Capital Letter of Credit

In March and April 2013, in response to requests made in 2012 and refreshed in 2013, ING U.S., Inc.'s insurance subsidiaries domiciled in Colorado, Connecticut, Iowa and Minnesota received approvals or notices of non-objection, as the case may be, from their respective domiciliary insurance regulators to make extraordinary distributions to ING U.S., Inc. or Lion Holdings, in the aggregate amount of $1.434 billion , contingent upon completion of the IPO and the use of the extraordinary distribution funds solely for Company operations. The approved distributions of $1.434 billion were made on May 8, 2013.

On May 8, 2013, ING U.S., Inc. made a capital contribution to SLDI in the amount of $1.782 billion . Immediately thereafter, SLDI deposited the contributed capital as cash collateral into a funds withheld trust account to support its reinsurance obligation to ING USA related to variable annuity cessions from ING USA to SLDI. Following the deposit by SLDI of the contributed capital into the funds withheld trust account, the $1.5 billion contingent capital LOCs issued under the contingent capital LOC facility were cancelled and on May 14, 2013, the $1.5 billion contingent capital LOC facility was terminated.

Reclassification of Statutory Negative Unassigned Funds

On May 8, 2013, insurance subsidiaries domiciled in Colorado, Iowa and Minnesota each reset, on a one-time basis, their respective negative unassigned funds account as of December 31, 2012 (as reported in their respective 2012 statutory annual statements) to zero (with an offsetting reduction in gross paid-in capital and contributed surplus). These resets were made pursuant to permitted practices in accordance with statutory accounting practices granted by their respective domiciliary insurance regulators. These permitted practices have no impact on total capital and surplus of these insurance subsidiaries and will be reflected in their second quarter statutory financial statements.

Junior Subordinated Notes

On May 16, 2013, the Company issued $750.0 million of 5.65% Fixed-to-Floating Rate Junior Subordinated Notes due in 2053 in a private placement with registration rights (the “2053 Notes”). The 2053 Notes are guaranteed on an unsecured, junior subordinated basis by Lion Holdings . Interest is payable semi-annually, in arrears, on May 15 and November 15 beginning November 15, 2013 and ending on May 15, 2023. The 2053 Notes will bear interest at a fixed rate of 5.65% prior to May 15, 2023. From May 15, 2023, the 2053 Notes will bear interest at an annual rate equal to three-month LIBOR plus 3.58% payable quarterly, in arrears, on February 15, May 15, August 15 and November 15. So long as no event of default with respect to the 2053 Notes has occurred and is continuing, the Company has the right on one or more occasions, to defer the payment of interest on the 2053 Notes for one or more consecutive interest periods for up to five years. During the deferral period, interest will continue to accrue at the then-applicable rate and deferred interest will bear additional interest at the then-applicable rate.

At any time following notice of the Company's plan to defer interest and during the period interest is deferred, the Company and its subsidiaries generally, with certain exceptions, may not make payments on or redeem or purchase any shares of the Company's common stock or any of the debt securities or guarantees that rank in liquidation on a parity with or are junior to the 2053 Notes.



74



ING U.S., Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Dollar amounts in millions, unless otherwise stated)
 
 
 



The Company may elect to redeem the 2053 Notes (i) in whole at any time or in part on or after May 15, 2023 at a redemption price equal to the principal amount plus accrued and unpaid interest. If the notes are not redeemed in whole, $25 million of aggregate principal (excluding the principal amount of 2053 Notes held by the Company, or its affiliates) must remain outstanding after giving effect to the redemption; or (ii) in whole, but not in part, at any time prior to May15, 2023 within 90 days after the occurrence of a “tax event” or “rating agency event”, as defined in the 2053 Notes Offering Memorandum, at a redemption price equal to the principal amount, or, if greater, a “make-whole redemption price,” as defined in the 2053 Notes Offering Memorandum, plus, in each case accrued and unpaid interest.

The Company and Lion Holdings agreed to use reasonable best efforts to cause a registration statement to be filed with the SEC within 45 days after the date of note issuance, or; if earlier, on the date the Company files a registration statement covering the exchange of the 2018 Notes and 2022 Notes as discussed above. The registration statement will cover the offer to the holders of the 2053 Notes to exchange the 2053 Notes for new notes containing identical terms except for transfer restrictions.

On May 21, 2013, the Company used the proceeds of the 2053 Notes for the repayment of the outstanding borrowings of $ 392.5 million under the Syndicated Bank Term Loan.


75


Item 2.    Management's Discussion and Analysis of Results of Operations and Financial Condition
(Dollar amounts in millions, unless otherwise stated)

For the purposes of this discussion, the "Company," "we," "our," "us," and "ING U.S., Inc." refer to ING U.S., Inc. and its subsidiaries. We were a wholly owned subsidiary of ING Groep N.V. ("ING Group" or "ING"), the ultimate parent company, through May 6, 2013.

The following discussion and analysis presents a review of our consolidated results of operations for each of the three months ended March 31, 2013 and 2012 and financial condition as of March 31, 2013 and December 31, 2012 . This item should be read in its entirety and in conjunction with the Condensed Consolidated Financial Statements and related notes contained in Part I, Item 1. of this Form 10-Q, as well as "Management's Discussion and Analysis of Results of Operations and Financial Condition" section contained in the Company's prospectus dated May 1, 2013, filed with the SEC pursuant to Rule 424(b)(1) under the Securities Act of 1933, as amended (the "Securities Act") on May 3, 2013 (the "Prospectus").

Investors are directed to consider the risks and uncertainties discussed in this Item 2. and in Item 1A. of Part II., contained herein, as well as in other documents we filed with the SEC. Except as may be required by the federal securities laws, we disclaim any obligation to update forward-looking information.

Overview

We provide our principal products and services in three ongoing businesses—Retirement Solutions, Investment Management and Insurance Solutions—and report our results for these ongoing businesses through five segments.

The Retirement Solutions business provides its products and services through two segments: Retirement and Annuities:

•
Our Retirement segment provides tax-deferred, employer-sponsored retirement savings plans and administrative services in corporate, health, education and government markets. Our Retirement segment also provides rollover IRAs and other retail financial products as well as comprehensive financial advisory services to individual customers. Our retirement products and services are distributed through multiple intermediary channels, including TPAs, independent and national wirehouse affiliated brokers and registered investment advisors, in addition to independent sales agents and consulting firms. We also have a direct sales team for large defined contribution plans and stable value business, as well as a team of affiliated brokers who sell our products both in person and via telephone.
•
Our Annuities segment provides fixed and indexed annuities, tax-qualified mutual fund custodial products and payout annuities for pre-retirement wealth accumulation and post-retirement income management. Annuity products are primarily distributed by independent marketing organizations, independent broker-dealers, banks, independent insurance agents, pension professionals and affiliated broker-dealers.

The Investment Management business provides its products and services through a single segment, also called Investment Management:

•
Our Investment Management business provides investment products and retirement solutions to both individual and institutional customers by offering domestic and international fixed income, equity, multi-asset and alternative products and solutions across a range of asset classes, geographies, market sectors, investment styles and capitalization spectrums. Investment Management products and services are primarily marketed to institutional clients, including public, corporate and union retirement plans, endowments and foundations and insurance companies, as well as individual investors and the general accounts of our insurance company subsidiaries. Investment Management products and services are distributed through a combination of our direct sales force, consultant channel and intermediary partners (such as banks, broker-dealers and independent financial advisers).

The Insurance Solutions business provides its products and services through two segments: Individual Life and Employee Benefits:

•
Our Individual Life segment provides wealth protection and transfer opportunities through universal, variable, whole life and term life products. Our customers range across a variety of age groups and income levels. We distribute our product offering through three main channels: our independent sales channel, our strategic distribution channel and our specialty markets channel. Our independent sales channel consists of a large network of independent general agents and marketing companies who interact with the majority of licensed independent life insurance agents in the United States. Our strategic distribution channel encompasses a network of independent managing directors who support a large team of producers who engage with our broker dealers to sell a range of products including our branded life, annuity and mutual funds.


76


Finally, our specialty markets channel focuses on alternative distribution and consists of a large team of producers, in addition to banks, life insurance quote agencies and internet direct marketers.
•
Our Employee Benefits segment provides group life, stop loss, disability and voluntary employee-paid products to mid-sized and large businesses. We reinsure substantially all of our new disability sales to a third-party. To distribute our products, we utilize brokers, consultants and third-party administrators. In the voluntary market, policies are marketed to employees at the worksite through enrollment firms, technology partners and brokers.

In addition to our ongoing business, we also have Closed Blocks and Corporate reporting segments. Corporate includes our corporate operations and corporate level assets and financial obligations. The Corporate segment includes investment income on assets backing surplus in excess of amounts held at the segment level, financing and interest expenses, other items not allocated to segments, such as certain expenses and liabilities of employee benefit plans and intercompany eliminations.

Closed Blocks consists of three separate reporting segments that include run-off and legacy business lines that are no longer being actively marketed or sold and that we manage to minimize capital risk as they run-off. The Closed Block Variable Annuity segment consists of variable annuity contracts that were designed to offer long-term savings products in which individual contract owners made deposits that are maintained in separate accounts. These products included options for policyholders to purchase living benefit riders. In 2009, we separated our Closed Block Variable Annuity segment from our other operations, placing it in run-off, and made a strategic decision to stop actively writing new retail variable annuity products with substantial guarantee features (the last policies were issued in 2010 and the block shifted to run-off). The Closed Block Institutional Spread Products segment historically issued GICs and funding agreements and invested amounts raised to earn a spread. While the business in the Closed Block Institutional Spread Products segment is being managed in active run-off, we continue to issue liabilities from time to time to replace liabilities that are maturing. The Closed Block Other segment consists primarily of retained and run-off activity related to divestments, including our group reinsurance and individual reinsurance businesses, three broker dealers and Life Insurance Company of Georgia. Closed Block Other also includes certain unreimbursed expenses related to ING Group’s Latin America business, which was sold in December 2011. Accordingly, these segments have been classified as closed blocks and are managed separately from our ongoing business.

Trends and Uncertainties

The following factors represent some of the key trends and uncertainties that have influenced the development of our business and our historical financial performance and that we believe will continue to influence our business and financial performance in the future.

Market Conditions

The recent increase in market volatility, which we believe may continue for some time, has affected and may continue to affect our business and financial performance in varying ways. In the short to medium-term, this increased volatility, coupled with prevailing low interest rates, can pressure sales and reduce demand as consumers hesitate to make financial decisions. In addition, this environment makes it difficult to manufacture products that are consistently both attractive to customers and profitable. Financial performance can be affected adversely by market volatility as fees driven by assets under management fluctuate, hedging costs increase and revenue declines due to reduced sales and increased outflows. In the long-term, however, we believe the recent financial crisis and resultant lingering uncertainty will motivate individuals to seek solutions combining elements of capital preservation, income and growth. Thus, as a company with strong retirement, investment management and insurance capabilities, we believe current market conditions may ultimately enhance the attractiveness of our broad portfolio of products and services. We will need to continue to monitor the behavior of our customers, as evidenced by mortality rates, morbidity rates, annuitization rates and lapse rates, which adjusts in response to changes in market conditions in order to ensure that our products and services remain attractive as well as profitable.

Interest Rate Environment

The current low interest rate environment, which we believe may continue for some time, has affected and may continue to affect the demand for our products in various ways. In the short- to medium-term, we may experience lower sales and reduced demand as the low interest rate environment makes it difficult to manufacture products that are consistently both attractive to customers and profitable.



77


Our financial performance may also be affected adversely by the current low interest rate environment. The interest rate environment has historically influenced our business and financial performance, and we believe it will continue to do so in the future for several reasons, including the following:

•
Our general account investment portfolio, which was approximately $90 billion as of March 31, 2013, consists predominantly of fixed income investments and currently has an average yield of approximately 5.0%. In the near term and absent a material change in yields available on fixed income investments, we expect the yield we earn on new investments will be lower than the yields we earn on maturing investments, which were generally purchased in environments where interest rates were higher than current levels. In modeling anticipated net cash flows that will need to be reinvested, we take into account expected behavior of the issuers of fixed income instruments, including prepayment of callable assets. If interest rates were to rise, we expect the yield on our new money investments would also rise and gradually converge toward the yield of those maturing assets. In addition, while less material to financial results than new money investment rates, movements in prevailing interest rates also influence the prices of fixed income investments that we sell on the secondary market rather than holding until maturity or repayment, with rising interest rates generally leading to lower prices in the secondary market, and falling interest rates generally leading to higher prices.
•
Certain of our products pay guaranteed minimum rates. For example, fixed accounts and a portion of the stable value accounts included within defined contribution retirement plans, universal life policies and individual fixed annuities include guaranteed minimum credited rates. We are required to pay these guaranteed minimum rates even if earnings on our investment portfolio decline, with the resulting investment margin compression negatively impacting earnings. In addition, we expect more policyholders to hold policies (lower lapses) with comparatively high guaranteed rates longer in a low interest rate environment. Conversely, a rise in average yield on our investment portfolio would positively impact earnings if the average interest rate we pay on our products does not rise correspondingly. Similarly, we expect policyholders would be less likely to hold policies (higher lapses) with existing guarantees as interest rates rise.
•
Our Closed Block Variable Annuity segment provides certain guaranteed minimum benefits. A prolonged low interest rate environment may subject us to increased hedging costs or an increase in the amount of statutory reserves that our insurance subsidiaries are required to hold for these variable annuity guarantees, lowering their statutory surplus, which would adversely affect their ability to pay dividends to us. A prolonged low interest rate environment may also affect the perceived value of guaranteed minimum income benefits, which in turn may lead to a higher rate of annuitization of those products over time. For additional information on the Closed Block Variable Annuity segment’s sensitivity to interest rates, see Part I, Item 3. of this Form 10-Q for additional information.

In the long-term, however, we believe the recent financial crisis and resultant lingering uncertainty will motivate individuals to seek solutions combining elements of capital preservation, income and growth. Thus, as a company with strong retirement, investment management and insurance capabilities, we believe current market conditions may ultimately enhance the attractiveness of our broad portfolio of products and services. We will need to continue to monitor the behavior of our customers, as evidenced by annuitization rates and lapse rates, which adjusts in response to changes in market conditions, in order to ensure that our products and services remain attractive as well as profitable.

The Impact of our Closed Block Variable Annuity Segment on GAAP Earnings

Our ongoing management of our Closed Block Variable Annuity segment is focused on preserving our current capitalization status through careful risk management and hedging. Because GAAP accounting differs from the methods used to determine regulatory and rating agency capital measures, our hedge programs may create earnings volatility in our GAAP financial statements.

Governmental and Public Policy Impact on Demand for Our Products

The demand for our products is influenced by a dynamic combination of governmental and public policy factors. We anticipate that legislative and other governmental activity—and our ability to flexibly respond to changes resulting from such activity—will be crucial to our long-term financial performance. In particular, the demand for our products is influenced by the following factors:

•
Availability and quality of public retirement solutions : The lack of comprehensive or sufficient government-sponsored retirement solutions has been a significant driver of the popularity of private sector retirement products. We believe that concerns regarding Social Security and the reduced enrollment in defined benefit retirement plans may further increase the demand for private sector retirement solutions. The impact of any legislative actions or new government programs relating to retirement solutions on our business and financial performance will depend substantially on the level of private sector involvement and our ability to participate in any such programs. We believe we are well positioned to take advantage of any future developments involving participation in any such programs by private sector providers.



78


•
Tax-advantaged status : Many of the retirement savings, accumulation and protection products we sell qualify for tax-advantaged status. Changes in U.S. tax laws that alter the tax benefits of certain investment vehicles could have a material effect on demand for our products.

Aging of the U.S. Population

We believe that the aging of the U.S. population will affect both the demand for our products and the levels of our assets under management ("AUM") and assets under administration ("AUA"). As the “baby boomer” generation prepares for retirement, we believe that demand for retirement savings, growth and income products will grow. The impact of this growth may be offset to some extent by asset outflows as an increasing percentage of the population begins withdrawing assets to convert their savings into income.

Competition

Our ongoing business operates in highly competitive markets. We face a variety of large and small industry participants, including diversified financial institutions, investment managers and insurance companies. These companies compete in one form or another for the growing pool of retirement assets driven by a number of exogenous factors such as the continued aging of the U.S. population and the reduction in safety nets provided by governments and corporations. In many segments, product differentiation is difficult as product development and life cycles have shortened. In addition, we have experienced pressure on fees as product unbundling and lower cost alternatives have emerged. As a result, scale and the ability to provide value-added services and build long-term relationships are important factors to compete effectively. We believe that our leading presence in the retirement market and resulting relationships with millions of participants, diverse range of capabilities (as a provider of retirement, investment management and insurance products and services) and broad distribution network uniquely position us to effectively serve consumers’ increasing demand for retirement savings, income and protection solutions.

Operating Measures

This management’s discussion and analysis includes discussion of operating earnings before income taxes and operating revenues, each of which is a measure that is not determined in accordance with GAAP, because our management uses these measures to manage our businesses and allocate our resources. We also discuss these measures generally because we believe that they provide our investors with useful information regarding our financial performance. In particular, these measures facilitate a comparison of period-to-period results without the effect of the volatility created by certain changes in the financial markets that affect our financial results as reported under GAAP. Other companies may use similarly titled non-GAAP financial measures that are calculated differently from the way we calculate such measures, and accordingly, our non-GAAP financial measures may not be comparable to similar measures used by other companies.

We also discuss certain operating measures, described below, as well as operating earnings before income taxes and operating revenues which provide useful information about our businesses and the operational factors underlying our financial performance. See the Segments Note to our Condensed Consolidated Financial Statements in Part I, Item 1. of this Form 10-Q for a description of the adjustments made to reconcile Income (loss) before income taxes to operating earnings before income taxes and the adjustments made to reconcile Total revenues to operating revenues.

AUM and AUA

A substantial portion of our fees, other charges and margins are based on AUM. AUM represents on-balance sheet assets supporting customer account values/liabilities and surplus as well as off-balance sheet institutional/mutual funds. Customer account values reflect the amount of policyholder equity that has accumulated within retirement, annuity and universal life products. AUM includes general account assets managed by our Investment Management segment in which we bear the investment risk, separate account assets in which the contract owner bears the investment risk and institutional/mutual funds, which are excluded from our balance sheet. AUM-based revenues increase or decrease with a rise or fall in the amount of AUM, whether caused by changes in capital markets or by net flows.

AUM is principally affected by net deposits (i.e., new deposits, less surrenders and other outflows) and investment performance (i.e., interest credited to contract owner accounts for assets that earn a fixed return or market performance for assets that earn a variable return). Separate account AUM and institutional/mutual fund AUM include assets managed by our Investment Management segment, as well as assets managed by third-party investment managers. Our Investment Management segment reflects the revenues earned for managing affiliated assets for our other segments (based on arm’s length agreements) as well as assets managed for


79


third parties. Our consolidated AUM includes eliminations of AUM managed by our Investment Management segment that is also reflected in other segments’ AUM and adjustments for AUM not reflected in any segments.

AUA represents accumulated assets on contracts pursuant to which we either provide administrative services or product guarantees for assets managed by third parties. These contracts are not insurance contracts and the assets are excluded from the Condensed Consolidated Financial Statements. Fees earned on AUA can be based on the number of participants, asset levels and/or the level of services or product guarantees that are provided.

Sales Statistics

In our discussion of our segment results under “Results of Operations—Segment by Segment,” we sometimes refer to sales activity for various products. The term “sales” is used differently for different products, as described more fully below. These sales statistics do not correspond to revenues under GAAP and are used by us as operating measures underlying our financial performance.

Net flows are deposits less redemptions (including benefits and other product charges).

Sales for Individual Life products are based on a calculation of weighted average annual premiums (“WAP”). Sales for Employee Benefits products are based on a calculation of annual premiums, which represents regular premiums on new policies, plus a portion of new single premiums.

Weighted average annual premiums (WAP) is defined as the amount of premium for a policy’s first year that is eligible for the highest first year commission rate, plus a varying portion of any premium in excess of this base amount, depending on the product. WAP is a key measure of recent sales performance of our products and is an indicator of the general growth or decline in certain lines of business. WAP is not equal to premium revenue under GAAP. Renewal premiums on existing policies are included in GAAP premium revenue in addition to first year premiums and thus changes in persistency of existing in-force business can potentially offset growth from current year sales.

Total gross premiums and deposits are defined as premium revenue and deposits for policies written and assumed. This measure provides information as to growth and persistency trends related to premium and deposits.

Other Measures

Total annualized in-force premiums are defined as a full year of premium at the rate in effect at the end of the period. This measure provides information as to the growth and persistency trends in premium revenue.

Interest adjusted loss ratios are defined as the ratio of benefits expense to premium revenue exclusive of the discount component in the change in benefit reserve. This measure reports the loss ratio related to mortality on life products and morbidity on health products.

In-force face amount is defined as the total life insurance coverage in effect as of the end of the period presented for business written and assumed. This measure provides information as to changes in policy growth and persistency with respect to death benefit coverage.

In-force policy count is defined as the number of policies written and assumed with coverage in effect as of the end of the period. This measure provides information as to policy growth and persistency.

New business policy count (paid) is defined as the number of policies issued during the period for which initial premiums have been paid by the policyholder. This measure provides information as to policy growth from sales during the period.



80


Results of Operations - Company Condensed Consolidated

The following table presents summary condensed consolidated financial information for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Revenues:
 
 
 
Net investment income
$
1,198.7

 
$
1,277.4

Fee income
891.9

 
889.0

Premiums
471.9

 
461.6

Net realized capital gains (losses)
(874.8
)
 
(1,249.9
)
Other revenue
95.6

 
89.0

Income (loss) related to consolidated investment entities:
 
 
 
Net investment income
44.2

 
34.9

Changes in fair value related to collateralized loan obligations
(8.9
)
 
(16.7
)
Total revenues
1,818.6

 
1,485.3

Benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
1,061.4

 
1,018.2

Operating expenses
759.1

 
759.4

Net amortization of deferred policy acquisition costs and value of business acquired
130.5

 
173.7

Interest expense
44.4

 
24.3

Operating expenses related to consolidated investment entities:
 
 
 
Interest expense
36.8

 
22.2

Other expense
0.7

 
0.4

Total benefits and expenses
2,032.9

 
1,998.2

Income (loss) before income taxes
(214.3
)
 
(512.9
)
Income tax expense (benefit)
11.2

 
7.9

Net income (loss)
(225.5
)
 
(520.8
)
Less: Net income (loss) attributable to noncontrolling interest
(13.5
)
 
(15.6
)
Net income (loss) available to our common shareholder
$
(212.0
)
 
$
(505.2
)



81


The following table presents AUM and AUA as of the dates indicated:
 
March 31,
($ in millions)  
2013
 
2012
AUM and AUA
 
 
 
Retirement Solutions:
 
 
 
Retirement
$
318,636.9

 
$
300,928.3

Annuities
26,228.0

 
27,592.6

Investment Management
243,358.5

 
229,063.2

Insurance Solutions:
 
 
 
Individual Life
15,598.8

 
15,060.9

Employee Benefits
1,753.8

 
1,739.8

Eliminations/Other
(173,416.4
)
 
(171,611.9
)
Total Ongoing Businesses
432,159.6

 
402,772.9

Closed Blocks:
 
 
 
Closed Block Variable Annuity
44,546.6

 
45,133.8

Closed Block Institutional Spread Products
3,945.7

 
5,242.0

Closed Block Other
558.8

 
612.4

Total Closed Blocks
49,051.1

 
50,988.2

Total AUM and AUA
$
481,210.7

 
$
453,761.1

 
 
 
 
AUM
$
258,176.1

 
$
237,912.6

AUA
223,034.6

 
215,848.5

Total AUM and AUA
$
481,210.7

 
$
453,761.1




82


The following table presents the relative contributions of each segment to operating earnings before income taxes for the periods indicated, and a reconciliation of operating earnings before income taxes to income (loss) before income taxes:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Retirement Solutions:
 
 
 
Retirement
$
137.8

 
$
123.9

Annuities
54.3

 
36.4

Investment Management
30.1

 
33.0

Insurance Solutions:
 
 
 
Individual Life
50.8

 
55.0

Employee Benefits
12.4

 
15.6

Total Ongoing Business
285.4

 
263.9

Corporate
(50.1
)
 
(48.4
)
Closed Blocks:
 
 
 
Closed Block Institutional Spread Products
22.1

 
22.1

Closed Block Other
(0.7
)
 
2.2

Total Closed Blocks (1)
21.4

 
24.3

Total operating earnings before income taxes
$
256.7

 
$
239.8

 
 
 
 
Adjustments:
 
 
 
Closed Block Variable Annuity
(477.1
)
 
(907.7
)
Net investment gains (losses) and related charges and adjustments
41.8

 
60.3

Net guaranteed benefit hedging gains (losses) and related charges and adjustments
3.1

 
137.4

Loss related to businesses exited through reinsurance or divestment
(16.9
)
 
(12.6
)
Income (loss) attributable to noncontrolling interests
(13.5
)
 
(15.6
)
Other adjustments to operating earnings
(8.4
)
 
(14.5
)
Income (loss) before income taxes
$
(214.3
)
 
$
(512.9
)
(1) Our Closed Block Variable Annuity segment is managed to focus on protecting regulatory and rating capital rather than achieving operating metrics and, therefore, its results of operations are not reflected within operating earnings before income taxes.



83


The following table presents the relative contributions of each segment to operating revenues for the periods indicated and a reconciliation of operating revenues to Total revenues:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Retirement Solutions:
 
 
 
Retirement
$
583.2

 
$
580.4

Annuities
307.6

 
351.2

Investment Management
131.9

 
130.6

Insurance Solutions:
 
 
 
Individual Life
687.1

 
712.0

Employee Benefits
318.1

 
313.3

Total Ongoing Business
2,027.9

 
2,087.5

Corporate
17.1

 
14.2

Closed Blocks:
 
 
 
Closed Block Institutional Spread Products
38.3

 
43.0

Closed Block Other
7.2

 
10.4

Total Closed Blocks (1)
45.5

 
53.4

Total operating revenues
$
2,090.5

 
$
2,155.1

 
 
 
 
Adjustments:
 
 
 
Closed Block Variable Annuity
(444.0
)
 
(978.8
)
Net realized investment gains (losses) and related charges and adjustments
30.4

 
103.3

Gain (loss) on change in fair value of derivatives related to guaranteed benefits
20.6

 
125.3

Revenues related to businesses exited through reinsurance or divestment
(12.1
)
 
7.5

Revenues (loss) attributable to noncontrolling interests
40.3

 
21.3

Other adjustments to operating revenues
92.9

 
51.6

Total revenues
$
1,818.6

 
$
1,485.3

(1) Our Closed Block Variable Annuity segment is managed to focus on protecting regulatory and rating agency capital rather than achieving operating metrics and, therefore, its results of operations are not reflected within operating revenues.

Notable Items

We believe the following table will help investors identify more easily some of the larger causes of changes in our operating earnings before income taxes during the periods discussed. The table highlights notable items that are included in operating earnings before income taxes from the following categories: (1) large gains or losses that are not indicative of performance in the period; (2) significant gains (losses) resulting from transactions to change our capital structure; and (3) items that typically recur but can be volatile from period to period (e.g., DAC/VOBA and other intangibles unlocking). In addition, we included the historic interest expense because interest expense has changed meaningfully over the period given the changes in debt. There may be other items not included in the following table that caused increases (decreases) in operating earnings before taxes for the periods presented. See the descriptions within the “Results of Operations” section for a more comprehensive discussion of the causes of changes in operating earnings before income taxes.
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Interest expense (including interest rate swap settlements)
$
(41.9
)
 
$
(16.7
)
DAC/VOBA and other intangibles unlocking
7.3

 
(20.9
)



84


The following table presents the adjustment to income (loss) before taxes related to total investment gains (losses) and the related net amortization of DAC/VOBA and other intangibles for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Other-than-temporary impairments
$
(11.0
)
 
$
(6.9
)
CMO-B fair value adjustments (1)
(33.2
)
 
(15.7
)
Gains (losses) on the sale of securities
20.5

 
137.8

Other, including changes in the fair value of derivatives
66.1

 
9.0

Total investment gains (losses)
42.4

 
124.2

Net amortization of DAC/VOBA and other intangibles on above
12.9

 
(42.0
)
Net investment gains (losses), including Closed Block Variable Annuity
55.3

 
82.2

Less: Closed Block Variable Annuity net investment gains (losses) and related charges and adjustments
13.5

 
21.9

Net investment gains (losses)
$
41.8

 
$
60.3

(1) For a description of our CMO-B portfolio, see "Investments - CMO-B Portfolio."

The following table presents the adjustment to income (loss) before taxes related to guaranteed benefit hedging gains (losses) net of DAC/VOBA and other intangibles amortization for the periods indicated. This table excludes Closed Block Variable Annuity.
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Gain (loss), excluding nonperformance risk
$
16.1

 
$
225.9

Gain (loss) due to nonperformance risk
(4.1
)
 
(100.5
)
Net gain (loss) prior to related amortization of DAC/VOBA and sales inducements
12.0

 
125.4

Net amortization of DAC/VOBA and sales inducements
(8.9
)
 
12.0

Net guaranteed benefit hedging gains (losses) and related charges and adjustments
$
3.1

 
$
137.4


Terminology Definitions

Net realized capital gains (losses) , net realized investment gains (losses) and related charges and adjustments and net guaranteed benefit hedging losses and related charges and adjustments include changes in the fair value of derivatives. Increases in the fair value of derivative assets or decreases in the fair value of derivative liabilities result in "gains." Decreases in the fair value of derivative assets or increases in the fair value of derivative liabilities result in "losses."

In addition, we have certain products that contain guarantees that are embedded derivatives related to guaranteed benefits, while other products contain such guarantees that are considered derivatives (collectively "guaranteed benefit derivatives").

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Net Income (Loss)

Net investment income decreased $78.7 million from $1,277.4 million to $1,198.7 million , primarily due to lower investment income resulting from investment portfolio changes during 2012 to improve capital, such as the sale of CMO-B and alternative investment portfolio assets, as well as a decline in average assets in our Closed Block Institutional Spread Products and Annuities segments. The decline in the assets of the Closed Block Institutional Spread Products is due to the continued run-off of this business. The decline in the assets of the Annuities segment is due to certain Multi Year Guarantee Annuities ("MYGAs"), mostly sold in 2002, which reached the end of their guarantee period in 2012. Most of these MYGAs had high crediting rates and the supporting assets generated returns below the targets set when the contracts were issued, which negatively impacted returns in our Annuities segment. During the year ended December 31, 2012, approximately $3.0 billion of the MYGAs reached the end of their current guarantee period, and approximately 66% of those policies up for renewal lapsed. The high lapse rate was expected as renewal crediting rates offered were lower than the credited rates during the initial term. While the continued run-off of these MYGA contracts has enhanced and will continue to enhance the margin of our Annuities segment, the impact was most significant during 2012, when a large number of the policies reached the end of their guarantee period.


85



Fee income increased $2.9 million from $ 889.0 million to $ 891.9 million , primarily due to increases in fees in our Retirement and Annuity segments due to higher separate account and institutional/mutual fund AUM, offset by lower net contractual charges in our Individual Life segment as a result of lower secondary guarantee product sales.

Premiums increased $10.3 million from $ 461.6 million to $ 471.9 million , primarily due to higher renewal premiums resulting from growth in in-force of our Insurance Solutions business.

Net realized capital losses decreased $375.1 million from $ (1,249.9) million to $ (874.8) million , primarily due to changes in fair value of guaranteed benefit derivatives due to nonperformance risk, changes in fair value of derivatives from the Closed Block Variable Annuity segment liability hedges, and lower losses on the CHO program, offset by lower gains on guaranteed benefit derivatives, excluding nonperformance risk and lower net realized investment gains.

Changes in the fair value of guaranteed benefit derivatives in our Retirement, Annuities and Closed Block Variable Annuity segments due to nonperformance risk resulted in a decrease in net realized capital losses of $561.2 million. The changes in derivative gains (losses) from the Closed Block Variable Annuity guarantee hedge program reduced the loss by $439.6 million, due to losses in the current period that were not as significant as losses in the prior year period as a result of lower equity market growth as well as interest rate movements. In addition, lower losses of $128.9 million on the CHO program resulted from lower equity market growth and lower notional amounts for hedging the associated underlying risk in the current period compared to the prior year period. The hedge program in the Closed Block Variable Annuity segment focuses on protecting regulatory and rating agency capital from equity market movements rather than mitigating earnings volatility.

The lower losses in the current period are partially offset by $693.7 million in lower gains from changes in fair value of guaranteed benefit derivatives, excluding nonperformance risk within our Retirement, Annuities and Closed Block Variable Annuity segments. Gains on guaranteed benefit derivatives, excluding nonperformance risk in our Retirement Solutions business were higher in the prior year period due to a reduction in expected future guaranteed interest rates on certain Stabilizer contracts. Lower gains in our Closed Block Variable Annuity segment were driven by lower equity market growth, interest rate movements and unfavorable changes in volatility in the current period compared to the prior year period. In addition, lower net realized investment gains were mostly due to a $117.3 million reduction in gains on the sale of securities compared to the prior year period, offset by higher derivative mark to market adjustments.

Other revenue increased $6.6 million from $ 89.0 million to $ 95.6 million due to changes in contractual amounts paid to/from retirement plan customers upon surrender and an increase in service fees earned by our Investment Management segment. Partially offsetting these increases were lower surrender fees on the Closed Block Variable Annuity segment as that business declined.

Interest credited and other benefits to contract owners/policyholders increased $43.2 million from $ 1,018.2 million to $ 1,061.4 million , primarily due to an increase in guaranteed benefit reserves in our Closed Block Variable Annuity segment driven by less favorable fund returns in the current period compared to the prior year period. An increase in reserves in our Insurance Solutions business also contributed to the increase, primarily due to higher business volumes and higher loss ratios in group life, partially offset by lower volumes in group stop loss. These increases were partially offset by a decrease in interest credited in our Retirement Solutions business due to declining reserves for MYGAs as well as lower crediting rates across several product lines, declining contract owner account balances for the Closed Block Institutional Spread Products segment, and favorable development in our Incurred But Not Reported ("IBNR") reserves in our Insurance Solutions business.

Net amortization of DAC/VOBA decreased $43.2 million from $ 173.7 million to $ 130.5 million . The decrease is primarily driven by a decrease in amortization in our Retirement segment due to lower realized gains in the current period compared to the prior period. The Annuities segment also contributed to the favorable decline, primarily driven by unfavorable unlocking in the prior period due to a decrease in projected investment margins on the MYGA block.

Loss before income taxes decreased $298.6 million from $512.9 million to $214.3 million , driven primarily by changes in the fair value of guaranteed benefit derivatives due to nonperformance risk and lower losses on the CHO program. Improved results from the Annuities segment also contributed to the favorable change, driven by unfavorable DAC/VOBA and other intangibles unlocking in the prior year period, as well as lower interest credited costs from lapses of MYGAs and improved margins on MYGA renewals. These improvements were offset by lower gains on guaranteed benefit derivatives, excluding nonperformance risk in our Retirement Solutions business, an increase in net losses related to the incurred guaranteed benefits and guarantee hedge program, excluding nonperformance risk in our Closed Block Variable Annuity segment, and lower net realized investment gains.



86


Income tax expense (benefit) increased $3.3 million from $7.9 million to $11.2 million . We anticipate a low effective tax rate as the tax expense (benefit) on most of our net income (loss) before income taxes should be offset by increases/decreases in valuation allowances. We anticipate a tax expense (benefit) on tax-based capital gains (losses).

Operating Earnings (Loss) before Income Taxes

Operating earnings before income taxes increased $16.9 million from $239.8 million to $256.7 million , primarily due to improved performance in our Retirement Solutions businesses. Higher operating earnings for the Retirement segment was driven by higher fee income and net investment income due to an increase in AUM, along with decreases in operating expenses and interest credited. The Annuities segment also contributed to the improved operating result, driven primarily by unfavorable DAC/VOBA and other intangibles unlocking in the prior period, as well as lower interest credited costs from lapses of MYGAs and improved margins on MYGA renewals.

Adjustments from Income (Loss) before Income Taxes to Operating Earnings (Loss) before Income Taxes

Closed Block Variable Annuity is discussed in “-Results of Operations-Segment by Segment-Closed Block Variable Annuity.”

Net investment gains decreased $18.5 million from $ 60.3 million to $ 41.8 million , primarily driven by lower gains on the sale of securities and higher losses on fair value adjustments on our CMO-B portfolio, partially offset by higher derivative mark to market adjustments.

Net guaranteed benefit hedging gains and related charges and adjustments decreased by $134.3 million from $137.4 million to $3.1 million . The decrease was driven primarily by lower gains on guaranteed benefit derivatives, excluding nonperformance risk due to a reduction in expected future guaranteed interest rates on certain Stabilizer contracts occurring in the prior year period that did not repeat. This was partially offset by changes in the fair value of guaranteed benefit derivatives related to nonperformance risk.

Losses related to businesses exited through reinsurance or divestment increased $4.3 million from $ (12.6) million to $ (16.9) million primarily due to higher liquidity associated with the business transferred from us to Hannover Re.

Results of Operations - Ongoing Business

We consider the Retirement, Annuities, Investment Management, Individual Life, and Employee Benefits segments as our ongoing businesses. The following table presents operating earnings before income taxes of our ongoing businesses for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating earnings before income taxes
$
285.4

 
$
263.9


The following table presents certain notable items that resulted in volatility in operating earnings before income taxes for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
DAC/VOBA and other intangibles unlocking
$
7.3

 
$
(20.9
)

Ongoing Business - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating earnings before income taxes increased $21.5 million from $263.9 million to $285.4 million primarily due to improved performance in our Retirement Solutions businesses. Higher operating earnings for the Retirement segment was driven by higher fee income and net investment income due to an increase in AUM, along with decreases in operating expenses and interest credited. The Annuities segment also contributed to the improved operating result, driven primarily by unfavorable DAC/VOBA and other intangibles unlocking in the prior year period, as well as lower interest credited costs from lapses of MYGAs and improved margins on MYGA renewals.



87


Results of Operations - Segment by Segment

Retirement Solutions - Retirement

The following table presents operating earnings before income taxes of our Retirement segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
388.9

 
$
388.1

Fee income
183.8

 
177.1

Premiums
0.5

 
0.5

Other revenue
10.0

 
14.7

Total operating revenues
583.2

 
580.4

Operating benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
204.6

 
208.4

Operating expenses
204.0

 
213.9

Net amortization of DAC/VOBA
36.8

 
33.8

Interest expense
—

 
0.4

Total operating benefits and expenses
445.4

 
456.5

Operating earnings before income taxes
$
137.8

 
$
123.9


The following table presents certain notable items that resulted in the volatility in operating earnings before income taxes for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
DAC/VOBA and other intangibles unlocking
$
3.0

 
$
3.8


The following tables present AUM and AUA for our Retirement segment as of the dates indicated:
 
March 31,
($ in millions)  
2013
 
2012
Corporate market
$
35,441.2

 
$
31,680.7

Tax exempt market
49,269.4

 
45,304.0

Total full service plans
84,710.6

 
76,984.7

Stable value (1)
8,279.7

 
5,838.4

Individual market
2,612.0

 
2,256.7

Total AUM
95,602.3

 
85,079.8

AUA
223,034.6

 
215,848.5

Total AUM and AUA
$
318,636.9

 
$
300,928.3

(1) Consists of assets where we are the investment manager.

 
March 31,
($ in millions)  
2013
 
2012
General Account
$
27,387.8

 
$
25,784.5

Separate Account
52,516.8

 
47,053.1

Mutual Fund/Institutional Funds
15,697.7

 
12,242.2

AUA
223,034.6

 
215,848.5

Total AUM and AUA
$
318,636.9

 
$
300,928.3



88



The following table presents a rollforward of AUM for our Retirement segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Balance as of beginning of period
$
90,471.2

 
$
79,477.7

Deposits
3,730.9

 
3,142.1

Surrenders, benefits and product charges
(2,311.5
)
 
(2,522.5
)
Net flows
1,419.4

 
619.6

Interest credited and investment performance
3,711.7

 
4,982.5

Balance as of end of period
$
95,602.3

 
$
85,079.8


Retirement - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating revenues

Net investment income and net realized gains (losses) increased $0.8 million from $388.1 million to $388.9 million primarily due to growth of general account assets. General account assets increased from $25.8 billion to $27.4 billion as of March 31, 2013 compared to March 31, 2012. The uncertainty in the equity market resulted in participants transferring funds from variable investment options into the fixed investment option during 2012, which contributed to an increase in average general account assets. The increase was mostly offset by lower investment income as a result of portfolio restructuring in the second and third quarters of 2012 and lower reinvestment rates.

Fee income increased $6.7 million from $ 177.1 million to $ 183.8 million primarily due to increases in full service retirement plan fees and change order fees for the recordkeeping business. The increase in fees related to the full service retirement plans was driven by net increases in separate account and institutional/mutual fund AUM. These increases were partially offset by a decrease in other recordkeeping fees primarily due to terminated contracts.

Other revenue decreased $4.7 million from $14.7 million to $10.0 million primarily due to a change in contractual amounts paid to/from retirement plan sponsors upon surrender.

Operating benefits and expenses

Interest credited and other benefits to contract owners/policyholders decreased $3.8 million from $208.4 million to $204.6 million primarily due to a decrease in average credited rates on general account liabilities, due to actions taken in 2012 and in January of 2013 to reflect the continuing low interest rate environment. This decrease was offset by an increase in general account liabilities, which correspond to the increase in general account assets as described above.

Operating expenses decreased $9.9 million from $213.9 million to $204.0 million primarily driven by lower variable compensation expense as well as lower operating expenses for the recordkeeping business.

Net amortization of DAC/VOBA increased $3.0 million from $33.8 million to $36.8 million primarily as a result of higher amortization due to higher gross profits in the current period.

Operating earnings before income taxes was higher for the current period compared to the same period in the prior year. Decreases in operating expenses and interest credited and other benefits to contract owners/policyholders, along with higher fee income and net investment income due to an increase in AUM, contributed to the improved results.



89


Retirement Solutions-Annuities

The following table presents operating earnings before income taxes of the Annuities segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
287.1

 
$
329.0

Fee income
9.9

 
7.4

Premiums
7.8

 
11.8

Other revenue
2.8

 
3.0

Total operating revenues
307.6

 
351.2

Operating benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
184.4

 
241.9

Operating expenses
31.0

 
31.2

Net amortization of DAC/VOBA
37.9

 
41.6

Interest expense
—

 
0.1

Total operating benefits and expenses
253.3

 
314.8

Operating earnings before income taxes
$
54.3

 
$
36.4


The following table presents certain notable items that resulted in volatility in operating earnings before income taxes for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
DAC/VOBA and other intangibles unlocking
$
7.0

 
$
(20.3
)

The following table presents AUM for our Annuities segment as of the dates indicated:
 
March 31,
($ in millions)  
2013
 
2012
AUM:
 
 
 
General account
$
22,772.4

 
$
24,770.2

Separate account
780.1

 
795.5

Mutual funds
2,675.5

 
2,026.9

Total AUM
$
26,228.0

 
$
27,592.6


The following table presents a rollforward of AUM for our Annuities segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Balance at beginning of period
$
26,101.0

 
$
27,690.2

Deposits
554.8

 
596.1

Surrenders, benefits and product charges
(775.1
)
 
(1,107.7
)
Net flows
(220.3
)
 
(511.6
)
Interest credited and investment performance
347.3

 
414.0

Balance as of end of period
$
26,228.0

 
$
27,592.6




90


Annuities - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating revenues

Net investment income and net realized gains (losses) decreased $41.9 million from $329.0 million to $287.1 million primarily due to lower general account assets and lower investment income on CMO-B and alternative investment portfolios. General account assets decreased as a result of MYGAs lapsing at the end of their initial terms, largely due to crediting rates that were lower than the crediting rates during their initial term. In addition, investment income on CMO-B and alternative investment portfolios was lower due to market conditions and portfolio restructuring in 2012.

Fee income increased $2.5 million from $7.4 million to $9.9 million due to growth in assets of mutual fund custodial products which are sold by the annuity distribution force as an alternative retirement product. Assets of mutual fund custodial products increased from $2.0 billion as of March 31, 2012 to $2.7 billion as of March 31, 2013, or growth of 35%, due to positive net flows and improved market performance.

Premiums decreased $4.0 million from $ 11.8 million to $ 7.8 million due to lower sales of immediate annuities with life contingencies.

Operating benefits and expenses

Interest credited and other benefits to contract owners/policyholders decreased $57.5 million from $241.9 million to $184.4 million . The decrease was primarily due to lapses of MYGAs in 2012, which resulted in a decrease to average account values as well as lower crediting rates on MYGA renewals. Lower option costs of FIAs also contributed to the decrease in addition to lower amortization of sales inducements and favorable mortality on annuities with life contingencies.

Net amortization of DAC/VOBA decreased $3.7 million from $41.6 million to $37.9 million primarily due to changes in unlocking of DAC/VOBA that were partially offset by higher amortization of DAC/VOBA. Unlocking was favorable in the current period compared to unfavorable unlocking in the prior year period, which was primarily due to a decrease in the projected margins on the MYGA policies in 2012. Excluding unlocking, the increase in DAC/VOBA amortization was due to higher gross profits in the current period and an increase in the amortization rate.

Operating earnings before income taxes

Operating earnings before taxes increased $17.9 million from $36.4 million to $54.3 million primarily driven by unfavorable DAC/VOBA and other intangibles unlocking in the prior year period, lower interest credited and other benefits to contract owners/policyholders, partially offset by a decline in net investment income.

Investment Management

The following table presents operating earnings before income taxes of our Investment Management segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
2.8

 
$
5.4

Fee income
121.7

 
117.9

Other revenue
7.4

 
7.3

Total operating revenues
131.9

 
130.6

Operating benefits and expenses:
 
 
 
Operating expenses
101.8

 
97.6

Total operating benefits and expenses
101.8

 
97.6

Operating earnings before income taxes
$
30.1

 
$
33.0




91


Our Investment Management operating segment revenues include the following intersegment revenues, primarily consisting of asset-based management and administration fees.
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Investment Management intersegment revenues
$
39.3

 
$
40.1


The following tables present AUM and AUA for our Investment Management segment as of the dates indicated:
 
March 31,
($ in millions)  
2013
 
2012
AUM:
 
 
 
Institutional/retail
 
 
 
Investment Management sourced
$
58,002.1

 
$
49,754.9

Affiliate sourced (1)
49,658.0

 
44,050.0

General account
79,965.9

 
77,121.7

Total AUM
187,626.0

 
170,926.6

AUA:
 
 
 
Affiliate sourced (2)
55,732.5

 
58,136.6

Total AUM and AUA
$
243,358.5

 
$
229,063.2

(1) Affiliate sourced AUM includes assets sourced by other segments and also reported as AUM by such other segments.
(2) Affiliate sourced AUA includes assets sourced by other segments and also reported as AUA or AUM by such other segments.

The following table presents net flows for our Investment Management segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Net Flows
 
 
 
Investment Management sourced
$
2,630.7

 
$
(186.0
)
Affiliate sourced
546.8

 
3,844.9

Total
$
3,177.5

 
$
3,658.9


Investment Management - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating revenues

Net investment income and net realized gains (losses) decreased $2.6 million from $5.4 million to $2.8 million primarily due to lower alternative investment income partially due to valuation adjustments.

Fee income increased $3.8 million from $117.9 million to $121.7 million primarily due to an increase in AUM resulting in higher management and administrative fees earned.

Operating benefits and expenses

Operating expenses increased $4.2 million from $97.6 million to $101.8 million primarily as a result of higher variable compensation costs.

Operating earnings before income taxes

The overall decrease in operating earnings of $2.9 million was primarily driven by higher variable compensation costs and lower net investment income, which were partially offset by an increase in fee income.



92


Insurance Solutions - Individual Life

The following table presents operating earnings before income taxes of our Individual Life segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
216.9

 
$
247.0

Fee income
276.8

 
283.3

Premiums
185.8

 
179.4

Other revenue
7.6

 
2.3

Total operating revenues
687.1

 
712.0

Operating benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
501.6

 
504.8

Operating expenses
90.9

 
97.0

Net amortization of DAC/VOBA
42.9

 
50.6

Interest expense
0.9

 
4.6

Total operating benefits and expenses
636.3

 
657.0

Operating earnings before income taxes
$
50.8

 
$
55.0


The following table presents certain notable items that resulted in volatility in operating earnings before income taxes for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
DAC/VOBA and other intangibles unlocking
$
(2.7
)
 
$
(4.4
)

The following table presents sales, gross premiums, in-force and policy count for our Individual Life segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Sales by Product Line:
 
 
 
Universal life:
 
 
 
Guaranteed
$
0.5

 
$
22.2

Accumulation
4.0

 
6.1

Indexed
6.8

 
5.1

Total universal life
11.3

 
33.4

Variable life
2.7

 
1.2

Term
15.2

 
33.7

Total sales by product line
$
29.2

 
$
68.3

 
 
 
 
Total gross premiums
$
498.6

 
$
598.7

End of period:
 
 
 
In-force face amount
$
608,843.8

 
$
581,725.6

In-force policy count
1,350,278

 
1,327,381

New business policy count (paid)
16,137

 
34,054




93


Individual Life - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating revenues

Net investment income and net realized gains (losses) decreased $30.1 million from $247.0 million to $216.9 million primarily due to lower investment income on the CMO-B and alternative investment portfolios as a result of portfolio restructuring in the second and third quarters of 2012 and lower yields on commercial mortgages.

Fee income decreased $6.5 million from $283.3 million to $276.8 million primarily due to lower net contractual charges resulting from a reduction of secondary guarantee product sales. This was partially offset by higher cost of insurance fees due to favorable persistency on the universal life block.

Premiums increased $6.4 million from $179.4 million to $185.8 million due to continued growth in renewal premiums for term life business partially offset by lower first year premiums as a result of lower term sales.

Other revenue increased $5.3 million from $ 2.3 million to $ 7.6 million due primarily to the restructuring of certain reinsurance facilities and increased surrender fees.

Operating benefits and expenses

Interest credited and other benefits to contract owners/policyholders decreased $3.2 million from $504.8 million to $501.6 million primarily due to favorable IBNR reserve development in the current period partially offset by higher gross claims on the term block and unfavorable intangible unlocking.

Operating expenses decreased $6.1 million from $97.0 million to $90.9 million primarily due to lower sales related expenses partially offset by increased credit facility fees supporting reinsurance transactions.

Net amortization of DAC/VOBA decreased $7.7 million from $50.6 million to $42.9 million primarily due to favorable unlocking, excluding intangible unlocking, in the current period compared to unfavorable unlocking in the prior period. In addition, there was lower amortization in the current period driven by lower gross profits on the universal life block and lower term sales.

Interest expense decreased $3.7 million from $ 4.6 million to $ 0.9 million primarily due to the novation and recapture of certain surplus notes in late 2012.

Operating earnings before income taxes

Operating earnings before income taxes decreased due to lower investment income on the CMO-B and alternative investment portfolios and higher gross claims on the term block. Partially offsetting these items were favorable IBNR development, higher term renewal premiums and lower operating expenses due to lower sales.



94


Insurance Solutions - Employee Benefits

The following table presents operating earnings before income taxes of the Employee Benefits segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
28.4

 
$
31.7

Fee income
15.8

 
15.4

Premiums
274.9

 
268.4

Other revenue
(1.0
)
 
(2.2
)
Total operating revenues
318.1

 
313.3

Operating benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
242.6

 
234.0

Operating expenses
60.0

 
61.2

Net amortization of DAC/VOBA
3.1

 
2.5

Total operating benefits and expenses
305.7

 
297.7

Operating earnings before income taxes
$
12.4

 
$
15.6


The following table presents sales, gross premiums and in-force for our Employee Benefits segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Sales by Product Line:
 
 
 
Group life
$
44.0

 
$
25.3

Group stop loss
89.7

 
112.3

Other group products
12.7

 
9.6

Total group products
146.4

 
147.2

Voluntary products
10.3

 
7.4

Total sales by product line
$
156.7

 
$
154.6

 
 
 
 
Total gross premiums and deposits
$
319.5

 
$
312.8

Total annualized in-force premiums
1,316.2

 
1,308.1

 
 
 
 
Loss Ratios:
 
 
 
Group life (interest adjusted)
85.4
%
 
82.8
%
Group stop loss
77.6
%
 
76.2
%

Employee Benefits - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating revenues

Net investment income and net realized gains (losses) decreased $3.3 million from $31.7 million to $28.4 million primarily due to lower investment income on the CMO-B and alternative investment portfolios resulting from portfolio restructuring in the second and third quarters of 2012.

Premiums increased $6.5 million from $268.4 million to $274.9 million primarily due to higher group life and voluntary whole life premiums resulting from higher sales and in-force blocks. These increases were partially offset by lower group stop loss premiums.



95


Operating benefits and expenses

Interest credited and other benefits to contract owners/policyholders increased $8.6 million from $234.0 million to $242.6 million primarily due to higher business volumes and higher loss ratios in group life, partially offset by lower volumes in group stop loss.

Operating earnings before income taxes

Operating earnings before income taxes declined primarily due to increased benefit costs, driven by higher business volumes in the group life block, higher loss ratios, and lower investment income resulting from portfolio restructuring in 2012. Partially offsetting these items were higher premiums resulting from higher sales and in-force blocks.

Corporate

The following table presents operating earnings before income taxes of our Corporate segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Interest expense (including interest rate swap settlements)
$
(41.9
)
 
$
(16.7
)
Closed Block Variable Annuity contingent capital LOC
(12.8
)
 
(18.9
)
Amortization of intangibles
(8.8
)
 
(8.7
)
Other
13.4

 
(4.1
)
Operating earnings before income taxes
$
(50.1
)
 
$
(48.4
)

Our Corporate segment operating results include investment income on assets backing surplus in excess of amounts held at the operating segment level, financing and interest expenses, amortization of intangibles and other items not allocated to operating segments.

Corporate - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Operating earnings before income taxes changed $1.7 million from $(48.4) million to $(50.1) million primarily due to an increase in interest expense, mostly offset by a decrease in operating expenses. Interest expense increased due to additional interest and debt issuance costs associated with the debt entered into subsequent to the first quarter of 2012. Operating expenses were higher during the prior year period due to upfront costs associated with the contingent capital letter of credit facility supporting our Closed Block Variable Annuity segment, as well as an accrual for a contingency.

Closed Blocks

The following table presents operating earnings before income taxes of our Closed Blocks for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Closed Block Institutional Spread Products
$
22.1

 
$
22.1

Closed Block Other
(0.7
)
 
2.2

Operating earnings before income taxes
$
21.4

 
$
24.3




96


The following table presents operating earnings before income taxes of our Closed Block Institutional Spread Products segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
38.0

 
$
42.9

Premiums
0.6

 
0.6

Other revenue
(0.3
)
 
(0.5
)
Total operating revenues
38.3

 
43.0

Operating benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
13.5

 
17.4

Operating expenses
2.6

 
2.8

Net amortization of DAC/VOBA
0.1

 
0.1

Interest expense
—

 
0.6

Total operating benefits and expenses
16.2

 
20.9

Operating earnings before income taxes
$
22.1

 
$
22.1

 
The following table presents operating earnings before income taxes of our Closed Block Other segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating revenues:
 
 
 
Net investment income and net realized gains (losses)
$
6.0

 
$
8.2

Fee income
—

 
0.1

Premiums
0.9

 
1.7

Other revenue
0.3

 
0.4

Total operating revenues
7.2

 
10.4

Operating benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
6.8

 
7.0

Operating expenses
1.1

 
1.2

Total operating benefits and expenses
7.9

 
8.2

Operating earnings before income taxes
$
(0.7
)
 
$
2.2


Closed Blocks - Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Closed Block Institutional Spread Products

Operating earnings before income taxes remained unchanged at $22.1 million although the block size continues to decrease. The average block size based on AUM declined approximately 28%, from $5.4 billion as of March 31, 2012 to $3.9 billion as of March 31, 2013. As a result, net investment income and interest credited and other benefits to contract owners/policyholders decreased. The decrease in net investment income was partially offset by higher accretion income on previously impaired securities, which is unlikely to recur at similar levels in the future.

Closed Block Other

Operating earnings before income taxes decreased $2.9 million from $2.2 million to $(0.7) million mainly due to a reduction in investment income and premiums, partially offset by a decrease in expenses, resulting from the continuing run-off of this segment.



97


Closed Block Variable Annuity

The following table presents income (loss) before income taxes of our Closed Block Variable Annuity segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Revenues:
 
 
 
Net investment income
$
18.4

 
$
17.4

Fee income
309.3

 
310.3

Net realized capital gains (losses)
(776.4
)
 
(1,313.3
)
Other revenue
4.7

 
6.8

Total revenues
(444.0
)
 
(978.8
)
Benefits and expenses:
 
 
 
Interest credited and other benefits to contract owners/policyholders
(94.1
)
 
(196.3
)
Operating expenses and interest expense
112.2

 
110.2

Net amortization of DAC/VOBA
15.0

 
15.0

Total benefits and expenses
33.1

 
(71.1
)
Income (loss) before income taxes
$
(477.1
)
 
$
(907.7
)

The following table presents certain notable items that result in volatility in income (loss) before income taxes for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Net gains (losses) related to incurred guaranteed benefits and guarantee hedge program, excluding nonperformance risk
$
(453.9
)
 
$
(316.5
)
Gain (losses) related to CHO program
(158.5
)
 
(287.4
)
Gain (loss) due to nonperformance risk
(106.7
)
 
(571.5
)
Net investment gains (losses)
13.5

 
21.9

DAC/VOBA and other intangibles unlocking and loss recognition
(0.2
)
 
0.2


The following table presents AUM for our Closed Block Variable Annuity segment as of the dates indicated:
 
March 31,
($ in millions)  
2013
 
2012
AUM
 
 
 
General account
$
1,272.1

 
$
1,107.2

Separate account
43,274.5

 
44,026.6

Total AUM
$
44,546.6

 
$
45,133.8


The following table presents a rollforward of AUM for our Closed Block Variable Annuity segment for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Balance at beginning of period
$
43,198.4

 
$
42,645.5

Deposits
131.8

 
125.4

Surrenders, benefits and product charges
(1,075.6
)
 
(1,021.8
)
Net flows
(943.8
)
 
(896.4
)
Interest credited and investment performance
2,292.0

 
3,384.7

Balance as of end of period
$
44,546.6

 
$
45,133.8



98



Closed Block Variable Annuity - Three Months Ended March 31, 2013 compared to Three Months Ended March 31, 2012

The loss before income taxes decreased $430.6 million, from $907.7 million to $477.1 million, primarily due to changes in the fair value of guaranteed benefit derivatives related to nonperformance risk and favorable variances in our CHO program, which is designed to protect regulatory reserves and rating agency capital from equity movement. The current period results included a loss of $106.7 million due to changes in the fair value of guaranteed benefit derivatives related to nonperformance risk, compared to a loss of $571.5 million in the prior year period. Lower equity market growth, coupled with a lower notional position, led to a decrease in losses on our CHO program, which declined by $128.9 million, from a loss of $287.4 million to a loss of $158.5 million.

Partially offsetting these items was an increase in net losses related to the incurred guaranteed benefits and our guarantee hedge program, which worsened to a loss of $453.9 million in the current period compared to a loss of $316.5 million in the prior year period. The $137.4 million unfavorable variance was primarily a result of less favorable changes in volatility partially offset by slightly lower equity market growth. The net gain (loss) of our incurred guaranteed benefits and the results of our variable annuity guarantee hedge program will vary from period to period primarily because our variable annuity guarantee hedge program is set based on market consistent valuation techniques for equity risks and for certain interest rate risks, rather than mitigating earnings volatility.

Alternative Investment Income

Investment income on certain alternative investments can be volatile due to changes in market conditions. The following table presents the amount of investment income (loss) on certain alternative investments that is included on segment operating earnings before income taxes and the average level of assets in each segment, prior to intercompany eliminations. These alternative investments are carried at fair value, which is estimated based on the NAV of these funds.



99


The following table presents the investment income for the months ended March 31, 2013 and March 31, 2012, respectively, and the average assets of alternative investments as of the dates indicated:
 
March 31,
($ in millions)  
2013
 
2012
Retirement
 
 
 
Alternative investment income
$
7.9

 
$
24.9

Average alternative investment
256.0

 
670.2

Annuities
 
 
 
Alternative investment income
4.4

 
12.3

Average alternative investment
189.2

 
358.5

Investment Management
 
 
 
Alternative investment income
2.8

 
5.4

Average alternative investment
120.8

 
86.3

Individual Life
 
 
 
Alternative investment income
3.4

 
5.8

Average alternative investment
132.1

 
235.7

Employee Benefits
 
 
 
Alternative investment income
0.6

 
2.6

Average alternative investment
23.6

 
69.4

Total Ongoing Business
 
 
 
Alternative investment income
19.1

 
51.0

Average alternative investment
721.7

 
1,420.1

Corporate
 
 
 
Alternative investment income
2.7

 
5.1

Average alternative investment
98.1

 
90.5

Closed Blocks (1)
 
 
 
Alternative investment income
1.8

 
4.6

Average alternative investment
62.4

 
120.6

Total ING US
 
 
 
Alternative investment income
23.6

 
60.7

Average alternative investment
$
882.2

 
$
1,631.2

(1) Our Closed Block Variable Annuity segment is managed to focus on protecting regulatory and rating agency capital rather than achieving operating metrics and, therefore, its results of operations are not reflected within investment income.

Unlocking of DAC/VOBA and other Contract Owner/Policyholder Intangibles
 
Changes in operating earnings before income taxes and net income (loss) are influenced by increases and decreases in amortization of DAC, VOBA, DSI, and URR. The DAC asset represents policy acquisition costs that have been capitalized and are subject to amortization and interest. Capitalized costs are direct incremental costs of contract acquisition, as well as certain costs related directly to acquisition activities. Such costs consist principally of certain commissions, underwriting, sales and contract issuance and processing expenses directly related to the successful acquisition of new and renewal business. The VOBA asset represents the outstanding value of in-force business acquired and is subject to amortization and interest. The value is based on the present value of estimated net cash flows embedded in the insurance contracts at the time of the acquisition and increased for subsequent deferrable expenses on purchased policies. We amortize VOBA over the estimated life of the contracts using the same methodology and assumptions employed to amortize DAC. The DSI asset represents benefits paid to contract owners for a specified period that are incremental to the amounts we credit on similar contracts without sales inducements and are higher than the contracts' expected ongoing crediting rates for periods after the inducement. We defer sales inducements and amortize them over the life of the contracts using the same methodology and assumptions employed to amortize DAC. (The amortization of sales inducements is included in Interest credited and other benefits to contract owners/policyholders .) In addition, a URR liability is recorded related to variable universal life and universal life products and represents policy charges for services to be provided in future periods. These policy


100


charges are deferred as unearned revenue and amortized over the expected life of the contracts in proportion to the estimated gross profits in a manner consistent with DAC for these products. The change in URR is included in Fee income .

Generally, we amortize DAC/VOBA, DSI, and URR related to fixed and variable universal life contracts, variable deferred annuity contracts and fixed deferred annuity contracts over the estimated lives of the contracts in relation to the emergence of estimated gross profits. For variable deferred annuity contracts within the Closed Block Variable Annuity segment, we amortize DAC, VOBA and DSI in relation to the emergence of estimated gross revenue. Assumptions as to mortality, persistency, interest crediting rates, returns associated with separate account performance, impact of hedge performance, expenses to administer the business and certain economic variables, such as inflation, are based on our experience and our overall short-term and long-term future expectations for returns available in the capital markets. At each valuation date, actual historical gross profits are reflected and estimated gross profits and related assumptions are evaluated for continued reasonableness. Adjustments to estimated gross profits require that amortization rates be revised retroactively to the date of the contract issuance, which is referred to as unlocking. As a result of this process, the cumulative balances of DAC/VOBA, DSI and URR are adjusted with an offsetting benefit or charge to income to reflect changes in the period of the revision. An unlocking event that results in a benefit ("favorable unlocking") generally occurs as a result of actual experience or future expectations being favorable compared to previous estimates. An unlocking event that results in a charge ("unfavorable unlocking") generally occurs as a result of actual experience or future expectations being unfavorable compared to previous estimates. When unlocking, we unlock assumptions for each of the appropriate intangibles and refer to the unlocking as "DAC/VOBA and other intangible" unlocking. As a result of unlocking, the amortization schedules for future periods are also adjusted.

We also review the estimated gross profits for each of these blocks of business to determine the recoverability of DAC, VOBA and DSI balances each period. These assets are deemed to be unrecoverable if the estimated gross profits do not exceed these balances and a write-down is recorded that is referred to as loss recognition. There was no loss recognition for the three months ended March 31, 2013 and 2012.

The following table presents the amount of DAC, VOBA, DSI and URR ("DAC/VOBA and other intangibles") unlocking that is included in segment operating earnings before income taxes for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Retirement
$
3.0

 
$
3.8

Annuities
7.0

 
(20.3
)
Individual Life
(2.7
)
 
(4.4
)
Total DAC/VOBA and other intangibles unlocking
$
7.3

 
$
(20.9
)

Liquidity and Capital Resources

Liquidity is our ability to generate sufficient cash flows to meet the cash requirements of operating, investing and financing activities. Capital refers to our long-term financial resources available to support the business operations and contribute to future growth. Our ability to generate and maintain sufficient liquidity and capital depends on the profitability of the businesses, timing of cash flows on investments and products, general economic conditions and access to the capital markets and the alternate sources of liquidity and capital described herein.

Consolidated Sources and Uses of Liquidity and Capital

Our principal available sources of liquidity are product charges, investment income, proceeds from the maturity and sale of investments, proceeds from debt issuance and borrowing facilities, repurchase agreements, contract deposits and securities lending. Primary uses of these funds are payments of policyholder benefits commissions and operating expenses, interest credits, investment purchases and contract maturities, withdrawals and surrenders.

Parent Company Sources and Uses of Liquidity

In evaluating liquidity it is important to distinguish the cash flow needs of ING U.S., Inc. from the cash flow needs of the Company as a whole. ING U.S., Inc. is largely dependent on cash flows from its operating subsidiaries to meet its obligations. The principal sources of funds available to ING U.S., Inc. include dividends and returns of capital from its operating subsidiaries, as well as cash and short-term investments. These sources of funds are currently supplemented by ING U.S., Inc.’s access to the $750.0 million revolving credit sublimit of its Revolving Credit Agreement, ING U.S., Inc.’s $3.0 billion commercial paper program and


101


reciprocal borrowing facilities maintained with its subsidiaries as well as other alternate sources of liquidity described below either directly or indirectly through its insurance subsidiaries.

ING U.S., Inc.'s primary sources and uses of cash for the periods indicated are presented in the following table:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Beginning cash and cash equivalents balance
$
357.5

 
$
1.3

Sources:
 
 
 
Proceeds from issuance of commercial paper, net of repayments
—

 
125.4

Proceeds from loans from subsidiaries, net of repayments
23.9

 
—

Repayment of loans to subsidiaries, net of new issuances
—

 
16.7

Amounts received from subsidiaries under tax sharing arrangements, net
198.3

 
—

Proceeds from 2018 Notes offering
998.3

 
—

Other, net
—

 
14.7

Total sources
1,220.5

 
156.8

Uses:
 
 
 
Payment of interest expense
29.6

 
3.3

Repayments of loans from subsidiaries, net of new issuances
—

 
135.2

Repayment of commercial paper, net of issuances
188.0

 
—

Repayment of credit facility borrowings
925.0

 
—

New issuances of loans to subsidiaries, net of repayments
34.9

 
—

Amounts paid to subsidiaries under tax sharing arrangements, net
—

 
19.1

Other, net
16.3

 
—

Total uses
1,193.8

 
157.6

Net increase (decrease) in cash and cash equivalents
26.7

 
(0.8
)
Ending cash and cash equivalents balance
$
384.2

 
$
0.5


Liquidity
 
We manage liquidity through access to substantial investment portfolios as well as a variety of other sources of liquidity including committed credit facilities and securities lending and repurchase agreements. Our asset-liability management ("ALM") process takes into account the expected maturity of investments and expected benefit payments as well as the specific nature and risk profile of the liabilities, including variable products with guarantees. As part of our liquidity management process, we model different scenarios to determine whether existing assets are adequate to meet projected cash flows. Key variables in the modeling process include interest rates, equity market movements, quantity and type of interest and equity market hedges, anticipated contract owner behavior, market value of general account assets, variable separate account performance and implications of rating agency actions.

Restrictions on Dividends and Returns of Capital from Subsidiaries

Our business is conducted through operating subsidiaries. U.S. insurance laws and regulations regulate the payment of dividends and other distributions by our U.S. insurance subsidiaries to their respective parents. Dividends in excess of prescribed limits established by the applicable state regulations are considered to be extraordinary transactions and require explicit regulatory approval. In addition, under the insurance laws applicable to our insurance subsidiaries, domiciled in Colorado, Connecticut, Iowa and Minnesota (collectively, “principal insurance subsidiaries”), no dividend or other distribution exceeding an amount equal to an insurance company’s earned surplus may be paid without the domiciliary insurance regulator’s prior approval. For a summary of applicable laws and regulations governing dividends, see the Shareholder's Equity Note and Dividend Restrictions Note to the Condensed Consolidated Financial Statements in Part I, Item 1. to this Form 10-Q.

In March and April 2013, in response to requests made in 2012 and refreshed in 2013, our principal insurance subsidiaries received approvals or notices of non-objection, as the case may be, from their respective domiciliary insurance regulators to pay extraordinary distributions to ING U.S., Inc. or Lion Connecticut Holdings Inc. (“Lion Holdings”), a wholly owned subsidiary of ING U.S.,


102


Inc., in the aggregate amount of $1.434 billion contingent upon completion of the IPO and the use of the extraordinary distribution funds solely for Company operations. The approved distributions of $1.434 billion were made on May 8, 2013. The Company's estimated risk-based capital ("RBC") ratio on a combined basis would have been 451% as of March 31, 2013, after giving effect to the extraordinary dividend. Prior to the extraordinary dividend, the estimated RBC ratio on a combined basis is 556% as of March 31, 2013.

In addition, on May 8, 2013, our principal insurance subsidiaries domiciled in Colorado, Iowa and Minnesota each reset, on a one-time basis, their respective negative unassigned funds account as of December 31, 2012 (as reported in their respective 2012 statutory annual statements) to zero (with an offsetting reduction in gross paid-in capital and contributed surplus). These resets were made pursuant to permitted practices in accordance with statutory accounting practices granted by their respective domiciliary insurance regulators. These permitted practices have no impact on total capital and surplus of these insurance subsidiaries and will be reflected in their second quarter statutory financial statements.

Description of Certain Indebtedness

We borrow funds to provide liquidity, invest in the growth of the business and for general corporate purposes. Our ability to access these borrowings depends on a variety of factors including, but not limited to, the credit rating of ING U.S., Inc. and of its insurance company subsidiaries and general macroeconomic conditions. The following table summarizes our borrowing activities for the three months ended March 31, 2013 :
($ in millions)  
Beginning Balance
 
Issuance
 
Maturities and Repayment
 
Other Changes
 
Ending Balance
Short-Term Debt:
 
 
 
 
 
 
 
 
 
Commercial paper
$
192.0

 
$
474.9

 
$
(662.9
)
 
$
—

 
$
4.0

Current portion of long-term debt
872.6

 
—

 
(604.3
)
 
48.9

 
317.2

Total short-term debt
$
1,064.6

 
$
474.9

 
$
(1,267.2
)
 
$
48.9

 
$
321.2

Long-Term Debt:
 
 
 
 
 
 
 
 
 
Debt securities in issue
$
1,500.4

 
$
998.3

 
$
—

 
$
0.3

 
$
2,499.0

Borrowings from ING V
500.0

 
—

 
—

 
—

 
500.0

Windsor property loan
4.9

 
—

 
—

 
—

 
4.9

Syndicated Bank Term Loan (1)
1,350.0

 
—

 
(925.0
)
 
—

 
425.0

Surplus notes (2)
688.4

 
—

 
(359.3
)
 
—

 
329.1

Subtotal
$
4,043.7

 
$
998.3

 
$
(1,284.3
)
 
$
0.3

 
$
3,758.0

Less: Current portion of long-term debt
872.6

 
—

 
(604.3
)
 
48.9

 
317.2

Total long-term debt
$
3,171.1

 
$
998.3

 
$
(680.0
)
 
$
(48.6
)
 
$
3,440.8

(1) On May 21, 2013, the outstanding loan balance for the Syndicated Bank Term Loan was repaid in full.
(2) On April 19, 2013, the Whisperingwind III surplus note of $329.1 million was repaid in full.

Commercial Paper

ING U.S., Inc. has a commercial paper program with an authorized capacity of $3.0 billion. Our commercial paper borrowings have been generally used to fund the working capital needs of our subsidiaries and provide short-term liquidity to us. Outstanding commercial paper borrowings were $4.0 million and $192.0 million at March 31, 2013 and December 31, 2012 , respectively. The issuances under this program benefit from a full and irrevocable guarantee provided by ING V. We pay ING V 10 basis points ("bps") on the outstanding balance of the commercial paper program as a fee for this guarantee. We reduced the balance of commercial paper outstanding under the commercial paper program to zero prior to completion of the IPO, and expect to terminate this program.

Debt Securities

As of March 31, 2013 and December 31, 2012 , Lion Holdings had outstanding $138.7 million par amount of 6.75% Debentures due September 15, 2013, $163.0 million par amount of 7.25% Debentures due August 15, 2023, $235.1 million par amount of 7.63% Debentures due August 15, 2026 and $108.0 million par amount of 6.97% Debentures due August 15, 2036 (collectively, the "Aetna Notes"), all of which were issued by a predecessor of Lion Holdings and assumed in connection with our acquisition of Aetna's life insurance and related businesses. In addition, Equitable of Iowa Capital Trust II, a limited purpose trust, has


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outstanding $13.0 million par amount of 8.42% Series B Capital Securities due April 1, 2027 (the "ING USA Notes"). ING Group guarantees all of the foregoing debt securities with the exception of the $13.0 million par amount Series B Capital Securities. Both the Aetna Notes and the ING USA Notes benefit from a guarantee by ING U.S., Inc.

Concurrent with the completion of our IPO, we entered into a shareholder agreement with ING Group that governs certain aspects of our continuing relationship. We agreed to reduce the aggregate outstanding principal amount of Aetna Notes to:

•
no more than $400.0 million as of December 31, 2015;
•
no more than $300.0 million as of December 31, 2016;
•
no more than $200.0 million as of December 31, 2017;
•
no more than $100.0 million as of December 31, 2018;
•
and zero as of December 31, 2019.

The reduction in principal amount of Aetna Notes can be accomplished, at our option, through redemptions, repurchases or other means, but will also be deemed to have been reduced to the extent we post collateral with a third-party collateral agent, for the benefit of ING Group, which may consist of cash collateral; certain investment-grade debt instruments; a letter of credit meeting certain requirements; or senior debt obligations of ING Group or a wholly owned subsidiary of ING Group (other than the Company or its subsidiaries).

If we fail to reduce the outstanding principal amount of the Aetna Notes, we agreed to pay a quarterly fee (ranging from 0.5% per quarter for 2016 to 1.25% per quarter for 2019) to ING Group based on the outstanding principal amount of Aetna Notes which exceed the limits set forth above.

On July 13, 2012, we issued $850.0 million of 2022 Notes. The 2022 Notes are guaranteed by Lion Holdings. We pay interest semi-annually, in arrears, on each January 15 and July 15, commencing on January 15, 2013. ING Financial Markets LLC, a non-subsidiary affiliate of ING U.S., Inc., served as Joint Book Running Manager and was paid $0.3 million for its services. We used the proceeds of the 2022 Notes to repay $500.0 million of the direct borrowings under the Revolving Credit Agreement (see Senior Unsecured Credit Facility below). The remaining proceeds of the 2022 Notes were used for general corporate purposes, including the retirement of commercial paper.

On February 11, 2013, ING U.S., Inc. issued $1.0 billion of unsecured 2.9% Senior Notes due 2018 in a private placement with registration rights (the “2018 Notes”). The 2018 Notes are guaranteed by Lion Holdings. Interest is paid semi-annually, in arrears, on each February 15 and August 15, commencing on August 15, 2013. During the three months ended March 31, 2013 , we used the proceeds of the 2018 Notes to repay $850.0 million of the borrowings under the Syndicated Bank Term Loan. We will use the remaining proceeds of the 2018 Notes for general corporate purposes including retirement of outstanding commercial paper. ING Financial Markets, LLC, an affiliate, served as Joint Book Running Manager and was paid $0.3 million for its services. As a result of the issuance of the 2018 Notes, the revolving credit borrowings sublimit of the Revolving Credit Agreement of the Senior Unsecured Credit Facility was reduced by 50% of the issuance to the minimum of $750.0 million.

The Company and Lion Holdings agreed to use reasonable best efforts to cause a registration statement to be filed with the SEC within 365 days after the date of the 2022 Note and 2018 Note issuances, or; if earlier, within 30 days after the effectiveness of any registration statement filed by the Company covering the initial public offering of our equity securities. The registration statement will cover the offer to the holders of the notes to exchange the notes for new notes containing terms identical to the notes except for transfer restrictions.

On May 16, 2013, we issued $750.0 million of 5.65% Fixed-to-Floating Rate Junior Subordinated Notes due in 2053 in a private placement with registration rights (the “2053 Notes”). The 2053 Notes are guaranteed on an unsecured, junior subordinated basis by Lion Holdings . Interest is payable semi-annually, in arrears, on May 15 and November 15 beginning November 15, 2013 and ending on May 15, 2023. The 2053 Notes will bear interest at a fixed rate of 5.65% prior to May 15, 2023. From May 15, 2023, the 2053 Notes will bear interest at an annual rate equal to three-month LIBOR plus 3.58% payable quarterly, in arrears, on February 15, May 15, August 15 and November 15. So long as no event of default with respect to the 2053 Notes has occurred and is continuing, we have the right on one or more occasions, to defer the payment of interest on the 2053 Notes for one or more consecutive interest periods for up to five years. During the deferral period, interest will continue to accrue at the then-applicable rate and deferred interest will bear additional interest at the then-applicable rate.

At any time following notice of our plan to defer interest and during the period interest is deferred, we and our subsidiaries generally, with certain exceptions, may not make payments on or redeem or purchase any shares of our common stock or any of the debt securities or guarantees that rank in liquidation on a parity with or are junior to the 2053 Notes.


104



We may elect to redeem the 2053 Notes (i) in whole at any time or in part on or after May 15, 2023 at a redemption price equal to the principal amount plus accrued and unpaid interest. If the notes are not redeemed in whole, $25 million of aggregate principal (excluding the principal amount of 2053 Notes held by us or our affiliates) must remain outstanding after giving effect to the redemption; or (ii) in whole, but not in part, at any time prior to May15, 2023 within 90 days after the occurrence of a “tax event” or “rating agency event”, as defined in the 2053 Notes Offering Memorandum, at a redemption price equal to the principal amount, or, if greater, a ““make-whole redemption price,” as defined in the 2053 Notes Offering Memorandum, plus , in each case accrued and unpaid interest.

We and Lion Holdings agreed to use reasonable best efforts to cause a registration statement to be filed with the SEC within 45 days after the date of note issuance, or; if earlier, on the date we file a registration statement covering the exchange of the 2018 Notes and 2022 Notes as discussed above. The registration statement will cover the offer to the holders of the 2053 Notes to exchange the 2053 Notes for new notes containing identical terms except for transfer restrictions.

On May 21 . 2013, we used the proceeds of the 2053 Notes for the repayment of the outstanding borrowings of $ 392.5 million under the Syndicated Bank Term Loan. The remaining proceeds will be used to partially repay the borrowings with ING V.

Surplus Notes

Two of our onshore captive reinsurance subsidiaries, Whisperingwind II, LLC and Whisperingwind III, LLC, issued surplus notes in order to finance insurance reserves assumed. On January 3, 2013, Whisperingwind II, LLC repaid the $359.3 million surplus note.

On April 16, 2013, Whisperingwind III, LLC obtained a LOC of $305.0 million to replace its surplus note. Upon receiving regulatory approval, on April 19, 2013 Whisperingwind III, LLC repaid its $329.1 million surplus note. See the Financing Agreements Note "Surplus Notes" section to the Condensed Consolidated Financial Statements in Part I, Item 1. to this Form 10-Q.

Senior Unsecured Credit Facility

On April 20, 2012, ING U.S., Inc. entered into a $5.0 billion Senior Unsecured Credit Facility with a syndicate of banks. The Senior Unsecured Credit Facility, which is guaranteed by Lion Holdings consists of the $3.5 billion Revolving Credit Agreement and the $1.5 billion Term Loan Agreement. The Revolving Credit Agreement expires on April 20, 2015 and the Term Loan Agreement expires on April 20, 2014.

Term Loan Agreement . The proceeds of the Term Loan Agreement were used to replace financing that was internally funded. ING U.S., Inc. is required to make principal payments totaling 20% of the original borrowing amount over the first 12 months and 30% over the second twelve months with all remaining amounts due by April 20, 2014. During February 2013, we made payments totaling $850.0 million on the Syndicated Bank Term Loan from the proceeds of the 2018 Notes.

Credit Facilities and Subsidiary Credit Support Arrangements

We use credit facilities primarily to provide collateral required under our affiliated reinsurance transactions as well as certain third party reinsurance arrangements to which one of our captive reinsurance subsidiaries is a party. We also issue guarantees and enter into financing arrangements in connection with our affiliated reinsurance transactions. These arrangements are primarily designed to facilitate the financing of excess reserve requirements associated with Statutory Regulations XXX and AG38. Regulation XXX and AG38 require insurers to hold significantly higher levels of reserves on term products and universal life insurance products with secondary guarantees, respectively, than are generally thought to be sufficient.



105


The following table presents our credit facilities, their dates of expiration, capacity and utilization as of March 31, 2013 :
($ in millions)  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Obligor / Applicant
 
Liability Supported
 
Secured/ Unsecured
 
Committed/ Uncommitted
 
Expiration
 
Capacity
 
Utilization
 
Unused Commitment
ING U.S., Inc. (1)(2)
 
 
 
Unsecured
 
Committed
 
04/20/15
 
$
3,500.0

 
$
2,220.8

 
$
1,279.2

 
 
Individual Life
 
 
 
 
 
 
 
 
 
296.0

 
 
 
 
Hannover Re block
 
 
 
 
 
 
 
 
 
516.0

 
 
 
 
CBVA (4)
 
 
 
 
 
 
 
 
 
1,200.0

 
 
 
 
Retirement Solutions
 
 
 
 
 
 
 
 
 
135.0

 
 
 
 
Other
 
 
 
 
 
 
 
 
 
73.8

 
 
ING U.S., Inc. / SLDI, Roaring River LLC (1)
 
Individual Life
 
Unsecured
 
Uncommitted
 
02/28/13
 
1,605.0

 
15.0

 
—

SLDI (1)(3)
 
CBVA (4)
 
Unsecured
 
Uncommitted
 
12/31/31
 
1,500.0

 
1,500.0

 
—

ING U.S., Inc. / SLDI
 
Hannover Re block
 
Unsecured
 
Committed
 
08/19/21
 
750.0

 
750.0

 
—

ING U.S., Inc. / SLDI
 
Hannover Re block
 
Unsecured
 
Committed
 
11/09/21
 
750.0

 
750.0

 
—

SLDI (1)
 
Hannover Re block
 
Unsecured
 
Committed
 
12/31/13
 
825.0

 
825.0

 
—

ING U.S., Inc. / SLDI
 
Hannover Re block
 
Unsecured
 
Committed
 
12/27/22
 
500.0

 
500.0

 
—

ING U.S., Inc. / SLDI (1)
 
Hannover Re block
 
Unsecured
 
Uncommitted
 
06/30/13
 
300.0

 
225.6

 
—

ReliaStar Life Insurance Company
 
Institutional Spread Products
 
Secured
 
Committed
 
Conditional
 
265.0

 
265.0

 
—

ING U.S., Inc. / SLDI
 
Individual Life
 
Unsecured
 
Committed
 
12/31/25
 
475.0

 
475.0

 
—

ING U.S., Inc.
 
Other
 
Unsecured
 
Uncommitted
 
Various dates
 
2.1

 
2.1

 
—

ING U.S., Inc.
 
Other
 
Secured
 
Uncommitted
 
Various dates
 
10.0

 
4.7

 
—

ING U.S., Inc. / Roaring River III LLC
 
Individual Life
 
Unsecured
 
Committed
 
06/30/22
 
1,151.2

 
488.0

 
663.2

ING U.S., Inc. / Roaring River II LLC
 
Individual Life
 
Unsecured
 
Committed
 
12/31/19
 
995.0

 
485.0

 
510.0

Total
 
 
 
 
 
 
 
 
 
$
12,628.3

 
$
8,506.2

 
$
2,452.4

(1) Refer to the Related Party Transactions Note to the Condensed Consolidated Financial Statements in Part I, Item 1. to this Form 10-Q for more information.
(2) On April 16, 2013, $305.0 million of additional LOCs were issued to replace the WWIII Note which was cancelled.
(3) On May 14, 2013, the $1.5 billion contingent capital LOC facility was terminated. See the Subsequent Events Note to the Condensed Consolidated Financial Statements in Part I, Item 1. to this Form 10-Q.
(4) CBVA ("Closed Block Variable Annuity")

Additionally, as of March 31, 2013 , Whisperingwind III, LLC had issued $329.1 million of surplus note to a third party bank which would have matured on June 30, 2037. The proceeds of the surplus note are used to fund AG38 reserves of our Individual Life segment. On April 19, 2013, Whisperingwind III, LLC repaid $329.1 million of surplus note in full.

The following tables present our existing financing facilities for each of our Individual Life, Hannover Re and Closed Block Variable Annuity blocks of business as of March 31, 2013 . While these tables present the current financing for each block, these


106


financing facilities will expire prior to the runoff of the reserve liabilities they support. In addition, these liabilities will change over the life of each block. As a result, the existing financing will be periodically extended or replaced and increased as each block grows toward the peak reserve requirement noted below.

Individual Life

($ in millions)  
 
 
 
 
 
 
 
 
 
 
Obligor / Applicant
 
Financing Structure
 
Reserve Type
 
Expiration
 
Capacity
 
Utilization
ING U.S., Inc.  
 
Credit Facility
 
XXX
 
04/20/15
 
$
296.0

 
$
296.0

ING U.S., Inc.  
 
Credit Facility
 
Other
 
06/30/26
 
15.0

 
15.0

ING U.S., Inc./Roaring River III LLC
 
Trust Note
 
XXX
 
06/30/22
 
1,151.2

 
488.0

ING U.S., Inc. / SLDI
 
LOC Facility
 
AG38
 
12/31/25
 
475.0

 
475.0

ING U.S., Inc. / Whisperingwind III LLC (1)
 
Surplus Notes
 
AG38
 
06/30/37
 
499.0

 
329.1

ING U.S., Inc. / Roaring River II LLC
 
LOC Facility
 
XXX
 
12/31/19
 
995.0

 
485.0

Total
 
 
 
 
 
 
 
$
3,431.2

 
$
2,088.1

(1) On April 19, 2013, Whisperingwind III LLC repaid the surplus note.

The peak financing requirement for the Individual Life liabilities above is expected to reach approximately $3.8 billion during the period 2017 - 2020.

Hannover Re block

($ in millions)  
 
 
 
 
 
 
 
 
 
 
Obligor / Applicant
 
Financing Structure
 
Reserve Type
 
Expiration
 
Capacity
 
Utilization
ING U.S., Inc.  
 
Credit Facility
 
XXX/AG38
 
04/20/2015
 
$
516.0

 
$
516.0

ING U.S., Inc. / SLDI
 
Collateral Note
 
XXX/AG38
 
08/19/2021
 
750.0

 
750.0

ING U.S., Inc. / SLDI
 
Collateral Note
 
XXX/AG38
 
11/09/2021
 
750.0

 
750.0

ING U.S., Inc. / SLDI
 
Collateral Note
 
XXX/AG38
 
12/27/2022
 
500.0

 
500.0

SLDI
 
Collateral Note
 
XXX/AG38
 
12/31/2013
 
825.0

 
825.0

ING U.S., Inc. / SLDI
 
LOC Facility
 
XXX/AG38
 
06/30/2013
 
300.0

 
225.6

Total
 
 
 
 
 
 
 
$
3,641.0

 
$
3,566.6


The peak financing requirement for the Hannover Re block is expected to reach approximately $4.0 billion in 2016.

Closed Block Variable Annuity

($ in millions)  
 
 
 
 
 
 
 
 
 
 
Obligor / Applicant
 
Financing Structure
 
Product
 
Expiration
 
Capacity
 
Utilization
ING U.S., Inc. / SLDI
 
Credit Facility
 
GMWBL/GMIB
 
04/20/2015
 
$
1,200.0

 
$
1,200.0

Total
 
 
 
 
 
 
 
$
1,200.0

 
$
1,200.0


Of the $1.2 billion LOC outstanding, approximately $425.0 million was required as of March 31, 2013 . As the statutory reserve requirements of AG43 react differently to equity and interest market movements than do the funding requirements of the intercompany reinsurance agreement between ING USA Annuity and Life Insurance Company (“ING USA”), another of the Company's wholly-owned subsidiaries, and SLDI, we may utilize LOCs to provide for this difference. The amount of LOCs will vary based on asset values, market movements, and reinsurance trust funding.


107




Contingent Capital Letter of Credit

As of March 31, 2013 , our Cayman Islands insurance subsidiary, SLDI, was the sole obligor under a $1.5 billion contingent capital LOC facility with ING Bank, under which $1.5 billion of LOCs have been issued to support SLDI's reinsurance obligation s to ING USA for certain minimum guarantees included in its Closed Block Variable Annuity products. This facility, which was unconditional and irrevocable, was to expire on December 31, 2031. Subject to the terms of the Credit Agreement, draws under the LOC were to be financed by ING Bank and payable in full on December 31, 2041. The proceeds of draws were only to be used to meet SLDI's obligations under its reinsurance agreement with ING USA. The agreement had no recourse to ING U.S., Inc.

Following the deposit by SLDI of contributed capital as cash collateral into a funds withheld trust account to support its reinsurance obligations to ING USA, the $1.5 billion contingent capital LOCs issued under the contingent capital LOC facility were cancelled and on May 14, 2013, the $1.5 billion contingent capital LOC facility was terminated. See the Subsequent Events Note to the Condensed Consolidated Financial Statements in Part I, Item 1. to this Form 10-Q.

ING Group Credit Support

As described above, certain of our indebtedness benefits from a guarantee provided by ING Group or ING V. As of March 31, 2013 , the indebtedness for which ING Group or ING V provide guarantees included:

•
$15.0 million in LOC issued by ING Bank and used to support the reinsurance obligations of certain of our captive reinsurance subsidiary;
•
$4.0 million in borrowings under our commercial paper program; and
•
$644.8 million aggregate par amount of Aetna Notes issued by Lion Holdings.

In addition, ING V guarantees our obligations under $1.0 billion notional amount of credit default swaps ("CDS") written by one of our subsidiaries.

Borrowings from Subsidiaries

We maintain revolving reciprocal loan agreements with a number of our life and non-life insurance subsidiaries that are used to fund short-term cash requirements that arise in the ordinary course of business. Under these agreements, either party may borrow up to the maximum allowable under the agreement for a term not more than 270 days. For life insurance subsidiaries, the amounts that either party may borrow from the other under the agreement vary and are equal to 2%-5% of the insurance subsidiary's statutory net admitted assets (excluding separate accounts) as of the previous year end depending on the state of domicile. As of March 31, 2013 , the aggregate amount that may be borrowed or lent under agreements with life insurance subsidiaries was $2.5 billion . Each agreement with a life insurance subsidiary has received all necessary approvals from the appropriate state insurance regulatory authorities. For non-life insurance subsidiaries, the maximum allowable under the agreement is based on the assets of the subsidiaries and their particular cash requirements. As of March 31, 2013 , we borrowed $342.9 million from our subsidiaries and lent $111.9 million .

Ratings

Our access to funding and our related cost of borrowing, requirements for derivatives collateral posting and the attractiveness of certain of our products to customers are affected by our credit ratings and insurance financial strength ratings, which are periodically reviewed by A.M. Best Company ("A.M. Best"), Fitch Ratings, Inc. ("Fitch"), Moody's Investors Service (“Moody's”) and Standard & Poor's Ratings Services (“S&P”). Financial strength ratings and credit ratings are important factors affecting public confidence in an insurer and its competitive position in marketing products. The credit ratings are also important for the ability to raise capital through the issuance of debt and for the cost of such financing.

A downgrade in our credit ratings or the credit or financial strength ratings of our rated subsidiaries could potentially, among other things, limit our ability to market products, reduce our competitiveness, increase the number or value of policy surrenders and withdrawals, increase our borrowing costs and potentially make it more difficult to borrow funds, adversely affect the availability of financial guarantees or LOCs, cause additional collateral requirements or other required payments under certain agreements, allow counterparties to terminate derivative agreements and/or hurt our relationships with creditors, distributors or trading counterparties thereby potentially negatively affecting our profitability, liquidity and/or capital. In addition, we consider


108


nonperformance risk in determining the fair value of our liabilities. Therefore, changes in our credit or financial strength ratings may affect the fair value of our liabilities.

Additionally, our ratings may be influenced by the credit ratings of our indirect parent companies, ING V and ING Group. A downgrade of the credit ratings of these entities could result in downgrades of our own credit and financial strength ratings. We received explicit guarantees of our commercial paper program and certain credit facilities from ING V. A downgrade of the credit rating of ING V could impact our ability to issue commercial paper or increase the amount of collateral that we are required to provide under these credit facilities.

Financial strength ratings represent the opinions of rating agencies regarding the financial ability of an insurance company to meet its obligations under an insurance policy. Credit ratings represent the opinions of rating agencies regarding an entity's ability to repay its indebtedness. These ratings are not a recommendation to buy or hold any of our securities and they may be revised or revoked at any time at the sole discretion of the rating organization.



109


The financial strength and credit ratings of ING U.S., Inc. and its principal subsidiaries as of the date of this Form 10-Q are presented in the following table. In parentheses, following the initial occurrence in the table of each rating, is an indication of that rating’s relative rank within the agency’s rating categories. That ranking refers only to the generic or major rating category and not to the modifiers appended to the rating by the rating agencies to denote relative position within such generic or major category. For each rating, the relative position of the rating within the relevant rating agency’s ratings scale is presented, with “1” representing the highest rating in the scale.
Company
 
A.M. Best
 
Fitch
 
Moody's
 
S&P
ING U.S., Inc. (Commercial Paper)
 
NR
 
F2
(2 of 7)
 
P-2
(2 of 4)
 
A-2
(2 of 8)
ING U.S., Inc. (Long-term Issuer Credit)
 
bbb
(4 of 10)
 
BBB
(4 of 11)
 
Baa3 (LT Issuer Domestic)
(4 of 9)
 
BBB-
(4 of 11)
 
 
 
 
 
 
Baa2
 
 
 
 
 
 
 
 
(Senior Unsecured Foreign)
(4 of 9)
 
 
ING U.S., Inc. (Senior Unsecured Debt) (1)
 
bbb
(4 of 10)
 
BBB-
(4 of 9)
 
Baa3
(4 of 9)
 
BBB-
(4 of 9)
ING Life Insurance and Annuity Company
 
 
 
 
 
 
 
 
Financial Strength Rating
 
A
(3 of 16)
 
A-
(3 of 9)
 
A3 (3 of 9)
 
A-
(3 of 9)
ING USA Annuity & Life Insurance
 
 
 
 
 
 
 
 
Financial Strength Rating
 
A
(3 of 16)
 
A-
(3 of 9)
 
A3
(3 of 9)
 
A-
(3 of 9)
Short-term Issuer Credit Rating
 
NR
 
NR
 
P-2
(2 of 4)
 
A-2
(2 of 8)
ReliaStar Life Insurance Company
 
 
 
 
 
 
 
 
Financial Strength Rating
 
A
(3 of 16)
 
A-
(3 of 9)
 
A3
(3 of 9)
 
A-
(3 of 9)
Short-term Issuer Credit Rating
 
NR
 
NR
 
NR
 
A-2
(2 of 8)
Security Life of Denver Insurance Company
 
 
 
 
 
 
 
 
Financial Strength Rating
 
A
(3 of 16)
 
A-
(3 of 9)
 
A3
(3 of 9)
 
A-
(3 of 9)
Short-term Issuer Credit Rating
 
NR
 
NR
 
P-2
(2 of 4)
 
A-2
(2 of 8)
Midwestern United Life Insurance Company
 
 
 
 
 
 
 
 
Financial Strength Rating
 
A-
(4 of 16)
 
NR
 
NR
 
A-
(3 of 9)
Lion Connecticut Holdings, Inc.
 
 
 
 
 
 
 
 
Long-term Issuer Credit Rating
 
NR
 
NR
 
Baa3 (LT Issuer)
(4 of 9)
 
BBB-
(4 of 11)
(1) $850.0 million of our 2022 Notes and $1.0 billion of our 2018 Notes.



110


Rating Agency
 
Financial Strength Rating Scale
 
Long-term Credit Rating Scale
 
Senior Unsecured Debt Credit Rating Scale
 
Short-term Credit Rating Scale
A.M. Best (1)
 
"A++" to "S"
 
“aaa” to “rs”
 
“aaa” to “d”
 
“AMB-1+” to “d”
Fitch (2)
 
“AAA” to “C”
 
“AAA” to “D”
 
“AAA” to “C”
 
“F1” to “D”
Moody’s (3)
 
“Aaa” to “C”
 
“Aaa” to “C”
 
“Aaa” to “C”
 
“Prime-1” to “Not Prime”
S&P (4)
 
“AAA" to “R”
 
“AAA” to “D”
 
“AAA” to “D”
 
“A-1” to “D”
(1) A.M. Best’s financial strength rating is an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations. It is based on a comprehensive quantitative and qualitative evaluation of a company's balance sheet strength, operating performance and business profile. A.M. Best’s long-term credit ratings reflect its assessment of the ability of an obligor to pay interest and principal in accordance with the terms of the obligation. Ratings from "aa" to "ccc" may be enhanced with a "+" (plus) or "-" (minus) to indicate whether credit quality is near the top or bottom of a category. A.M. Best’s short-term credit rating is an opinion to the ability of the rated entity to meet its senior financial commitments on obligations maturing in generally less than one year.
(2) Fitch’s financial strength ratings provide an assessment of the financial strength of an insurance organization. The IFS Rating is assigned to the insurance company's policyholder obligations, including assumed reinsurance obligations and contract holder obligations, such as guaranteed investment contracts. Within long-term and short-term ratings, a “+” or a “–” may be appended to a rating to denote relative status within major rating categories.
(3) Moody’s financial strength ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. Moody's appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category. Moody’s long-term credit ratings are opinions of the relative credit risk of fixed-income obligations with an original maturity of one year or more. They address the possibility that a financial obligation will not be honored as promised. Moody’s short-term ratings are opinions of the ability of issuers to honor short-term financial obligations.
(4) S&P’s insurer financial strength rating is a forward-looking opinion about the financial security characteristics of an insurance organization with respect to its ability to pay under its insurance policies and contracts in accordance with their terms. A “+” or “-” indicates relative strength within a category. An S&P credit rating is an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Short-term issuer credit ratings reflect the obligor's creditworthiness over a short-term time horizon.

Our ratings by A.M. Best, Fitch, Moody's and S&P reflect a broader view of how the financial services industry is being challenged by the current economic environment, but also are based on the rating agencies' specific views of our financial strength. In making their ratings decisions, the agencies consider past and expected future capital and earnings, asset quality and risk, profitability and risk of existing liabilities and current products, market share and product distribution capabilities and direct or implied support from parent companies, including implications of the 2009 Restructuring Plan and the 2012 Amended Restructuring Plan, among other factors.

Rating agencies use an "outlook" statement for both industry sectors and individual companies. For an industry sector, a stable outlook generally implies that over the next 12 to 18 months the rating agency expects ratings to remain unchanged among companies in the sector. For a particular company, an outlook generally indicates a medium- or long-term trend in credit fundamentals, which if continued, may lead to a rating change.

Ratings actions affirmation and outlook changes by A.M. Best, Fitch, Moody's and S&P from January 1, 2013 through May 23, 2013 are as follows:

•
On May 6, 2013, following our announcement that we completed our recent IPO, Moody's commented that the completion of the IPO is credit positive for ING U.S., Inc.
•
On May 2, 2013, S&P stated that ING U.S., Inc.'s announcement that it priced its IPO will not affect the ratings or outlook on ING U.S., Inc. or any of its rated insurance subsidiaries.
•
On February 7, 2013, Fitch assigned a BBB- rating to our $1.0 billion 2018 Notes. On January 7, 2013, Fitch affirmed the BBB issuer default rating and the BBB- senior debt rating of ING U.S., Inc. as well as the A- insurer financial strength rating of its operating subsidiaries. Furthermore, Fitch removed all ratings from Ratings Watch Evolving and assigned a Stable outlook to the ratings.
•
On February 7, 2013, A.M. Best assigned a “bbb” debt rating to our $1.0 billion 2018 Notes with a Stable outlook.
•
On February 7, 2013 Moody's assigned a Baa3 senior debt rating to our $1.0 billion 2018 Notes with a Stable outlook.
•
On February 6, 2013, S&P assigned a BBB- senior unsecured debt rating to our $1.0 billion 2018 Notes.

Potential Impact of a Ratings Downgrade

Our ability to borrow funds and the terms under which we borrow are sensitive to our short- and long-term issuer credit ratings. A downgrade of either or both of these credit ratings could increase our cost of borrowing. Additionally, a downgrade of either or both of these credit ratings could decrease the total amount of new debt that we are able to issue in the future or increase the costs associated with an issuance.



111


Certain of our credit facility agreements contain provisions that are linked to the credit or financial strength ratings of certain legal entities, including our indirect parent ING V. If financial strength ratings were downgraded in the future, these provisions might be triggered and counterparties to the credit facility agreements could demand collateralization which could negatively impact overall liquidity.

Based on the amount of credit outstanding as of March 31, 2013 and December 31, 2012 , a one-notch downgrade of the credit ratings of ING U.S., Inc. by S&P or Moody's would have resulted in an estimated increase in our collateral requirements by approximately $1.2 billion . A two notch downgrade of the credit ratings of ING U.S., Inc. would not have resulted in an additional increase in our collateral requirements beyond that resulting from a one notch downgrade. The nature of the collateral that we may be required to post is principally in the form of cash and U.S. Treasury securities. Alternative forms of collateral, such as LOCs, may also be used.

Based on the amount of credit outstanding as of March 31, 2013 and December 31, 2012 , a one notch downgrade of the credit ratings of ING V would not result in an increase in our estimated collateral requirements. A two-notch downgrade of the credit ratings of ING V by S&P would have resulted in an estimated increase in our collateral requirements by approximately $15.0 million and $30.1 million , respectively.

The documents governing the terms of our 2022 Notes and 2018 Notes contain provisions that provide for the adjustment of the interest rate payable on the 2022 Notes and 2018 Notes if the rating on the 2022 Notes or 2018 Notes, respectively, is downgraded by Moody's or S&P. The interest rate payable on the 2022 Notes and 2018 Notes will increase by 25 basis points for each one notch rating downgrade and is subject to reversal in the event of subsequent upgrades. In addition, if a rating on the 2022 Notes or 2018 Notes is withdrawn, suspended, or otherwise discontinued, the interest rate payable on the 2022 Notes or 2018 Notes will increase by 100 basis points for each such ratings withdrawal, suspension or discontinuation. Notwithstanding the foregoing, in no event shall the cumulative interest rate increase on the 2022 Notes or 2018 Notes as a result of all downgrades or ratings withdrawals exceed 200 basis points in the aggregate, and in no event shall the interest rate payable on the 2022 Notes be lower than 5.50% or the interest rate payable on the 2018 Notes be lower than 2.90%. The interest rate payable on the 2022 Notes and 2018 Notes will no longer be subject to adjustment pursuant to such provisions after the date that is 180 days following the completion of any sale or distribution to the public of any equity securities of ING U.S., Inc., if at the time of such sale or distribution (or within 30 days thereafter) such equity securities are of a class that is listed on a national securities exchange.

Each 25 basis point increase in the interest rate payable on the 2022 Notes and 2018 Notes would result in a pre-tax increase in our interest payments of $2.1 million and $2.5 million per annum, respectively.

Certain of our reinsurance agreements contain provisions that are linked to the financial strength ratings of the individual legal entity that entered into the reinsurance agreement. If the insurance subsidiaries' financial strength ratings were downgraded in the future, the terms in our reinsurance agreements might be triggered and counterparties to the credit facility agreements could demand collateralization which could negatively impact overall liquidity. Based on the amount of credit outstanding as of March 31, 2013 and December 31, 2012 , a one-notch downgrade of our insurance subsidiaries would have resulted in an estimated increase in our collateral requirements by approximately $23.7 million and $24.6 million , respectively. The nature of the collateral that we may be required to post is principally in the form of cash, highly rated securities or LOC.

Certain of our derivative agreements contain provisions that are linked to the financial strength ratings of the individual legal entity that entered into the derivative agreement. If insurance subsidiaries' financial strength ratings were downgraded in the future, the terms in our derivative agreements might be triggered and counterparties to the derivative agreements could demand immediate further collateralization which could negatively impact overall liquidity. Based on the market value of our derivatives as of March 31, 2013 and December 31, 2012 , a one-notch downgrade of our insurance subsidiaries would have resulted in an estimated increase in our derivative collateral requirements by approximately $139.0 million and $125.0 million , respectively. The nature of the collateral that we may be required to post is principally in the form of cash and U.S. Treasury securities.

Based on the market value of our derivatives as of March 31, 2013 and December 31, 2012 , a two-notch downgrade of our insurance subsidiaries would have resulted in an estimated increase in the derivative collateral requirements required by a one-notch downgrade by an additional $2.5 million .

The amount of collateral that would be required to be posted is also dependent on the fair value of our derivative positions. For additional information on our derivative positions, see the Derivative Financial Instruments Note to the Condensed Consolidated Financial Statements in Part I, Item 1. to this Form 10-Q.



112


Critical Accounting Policies, Judgments and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP") requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews estimates and assumptions used in the preparation of the financial statements. There can be no assurance that actual results will conform to estimates and assumptions and that reported results of operations will not be materially affected by the need to make future accounting adjustments to reflect changes in these estimates and assumptions from time to time.

We have identified the following accounting policies, judgments and estimates as critical in that they involve a higher degree of judgment and are subject to a significant degree of variability:

Reserves for future policy benefits, valuation and amortization (including unlocking) of deferred acquisition costs (“DAC"), value of business acquired (“VOBA") and other intangibles, valuation of investments and derivatives, impairments, income taxes, contingencies and employee benefit plans.

The above critical accounting estimates are described in the Business, Basis of Presentation and Significant Accounting Policies Note to the 2012 ING U.S., Inc. Consolidated Financial Statements contained in our Prospectus.

Impact of New Accounting Pronouncements

For information regarding the impact of new accounting pronouncements, see the Business, Basis of Presentation and Significant Accounting Policies Note to the Condensed Consolidated Financial Statements, in Part I, Item 1. of this Form 10-Q.

Income Taxes

The deferred tax valuation allowance as of March 31, 2013 was $3.1 billion. We estimate that approximately $1.1 billion, $43 million, $275 million and $545 million were related to federal net operating losses, non-life realized capital losses, non-life subgroup deferred amounts and life subgroup deferred amounts, respectively. The remaining balance was attributable to various items including losses in SLDI, our Cayman Islands insurance subsidiary, state taxes, and other deferred tax assets. We also estimated that the deferred tax asset associated with life subgroup deferred amounts, as of March 31, 2013 , was approximately $625 million, excluding the valuation allowance.

Also, should we have a Section 382 ownership change, using information available as of March 31, 2013 , we estimate that the deferred tax asset that would potentially be subject to an additional valuation allowance was approximately $90 million to $220 million (mainly as a result of built-in losses), which could change following the final Section 382 calculations. Under statutory accounting, a Section 382 event could reduce the admitted deferred tax asset by approximately $73 million if measured as of March 31, 2013 and considering the impact of extraordinary dividends paid on May 8, 2013.

Investments

Investments for our general account are managed by our wholly owned asset manager, ING Investment Management LLC, pursuant to investment advisory agreements with affiliates. In addition, our internal treasury group manages our holding company liquidity investments, primarily money market funds.

Investment Strategy

Our investment strategy seeks to achieve sustainable risk-adjusted returns by focusing on principal preservation, disciplined matching of asset characteristics with liability requirements and the diversification of risks. Investment activities are undertaken according to investment policy statements that contain internally established guidelines and risk tolerances and in all cases are required to comply with applicable laws and insurance regulations. Risk tolerances are established for credit risk, credit spread risk, market risk, liquidity risk and concentration risk across issuers, sectors and asset types that seek to mitigate the impact of cash flow variability arising from these risks.

Segmented portfolios are established for groups of products with similar liability characteristics. Our investment portfolio consists largely of high quality fixed maturities and short-term investments, investments in commercial mortgage loans, alternative investments and other instruments, including a small amount of equity holdings. Fixed maturities include publicly issued corporate bonds, government bonds, privately placed notes and bonds, ABS, traditional MBS and various CMO tranches managed in combination with financial derivatives as part of a proprietary strategy known as CMO-B.


113



We use derivatives for hedging purposes to reduce our exposure to the cash flow variability of assets and liabilities, interest rate risk, credit risk and market risk. In addition, we use credit derivatives to replicate exposure to individual securities or pools of securities as a means of achieving credit exposure similar to bonds of the underlying issuer(s) more efficiently.

Since the height of the financial crisis in 2008, we have pursued a substantial repositioning of the investment portfolio aimed at reducing risk, increasing the stability and predictability of returns and pursuing intentional investment risks that are reliant on our core strengths. The repositioning has resulted in a significant decrease in exposure to structured assets, an improvement in the NAIC designation profile of our remaining structured assets and an increase in exposure to public and private investment grade corporate bonds and U.S. Treasury securities.

See the Investments (excluding Consolidated Investment Entities) Note to the Condensed Consolidated Financial Statements in Part I, Item 1. of this Form 10-Q.  

Portfolio Composition

The following table presents the investment portfolio as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
($ in millions)  
Carrying
Value
 
%
 
Carrying
Value
 
%
Fixed maturities, available-for-sale, excluding securities pledged
$
70,622.9

 
76.6
%
 
$
70,910.3

 
74.2
%
Fixed maturities, at fair value using the fair value option
2,675.8

 
2.9
%
 
2,771.3

 
2.8
%
Equity securities, available-for-sale
282.3

 
0.3
%
 
340.1

 
0.4
%
Short-term investments (1)
2,992.1

 
3.2
%
 
5,991.2

 
6.3
%
Mortgage loans on real estate
8,949.4

 
9.7
%
 
8,662.3

 
9.1
%
Policy loans
2,204.4

 
2.4
%
 
2,200.3

 
2.3
%
Limited partnerships/corporations
468.5

 
0.5
%
 
465.1

 
0.5
%
Derivatives
2,077.0

 
2.3
%
 
2,374.5

 
2.5
%
Other investments
166.7

 
0.2
%
 
167.0

 
0.2
%
Securities pledged (2)
1,774.7

 
1.9
%
 
1,605.5

 
1.7
%
Total investments
$
92,213.8

 
100.0
%
 
$
95,487.6

 
100.0
%
(1) Short-term investments include investments with remaining maturities of one year or less, but greater than 3 months, at the time of purchase.
(2) See “Management's Discussion and Analysis of Results of Operations and Financial Condition-Liquidity and Capital Resources” for information regarding securities pledged.



114


Fixed Maturities

Total fixed maturities by market sector, including securities pledged, were as presented below as of the dates indicated:
 
March 31, 2013
($ in millions)  
Amortized Cost
 
% of Total
 
Fair Value
 
% of Total
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasuries
$
5,186.3

 
7.7
%
 
$
5,757.5

 
7.7
%
U.S. government agencies and authorities
642.0

 
1.0
%
 
709.5

 
0.9
%
State, municipalities and political subdivisions
288.6

 
0.4
%
 
317.8

 
0.4
%
U.S. corporate securities
34,082.4

 
50.3
%
 
37,759.9

 
50.3
%
Foreign securities (1)
14,673.2

 
21.6
%
 
16,110.0

 
21.5
%
Residential mortgage-backed securities
6,431.1

 
9.5
%
 
7,352.9

 
9.8
%
Commercial mortgage-backed securities
4,301.4

 
6.3
%
 
4,813.2

 
6.4
%
Other asset-backed securities
2,197.1

 
3.2
%
 
2,252.6

 
3.0
%
Total fixed maturities, including securities pledged
$
67,802.1

 
100.0
%
 
$
75,073.4

 
100.0
%
(1)  Primarily U.S. dollar denominated.

 
December 31, 2012
($ in millions)  
Amortized Cost
 
% of Total
 
Fair Value
 
% of Total
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasuries
$
5,194.3

 
7.7
%
 
$
5,883.7

 
7.7
%
U.S. government agencies and authorities
645.4

 
1.0
%
 
724.2

 
1.0
%
State, municipalities and political subdivisions
320.2

 
0.5
%
 
352.8

 
0.5
%
U.S. corporate securities
32,986.1

 
49.1
%
 
37,163.9

 
49.4
%
Foreign securities (1)
14,391.2

 
21.4
%
 
15,984.5

 
21.2
%
Residential mortgage-backed securities
6,684.2

 
9.9
%
 
7,667.0

 
10.2
%
Commercial mortgage-backed securities
4,438.9

 
6.6
%
 
4,946.4

 
6.6
%
Other asset-backed securities
2,536.4

 
3.8
%
 
2,564.6

 
3.4
%
Total fixed maturities, including securities pledged
$
67,196.7

 
100.0
%
 
$
75,287.1

 
100.0
%
(1)   Primarily U.S. dollar denominated.

As of March 31, 2013 , the average duration of our fixed maturities portfolio, including securities pledged, is between 6.5 to 7 years.

Fixed Maturities Credit Quality - Ratings

Information about certain of our fixed maturity securities holdings by NAIC designation is set forth in the following tables. Corresponding rating agency designation does not directly translate into NAIC designation, but represents our best estimate of comparable ratings from rating agencies, including Fitch, Moody's and S&P. If no rating is available from a rating agency, then an internally developed rating is used.

The fixed maturities in our portfolio are generally rated by external rating agencies and, if not externally rated, are rated by us on a basis similar to that used by the rating agencies. Ratings are derived from three ARO ratings and are applied as follows based on the number of agency ratings received:

•
when three ratings are received, the middle rating is applied;
•
when two ratings are received, the lower rating is applied;
•
when a single rating is received, the ARO rating is applied; and
•
when ratings are unavailable, an internal rating is applied.


115



The following tables present credit quality of fixed maturities, including securities pledged, using NAIC designations as of the dates indicated:  
($ in millions)  
March 31, 2013
NAIC Quality Designation
1
 
2
 
3
 
4
 
5
 
6
 
Total Fair Value
U.S. Treasuries
$
5,757.5

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,757.5

U.S. government agencies and authorities
709.5

 
—

 
—

 
—

 
—

 
—

 
709.5

State, municipalities and political subdivisions
312.2

 
4.6

 
1.0

 
—

 
—

 
—

 
317.8

U.S. corporate securities
18,088.7

 
17,871.4

 
1,476.5

 
286.9

 
16.7

 
19.7

 
37,759.9

Foreign securities (1)
4,674.2

 
10,544.8

 
731.6

 
55.2

 
87.5

 
16.7

 
16,110.0

Residential mortgage-backed securities
6,549.3

 
206.0

 
189.9

 
151.5

 
74.9

 
181.3

 
7,352.9

Commercial mortgage-backed securities
4,722.7

 
70.1

 
14.9

 
5.5

 
—

 
—

 
4,813.2

Other asset-backed securities
1,896.1

 
67.2

 
191.6

 
79.2

 
6.9

 
11.6

 
2,252.6

Total fixed maturities
$
42,710.2

 
$
28,764.1

 
$
2,605.5

 
$
578.3

 
$
186.0

 
$
229.3

 
$
75,073.4

% of Fair Value
56.9
%
 
38.3
%
 
3.5
%
 
0.8
%
 
0.2
%
 
0.3
%
 
100.0
%
(1)  Primarily U.S. dollar denominated.
($ in millions)  
December 31, 2012
NAIC Quality Designation
1
 
2
 
3
 
4
 
5
 
6
 
Total Fair Value
U.S. Treasuries
$
5,883.7

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,883.7

U.S. government agencies and authorities
724.2

 
—

 
—

 
—

 
—

 
—

 
724.2

State, municipalities and political subdivisions
347.5

 
4.3

 
1.0

 
—

 
—

 
—

 
352.8

U.S. corporate securities
17,106.9

 
18,289.5

 
1,369.1

 
344.2

 
36.3

 
17.9

 
37,163.9

Foreign securities (1)
4,429.5

 
10,533.9

 
875.1

 
40.8

 
105.2

 
—

 
15,984.5

Residential mortgage-backed securities
6,700.3

 
207.4

 
252.2

 
230.3

 
85.8

 
191.0

 
7,667.0

Commercial mortgage-backed securities
4,860.9

 
67.7

 
11.8

 
6.0

 
—

 
—

 
4,946.4

Other asset-backed securities
2,144.7

 
142.3

 
161.5

 
78.5

 
27.5

 
10.1

 
2,564.6

Total fixed maturities
$
42,197.7

 
$29,245.1
 
$
2,670.7

 
$
699.8

 
$
254.8

 
$
219.0

 
$
75,287.1

% of Fair Value
56.0
%
 
39.0
%
 
3.5
%
 
0.9
%
 
0.3
%
 
0.3
%
 
100.0
%
(1)   Primarily U.S. dollar denominated.



116


As of March 31, 2013 , the weighted average quality rating of our fixed maturities portfolio was A. The following tables present credit quality of fixed maturities, including securities pledged, using ARO ratings as of the dates indicated:
($ in millions)  
March 31, 2013
ARO Quality Ratings
AAA
 
AA
 
A
 
BBB
 
BB
 
B and Below
 
Total Fair Value
U.S. Treasuries
$
5,757.5

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,757.5

U.S. government agencies and authorities
703.5

 
2.9

 
3.1

 
—

 
—

 
—

 
709.5

State, municipalities and political subdivisions
73.6

 
201.1

 
37.5

 
4.6

 
1.0

 
—

 
317.8

U.S. corporate securities
717.4

 
2,021.5

 
15,612.1

 
17,598.1

 
1,526.8

 
284.0

 
37,759.9

Foreign securities (1)
77.2

 
1,220.9

 
3,653.8

 
10,509.4

 
590.8

 
57.9

 
16,110.0

Residential mortgage-backed securities
5,617.8

 
59.5

 
147.0

 
166.3

 
113.3

 
1,249.0

 
7,352.9

Commercial mortgage-backed securities
1,781.3

 
794.3

 
557.1

 
865.2

 
545.9

 
269.4

 
4,813.2

Other asset-backed securities
1,319.6

 
37.8

 
105.3

 
62.3

 
99.5

 
628.1

 
2,252.6

Total fixed maturities
$
16,047.9

 
$
4,338.0

 
$
20,115.9

 
$
29,205.9

 
$
2,877.3

 
$
2,488.4

 
$
75,073.4

% of Fair Value
21.4
%
 
5.8
%
 
26.8
%
 
38.9
%
 
3.8
%
 
3.3
%
 
100.0
%
(1)   Primarily U.S. dollar denominated.
($ in millions)  
December 31, 2012
ARO Quality Ratings
AAA
 
AA
 
A
 
BBB
 
BB
 
B and Below
 
Total Fair Value
U.S. Treasuries
$
5,883.7

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
5,883.7

U.S. government agencies and authorities
718.2

 
2.9

 
3.1

 
—

 
—

 
—

 
724.2

State, municipalities and political subdivisions
107.1

 
202.9

 
37.5

 
4.3

 
1.0

 
—

 
352.8

U.S. corporate securities
753.3

 
1,909.8

 
14,920.7

 
17,801.5

 
1,419.5

 
359.1

 
37,163.9

Foreign securities (1)
75.3

 
1,014.1

 
3,602.9

 
10,500.8

 
728.0

 
63.4

 
15,984.5

Residential mortgage-backed securities
5,843.5

 
61.3

 
166.2

 
172.4

 
121.6

 
1,302.0

 
7,667.0

Commercial mortgage-backed securities
1,882.2

 
851.7

 
555.1

 
881.0

 
483.7

 
292.7

 
4,946.4

Other asset-backed securities
1,489.2

 
24.4

 
129.1

 
85.1

 
111.3

 
725.5

 
2,564.6

Total fixed maturities
$
16,752.5

 
$
4,067.1

 
$
19,414.6

 
$
29,445.1

 
$
2,865.1

 
$
2,742.7

 
$
75,287.1

% of Fair Value
22.3
%
 
5.4
%
 
25.8
%
 
39.1
%
 
3.8
%
 
3.6
%
 
100.0
%
(1)   Primarily U.S. dollar denominated.

Fixed maturities rated BB and below may have speculative characteristics and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity of the issuer to make principal and interest payments than is the case with higher rated fixed maturities.

The amortized cost and fair value of fixed maturities, including securities pledged, at March 31, 2013 and December 31, 2012 , are shown below by contractual maturity. Actual maturities may differ from contractual maturities as securities may be restructured, called, or prepaid. MBS and Other ABS are shown separately because they are not due at a single maturity date.



117


 
March 31, 2013
 
December 31, 2012
($ in millions)  
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
Due to mature:
 
 
 
 
 
 
 
One year or less
$
2,923.6

 
$
3,021.8

 
$
2,820.9

 
$
2,918.1

After one year through five years
14,250.2

 
15,205.4

 
14,380.3

 
15,353.4

After five years through ten years
18,184.4

 
19,830.3

 
17,372.7

 
19,179.7

After ten years
19,514.3

 
22,597.2

 
18,963.3

 
22,657.9

Mortgage-backed securities
10,732.5

 
12,166.1

 
11,123.1

 
12,613.4

Other asset-backed securities
2,197.1

 
2,252.6

 
2,536.4

 
2,564.6

Fixed maturities, including securities pledged
$
67,802.1

 
$
75,073.4

 
$
67,196.7

 
$
75,287.1


As of March 31, 2013 and December 31, 2012 , we did no t have any investments in a single issuer, other than obligations of the U.S. government and government agencies, with a carrying value in excess of 10% of our Condensed Consolidated Shareholder’s equity.

Unrealized Capital Losses

Unrealized capital losses (including noncredit impairments), along with the fair value of fixed maturities, including securities pledged, by market sector and duration were as presented below as of the dates indicated:
 
March 31, 2013
 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
($ in millions)  
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
U.S. Treasuries
$
72.6

 
$
4.0

 
$
—

 
$
—

 
$
—

 
$
—

 
$
72.6

 
$
4.0

U.S. corporate, state and municipalities
3,128.0

 
64.7

 
143.6

 
5.1

 
191.9

 
$
23.5

 
3,463.5

 
93.3

Foreign
968.5

 
22.5

 
47.1

 
4.3

 
191.7

 
23.6

 
1,207.3

 
50.4

Residential mortgage-backed
682.8

 
6.5

 
63.3

 
2.7

 
477.8

 
54.7

 
1,223.9

 
63.9

Commercial mortgage-backed
5.8

 
—

 
1.9

 
0.1

 
43.4

 
3.9

 
51.1

 
4.0

Other asset-backed
81.8

 
0.1

 
10.0

 
1.3

 
442.8

 
51.8

 
534.6

 
53.2

Total
$
4,939.5

 
$
97.8

 
$
265.9

 
$
13.5

 
$
1,347.6

 
$
157.5

 
$
6,553.0

 
$
268.8




118


 
December 31, 2012
 
Six Months or Less
Below Amortized Cost
 
More Than Six
Months and Twelve Months or Less
Below Amortized Cost
 
More Than Twelve
Months Below
Amortized Cost
 
Total
($ in millions)  
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
 
Fair Value
 
Unrealized Capital Losses
U.S. Treasuries
$
451.2

 
$
1.8

 
$
—

 
$
—

 
$
—

 
$
—

 
$
451.2

 
$
1.8

U.S. corporate, state and municipalities
1,333.4

 
19.2

 
116.5

 
3.0

 
231.2

 
26.6

 
1,681.1

 
48.8

Foreign
360.2

 
12.7

 
59.8

 
7.4

 
314.9

 
39.2

 
734.9

 
59.3

Residential mortgage-backed
369.3

 
6.4

 
42.0

 
2.1

 
585.1

 
78.2

 
996.4

 
86.7

Commercial mortgage-backed
22.0

 
0.2

 
15.3

 
1.7

 
44.4

 
4.2

 
81.7

 
6.1

Other asset-backed
70.2

 
—

 
7.0

 
1.2

 
609.2

 
88.8

 
686.4

 
90.0

Total
$
2,606.3

 
$
40.3

 
$
240.6

 
$
15.4

 
$
1,784.8

 
$
237.0

 
$
4,631.7

 
$
292.7


Of the unrealized capital losses aged more than twelve months, the average market value of the related fixed maturities was 89.5% and 88.3% of the average book value as of March 31, 2013 and December 31, 2012 , respectively.

Gross unrealized losses on fixed maturities, including securities pledged, decreased $23.9 million and $624.8 million as of March 31, 2013 and December 31, 2012 . The decrease in gross unrealized losses was primarily due to improving market conditions within Other ABS and RMBS in addition to declining yields and tightening credit spreads.

As of March 31, 2013 we held one fixed maturity with unrealized capital losses in excess of $10.0 million. The unrealized capital losses on this fixed maturity equaled $10.6 million , or 3.9% of the total unrealized losses. As of December 31, 2012 we held one fixed maturities with unrealized capital losses in excess of $10.0 million. The unrealized capital losses on these fixed maturities equaled $13.6 million , or 4.7% of the total unrealized losses.

CMO-B Portfolio

As part of our broadly diversified investment portfolio, we have a core holding in a proprietary mortgage derivatives strategy known as CMO-B, which invests in a variety of CMO securities in combination with interest rate derivatives in targeting a specific type of exposure to the U.S. residential mortgage market. Because of their relative complexity and generally small natural buyer base, we believe certain types of CMO securities are consistently priced below their intrinsic value, thereby providing a source of potential return for investors in this strategy.

The CMO securities that are part of our CMO-B portfolio are either notional or principal securities, backed by the interest and principal components, respectively, of mortgages secured by single-family residential real estate. There are many variations of these two types of securities including interest only and principal only securities, as well as inverse-floating rate (principal) securities and inverse interest only securities, all of which are part of our CMO-B portfolio. This strategy has been in place for nearly two decades and thus far has been a significant source of investment income while exhibiting relatively low volatility and correlation compared to the other asset types in the investment portfolio, although we cannot predict whether favorable returns will continue in future periods.

To protect against the potential for credit loss associated with financially troubled borrowers, investments in our CMO-B portfolio are primarily in CMO securities backed by one of the government sponsored entities: the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or Government National Mortgage Association (“Ginnie Mae”).

Because the timing of the receipt of the underlying cash flow is highly dependent on the level and direction of interest rates, our CMO-B portfolio also has exposure to both interest rate and convexity risk. The exposure to interest rate risk (the potential for changes in value that results from changes in the general level of interest rates) is managed to a defined target duration using


119


interest rate swaps. The exposure to convexity risk (the potential for changes in value that result from changes in duration caused by changes in interest rates) is dynamically hedged using interest rate swaps and, at times, interest rate swaptions.

Prepayment risk represents the potential for adverse changes in portfolio value resulting from changes in residential mortgage prepayment speed (actual and projected), which in turn depends on a number of factors, including conditions in both credit markets and housing markets. Changes in the prepayment behavior of homeowners represent both a risk and potential source of return for our CMO-B portfolio. As a result, we seek to invest in securities that are broadly diversified by collateral type to take advantage of the uncorrelated prepayment experiences of homeowners with unique characteristics that influence their ability or desire to prepay their mortgage. We choose collateral types and individual securities based on an in-depth quantitative analysis of prepayment incentives across all available borrower types.

The following table shows fixed maturities balances held in the CMO-B portfolio by NAIC rating as of the dates indicated:
($ in millions)  
 
March 31, 2013
 
December 31, 2012
NAIC Designation
 
Amortized Cost
 
Fair Value
 
% Fair Value
 
Amortized Cost
 
Fair Value
 
% Fair Value
1
 
$
2,440.9

 
$
3,167.7

 
91.1
%
 
$
2,526.4

 
$
3,323.1

 
91.0
%
2
 
5.3

 
7.6

 
0.2
%
 
5.1

 
6.9

 
0.2
%
3
 
15.7

 
28.4

 
0.8
%
 
11.6

 
25.0

 
0.7
%
4
 
16.7

 
27.8

 
0.8
%
 
32.4

 
46.0

 
1.3
%
5
 
45.4

 
64.3

 
1.9
%
 
40.1

 
59.6

 
1.6
%
6
 
104.3

 
179.0

 
5.2
%
 
108.9

 
188.6

 
5.2
%
 
 
$
2,628.3

 
$
3,474.8

 
100.0
%
 
$
2,724.5

 
$
3,649.2

 
100.0
%

For CMO securities where we elected the FVO, amortized cost represents the market values. For details on the NAIC designation methodology, please see “ - Fixed Maturities Credit Quality-Ratings” above.

The following table presents the notional amounts and fair values of interest rate derivatives used in our CMO-B portfolio as of the dates indicated:
 
March 31, 2013
 
December 31, 2012
($ in millions)  
Notional
Amount   
 
Assets
Fair
Value   
 
Liability
Fair
Value   
 
Notional
Amount   
 
Assets
Fair
Value  
 
Liability
Fair
Value   
Derivatives non-qualifying for hedge accounting:
 
 
 
 
 
 
 
 
 
 
 
Interest Rate Contracts
$
34,905.7

 
$
686.7

 
$
925.8

 
$
34,634.2

 
$
773.1

 
$
1,005.8


The following table presents our CMO-B fixed maturity securities balances and tranche type as of the dates indicated:
($ in millions)  
 
March 31, 2013
 
December 31, 2012
Tranche Type
 
Amortized Cost
 
Fair Value
 
% Fair Value
 
Amortized Cost
 
Fair Value
 
% Fair Value
Inverse Floater
 
$
972.6

 
$
1,439.6

 
41.4
%
 
$
1,008.6

 
$
1,518.6

 
41.7
%
Interest Only (IO)
 
258.1

 
297.2

 
8.6
%
 
225.5

 
264.4

 
7.2
%
Inverse IO
 
1,139.9

 
1,474.3

 
42.4
%
 
1,196.7

 
1,565.6

 
42.9
%
Principal Only (PO)
 
180.8

 
185.6

 
5.3
%
 
205.4

 
211.2

 
5.8
%
Floater
 
67.7

 
68.1

 
2.0
%
 
77.4

 
78.2

 
2.1
%
Other
 
9.2

 
10.0

 
0.3
%
 
10.9

 
11.2

 
0.3
%
Total
 
$
2,628.3

 
$
3,474.8

 
100.0
%
 
$
2,724.5

 
$
3,649.2

 
100.0
%

For the year ended December 31, 2012 , we sold approximately $509.0 million of IO and Inverse IO securities within the CMO-B strategy primarily to release required capital and improve the capital efficiency of the strategy going forward for certain portfolios and recognized a pre-tax gain of $129.3 million.


120



Generally, a continued increase in valuations as well as muted prepayments, despite low interest rates, have led to very strong performance for our CMO-B portfolio in recent years. Based on fundamental prepayment analysis, we have been able to increase the allocation to notional securities in a manner that was diversified by borrower and mortgage characteristics without unduly increasing portfolio risk because the underlying drivers of prepayment behavior across collateral type are varied.
 
A rebound in home prices and an anticipated increased availability of housing-related credit in 2013 have lowered IO and Inverse IO valuations modestly in the three months ended March 31, 2013 . To the extent these conditions persist in the coming quarters, we expect prepayment speeds will increase and the results of our CMO-B portfolio will likely underperform those of recent periods.

The following table shows returns for our CMO-B portfolio for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Net investment income (loss)
$
210.6

 
$
286.3

Net realized capital gains (losses) (1)
(154.3
)
 
(170.6
)
Total income (pre-tax)
$
56.3

 
$
115.7

(1)   Net realized capital gains (losses) also include derivatives interest settlements, mark to market adjustments and realized gains (losses) on standalone derivatives contracts that are in the CMO-B portfolio.

In defining operating earnings before income taxes and non-operating earnings for our CMO-B portfolio, certain recharacterizations are recognized. As indicated in footnote (1) above, derivatives activity including net coupon settlement on interest rate swaps is included as Net realized capital gains (losses). Since these swaps are hedging securities whose coupon payments are reflected as net investment income (loss) (operating earnings), it is appropriate to represent the net swap coupons as operating earnings before income taxes rather than non-operating earnings. Also included in Net realized capital gains (losses) is the premium amortization and the change in fair value for securities designated under the FVO, whereas the coupon for these securities is included in net investment income (loss). In order to present the economics of these fair value securities in a similar manner to those of an available for sale security, the premium amortization is reclassified from Net realized capital gains (losses) (or non-operating earnings) to operating earnings.

After adjusting for the two items referenced immediately above, the following table presents operating income before income taxes and non-operating income for our CMO-B portfolio for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Operating income before income taxes
$
90.0

 
$
131.4

Realized gains/losses including OTTI
(0.5
)
 
—

Fair value adjustments
(33.2
)
 
(15.7
)
Non-operating income
$
(33.7
)
 
$
(15.7
)
Income before income taxes
$
56.3

 
$
115.7


Subprime and Alt-A Mortgage Exposure

The performance of underlying subprime and Alt-A mortgage collateral, originated prior to 2008, has continued to reflect the problems associated with a housing market that has since seen substantial price declines and an employment market that has declined significantly and remains under stress.  Credit spreads have widened meaningfully from issuance and rating agency downgrades have been widespread and severe within the sector. During 2012, market prices and sector liquidity demonstrated more sustained improvements, driven by an improved technical picture and positive sentiment regarding the potential for fundamental improvement within the sector. This positive momentum continued into 2013, with the first quarter characterized by improving housing market indicators and strong liquidity.  In managing our risk exposure to subprime and Alt-A mortgages, we take into account collateral performance and structural characteristics associated with our various positions.

We do not originate or purchase subprime or Alt-A whole-loan mortgages. Subprime lending is the origination of loans to customers with weaker credit profiles. We define Alt-A mortgages to include the following: residential mortgage loans to customers who have strong credit profiles but lack some element(s), such as documentation to substantiate income; residential mortgage loans to


121


borrowers that would otherwise be classified as prime but whose loan structure provides repayment options to the borrower that increase the risk of default; and any securities backed by residential mortgage collateral not clearly identifiable as prime or subprime.

We have exposure to RMBS, CMBS and ABS. Our exposure to subprime mortgage-backed securities is primarily in the form of ABS structures collateralized by subprime residential mortgages and the majority of these holdings were included in Other ABS under "Fixed Maturities" above. As of March 31, 2013 , the fair value, amortized cost, and gross unrealized losses related to our exposure to subprime mortgage-backed securities were $836.9 million , $833.6 million , and $52.1 million , representing 1.1% of total fixed maturities, including securities pledged, based on fair value, respectively. As of December 31, 2012 , the fair value, amortized cost, and gross unrealized losses related to our exposure to subprime mortgage-backed securities were $967.3 million , $998.0 million , and $89.1 million , representing 1.3% of total fixed maturities, including securities pledged, based on fair value, respectively.

The following tables present our exposure to subprime mortgage-backed securities by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total Subprime Mortgage-backed Securities
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
60.0
%
 
AAA
0.4
%
 
2007
29.1
%
 
2
6.5
%
 
AA
1.0
%
 
2006
32.5
%
 
3
22.9
%
 
A
5.8
%
 
2005 and prior
38.4
%
 
4
9.5
%
 
BBB
6.0
%
 
 
100.0
%
 
5
0.8
%
 
BB and below
86.8
%
 
 
 
 
6
0.3
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
60.3
%
 
AAA
1.1
%
 
2007
29.1
%
 
2
11.9
%
 
AA
1.0
%
 
2006
36.8
%
 
3
16.7
%
 
A
5.4
%
 
2005 and prior
34.1
%
 
4
8.1
%
 
BBB
6.0
%
 
 
100.0
%
 
5
2.8
%
 
BB and below
86.5
%
 
 
 
 
6
0.2
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 

Our exposure to Alt-A mortgages is included in the “RMBS” line item in the “Fixed Maturities” table under “Fixed Maturities” above. As of March 31, 2013 , the fair value, amortized cost and gross unrealized losses related to our exposure to Alt-A RMBS aggregated to $402.0 million , $365.3 million and $31.3 million , respectively, representing 0.5% of total fixed maturities, including securities pledged, based on fair value. As of December 31, 2012 , the fair value, amortized cost and gross unrealized losses related to our exposure to Alt-A RMBS aggregated to $411.3 million , $389.2 million and $47.9 million , respectively, representing 0.5% of total fixed maturities, including securities pledged, based on fair value.



122


The following tables present our exposure to Alt-A RMBS by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total Alt-A Mortgage-backed Securities
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
42.4
%
 
AAA
0.1
%
 
2007
20.8
%
 
2
11.4
%
 
AA
0.5
%
 
2006
26.0
%
 
3
23.2
%
 
A
2.0
%
 
2005 and prior
53.2
%
 
4
18.7
%
 
BBB
3.4
%
 
 
100.0
%
 
5
3.6
%
 
BB and below
94.0
%
 
 
 
 
6
0.7
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
34.1
%
 
AAA
0.2
%
 
2007
20.4
%
 
2
11.9
%
 
AA
1.2
%
 
2006
25.9
%
 
3
18.8
%
 
A
1.5
%
 
2005 and prior
53.7
%
 
4
26.9
%
 
BBB
4.1
%
 
 
100.0
%
 
5
7.5
%
 
BB and below
93.0
%
 
 
 
 
6
0.8
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 

Commercial Mortgage-Backed and Other Asset-backed Securities

CMBS investments represent pools of commercial mortgages that are broadly diversified across property types and geographical areas. Delinquency rates on commercial mortgages increased over the course of 2009 through mid-2012. Since then, the steep pace of increases observed in the early years following the credit crisis has slowed, and some recent months have posted month over month declines in delinquencies.  In addition, other performance metrics like vacancies, property values and rent levels have shown improvements, although these metrics can differ widely by dimensions such as geographic location and property type. The primary market for CMBS continued its recovery from the credit crisis with higher total new issuances in 2012, the fourth straight year of higher new issuances. This positive momentum continued into 2013, with total new issuance volume in Q1 the highest quarterly total since 2007.  Higher primary issuance resulted in increased credit availability within the commercial real estate market.

For consumer Other ABS, delinquency and loss rates have exhibited general stability after the credit crisis and done so at levels considered historically low. Relative strength in various credit metrics across multiple types of asset-backed loans have been observed on a sustained basis.


As of March 31, 2013 and December 31, 2012 , the fair value of the Company’s CMBS totaled $4.8 billion and $4.9 billion , respectively. As of March 31, 2013 and December 31, 2012 , the gross unrealized losses related to CMBS totaled $4.0 and $6.1 , respectively.



123


The following tables present our exposure to CMBS holdings by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total CMBS
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
98.1
%
 
AAA
37.0
%
 
2008
0.2
%
 
2
1.5
%
 
AA
16.5
%
 
2007
37.6
%
 
3
0.3
%
 
A
11.6
%
 
2006
30.7
%
 
4
0.1
%
 
BBB
18.0
%
 
2005 and prior
31.5
%
 
5
—
%
 
BB and below
16.9
%
 
 
100.0
%
 
6
—
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
98.3
%
 
AAA
38.1
%
 
2008
0.3
%
 
2
1.4
%
 
AA
17.2
%
 
2007
37.4
%
 
3
0.2
%
 
A
11.2
%
 
2006
30.2
%
 
4
0.1
%
 
BBB
17.8
%
 
2005 and prior
32.1
%
 
5
—
%
 
BB and below
15.7
%
 
 
100.0
%
 
6
—
%
 
 
100.0
%
 
 
 
 
 
100.0
%
 
 
 
 
 
 

As of March 31, 2013 and December 31, 2012 , the fair value of the Company's Other ABS, excluding subprime exposure, totaled $1.4 billion and $1.6 billion , respectively. As of March 31, 2013 and December 31, 2012 , the gross unrealized losses related to Other ABS, excluding subprime exposure, totaled $1.9 and $1.8 , respectively.

As of March 31, 2013 , Other ABS was also broadly diversified both by type and issuer with credit card receivables, nonconsolidated collateralized loan obligations and automobile receivables, comprising 41.4% , 3.8% and 33.0% , respectively, of total Other ABS, excluding subprime exposure. As of December 31, 2012 , Other ABS was also broadly diversified both by type and issuer with credit card receivables, nonconsolidated collateralized loan obligations and automobile receivables, comprising 40.5% , 4.1% and 33.3% , respectively, of total Other ABS, excluding subprime exposure.

 



124


The following tables summarize our exposure to Other ABS holdings, excluding subprime exposure, by credit quality using NAIC designations, ARO ratings and vintage year as of the dates indicated:
 
% of Total Other ABS
 
NAIC Designation
 
ARO Ratings
 
Vintage
March 31, 2013
 
 
 
 
 
 
 
 
 
1
98.3
%
 
AAA
92.2
%
 
2013
1.9
%
 
2
0.9
%
 
AA
2.0
%
 
2012
22.7
%
 
3
0.1
%
 
A
4.1
%
 
2011
12.7
%
 
4
—
%
 
BBB
0.9
%
 
2010
5.7
%
 
5
—
%
 
BB and below
0.8
%
 
2009
2.1
%
 
6
0.7
%
 
 
100.0
%
 
2008
6.0
%
 
 
100.0
%
 
 
 
 
2007 and prior
48.9
%
 
 
 
 
 
 
 
 
100.0
%
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
1
97.7
%
 
AAA
91.9
%
 
2012
24.6
%
 
2
1.7
%
 
AA
0.9
%
 
2011
14.9
%
 
3
0.1
%
 
A
4.9
%
 
2010
5.8
%
 
4
—
%
 
BBB
1.7
%
 
2009
2.1
%
 
5
—
%
 
BB and below
0.6
%
 
2008
5.9
%
 
6
0.5
%
 
 
100.0
%
 
2007
18.4
%
 
 
100.0
%
 
 
 
 
2006 and prior
28.3
%
 
 
 
 
 
 
 
 
100.0
%

Troubled Debt Restructuring

We seek to invest in high quality, well performing portfolios of commercial mortgage loans and private placements. Under certain circumstances, modifications to these contracts are granted. Each modification is evaluated as to whether a troubled debt restructuring has occurred. A modification is a troubled debt restructuring when the borrower is in financial difficulty and the creditor makes concessions. Generally, the types of concessions may include reducing the face amount or maturity amount of the debt as originally stated, reducing the contractual interest rate, extending the maturity date at an interest rate lower than current market interest rates and/or reducing accrued interest. We consider the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. A valuation allowance may have been recorded prior to the quarter when the loan is modified in a troubled debt restructuring. Accordingly, the carrying value (net of the specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment. As of March 31, 2013 , we had no private placement troubled debt restructuring no commercial mortgage loan troubled debt restructurings. As of December 31, 2012 , we had one private placement troubled debt restructurings with a pre-modification carrying value of $1.2 million , which was written down to zero and no commercial mortgage loan troubled debt restructurings.

As of March 31, 2013 and December 31, 2012 , the Company had no commercial mortgage loans or private placements modified in a troubled debt restructuring with a subsequent payment default.

Mortgage Loans on Real Estate

Our mortgage loans on real estate are all commercial mortgage loans held for investment, which totaled $8.9 billion and $8.7 billion as of March 31, 2013 and December 31, 2012 , respectively. The carrying value of these loans is reported at amortized cost, less impairment write-downs and allowance for losses.

We diversify our commercial mortgage loan portfolio by geographic region and property type to manage concentration risk. We manage risk when originating commercial mortgage loans by generally lending only up to 75% of the estimated fair value of the


125


underlying real estate. Subsequently, we continuously evaluate all mortgage loans based on relevant current information including a review of loan-specific credit, property characteristics and market trends. Loan performance is continuously monitored on a loan-specific basis throughout the year. Our review includes submitted appraisals, operating statements, rent revenues and annual inspection reports, among other items. This review evaluates whether the properties are performing at a consistent and acceptable level to secure the debt.

We rate all commercial mortgages to quantify the level of risk. We place those loans with higher risk on a watch list and closely monitor these loans for collateral deficiency or other credit events that may lead to a potential loss of principal and/or interest. If we determine the value of any mortgage loan to be OTTI (i.e., when it is probable that we will be unable to collect on all amounts due according to the contractual terms of the loan agreement), the carrying value of the mortgage loan is reduced to either the present value of expected cash flows from the loan, discounted at the loan's effective interest rate, or fair value of the collateral. For those mortgages that are determined to require foreclosure, the carrying value is reduced to the fair value of the underlying collateral, net of estimated costs to obtain and sell at the point of foreclosure. The carrying value of the impaired loans is reduced by establishing an other-than-temporary write-down recorded in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

The following table summarizes the Company's investment in mortgage loans as of the dates indicated:
($ in millions)  
March 31, 2013
 
December 31, 2012
Commercial mortgage loans
$
8,953.3

 
$
8,666.2

Collective valuation allowance
(3.9
)
 
(3.9
)
Total net commercial mortgage loans
$
8,949.4

 
$
8,662.3


There were no impairments taken on the mortgage loan portfolio for the three months ended March 31, 2013 and 2012 , respectively.

The following table summarizes the activity in the allowance for losses for all commercial mortgage loans for the periods indicated :
 
Three Months Ended
 
Twelve Months Ended
($ in millions)  
March 31, 2013
 
December 31, 2012
Collective valuation allowance for losses, beginning of period
$
3.9

 
$
4.4

Addition to / (decrease of) allowance for losses
—

 
(0.5
)
Collective valuation allowance for losses, end of period
$
3.9

 
$
3.9


Our policy is to recognize interest income until a loan becomes 90 days delinquent or foreclosure proceedings are commenced, at which point interest accrual is discontinued. Interest accrual is not resumed until the loan is brought current.

The following table presents the aging of past due mortgage loans at carrying value as of the dates indicated:
($ in millions)  
30 days or less past due
 
31 to 90 days past due
 
91 to 180 days past due
 
181 days or more past due
 
Total
March 31, 2013
$
—

 
$
—

 
$
—

 
$
9.0

 
$
9.0

December 31, 2012
$
—

 
$
—

 
$
—

 
$
9.0

 
$
9.0




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Loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios are measures commonly used to assess the risk and quality of commercial mortgage loans. The LTV ratio, calculated at time of origination, is expressed as a percentage of the amount of the loan relative to the value of the underlying property. An LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the value of the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property's net income (loss) to its debt service payments. A DSC ratio of less than 1.0 indicates that property's operations do not generate sufficient income to cover debt payments. These ratios are utilized as part of the review process described above. The LTV and DSC ratios as of the dates indicated are as presented below:
($ in millions)  
March 31, 2013 (1)
 
December 31, 2012 (1)
Loan-to-Value Ratio:
 
 
 
0% - 50%
$
1,913.7

 
$
1,987.9

50% - 60%
2,437.7

 
2,425.2

60% - 70%
4,136.2

 
3,736.1

70% - 80%
431.3

 
481.7

80% and above
34.4

 
35.3

Total Commercial Mortgage Loans
$
8,953.3

 
$
8,666.2

(1)  Balances do not include allowance for mortgage loan credit losses.

($ in millions)  
March 31, 2013 (1)
 
December 31, 2012 (1)
Debt Service Coverage Ratio:
 
 
 
Greater than 1.5x
$
6,114.6

 
$
5,953.7

1.25x - 1.5x
1,454.0

 
1,336.3

1.0x - 1.25x
1,016.8

 
992.7

Less than 1.0x
359.0

 
374.6

Commercial mortgage loans secured by land or construction loans
8.9

 
8.9

Total Commercial Mortgage Loans
$
8,953.3

 
$
8,666.2

(1)  Balances do not include allowance for mortgage loan credit losses.

Other-Than-Temporary Impairments

We evaluate available-for-sale fixed maturities and equity securities for impairment on a regular basis. The assessment of whether impairments have occurred is based on a case-by-case evaluation of the underlying reasons for the decline in estimated fair value. See the Note for Business, Basis of Presentation and Significant Accounting Policies in our 2012 ING U.S., Inc. Consolidated Financial Statements in our Prospectus for the policy used to evaluate whether the investments are other-than-temporarily impaired.

The following table presents our credit-related and intent-related impairments included in the Condensed Consolidated Statements of Operations, excluding impairments included in AOCI, by type for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
($ in millions)  
Impairment
 
No. of
Securities
 
Impairment
 
No. of
Securities
U.S. corporate
$
—

 
—

 
$
0.4

 
1

Foreign (1)
—

 
—

 
0.8

 
2

Residential mortgage-backed
3.6

 
74

 
3.3

 
62

Commercial mortgage-backed
0.1

 
2

 
1.7

 
1

Other asset-backed
7.3

 
2

 
0.7

 
3

Total
$
11.0

 
78

 
$
6.9

 
69

(1)  Primarily U.S. dollar denominated.
(2)  Includes loss on real estate owned that is classified as Other assets on the Condensed Consolidated Balance Sheets.



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The above tables include $3.6 million of write-downs related to credit impairments for the three months ended March 31, 2013 in Other-than-temporary impairment losses, which were recognized in the Condensed Consolidated Statements of Operations. For the three months ended March 31, 2013 the remaining $7.4 million in write-downs were related to intent impairments.

The above tables include $3.8 million of write-downs related to credit impairments for the three months ended March 31, 2012 in Other-than-temporary impairment losses, which were recognized in the Condensed Consolidated Statements of Operations. The remaining $3.1 million in write-downs for the three months ended March 31, 2012 were related to intent impairments.

The following tables summarize these intent impairments, which are also recognized in earnings, by type for the periods indicated:
 
Three Months Ended March 31,
 
2013
 
2012
($ in millions)  
Impairment
 
No. of
Securities
 
Impairment
 
No. of
Securities
U.S. corporate
$
—

 
—

 
$
0.4

 
1

Foreign (1)
—

 
—

 
0.8

 
2

Commercial mortgage-backed
0.1

 
2

 
1.7

 
1

Other asset-backed
7.3

 
2

 
0.2

 
1

Total
$
7.4

 
4

 
$
3.1

 
5

(1)  Primarily U.S. dollar denominated.

As part of our investment strategy, we may sell securities during the period in which fair value has declined below amortized cost for fixed maturities or cost for equity securities. In certain situations, new factors, including changes in the business environment, can change our previous intent to continue holding a security. Accordingly, these factors may lead us to record additional intent-related capital losses.

The fair value of the fixed maturities with OTTI as of March 31, 2013 and December 31, 2012 was $8.2 billion and $9.0 billion , respectively.

During the three months ended March 31, 2013 , the primary source of credit-related OTTI was write-downs recorded in the RMBS sector on securities collateralized by subprime residential mortgages.

Net Investment Income

Net investment income was as presented below for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Fixed maturities
$
1,012.6

 
$
1,084.1

Equity securities, available-for-sale
2.6

 
3.2

Mortgage loans on real estate
118.2

 
123.7

Policy loans
29.9

 
30.7

Short-term investments and cash equivalents
0.9

 
0.8

Other
35.9

 
35.7

Gross investment income
1,200.1

 
1,278.2

Less: investment expenses
1.4

 
0.8

Net investment income
$
1,198.7

 
$
1,277.4


Net Realized Capital Gains (Losses)

Net realized capital gains (losses) are comprised of the difference between the amortized cost of investments and proceeds from sale and redemption, as well as losses incurred due to the credit-related and intent-related other-than-temporary impairment of investments. Realized investment gains and losses are also generated from changes in fair value of embedded derivatives within product guarantees and fixed maturities, changes in fair value of fixed maturity securities recorded at FVO and changes in fair


128


value including accruals on derivative instruments, except for effective cash flow hedges. The cost of the investments on disposal is generally determined based on first-in-first-out methodology.  

Net realized capital gains (losses) were as presented below for the periods indicated:
 
Three Months Ended March 31,
($ in millions)  
2013
 
2012
Fixed maturities, available-for-sale, including securities pledged
$
9.4

 
$
128.3

Fixed maturities, at fair value option
(107.6
)
 
(125.1
)
Equity securities, available-for-sale
0.2

 
2.6

Derivatives
(1,099.7
)
 
(1,668.4
)
Embedded derivatives-fixed maturities
(23.3
)
 
(16.2
)
Embedded derivatives-product guarantees
346.3

 
430.1

Other investments
(0.1
)
 
(1.2
)
Net realized capital gains (losses)
$
(874.8
)
 
$
(1,249.9
)

Derivatives

We use derivatives for a variety of hedging purposes as further described below. We also have embedded derivatives within fixed maturities instruments and certain annuity products with guarantees. See Note for Business, Basis of Presentation and Significant Accounting Policies in the 2012 ING U.S., Inc. Consolidated Financial Statements for further information.

Closed Block Variable Annuity Hedging

See Item 3. Qualitative and Quantitative Disclosure About Market Risk.

Invested Asset and Credit Hedging

Interest rate caps and interest rate swaps are used to manage the interest rate risk in our fixed maturities portfolio. Interest rate swaps include forward starting swaps which are used for anticipated purchases of fixed maturities. They represent contracts that require the exchange of cash flows at regular interim periods, typically monthly or quarterly.

Foreign exchange swaps are used to reduce the risk of a change in the value, yield, or cash flow with respect to invested assets. Foreign exchange swaps represent contracts that require the exchange of foreign currency cash flows for U.S. dollar cash flows at regular interim periods, typically quarterly or semiannually.

Certain forwards are acquired to hedge certain CMO assets held by us against movements in interest rates, particularly mortgage rates. On the settlement date, we will either receive a payment (interest rate decreases on purchased forwards or interest rate rises on sold forwards) or will be required to make a payment (interest rate rises on purchased forwards or interest rate decreases on sold forwards).


CDS are used to reduce the credit loss exposure with respect to certain assets that we own, or to assume credit exposure on certain assets that we do not own. Payments are made to or received from the counterparty at specified intervals and amounts for the purchase or sale of credit protection. In the event of a default on the underlying credit exposure, we will either receive an additional payment (purchased credit protection) or will be required to make an additional payment (sold credit protection) equal to par minus recovery value of the swap contract.

European Exposures

We closely monitor our exposures to European sovereign debt in general, with a primary focus on our exposure to the sovereign debt of Greece, Ireland, Italy, Portugal and Spain (which we refer to as “peripheral Europe”), as these countries have applied for support from the European Financial Stability Facility or received support from the European Central Bank via government bond purchases in the secondary market.

The financial turmoil in Europe continues to be a threat to global capital markets and remains a challenge to global financial stability. Additionally, the possibility of capital market volatility spreading through a highly integrated and interdependent banking


129


system remains elevated. Furthermore, it is our view that the risk among European sovereigns and financial institutions warrants specific scrutiny, in addition to our customary surveillance and risk monitoring, given how highly correlated these sectors of the region have become.

We quantify and allocate our exposure to the region, as described in the table below, by attempting to identify all aspects of the region or country risk to which we are exposed. Among the factors we consider are the nationality of the issuer, the nationality of the issuer's ultimate parent, the corporate and economic relationship between the issuer and its parent, as well as the political, legal and economic environment in which each functions. By undertaking this assessment, we believe that we develop a more accurate assessment of the actual geographic risk, with a more integrated understanding of all contributing factors to the full risk profile of the issuer.

In the normal course of our ongoing risk and portfolio management process, we closely monitor compliance with a credit limit hierarchy designed to minimize overly concentrated risk exposures by geography, sector and issuer. This framework takes into account various factors such as internal and external ratings, capital efficiency and liquidity and is overseen by a combination of Investment and Corporate Risk Management, as well as insurance portfolio managers focused specifically on managing the investment risk embedded in our portfolio.

  As of March 31, 2013 , we had $825.8 million of exposure to peripheral Europe, which consisted of a broadly diversified portfolio of credit-related investments solely in the industrial and utility sectors. We had no fixed maturities or equity securities exposure to peripheral European sovereigns or to financial institutions based in peripheral Europe. Peripheral European exposure included non-sovereign exposure in Italy of $221.8 million , Ireland of $350.0 million , Spain of $244.0 million , and Portugal of $10.0 million . We had no exposure to Greece. As of March 31, 2013 , we had $1.9 million of derivative assets exposure to financial institutions based in peripheral Europe. For purposes of calculating the derivative assets exposure, we have aggregated exposure to single name and portfolio product CDS, as well as all non-CDS derivative exposure for which it either has counterparty or direct credit exposure to a company whose country of risk is in scope.

Among the remaining $7.7 billion of total non-peripheral European exposure, we had a portfolio of credit-related assets similarly diversified by country and sector across developed and developing Europe. As of March 31, 2013 our sovereign exposure was $302.8 million , which consisted of fixed maturities. We also had $943.2 million in net exposure to non-peripheral financial institutions with a concentration in the United Kingdom of $334.2 million , and Switzerland of $218.5 million . The balance of $6.5 billion was invested across non-peripheral, non-financial institutions.

In addition to aggregate concentration to the United Kingdom of $2.9 billion and the Netherlands of $1.3 billion , we had significant non-peripheral European total country exposures in Switzerland of $768.7 million , Germany of $647.1 million , France of $523.5 million and Belgium of $393.7 million . We place additional scrutiny on our financial exposure in the United Kingdom, France and Switzerland given our concern for the potential for volatility to spread through the European banking system. We believe the primary risk results from market value fluctuations resulting from spread volatility and the secondary risk is default risk, should the European crisis worsen or fail to be resolved.


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The following table presents our European exposures at fair value and amortized cost as of March 31, 2013 :  
 
Fixed Maturities and Equity Securities   
 
 
 
Derivative Assets
 
 
($ in millions)  
Sovereign
 
Financial
Institutions
 
Non-Financial
Institutions
 
Total (Fair Value)
 
Total
(Amortized
Cost)
 
Loan and
Receivables
Sovereign
(Amortized
Cost)
 
Sovereign
 
Financial
Institutions
 
Non-Financial
Institutions
 
Less:
Margin
&
Collateral
 
Total
(Fair
Value)
 
Net Non-US
Funded at
March 31, 2013 (1)
Ireland
$
—

 
$
—

 
$
348.1

 
$
348.1

 
$
327.4

 
$
—

 
$
—

 
$
1.9

 
$
—

 
$
—

 
$
1.9

 
$
350.0

Italy
—

 
—

 
221.8

 
221.8

 
203.4

 
—

 
—

 
—

 
—

 
—

 
—

 
221.8

Portugal
—

 
—

 
10.0

 
10.0

 
7.5

 
—

 
—

 
—

 
—

 
—

 
—

 
10.0

Spain
—

 
—

 
244.0

 
244.0

 
230.1

 
—

 
—

 
—

 
—

 
—

 
—

 
244.0

Total Peripheral Europe
$
—

 
$
—

 
$
823.9

 
$
823.9

 
$
768.4

 
$
—

 
$
—

 
$
1.9

 
$
—

 
$
—

 
$
1.9

 
$
825.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Austria
—

 
—

 
76.7

 
76.7

 
75.0

 
—

 
—

 
—

 
—

 
—

 
—

 
76.7

Belgium
40.1

 
—

 
353.6

 
393.7

 
326.7

 
—

 
—

 
—

 
—

 
—

 
—

 
393.7

Bulgaria
6.0

 
—

 
—

 
6.0

 
5.9

 
—

 
—

 
—

 
—

 
—

 
—

 
6.0

Croatia
27.9

 
—

 
—

 
27.9

 
25.5

 
—

 
—

 
—

 
—

 
—

 
—

 
27.9

Czech Republic
—

 
—

 
10.6

 
10.6

 
10.1

 
—

 
—

 
—

 
—

 
—

 
—

 
10.6

Denmark
—

 
10.4

 
84.9

 
95.3

 
83.5

 
—

 
—

 
—

 
—

 
—

 
—

 
95.3

Finland
—

 
—

 
43.0

 
43.0

 
40.0

 
—

 
—

 
—

 
—

 
—

 
—

 
43.0

France
—

 
97.7

 
401.2

 
498.9

 
459.2

 
—

 
—

 
272.2

 
—

 
247.6

 
24.6

 
523.5

Germany
—

 
51.8

 
592.5

 
644.3

 
585.5

 
—

 
—

 
36.3

 
—

 
33.5

 
2.8

 
647.1

Hungary
6.0

 
—

 
—

 
6.0

 
5.8

 
—

 
—

 
—

 
—

 
—

 
—

 
6.0

Kazakhstan
56.2

 
—

 
5.9

 
62.1

 
54.6

 
—

 
—

 
—

 
—

 
—

 
—

 
62.1

Latvia
5.0

 
—

 
—

 
5.0

 
4.6

 
—

 
—

 
—

 
—

 
—

 
—

 
5.0

Lithuania
35.2

 
—

 
—

 
35.2

 
30.6

 
—

 
—

 
—

 
—

 
—

 
—

 
35.2

Luxembourg
—

 
—

 
129.8

 
129.8

 
123.1

 
—

 
—

 
—

 
—

 
—

 
—

 
129.8

Netherlands
—

 
180.2

 
1,144.7

 
1,324.9

 
1,192.6

 
—

 
—

 
—

 
—

 
—

 
—

 
1,324.9

Norway
—

 
2.9

 
233.1

 
236.0

 
220.4

 
—

 
—

 
—

 
—

 
—

 
—

 
236.0

Russian Federation
84.9

 
—

 
104.9

 
189.8

 
169.2

 
—

 
—

 
—

 
—

 
—

 
—

 
189.8

Slovakia
5.3

 
—

 
—

 
5.3

 
5.0

 
—

 
—

 
—

 
—

 
—

 
—

 
5.3

Slovenia
4.7

 
—

 
—

 
4.7

 
5.3

 
—

 
—

 
—

 
—

 
—

 
—

 
4.7

Sweden
23.7

 
20.1

 
129.0

 
172.8

 
156.6

 
—

 
—

 
—

 
—

 
—

 
—

 
172.8

Switzerland
—

 
157.4

 
550.2

 
707.6

 
634.2

 
—

 
—

 
51.5

 
—

 
(9.6
)
 
61.1

 
768.7

Turkey
7.8

 
—

 
—

 
7.8

 
7.8

 
—

 
—

 
—

 
—

 
—

 
—

 
7.8

United Kingdom
—

 
326.0

 
2,600.2

 
2,926.2

 
2,667.5

 
—

 
—

 
71.6

 
—

 
63.4

 
8.2

 
2,934.4

Total Non-Peripheral Europe
302.8

 
846.5

 
6,460.3

 
7,609.6

 
6,888.7

 
—

 
—

 
431.6

 
—

 
334.9

 
96.7

 
7,706.3

Total
$
302.8

 
$
846.5

 
$
7,284.2

 
$
8,433.5

 
$
7,657.1

 
$
—

 
$
—

 
$
433.5

 
$
—

 
$
334.9

 
$
98.6

 
$
8,532.1

(1) Represents: (i) fixed maturities and equity securities at fair value, including securities pledged; (ii) loan and receivables sovereign at amortized cost; and (iii) derivative assets at fair value including securities pledged.


131


Consolidated Investment Entities

We provide investment management services to, and have transactions with, various collateralized debt structures and securitizations (primarily consolidated investment entities (“CLO entities”)), private equity funds and single strategy hedge funds, insurance entities and other investment entities in the normal course of business. In certain instances, we serve as the investment manager, making day-to-day investment decisions concerning the assets of these entities. These entities are considered to be either variable interest entities (“VIEs”) or voting interest entities (“VOEs”) and we evaluate our involvement with each entity to determine whether consolidation is required.

Certain investment entities are consolidated under consolidation guidance. We consolidate entities under the VIE guidance when it is determined that we are the primary beneficiary. We consolidate certain entities under the VOE guidance when we act as the controlling general partner and the limited partners have no substantive rights to impact ongoing governance and operating activities.

With the exception of guarantees we issued in relation to collateral support for reinsurance contracts, we have no right to the benefits from, nor do we bear the risks associated with, these investments beyond our direct equity and debt investments in and management fees generated from these investment products. Such direct investments amounted to approximately $606.9 million and $600.0 million as of March 31, 2013 and December 31, 2012 , respectively. If we were to liquidate, the assets held by consolidated investment entities would not be available to our general creditors.

Consolidated Investments

CLO Entities

Certain of our subsidiaries structure and manage CLO entities created for the sole purpose of offering investors various maturity and risk characteristics by issuing multiple tranches of collateralized debt. The notes issued by the CLO entities are backed by diversified portfolios consisting primarily of senior secured floating rate leveraged loans.

In March 2013, we sponsored a new CLO entity and determined that we were its primary beneficiary and consolidated it. The fair value of the assets were $1.1 billion including cash of $606.8 million and $510.9 million of unsettled investments. The fair value of the liabilities were $1.1 billion including $616.1 million related to the fair value of the CLO notes and $510.9 million of other liabilities due to unsettled trades.

As of March 31, 2013 and December 31, 2012 , we consolidated 10 CLOs and 9 CLOs, respectively.

Private Equity Funds and Single Strategy Hedge Funds (Partnerships)

We invest in and manage various alternative investments, including private equity funds and single strategy hedge funds. We, as a general partner or managing member of certain sponsored investment funds, are generally presumed to control these alternative investments unless the limited partners have the substantive ability to remove us, as the general partner without cause based upon a simple majority vote, or can otherwise dissolve the partnership, or have substantive participating rights over decision-making of the partnerships. As of March 31, 2013 and December 31, 2012 , we consolidated 35 funds for both periods.

Nonconsolidated VIEs

CLO Entities

In addition to the consolidated CLO entities discussed above, we also hold variable interest in certain CLO entities that we do not consolidate because we have determined that we are not the primary beneficiary. With these CLO entities, we serve as the investment manager and receive investment management fees and contingent performance fees. Generally, we do not hold any interest in those nonconsolidated CLO entities. We have not provided and are not obligated to provide any financial or other support to these entities.

Although we have the power to direct the activities that significantly impact the economic performance for CLO entities, we do not hold a significant variable interest in any of these CLO entities and, as such, do not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Based on this analysis, we are not considered the primary beneficiary of any of these CLO entities, and have not consolidated. On a periodic basis we review the facts and circumstances regarding the CLO entities to determine whether our consolidation considerations remain appropriate. At


132


March 31, 2013 and December 31, 2012 , we did not hold any ownership interest in these unconsolidated CLOs and our maximum exposure was equal to zero.

We manage or hold investments in certain private equity funds and single strategy hedge funds. These funds are managed as a portfolio of investments that use advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns. With these entities, we serve as the investment manager and are entitled to receive investment management fees and contingent performance fees that are generally expected to be insignificant. We do not hold any equity interest in these fund VIEs and have not provided and are not obligated to provide any financial or other support to these funds.

Although we have the power to direct the activities that significantly impact the economic performance of the funds, we do not hold a significant variable interest in any of these funds and, as such, do not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Accordingly, we are not considered the primary beneficiary of and do not consolidate, any of these investment funds.

In addition, we do not consolidate funds, in which our involvement takes a form of a limited partner interest and is restricted to a role of a passive investor, as a limited partner's interest does not provide us with any substantive kick-out or participating rights, which would overcome the presumption of control by the general partner.

Securitizations

We invest in various tranches of securitization entities, including RMBS, CMBS and ABS. Certain RMBS investments represent agency pass-through securities and close-to-the-index tranches issued by Fannie Mae, Freddie Mac, or a similar government sponsored entity. Investments that we hold in non-agency RMBS and CMBS also include interest-only, principal-only, and inverse floating securities. We are not obligated to provide any financial or other support to these entities. The RMBS, CMBS and ABS entities are thinly capitalized by design and considered VIEs. Our involvement with these entities is limited to that of a passive investor. We have no unilateral right to appoint or remove the servicer, special servicer, or investment manager of these entities, which are generally viewed to have the power to direct the activities that most significantly impact the securitization entities' economic performance, in any of these entities, nor do we function in any of these roles. Through our investments or other arrangements, we do not have the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the entity. Therefore, we are not the primary beneficiary and do not consolidate any of the RMBS, CMBS and ABS entities in which we hold investments. These investments are accounted for as investments available-for-sale as described in the Fair Value Measurements Note to the Condensed Consolidated Financial Statements in Part I, Item 1. of this Form 10-Q and unrealized capital gains (losses) on these securities are recorded directly in AOCI, except for certain RMBS which are accounted for under the FVO, whose change in fair value is reflected in Other net realized gains (losses) in the Condensed Consolidated Statements of Operations. Our maximum exposure to loss on these structured investments is limited to the amount of our investment. See the Investments (excluding Consolidated Investment Entities) Note to the Condensed Consolidated Financial Statements in Part I, Item 1. of this Form 10-Q for details regarding the carrying amounts and classifications of these assets.


133


Item 3.        Qualitative and Quantitative Disclosure About Market Risk

Market risk is the risk that our consolidated financial position and results of operations will be affected by fluctuations in the value of financial instruments. We have significant holdings in financial instruments and are naturally exposed to a variety of market risks. The main market risks we are exposed to include credit risk, interest rate risk and equity market price risk. We do not have material market risk exposure to “trading” activities in our Condensed Consolidated Financial Statements.

Risk Management

As a financial services company active in Retirement, Investment Management and Insurance, taking measured risks is part of our business. As part of our effort to ensure measured risk taking, we have integrated risk management in our daily business activities and strategic planning.

We place a high priority to risk management and risk control. We have comprehensive risk management and control procedures in place at all levels and have established a dedicated risk management function with responsibility for the formulation of our risk appetite, strategies, policies and limits. The risk management function is also responsible for monitoring our overall market risk exposures and provides review, oversight and support functions across us on risk-related issues.

Our risk appetite is aligned with how our businesses are managed and anticipates future regulatory developments. In particular, our risk appetite is aligned with regulatory capital requirements applicable to other regulated insurance subsidiaries as well as metrics that are aligned with various ratings agency models.

Our risk governance and control systems enable us to identify, control, monitor and aggregate risks and provide assurance that risks are being measured, monitored and reported adequately and effectively. To promote measured risk taking, we have integrated risk management with our business activities and strategic planning through a strategy to manage risk in accordance with the following three principles:

1.
Management of the businesses has primary responsibility for the day-to-day management of risk and forms the first line of defense.
2.
The risk management function, both at the corporate and the business level, as the second line of defense, has the primary responsibility to align risk taking with strategic planning through risk tolerance and limit setting. Risk managers in the businesses have direct reporting lines to the Chief Risk Officer (“CRO”).
3.
The internal audit function provides an ongoing independent (i.e. outside of the risk organization) and objective assessment of the effectiveness of internal controls, including financial and operational risk management and forms the third line of defense.

Our risk management is organized along a functional line comprising two levels within the organization: the corporate and business levels. The CRO heads the functional line, and each of the businesses has a similar function that reports to the CRO. This layered, functional approach is designed to promote consistent application of guidelines and procedures, regular reporting and appropriate communication vertically through the risk management function, as well as to provide ongoing support for the business. The scope, roles, responsibilities and authorities of the risk management function at different levels are described in an Insurance Risk Management Governance Framework to which all businesses must adhere.
 
Our Risk Committee discusses and approves all risk policies and reviews and approves risks associated with our activities. This includes volatility (affecting earnings and value), exposure (required capital and market risk) and insurance risks. Each business has an Asset-Liability Committee that reviews business specific risks and is governed by the Risk Committee.

We have implemented several limit structures to manage risk. Examples include, but are not limited to, the following:

•
At-risk limits on sensitivities of earnings and regulatory capital to the capital markets provide the fundamental framework to manage capital markets risks including the risk of asset / liability mismatch;
•
Duration and convexity mismatch limits;
•
Credit risk concentration limits;
•
Mortality concentration limits;
•
Catastrophe and mortality exposure retention limits for our insurance risk; and
•
Investment and derivative guidelines.



134


We manage our risk appetite based on two key risk metrics:

•
Regulatory and Rating Agency Capital Sensitivities: the potential reduction, under a moderate capital markets stress scenario, of the excess of available statutory capital above the minimum required under the NAIC regulatory RBC methodology and of our targeted rating agency capital position; and
•
Earnings Sensitivities: the potential reduction in results of operations under a moderate capital markets stress scenario. Maintaining a consistent level of earnings helps us to finance our operations, support our capital requirements and provide funds to pay dividends to stockholders.

Our risk metrics cover the most important aspects in terms of performance measures where risk can materialize and are representative of the regulatory constraints to which our business is subject. The sensitivities for earnings and statutory capital are important metrics since they provide insight into the level of risk we take under 'moderate stress' scenarios. They also are the basis for internal risk management.

We are also subject to cash flow stress testing pursuant to regulatory requirements. This analysis measures the effect of changes in interest rate assumptions on asset and liability cash flows. The analysis includes the effects of:

•
the timing and amount of redemptions and prepayments in our asset portfolio;
•
our derivative portfolio;
•
death benefits and other claims payable under the terms of our insurance products;
•
lapses and surrenders in our insurance products;
•
minimum interest guarantees in our insurance products; and
•
book value guarantees in our insurance products.

We evaluate any shortfalls that our cash flow testing reveals and if needed increase statutory reserves or adjust portfolio management strategies.

Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, financial indices, or other prices of securities or commodities. Derivatives include swaps, futures, options and forward contracts. Under U.S. insurance statutes, our insurance subsidiaries may use derivatives to hedge market values or cash flows of assets or liabilities; to replicate cash market instruments; and for certain limited income generating activities. Our insurance subsidiaries are generally prohibited from using derivatives for speculative purposes. References below to hedging and hedge programs refer to our process of reducing exposure to various risks. This does not mean that the process necessarily results in hedge accounting treatment for the respective derivative instruments. To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item and meet other specific requirements. Effectiveness of the hedge is assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge. The ineffective portion of a hedging relationship subject to hedge accounting is recognized in Net realized capital gains (losses) in the Condensed Consolidated Statements of Operations.

Market Risk Related to Interest Rates

We define interest rate risk as the risk of an economic loss due to adverse changes in interest rates. This risk arises from our holdings in interest sensitive assets and liabilities, primarily as a result of investing life insurance premiums, fixed annuity and guaranteed investment contract deposits received in interest-sensitive assets and carrying these funds as interest-sensitive liabilities. We are also subject to interest rate risk on our variable annuity business, as a sustained decline in interest rates or a prolonged period of low interest rates may subject us to higher cost of guaranteed benefits and increased hedging costs.

We use product design, pricing and ALM strategies to reduce the adverse effects of interest rate movement. Product design and pricing strategies can include the use of surrender charges, withdrawal restrictions and the ability to reset credited interest rates. ALM strategies can include the use of derivatives and duration and convexity mismatch limits. See "Risk Factors-Risks Related to Our Business-General - The level of interest rates may adversely affect our profitability, particularly in the event of a continuation of the current low interest rate environment" included in our Prospectus.

Derivatives strategies include the following:

•
Minimum Interest Rate Guarantees: For certain liability contracts, we provide the contract holder a guaranteed minimum interest rate. These contracts include certain fixed annuities and other insurance liabilities. We purchase interest rate floors, swaps and swaptions to reduce risk associated with these liability guarantees.


135


•
Book Value Guarantees in Stable Value Contracts: For certain stable value contracts, the contract holder and participants may surrender the contract for the account value even if the market value of the asset portfolio is in an unrealized loss position. We purchase derivatives including interest rate caps, swaps and swaptions to reduce the risk associated with this type of guarantee.
•
Interest Risk Related to Variable Annuity Guaranteed Living Benefits: For Variable Annuity contracts with Guaranteed Living benefits, the contract holder may elect to receive income benefits over the remainder of their lifetime. We use derivatives such as interest rate swaps to hedge a portion of the interest rate risk associated with this type of guarantee.
•
Other Market Value and Cash Flow Hedges: We also use derivatives in general to hedge present or future changes in cash flows or market value changes in our assets and liabilities. We use derivatives such as interest rate swaps to specifically hedge interest rate risks associated with our CMO-B portfolio, see "Investments-CMO-B Portfolio."

We assess interest rate exposures for financial assets, liabilities and derivatives using hypothetical test scenarios that assume either increasing or decreasing 100 basis point parallel shifts in the yield curve, reflecting changes in either credit spreads or risk-free rates. The following table presents the net estimated potential change in fair value from hypothetical 100 basis point upward and downward shifts in interest rates as of March 31, 2013 . While the test scenarios are for illustrative purposes only and do not reflect our expectations regarding future interest rates or the performance of fixed-income markets, they are a near-term, reasonably possible hypothetical change that illustrates the potential impact of such events. These tests do not measure the change in value that could result from non-parallel shifts in the yield curve. As a result, the actual change in fair value from a 100 basis point change in interest rates could be different from that indicated by these calculations.
 
March 31, 2013
 
 
 
 
 
Hypothetical Change in
Fair Value (2)
($ in millions)  
Notional
 
Fair Value (1)
 
+ 100 Basis Points Yield Curve Shift
 
- 100 Basis Points Yield Curve Shift
Financial assets with interest rate risk:
 
 
 
 
 
 
 
Fixed maturity securities, including securities pledged
$
—

 
$
75,073.4

 
$
(4,844.0
)
 
$
4,801.3

Equity securities, available for sale
—

 
282.3

 
(5.6
)
 
5.1

Commercial mortgage and other loans
—

 
9,215.2

 
(360.2
)
 
307.9

Derivatives:
 
 
 
 
 
 
 
Interest rate swaps, caps, forwards
72,899.7

 
387.3

 
(1,051.4
)
 
1,344.4

Financial liabilities with interest rate risk:
 
 
 
 
 
 
 
Investment contracts:
 
 
 
 
 
 
 
Funding agreements without fixed maturities and deferred annuities (3)
—

 
55,996.7

 
(4,070.7
)
 
4,980.9

Funding agreements with fixed maturities and GICs
—

 
3,826.2

 
(153.6
)
 
158.4

Supplementary contracts and immediate annuities
—

 
3,473.5

 
(188.7
)
 
215.6

Long-term debt
—

 
3,677.2

 
(172.6
)
 
188.8

Embedded derivatives on reinsurance
—

 
154.8

 
(78.6
)
 
77.0

Guaranteed benefit derivatives (3) :
 
 
 
 
 
 
 
FIA
—

 
1,561.7

 
(89.9
)
 
90.5

GMAB / GMWB / GMWBL
—

 
1,628.6

 
(752.4
)
 
959.4

Stabilizer and MCGs
—

 
78.0

 
(72.0
)
 
119.0

(1) Separate account assets and liabilities which are interest sensitive are not included herein as any interest rate risk is borne by the holder of separate account.
(2) (Decreases) in assets or (decreases) in liabilities are presented in parentheses. Increases in assets or increases in liabilities are presented without parentheses.
(3) Certain amounts included in Funding agreements without fixed maturities and deferred annuities section are also reflected within the Guaranteed benefit derivatives section of the tables above.



136


Market Risk Related to Credit Risk

Credit risk is primarily embedded in the general account portfolio. The carrying value of our fixed maturity and equity portfolio totaled $75.4 billion and $75.6 billion as of March 31, 2013 and December 31, 2012 , respectively. Our credit risk materializes primarily as impairment losses. We are exposed to occasional cyclical economic downturns, during which impairment losses may be significantly higher than the long-term historical average. This is offset by years where we expect the actual impairment losses to be substantially lower than the long-term average.

Credit risk in the portfolio can also materialize as increased capital requirements as assets migrate into lower credit qualities over time. The effect of rating migration on our capital requirements is also dependent on the economic cycle and increased asset impairment levels may go hand in hand with increased asset related capital requirements.

We manage the risk of default and rating migration by applying disciplined credit evaluation and underwriting standards and prudently limiting allocations to lower quality, higher risk investments. In addition, we diversify our exposure by issuer and country, using rating based issuer and country limits. We also set investment constraints that limit our exposure by industry segment. To limit the impact that credit risk can have on earnings and capital adequacy levels, we have portfolio-level credit risk constraints in place. Limit compliance is monitored on a daily or, in some cases, monthly basis. Limit violations are reported to senior management and we are actively involved in decisions around curing such limit violations.

We also have credit risk related to the ability of our derivatives and reinsurance counterparties to honor their obligations to pay the contract amounts under various agreements. In order to minimize the risk of credit loss on such contracts, we diversify our exposures among several counterparties and limit the amount of exposure to each based on credit rating. For most counterparties, including the largest reinsurance counterparties, we have collateral agreements in place that would substantially limit our credit losses in case of a counterparty default. We also generally limit our selection of counterparties that we do new transactions with to those with an "A" credit rating or above. When exceptions are made to that principle, we ensure that we obtain collateral to mitigate our risk of loss. For derivatives counterparty risk exposures (which includes reverse repurchase and securities lending transactions), we measure and monitor our risks on a market value basis daily.

Market Risk Related to Equity Market Prices

Our Closed Block Variable Annuity products, FIA products and general account equity securities are significantly influenced by global equity markets. Increases or decreases in equity markets impact certain assets and liabilities related to our variable products and our earnings derived from those products. Our variable products include variable annuity contracts and variable life insurance.

We assess equity risk exposures for financial assets, liabilities and derivatives using hypothetical test scenarios that assume either an increase or decrease of 10% in all equity market benchmark levels. The following table presents the net estimated potential change in fair value from an instantaneous increase and decrease in all equity market benchmark levels of 10% as of March 31, 2013 . In calculating these amounts, we exclude separate account equity securities related to products for which the investment risk is borne primarily by the separate account contract holder rather than by us. While the test scenarios are for illustrative purposes only and do not reflect our expectations regarding future the performance of equity markets, they are near-term, reasonably possible hypothetical changes that illustrate the potential impact of such events. These scenarios consider only the direct effect on fair value of declines in equity benchmark market levels and not changes in asset-based fees recognized as revenue, changes in our estimates of total gross profits used as a basis for amortizing DAC/VOBA, other intangibles and other costs, or changes in any other assumptions such as market volatility or mortality, utilization or persistency rates in variable contracts that could also impact the fair value of our living benefits features. In addition, these scenarios do not reflect the effect of basis risk, such as potential differences in the performance of the investment funds underlying the variable annuity products relative to the equity market benchmark we use as a basis for developing our hedging strategy. The impact of basis risk could result in larger differences between the change in fair value of the equity-based derivatives and the related living benefit features, in comparison to the hypothetical test scenarios.


137


 
March 31, 2013
 
 
 
 
 
Hypothetical Change in
Fair Value (1)
($ in millions)  
Notional
 
Fair Value
 
+ 10%
Equity Shock
 
-10%
Equity Shock
Financial assets with equity market risk:
 
 
 
 
 
 
 
Equity securities, available for sale
$
—

 
$
282.3

 
$
26.8

 
$
(26.8
)
Limited liability partnerships/corporations
—

 
468.5

 
27.3

 
(27.3
)
Derivatives:
 
 
 
 
 
 
 
Equity futures and total return swaps (2)
10,787.4

 
(47.0
)
 
(1,078.7
)
 
1,078.7

Equity options
3,147.7

 
120.7

 
58.7

 
(67.4
)
Financial liabilities with equity market risk:
 
 
 
 
 
 
 
Investment contracts:
 
 
 
 
 
 
 
Guaranteed benefit derivatives
 
 
 
 
 
 
 
FIA
—

 
1,561.7

 
87.7

 
(171.8
)
GMAB / GMWB/ GMWBL
—

 
1,628.6

 
(262.6
)
 
348.9

(1) (Decreases) in assets or (decreases) in liabilities are presented in parentheses. Increases in assets or increases in liabilities are presented without parentheses.
(2) Primarily related to Closed Block Variable Annuity hedging programs.

Market Risk Related to Closed Block Variable Annuity

Closed Block Variable Annuity Net Amount at Risk ("NAR")

The NAR for the GMDB, GMAB and GMWB benefits is equal to the guaranteed value of these benefits in excess of the account values in each case as of the date indicated. The NAR assumes utilization of benefits by all customers as of the date indicated.

The NAR for the GMIB and GMWBL benefits is equal to the excess of the present value of the minimum guaranteed annuity payments available to the contract owner over the current account value. It assumes that all policyholders exercise their benefit immediately, even if they have not yet attained the first exercise date shown in their contracts, and that there are no future lapses. The NAR assumes utilization of benefits by all customers as of the date indicated. This hypothetical immediate exercise of the benefit means that the customers give up any future increase in the guaranteed benefit that might accrue if they were to delay exercise to a later date. The discount rates used in the GMIB NAR methodology grade from current U.S. Treasury rates to long-term best estimates over ten years. The GMWBL NAR methodology uses current swap rates. The discounting for GMWBL and GMIB NAR was developed to be consistent with the methodology for the establishment of GAAP reserves.

The account values and NAR, both gross and net of reinsurance ("retained NAR"), of contract owners by type of minimum guaranteed benefit for retail variable annuity contracts are presented below as of March 31, 2013 .
($ in millions, unless otherwise indicated)  
 
Account Value (1)
 
Gross NAR
 
Retained NAR
 
% Contracts NAR In-the-Money (2)
 
% NAR
In-the-Money (3)
GMDB
 
$
43,846

 
$
6,915

 
$
6,105

 
 
50%
 
26%
Living Benefit
 
 
 
 
 
 
 
 
 
 
 
GMIB
 
15,482

 
3,029

 
3,029

(4)  
 
81%
 
19%
GMWBL
 
16,075

 
1,293

 
1,293

 
 
48%
 
15%
GMAB/GMWB
 
1,043

 
32

 
32

 
 
18%
 
16%
Living Benefit Total
 
32,600

 
4,354

 
4,354

 
 
 
 
 
(1) Account value excludes $702 million of Payout, Policy Loan and life insurance business which is included in consolidated account values.
(2) Percentage of contracts that have a NAR greater than zero.
(3) For contracts with a NAR greater than zero, % NAR In-the-Money is defined as NAR/(NAR + Account Value).
(4) An alternate discounting approach using the currently applicable U.S. statutory reserve valuation rate for immediate annuities of 4.25% produces a result with a value of $2.0 billion .

As of the date indicated above, compared to $4.4 billion of NAR, we held gross statutory reserves before reinsurance of $5.3 billion for living benefit guarantees; of this amount, $5.2 billion was ceded to SLDI, supported by assets in trust of $3.2 billion


138


with the remaining in LOCs. However, NAR and statutory reserves are not directly comparable measures. Our GAAP reserves for living benefit guarantees were $2.8 billion as of March 31, 2013 .

See the Subsequent Events Note in Part I, Item 1. of this Form 10-Q for additional information related to changes in assets held in trust and termination of contingent capital LOCs. For a discussion of our GAAP reserves calculation methodology, see section Future Policy Benefits and Contract Owner Accounts in the Business and Basis of Presentation and Significant Accounting Policies Note in our Consolidated Financial Statements in our Prospectus.

Hedging of Variable Annuity Guaranteed Benefits

We primarily mitigate variable annuity market risk exposures through hedging. Market risk arises primarily from the minimum guarantees within the variable annuity products, whose economic costs are primarily dependent on future equity market returns, interest rate levels, equity volatility levels and policyholder behavior. The variable annuity hedging program is used to mitigate our exposure to equity market and interest rate changes and seeks to ensure that the required assets are available to satisfy future death benefit and living benefit obligations. While the variable annuity guarantee hedge program does not explicitly hedge statutory or GAAP reserves, as markets move up or down, in aggregate the returns generated by the variable annuity hedge program will significantly offset the statutory and GAAP reserve changes due to market movements.

The objective of the guarantee hedging program is to offset changes in equity market returns for most minimum guaranteed death benefits and all guaranteed living benefits, while also providing interest rate protection for certain minimum guaranteed living benefits. We hedge the equity market exposure using a hedge target set using market consistent valuation techniques for all guaranteed living benefits and most death benefits. We also hedge the interest rate risk in our GMWB/GMAB/GMWBL blocks using a market consistent valuation hedge target. We do not hedge interest rate risks for our GMIB or GMDB primarily because doing so would result in volatility in our regulatory reserves and rating agency capital that exceeds our tolerances and, secondarily, because doing so would produce additional volatility in our GAAP financial statements.

Equity index futures on various equity indices are used to mitigate the risk of the change in value of the policyholder-directed separate account funds underlying the variable annuity contracts with minimum guarantees. A dynamic trading program is utilized to seek replication of the performance of targeted fund groups (i.e., the fund groups that can be covered by indices where liquid futures markets exist).

Total return swaps are also used to mitigate the risk of the change in value of certain policyholder directed separate account funds. These include fund classes such as emerging markets and real estate. They may also be used instead of futures of more liquid indices where it may be deemed advantageous. This hedging strategy is employed at our discretion based on current risk exposures and related transaction costs.

Interest rate swaps are used to mitigate the impact of interest rates changes on the economic liabilities associated with certain minimum guaranteed living benefits.

Variance swaps and equity options are used to mitigate the impact of changes in equity volatility on the economic liabilities associated with certain minimum guaranteed living benefits. This program began in the second quarter of 2012.

Foreign exchange forwards are used to mitigate the impact of policyholder-directed investments in international funds with exposure to fluctuations in exchange rates of certain foreign currencies. Rebalancing is performed based on pre-determined notional exposures to the specific currencies.

Closed Block Variable Annuity Capital Hedge Overlay Program

Variable annuity guaranteed benefits are hedged based on their economic or fair value; however, the statutory reserves are not based on a market value. When equity markets decrease, the statutory reserve and rating agency required assets for the variable annuity guaranteed benefits can increase more quickly than the value of the derivatives held under the guarantee hedging program. This causes regulatory reserves to increase and rating agency capital to decrease. The CHO strategy is intended to actively mitigate equity risk to the regulatory and rating agency capital of the Company. The hedge is executed through the purchase and sale of equity index futures and is designed to limit the uncovered reserve increase in an immediate down equity market scenario to an amount we believe prudent for a company of our size and scale. This amount will change over time with market movements, changes in regulatory and rating agency capital and our risk tolerances.



139


The following table presents the estimated net impacts to funding our regulatory reserves to our Closed Block Variable Annuity segment, after giving effect to our CHO program and the Variable Annuity guarantee hedge program for various shocks in equity markets and interest rates. This reflects the hedging we had in place as well as any collateral (in the form of LOC) or change in underlying asset values that would be used to achieve credit for reinsurance for the segment of liabilities reinsured to our Cayman Islands subsidiary at the close of business on March 31, 2013 in light of our determination of risk tolerance and available collateral at that time, which, as noted above, may change from time to time.
 
March 31, 2013
($ in millions)  
Equity Market (S&P 500)
 
Interest Rates
 
-25%
 
-15%
 
-5%
 
+5%
 
+15%
 
+25%
 
-1%
 
+1%
Decrease/(increase) in regulatory reserves
$
(4,150
)
 
$
(2,400
)
 
$
(750
)
 
$
750

 
$
2,000

 
$
2,900

 
$
(1,850
)
 
$
1,050

Hedge gain/(loss) immediate impact
3,400

 
1,800

 
500

 
(500
)
 
(1,250
)
 
(1,850
)
 
1,250

 
(950
)
Increase/(decrease) in Market Value of Assets
—

 
—

 
—

 
—

 
—

 
—

 
200

 
(200
)
Increase/(decrease) in LOCs
750

 
600

 
250

 
(250
)
 
(450
)
 
(450
)
 
400

 
—

Net impact
—

 
—

 
—

 
—

 
300

 
600

 
—

 
(100
)

The foregoing sensitivities illustrate the estimated impact of the indicated shocks beginning on the first market trading day following March 31, 2013 and give effect to dynamic rebalancing over the course of the shock event. The estimates of equity market shocks reflect a shock to all equity markets, domestic and global, of the same magnitude. The estimates of interest rate shocks reflect a shock to rates at all durations (a “parallel” shift in the yield curve). Decrease / (increase) in regulatory reserves includes statutory reserves for policyholder account balances, AG43 reserves and additional cash flow testing reserves related to the Closed Block Variable Annuity segment. Hedge Gain / (Loss) includes both the Variable Annuity guarantee hedge program and the CHO and assumes that hedge positions can be rebalanced during the market shock and that the performance of the derivative contracts closely matches the performance of the contract owner's variable fund returns. Increase / (decrease) in LOCs indicates the change in the amount of LOCs used to provide credit for reinsurance at those times when the assets backing the reinsurance liabilities may be less than the statutory reserve requirement. As of March 31, 2013 the amount of LOCs required for this purpose, excluding the contingent capital facility, was approximately $425.0 million and the actual amount of the available LOCs outstanding was approximately $1.2 billion . Increase / (decrease) in Market Value of Assets is the estimated potential change in market value of assets supporting the segment of liabilities reinsured to our Cayman Island subsidiary from 100 basis point upward and downward shifts in interest rates. Results of an actual shock to equity markets or interest rates would likely differ from the above illustration due to issues such as 'basis risk' (differences in the performance of the derivative contracts versus the contract owner variable fund returns), equity shocks not occurring uniformly across all equity markets, variance in market volatility versus what is assumed, combined effects of interest rates and equities, additional impacts from rebalancing of hedges, the effects of time and changes in assumptions or methodology that affect reserves or hedge targets. Additionally, estimated net impact sensitivities vary over time as the market and closed book of business evolve or if assumptions or methodologies that affect reserves or hedge targets are refined.

For the three months ended March 31, 2013 , our guarantee and overlay equity hedges resulted in a loss of approximately $1.0 billion for ING USA, which was more than offset by the equity market decrease in AG43 reserves in excess of reserves for cash surrender value of approximately $1.1 billion for ING USA. Change in statutory reserves due to equity and equity hedges for ING USA reflects non-affiliated reinsurance for variable annuity policies, but not the affiliated reinsurance transaction associated with the GMIB and GMWBL riders. Substantially all of the Closed Block Variable Annuity business was written by ING USA. In addition to equity hedge results and change in reserves due to the impact of equity market movements, statutory income includes fee income, investment income and other income offset by benefit payments, operating expenses and other costs as well as impacts to reserves and hedges due to effects of time and other market factors.

With respect to change in interest rates, regulatory reserves generally increase with decreasing rates and decrease with increasing rates, which is significantly offset by the change in value of the Variable Annuity Guarantee Hedging Program interest rate swaps.

As GAAP accounting differs from the methods used to determine regulatory reserves and rating agency capital requirements, our hedge programs may result in immediate impacts that may be lower or higher than the regulatory impacts illustrated above. The following table presents the estimated net impacts to GAAP earnings pre-tax in our Closed Block Variable Annuity segment, which is the sum of the increase or decrease in U.S. GAAP reserves and the hedge gain or loss from our CHO program and the Variable Annuity Guarantee Hedge program for various shocks in both equity markets and interest rates. This reflects the hedging we had


140


in place at the close of business on March 31, 2013 in light of our determination of risk tolerance at that time, which, as noted above, we adjust from time to time.
 
March 31, 2013
($ in millions)  
Equity Market (S&P 500)
 
Interest Rates
 
-25%
 
-15%
 
-5%
 
+5%
 
+15%
 
+25%
 
-1%
 
+1%
Total estimated earnings sensitivity
$
1,250

 
$
700

 
$
200

 
$
(200
)
 
$
(450
)
 
$
(700
)
 
$
50

 
$
(50
)

The foregoing sensitivities illustrate the impact of the indicated shocks on the first market trading day following March 31, 2013 and give effect to dynamic rebalancing over the course of the shock events. The estimates of equity market shocks reflect a shock to all equity markets, domestic and global, of the same magnitude. The estimates of interest rate shocks reflect a shock to rates at all durations (a “parallel” shift in the yield curve). Liabilities are based on GAAP reserves and embedded derivatives, with the latter excluding the effects of nonperformance risk. DAC is amortized on gross revenues which will not be volatile, however, volatility could be driven by loss recognition. Hedge Gain / (Loss) impacting the above estimated earnings sensitivity includes both the Variable Annuity Guarantee Hedge Program and the Capital Hedge Overlay Program and assumes that hedge positions can be rebalanced during the market shock and that the performance of the derivative contracts closely matches the performance of the contract owner's variable fund returns. Actual results will differ from the estimates above due to issues such as 'basis risk' (differences in the performance of the derivative contracts versus the contract owner variable fund returns), changes in non-performance spreads, equity shocks not occurring uniformly across all equity markets, variance in market volatility versus what is assumed, combined effects of interest rates and equities, additional impacts from rebalancing of hedges, the effects of time, and changes in assumptions or methodology that affect reserves or hedge targets. Additionally, estimated net impact sensitivities vary over time as the market and closed book of business evolves, or if changes in assumptions or methodologies that affect reserves or hedge targets are refined. As the closed book of business evolves, actual net impacts are realized, or if changes are made to the target of the hedge program, the sensitivities may vary over time. Additionally, actual results will differ from the above due to issues such as basis risk, market volatility, changes in implied volatility, combined effects of interest rates and equities, rebalancing of hedges in the future, or the effects of time and other variations from the assumptions in the above table.

As part of the capital contribution of SLDI, the sensitivity of both regulatory and rating agency capital to market movements will decline and may cause us to decrease the amount of hedges we hold and therefore, reduce the amount of the hedge gain (loss) and impact the tables presented above. Additionally, decreases in hedge amounts may change the amount of LOCs needed for reinsurance credit. See the Subsequent Events Note in Part I, Item 1. of this Form 10-Q for additional information related to changes in assets held in trust and termination of contingent capital LOCs.

Hedging of Fixed Indexed Annuity Benefits

We mitigate FIA market risk exposures through a combination of capital market hedging, product design and capital management. For the FIA book of business, these risks stem from the MGIR offered and the additional interest credits (Equity Participation or Interest Rate Participation) based on exposure to various stock market indices or the 3-month LIBOR. The minimum guarantees and stock market exposures are strongly dependent on capital markets and, to a lesser degree, policyholder behavior.

We mitigate this exposure in two ways. The primary way we hedge FIA equity exposure is to purchase over the counter ("OTC") equity index call options from broker-dealer derivative counterparties who generally have a minimum credit rating of A3 from Moody's and A- from S&P. The second way to hedge FIA equity exposure is by purchasing exchange traded equity index futures contracts.

Additionally, the credited rate mechanism for certain FIA contracts exposes us to changes in interest rate benchmarks. We mitigate this exposure by purchasing OTC interest rate swaptions from broker-dealer derivative counterparties who generally have a minimum credit rate of A3 from Moody's and A- from S&P. For each broker-dealer counterparty, our derivative exposure to that counterparty is aggregated with any fixed income exposure to the same counterparty and is maintained within applicable limits.

These hedge programs are limited to the current policy term of the liabilities, based on current participation rates. Future returns, which may be reflected in FIA credited rates beyond the current policy term, are not hedged.

While the FIA hedging program does not explicitly hedge statutory or GAAP income volatility, the FIA hedging program tends to mitigate the statutory and GAAP reserve changes associated with movements in the equity market and 3-month LIBOR. This is due to the fact that a key component in the calculation of statutory and GAAP reserves is the market valuation of the current term embedded derivative. The risk management of the current term embedded derivative is the goal of the FIA hedging program.


141


Due to the alignment of the embedded derivative reserve component with hedging of this same embedded derivative, there should be a match between changes in this component of the reserve and changes in the assets backing this component of the reserve. However, there may be an interim mismatch due to the fact that the hedges which are put in place are only intended to cover exposures expected to remain until the end of an indexing term (e.g. account value decrements during an indexing term associated with expected lapses and mortality are not hedged).

Call options are used to hedge against an increase in various equity indices. An increase in various equity indices may result in increased payments to contract holders of FIA contracts. The call options offset this increased expense.

Futures contracts are also used to hedge against an increase in certain equity indices. An increase in certain equity indices may result in increased payments to contract holders of fixed indexed annuity contracts. The futures contracts offset this increased expense.

Interest rate swaptions are used to hedge against an increase in the interest rate benchmark (currently the 3-month LIBOR). An increase in the interest rate benchmark may result in increased payments to contract holders of FIA contracts. The interest rate swaptions offset this increased expense.

Item 4.        Controls and Procedures

a) The Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's current disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in the Company's periodic SEC filings is made known to them in a timely manner.

b) There has not been any change in the internal controls over financial reporting of the Company that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, these internal controls.

PART II.     OTHER INFORMATION

Item 1.        Legal Proceedings

See the Commitments and Contingencies Note to the Condensed Consolidated Financial Statements included in Part I, Item 1.

Item 1A.    Risk Factors

All of the Risk Factors contained in the Company's Prospectus are incorporated herein by reference, except for the “Risks Related to This Offering and Ownership of Our Common Stock”; the risk factor, "-The ability of our insurance subsidiaries to pay dividends and other distributions to ING U.S., Inc. and Lion Holdings is further limited by state insurance laws"; and the risk factor, "-At present, our principal insurance subsidiaries have no capacity to make ordinary dividend payments, and therefore such subsidiaries must obtain prior approval or notice of non-objection as the call must be from their respective domiciliary insurance regulators in order to pay dividends or distributions to ING U.S., Inc. or Lion Holdings". The following should be read in conjunction with and supplements and amends the risk factors set forth in the Prospectus and incorporated by reference herein.
 
The ability of our insurance subsidiaries to pay dividends and other distributions to ING U.S., Inc. and Lion Holdings is further limited by state insurance laws, and our insurance subsidiaries may not generate sufficient statutory earnings to enable them to pay ordinary dividends.

The payment of dividends and other distributions to ING U.S., Inc. and Lion Holdings by our insurance subsidiaries is regulated by state insurance laws and regulations. The jurisdictions in which our insurance subsidiaries are domiciled impose certain restrictions on the ability to pay dividends to their respective parents. These restrictions are based, in part, on the prior year’s statutory income and surplus. In general, dividends up to specified levels are considered ordinary and may be paid without prior regulatory approval. Dividends in larger amounts, or extraordinary dividends, are subject to approval by the insurance commissioner of the relevant state of domicile. Under the insurance laws applicable to our insurance subsidiaries domiciled in Colorado, Connecticut, Indiana, Iowa and Minnesota, an extraordinary dividend or distribution is defined as a dividend or distribution that, together with other dividends and distributions made within the preceding twelve months, exceeds the greater of (1) 10% of the


142


insurer’s policyholder surplus as of the preceding December 31 or (2) the insurer’s net gain from operations for the twelve-month period ended the preceding December 31, in each case determined in accordance with statutory accounting principles. New York has similar restrictions, except that New York’s statutory definition of extraordinary dividend or distribution is an aggregate amount in any calendar year that exceeds the lesser of (1) 10% of policyholder’s surplus as of the preceding December 31 or (2) the insurer’s net gain from operations for the twelve-month period ended the preceding December 31, not including realized capital gains. In addition, under the insurance laws of the states of domicile of our principal insurance subsidiaries, no dividend or other distribution exceeding an amount equal to an insurance company’s earned surplus may be paid without the domiciliary insurance regulator’s prior approval. From time to time, the NAIC and various state insurance regulators have considered, and may in the future consider, proposals to further limit dividend payments that an insurance company may make without regulatory approval. No assurance is given that more stringent restrictions will not be adopted from time to time by jurisdictions in which our insurance subsidiaries are domiciled, and such restrictions could have the effect, under certain circumstances, of significantly reducing dividends or other amounts payable to ING U.S., Inc. or Lion Holdings by our insurance subsidiaries without prior approval by regulatory authorities. In addition, in the future, we may become subject to debt instruments or other agreements that limit the ability of our insurance subsidiaries to pay dividends or make other distributions. The ability of our insurance subsidiaries to pay dividends or make other distributions is also limited by our need to maintain the financial strength ratings assigned to such subsidiaries by the rating agencies.
These ratings depend to a large extent on the capitalization levels of our insurance subsidiaries.

Prior to our IPO, our principal insurance subsidiaries domiciled in Colorado, Iowa and Minnesota each had negative earned surplus accounts, and therefore had no ordinary dividend capacity. In order to obtain dividends or distributions from these insurance companies, we historically obtained approval from the insurance companies’ respective state regulators, which could be granted or withheld in the regulators’ discretion, for extraordinary dividends or distributions. On May 8, 2013, following the completion of our IPO and payment of $1,434 million of extraordinary distributions, these insurance companies each reset, on a one-time basis, their respective negative unassigned funds account as of December 31, 2012 (as reported in their respective 2012 statutory annual statements) to zero (with an offsetting reduction in gross paid-in capital and contributed surplus). These resets were made pursuant to permitted practices in accordance with statutory accounting practices granted by their respective domiciliary insurance regulators.

This reset allows our principal insurance subsidiaries domiciled in Colorado, Iowa and Minnesota to more readily build up ordinary dividend capacity to the extent their operating results subsequent to December 31, 2012 generate positive earned surplus. Under applicable domiciliary insurance regulations, our principal insurance subsidiaries must deduct any extraordinary distributions or dividends paid in the preceding twelve months in calculating dividend capacity. We expect that these insurance subsidiaries will have ordinary dividend capacity only after twelve months have passed since the date the extraordinary distributions described above were paid, and that ILIAC will have ordinary dividend capacity before such date.

Our principal insurance subsidiaries, however, may not succeed in building up sufficient positive earned surplus within those timeframes or at all. If our principal insurance subsidiaries do not succeed in building up sufficient positive earned surplus to have ordinary dividend capacity, then we may seek extraordinary dividends or distributions (for which prior approval of their respective domiciliary insurance regulators would be required, and can be granted or withheld in the discretion of the regulators). There can be no assurance that our principal insurance subsidiaries will receive approval for extraordinary distribution payments in the future.

The payment of dividends by our special purpose financial captive insurance company subsidiaries domiciled in South Carolina and Missouri is regulated by their respective governing licensing orders and restrictions in their respective insurance securitization agreements. Generally, our special purpose financial captive insurance subsidiaries may not declare or pay dividends in any form to their parent companies other than in accordance with their respective insurance securitization transaction agreements and their respective governing licensing orders, and in no event may the dividends decrease the capital of the captive below the minimum capital requirement applicable to it, and, after giving effect to the dividends, the assets of the captive paying the dividend must be sufficient to satisfy its domiciliary insurance regulator that it can meet its obligations. Similarly, our insurance subsidiary in the Cayman Islands is subject to minimum net worth and solvency requirements that limit its ability to pay dividends.


Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

(b) Use of Proceeds

On May 7, 2013, the Company closed and settled its IPO, commenced on May 1, 2013, whereby it and its existing stockholder sold 65,192,307 shares of common stock at a public offering price of $19.50 per share and an aggregate offering price of $1.271 billion. In addition, the selling stockholder has granted to the underwriters an option, exercisable for 30 days from the date of the Prospectus, to purchase up to 9,778,846 additional shares of common stock at the public offering price of $19.50 per share, less


143


underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock. If the underwriters' option is exercised in full, the aggregate offering price will be $1.462 billion.

The Company's shares are traded on the New York Stock Exchange (NYSE) under the symbol “VOYA.” Morgan Stanley, Goldman, Sachs & Co. and Citigroup were the representatives of the underwriters of the offering. The offer and sale of all of the shares in the IPO, including 30,769,230 shares to be sold by the Company and 34,423,077 shares to be sold by the selling stockholder, were registered under the Securities Act pursuant to a registration statement on Form S-1 (File No. 333-184847), which was declared effective by the SEC on May 1, 2013. Our portion of the net proceeds from the IPO was approximately $569.9 million after deducting underwriting discounts of $21.8 million and estimated offering costs of $8.3 million.

We used approximately $348.0 million of the net proceeds as part of a capital infusion to SLDI, our offshore reinsurance subsidiary. We intend to use the balance of the net proceeds from the offering for general corporate purposes, including retirement of existing indebtedness.

As part of the 65,192,307 shares of common stock sold in the IPO, 34,423,077 shares of common stock were sold by the existing stockholder at a public offering price of $19.50 per share. The Company did not receive any of the proceeds from the sale of such shares by the selling stockholder.

ING Financial Markets LLC, an affiliate of the selling stockholder, as one of the underwriters sold 1,877,539 of the shares of common stock and earned $1.3 million of the underwriting discount paid by the Company and selling stockholder.

Item 3.         Defaults upon Senior Securities.

None.

Item 5.        Other Information

Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which was signed into law on August 10, 2012, added a new subsection (r) to Section 13 of the Exchange Act, which requires us to disclose whether the Company or any of its affiliates, including ING Group or its affiliates has engaged during the quarterly period ended March 31, 2013 in certain Iran-related activities, including any transaction or dealing with the Government of Iran that is not conducted pursuant to a specific authorization of the U.S. government.

ING U.S., Inc. and its subsidiaries, including the Company have not knowingly engaged in any transaction or dealing reportable under Section 13(r) of the Exchange Act during the quarterly period ended March 31, 2013. The disclosure below relates solely to a limited legacy portfolio of guarantees, accounts and loans maintained by ING Bank and does not relate to any activities conducted by ING U.S., Inc. or its subsidiaries, including the Company or involve the management of ING U.S., Inc. or its subsidiaries, including the Company.

Other than the transactions described below, at no time during the quarter completed on March 31, 2013, did ING Groep N.V. or any of its affiliates (excluding ING U.S., Inc. and its subsidiaries) knowingly conduct or engage in any activities that would require disclosure to the U.S. Securities and Exchange Commission pursuant to Section 13(r) of the Securities Exchange Act of 1934, as amended. ING Bank maintains a limited legacy portfolio of guarantees, accounts, and loans that involve various entities owned by the Government of Iran. These positions remain on the books, but accounts related thereto are 'frozen'  under applicable laws and procedures. Any interest or other payments ING Bank is legally required to make in connection with said positions are made into 'frozen' accounts. Funds can only be withdrawn by relevant Iranian parties from these 'frozen' accounts after due regulatory consent from the relevant competent authorities. ING Bank has strict controls in place to ensure that no unauthorized account activity takes place while the account is 'frozen'. ING Bank may receive loan repayments, but all legacy loan repayments received by ING Bank have been duly authorized by the relevant competent authorities. For the three months ended March 31, 2013, ING Bank had gross revenues of approximately $88.1 thousand. ING Bank estimates that it had net profit of approximately $ 86.1 thousand. ING Bank intends to terminate each of the legacy positions as the nature thereof and applicable law permits.

Item 6.        Exhibits

See Exhibit Index on pages 146-147 hereof.


144



SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


May 23, 2013
ING U.S., Inc.
(Date)
(Registrant)
 
 
 
 
 
 
 
By: /s/
Ewout L. Steenbergen
 
 
Ewout L. Steenbergen
 
 
Executive Vice President and
 
 
Chief Financial Officer
 
 
(Duly Authorized Officer and Principal Financial Officer)



145


ING U.S., Inc.

Exhibit Index
Exhibit No.
 
Description of Exhibit
3.1
 
Amended and Restated Certificate of Incorporation of ING U.S., Inc. (included as Exhibit 3.2 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on April 16, 2013, and incorporated herein by reference)
3.2
 
Amended and Restated By-Laws of ING U.S., Inc. (included as Exhibit 3.1 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference).
4.1
 
Registration Rights Agreement between ING U.S., Inc. and ING Groep N.V. dated as of May 7, 2013 (included as Exhibit 10.4 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference)
4.2
 
Form of Common Stock Certificate (included as Exhibit 4.2 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on April 16, 2013, and incorporated herein by reference)
4.3
 
Warrant Agreement between ING U.S., Inc. Computershare Inc. and Computershare Trust Company, N.A. dated as of May 7, 2013 (included as Exhibit 99.1 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference)
4.4
 
Warrant issued to ING Groep N.V, dated May 7, 2013 (included as Exhibit 99.2 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference)
10.01
 
Tax Sharing Agreement by and between ING U.S., Inc. and various subsidiaries with respect to federal taxes effective as of January 1, 2013 (included as Exhibit 10.30 to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on March 19, 2013, and incorporated herein by reference)
10.02
 
Second Supplemental Indenture, dated as of February 11, 2013, among ING U.S., Inc., Lion Connecticut Holdings Inc. and U.S. Bank National Association, as trustee (included as Exhibit 10.74 to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on March 19, 2013, and incorporated herein by reference)
10.03
 
Registration Rights Agreement, dated February 11, 2013, by and among ING U.S., Inc., Lion Connecticut Holdings Inc. and Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Suntrust Robinson Humphrey, Inc. (included as Exhibit 10.75 to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on March 19, 2013, and incorporated herein by reference)
10.04
 
Shareholder Agreement between ING U.S., Inc. and ING Groep N.V. dated as of May 7, 2013 (included as Exhibit 10.1 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference)
10.05
 
Transitional Intellectual Property License Agreement between ING U.S., Inc. and ING Groep N.V. dated as of May 7, 2013 (included as Exhibit 10.2 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference)
10.06
 
Equity Administration Agreement between ING U.S., Inc. and ING Groep N.V. dated as of May 7, 2013 (included as Exhibit 10.3 to the Company's Current Report on Form 8-K, filed on May 7, 2013, and incorporated herein by reference)
10.07
 
ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (included as Exhibit 10.79 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on April 16, 2013, and incorporated herein by reference)
10.08
 
ING U.S., Inc. 2013 Omnibus Non-Employee Director Incentive Plan (included as Exhibit 10.80 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on April 16, 2013, and incorporated herein by reference)
10.09 +
 
Form of 2013 Converted Award Agreement under the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan related to the conversion of deferred shares granted in 2013 as both a mandatory partial deferral of 2012 annual incentive awards and an annual long-term incentive award to “Identified Staff” (as defined by the European Union's Capital Requirements Directive) pursuant to the ING Group Long-Term Sustainable Performance Plan
10.10 +
 
Form of 2013 Converted Award Agreement under the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan related to the conversion of deferred shares granted in 2013 as mandatory partial deferrals of 2012 long term incentive awards to “Identified Staff” (as defined by the European Union's Capital Requirements Directive) pursuant to the ING Group Long-Term Sustainable Performance Plan
10.11 +
 
Form of 2013 Converted Award Agreement under the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan related to the conversion of deferred shares and performance shares granted in 2013 to non-“Identified Staff” (as defined by the European Union's Capital Requirements Directive) pursuant to the ING Group Long-Term Sustainable Performance Plan


146


Exhibit Index
10.12 +
 
Form of 2013 Converted Award Agreement under the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan related to the conversion of performance shares granted in 2013 to non-“Identified Staff” (as defined by the European Union's Capital Requirements Directive) pursuant to the ING Group Long-Term Sustainable Performance Plan
10.13 +
 
Notice of conversion of restricted stock units granted in 2013 under the ING America Insurance Holdings, Inc. Equity Compensation Plan, as amended, into restricted stock units of ING U.S., Inc. under the 2013 Omnibus Employee Incentive Plan.
10.14
 
Offer Letter, dated March 28, 2013, between Ewout Steenbergen and ING U.S., Inc. (included as Exhibit 10.78 to Amendment No. 3 to the Company's Registration Statement on Form S-1 (File No. 333-184847), filed on April 5, 2013, and incorporated herein by reference)
10.15 +
 
Junior Subordinated Indenture, dated as of May 16, 2013, among ING U.S., Inc., Lion Connecticut Holdings Inc. and U.S. Bank National Association, as Trustee.
10.16 +
 
First Supplemental Indenture, dated as of May 16, 2013, among ING U.S., Inc., Lion Connecticut Holdings Inc. and U.S. Bank National Association, as Trustee.
10.17 +
 
Registration Rights Agreement, dated May 16, 2013, by and among ING U.S., INC., Lion Connecticut Holdings Inc. and Barclays Capital Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
31.1 +
 
Rule 13a-14(a)/15d-14(a) Certification of Rodney O. Martin, Chief Executive Officer
31.2 +
 
Rule 13a-14(a)/15d-14(a) Certification of Ewout L. Steenbergen, Chief Financial Officer
32.1 +
 
Section 1350 Certification of Rodney O. Martin, Chief Executive Officer 
32.2 +
 
Section 1350 Certification of Ewout L. Steenbergen, Chief Financial Officer
101.INS++
 
XBRL Instance Document
101.SCH++
 
XBRL Taxonomy Extension Schema
101.CAL++
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF++
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB++
 
XBRL Taxonomy Extension Label Linkbase
101.PRE++
 
XBRL Taxonomy Extension Presentation Linkbase

+ Filed herewith.
++ To be filed by amendment.


147



2013 Converted Award Agreement
under the
ING U.S., Inc.
2013 Omnibus Employee Incentive Plan

Number of Performance Shares (2013 LTI Grant) =
As a result of the initial public offering (“IPO”) of ING U.S., Inc. (“ING U.S.”), awards previously granted to you under the ING Groep N.V. (“ING Group”) Long Term Sustainable Performance Plan (“Prior Awards”) have been automatically converted into Awards (“Converted Awards”) to you pursuant to the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (the “Plan”). The Converted Awards are subject to the terms and conditions of the Plan and as set forth below in this agreement (the “Agreement”). Your personal details listed above, together with these terms and conditions, constitute your Agreement.
This 2013 Agreement will govern the terms and conditions of the Converted Award from and after the time of the IPO. Your acceptance of the Prior Awards constituted your irrevocable consent to the terms and conditions set forth herein.
Article 1 - General

1.1
Capitalized terms used but not defined in this Agreement shall, unless the context otherwise requires, have the same definition as in the Plan. Unless otherwise stated or the context so requires, the singular shall be construed to mean the plural, and vice versa.

1.2
The provisions of this Agreement shall govern and prevail in the event of any conflict with the Plan. Any conflicting or inconsistent term of this Agreement shall be interpreted and implemented by the Committee in a manner consistent with the Plan.

1.3
The Grantee has read the Plan, and accepts and agrees to the terms and conditions thereof.

1.4
Number of Performance Shares . The number of Performance Shares (2013 LTI Grant) indicated on the top of the first page of this Agreement has been determined by multiplying each Performance Share subject to your Prior Award by a fraction, the numerator of which is the average of the closing price on The New York Stock Exchange of one ADR or BDR, as applicable, representing one ordinary share of ING Group, for each of the five trading days immediately preceding the date of the closing of the IPO and the denominator of which is the price to the public (as specified on the cover of the final IPO-related prospectus) of one share of common stock of ING U.S. in the IPO. To the extent the calculation did not result in a whole number, the figure was rounded up to avoid fractional shares.

Article 2 - Award of Converted Awards

2.1
Nature of the Converted Awards . The Converted Awards made under Article 2 of this Agreement constitute a conditional right to receive a number of shares of Common Stock equal to the number

1


of Performance Shares (2013 LTI Grant), as adjusted pursuant to Article 3.1(b), as indicated at the top of the first page of this Agreement and calculated as described in Article 1.4, and subject to Article 3.1.

2.2     Grant Date of Award . The grant date of the Converted Awards is May 7, 2013.

2.3     Consideration . No consideration is payable by the Grantee in respect of the Converted Awards.

Article 3 - Vesting and Delivery of Converted Awards

3.1
Performance Shares (2013 LTI Grant) . (a) Subject to Articles 3.2 and 3.3 and clause (b) of this Article 3.1 below, this Converted Award will vest in three tranches, being 1/3rd on March 27, 2014, 1/3rd on March 27, 2015 and 1/3rd on March 27, 2016 (each, a “Vesting Date”), provided, that the Grantee is still employed by the Company on such Vesting Date. Any fractional shares that would otherwise vest on a Vesting Date will vest on the final Vesting Date. In the event there are any fractional shares on the final Vesting Date, the number of Performance Shares that vest on that final Vesting Date will be rounded up to the nearest whole share. One share of Common Stock shall be delivered to the Grantee in respect of each vested Performance Share as soon as practicable following each of the respective Vesting Dates but in any event no later than the end of the calendar year in which any such Vesting Date occurs.

(b) On the Vesting Date of any Performance Shares, Grantee will be entitled to receive a number of shares of Common Stock equal to the number of Performance Shares vesting on such Vesting Date multiplied by a performance factor (a “Performance Factor”) applicable to the calendar year immediately preceding such Vesting Date. The Performance Factor for each calendar year will be determined based on the level of achievement, over the course of such year, of one or more Company-wide or business-unit specific financial, operational or other goals. Grantee understands and acknowledges that the Performance Factor may be zero if applicable minimum goals are not met, and that the Performance Factor will be subject to a cap. The applicable goals that will be used to calculate the Performance Factor for the 2013 calendar year are set forth on Annex A hereto. The applicable goals that will be used to calculate the Performance Factor for the 2014 and 2015 calendar years will be determined by the Committee and communicated to Grantee at a later date.

3.2     Termination of Employment - Performance Shares .

(a)    If Grantee ceases to be Employed by the Company prior to an applicable Vesting Date by reason of:

(i)
(x) injury or Total and Permanent Disability (evidenced to the satisfaction of the Company), (y) early retirement by agreement of the Committee; or (z) by virtue of retirement on reaching his or her permitted retirement age as determined in the applicable retirement benefit program, statutory or otherwise, then a number of Performance Shares shall vest equal to the number of Performance Shares that otherwise would vest on such Vesting Date and the number of shares of Common Stock to be delivered to Grantee in respect of such Vesting Date will be determined in accordance with Article 3.1(b), which shares shall be delivered to the Grantee as soon as practicable following such Vesting Date (but in any event no later than the end of the calendar year in which such Vesting Date occurs); or



2


(ii)
termination of Employment by the Company due to Business Conditions (including, but not limited to, Redundancy) or a business divestiture that forms part of ING U.S.' normal course of business, then a number of Performance Shares will vest equal to equal to the number of Performance Shares that would have vested on the Vesting Date next following the termination of Employment multiplied by the Pro Rata Factor and the number of shares of Common Stock to be delivered to Grantee will be determined in accordance with Article 3.1(b) using the Performance Factor measured as of the most recent date prior to the termination of Employment (or, if no such Performance Factor has been measured at that time, the Performance Factor shall be 100%), which shares shall be delivered to the Grantee as soon as practicable following the termination of Employment (but in any event no later than the end of the calendar year in which such termination of Employment occurs), and any Performance Shares that remain unvested after application of this Article 3.2(a)(ii) shall be forfeited; or

(iii)
death, then all Performance Shares as of the date of death shall vest and the number of shares of Common Stock to be delivered to Grantee's beneficiary or estate, as the case may be, will be determined in accordance with Article 3.1(b) using the Performance Factor measured as of the most recent date prior to the date of death (or, if no such Performance Factor has been measured at that time, the Performance Factor shall be 100%), which shares shall be delivered to the Grantee's beneficiary or estate, as the case may be, as soon as practicable following the date of death (but in any event no later than the end of the calendar year in which such death occurs).

(b)
In the event of a Change in Control, Section 3.6 of the Plan shall, to the extent inconsistent with anything set forth elsewhere in this Agreement, govern the treatment of Performance Shares (2013 LTI Grant).

3.3     Termination of Employment - All Converted Awards .

(a)
If a Grantee is given notice of termination of Employment in circumstances involving fraud, gross negligence, willful misconduct or any activity detrimental to the Company, as determined by the Committee, then all Converted Awards (vested and not unvested) shall lapse immediately on the date the notice of termination of Employment is given to the Grantee.

(b)
Notwithstanding Article 3.2(a) or 3.3(a), the Committee in its absolute discretion may consent to vest any such Converted Award in whole or in part to the extent as it may determine and considers reasonable.

(c)
Other than as set forth in Article 3.2, any unvested Converted Awards shall expire upon termination of Employment without any consideration and the Grantee shall have no further rights thereto.

Article 4 - Claw back and Hold back

4.1     Claw Back .

(a)
Notwithstanding the terms and conditions as specified in the Plan and this Agreement, the Grantee expressly agrees that the Company shall have the right to reclaim any shares of Common Stock that have been delivered to the Grantee under the Plan in the event that he or she engages in conduct or performs acts which as the Committee determines to be:

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(i)
malfeasance;

(ii)
fraud; or

(iii)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company.

(b)
By signing this Agreement, the Grantee acknowledges that he or she understands and agrees that in the event the Committee determines that Grantee has engaged in conduct or performed acts specified in Article 4.1(a) and Grantee has sold all or a portion of his or her shares of Common Stock after vesting, the Company has the right to claim from the Grantee an amount in US dollars equal to the Fair Market Value of such shares at the time of such sale and the Grantee is obliged to repay this amount at first demand by the Company, such payment to be made no later than 30 days after the first demand.

4.2
Hold Back . The Committee has the authority to adjust the number of shares of Common Stock and/or cancel the Converted Awards in whole or in part:  

(a)
in case of evidence of misbehavior or serious error by the Grantee (e.g. breach of code of conduct and other internal rules, especially concerning risks); or

(b)
in case of evidence of malfeasance or fraud by the Grantee; or

(c)
in the event the Company or the business line in which the relevant staff member works suffers a significant failure of risk management; or

(d)
in the event of significant negative changes in the economic or regulatory capital base (based on a capital test); or

(e)
if any other material new information arises that would have changed the original determination of the award if it were known at the time of award; or

(f)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company or any of its Subsidiaries or Affiliates.
The Committee will annually assess, prior to vesting, whether and to what extent this discretionary authority needs to be applied.

Article 5 - Various

5.1
Compliance with U.S. Tax Law . Where the Grantee qualifies as a US Taxpayer, the Grantee understands and agrees that notwithstanding anything herein to the contrary, this Agreement, and the Converted Awards made hereby, shall be administered in accordance with the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including but not limited to, Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, any adjustment of any of the Converted Awards granted hereby shall be made in compliance with Section 409A of the Code. The Converted Awards granted hereby are intended to comply with Section 409A of the Code

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and will be administered and interpreted in accordance with that intent. In the event that the Grantee is a “specified employee” (within the meaning of the Treasury Regulations §1.409A‑1(i)) as of the date of the Grantee's “separation from service” (within the meaning of Treasury Regulations §1.409A‑1(h)) and if, as a result, any shares of Common Stock cannot be delivered, or any Converted Award cannot be paid or provided, in either case in the manner or at the time otherwise provided in Article 3, without subjecting the Grantee to “additional tax”, interest or penalties under Section 409A of the Code, then such shares shall be delivered, or Converted Award will be paid or provided, on the first day of the seventh month following the Grantee's separation from service.

5.2
Delivery of Common Stock or Sale of Common Stock . Except as otherwise provided above and notwithstanding anything in the Plan to the contrary, in accordance with instructions provided by the Grantee, shares of Common Stock, to the extent relating to a vested Converted Award, shall be transferred to the brokerage account of the Grantee and/or sold by the Company on behalf of and for the account of the Grantee upon delivery. The Grantee should provide instructions to the Company during the designated period(s) prior to the date of vesting instructing the Company to transfer the shares to the brokerage account of the Grantee and/or to sell such shares on behalf of and for the account of the Grantee. If the Grantee fails to provide any such instructions to the Company during the designated period(s), the shares shall automatically be sold on behalf of and for the account of the Grantee.

Article 6 - Data protection

6.1
The Grantee hereby (i) consents to the processing, collection, recording, organizing, storing and adapting by the Company and the third party administrators involved in the operation and administration of the Plan, of the personal data, (including, without limitation, name, business contact information, employee number, position and information on Awards) relating to the Grantee for the sole purpose of participating in the Plan and the Agreement, including the operation and administration of the Plan, and (ii) grants such consent for the duration of the Plan.

6.2
The Grantee also consents to the transfer of his/her personal data referred to under Article 6.1 of this Agreement by the Company to third party administrators that are assigned to the operation and administration of the Plan for this Grantee specifically and that are located in the United States or elsewhere.

6.3
The Grantee also agrees that a limited set of his/her personal data (name, LSPP ID, business line) is accessible to those third party administrators that are not specifically assigned to him/her for the operation and administration of the Plan for the sole purpose of identification and other related administrative reasons (e.g. to trace Grantees that have changed position within the Company).

6.4
The Grantee's personal data related to the Plan will be held in a database file titled with his/her name and unique identification code for the duration of the Plan, taking to account any additional data retention period required by applicable law. The database will be kept by the Company on behalf of the Company.

6.5
The Grantee understands that the provision of all of his/her personal data is obligatory for the purpose of his/her participation in the Plan and agrees with the transfer of the relevant personal data to the Company entity that he/she is employed by. The Participant is aware of his/her right to access and/or correct personal data, if and when necessary, by contacting the local Human Resources representative.

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6.6
The Grantee hereby agrees that, as a result of the IPO of ING U.S., ING U.S. may transfer the Grantee's personal data to a third party administrator, including one that is not an affiliated company, in order to carry out necessary administrative functions with respect to this Converted Award.

Article 7 - Governing law and Jurisdiction

7.1
Governing law and jurisdiction . This Agreement shall be governed by and shall be construed in accordance with the laws of the State of New York. The Company and the Grantee irrevocably submit, in respect of any suit, action or proceeding arising out of or relating to or concerning the Plan or the interpretation or enforcement of this Agreement, to the exclusive jurisdiction of any state or federal court located in New York, New York and to be bound by the provisions of Section 3.16 of the Plan.

7.2
Partial invalidity . Parties expressly agree that the invalidity or unenforceability of an Article or Articles of this Agreement shall not affect the validity or enforceability of any other Article of this Agreement and that the remainder of this Agreement will remain in full effect. Any such invalid or unenforceable Article shall be replaced or be deemed to be replaced by a provision that is considered to be valid and enforceable. The interpretation of the replacing Article shall be as close as possible to the intent of the invalid or unenforceable Article.

Article 8 - Grantee Covenants

8.1
In consideration of the Converted Awards granted under this Agreement, Grantee agrees to abide by the restrictive covenants set forth below. For the purposes of this Article, the definition of “Company” is expanded to include any Subsidiaries or Affiliates that do business in the United States.

(i)
Protection of confidential information . The Grantee will not, without permission of the Company, disclose any Company confidential information or trade secrets to anyone outside the Company, unless required by subpoena. Confidential information and trade secrets include, but are not limited to, customer lists, product development information, marketing and sales plans, premium or other pricing information, operating policies and manuals, and, or other confidential information related to the Company.

(ii)
Nonsolicitation of employees and agents . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to induce any employee, agent or agency, broker, broker-dealer, financial planner, registered principal or representative of the Company to be employed by or to perform services for any entity that competes with the Company.

(iii)
Nonsolicitation of customers . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to solicit the trade of any person that is a customer of the Company or which the Company has been undertaking reasonable steps to procure as a customer during the 6 months preceding termination of employment. This limitation will only apply to products or services in competition with a product or service of the Company, and to customers with whom Grantee had contact during employment.

(iv)
Agreement to Cooperate .  Following the termination of Employment, the Grantee will cooperate with the Company, without additional compensation, on matters within the scope of Grantee's responsibilities during employment. The Company agrees to reimburse

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reasonable out-of-pocket expenses the Grantee incurs in connection with such assistance. The Company agrees it will make all reasonable efforts to minimize disruption to the Grantee's other commitments.

8.2
If any provision of Article 8.1 is determined by a court of competent jurisdiction not to be enforceable in the manner set forth above, the parties agree that they intend the provision to be enforceable to the maximum extent possible under applicable law, and that the court should reform the provision to make it enforceable in accordance with the intent of the parties.

8.3
The Grantee acknowledges that these covenants are a material inducement for the Company to effect the Converted Awards granted under this Agreement. The Grantee further acknowledges that a violation of any term of the covenants will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Grantee agrees that, if the Grantee breaches any of the covenants:

(i)    any Converted Award made to the Grantee pursuant to this Agreement will be rescinded;

(ii)    the Grantee will not be entitled to retain any income or property derived from the Award; and

(iii)
the Company will be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining the Grantee from committing any violation of the covenants contained in Article 8.1.

The remedies in this Article are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator may reasonably determine.
8.4
The Company may terminate any Converted Award if the Grantee has willfully engaged in gross misconduct that the Company determines is likely to be damaging or detrimental to the Company.

8.5
This Article 8 will be interpreted in accordance with the laws of the State of New York. Any proceedings involving Article 8 will be brought in a court of competent jurisdiction in the State of New York.

Article 9 - Definitions

9.1
“ADR” shall mean an American Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.2
“BDR” shall mean a Bearer Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.3
“Business Conditions” shall mean any situation, not being a Business Divestiture, in which the termination of a Grantee's employment is caused by economic or strategic considerations and is not based primarily on the Grantee's individual performance.

9.4
“Business Divestiture” shall mean the complete or partial transfer of a Subsidiary by which the Grantee is Employed to a transferee that is not a Subsidiary or a complete or partial initial public offering of a Subsidiary by which the Grantee is Employed. A partial transfer or initial public offering is only considered a Business Divestiture if such transfer or initial public offering results in ING U.S. (directly or indirectly) owning less than 50.1% of the voting stock in such transferred Subsidiary, where this

7


Business Divestiture does not form part of ING U.S.' normal course of business as determined by the Committee.

9.5
“Performance Period” shall mean the period in which the Performance Target should be attained and which shall be specified in the Award Agreement.

9.6
“Performance Share” shall mean a right to receive shares of Common Stock upon vesting which right is conditional subject to the attainment of any Performance Target imposed.

9.7
“Pro Rata Factor” shall mean the factor that is calculated by dividing the period of Employment during the Performance Period in terms of months by the total Performance Period, also in terms of months, rounded up to the nearest whole number.

9.8
“Performance Target” shall mean the target or targets, set at the time the Award is granted, that should be attained in order to determine the number of shares of Common Stock to be delivered subject to the vesting of the Awards as defined in the Award Agreement.

9.9
“Redundancy” shall mean termination of a Grantee's Employment by the Company due to a reorganization of the Company in such circumstances as the Committee determines in its absolute discretion.

9.10
“Total and Permanent Disability” shall mean the mental or physical disability, whether occupational or non-occupational in cause, which satisfies such definition in: (i) any insurance policy or plan provided to the Grantee by the Company; or alternatively (ii) the Grantee's applicable national legislation pertaining to persons with disability. 


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ANNEX A
2013 Performance Goals
The following Performance Factors will apply to the 2013 calendar year, based on the level of distributable earnings (as determined in the reasonable judgment of the Committee) achieved for the year:
Amount of Distributable Earnings
Performance Factor
Less than $400 million
—%
$400 million to $450 million
50%
$451 million to $500 million
75%
$501 million to $550 million
100%
$551 million to $600 million
125%
$601 million or more
150%




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ING U.S., Inc.
2013 Omnibus Employee Incentive Plan

As a result of the initial public offering (“IPO”) of ING U.S., Inc. (“ING U.S.”), the 2013 award of Restricted ADS Units previously granted to you under the ING America Insurance Holdings, Inc. Equity Compensation Plan, as amended and restated effective January 1, 2008 (“Prior Award”), has been automatically converted into an Award (“Converted Award”) granted to you pursuant to the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (the “Plan”). This agreement (the “Agreement”) evidences the terms of the Converted Award granted to EMPLOYEE NAME (“Grantee”) on [ ] , 2013 (“Date of Award”). In accordance with the terms and conditions of the award agreement previously entered into with the Grantee governing the Prior Award, this Agreement will govern the terms and conditions of the Converted Award from and after the time of the IPO. The Grantee's acceptance of the Prior Award constituted your irrevocable consent to the terms and conditions set forth herein.
1.     Restricted Stock Units Awarded
The Grantee is hereby awarded [ # of shares ] Restricted Stock Units. Each Restricted Stock Unit represents the unfunded, unsecured contractual right to receive one share of Common Stock of ING U.S., subject to and in accordance with the terms and conditions of this Agreement and the Plan. The number of Restricted Stock Units awarded hereby has been determined by multiplying each Restricted ADS Unit subject to your Prior Award by a fraction, the numerator of which is the average of the closing price of the New York Stock Exchange of one American Depositary Share of ING Groep N.V. for each of the five trading days immediately preceding the date of the closing of the IPO and the denominator of which is the price to the public (as specified on the cover of the final IPO-related prospectus) of one share of Common Stock of ING U.S. in the IPO. To the extent the calculation did not result in a whole number, the figure was rounded up to avoid fractional shares
2.     Delivery of Common Shares
Upon vesting pursuant to Paragraph 3 or Paragraph 4, as applicable, the Grantee will be entitled to receive shares of Common Stock as soon as administratively practicable after the date on which the Grantee becomes vested in his or her Restricted Stock Units, but in no event later than 2-1/2 months after vesting. Notwithstanding anything herein to the contrary, ING U.S. reserves the right to permit the Grantee to elect to receive payment of all or a portion of the value of the Common Stock in cash based on the Fair Market Value of the shares of Common Stock on the date they vest. The term “Fair Market Value” for purposes of this Agreement shall be the average of the highest and lowest prices of a share of Common Stock as quoted

1


on the New York Stock Exchange, on the vesting date. Should the market be closed on a vesting date, the “Fair Market Value” shall be the average of the highest and lowest prices of a share of Common Stock as quoted on the New York Stock Exchange, on the last trading day prior to the vesting date. In the event of a block trade, the average price received will be the Fair Market Value for purposes of this Agreement.
3.    Vesting
Subject to Paragraph 4, the Grantee will become vested in all of the Restricted Stock Units granted hereby on January 1, 2016 (the “Vesting Date”).
4.    Special Rules Regarding Delivery of Common Stock
(a)    To be entitled to delivery of shares of Common Stock pursuant to this Agreement, the Grantee must be actively Employed by ING U.S. or any Affiliate of ING U.S. (together, the “Company”) on the Vesting Date set forth in Paragraph 3 above. Notwithstanding the foregoing, however, with respect to the Restricted Stock Units awarded under this Agreement, the Grantee, or in the event of the Grantee's death, the Grantee's designated beneficiary, (i) shall be fully vested upon termination of Employment as a result of death, Disability or Retirement, or (ii) be partially vested upon an involuntary termination other than for “cause” (other than in the case of Retirement), or (iii) shall be vested in accordance with Section 3.6 of the Plan, to the extent applicable, in the event of a Change in Control, or (v) have no vested status ( i.e., forfeiture of all rights to all Restricted Stock Units) upon a termination for “cause”, and (vi) shall forfeit all unvested rights to all Restricted Stock Units upon any voluntary termination.
(b)    For purposes of this Agreement:
(i)    "Cause" means the Grantee's (A) material breach of any employment agreement he has entered into with the Company, (B) aiding and abetting a competitor of the Company, (C) misappropriation (or attempted misappropriation) of funds or property of the Company, embezzlement, fraudulent misrepresentation or disclosure of confidential information or trade secrets, (D) gross negligence or willful misconduct in the discharge of the Grantee's duties and responsibilities to the Company, (E) commission of any criminal act involving his duties and responsibilities for the Company, (F) willful failure or refusal to perform his job duties associated with his position after having been notified in writing by the Company of such failure or refusal and failing to correct the failure or refusal in the manner described in the written notification within 30 days, (G) failure to abide by the material policies of the Company, including but not limited to, any Company code of conduct, or (H) a similar act or failure to act that causes injury to the Company, as determined by the Company in its sole discretion.
(ii)     “Partially vested right” means a right to receive a percentage of the awarded Restricted Stock Units determined by dividing the number of whole calendar months from the month immediately

2


following the Date of the Award until the month immediately prior to the date of the event by 36 and rounded up to the next whole number.
(iii)    No rights under this Agreement may be transferred except by will or the laws of descent and distribution. The rights under this Agreement may be exercised during the lifetime of the Grantee only by the Grantee. Notwithstanding the foregoing, at the time a distribution is made under this Agreement, the Company may withhold any amounts due and owing to the Company at the time payment is otherwise required to be made hereunder to satisfy, in whole or in part, the amount due and owing to the Company.
5.    Adjustments to Common Stock
In the event of any event described in Section 1.6.3 of the Plan, the Committee will adjust the number and kind of Common Stock that may be delivered in connection with Restricted Stock Units awarded pursuant to this Agreement as set forth in Section 1.6.3 of the Plan.
6.    Taxes and Withholdings
Any distribution made pursuant to this Agreement shall be properly and timely reported for Federal, state, local and/or foreign income taxes and be subject to all applicable income tax and other withholdings. The Company is authorized to withhold from any Restricted Stock Units awarded or any payment relating to a Restricted Stock Units any amounts of withholding, other taxes, or any other standard deductions from compensation payable in connection with any transaction involving a Restricted Stock Unit. In addition, the Company is authorized to take any other action, including withholding from any payroll or other payment made by the Company to the Grantee, as it may deem advisable to satisfy obligations for the payment of withholding taxes and any other obligations relating to any Restricted Stock Units.
7.    Miscellaneous
(a)    Nothing in the Plan or in any Award granted under the Plan will confer upon any Grantee the right to continue as an employee of the Company or affect the right of the Company to terminate the Grantee's Employment at any time.
(b)    Any determination by any court of competent jurisdiction of the invalidity of any provision of this Agreement that is not essential to accomplishing the purposes of this Agreement will not affect the validity of any other provision of this Agreement, which will remain in full force and effect and which will be construed so as to be valid under applicable law.
(c)    The failure of any person at any time to require performance of any provision of this Agreement will in no manner affect the right of such person or any other person to enforce the same. No waiver by any person of any provision (or of a breach of any provision) of this Agreement, whether by conduct or otherwise, in any one or more instances will be (or will be deemed or construed) either as a further or continuing waiver

3


of any such provision or breach or as a waiver of any other provision (or of a breach of any other provision) of this Agreement.
(d)    This Agreement is governed by, and will be construed and enforced in accordance with, the laws of the State of New York, without regard to principles of conflict of laws.
(e)    This Agreement together with the Plan will constitute the entire agreement with respect to the Restricted Stock Units awarded under Paragraph 1 between the Company and the Grantee with respect to the Plan.
(f)    The Grantee acknowledges that the Company reserves the right to amend, modify or terminate the Plan at any time and no consent is required with respect to such amendment, modification or termination; provided, however, that no amendment, modification or termination will adversely affect the Grantee's rights under this Award without his or her written consent.
(g)    In the event the Company, in its sole discretion, determines that the Grantee's tax and/or withholding obligations will not be satisfied under the methods described in Paragraph 6 of this Agreement, the Grantee hereby authorize the Company or the Company's Stock Plan Administrator, currently UBS Financial Services Inc., to sell a number of shares of Common Stock that are issued to the Grantee this Agreement which the Company determines as having at least the market value sufficient to meet the tax and/or withholding obligations plus additional shares to account for rounding and market fluctuations. Such amount shall be paid over to the Company by the Stock Plan Administrator as soon as administratively practicable after receipt by the Stock Plan Administrator.
(h)    The shares of Common Stock granted under this Agreement may be sold as part of a block trade with other Grantees, in which case, all Grantees in the block trade will receive an average price for their shares.
(i)    In the event that at the time distribution of Common Shares is required to be made, the Company or the Grantee is subject to trading prohibitions either imposed by applicable securities laws, a trading policy established by the Company or otherwise (referred to as a “Blackout Period”), then distribution shall be made as soon as practicable after the Blackout Period ends. The price of the Common Shares shall be determined as if there had been no Blackout Period. Notwithstanding the foregoing, if the Company determines to permit the Grantee to elect to receive part or all of his or her vested Award in cash, it shall solicit his election prior to the imposition of a Blackout Period, with such election being irrevocable at the time received by the Company. The Company will implement this election during the Blackout Period, unless prohibited by applicable securities law. If a transaction to sell Common Stock is completed during the Blackout Period, distribution of the cash proceeds, less applicable taxes and deductions, will be made as soon as administratively practicable after the effective date of the transaction. The Fair Market Value of the Common Stock will be

4


determined as of the date of sale.
(j)    Capitalized terms used but not defined in this Agreement in Paragraph 9 or elsewhere shall have the meanings given to them in the Plan.
8.    Grantee Covenants
(a)    As consideration for the award of Restricted Stock Units made pursuant to this Agreement, without prior written consent of the Company:
(i)    Grantee will not (except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate government agency) disclose to any third person, whether during or subsequent to Grantee's Employment, any trade secrets, including but not limited to customer lists, product development and related information, marketing plans and related information, sales plans and related information, premium or other pricing information, operating policies and manuals, research, methodologies, contractual forms, business plans, financial records, or other financial, commercial, business or technical information related to the Company unless such information has been previously disclosed to the public by the Company or has become public knowledge other than by a breach of this Agreement, provided, however , that this limitation shall not apply to any such disclosure made while Grantee is Employed by the Company if such disclosure occurred in connection with the performance of Grantee's job as an employee of the Company;
(ii)    Grantee will not, during and for a period of 12 months following Grantee's termination of Employment, directly or indirectly induce or attempt to induce any employee or Insurance Agent of the Company to be employed by or to perform services for any entity that competes with the Company or any subsidiary or affiliate;
(iii)     Grantee will not, during and for a period of 12 months following Grantee's termination of Employment, directly or indirectly, induce or attempt to induce any agent or agency, broker, broker-dealer, financial planner, registered principal or representative, supplier or service provider of the Company to cease providing services to the Company;
(iv)    Grantee will not, during and for a period of 12 months after Grantee's termination of Employment, directly or indirectly, solicit or attempt to solicit the trade of any individual or entity which, at the time of such solicitation or attempted solicitation, is a customer of the Company, or which the Company is undertaking reasonable steps to procure as a customer at the time of or immediately preceding termination of Employment; provided, however , that this limitation shall only apply to any product or service which is in competition with a product or service of the Company and to those customers or prospective customers with whom Grantee had contact during Grantee's Employment; and

5


(v)    Following the termination of Grantee's Employment, Grantee shall provide assistance to and shall cooperate with the Company, upon its reasonable request and without additional compensation, with respect to matters within the scope of Grantee's duties and responsibilities during Employment, provided that any reasonable out-of-pocket expenses Grantee incurs in connection with any assistance Grantee has been requested to provide under this provision for items including, but not limited to, transportation, meals, lodging and telephone, shall be reimbursed by the Company. ING U.S. agrees and acknowledges that it shall, to the maximum extent possible under the then prevailing circumstances, coordinate, or cause a Subsidiary or Affiliate to coordinate, any such request with Grantee's other commitments and responsibilities to minimize the degree to which such request interferes with such commitments and responsibilities.
The term "Insurance Agent" shall mean those insurance agents or agencies representing the Company that are exclusive or career agents or agencies of the Company or any insurance agents or agencies which derive 50% or more of their business revenue from the Company (calculated on an aggregate basis for the 12 month period prior to the date Grantee terminates Employment or such other similar period for which such information is more readily available).
(b)    If any provision of Paragraph 8(a) is determined by a court of competent jurisdiction not to be enforceable in the manner set forth herein, the Company and Grantee agree that it is the intention of the parties that such provision should be enforceable to the maximum extent possible under applicable law and that such court shall reform such provision to make it enforceable in accordance with the intent of the parties.
(c) Grantee acknowledges that a material part of the inducement for the Company to award the Restricted Stock Units evidenced by this Agreement is Grantee's covenants set forth in Paragraph 8(a) and that the covenants and obligations of Grantee with respect to nondisclosure, nonsolicitation and cooperation relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Grantee agrees that, if Grantee shall breach any of those covenants or obligations, any Restricted Stock Units awarded (or shares of Common Stock delivered) to the Grantee pursuant to this Agreement shall be rescinded and Grantee shall not be entitled to retain any income derived therefrom and the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Grantee from committing any violation of the covenants and obligations contained in Paragraph 8(a). The remedies in the preceding sentence are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator shall reasonably determine.
(d)    The Company may terminate any Restricted Stock Units awarded pursuant to this Agreement if Grantee has willfully engaged in gross misconduct which the Company determines is likely to be damaging or detrimental to the Company.

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9.    Compliance with U.S. Tax Law
Where the Grantee qualifies as a US taxpayer, the Grantee understands and agrees that notwithstanding anything herein to the contrary, this Agreement, and the Converted Awards made hereby, shall be administered in accordance with the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including but not limited to, Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, any adjustment of any of the Converted Awards granted hereby shall be made in compliance with Section 409A of the Code. The Converted Awards granted hereby are intended to either be exempt from or comply with Section 409A of the Code and will be administered and interpreted in accordance with that intent. In the event that the Grantee is a “specified employee” (within the meaning of the Treasury Regulations §1.409A‑1(i)) as of the date of the Grantee's “separation from service” (within the meaning of Treasury Regulations §1.409A‑1(h)) and if, as a result, any shares of Common Stock cannot be delivered, or any Converted Award cannot be paid or provided, in either case in the manner otherwise provided without subjecting the Grantee to “additional tax”, interest or penalties under Section 409A of the Code, then such shares shall be delivered, or Converted Award will be paid or provided, on the first day of the seventh month following the Grantee's separation from service.
10.    Defined Terms
(a)    “Disability” shall mean total and permanent as defined under the Grantee's employer's Long-Term Disability Plan, regardless of whether the Grantee actually participates in that plan, or if the employer has not such long-term disability plan, as determined by ING U.S. in its sole discretion.
(b)    “Retirement” shall mean termination of Employment on or after attaining age 55 and completion of at least 5 years of service. For these purposes, years of service shall have the same meaning as in the ING Americas Retirement Plan, as in effect from time to time.

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2013 Converted Award Agreement
under the
ING U.S., Inc.
2013 Omnibus Employee Incentive Plan
Number of Deferred Shares (2012 Annual Incentive Deferral) =
Number of Deferred Shares (2013 LTI Grant) =
As a result of the initial public offering (“IPO”) of ING U.S., Inc. (“ING U.S.”), awards previously granted to you under the ING Groep N.V. (“ING Group”) Long Term Sustainable Performance Plan (“Prior Awards”) have been automatically converted into Awards (“Converted Awards”) to you pursuant to the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (the “Plan”). The Converted Awards are subject to the terms and conditions of the Plan and as set forth below in this agreement (the “Agreement”). Your personal details listed above, together with these terms and conditions, constitute your Agreement.
This 2013 Agreement will govern the terms and conditions of the Converted Award from and after the time of the IPO. Your acceptance of the Prior Awards constituted your irrevocable consent to the terms and conditions set forth herein.

Article 1 - General

1.1
Capitalized terms used but not defined in this Agreement shall, unless the context otherwise requires, have the same definition as in the Plan. Unless otherwise stated or the context so requires, the singular shall be construed to mean the plural, and vice versa.

1.2
The provisions of this Agreement shall govern and prevail in the event of any conflict with the Plan. Any conflicting or inconsistent term of this Agreement shall be interpreted and implemented by the Committee in a manner consistent with the Plan.

1.3
The Grantee has read the Plan, and accepts and agrees to the terms and conditions thereof.

1.4
Number of Deferred Shares . The number of Deferred Shares (2012 Annual Incentive Deferral) and Deferred Shares (2013 LTI Grant) indicated on the top of the first page of this Agreement has been determined by multiplying each Deferred Share subject to your Prior Award by a fraction, the numerator of which is the average of the closing price on The New York Stock Exchange of one ADR or BDR, as applicable, representing one ordinary share of ING Group, for each of the five trading days immediately preceding the date of the closing of the IPO and the denominator of which is the price to the public (as specified on the cover of the final IPO-related prospectus) of one share of common stock of ING U.S. in the IPO. To the extent the calculation did not result in a whole number, the figure was rounded up to avoid fractional shares.


1


Article 2 - Award of Converted Awards

2.1
Nature of the Converted Awards . The Converted Awards made under Article 2 of this Agreement constitute a conditional right to receive a number of shares of Common Stock equal to (a) the number of Deferred Shares (2012 Annual Incentive Deferral) and (b) the number of Deferred Shares (2013 LTI Grant), in each case, as indicated at the top of the first page of this Agreement and calculated as described in Article 1.4, and subject to Article 3.1 and Article 3.2, respectively.

2.2
Grant Date of Award . The grant date of the Converted Awards is May 7, 2013.

2.3
Consideration . No consideration is payable by the Grantee in respect of the Converted Awards.

Article 3 - Vesting and Delivery of Converted Awards

3.1
Deferred Shares (2012 Annual Incentive Deferral) . Subject to Articles 3.3 and 3.4 below, this Converted Award will vest 50% on March 27, 2015, 25% on March 27, 2016 and 25% on March 27, 2017 (each, a “Vesting Date”), provided that the Grantee is still Employed by the Company on the respective Vesting Date. Any fractional shares that would otherwise vest on a Vesting Date will vest on the final Vesting Date. In the event there are any fractional shares on the final Vesting Date, the number of Deferred Shares that vest on that final Vesting Date will be rounded up to the nearest whole share. One share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share as soon as practicable following each of the respective Vesting Dates but in any event no later than the end of the calendar year in which any such Vesting Date occurs.

3.2
Deferred Shares (2013 LTI) . Subject to Articles 3.3 and 3.4 below, this Converted Award will Vest in three tranches, being 50% on March 27, 2015, 25% on March 27, 2016 and 25% on March 27, 2017 (each, a “Vesting Date”), provided that the Grantee is still Employed by the Company on the respective Vesting Date. Any fractional shares that would otherwise vest on a Vesting Date will vest on the final Vesting Date. In the event there are any fractional shares on the final Vesting Date, the number of Deferred Shares that vest on that final Vesting Date will be rounded up to the nearest whole share. One share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share as soon as practicable following each of the respective Vesting Dates but in any event no later than the end of the calendar year in which any such Vesting Date occurs.

3.3
Termination of Employment - Deferred Shares .

(a)
If Grantee ceases to be Employed by the Company prior to an applicable Vesting Date by reason of:

(i)
injury or Total and Permanent Disability (evidenced to the satisfaction of the Company); or

(ii)
early retirement by agreement of the Committee; or

(iii)
  by virtue of retirement on reaching his or her permitted retirement age as determined in the applicable retirement benefit program, statutory or otherwise; or


2


(iv)
termination of Employment by the Company due to Business Conditions (including, but not limited to, Redundancy) or a business divestiture that forms part of ING U.S.' normal course of business; or

(v)
death,

any unvested Deferred Shares shall vest and one Share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share (x) in the event of termination by reason of clauses (a)(i), (a)(ii), (a)(iii) or (a)(iv) of this Article 3.3, as soon as practicable following the applicable Vesting Date in respect of such Deferred Shares (but in any event no later than the end of the calendar year in which such Vesting Date occurs) and (y) in the event of termination by reason of Article 3.3(a)(v), as soon as practicable following the date of death (but in any event no later than the end of the calendar year in which such date of death occurs).

(b)
In the event of a Change in Control, Section 3.6 of the Plan shall, to the extent inconsistent with anything set forth elsewhere in this Agreement, govern the treatment of Deferred Shares.

3.4
Termination of Employment - All Converted Awards .
 
(a)
If a Grantee is given notice of termination of Employment in circumstances involving fraud, gross negligence, willful misconduct or any activity detrimental to the Company, as determined by the Committee, then all Converted Awards (vested and not unvested) shall lapse immediately on the date the notice of termination of Employment is given to the Grantee.

(b)
Notwithstanding Article 3.3(a) or 3.4(a), the Committee in its absolute discretion may consent to vest any such Converted Award in whole or in part to the extent as it may determine and considers reasonable.

(c)
Other than as set forth in Article 3.3, any unvested Converted Awards shall expire upon termination of Employment without any consideration and the Grantee shall have no further rights thereto.

Article 4 - Claw back and Hold back

4.1     Claw Back .

(a)
Notwithstanding the terms and conditions as specified in the Plan and this Agreement, the Grantee expressly agrees that the Company shall have the right to reclaim any shares of Common Stock that have been delivered to the Grantee under the Plan in the event that he or she engages in conduct or performs acts which as the Committee determines to be:

(i)
malfeasance;

(ii)
fraud; or

(iii)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company.

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(b)
By signing this Agreement, the Grantee acknowledges that he or she understands and agrees that in the event the Committee determines that Grantee has engaged in conduct or performed acts specified in Article 4.1(a) and Grantee has sold all or a portion of his or her shares of Common Stock after vesting, the Company has the right to claim from the Grantee an amount in US dollars equal to the Fair Market Value of such shares at the time of such sale and the Grantee is obliged to repay this amount at first demand by the Company, such payment to be made no later than 30 days after the first demand.

4.2
Hold Back . The Committee has the authority to adjust the number of shares of Common Stock and/or cancel the Converted Awards in whole or in part:  

(a)
in case of evidence of misbehavior or serious error by the Grantee (e.g. breach of code of conduct and other internal rules, especially concerning risks); or

(b)
in case of evidence of malfeasance or fraud by the Grantee; or

(c)
in the event the Company or the business line in which the relevant staff member works suffers a significant failure of risk management; or

(d)
in the event of significant negative changes in the economic or regulatory capital base (based on a capital test); or

(e)
if any other material new information arises that would have changed the original determination of the award if it were known at the time of award; or

(f)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company or any of its Subsidiaries or Affiliates.

The Committee will annually assess, prior to vesting, whether and to what extent this discretionary authority needs to be applied.

Article 5 - Various

5.1
Compliance with U.S. Tax Law . Where the Grantee qualifies as a US Taxpayer, the Grantee understands and agrees that notwithstanding anything herein to the contrary, this Agreement, and the Converted Awards made hereby, shall be administered in accordance with the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including but not limited to, Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, any adjustment of any of the Converted Awards granted hereby shall be made in compliance with Section 409A of the Code. The Converted Awards granted hereby are intended to comply with Section 409A of the Code and will be administered and interpreted in accordance with that intent. In the event that the Grantee is a “specified employee” (within the meaning of the Treasury Regulations §1.409A‑1(i)) as of the date of the Grantee's “separation from service” (within the meaning of Treasury Regulations §1.409A‑1(h)) and if, as a result, any shares of Common Stock cannot be delivered, or any Converted Award cannot be paid or provided, in either case in the manner or at the time otherwise provided in Article 3, without subjecting the Grantee to “additional tax”, interest or penalties under Section 409A of the Code, then such shares

4


shall be delivered, or Converted Award will be paid or provided, on the first day of the seventh month following the Grantee's separation from service.

5.2
Delivery of Common Stock or Sale of Common Stock . Except as otherwise provided above and notwithstanding anything in the Plan to the contrary, in accordance with instructions provided by the Grantee, shares of Common Stock, to the extent relating to a vested Converted Award, shall be transferred to the brokerage account of the Grantee and/or sold by the Company on behalf of and for the account of the Grantee upon delivery. The Grantee should provide instructions to the Company during the designated period(s) prior to the date of vesting instructing the Company to transfer the shares to the brokerage account of the Grantee and/or to sell such shares on behalf of and for the account of the Grantee. If the Grantee fails to provide any such instructions to the Company during the designated period(s), the shares shall automatically be sold on behalf of and for the account of the Grantee.

Article 6 - Data protection

6.1
The Grantee hereby (i) consents to the processing, collection, recording, organizing, storing and adapting by the Company and the third party administrators involved in the operation and administration of the Plan, of the personal data, (including, without limitation, name, business contact information, employee number, position and information on Awards) relating to the Grantee for the sole purpose of participating in the Plan and the Agreement, including the operation and administration of the Plan, and (ii) grants such consent for the duration of the Plan.

6.2
The Grantee also consents to the transfer of his/her personal data referred to under Article 6.1 of this Agreement by the Company to third party administrators that are assigned to the operation and administration of the Plan for this Grantee specifically and that are located in the United States or elsewhere.

6.3
The Grantee also agrees that a limited set of his/her personal data (name, LSPP ID, business line) is accessible to those third party administrators that are not specifically assigned to him/her for the operation and administration of the Plan for the sole purpose of identification and other related administrative reasons (e.g. to trace Grantees that have changed position within the Company).

6.4
The Grantee's personal data related to the Plan will be held in a database file titled with his/her name and unique identification code for the duration of the Plan, taking to account any additional data retention period required by applicable law. The database will be kept by the Company on behalf of the Company.

6.5
The Grantee understands that the provision of all of his/her personal data is obligatory for the purpose of his/her participation in the Plan and agrees with the transfer of the relevant personal data to the Company entity that he/she is employed by. The Participant is aware of his/her right to access and/or correct personal data, if and when necessary, by contacting the local Human Resources representative.

6.6
The Grantee hereby agrees that, as a result of the IPO of ING U.S., ING U.S. may transfer the Grantee's personal data to a third party administrator, including one that is not an affiliated company, in order to carry out necessary administrative functions with respect to this Converted Award.


5


Article 7 - Governing law and Jurisdiction

7.1
Governing law and jurisdiction . This Agreement shall be governed by and shall be construed in accordance with the laws of the State of New York. The Company and the Grantee irrevocably submit, in respect of any suit, action or proceeding arising out of or relating to or concerning the Plan or the interpretation or enforcement of this Agreement, to the exclusive jurisdiction of any state or federal court located in New York, New York and to be bound by the provisions of Section 3.16 of the Plan.

7.2
Partial invalidity . Parties expressly agree that the invalidity or unenforceability of an Article or Articles of this Agreement shall not affect the validity or enforceability of any other Article of this Agreement and that the remainder of this Agreement will remain in full effect. Any such invalid or unenforceable Article shall be replaced or be deemed to be replaced by a provision that is considered to be valid and enforceable. The interpretation of the replacing Article shall be as close as possible to the intent of the invalid or unenforceable Article.

Article 8 - Grantee Covenants

8.1
In consideration of the Converted Awards granted under this Agreement, Grantee agrees to abide by the restrictive covenants set forth below. For the purposes of this Article, the definition of “Company” is expanded to include any Subsidiaries or Affiliates that do business in the United States.

(i)
Protection of confidential information . The Grantee will not, without permission of the Company, disclose any Company confidential information or trade secrets to anyone outside the Company, unless required by subpoena. Confidential information and trade secrets include, but are not limited to, customer lists, product development information, marketing and sales plans, premium or other pricing information, operating policies and manuals, and, or other confidential information related to the Company.

(ii)
Nonsolicitation of employees and agents . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to induce any employee, agent or agency, broker, broker-dealer, financial planner, registered principal or representative of the Company to be employed by or to perform services for any entity that competes with the Company.

(iii)
Nonsolicitation of customers . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to solicit the trade of any person that is a customer of the Company or which the Company has been undertaking reasonable steps to procure as a customer during the 6 months preceding termination of employment. This limitation will only apply to products or services in competition with a product or service of the Company, and to customers with whom Grantee had contact during employment.

(iv)
Agreement to Cooperate .  Following the termination of Employment, the Grantee will cooperate with the Company, without additional compensation, on matters within the scope of Grantee's responsibilities during employment. The Company agrees to reimburse reasonable out-of-pocket expenses the Grantee incurs in connection with such assistance. The Company agrees it will make all reasonable efforts to minimize disruption to the Grantee's other commitments.

8.2
If any provision of Article 8.1 is determined by a court of competent jurisdiction not to be enforceable in the manner set forth above, the parties agree that they intend the provision to be enforceable to the

6


maximum extent possible under applicable law, and that the court should reform the provision to make it enforceable in accordance with the intent of the parties.

8.3
The Grantee acknowledges that these covenants are a material inducement for the Company to effect the Converted Awards granted under this Agreement. The Grantee further acknowledges that a violation of any term of the covenants will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Grantee agrees that, if the Grantee breaches any of the covenants:

(i)    any Converted Award made to the Grantee pursuant to this Agreement will be rescinded;

(ii)    the Grantee will not be entitled to retain any income or property derived from the Award; and

(iii)
the Company will be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining the Grantee from committing any violation of the covenants contained in Article 8.1.

The remedies in this Article are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator may reasonably determine.
8.4
The Company may terminate any Converted Award if the Grantee has willfully engaged in gross misconduct that the Company determines is likely to be damaging or detrimental to the Company.
8.5
This Article 8 will be interpreted in accordance with the laws of the State of New York. Any proceedings involving Article 8 will be brought in a court of competent jurisdiction in the State of New York.
Article 9 - Definitions

9.1
“ADR” shall mean an American Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.2
“BDR” shall mean a Bearer Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.3
“Business Conditions” shall mean any situation, not being a Business Divestiture, in which the termination of a Grantee's employment is caused by economic or strategic considerations and is not based primarily on the Grantee's individual performance.

9.4
“Business Divestiture” shall mean the complete or partial transfer of a Subsidiary by which the Grantee is Employed to a transferee that is not a Subsidiary or a complete or partial initial public offering of a Subsidiary by which the Grantee is Employed. A partial transfer or initial public offering is only considered a Business Divestiture if such transfer or initial public offering results in ING U.S. (directly or indirectly) owning less than 50.1% of the voting stock in such transferred Subsidiary, where this Business Divestiture does not form part of ING U.S.' normal course of business as determined by the Committee.

9.5
“Deferred Share” shall mean a conditional right to receive a number of shares of Common Stock upon vesting .


7


9.6
“Redundancy” shall mean termination of a Grantee's Employment by the Company due to a reorganization of the Company in such circumstances as the Committee determines in its absolute discretion.

9.7
“Total and Permanent Disability” shall mean the mental or physical disability, whether occupational or non-occupational in cause, which satisfies such definition in: (i) any insurance policy or plan provided to the Grantee by the Company; or alternatively (ii) the Grantee's applicable national legislation pertaining to persons with disability. 



8


2013 Converted Award Agreement

under the

ING U.S., Inc.

2013 Omnibus Employee Incentive Plan


Number of Deferred Shares (2013 LTI Grant) =

As a result of the initial public offering (“IPO”) of ING U.S., Inc. (“ING U.S.”), awards previously granted to you under the ING Groep N.V. (“ING Group”) Long Term Sustainable Performance Plan (“Prior Awards”) have been automatically converted into Awards (“Converted Awards”) to you pursuant to the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (the “Plan”). The Converted Awards are subject to the terms and conditions of the Plan and as set forth below in this agreement (the “Agreement”). Your personal details listed above, together with these terms and conditions, constitute your Agreement.

This 2013 Agreement will govern the terms and conditions of the Converted Award from and after the time of the IPO. Your acceptance of the Prior Awards constituted your irrevocable consent to the terms and conditions set forth herein.
Article 1 - General

1.1
Capitalized terms used but not defined in this Agreement shall, unless the context otherwise requires, have the same definition as in the Plan. Unless otherwise stated or the context so requires, the singular shall be construed to mean the plural, and vice versa.

1.2
The provisions of this Agreement shall govern and prevail in the event of any conflict with the Plan. Any conflicting or inconsistent term of this Agreement shall be interpreted and implemented by the Committee in a manner consistent with the Plan.

1.3
The Grantee has read the Plan, and accepts and agrees to the terms and conditions thereof.

1.4
Number of Deferred Shares . The number of Deferred Shares (2013 LTI Grant) indicated on the top of the first page of this Agreement has been determined by multiplying each Deferred Share subject to your Prior Award by a fraction, the numerator of which is the average of the closing price on The New York Stock Exchange of one ADR or BDR, as applicable, representing one ordinary share of ING Group, for each of the five trading days immediately preceding the date of the closing of the IPO and the denominator of which is the price to the public (as specified on the cover of the final IPO-related prospectus) of one share of common stock of ING U.S. in the IPO. To the extent the calculation did not result in a whole number, the figure was rounded up to avoid fractional shares.

Article 2 - Award of Converted Awards
 
2.1
Nature of the Converted Awards . The Converted Awards made under Article 2 of this Agreement constitute a conditional right to receive a number of shares of Common Stock equal to the number of Deferred Shares (2013 LTI Grant), as indicated at the top of the first page of this Agreement and calculated as described in Article 1.4, and subject to Article 3.1.

1



2.2
Grant Date of Award . The grant date of the Converted Awards is May 7, 2013.

2.3
Consideration . No consideration is payable by the Grantee in respect of the Converted Awards.

Article 3 - Vesting and Delivery of Converted Awards

3.1
Deferred Shares (2013 LTI) . Subject to Articles 3.2 and 3.3 below, this Converted Award will Vest in three tranches, being 50% on March 27, 2015, 25% on March 27, 2016 and 25% on March 27, 2017 (each, a “Vesting Date”), provided that the Grantee is still Employed by the Company on the respective Vesting Date. Any fractional shares that would otherwise vest on a Vesting Date will vest on the final Vesting Date. In the event there are any fractional shares on the final Vesting Date, the number of Deferred Shares that vest on that final Vesting Date will be rounded up to the nearest whole share. One share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share as soon as practicable following each of the respective Vesting Dates but in any event no later than the end of the calendar year in which any such Vesting Date occurs.

3.2
Termination of Employment - Deferred Shares .

(a)
If Grantee ceases to be Employed by the Company prior to an applicable Vesting Date by reason of:

(i)
injury or Total and Permanent Disability (evidenced to the satisfaction of the Company); or

(ii)
early retirement by agreement of the Committee; or

(iii)
by virtue of retirement on reaching his or her permitted retirement age as determined in the applicable retirement benefit program, statutory or otherwise; or

(iv)
termination of Employment by the Company due to Business Conditions (including, but not limited to, Redundancy) or a business divestiture that forms part of ING U.S.' normal course of business; or

(v)
death, any unvested Deferred Shares shall vest and one Share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share (x) in the event of termination by reason of clauses (a)(i), (a)(ii), (a)(iii) or (a)(iv) of this Article 3.2, as soon as practicable following the applicable Vesting Date in respect of such Deferred Shares (but in any event no later than the end of the calendar year in which such Vesting Date occurs) and (y) in the event of termination by reason of Article 3.2(a)(v), as soon as practicable following the date of death (but in any event no later than the end of the calendar year in which such date of death occurs).

(b)
In the event of a Change in Control, Section 3.6 of the Plan shall, to the extent inconsistent with anything set forth elsewhere in this Agreement, govern the treatment of Deferred Shares.

3.3     Termination of Employment - All Converted Awards .

(a)
If a Grantee is given notice of termination of Employment in circumstances involving fraud, gross negligence, willful misconduct or any activity detrimental to the Company, as

2


determined by the Committee, then all Converted Awards (vested and not unvested) shall lapse immediately on the date the notice of termination of Employment is given to the Grantee.

(b)
Notwithstanding Article 3.2(a) or 3.3(a), the Committee in its absolute discretion may consent to vest any such Converted Award in whole or in part to the extent as it may determine and considers reasonable.

(c)
Other than as set forth in Article 3.2, any unvested Converted Awards shall expire upon termination of Employment without any consideration and the Grantee shall have no further rights thereto.

Article 4 - Claw back and Hold back

4.1     Claw Back .
  
(a)
Notwithstanding the terms and conditions as specified in the Plan and this Agreement, the Grantee expressly agrees that the Company shall have the right to reclaim any shares of Common Stock that have been delivered to the Grantee under the Plan in the event that he or she engages in conduct or performs acts which as the Committee determines to be:

(i)
malfeasance;

(ii)
fraud; or

(iii)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company.

(b)
By signing this Agreement, the Grantee acknowledges that he or she understands and agrees that in the event the Committee determines that Grantee has engaged in conduct or performed acts specified in Article 4.1(a) and Grantee has sold all or a portion of his or her shares of Common Stock after vesting, the Company has the right to claim from the Grantee an amount in US dollars equal to the Fair Market Value of such shares at the time of such sale and the Grantee is obliged to repay this amount at first demand by the Company, such payment to be made no later than 30 days after the first demand.

4.2
Hold Back . The Committee has the authority to adjust the number of shares of Common Stock and/or cancel the Converted Awards in whole or in part:  

(a)
in case of evidence of misbehavior or serious error by the Grantee (e.g. breach of code of conduct and other internal rules, especially concerning risks); or

(b)
in case of evidence of malfeasance or fraud by the Grantee; or

(c)
in the event the Company or the business line in which the relevant staff member works suffers a significant failure of risk management; or

(d)
in the event of significant negative changes in the economic or regulatory capital base (based on a capital test); or


3


(e)
if any other material new information arises that would have changed the original determination of the award if it were known at the time of award; or

(f)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company or any of its Subsidiaries or Affiliates.

 The Committee will annually assess, prior to vesting, whether and to what extent this discretionary authority needs to be applied.

Article 5 - Various

5.1
Compliance with U.S. Tax Law . Where the Grantee qualifies as a US Taxpayer, the Grantee understands and agrees that notwithstanding anything herein to the contrary, this Agreement, and the Converted Awards made hereby, shall be administered in accordance with the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including but not limited to, Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, any adjustment of any of the Converted Awards granted hereby shall be made in compliance with Section 409A of the Code. The Converted Awards granted hereby are intended to comply with Section 409A of the Code and will be administered and interpreted in accordance with that intent. In the event that the Grantee is a “specified employee” (within the meaning of the Treasury Regulations §1.409A‑1(i)) as of the date of the Grantee's “separation from service” (within the meaning of Treasury Regulations §1.409A‑1(h)) and if, as a result, any shares of Common Stock cannot be delivered, or any Converted Award cannot be paid or provided, in either case in the manner or at the time otherwise provided in Article 3, without subjecting the Grantee to “additional tax”, interest or penalties under Section 409A of the Code, then such shares shall be delivered, or Converted Award will be paid or provided, on the first day of the seventh month following the Grantee's separation from service.

5.2
Delivery of Common Stock or Sale of Common Stock . Except as otherwise provided above and notwithstanding anything in the Plan to the contrary, in accordance with instructions provided by the Grantee, shares of Common Stock, to the extent relating to a vested Converted Award, shall be transferred to the brokerage account of the Grantee and/or sold by the Company on behalf of and for the account of the Grantee upon delivery. The Grantee should provide instructions to the Company during the designated period(s) prior to the date of vesting instructing the Company to transfer the shares to the brokerage account of the Grantee and/or to sell such shares on behalf of and for the account of the Grantee. If the Grantee fails to provide any such instructions to the Company during the designated period(s), the shares shall automatically be sold on behalf of and for the account of the Grantee.

Article 6 - Data protection

6.1
The Grantee hereby (i) consents to the processing, collection, recording, organizing, storing and adapting by the Company and the third party administrators involved in the operation and administration of the Plan, of the personal data, (including, without limitation, name, business contact information, employee number, position and information on Awards) relating to the Grantee for the sole purpose of participating in the Plan and the Agreement, including the operation and administration of the Plan, and (ii) grants such consent for the duration of the Plan.


4


6.2
The Grantee also consents to the transfer of his/her personal data referred to under Article 6.1 of this Agreement by the Company to third party administrators that are assigned to the operation and administration of the Plan for this Grantee specifically and that are located in the United States or elsewhere.

6.3
The Grantee also agrees that a limited set of his/her personal data (name, LSPP ID, business line) is accessible to those third party administrators that are not specifically assigned to him/her for the operation and administration of the Plan for the sole purpose of identification and other related administrative reasons (e.g. to trace Grantees that have changed position within the Company).

6.4
The Grantee's personal data related to the Plan will be held in a database file titled with his/her name and unique identification code for the duration of the Plan, taking to account any additional data retention period required by applicable law. The database will be kept by the Company on behalf of the Company.

6.5
The Grantee understands that the provision of all of his/her personal data is obligatory for the purpose of his/her participation in the Plan and agrees with the transfer of the relevant personal data to the Company entity that he/she is employed by. The Participant is aware of his/her right to access and/or correct personal data, if and when necessary, by contacting the local Human Resources representative.

6.6
The Grantee hereby agrees that, as a result of the IPO of ING U.S., ING U.S. may transfer the Grantee's personal data to a third party administrator, including one that is not an affiliated company, in order to carry out necessary administrative functions with respect to this Converted Award.

Article 7 - Governing law and Jurisdiction

7.1
Governing law and jurisdiction . This Agreement shall be governed by and shall be construed in accordance with the laws of the State of New York. The Company and the Grantee irrevocably submit, in respect of any suit, action or proceeding arising out of or relating to or concerning the Plan or the interpretation or enforcement of this Agreement, to the exclusive jurisdiction of any state or federal court located in New York, New York and to be bound by the provisions of Section 3.16 of the Plan.

7.2
Partial invalidity . Parties expressly agree that the invalidity or unenforceability of an Article or Articles of this Agreement shall not affect the validity or enforceability of any other Article of this Agreement and that the remainder of this Agreement will remain in full effect. Any such invalid or unenforceable Article shall be replaced or be deemed to be replaced by a provision that is considered to be valid and enforceable. The interpretation of the replacing Article shall be as close as possible to the intent of the invalid or unenforceable Article.

Article 8 - Grantee Covenants

8.1
In consideration of the Converted Awards granted under this Agreement, Grantee agrees to abide by the restrictive covenants set forth below. For the purposes of this Article, the definition of “Company” is expanded to include any Subsidiaries or Affiliates that do business in the United States.


5


(i)
Protection of confidential information . The Grantee will not, without permission of the Company, disclose any Company confidential information or trade secrets to anyone outside the Company, unless required by subpoena. Confidential information and trade secrets include, but are not limited to, customer lists, product development information, marketing and sales plans, premium or other pricing information, operating policies and manuals, and, or other confidential information related to the Company.

(ii)
Nonsolicitation of employees and agents . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to induce any employee, agent or agency, broker, broker-dealer, financial planner, registered principal or representative of the Company to be employed by or to perform services for any entity that competes with the Company.

(iii)
Nonsolicitation of customers . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to solicit the trade of any person that is a customer of the Company or which the Company has been undertaking reasonable steps to procure as a customer during the 6 months preceding termination of employment. This limitation will only apply to products or services in competition with a product or service of the Company, and to customers with whom Grantee had contact during employment.

(iv)
Agreement to Cooperate .  Following the termination of Employment, the Grantee will cooperate with the Company, without additional compensation, on matters within the scope of Grantee's responsibilities during employment. The Company agrees to reimburse reasonable out-of-pocket expenses the Grantee incurs in connection with such assistance. The Company agrees it will make all reasonable efforts to minimize disruption to the Grantee's other commitments.

8.2
If any provision of Article 8.1 is determined by a court of competent jurisdiction not to be enforceable in the manner set forth above, the parties agree that they intend the provision to be enforceable to the maximum extent possible under applicable law, and that the court should reform the provision to make it enforceable in accordance with the intent of the parties.

8.3
The Grantee acknowledges that these covenants are a material inducement for the Company to effect the Converted Awards granted under this Agreement. The Grantee further acknowledges that a violation of any term of the covenants will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Grantee agrees that, if the Grantee breaches any of the covenants:

(i)    any Converted Award made to the Grantee pursuant to this Agreement will be rescinded;

(ii)
the Grantee will not be entitled to retain any income or property derived from the Award; and

(iii)
the Company will be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining the Grantee from committing any violation of the covenants contained in Article 8.1.

The remedies in this Article are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator may reasonably determine.

6



8.4
The Company may terminate any Converted Award if the Grantee has willfully engaged in gross misconduct that the Company determines is likely to be damaging or detrimental to the Company.

8.5
This Article 8 will be interpreted in accordance with the laws of the State of New York. Any proceedings involving Article 8 will be brought in a court of competent jurisdiction in the State of New York.

Article 9 - Definitions

9.1
“ADR” shall mean an American Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.2
“BDR” shall mean a Bearer Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.3
“Business Conditions” shall mean any situation, not being a Business Divestiture, in which the termination of a Grantee's employment is caused by economic or strategic considerations and is not based primarily on the Grantee's individual performance.

9.4
“Business Divestiture” shall mean the complete or partial transfer of a Subsidiary by which the Grantee is Employed to a transferee that is not a Subsidiary or a complete or partial initial public offering of a Subsidiary by which the Grantee is Employed. A partial transfer or initial public offering is only considered a Business Divestiture if such transfer or initial public offering results in ING U.S. (directly or indirectly) owning less than 50.1% of the voting stock in such transferred Subsidiary, where this Business Divestiture does not form part of ING U.S.' normal course of business as determined by the Committee.

9.5
“Deferred Share” shall mean a conditional right to receive a number of shares of Common Stock upon vesting .

9.6
“Redundancy” shall mean termination of a Grantee's Employment by the Company due to a reorganization of the Company in such circumstances as the Committee determines in its absolute discretion.

9.7
“Total and Permanent Disability” shall mean the mental or physical disability, whether occupational or non-occupational in cause, which satisfies such definition in: (i) any insurance policy or plan provided to the Grantee by the Company; or alternatively (ii) the Grantee's applicable national legislation pertaining to persons with disability. 




7


2013 Converted Award Agreement
under the
ING U.S., Inc.
2013 Omnibus Employee Incentive Plan

Number of Deferred Shares (2012 Annual Incentive Deferral) =
Number of Performance Shares (2013 LTI Grant) =
As a result of the initial public offering (“IPO”) of ING U.S., Inc. (“ING U.S.”), awards previously granted to you under the ING Groep N.V. (“ING Group”) Long Term Sustainable Performance Plan (“Prior Awards”) have been automatically converted into Awards (“Converted Awards”) to you pursuant to the ING U.S., Inc. 2013 Omnibus Employee Incentive Plan (the “Plan”). The Converted Awards are subject to the terms and conditions of the Plan and as set forth below in this agreement (the “Agreement”). Your personal details listed above, together with these terms and conditions, constitute your Agreement.
This 2013 Agreement will govern the terms and conditions of the Converted Award from and after the time of the IPO. Your acceptance of the Prior Awards constituted your irrevocable consent to the terms and conditions set forth herein.
Article 1 - General

1.1
Capitalized terms used but not defined in this Agreement shall, unless the context otherwise requires, have the same definition as in the Plan. Unless otherwise stated or the context so requires, the singular shall be construed to mean the plural, and vice versa.

1.2
The provisions of this Agreement shall govern and prevail in the event of any conflict with the Plan. Any conflicting or inconsistent term of this Agreement shall be interpreted and implemented by the Committee in a manner consistent with the Plan.

1.3
The Grantee has read the Plan, and accepts and agrees to the terms and conditions thereof.

1.4
Number of Deferred Shares and Performance Shares . The number of Deferred Shares (2012 Annual Incentive Deferral) and Performance Shares (2013 LTI Grant) indicated on the top of the first page of this Agreement has been determined by multiplying each Deferred Share or Performance Share subject to your Prior Award by a fraction, the numerator of which is the average of the closing price on The New York Stock Exchange of one ADR or BDR, as applicable, representing one ordinary share of ING Group, for each of the five trading days immediately preceding the date of the closing of the IPO and the denominator of which is the price to the public (as specified on the cover of the final IPO-related prospectus) of one share of common stock of ING U.S. in the IPO. To the extent the calculation did not result in a whole number, the figure was rounded up to avoid fractional shares.

1


Article 2 - Award of Converted Awards

2.1
Nature of the Converted Awards . The Converted Awards made under Article 2 of this Agreement constitute a conditional right to receive a number of shares of Common Stock equal to (a) the number of Deferred Shares (2012 Annual Incentive Deferral) and (b) the number of Performance Shares (2013 LTI Grant), as adjusted pursuant to Article 3.2(b), in each case, as indicated at the top of the first page of this Agreement and calculated as described in Article 1.4, and subject to Article 3.1 and Article 3.2, respectively.

2.2
Grant Date of Award . The grant date of the Converted Awards is May 7, 2013.

2.3
Consideration . No consideration is payable by the Grantee in respect of the Converted Awards.

Article 3 - Vesting and Delivery of Converted Awards

3.1
Deferred Shares (2012 Annual Incentive Deferral) . Subject to Articles 3.3 and 3.5 below, this Converted Award will vest 1/3rd on March 27, 2014, 1/3rd on March 27, 2015 and 1/3rd on March 27, 2016 (each, a “Vesting Date”), provided that the Grantee is still Employed by the Company on each of the respective Vesting Dates. Any fractional shares that would otherwise vest on a Vesting Date will vest on the last Vesting Date. In the event there are any fractional shares on the final Vesting Date, the number of Deferred Shares that vest on that final Vesting Date will be rounded up to the nearest whole share. One share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share as soon as practicable following each of the respective Vesting Dates but in any event no later than the end of the calendar year in which any such Vesting Date occurs.

3.2
Performance Shares (2013 LTI Grant) .

(a)
Subject to Articles 3.4 and 3.5 and clause (b) of this Article 3.2 below, this Converted Award will vest in three tranches, being 1/3rd on March 27, 2014, 1/3rd on March 27, 2015 and 1/3rd on March 27, 2016 (each, a “Vesting Date”), provided, that the Grantee is still employed by the Company on such Vesting Date. Any fractional shares that would otherwise vest on a Vesting Date will vest on the final Vesting Date. In the event there are any fractional shares on the final Vesting Date, the number of Performance Shares that vest on that final Vesting Date will be rounded up to the nearest whole share. One share of Common Stock shall be delivered to the Grantee in respect of each vested Performance Share as soon as practicable following each of the respective Vesting Dates but in any event no later than the end of the calendar year in which any such Vesting Date occurs.

(b)
On the Vesting Date of any Performance Shares, Grantee will be entitled to receive a number of shares of Common Stock equal to the number of Performance Shares vesting on such Vesting Date multiplied by a performance factor (a “Performance Factor”) applicable to the calendar year immediately preceding such Vesting Date. The Performance Factor for each calendar year will be determined based on the level of achievement, over the course of such year, of one or more Company-wide or business-unit specific financial, operational or other goals. Grantee understands and acknowledges that the Performance Factor may be zero if applicable minimum goals are not met, and that the Performance Factor will be subject to a cap. The applicable goals that will be used to calculate the Performance Factor for the 2013 calendar year are set forth on Annex A hereto. The applicable goals that will be used to

2


calculate the Performance Factor for the 2014 and 2015 calendar years will be determined by the Committee and communicated to Grantee at a later date.

3.3     Termination of Employment - Deferred Shares .

(a)
If Grantee ceases to be Employed by the Company prior to an applicable Vesting Date by reason of:

(i)
injury or Total and Permanent Disability (evidenced to the satisfaction of the Company); or

(ii)
 by virtue of retirement on reaching his or her permitted retirement age as determined in the applicable retirement benefit program, statutory or otherwise; or

(iii)
termination of Employment by the Company due to Business Conditions (including, but not limited to, Redundancy) or a business divestiture that forms part of ING U.S.' normal course of business; or

(v)
death,

any unvested Deferred Shares shall vest and one Share of Common Stock shall be delivered to the Grantee in respect of each vested Deferred Share (x) in the event of termination by reason of clauses (a)(i), (a)(ii) or (a)(iii) of this Article 3.3, as soon as practicable following the applicable Vesting Date in respect of such Deferred Shares (but in any event no later than the end of the calendar year in which such Vesting Date occurs), (y) in the event of termination by reason of Article 3.3(a)(iv), as soon as practicable following the termination of Employment (but in any event no later than the end of the calendar year in which such termination of Employment occurs) and (z) in the event of termination by reason of Article 3.3(a)(v), as soon as practicable following the date of death (but in any event no later than the end of the calendar year in which such date of death occurs).

(b)
In the event of a Change in Control, Section 3.6 of the Plan shall, to the extent inconsistent with anything set forth elsewhere in this Agreement, govern the treatment of Deferred Shares.

3.4     Termination of Employment - Performance Shares .

(a)
If Grantee ceases to be Employed by the Company prior to an applicable Vesting Date by reason of:

(i)
(x) injury or Total and Permanent Disability (evidenced to the satisfaction of the Company), (y) early retirement by agreement of the Committee; or (z) by virtue of retirement on reaching his or her permitted retirement age as determined in the applicable retirement benefit program, statutory or otherwise, then a number of Performance Shares shall vest equal to the number of Performance Shares that otherwise would vest on such Vesting Date and the number of shares of Common Stock to be delivered to Grantee in respect of such Vesting Date will be determined in accordance with Article 3.2(b), which shares shall be delivered to the Grantee as soon as practicable following such Vesting Date (but in any event no later than the end of the calendar year in which such Vesting Date occurs); or


3


(ii)
termination of Employment by the Company due to Business Conditions (including, but not limited to, Redundancy) or a business divestiture that forms part of ING U.S.' normal course of business, then a number of Performance Shares will vest equal to equal to the number of Performance Shares that would have vested on the Vesting Date next following the termination of Employment multiplied by the Pro Rata Factor and the number of shares of Common Stock to be delivered to Grantee will be determined in accordance with Article 3.2(b) using the Performance Factor measured as of the most recent date prior to the termination of Employment (or, if no such Performance Factor has been measured at that time, the Performance Factor shall be 100%), which shares shall be delivered to the Grantee as soon as practicable following the termination of Employment (but in any event no later than the end of the calendar year in which such termination of Employment occurs), and any Performance Shares that remain unvested after application of this Article 3.4(a)(ii) shall be forfeited; or

(iii)
death, then all Performance Shares as of the date of death shall vest and the number of shares of Common Stock to be delivered to Grantee's beneficiary or estate, as the case may be, will be determined in accordance with Article 3.2(b) using the Performance Factor measured as of the most recent date prior to the date of death (or, if no such Performance Factor has been measured at that time, the Performance Factor shall be 100%), which shares shall be delivered to the Grantee's beneficiary or estate, as the case may be, as soon as practicable following the date of death (but in any event no later than the end of the calendar year in which such death occurs).

(b)
In the event of a Change in Control, Section 3.6 of the Plan shall, to the extent inconsistent with anything set forth elsewhere in this Agreement, govern the treatment of Performance Shares (2013 LTI Grant).

3.5     Termination of Employment - All Converted Awards .

(a)
If a Grantee is given notice of termination of Employment in circumstances involving fraud, gross negligence, willful misconduct or any activity detrimental to the Company, as determined by the Committee, then all Converted Awards (vested and not unvested) shall lapse immediately on the date the notice of termination of Employment is given to the Grantee.

(b)
Notwithstanding Article 3.3(a), 3.4(a) or 3.5(a), the Committee in its absolute discretion may consent to vest any such Converted Award in whole or in part to the extent as it may determine and considers reasonable.

(c)
Other than as set forth in Article 3.3 and 3.4, any unvested Converted Awards shall expire upon termination of Employment without any consideration and the Grantee shall have no further rights thereto.

Article 4 - Claw back and Hold back

4.1     Claw Back .

(a)
Notwithstanding the terms and conditions as specified in the Plan and this Agreement, the Grantee expressly agrees that the Company shall have the right to reclaim any shares of

4


Common Stock that have been delivered to the Grantee under the Plan in the event that he or she engages in conduct or performs acts which as the Committee determines to be:

(i)
malfeasance;

(ii)
fraud; or

(iii)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company.

(b)
By signing this Agreement, the Grantee acknowledges that he or she understands and agrees that in the event the Committee determines that Grantee has engaged in conduct or performed acts specified in Article 4.1(a) and Grantee has sold all or a portion of his or her shares of Common Stock after vesting, the Company has the right to claim from the Grantee an amount in US dollars equal to the Fair Market Value of such shares at the time of such sale and the Grantee is obliged to repay this amount at first demand by the Company, such payment to be made no later than 30 days after the first demand.

4.2
Hold Back . The Committee has the authority to adjust the number of shares of Common Stock and/or cancel the Converted Awards in whole or in part:  

(a)
in case of evidence of misbehavior or serious error by the Grantee (e.g. breach of code of conduct and other internal rules, especially concerning risks); or

(b)
in case of evidence of misbehavior or serious error by the Grantee (e.g. breach of code of conduct and other internal rules, especially concerning risks); or

(c)
in the event the Company or the business line in which the relevant staff member works suffers a significant failure of risk management; or

(d)
in the event of significant negative changes in the economic or regulatory capital base (based on a capital test); or

(e)
if any other material new information arises that would have changed the original determination of the award if it were known at the time of award; or

(f)
specific conduct, alone or in concert with others, which has led to the material restatement of the Company's annual accounts and/or significant (reputational) harm to the Company or any of its Subsidiaries or Affiliates.The Committee will annually assess, prior to vesting, whether and to what extent this discretionary authority needs to be applied.

Article 5 - Various

5.1
Compliance with U.S. Tax Law . Where the Grantee qualifies as a US Taxpayer, the Grantee understands and agrees that notwithstanding anything herein to the contrary, this Agreement, and the Converted Awards made hereby, shall be administered in accordance with the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), including but not limited to, Section 409A of the Code. Notwithstanding anything in the Plan to the contrary, any adjustment of

5


any of the Converted Awards granted hereby shall be made in compliance with Section 409A of the Code. The Converted Awards granted hereby are intended to comply with Section 409A of the Code and will be administered and interpreted in accordance with that intent. In the event that the Grantee is a “specified employee” (within the meaning of the Treasury Regulations §1.409A‑1(i)) as of the date of the Grantee's “separation from service” (within the meaning of Treasury Regulations §1.409A‑1(h)) and if, as a result, any shares of Common Stock cannot be delivered, or any Converted Award cannot be paid or provided, in either case in the manner or at the time otherwise provided in Article 3, without subjecting the Grantee to “additional tax”, interest or penalties under Section 409A of the Code, then such shares shall be delivered, or Converted Award will be paid or provided, on the first day of the seventh month following the Grantee's separation from service.

5.2
Delivery of Common Stock or Sale of Common Stock . Except as otherwise provided above and notwithstanding anything in the Plan to the contrary, in accordance with instructions provided by the Grantee, shares of Common Stock, to the extent relating to a vested Converted Award, shall be transferred to the brokerage account of the Grantee and/or sold by the Company on behalf of and for the account of the Grantee upon delivery. The Grantee should provide instructions to the Company during the designated period(s) prior to the date of vesting instructing the Company to transfer the shares to the brokerage account of the Grantee and/or to sell such shares on behalf of and for the account of the Grantee. If the Grantee fails to provide any such instructions to the Company during the designated period(s), the shares shall automatically be sold on behalf of and for the account of the Grantee.

Article 6 - Data protection

6.1
The Grantee hereby (i) consents to the processing, collection, recording, organizing, storing and adapting by the Company and the third party administrators involved in the operation and administration of the Plan, of the personal data, (including, without limitation, name, business contact information, employee number, position and information on Awards) relating to the Grantee for the sole purpose of participating in the Plan and the Agreement, including the operation and administration of the Plan, and (ii) grants such consent for the duration of the Plan.

6.2
The Grantee also consents to the transfer of his/her personal data referred to under Article 6.1 of this Agreement by the Company to third party administrators that are assigned to the operation and administration of the Plan for this Grantee specifically and that are located in the United States or elsewhere.

6.3
The Grantee also agrees that a limited set of his/her personal data (name, LSPP ID, business line) is accessible to those third party administrators that are not specifically assigned to him/her for the operation and administration of the Plan for the sole purpose of identification and other related administrative reasons (e.g. to trace Grantees that have changed position within the Company).

6.4
The Grantee's personal data related to the Plan will be held in a database file titled with his/her name and unique identification code for the duration of the Plan, taking to account any additional data retention period required by applicable law. The database will be kept by the Company on behalf of the Company.

6.5
The Grantee understands that the provision of all of his/her personal data is obligatory for the purpose of his/her participation in the Plan and agrees with the transfer of the relevant personal data to the Company entity that he/she is employed by. The Participant is aware of his/her right to access and/

6


or correct personal data, if and when necessary, by contacting the local Human Resources representative.

6.6
The Grantee hereby agrees that, as a result of the IPO of ING U.S., ING U.S. may transfer the Grantee's personal data to a third party administrator, including one that is not an affiliated company, in order to carry out necessary administrative functions with respect to this Converted Award.

Article 7 - Governing law and Jurisdiction

7.1
Governing law and jurisdiction . This Agreement shall be governed by and shall be construed in accordance with the laws of the State of New York. The Company and the Grantee irrevocably submit, in respect of any suit, action or proceeding arising out of or relating to or concerning the Plan or the interpretation or enforcement of this Agreement, to the exclusive jurisdiction of any state or federal court located in New York, New York and to be bound by the provisions of Section 3.16 of the Plan.

7.2
Partial invalidity . Parties expressly agree that the invalidity or unenforceability of an Article or Articles of this Agreement shall not affect the validity or enforceability of any other Article of this Agreement and that the remainder of this Agreement will remain in full effect. Any such invalid or unenforceable Article shall be replaced or be deemed to be replaced by a provision that is considered to be valid and enforceable. The interpretation of the replacing Article shall be as close as possible to the intent of the invalid or unenforceable Article.

Article 8 - Grantee Covenants

8.1
In consideration of the Converted Awards granted under this Agreement, Grantee agrees to abide by the restrictive covenants set forth below. For the purposes of this Article, the definition of “Company” is expanded to include any Subsidiaries or Affiliates that do business in the United States.

(i)
Protection of confidential information . The Grantee will not, without permission of the Company, disclose any Company confidential information or trade secrets to anyone outside the Company, unless required by subpoena. Confidential information and trade secrets include, but are not limited to, customer lists, product development information, marketing and sales plans, premium or other pricing information, operating policies and manuals, and, or other confidential information related to the Company.

(ii)
Nonsolicitation of employees and agents . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to induce any employee, agent or agency, broker, broker-dealer, financial planner, registered principal or representative of the Company to be employed by or to perform services for any entity that competes with the Company.

(iii)
Nonsolicitation of customers . The Grantee will not, for 12 months following termination of Employment, directly or indirectly attempt to solicit the trade of any person that is a customer of the Company or which the Company has been undertaking reasonable steps to procure as a customer during the 6 months preceding termination of employment. This limitation will only apply to products or services in competition with a product or service of the Company, and to customers with whom Grantee had contact during employment.


7


(iv)
Agreement to Cooperate .  Following the termination of Employment, the Grantee will cooperate with the Company, without additional compensation, on matters within the scope of Grantee's responsibilities during employment. The Company agrees to reimburse reasonable out-of-pocket expenses the Grantee incurs in connection with such assistance. The Company agrees it will make all reasonable efforts to minimize disruption to the Grantee's other commitments.

8.2
If any provision of Article 8.1 is determined by a court of competent jurisdiction not to be enforceable in the manner set forth above, the parties agree that they intend the provision to be enforceable to the maximum extent possible under applicable law, and that the court should reform the provision to make it enforceable in accordance with the intent of the parties.

8.3
The Grantee acknowledges that these covenants are a material inducement for the Company to effect the Converted Awards granted under this Agreement. The Grantee further acknowledges that a violation of any term of the covenants will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, the Grantee agrees that, if the Grantee breaches any of the covenants:

(i)    any Converted Award made to the Grantee pursuant to this Agreement will be rescinded;

(ii)    the Grantee will not be entitled to retain any income or property derived from the Award; and

(iii)
the Company will be entitled to an injunction, restraining order or such other equitable relief(without the requirement to post bond) restraining the Grantee from committing any violation of the covenants contained in Article 8.1.

The remedies in this Article are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity as a court or arbitrator may reasonably determine.
8.4
The Company may terminate any Converted Award if the Grantee has willfully engaged in gross misconduct that the Company determines is likely to be damaging or detrimental to the Company.

8.5
This Article 8 will be interpreted in accordance with the laws of the State of New York. Any proceedings involving Article 8 will be brought in a court of competent jurisdiction in the State of New York.

Article 9 - Definitions

9.1
“ADR” shall mean an American Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.2
“BDR” shall mean a Bearer Depositary Receipt issued in respect of an issued and fully paid-up ordinary share in the capital of the ING Groep NV.

9.3
“Business Conditions” shall mean any situation, not being a Business Divestiture, in which the termination of a Grantee's employment is caused by economic or strategic considerations and is not based primarily on the Grantee's individual performance.


8


9.4
“Business Divestiture” shall mean the complete or partial transfer of a Subsidiary by which the Grantee is Employed to a transferee that is not a Subsidiary or a complete or partial initial public offering of a Subsidiary by which the Grantee is Employed. A partial transfer or initial public offering is only considered a Business Divestiture if such transfer or initial public offering results in ING U.S. (directly or indirectly) owning less than 50.1% of the voting stock in such transferred Subsidiary, where this Business Divestiture does not form part of ING U.S.' normal course of business as determined by the Committee.

9.5
“Deferred Share” shall mean a conditional right to receive a number of shares of Common Stock upon vesting .

9.6
“Performance Period” shall mean the period in which the Performance Target should be attained and which shall be specified in the Award Agreement.

9.7
“Performance Share” shall mean a right to receive shares of Common Stock upon vesting which right is conditional subject to the attainment of any Performance Target imposed.

9.8
“Pro Rata Factor” shall mean the factor that is calculated by dividing the period of Employment during the Performance Period in terms of months by the total Performance Period, also in terms of months, rounded up to the nearest whole number.

9.9
“Performance Target” shall mean the target or targets, set at the time the Award is granted, that should be attained in order to determine the number of shares of Common Stock to be delivered subject to the vesting of the Awards as defined in the Award Agreement.

9.10
“Redundancy” shall mean termination of a Grantee's Employment by the Company due to a reorganization of the Company in such circumstances as the Committee determines in its absolute discretion.

9.11
“Total and Permanent Disability” shall mean the mental or physical disability, whether occupational or non-occupational in cause, which satisfies such definition in: (i) any insurance policy or plan provided to the Grantee by the Company; or alternatively (ii) the Grantee's applicable national legislation pertaining to persons with disability. 


9


ANNEX A
2013 Performance Goals

The following Performance Factors will apply to the 2013 calendar year, based on the level of distributable earnings (as determined in the reasonable judgment of the Committee) achieved for the year:
Amount of Distributable Earnings
Performance Factor
Less than $400 million
—%
$400 million to $450 million
50%
$451 million to $500 million
75%
$501 million to $550 million
100%
$551 million to $600 million
125%
$601 million or more
150%







10


EXECUTION COPY

    
ING U.S., INC.
LION CONNECTICUT HOLDINGS INC.
JUNIOR SUBORDINATED INDENTURE
Dated as of May 16, 2013
U.S. Bank National Association,
as Trustee







    
TABLE OF CONTENTS

Page
Article 1
Definitions and Other Provisions of General Application
Section 1.01. Definitions     1
Section 1.02 . Compliance Certificates and Opinions
10
Section 1.03 . Form of Documents Delivered to Trustee
10
Section 1.04 . Acts of Holders
11
Section 1.05 . Notices, Etc., to Trustee or Company
12
Section 1.06 . Notice to Holders; Waiver
12
Section 1.07 . Conflict with Trust Indenture Act
12
Section 1.08 . Effect of Headings and Table of Contents
13
Section 1.09 . Successors and Assigns
13
Section 1.10 . Separability Clause
13
Section 1.11 . Benefits of Indenture
13
Section 1.12 . Governing Law
13
Section 1.13 . Legal Holidays
13
Section 1.14 . Waiver of Jury Trial
13
Article 2
The Securities
Section 2.01 . Amount Unlimited; Issuable in Series
13
Section 2.02 . Denominations
16
Section 2.03 . Execution, Authentication, Delivery and Dating
16
Section 2.04 . Temporary Securities
18
Section 2.05 . Registration; Registration of Transfer and Exchange
19
Section 2.06 . Mutilated, Destroyed, Lost and Stolen Securities
20
Section 2.07 . Payment of Interest; Interest Rights Preserved
21
Section 2.08 . Persons Deemed Owners
22
Section 2.09 . Cancellation
22
Section 2.10 . Computation of Interest
22
Section 2.11 . CUSIP Numbers
22
Article 3
Redemption of Securities
Section 3.01 . Applicability of Article
23
Section 3.02 . Election to Redeem; Notice to Trustee
23
Section 3.03 . Selection by Trustee of Securities to be Redeemed
23

i


Section 3.04 . Notice of Redemption
23
Section 3.05 . Deposit of Redemption Price
24
Section 3.06 . Securities Payable on Redemption Date
24
Section 3.07 . Securities Redeemed in Part
25
Article 4
Sinking Funds
Section 4.01 . Applicability of Article
25
Section 4.02 . Satisfaction of Sinking Fund Payments with Securities
25
Section 4.03 . Redemption of Securities for Sinking Fund
26
Article 5
Covenants
Section 5.01 . Payment of Principal, Premium and Interest
26
Section 5.02 . Maintenance of Office or Agency
26
Section 5.03 . Money for Securities Payments to be Held in Trust
27
Section 5.04 . Corporate Existence
28
Section 5.05 . Statement by Officers as to Default
28
Section 5.06 . Future Subsidiary Guarantees
28
Article 6
Consolidation, Merger, Conveyance, Transfer or Lease
Section 6.01 . Company May Consolidate, Etc., Only on Certain Terms
28
Section 6.02 . Successor Substituted
29
Article 7
Remedies
Section 7.01 . Events of Default
29
Section 7.02 . Acceleration of Maturity; Rescission and Annulment
31
Section 7.03. Collection of Indebtedness and Suits for Enforcement by Trustee
33
Section 7.04 . Trustee May File Proofs of Claim
33
Section 7.05 . Trustee May Enforce Claims Without Possession of Securities
34
Section 7.06 . Application of Money Collected
34
Section 7.07 . Limitation on Suits
35
Section 7.08 . Unconditional Right of Holders to Receive Principal, Premium and Interest
35
Section 7.09 . Restoration of Rights and Remedies
35
Section 7.10 . Rights and Remedies Cumulative
35
Section 7.11 . Delay or Omission not Waiver
36
Section 7.12 . Control by Holders
36
Section 7.13 . Waiver of Past Defaults
36
Section 7.14 . Undertaking for Costs
37
Section 7.15 . Waiver of Usury, Stay or Extension Laws
37

ii


Article 8
The Trustee
Section 8.01 . Certain Duties and Responsibilities
37
Section 8.02 . Notice of Defaults
38
Section 8.03 . Certain Rights of Trustee
39
Section 8.04 . Not Responsible for Recitals or Issuance of Securities
40
Section 8.05 . May Hold Securities
40
Section 8.06 . Money Held in Trust
40
Section 8.07. Compensation and Reimbursement
40
Section 8.08 . Disqualification; Conflicting Interests
41
Section 8.09 . Corporate Trustee Required; Eligibility
41
Section 8.10 . Resignation and Removal; Appointment of Successor
41
Section 8.11 . Acceptance of Appointment by Successor
43
Section 8.12 . Merger, Conversion, Consolidation or Succession to Business
44
Section 8.13 . Preferential Collection of Claims
44
Section 8.14 . Appointment of Authenticating Agent
44
Section 8.15 . Consequential Damages
46
Section 8.16 . Notices
46
Section 8.17 . Force Majeure
46
Article 9
Holders' Lists And Reports By Trustee And Company
Section 9.01 . Company to Furnish Trustee Names and Addresses of Holders
46
Section 9.02 . Preservation of Information; Communications to Holders
47
Section 9.03 . Reports by Trustee
47
Section 9.04. Reports by Company
47
Article 10
Supplemental Indentures
Section 10.01 . Supplemental Indentures Without Consent of Holders
48
Section 10.02 . Supplemental Indentures with Consent of Holders
49
Section 10.03 . Execution of Supplemental Indentures
50
Section 10.04 . Effect of Supplemental Indentures
51
Section 10.05 . Conformity with Trust Indenture Act
51
Section 10.06 . Reference in Securities to Supplemental Indentures
51
Article 11
Satisfaction and Discharge; Defeasance
Section 11.01 . Satisfaction and Discharge of Indenture
51
Section 11.02 . Company's Option to Effect Defeasance or Covenant Defeasance
52
Section 11.03 . Defeasance and Discharge
53
Section 11.04 . Covenant Defeasance
53
Section 11.05 . Conditions to Defeasance or Covenant Defeasance
53

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Section 11.06 . Deposited Cash and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions
56
Article 12
Subsidiary Guarantee
Section 12.01 . Applicability of Article
56
Section 12.02 . Subsidiary Guarantee
57
Section 12.03 . Contribution
58
Section 12.04 . Successors And Assigns
59
Section 12.05 . No Waiver
59
Section 12.06 . Modification
59
Section 12.07 . Execution of Supplemental Indenture for Future Subsidiary Guarantors
59
Section 12.08 . Limitation on Liability
59
Section 12.09 . Release of Subsidiary Guarantor
60
Section 12.10. Notice to Nationally Recognized Statistical Rating Organizations
60
Article 13
Subordination of Securities
Section 13.01 . Securities Subordinate to Company Senior Indebtedness
60
Section 13.02 . Payment Over of Proceeds Upon Dissolution, Etc.
61
Section 13.03 . No Payment When Company Senior Indebtedness in Default
62
Section 13.04 . Payment Permitted If No Default
63
Section 13.05 . Subrogation to Rights of Holders of Company Senior Indebtedness
63
Section 13.06 . Provisions Solely to Define Relative Rights
64
Section 13.07 . Trustee to Effectuate Subordination
64
Section 13.08 . No Waiver of Subordination Provisions
64
Section 13.09 . Notice to Trustee
65
Section 13.10 . Reliance on Judicial Order or Certificate of Liquidating Agent
66
Section 13.11 . Trustee Not Fiduciary for Holders of Company Senior Indebtedness
66
Section 13.12 . Rights of Trustee as Holder of Company Senior Indebtedness; Preservation
of Trustee's Rights      66
Section 13.13 . Article Applicable to Paying Agents
66
Article 14
Subordination of Subsidiary Guarantee
Section 14.01 . Subsidiary Guarantee Subordinate to Subsidiary Guarantor Senior Indebtedness
67
Section 14.02 . Payment Over of Proceeds Upon Dissolution, Etc.
67
Section 14.03 . No Payment When Subsidiary Guarantor Senior Indebtedness in Default
69
Section 14.04 . Payment Permitted If No Default
70
Section 14.05 . Subrogation to Rights of Holders of Subsidiary Guarantor Senior Indebtedness
70
Section 14.06 . Provisions Solely to Define Relative Rights
70
Section 14.07 . Trustee to Effectuate Subordination
71
Section 14.08 . No Waiver of Subordination Provisions
71
Section 14.09 . Notice to Trustee
72

iv


Section 14.10 . Reliance on Judicial Order or Certificate of Liquidating Agent
73
Section 14.11 . Trustee Not Fiduciary for Holders of Subsidiary Guarantor Senior Indebtedness
73
Section 14.12 . Rights of Trustee as Holder of Subsidiary Guarantor Senior Indebtedness;
Preservation of Trustee's Rights.      73
Section 14.13 . Article Applicable to Paying Agents
73
Article 15
General Guarantee Agreement
Section 15.01 . General Guarantee Agreement Inapplicable
74


v



    
JUNIOR SUBORDINATED INDENTURE
JUNIOR SUBORDINATED INDENTURE, dated as of May 16, 2013, among ING U.S., INC., a Delaware corporation (the “ Company ”), having its principal executive offices at 230 Park Avenue, New York, New York 10169, LION CONNECTICUT HOLDINGS INC., a Connecticut corporation, as the initial Subsidiary Guarantor (as defined below) hereunder, and U.S. Bank National Association, a national banking association, as trustee (the “ Trustee ”).
RECITALS
WHEREAS, the Company has duly authorized the execution and delivery of this Junior Subordinated Indenture (this “ Indenture ”) to provide for the issuance from time to time of its unsecured, junior subordinated debentures, notes or other evidences of indebtedness (herein called the “ Securities ”), to be issued in one or more series as in this Indenture provided; such Securities, except as otherwise specifically provided in an indenture supplemental hereto with respect to a particular series of Securities, to be fully, irrevocably and unconditionally guaranteed by the Subsidiary Guarantors as provided in Article 12;
NOW, THEREFORE, for and in consideration of the premises and the purchase of the Securities by the Holders thereof, the Company, the initial Subsidiary Guarantor and the Trustee mutually covenant and agree, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 1.01. Definitions .

For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1)      the terms defined in this Article have the respective meanings assigned to them in this Article and include the plural as well as the singular;
(2)      all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the respective meanings assigned to them therein;
(3)      all accounting terms not otherwise defined herein have the respective meanings assigned to them in accordance with generally accepted accounting principles, and, except as otherwise herein expressly provided, the term “ generally accepted accounting principles ” with respect to any computation required in the United States of America or permitted hereunder shall mean such accounting principles as are generally accepted at the date of such computation;
(4)      the words “ herein ,” “ hereof ” and “ hereunder ” and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and
(5)      references to Sections are to Sections of this Indenture unless otherwise expressly indicated.
“ Act ,” when used with respect to any Holder, has the meaning specified in Section 1.04.

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“ Affiliate ” of any specified Person means any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person. For the purposes of this definition, “ control ” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling ” and “ controlled ” have meanings correlative to the foregoing.
“ Authenticating Agent ” means any Person authorized by the Trustee to act on behalf of the Trustee to authenticate Securities.
“ Board of Directors ” means the board of directors of the Company or any duly authorized committee of such board.
“ Board Resolution ” means a copy of a resolution certified by the Secretary or an Assistant Secretary (or the Clerk or Assistant Clerk) of the Company to have been duly adopted by the Board of Directors of the Company and to be in full force and effect on the date of such certification, and delivered to the Trustee.
“ Business Day ” means each day which is not a day on which Federal or State banking institutions in the Borough of Manhattan, The City of New York are authorized or obligated by law, executive order or regulation to close.
“ Capital Stock ” for any corporation or other entity means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) stock issued by that corporation or entity.
“ Claiming Guarantor ” has the meaning set forth in Section 12.03.
“ Commission ” means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time.
“ Company ” means the Person named as the “Company” in the first paragraph of this instrument until a successor Person shall have become permitted as the Company's successor pursuant to the applicable provisions of this Indenture, and thereafter “ Company ” shall mean such successor Person.
“ Company Request ” or “ Company Order ” means a written request or order signed in the name of the Company by any two Officers.
“ Company Senior Indebtedness ” means the principal of, premium, if any, and interest on and any other payment due pursuant to any of the following, whether Incurred on or prior to the date hereof or hereafter Incurred:
(i)      all obligations of the Company (other than obligations pursuant to the Securities of any series and obligations pursuant to the Indenture with respect thereto) for money borrowed;
(ii)      all obligations of the Company evidenced by securities, notes, debentures, bonds or other similar instruments (other than the Securities of any series), including obligations Incurred in connection with the acquisition of property, assets or businesses;
(iii)      all capital lease obligations of the Company ;

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(iv)      all reimbursement obligations of the Company with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of the Company;
(v)      all obligations of the Company issued or assumed as the deferred purchase price of property or services, including all obligations under master lease transactions pursuant to which the Company or any of its Subsidiaries has agreed to be treated as owner of the subject property for U.S. federal income tax purposes;
(vi)      all payment obligations of the Company under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements at the time of determination, including any such obligations Incurred by the Company solely to act as a hedge against increases in interest rates that may occur under the terms of other outstanding variable or floating rate indebtedness of the Company; and
(vii)      all obligations of the type referred to in clauses (i) through (vi) above of another Person and all dividends of another Person the payment of which, in either case, the Company has assumed or guaranteed or for which the Company is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise;
provided, however, that “Company Senior Indebtedness” shall not include: (1) obligations to trade creditors created or assumed by the Company in the ordinary course of business or (2) indebtedness that is by its terms subordinate, or not superior, in right of payment to the Securities of any series, including, the Company's Pari Passu Securities.
“ Corporate Trust Office ” means the office of the Trustee at which at any particular time the transactions contemplated by this Indenture shall be principally administered, which office, as at the date of this Indenture, is located at One Federal Street, 3 rd Floor, Boston, MA 02210, Attention: Earl W. Dennison, Jr., or such other address as the Trustee may designate from time to time by notice to the Holders and the Company.
The term “ corporation ” includes corporations, associations, companies (including limited liability companies), limited and general partnerships and business trusts.
The terms “ covenant defeasance ” and “ defeasance ” bear the meanings assigned to such terms, respectively, by Sections ý11.04 and ý11.03.
The term “ default ,” when used in Section 8.02, has the meaning specified in Section 8.02.
“ Defaulted Interest ” has the meaning specified in Section 2.07(c).
“ Depository ” means, with respect to the Securities of any series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depository for such series by the Company pursuant to Section 2.01(b)(xv), which Person shall be a clearing agency registered under the Exchange Act; and if at any time there is more than one such Person, “ Depository ” as used with respect to the Securities of any series shall mean the Depository with respect to the Securities of such series.
“ Event of Default ” has the meaning specified in Section 7.01.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.
“ Global Security ” or “ Global Securities ” means a Security or Securities, as the case may be, evidencing all or part of a series of Securities, issued to the Depository for such series or its nominee, and registered in the name of such Depository or nominee.

3


“ Guaranteed Obligations ” has the meaning set forth in Section 12.02.
“ Holder ” means a Person in whose name a Security is registered in the Security Register.
“ Incur ” means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to generally accepted accounting principles or otherwise, of any such indebtedness or other obligation as a liability on the balance sheet of such Person (and “Incurrence,” “Incurred,” “Incurrable” and “Incurring” shall have meanings correlative to the foregoing); provided, however, that a change in generally accepted accounting principles that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness.
“ Indebtedness ” of any Person means indebtedness for borrowed money and indebtedness under purchase money mortgages or other purchase money liens or conditional sales or similar title retention agreements, in each case where such indebtedness has been Incurred by such Person to the extent such indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with generally accepted accounting principles, guarantees by such Person of such indebtedness of others, and indebtedness for borrowed money secured by any mortgage, pledge or other lien or encumbrance upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness.
“ Indenture ” means this indenture agreement as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and shall include the terms of particular series of Securities established as contemplated by Section 2.01.
“ interest ,” when used with respect to an Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
“ Interest Payment Date ,” when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security.
“ Junior Subordinated Payment ” has the meaning specified in Section 13.02.
“ Lion Holdings ,” means Lion Connecticut Holdings Inc., a Connecticut corporation.
“ Maturity ,” when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
“ Notice of Default ” has the meaning specified in Section 7.01.
“ Officer ” means the Chairman of the Board of Directors, any Vice Chairman of the Board of Directors, the Chief Executive Officer, the President, the Chief Financial Officer, any Vice President, the Treasurer, the Secretary or the Controller, of the Company.
“ Officers' Certificate ” means a certificate signed by any two Officers. An Officers' Certificate provided pursuant to Section 5.05 shall be signed by the principal executive, financial or accounting Officer of the Company.

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“ Opinion of Counsel ” means a written opinion of counsel, who may be counsel for the Company (including an employee or officer of the Company or any of its Affiliates) and who shall be reasonably acceptable to the Trustee (it being agreed and acknowledged that Sullivan & Cromwell LLP is acceptable to the Trustee to provide such opinion).
“ Original Issue Discount Security ” means any Security which provides for an amount less than the principal amount thereof to be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 7.02.
“ Outstanding ,” when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except:
(i)      Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation;
(ii)      Securities for whose payment or redemption cash (or in the case of payment by defeasance under Section 11.03, cash, U.S. Government Obligations or both) in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust, or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent), for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made and provided further , in the case of payment by defeasance under Section 11.03, that all conditions precedent to the application of such Section shall have been satisfied; and
(iii)      Securities which have been paid pursuant to Section 2.06(c) or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company;
provided , however , that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, (i) the principal amount of an Original Issue Discount Security that shall be deemed to be Outstanding shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon acceleration of the Maturity thereof pursuant to Section 7.02 and (ii) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which the Trustee knows to be so owned shall be so disregarded. Securities which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's independent right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor.
“ Pari Passu Securities ” means, with respect to the Company, any debt securities of the Company that rank equally in right of payment with the Securities of any series and, with respect to any Subsidiary Guarantor, any obligations of such Subsidiary Guarantor that rank equally in right of payment with the such Subsidiary Guarantor's Subsidiary Guarantee. For the avoidance of doubt, the 8.424% Subordinated Debentures due 2027 of Lion Connecticut Holdings Inc., shall be deemed Pari Passu Securities of Lion Connecticut Holdings Inc.
“ Paying Agent ” means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company.

5


“ Payment Blockage Period ” has the meaning specified in Section 13.03.
“ Person ” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“ Place of Payment ,” when used with respect to the Securities of any series, means the place or places where the principal of (and premium, if any) and interest on the Securities of that series are payable as specified as contemplated by Section 2.01 or, if not so specified, New York, New York.
“ Predecessor Security ” of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security.
“ Proceeding ” has the meaning specified in Section 13.02.
“ Redemption Date ,” when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
“ Redemption Price ,” when used with respect to any Security to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
“ Regular Record Date ” for the interest payable on any Interest Payment Date on the Securities of any series means the date specified for that purpose as contemplated by ýSection 2.01.
“ Responsible Officer ,” when used with respect to the Trustee, means any officer in the Corporate Trust Office of the Trustee with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such other officer's knowledge of and familiarity with the particular subject.
“ Securities ” has the meaning stated in the first recital of this Indenture and more particularly means any Securities of any series authenticated and delivered under this Indenture.
“ Securities Act ” means the Securities Act of 1933, as amended from time to time.
“ Securities Payment ” has the meaning specified in Section 13.02.
“ Security Register ” and “ Security Registrar ” have the respective meanings specified in Section 2.05.
“ Senior Nonmonetary Default ” has the meaning specified in Section 13.03.
“ Senior Payment Default ” has the meaning specified in Section 13.03.
“ Senior Unsecured Credit Facility ” means, collectively, the Term Loan Agreement dated as of April 20, 2012 among the Company, Bank of America, N.A., as administrative agent and the lenders from time to time party thereto (the “ Term Loan Agreement ”), and the Revolving Credit Agreement dated as of April 20, 2012 among the Company, Bank of America, N.A., as administrative agent, swing line lender, fronting L/C issuer and several L/C agent and the lenders from time to time party thereto (the “ Revolving Credit Agreement ”), as the Term Loan Agreement or the Revolving Credit Agreement may be amended, replaced, refinanced, amended and restated, supplemented or otherwise modified from time to time.

6


“ Special Record Date ” for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 2.07(c).
“ Stated Maturity ,” when used with respect to any Security or any installment of principal thereof or interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable.
“ Subsidiary ” of any Person means a corporation, a majority of the outstanding Voting Stock of which is, at the time, directly or indirectly, owned by such Person, by one or more Subsidiaries of such Person, or by such Person and one or more Subsidiaries thereof.
“ Subsidiary Guarantee ” means a guarantee of a Subsidiary Guarantor on the terms set forth in Article 12.
“ Subsidiary Guarantor ” means Lion Holdings, and each of the Company's domestic Subsidiaries that is required to become a Subsidiary Guarantor pursuant to Section 5.06 and Section 12.07.
“ Subsidiary Guarantor Junior Subordinated Payment ” has the meaning specified in Section 14.02.
“ Subsidiary Guarantor Payment Blockage Period ” has the meaning specified in Section 14.03.
“ Subsidiary Guarantor Proceeding ” has the meaning specified in Section 14.02.
“ Subsidiary Guarantor Securities Payment ” has the meaning specified in Section 14.02.
“ Subsidiary Guarantor Senior Non-Monetary Default ” has the meaning specified in Section 14.03.
“ Subsidiary Guarantor Senior Payment Default ” has the meaning specified in Section 14.03.
“ Subsidiary Guarantor Senior Indebtedness ” means the principal of, premium, if any, and interest on and any other payment due pursuant to any of the following, whether Incurred on or prior to the date hereof or hereafter Incurred:
(i)      all obligations of the Subsidiary Guarantor (other than obligations pursuant to its Subsidiary Guarantee and obligations pursuant to the Indenture with respect thereto) for money borrowed;
(ii)      all obligations of the Subsidiary Guarantor evidenced by securities, notes, debentures, bonds or other similar instruments (other than its Subsidiary Guarantee), including obligations Incurred in connection with the acquisition of property, assets or businesses;
(iii)      all capital lease obligations of the Subsidiary Guarantor;
(iv)      all reimbursement obligations of the Subsidiary Guarantor with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of the Subsidiary Guarantor;
(v)      all obligations of the Subsidiary Guarantor issued or assumed as the deferred purchase price of property or services, including all obligations under master lease transactions pursuant to which the Subsidiary Guarantor or any of its Subsidiaries has agreed to be treated as owner of the subject property for U.S. federal income tax purposes;
(vi)      all payment obligations of the Subsidiary Guarantor under interest rate swap or similar agreements or foreign currency hedge, exchange or similar agreements at the time of determination, including

7


any such obligations Incurred by the Subsidiary Guarantor solely to act as a hedge against increases in interest rates that may occur under the terms of other outstanding variable or floating rate indebtedness of the Subsidiary Guarantor; and
(vii)      all obligations of the type referred to in clauses (i) through (vi) above of another Person and all dividends of another Person the payment of which, in either case, the Subsidiary Guarantor has assumed or guaranteed or for which the Subsidiary Guarantor is responsible or liable, directly or indirectly, jointly or severally, as obligor, guarantor or otherwise;
provided, however, that “Subsidiary Guarantor Senior Indebtedness” shall not include: (1) obligations to trade creditors created or assumed by the Subsidiary Guarantor in the ordinary course of business or (2) indebtedness that is by its terms subordinate, or not superior, in right of payment to the Subsidiary Guarantee, including, the Subsidiary Guarantor's Pari Passu Securities.
“ Successor ” has the meaning specified in Section 6.01.
“ Trust Indenture Act ” means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 10.05 and, to the extent required by any amendment thereto, the Trust Indenture Act of 1939, as amended from time to time.
“ Trustee ” means the Person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have assumed such role pursuant to the applicable provisions of this Indenture, and thereafter “ Trustee ” shall mean or include each Person who is then a Trustee hereunder and, if at any time there is more than one such Person, “ Trustee ” as used with respect to the Securities of any series shall mean the Trustee with respect to Securities of that series.
“ U.S. Government Obligation ” has the meaning set forth in Section 11.05(a).
“ Vice President ” means any vice president, whether or not designated by a number or a word or words added before or after the title “vice president.”
“ Voting Stock ” of any specified “person” (as that term is used in Section 13(d) of the Exchange Act) as of any date, means the Capital Stock of such person that is at the time entitled to vote generally in the election of the board of directors of such person.
Section 1.02.     Compliance Certificates and Opinions. (a) Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.

(b)    Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than certificates provided pursuant to Section 5.05) shall include:

(i) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;

8


(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

(iii) a statement that, in the opinion of each such individual, such individual has made such examination or investigation as is necessary to enable such individual to express an informed opinion as to whether or not such covenant or condition has been complied with; and

(iv) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.

Section 1.03.     Form of Documents Delivered to Trustee. (a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or more documents.

(b)    Any certificate or opinion of any officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

(c)    Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
                
Section 1.04.     Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “ Act ” of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 8.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.

(b)    The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient.


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(c)    The ownership of Securities shall be proved by the Security Register.

(d)    Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Company in reliance thereon, whether or not notation of such action is made upon such Security or such other Security.

(e)    The Depository selected pursuant to Section 2.01(b)(xv), as a Holder, may appoint agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take hereunder.

Section 1.05.     Notices, Etc., to Trustee or Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made, given or furnished to, or filed with,

(a) the Trustee by any Holder or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or

(b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.

Section 1.06.     Notice to Holders; Waiver. (a) Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such Holder's address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

(b)    In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.

Section 1.07 . Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Indenture by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision hereof limits, qualifies or conflicts with the duties imposed by section 318(c) of the Trust Indenture Act, such imposed duties shall control. If any provision of this Indenture limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under the Trust Indenture Act to be a part of and govern this Indenture, such provision of the Trust Indenture Act shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as such provision of the Trust Indenture Act is so modified or excluded, as the case may be.


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Section 1.08 . Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

Section 1.09 . Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.

Section 1.10 . Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

Section 1.11 . Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture.

Section 1.12 . Governing Law. This Indenture and the Securities, and any claim, controversy or dispute arising under or related to this Indenture or the Securities, shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its principles of conflicts of laws.

Section 1.13 . Legal Holidays. In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Security shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made at such Place of Payment on such date, but may be made on the next succeeding Business Day at such Place of Payment with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided that no interest shall accrue on the amount then payable for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.

Section 1.14 . Waiver of Jury Trial. EACH OF THE COMPANY, EACH SUBSIDIARY GUARANTOR AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE NOTES OR THE TRANSACTION CONTEMPLATED HEREBY.

ARTICLE 2
THE SECURITIES

Section 2.01 . Amount Unlimited; Issuable in Series. (a) The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited.

(b)    The Securities may be issued in one or more series. There shall be established in or pursuant to a Board Resolution, and (subject to Section 2.03) set forth or determined as provided in an Officers' Certificate, or established in one or more indentures supplemental hereto (with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and with such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the Officers executing such Securities, as evidenced by their execution of such Securities), prior to the issuance of Securities of any series:


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(i) the title of the Securities of the series (which shall distinguish the Securities of the series from all other Securities);

(ii) any limit upon the aggregate principal amount of the Securities of the series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the series pursuant to Section 2.04, 2.05, 2.06, 3.07 or 10.06 and except for any Securities which, pursuant to Section 2.03, are deemed never to have been authenticated and delivered hereunder);

(iii) the Person to whom any interest on a Security of the series shall be payable, if other than the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest;

(iv) the date or dates on which the principal of the Securities of the series is payable and/or the method by which such date or dates shall be determined;

(v) the rate or rates (or method for establishing the rate or rates) at which the Securities of the series shall bear interest, if any, the date or dates from which such interest shall accrue, the Interest Payment Dates on which such interest shall be payable, the Regular Record Date for the interest payable on any Interest Payment Date (or method for establishing such date or dates), and the terms, if any, upon which the Company may defer payments of interest on Securities of the series;

(vi) the place or places where the principal of (and premium, if any) and interest on Securities of the series shall be payable;

(vii) the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series may be redeemed, in whole or in part, at the option of the Company;

(viii) the obligation, if any, of the Company to redeem or purchase Securities of the series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;

(ix) if other than denominations of $2,000 and integral multiples of $1,000 in excess thereof, the denominations in which Securities of the series shall be issuable;

(x) if other than the full principal amount thereof, the portion of the principal amount of Securities of the series which shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 7.02 or the method by which such portion shall be determined;

(xi) if other than such currency of the United States of America as at the time of payment is legal tender for payment of public or private debts, the currency or currencies (including composite currencies) in which payment of the principal of (and premium, if any) and/or interest on the Securities of the series shall be payable;

(xii) if the principal of (and premium, if any) and/or interest on the Securities of the series are to be payable, at the election of the Company or any Holder, in a currency or currencies

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(including composite currencies) other than that in which the Securities are stated to be payable, the period or periods within which, and the terms and conditions, upon which, such election may be made;

(xiii) if the amounts of payments of principal of (and premium, if any) and/or interest on the Securities of the series may be determined with reference to an index, the manner in which such amounts shall be determined;

(xiv) in the case of Securities of a series the terms of which are not established pursuant to subsection (xi), (xii) or (xiii) above, whether either or both of Section 11.03 or Section 11.04 shall not be applicable to the Securities of such series; or, in the case of Securities the terms of which are established pursuant to subsection (xi), (xii) or (xiii) above, the adoption and applicability, if any, to such Securities of any terms and conditions similar to those contained in Section 11.03 and/or Section 11.04;

(xv) whether the Securities of the series shall be issued in whole or in part in the form of one or more Global Securities and, in such case, the Depository for such Global Security or Global Securities;

(xvi) any additional or different events of default that apply to Securities of the series, and any change in the right of the Trustee or the Holders of such Securities to declare the principal thereof due and payable;

(xvii) if the Securities of such series are not to be guaranteed by any Subsidiary Guarantor, an express determination to that effect;

(xviii) any additional or different covenants that apply to Securities of the series;

(xix) the form of the Securities of the series; and

(xx) any other terms of the series (which terms shall not contradict the provisions of this Indenture).

(c) The definitive Securities shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the Officers executing such Securities, as evidenced by their execution of such Securities.

(d) All Securities of any one series shall be substantially identical except as to interest rates, method for determining interest rates, Interest Payment Dates, Regular Record Dates, redemption terms, Stated Maturity, denomination, date of authentication, currency, any index for determining amounts payable, and except as may otherwise be provided in or pursuant to such Board Resolution and set forth or determined as provided in such Officers' Certificate or in any indenture supplemental hereto.

(e) If any of the terms of the series are established by action taken pursuant to a Board Resolution, a copy of an appropriate record of such action shall be certified by the Secretary or an Assistant Secretary of the Company and delivered to the Trustee at or prior to the delivery of the Officers' Certificate setting forth the terms of the series. With respect to Securities of a series constituting a medium term note program, such Board Resolution may provide general terms or parameters for Securities of such series and may provide that the specific terms of particular Securities of such series, and the Persons authorized to determine such terms

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or parameters, may be determined in accordance with or pursuant to the Company Order referred to in Section 2.03.

(f) The Securities shall be subordinated in right of payment to the Company Senior Indebtedness as provided in Article 13.

(g) The Subsidiary Guarantee, if any, with respect to the Securities shall be subordinated in the right of payment to the Subsidiary Guarantor Senior Indebtedness as provided in Article 14.

Section 2.02 . Denominations. The Securities of each series shall be issuable in registered form without coupons in such denominations as shall be specified as contemplated by Section 2.01. In the absence of any such provisions with respect to the Securities of any series, the Securities of such series shall be issuable in denominations of $2,000 and integral multiples of $1,000 in excess thereof.

Section 2.03 . Execution, Authentication, Delivery and Dating. (a) The Securities shall be executed on behalf of the Company by any Officer and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these Officers on the Securities may be manual or facsimile. It shall not be necessary for the Securities of any series to be endorsed or executed by any Subsidiary Guarantor and such Securities shall nevertheless be entitled to the benefits of Article 12 hereof unless otherwise expressly determined pursuant to Section 2.01(b)(xvii).

(b)    Securities bearing the manual or facsimile signatures of individuals who were at any time the proper Officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities.

(c)    At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed on behalf of the Company pursuant to clause ý(a) above to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities, and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities; provided , that, with respect to Securities of a series constituting a medium term note program, the Trustee shall authenticate and deliver Securities of such series for original issue from time to time in the aggregate principal amount established for such series pursuant to such procedures acceptable to the Trustee and to such recipients as may be specified from time to time by a Company Order. The amount, maturity dates, original issue dates, whether the Securities are to be issued as one or more Global Securities or certificated securities, interest rates and any other terms of the Securities of such series shall be determined by or pursuant to such Company Order and procedures.

(d)    The Trustee's certificates of authentication shall be in substantially the following form:


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This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Dated:
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
 
 
Name:
 
Authorized Signatory


(e)    If the form or terms of the Securities of the series have been established in or pursuant to one or more Board Resolutions as permitted by Section 2.01, in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall receive, and (subject to Section 8.01) shall be fully protected in relying upon, an Opinion of Counsel stating,

(i) if the form of any of such Securities has been established by or pursuant to Board Resolution as permitted by Section 2.01, that such form has been established in conformity with the provisions of this Indenture;

(ii) if the terms of any of such Securities have been established by or pursuant to Board Resolution as permitted by Section 2.01, that such terms have been established in conformity with the provisions of this Indenture; and

(iii) that such Securities, when authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general equity principles.

(f)    Notwithstanding that such form or terms have been so established, the Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture would adversely affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee.

(g)    With respect to Securities of a series constituting a medium term note program, if the form and general terms of the Securities of such series have been established by or pursuant to one or more Board Resolutions or by an indenture supplemental hereto, as permitted by Section 2.01 in authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall receive, and (subject to Section 8.01) shall be fully protected in relying upon, in addition to the foregoing documents and Opinion of Counsel, or in lieu of clause ý(e) above, an Opinion of Counsel stating that the Securities have been duly authorized by the Company and, when duly executed by the Company and completed and authenticated by the Trustee in accordance with this Indenture and issued, delivered and paid for in accordance with any applicable distribution agreement, will have been duly issued under this Indenture and will constitute valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting the enforcement of creditors' rights and to general equity principles.

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(h)    Each Security shall be dated the date of its authentication.

(i)    No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. Notwithstanding the foregoing, if any Security shall have been authenticated and delivered hereunder but never issued and sold by the Company, and the Company shall deliver such Security to the Trustee for cancellation as provided in Section 2.09 together with a written statement (which need not comply with Section 1.02 and need not be accompanied by an Opinion of Counsel) stating that such Security has never been issued and sold by the Company, for all purposes of this Indenture such Security shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture.

Section 2.04 . Temporary Securities. (a) Pending the preparation of definitive Securities of any series, the Company may execute, and upon Company Order from the Company, the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, with such appropriate insertions, omissions, substitutions and other variations as the Officers executing such Securities may determine, as evidenced by their execution of such Securities.

(b)    If temporary Securities of any series are issued, the Company will cause definitive Securities of that series to be prepared without unreasonable delay. After the preparation of definitive Securities of such series, the temporary Securities of such series shall be exchangeable for definitive Securities of such series upon surrender of the temporary Securities of such series at the office or agency of the Company in a Place of Payment for that series, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities of any series, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of the same series and of like tenor, of authorized denominations. Until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series.

Section 2.05 . Registration; Registration of Transfer and Exchange. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency of the Company in a Place of Payment being herein sometimes collectively referred to as the “ Security Register ”) in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed “ Security Registrar ” for the purpose of registering Securities and transfers of Securities as herein provided.

(b)    Upon surrender for registration of transfer of any Security of any series at an office or agency of the Company in a Place of Payment designated by the Company pursuant to Section 5.02 for that series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of the same series, of any authorized denominations and of a like aggregate principal amount and tenor.

(c)    At the option of the Holder, Securities of any series may be exchanged for other Securities of the same series of any authorized denominations and of a like aggregate principal amount and tenor, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered

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for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive.

(d)    All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange.

(e)    Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing.

(f)    No service charge shall be made for any registration of transfer or for exchange of Securities, but the Company or the Trustee may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 2.04, ý2.05(h), ý3.07 or ý10.06 not involving any transfer.

(g)    Neither the Company nor the Trustee shall be required (i) to issue, register the transfer of or exchange Securities of any series during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities of that series selected for redemption under Section 3.03 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption or purchase in whole or in part, except, in the case of a partial redemption or purchase, that portion of any security not being redeemed or purchased.

(h)    Notwithstanding the foregoing, any Global Security shall be exchangeable pursuant to the applicable supplemental indenture applicable to that Security.

(i)    Notwithstanding any other provision in this Indenture, but subject to exchanges under clause ý(h) above, a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository.

Section 2.06 . Mutilated, Destroyed, Lost and Stolen Securities. (a) If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series and of like tenor and principal amount, and bearing a number not contemporaneously outstanding.

(b)    If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of any of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of the same series and of like tenor and principal amount, and bearing a number not contemporaneously outstanding.
(c)    In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.

(d)    Upon the issuance of any new Security under this Section, no service charge shall be imposed, but the Company or the Trustee may require the payment of a sum sufficient to cover any tax or other

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governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee and its counsel) connected therewith.

(e)    Every new Security of any series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that series duly issued hereunder.

(f)    The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.

Section 2.07. Payment of Interest; Interest Rights Preserved. (a) Unless otherwise provided as contemplated by Section 2.01 with respect to any series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest.

(b)    The principal of, and premium, if any, and interest due on the Securities shall be paid in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Payments of interest (including interest on any Interest Payment Date) will be made, subject to such surrender where applicable and subject, in the case of a Global Security, to the Trustee's arrangements with the Depositary, at the option of the Company, (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register or (ii) by wire transfer at such place and to such account at a banking institution in the United States of America as may be designated in writing to the Trustee at least 15 days prior to the date for payment by the Person entitled thereto.

(c)    Any interest on any Security of any series which is payable, but is not punctually paid or duly provided for, when due (herein called “ Defaulted Interest ”) shall forthwith cease to be payable to the Holder entitled to such interest by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause ý(i) or ý(ii) below:

(i)    The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date (as defined below) for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security of such series and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a special record date (the “ Special Record Date ”) for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder of Securities of such series at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed

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payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities of such series (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (ii).

(ii)    The Company may elect to make payment of any Defaulted Interest on the Securities of any series in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee.

(d)    Subject to the foregoing provisions of this Section, each Security delivered under this Indenture, upon registration of transfer of or in exchange for or in lieu of any other Security, shall carry the rights to interest accrued and unpaid, and interest to accrue, which were carried by such other Security.

Section 2.08 . Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee, including a Paying Agent, may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 2.07) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee, including a Paying Agent, shall be affected by notice to the contrary.

Section 2.09 . Cancellation. The Company shall cause all Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee (including any of the Company's agents, subsidiaries or affiliates), to be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order from the Company.

Section 2.10 . Computation of Interest. Except as otherwise specified as contemplated by Section 2.01 for Securities of any series, interest on the Securities of each series shall be computed on the basis of a 360-day year of twelve 30-day months.

Section 2.11 . CUSIP Numbers. The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee in writing of any change in the “CUSIP” numbers.


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ARTICLE 3
REDEMPTION OF SECURITIES

Section 3.01. Applicability of Article. Securities of any series which are redeemable before their Stated Maturity shall be redeemable in accordance with their terms and (except as otherwise specified as contemplated by Section 2.01 for Securities of any series) in accordance with this Article.

Section 3.02. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities of like tenor of any series, the Company shall, at least 45 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. Any such notice may be cancelled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. In the case of any redemption of Securities prior to the expiration of any restriction on such redemption provided in the terms of such Securities or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with such restriction.

Section 3.03 . Selection by Trustee of Securities to be Redeemed. (a) If less than all the Securities of like tenor of any series are to be redeemed, the particular securities to be redeemed shall be selected by the Trustee from the Outstanding Securities of like tenor of such series not previously called for redemption, by lot or any other such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to the minimum authorized denomination for Securities of that series or any integral multiple thereof) of the principal amount of such Securities of a denomination larger than the minimum authorized denomination for such Securities.

(b)    The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed.

(c)    For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed.

Section 3.04 . Notice of Redemption. (a) Unless otherwise indicated for a particular series of Securities by Board Resolution, a supplemental indenture hereto or an Officers' Certificate, notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 90 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at such Holder's address appearing in the Security Register.

Such notice of redemption shall state:
(i)    the Redemption Date,

(ii)    the Redemption Price, including the portion thereof representing any accrued interest and additional interest, if any,

(iii)    if less than all the Outstanding Securities of like tenor of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the particular Securities to be redeemed,

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(iv)    in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such Security will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed,

(v)    that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and, if applicable, that interest thereon will cease to accrue on and after such date,

(vi)    the CUSIP number and/or similar numbers of such Securities, if any (or any other numbers used by a Depository to identify such Securities),

(vii)    the place or places where such Securities are to be surrendered for payment of the Redemption Price, and

(viii)    that the redemption is for a sinking fund, if such is the case.'

(b)    Any such notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.

Section 3.05 . Deposit of Redemption Price. At least one Business Day prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, the Company shall segregate and hold in trust as provided in Section 5.03) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date.

Section 3.06. Securities Payable on Redemption Date. (a) Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and, from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with such notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 2.07.

(b)    If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate prescribed therefor in the Security.

Section 3.07 . Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at a Place of Payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing). The Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities of the same series and of like tenor, of any authorized denomination as requested by such Holder,

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in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered.

ARTICLE 4
SINKING FUNDS

Section 4.01 . Applicability of Article. (a) The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series permitted by the applicable supplemental indenture except as otherwise specified in accordance with Section 2.01 for Securities of such series.

(b)    The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a “ mandatory sinking fund payment ,” and any payment in excess of such minimum amount provided for by the terms of Securities of any series is herein referred to as an “ optional sinking fund payment .” If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 4.02. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series.

Section 4.02 . Satisfaction of Sinking Fund Payments with Securities. The Company (x) may deliver Outstanding Securities of a series (other than any previously called for redemption) and (y) may apply as a credit Securities of a series which have been redeemed either at the election of the Company pursuant to the terms of such Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, in each case in satisfaction of all or any part of any sinking fund payment with respect to the Securities of such series required to be made pursuant to the terms of such Securities as provided for by the terms of such series; provided that such Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly.

Section 4.03. Redemption of Securities for Sinking Fund. Not less than 60 days prior to each sinking fund payment date for any series of Securities, the Company will deliver to the Trustee an Officers' Certificate specifying the amount of the next ensuing sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting Securities of that series pursuant to Section 4.02 and will also deliver to the Trustee any such Securities. Not less than 30 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 3.03 and cause notice of the redemption, prepared by the Company, thereof to be given in the name of and at the expense of the Company in the manner provided in Section 3.04. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 3.06 and 3.07.

ARTICLE 5
COVANENTS

Section 5.01 . Payment of Principal, Premium and Interest. (a) The Company covenants and agrees for the benefit of each series of Securities that it will duly and punctually pay the principal of (and premium, if any) and interest on the Securities of that series in accordance with the terms of the Securities and this Indenture.


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(b)    An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date money designated for and sufficient to pay such installment and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture or otherwise.

Section 5.02 . Maintenance of Office or Agency. (a) The Company will maintain in each Place of Payment for any series of Securities an office or agency where Securities of that series may be presented or surrendered for payment, where Securities of that series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of that series and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.

(b)    The Company may also from time to time designate one or more other offices or agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided , however , that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

Section 5.03 . Money for Securities Payments to be Held in Trust. (a) If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities of that series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its failure so to act.
(b)    Whenever the Company shall have one or more Paying Agents for any series of Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities of that series, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.

(c)    The Company will cause each Paying Agent for any series of Securities other than the Trustee or the Company to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will:

(i)    hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities of that series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided;

(ii)    give the Trustee notice of any default by the Company (or any other obligor upon the Securities of that series) in the making of any payment of principal (and premium, if any) or interest on the Securities of that series; and

(iii)    at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent.

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(d)    The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order, direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent. Upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.

(e)    Any money deposited with the Trustee or any Paying Agent, or then held by the Company in trust, for the payment of the principal of (and premium, if any) or interest on any Security of any series, and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request or (if then held by the Company) shall be discharged from such trust. Thereafter the Holder of such Security shall, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease.

Section 5.04 . Corporate Existence. Subject to Article 6, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; provided , however , that the Company shall not be required to preserve any such right or franchise if the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in a material respect to the Holders.

Section 5.05 . Statement by Officers as to Default. The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate stating whether or not to the knowledge of the signers thereof the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture applicable to the Company and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.

5.06 . Future Subsidiary Guarantees. The Company shall cause each Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia that, on or after the date hereof, becomes a borrower or guarantor under the Senior Unsecured Credit Facility, to execute and deliver to the Trustee a supplemental indenture in the form of Exhibit A hereto pursuant to which such Subsidiary shall become a Subsidiary Guarantor hereunder and shall guarantee the Guaranteed Obligations in accordance with Article 12.

ARTICLE 6
CONSOLIDATION, MERGER, CONVEYANCE, TRANSER OR LEASE

Section 6.01 . Company May Consolidate, Etc., Only on Certain Terms.

(a)    So long as Securities of any series are Outstanding, the Company shall not (x) merge with or into or consolidate with another Person or (y) sell, assign, transfer, lease or convey all or substantially all of its properties and assets to, any Person other than, with respect to this clause (y), a direct or indirect wholly owned Subsidiary of the Company; and no Person shall (xx) merge with or into or consolidate with the Company or (yy) except for any direct or indirect wholly owned Subsidiary of the Company, sell, assign, transfer, lease or convey all or substantially all of its properties and assets to the Company, unless:


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(i)    the Company is the surviving corporation or the Person formed by or surviving such merger or consolidation or to which such sale, assignment, transfer, lease or conveyance shall have been made (the “Successor”), if other than the Company, is a corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia, and shall expressly assume by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company under the Securities and this Indenture;

(ii)    immediately after giving effect to such transaction, no Event of Default or event that after notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing; and

(iii)    the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such supplemental indenture required in connection with a transaction pursuant to this Section 6.01 comply with this Indenture.

For the avoidance of doubt, for purposes of this Section 6.01, a sale or other disposition of ING USA Annuity and Life Insurance Company, Security Life of Denver International Limited, their respective assets or any assets constituting all or part of the Company's Closed Block Variable Annuity segment shall be deemed not to constitute a sale or other disposition of all or substantially all of the Company's properties and assets.
Section 6.02 . Successor Substituted. Upon any consolidation by the Company with or merger by the Company into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety in accordance with this Section 6.02, the successor corporation formed by such consolidation or into which the Company is merged or the Person to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities.

ARTICLE 7
REMEDIES

Section 7.01 . Events of Default. “ Event of Default ,” wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be occasioned by the provisions of Article 13, or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):

(a)    default in the payment of any interest upon any Security of that series when it becomes due and payable, and continuance of such default for a period of 30 days; or

(b)    default in the payment of the principal of (or premium, if any, on) any Security of that series when due regardless of whether such payment has become due whether at maturity, upon redemption, because of acceleration or otherwise; provided, however, that a valid extension of the maturity of such Securities in accordance with the terms of any indenture supplemental hereto shall not constitute a default in the payment of principal or premium, if any; or


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(c)    default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with or which has expressly been included in this Indenture solely for the benefit of a series of Securities other than the series in respect of which the Event of Default is being determined), and continuance of such default or breach for a period of 90 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of that series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “ Notice of Default ” hereunder; or

(d)    an event of default, as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness for money borrowed of the Company or of any Subsidiary Guarantor, whether such Indebtedness now exists or shall hereafter be created, shall happen and shall result in a principal amount in excess of $100,000,000 of Indebtedness becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, and such acceleration shall not have been rescinded or annulled, or such Indebtedness shall not have been discharged, within a period of 15 days after there has been given, by registered or certified United States mail, to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Outstanding Securities of that series a written notice specifying such event of default and requiring the Company to cause such acceleration to be rescinded or annulled or to cause such Indebtedness to be discharged and stating that such notice is a “ Notice of Default ” hereunder; or

(e)    the entry by a court having jurisdiction in the premises of (i) a decree or order for relief in respect of the Company or any Subsidiary Guarantor that may be applicable to Securities of that series in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (ii) a decree or order adjudging the Company or any Subsidiary Guarantor that may be applicable to Securities of that series bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or Subsidiary Guarantor, if applicable, or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 90 consecutive days; or

(f)    the commencement by the Company or any Subsidiary Guarantor that may be applicable to Securities of that series of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in respect of the Company or any Subsidiary Guarantor that may be applicable to Securities of that series in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by it to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or Subsidiary Guarantor, if applicable, of that series or of any substantial part of its property, or the making by the Company or any Subsidiary Guarantor that may be applicable to Securities of that series of an assignment for the benefit of creditors, or the admission by the Company or any Subsidiary Guarantor that may be applicable to Securities of that

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series in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Subsidiary Guarantor that may be applicable to Securities of that series in furtherance of any such action; or

(g)    any other Event of Default provided with respect to Securities of that series.

Subject to the provisions of Section 8.01, the Trustee shall not be deemed to have knowledge of an Event of Default hereunder (except for those described in paragraphs (a) through (c) above) unless a Responsible Officer of the Trustee has received written notice thereof
Section 7.02 . Acceleration of Maturity; Rescission and Annulment. (a) If an Event of Default with respect to Securities of any series at the time Outstanding (other than an Event of Default specified in clause ý(e) or ý(f) of Section 7.01) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of that series may declare the principal amount (or, if any of the Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof) of all of the Securities of that series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal amount (or specified amount) shall become immediately due and payable. If an Event of Default specified in clause ý(e) or ý(f) of Section 7.01 occurs, the principal amount (or, if any of the Securities of that series are Original Issue Discount Securities, such portion of the principal amount of such Securities as may be specified in the terms thereof) of all of the Outstanding Securities of that series shall be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of that series.
(b)    At any time after such a declaration of acceleration with respect to Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities of that series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:

(i)    the Company has paid or deposited with the Trustee a sum sufficient to pay:

(A) all overdue interest on all Securities of that series,

(B) the principal of (and premium, if any, on) any Securities of that series which have become due otherwise than by such declaration of acceleration and interest thereon at the rate or rates prescribed therefor in such Securities,

(C) to the extent that payment of such interest is lawful, interest upon overdue principal (and premium, if any) and overdue interest at the rate or rates prescribed therefor in such Securities, and

(D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel;
and
(ii)    all Events of Default with respect to Securities of that series, other than the non-payment of the principal of Securities of that series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 7.13.

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(c)    No such rescission shall affect any subsequent default or impair any right consequent thereon.

(d)    Upon receipt by the Trustee of any declaration of acceleration, or rescission and annulment thereof, with respect to Securities of a series all or part of which is represented by a Global Security, the record date for determining Holders of Outstanding Securities of such series entitled to join in such declaration of acceleration, or rescission and annulment, as the case may be, shall be the day the Trustee receives such declaration of acceleration, or rescission and annulment, as the case may be, or, if such receipt occurs after the close of business or on a day that is not a Business Day, the next succeeding Business Day. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such declaration of acceleration, or rescission and annulment, as the case may be, whether or not such Holders remain Holders after such record date; provided , that unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having been obtained prior to the day which is 90 days after such record date, such declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. The Trustee may conclusively rely on any representation by the Holders delivering such declaration of acceleration, or rescission and annulment, as the case may be, that such Holders constitute the requisite percentage to deliver such declaration. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new declaration of acceleration, or rescission or annulment thereof, as the case may be, that is identical to a declaration of acceleration, or rescission or annulment thereof, which has been canceled pursuant to the provision to the preceding sentence, in which event a new record date shall be established pursuant to the provision of this Section 7.02.
Section 7.03. Collection of Indebtedness and Suits for Enforcement by Trustee . (a) The Company covenants that if:

(i)    default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days; or

(ii)    default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof; or

(iii)    default is made in the deposit of any sinking fund payment, when and as due by the terms of a Security;

the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
(b)    If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.


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(c)    If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

Section 7.04 . Trustee May File Proofs of Claim. (a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal (and premium, if any) or interest) the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise:

(i)    to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and

(ii)    to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same.

(b)    Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.07.

(c)    Nothing herein contained shall be deemed to authorize the Trustee to authorize, consent to, accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 7.05 . Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.

Section 7.06 . Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 8.07;

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SECOND: Subject to Article 13, to the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively; and
THIRD: To the Company.
Section 7.07 . Limitation on Suits. No Holder of any Security of any series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

(a)    such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that series;

(b)    the Holders of not less than 25% in principal amount of the Outstanding Securities of that series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;

(c)    such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and

(d)    the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding;

it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all of such Holders.
Section 7.08 . Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 2.07) interest on such Security when due and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.

Section 7.09 . Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.

Section 7.10 . Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.

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The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

Section 7.11 . Delay or Omission not Waiver. No delay or omission of the Trustee or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.

Section 7.12 . Control by Holders. (a) The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such series, provided that:

(i)    such direction shall not be in conflict with any rule of law or with this Indenture, nor subject the Trustee to a material risk of personal liability in respect of which the Trustee has not received reasonably satisfactory indemnification, an

(ii)    the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.

(b)    Upon receipt by the Trustee of any such direction with respect to Securities of a series all or part of which is represented by a Global Security, the record date for determining Holders of outstanding Securities of such series entitled to join in such direction shall be the day the Trustee receives such direction, or, if such receipt occurs after the close of business or on a day that is not a Business Day, the next succeeding Business Day. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such direction, whether or not such Holders remain Holders after such record date; provided, that unless such majority in principal amount shall have been obtained prior to the day which is 90 days after such record date, such direction shall automatically and without further action by any Holder be canceled and of no further effect. The Trustee may conclusively rely on any representation by the Holders delivering such direction that such Holders constitute the requisite percentage to deliver such direction. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new direction identical to a direction which has been canceled pursuant to the provisions to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 7.12.

Section 7.13 . Waiver of Past Defaults. (a) The Holders of not less than a majority in principal amount of the Outstanding Securities of any series may on behalf of the Holders of all the Securities of such series waive any past default hereunder with respect to such series and its consequences, except a default:

(i)    in the payment of the principal of (or premium, if any) or interest on any Security of such series, or

(ii)    in respect of a covenant or provision hereof which under Article 10 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected.

(b)    Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.


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Section 7.14 . Undertaking for Costs. Each party to this Indenture agrees, and each Holder of any Security by acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security on or after the Stated Maturity or Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date).

Section 7.15 . Waiver of Usury, Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

ARTICLE 8
THE TRUSTEE

Section 8.01 . Certain Duties and Responsibilities. (a) Except during the continuance of an Event of Default:

(i)    the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

(ii)    in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein).

(b)    In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use in that situation in conducting such person's own affairs.

(c)    No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

(i)    this subsection shall not be construed to limit the effect of subsection (a) of this Section;


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(ii)    the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts;

(iii)    the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction, determined as provided in Section 7.12, of the Holders of a majority in principal amount of the Outstanding Securities of any series, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture with respect to the Securities of such series; and

(iv)    no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(d)    Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.

Section 8.02 . Notice of Defaults. Within 90 days after the Trustee has gained knowledge of an occurrence of any default hereunder with respect to the Securities of any series (without regard to any grace period or notice requirements), the Trustee shall transmit by mail to all Holders of Securities of such series, as their names and addresses appear in the Security Register, notice of such default hereunder known to the Trustee, unless such default shall have been cured or waived; provided , however , that, except in the case of a default in the payment of the principal of (or premium, if any) or interest on any Security of such series or in the payment of any sinking fund installment with respect to Securities of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders of Securities of such series. For the purpose of this Section, the term “ default ” means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series.

Section 8.03.     Certain Rights of Trustee. Subject to the provisions of Section 8.01:

(a)    the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other document believed by it to be genuine and to have been signed or presented by the proper party or parties;

(b)    any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order, or as otherwise expressly provided herein, and any resolution of the Board of Directors of the Company may be sufficiently evidenced by a Board Resolution;

(c)    whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;


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(d)    the Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon;

(e)    the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture (including, without limitation, instituting, conducting or defending any litigation), unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;

(f)    the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney;

(g)    the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder;

(h)    the Trustee shall not be deemed to have notice of any default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Securities and this Indenture;

(i)    the rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder; and

(j)    the Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, provided that the Trustee reasonably believes that the last such certificate received from the Company or currently on file is no longer accurate.

Section 8.04 . Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.

Section 8.05 . May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 8.08 and 8.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent.


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Section 8.06 . Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.

Section 8.07. Compensation and Reimbursement . The Company agrees:

(a)    to pay to the Trustee from time to time such reasonable compensation for its acceptance of this Indenture and for its services hereunder as Trustee, Paying Agent, Security Registrar and in all other capacities in which it is serving hereunder as the Company and the Trustee shall from time to time agree in writing (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust);

(b)    except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation, expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, bad faith or willful misconduct; and

(c)    to indemnify the Trustee and its agents, directors, employees and officers for, and to hold them harmless against, any loss, claim, damage, liability or out-of-pocket expense (including the reasonable compensation, expenses and disbursements of its agents and counsel) incurred without negligence, bad faith or willful misconduct on its or their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the reasonable costs and out-of-pocket expenses of defending itself against any claim or liability in connection with the exercise or performance of any of the Trustee's powers or duties hereunder.

As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities upon all property and funds held or collected by the Trustee in such capacity, except funds held in trust for the payment of principal of, premium, if any, or interest, if any, on particular Securities. If the Trustee incurs expenses or renders services after the occurrence and during the continuance of an Event of Default, the expenses and the compensation for the services will be intended to constitute expenses of administration under Title 11 of the United States Bankruptcy Code or any applicable Federal or State law for the relief of debtors. The provisions of this Section 8.07 shall survive the resignation or removal of the Trustee and the termination of this Indenture.
Section 8.08 . Disqualification; Conflicting Interests. The Trustee shall comply with the terms of section 310(b) of the Trust Indenture Act.

Section 8.09 . Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by Federal or State authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.


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Section 8.10 . Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11.

(b)    The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 8.11 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(c)    The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and to the Company.
(d)    If at any time:

(i)    the Trustee shall fail to comply with Section 8.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or

(ii)    the Trustee shall cease to be eligible under Section 8.09 and shall fail to resign after written request therefor by the Company or any such Holder, or

(iii)    the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case, (i) the Company by a Board Resolution may remove the Trustee with respect to all Securities, or (ii) subject to Section 7.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities and the appointment of a successor Trustee or Trustees.
(e)    If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of that or those series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 8.11. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 8.11, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders and accepted appointment in the manner required by Section 8.11, any Holder who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated,

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petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series.

(f)    The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first-class mail, postage prepaid, to all Holders of Securities of such series as their names and addresses appear in the Security Register. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office.

Section 8.11 . Acceptance of Appointment by Successor.

(a)    In case of the appointment hereunder of a successor Trustee with respect to all Securities, every such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee. On the request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder.

(b)    In case of the appointment hereunder of a successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and each successor Trustee with respect to the Securities of one or more series shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (i) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (ii) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (iii) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust and that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee. Upon the execution and delivery of such supplemental indenture, the resignation or removal of the retiring Trustee shall become effective to the extent provided therein and each such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates. On request of the Company or any successor Trustee, such retiring Trustee shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates.

(c)    Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in clause ý(a) and ý(b) of this Section, as the case may be.


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(d)    No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.

Section 8.12 . Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided such corporation shall be otherwise qualified and eligible under this Article. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities.

Section 8.13 . Preferential Collection of Claims. The Trustee shall comply with section 311(a) of the Trust Indenture Act, excluding any creditor relationship listed in section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to section 311(a) of the Trust Indenture Act to the extent indicated therein.

Section 8.14 . Appointment of Authenticating Agent. (a) At any time when any of the Securities remain Outstanding, the Trustee may and, upon request of the Company, shall appoint an Authenticating Agent or Agents with respect to one or more series of Securities, which shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, registration of transfer or partial redemption thereof or pursuant to Section 2.06; provided that the Trustee's appointment of such Authenticating Agent shall be subject to the Company's approval at the time of and throughout such appointment. Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually pursuant to law or to the requirements of such supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section.

(b)    Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent, provided such corporation shall be otherwise eligible under this Section.

(c)    An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving

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written notice thereof to such Authenticating Agent and the Company, and the Trustee shall terminate any such agency promptly upon request by the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may and, upon request of the Company, shall appoint a successor Authenticating Agent, provided that the Trustee's appointment of such Authentication Agent shall be subject to the Company's approval at the time of and throughout such appointment, and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Securities of the series with respect to which such Authenticating Agent will serve, as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section.
(d)    The Company agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section.

(e)    If an appointment of an Authenticating Agent with respect to one or more series is made pursuant to this Section, the Securities of such series may have endorsed thereon, in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in the following form:

This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture.
Dated:
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
 
 
As Authenticating Agent
By:
 
 
Authorized Signatory

Section 8.15 . Consequential Damages. In no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.

Section 8.16 . Notices. The Trustee agrees to accept and act upon instructions or directions pursuant to this Indenture sent by unsecured e-mail, pdf, facsimile transmission or other similar unsecured electronic methods, provided , however , that the Trustee shall have received or have on file an incumbency certificate listing persons designated to give such instructions or directions and containing specimen signatures of such designated persons, which such incumbency certificate shall be amended and replaced whenever a person is to be added or deleted from the listing. If the Company elects to give the Trustee e-mail or facsimile instructions (or instructions by a similar electronic method) and the Trustee in its discretion elects to act upon such instructions, the Trustee's understanding of such instructions shall be deemed controlling. The Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the Trustee's reliance upon and compliance with such instructions notwithstanding such instructions conflict or are inconsistent with a subsequent written instruction. The Company agrees to assume all risks arising out of the use of such electronic

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methods by the Company to submit instructions and directions to the Trustee, including without limitation the risk of the Trustee acting on unauthorized instructions, and the risk or interception and misuse by third parties.

sECTION 8.17 . Force Majeure. In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services; it being understood that the Trustee shall use reasonable efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.

ARTICLE 9
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

Section 9.01 . Company to Furnish Trustee Names and Addresses of Holders. If the Trustee is not the Security Registrar, the Company will furnish or cause to be furnished to the Trustee:

(a)    semi-annually (at intervals of not more than six months), not later than 15 days after each Regular Record Date (or, if there is no Regular Record Date relating to a series, semiannually on dates set forth in the Board Resolution or supplemental indenture with respect to such series), a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such date, and

(b)    at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished.

Section 9.02 . Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 9.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 9.01 upon receipt of a new list so furnished.

(b)    Holders of any series may communicate pursuant to section 312(b) of the Trust Indenture Act with other Holders of that series or any other series with respect to their rights under this Indenture or the Securities of that series or any other series. The Company, the Trustee, the Registrar and any other Person shall have the protection of section 312(c) of the Trust Indenture Act.

Section 9.03 . Reports by Trustee. (a) Within 60 days after May 15 of each year, commencing the May 15 following the date of this Indenture, the Trustee shall, to the extent that any of the events described in section 313(a) of the Trust Indenture Act occurred within the previous 12 months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with section 313(a) of the Trust Indenture Act. The Trustee also shall comply with sections 313(a), 313(b), 313(c) and 313(d) of the Trust Indenture Act.

(a)    A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the Commission and each securities exchange, if any, on which the Securities of that series are listed.

(b)    The Company shall notify the Trustee if the Securities of any series become listed on any securities exchange or of any delisting thereof and the Trustee shall comply with section 313(d) of the Trust Indenture Act.

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Section 9.04. Reports by Company . (a) The Company shall file with the Trustee and make available to Holders (without exhibits), without cost to any Holder, all documents the Company files with, or furnishes to, the Commission under the Exchange Act, within 15 days after it files them with, or furnishes such documents to the Commission. Any such documents that are publicly available through the EDGAR system of the Commission (or any successor system) shall be deemed to have been filed with the Trustee and made available to Holders in accordance with the Company's obligations hereunder, provided, however, that the Trustee shall have no obligation whatsoever to determine whether or not such documents have been filed with the Commission or have been made publicly available.

(b)    If at any time that the Company is not subject to Section 13 or Section 15(d) of the Exchange Act, the Company shall, so long as any of the Securities of any series, at such time, constitute “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, promptly furnish to the Trustee and, upon written request, any Holder, beneficial owner or prospective purchaser of such Securities, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to facilitate the resale of such Securities pursuant to Rule 144A. The Company shall take such further action as any Holder or beneficial owner of such Securities may reasonably request to the extent from time to time required to enable such Holder or beneficial owner to sell such Securities in accordance with Rule 144A, as such rule may be amended from time to time.

(c)    The Company shall furnish annually to the Trustee statements as to the Company's compliance with all conditions and covenants under this Indenture.

(d)    Delivery of any information, documents and reports to the Trustee pursuant to clauses ý(a), and ý(b) of this Section 9.04 is for informational purposes only and the Trustee's receipt of such items shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).

ARTICLE 10
SUPPLEMENTAL INDENTURES

Section 10.01 . Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee (at the direction of the Company) at any time and from time to time, may enter into one or more indentures supplemental hereto, in form reasonably satisfactory to the Trustee, for any of the following purposes:

(a)    to cure any ambiguity, defect, or inconsistency herein or in the Securities of any series;

(b)    to comply with Section 5.06 or Article 6;

(c)    to provide for uncertificated Securities in addition to or in place of certificated Securities;

(d)    to add to the covenants of the Company for the benefit of the holders of all or any series of Securities (and if such covenants are to be for the benefit of less than all series of Securities, stating that such covenants are expressly being included solely for the benefit of such series) or to surrender any right or power herein conferred upon the Company;


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(e)    to add to, delete from, or revise the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Securities, as herein set forth;

(f)    to make any change that does not adversely affect the rights of any Holder of any Securities in any material respect, provided that any change made solely to conform the provisions of this Indenture to the description of any Securities in an offering document or prospectus supplement relating to such Security will be deemed not to adversely affect any Security of any series in any material respect;
(g)    to provide for the issuance of and establish the form and terms and conditions of the Securities of any series as provided in Section 2.01, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or any series of Securities, or to add to the rights of the holders of any series of Securities;

(h)    to add any additional Events of Default for the benefit of the holders of all or any series of Securities (and if such additional Events of Default are to be for the benefit of less than all series of Securities, stating that such additional Events of Default are expressly being included solely for the benefit of such series);

(i)    to add to or change any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the issuance of Securities in uncertificated form;

(j)    to add to, change or eliminate any of the provisions of this Indenture in respect of one or more series of Securities, provided that any such addition, change or elimination (i) shall neither (A) apply to any Security of any series created prior to the execution of such supplemental indenture and entitled to the benefit of such provision nor (B) modify the rights of the holder of any such Security with respect to such provision or (ii) shall become effective only when there is no such Security Outstanding;

(k)    to secure the Securities; or

(l)    to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 8.11(b).

Section 10.2 . Supplemental Indentures with Consent of Holders. (a) With the consent of the Holders of not less than a majority in aggregate principal amount of the Securities of each series affected by such supplemental indenture or indentures at the time Outstanding, the Company, when authorized by Board Resolutions, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner not covered by Section 10.01 the rights of the Holders of the Securities of such series under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holders of each Security then Outstanding and affected thereby,

(i)    extend the fixed maturity of any Securities of any series, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof;

(ii)    change the place of payment for any Security;


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(iii)    change the currency in which any Security or any premium or interest is payable;

(iv)    impair the right to enforce any payment on or with respect to any Security;

(v)    adversely change the right to convert or exchange, including decreasing the conversion rate or the conversion price of, such Security (if applicable);
(vi)    reduce the percentage in principal amount of outstanding Securities of any series, the consent of whose Holders is required for modification or amendment of this Indenture or for waiver of compliance with certain provisions of this Indenture or for waiver of certain defaults;

(vii)    reduce the requirements contained in this Indenture for quorum or voting;

(viii)    modify any guarantee in a manner that would adversely affect the Holders of any Security; or

(ix)    modify any of the above provisions.
 
(b)    A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which has expressly been included solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series.

(c)    It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.

(d)    The Company may set a record date for purposes of determining the identity of Holders of Securities entitled to consent pursuant to this Section. Such record date shall be the later of (i) 30 days prior to the first solicitation of such consent or (ii) the date of the most recent list of Holders furnished to the Trustee pursuant to Section 9.01 prior to such solicitation.

Section 10.03 . Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 8.01) shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and complies with the provisions hereof (including Section 10.05). The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties, or immunities or liabilities under this Indenture or otherwise.

Section 10.04 . Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes. Every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.

Section 10.05 . Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act, as then in effect, to the extent that a supplemental indenture is required to conform to the Trust Indenture Act, as then in effect.


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Section 10.06 . Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company, and such Securities may be authenticated and delivered by the Trustee, in exchange for Outstanding Securities of such series.

ARTICLE 11
SATISFACTION AND DISCHARGE; DEFEASANCE

Section 11.01 . Satisfaction and Discharge of Indenture. (a) This Indenture shall upon Company Request cease to be of further effect with respect to Securities of any series (except as to any surviving rights of registration of transfer or exchange of Securities of such series and replacement of lost, stolen or mutilated Securities of such series herein expressly provided for), and the Trustee, on the demand of and at the expense of the Company, shall execute instruments acknowledging satisfaction and discharge of this Indenture with respect to such series, when:

(i)    Either:

(A)    all Securities of such series theretofore authenticated and delivered have been delivered to the Trustee for cancellation (other than (1) Securities of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 2.06 and (2) Securities of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 5.03); or

(B)    all such Securities of such series not theretofore delivered to the Trustee for cancellation:

(1)    have become due and payable, or

(2)    will become due and payable at their Stated Maturity within one year, or

(3)    are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption,

and the Company, in the case of clauses ý(1), ý(2) or ý(3) above, has deposited or caused to be deposited with the Trustee cash or, in the case of Securities of a series payable only in U.S. dollars, U.S. Government Obligations (as defined in ýSection 11.05) as trust funds in trust for the purpose an amount sufficient, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge the entire indebtedness on such Securities of such series not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities of such series which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; and
(ii)    the Company has paid or caused to be paid all other sums payable hereunder by the Company; and


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(iii)    the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for the satisfaction and discharge of this Indenture have been complied with.

(b)    At any time when no Securities of any series are outstanding, this Indenture shall upon Company Request cease to be of further effect and the Trustee, at the expense of the Company, shall execute instruments of satisfaction and discharge of this Indenture.

(c)    Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 8.07 and, if money shall have been deposited with the Trustee pursuant to Section 11.01(a)(i)(B), the obligations of the Trustee under Section 11.06 and Section 5.03(e) shall survive.

Section 11.02 . Company's Option to Effect Defeasance or Covenant Defeasance. Unless pursuant to Section 2.01 provision is made for either or both of (a) defeasance of the Securities of a series under Section 11.03 not to be applicable with respect to the Securities of such series or (b) covenant defeasance of the Securities of a series under Section 11.04 not to be applicable with respect to the Securities of such series, then the provisions of such Sections, together with the other provisions of Sections 11.03, 11.04, 11.05 and 11.06, shall be applicable to the Securities of such series, and the Company may at its option by or pursuant to a Board Resolution, at any time, with respect to the Securities of such series, elect to have either Section ý11.03 or Section ý11.04 be applied to the Outstanding Securities of such series upon compliance with the conditions set forth below in Sections 11.03, 11.04, 11.05 and 11.06.

Section 11.02 . Defeasance and Discharge. Upon the Company's exercise of the option set forth in Section ý11.02 and satisfaction of the conditions to defeasance set forth in Section ý11.05, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities of such series, and the provisions of Article 13 shall cease to be effective, on the 91 st day following the date the conditions set forth below are satisfied, unless prior to such 91 st day an event of default described in Section 7.01(e) or ý(f) shall have occurred (hereinafter, “ defeasance ”). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities of such series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of Outstanding Securities of such series to receive, solely from the trust fund described in Section ý11.05 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (b) the Company's obligations with respect to such Securities under Sections 2.04, 2.05, 2.06, 5.02 and 5.03, (c) the rights, powers, trusts, duties, and immunities of the Trustee under Sections 2.05, 2.06, 2.07, 2.08, 2.09, 5.03(e), 8.07 and 11.06 and otherwise the duty of the Trustee to authenticate Securities of such series issued on registration of transfer or exchange and (d) Sections 11.03, 11.04, 11.05 and 11.06. Subject to compliance with Sections 11.03, 11.04, 11.05 and 11.06, the Company may exercise its option under this Section 11.03 notwithstanding the prior exercise of its option under Section 11.04 with respect to the Securities of such series.

Section 11.04 . Covenant Defeasance. Upon the Company's exercise of the option set forth in Section 11.02 and satisfaction of the conditions to defeasance set forth in Section 11.05, the Company shall be released from its obligations under Sections 5.04, 5.05, 6.01 and 9.04 and any other covenants to be applicable to the Securities of a series as specified pursuant to Section 2.01 unless specified otherwise pursuant to such Section (and the failure to comply with any such provisions shall not constitute a default or Event of Default under Section 7.01), and the occurrence of any event described in Sections 7.01(c), (d) and (g) and any other events of default to be applicable to the Securities of a series as specified pursuant to Section 2.01 unless specified

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otherwise pursuant to such Section shall not constitute a default or Event of Default hereunder, with respect to the Outstanding Securities of such series on and after the date the conditions set forth below are satisfied (hereinafter, “ covenant defeasance ”). For this purpose, such covenant defeasance means that, with respect to the Outstanding Securities of such series, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section with respect to it, whether directly or indirectly by reason of any reference elsewhere herein to any such Section or by reason of any reference in any such Section to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby.

Section 11.05 . Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 11.03 or Section 11.04 to the Outstanding Securities of such series:

(a)    the Company shall irrevocably have deposited or caused to be irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 8.09 who shall agree to comply with the provisions of this Article 11 applicable to it) as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of such Securities,

(i)    cash in an amount, or
 
(ii)    U.S. Government Obligations maturing as to principal and interest at such times and in such amounts as will insure the availability of cash, or

(iii)    a combination thereof,
sufficient, without reinvestment, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (A) the principal of (and premium, if any) on and each installment of principal of and premium (if any) and interest on the Outstanding Securities of such series on the Stated Maturity or Redemption Date , as the case may be, of such principal or installment of principal or interest and (B) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Securities of such series on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities. For this purpose, “ U.S. Government Obligations ” means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt;
(b)    such deposit and such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound;


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(c)    in the case of an election under Section 11.03, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the issue date of the Securities of such series, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amount, in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred;

(d)    no Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to the Securities of such series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91 st day after such date (other than an Event of Default resulting from borrowing of funds to be applied to such deposit and the grant of any lien securing such borrowing);

(e)    such defeasance or covenant defeasance shall not (x) cause the Trustee for the Securities of such series to have a conflicting interest for purposes of the Trust Indenture Act with respect to any securities of the Company or (y) result in the trust arising from such deposit to constitute, unless it is qualified as, a regulated investment company under the Investment Company Act of 1940, as amended;

(f)    such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any registered national securities exchange under the Exchange Act to be delisted;

(g)    in the case of an election under Section 11.04, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Outstanding Securities of such series will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred;

(h)    no event or condition shall exist that, pursuant to the provisions of Article 13, would prevent the Company from making payments of the principal of (and any premium) or interest on the Securities of such series on the date of such deposit;

(i)    such defeasance or covenant defeasance shall be effected in compliance with any additional terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 2.01; and

(j)    the Company shall have delivered to the Trustee an Opinion of Counsel substantially to the effect that (i) the trust funds deposited pursuant to this Section will not be subject to any rights of holders of Company Senior Indebtedness, including those arising under Article 13, and (ii) after the 90th day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally, except that if a court were to rule under any such law in any case or proceeding that the trust funds remained property of the Company, no opinion is given as to the effect of such laws on the trust funds except the following: (A) assuming such trust funds remained in the possession of the trustee with whom such funds were deposited prior to such court ruling to the extent not paid to Holders of such Securities, such trustee would hold, for the benefit of such Holders, a valid and perfected security interest in such trust funds that is not avoidable in bankruptcy or otherwise, (B) such Holders would be entitled to receive adequate protection of their interests in such trust funds if such trust funds were used and (C) no property, rights in property or other interests granted to such trustee for the Trustee or such

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Holders in exchange for or with respect to any such funds would be subject to any prior rights of holders of Company Senior Indebtedness, including those arising under Article 13.

(k)    the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to either the defeasance under Section 11.03 or the covenant defeasance under Section 11.04, as the case may be, have been complied with and that such defeasance or covenant defeasance shall not cause any Securities of such series then listed on any registered national securities exchange under the Exchange Act to be delisted.

Section 11.06 . Deposited Cash and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of Section 5.03(e), all money deposited with the Trustee (or other qualifying trustee, collectively, for purposes of this Section 11.06, the “ Trustee ”), all cash and U.S. Government Obligations deposited with the Trustee and all cash received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee, pursuant to Section 11.01 or 11.05, in respect of the Outstanding Securities of such series shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such cash need not be segregated from other funds except to the extent required by law. Cash and U.S. Government Obligations so held in trust under this Article 11 shall not be subject to the provisions of Article 13, provided the applicable conditions Section 11.05 have been satisfied.

(a)    The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 11.05 or the principal and interest received in respect thereof, other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities of such series.

(b)    Anything in this Article 11 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any cash or U.S. Government Obligations held by it as provided in Section 11.05 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance and pay any obligations owed or accrued in favor of the Trustee.

ARTICLE 12
SUBSIDIARY GUARANTEE

Section 12.01 . Applicability of Article. Except as otherwise provided or contemplated by the terms of any series of Securities pursuant to Section 2.01(b)(xvii) and provided that such series of Securities include a notation to the effect described in Section 2.01(b)(xvii) expressly set forth in such Securities, all Securities of all series shall be entitled to the benefit of this Article 12.

Section 12.02 . Subsidiary Guarantee.

(a)    Each Subsidiary Guarantor hereby fully, irrevocably and unconditionally guarantees, jointly and severally, to each Holder and to the Trustee and its successors and assigns (i) the full and punctual payment of principal of and interest (and premium, if any) on the Securities when due, whether at maturity, by acceleration, by redemption or otherwise, and (ii) the full and punctual performance within applicable grace periods of all other obligations of the Company under this Indenture and the Securities (the Indenture and the

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Securities being hereinafter collectively called the “ Guaranteed Obligations ”). Each Subsidiary Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from such Subsidiary Guarantor, and that such Subsidiary Guarantor will remain bound under this Article notwithstanding any extension or renewal of any Guaranteed Obligation.

(b)    Each Subsidiary Guarantor waives presentation to, demand of, payment from and protest to the Company of any of the Guaranteed Obligations and also waives notice of protest for nonpayment. Each Subsidiary Guarantor waives notice of any default under the Securities or the Guaranteed Obligations. The obligations of each Subsidiary Guarantor hereunder shall not be affected by (i) the failure of any Holder or the Trustee to assert any claim or demand or to enforce any right or remedy against the Company or any other Person (including the Subsidiary Guarantors) under this Indenture, the Securities or any other agreement or otherwise; (ii) any extension or renewal of any thereof; (iii) any rescission, waiver, amendment or modification of any of the terms or provisions of this Indenture or the Securities; (iv) the failure of any Holder or the Trustee to exercise any right or remedy against any other guarantor of the Guaranteed Obligations; or (v) except as set forth in 12.09, any change in the ownership of such Subsidiary Guarantor.

(c)    Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein constitutes a guarantee of payment, performance and compliance when due (and not a guarantee of collection) and waives any right to require that any resort be had by any Holder or the Trustee to any security held for payment of the Guaranteed Obligations.

(d)    Except as expressly set forth in Section 12.08, Section 12.09, Section 11.03 and Section 11.04 of this Indenture, the obligations of each Subsidiary Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense of setoff, counterclaim, recoupment or termination whatsoever or by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of each Subsidiary Guarantor herein shall not be discharged or impaired or otherwise affected by the failure of any Holder or the Trustee to assert any claim or demand or to enforce any remedy under this Indenture or the Securities, by any waiver or modification of any thereof, by any default, failure or delay, willful or otherwise, in the performance of the obligations, or by any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of such Subsidiary Guarantor or would otherwise operate as a discharge of such Subsidiary Guarantor as a matter of law or equity.

(e)    Each Subsidiary Guarantor further agrees that its Subsidiary Guarantee herein shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Holder or the Trustee upon the bankruptcy or reorganization of the Company or otherwise.

(f)    In furtherance of the foregoing and not in limitation of any other right which any Holder or the Trustee has at law or in equity against any Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay the principal of or interest (and premium, if any) on any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, by redemption, by repurchase or otherwise, or to perform or comply with any other Guaranteed Obligation, each Subsidiary Guarantor hereby promises to and will, upon receipt of written demand by the Trustee or the Holders pursuant to this Indenture, forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of (i) the unpaid amount of such Guaranteed Obligations, (ii) accrued and unpaid interest on such Guaranteed Obligations (but only to the extent not prohibited by law) and (iii) all other monetary Guaranteed Obligations of the Company to the Holders and the Trustee.

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(g)    Each Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in respect of any Guaranteed Obligations guaranteed hereby until payment in full in cash of all Guaranteed Obligations. Each Subsidiary Guarantor further agrees that, as between it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the Guaranteed Obligations guaranteed hereby may be accelerated as provided in Article 7 for the purposes of such Subsidiary Guarantor's Subsidiary Guarantee herein, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Guaranteed Obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such Guaranteed Obligations as provided in Article 7, such Guaranteed Obligations (whether or not due and payable) shall forthwith become due and payable by such Subsidiary Guarantor for the purposes of this Section. Each Subsidiary Guarantor agrees that any right of indemnity, subrogation or contribution it may have under applicable law or otherwise shall be fully subordinated to the indefeasible payment in full in cash of the Guaranteed Obligations.

(h)    Each Subsidiary Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights under this Article.

(i)    It shall not be necessary for the guarantee of any Subsidiary Guarantor to be endorsed upon any Security.

Section 12.03 . Contribution. Each Subsidiary Guarantor (a “ Contributing Party ”) agrees that, in the event a payment shall be made by any other Subsidiary Guarantor under any Subsidiary Guarantee (the “ Claiming Guarantor ”), the Contributing Party shall indemnify the Claiming Guarantor in an amount equal to the amount of such payment multiplied by a fraction, the numerator of which shall be the net worth of the Contributing Party on the date of such payment and the denominator of which shall be the aggregate net worth of all the Subsidiary Guarantors on the date of such payment.

Section 12.04 . Successors And Assigns. This Article 12 shall be binding upon each Subsidiary Guarantor and its successors and assigns and shall inure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Securities shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture.

Section 12.05 . No Waiver. Neither a failure nor a delay on the part of either the Trustee or the Holders in exercising any right, power or privilege under this Article 12 shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. The rights, remedies and benefits of the Trustee and the Holders herein expressly specified are cumulative and not exclusive of any other rights, remedies or benefits which either may have under this Article 12 at law, in equity, by statute or otherwise.

Section 12.06 . Modification.

(a)    No modification, amendment or waiver of any provision of this Article, nor the consent to any departure by any Subsidiary Guarantor therefrom, shall in any event be effective (i) unless the same shall be in writing and signed by the Trustee and (ii) with respect to the Holder of a Security adversely affected thereby, unless such Holder consents thereto, and, in each case, then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.


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(b)    No notice to or demand on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor to any other or further notice or demand in the same, similar or other circumstances.

Section 12.07 . Execution of Supplemental Indenture for Future Subsidiary Guarantors. Each Subsidiary which is required to become a Subsidiary Guarantor pursuant to Section 5.06 shall promptly execute and deliver to the Trustee a supplemental indenture in the form of Exhibit A hereto pursuant to which such Subsidiary shall become a Subsidiary Guarantor under this Article 12 and shall guarantee the Guaranteed Obligations. Concurrently with the execution and delivery of such supplemental indenture and Subsidiary Guarantee, the Company shall deliver to the Trustee an Officers' Certificate and an Opinion of Counsel to the effect that (a) such supplemental indenture and Subsidiary Guarantee have been duly authorized, executed and delivered by such Subsidiary and (b) such supplemental indenture is authorized and permitted by this Indenture and all conditions precedent herein provided for relating to such transaction have been complied with.

Section 12.08 . Limitation on Liability. Any term or provision of this Indenture to the contrary notwithstanding, the maximum aggregate amount of the Guaranteed Obligations guaranteed hereunder by any Subsidiary Guarantor shall not exceed the maximum amount that can be hereby guaranteed without rendering this Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

Section 12.09 . Release of Subsidiary Guarantor.

(a)    Except with respect to Lion Holdings, the Subsidiary Guarantee by a Subsidiary Guarantor pursuant to this Article 12 shall terminate without any further action required on the part of the Trustee or any Holder if such Subsidiary Guarantor is permanently released from its guarantee of the Company's Indebtedness under the Senior Unsecured Credit Facility.

(b)    In each case contemplated in paragraph ý(a), if the Company shall provide an Officers' Certificate to the Trustee to the effect that the release of a Subsidiary Guarantor complies with paragraph ý(a), the Trustee shall execute and deliver an appropriate instrument evidencing such release.

(c)    For the avoidance of doubt, the Subsidiary Guarantee by Lion Holdings pursuant to this Article 12 shall continue whether or not Lion Holdings is released from its guarantee of the Company's Indebtedness under the Senior Unsecured Credit Facility.

Section 12.10. Notice to Nationally Recognized Statistical Rating Organizations. Within two Business Days following (i) any modification, amendment or waiver of this Article affecting the obligations of a Subsidiary Guarantor or (ii) any event pursuant to which the obligations of a Subsidiary Guarantor under this Article shall be assumed or become binding (including by operation of law) upon any successor or assign of a Subsidiary Guarantor, the Company shall provide written notice of such modification, amendment, waiver or event to all nationally recognized statistical rating organizations with a then publicly announced and current credit rating on any series of Securities to which this Article applies.

ARTICLE 13
SUBORDINATION OF SECURITIES

Section 13.01 . Securities Subordinate to Company Senior Indebtedness.

(a)    The Company covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject

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to Article 11), the payment of the principal of (and premium, if any) and interest on each and all of the Securities are hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash of all Company Senior Indebtedness.

(b)    This Article 13 shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Company Senior Indebtedness, and such provisions are made for the benefit of the holders of Company Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Holders of Company Senior Indebtedness need not prove reliance on the subordination provisions hereof.

Section13.02 . Payment Over of Proceeds Upon Dissolution, Etc.

(a)    Upon any payment or distribution of assets of the Company to creditors upon (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Company or to its assets, or (ii) any liquidation, dissolution or other winding up of the Company, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Company, then and in any such event specified in (i), (ii) or (iii) above (each such event, if any, herein sometimes referred to as a “ Proceeding ”);

(i)    the holders of Company Senior Indebtedness shall be entitled to receive payment in full in cash of all amounts due on or to become due on or in respect of all Company Senior Indebtedness, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character whether in cash, property or securities (including any payment or distribution which may be payable or deliverable to Holders of the Securities made in respect of any other indebtedness of the Company subordinated to the payment of the Securities, such payment or distribution being hereinafter referred to as a “ Junior Subordinated Payment ”), on account of the principal of or interest on the Securities or on account of any purchase, redemption or other acquisition of Securities by the Company, any Subsidiary of the Company, the Trustee or any Paying Agent (all such payments, distributions, purchases, redemptions and acquisitions, whether or not in connection with a Proceeding, herein referred to, individually and collectively, as a “ Securities Payment ”); and

(ii)    any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders of the Securities or the Trustee would be entitled but for the provisions of this Article 13 (including, without limitation, any Junior Subordinated Payment) shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Company Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Company Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Company Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Company Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment to the holders of such Company Senior Indebtedness.

(b)    In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received in connection with any Proceeding any Securities Payment before all Company Senior Indebtedness is paid in full or payment thereof provided for in cash, then and in such event such Securities Payment shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver,

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liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Company for application to the payment of all Company Senior Indebtedness remaining unpaid, to the extent necessary to pay all Company Senior Indebtedness in full in cash after giving effect to any concurrent payment to or for the holders of Company Senior Indebtedness.

(c)    For purposes of this Article only, the words “any payment or distribution of any kind or character, whether in cash, property or securities” shall not be deemed to include a payment or distribution of stock or securities of the Company provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Company Senior Indebtedness to substantially the same extent, or to a greater extent than, the Securities are so subordinated as provided in this Article. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person upon the terms and conditions set forth in Article 6 shall not be deemed a Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Company is merged or the Person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions set forth in Article 6.

Section 13.03 . No Payment When Company Senior Indebtedness in Default .

(a)    In the event that any Senior Payment Default shall have occurred, then no Securities Payment shall be made, nor shall any property of the Company or any Subsidiary of the Company be applied to the purchase, acquisition, retirement or redemption of the Securities, unless and until such Senior Payment Default shall have been cured or waived in writing or shall have ceased to exist or all amounts then due and payable in respect of such Company Senior Indebtedness (including amounts that have become and remain due by acceleration) shall have been paid in full in cash. “ Senior Payment Default ” means any default in the payment of principal of (or premium, if any) or interest on any Company Senior Indebtedness when due, whether at the stated maturity of any such payment or by declaration of acceleration of maturity, call for redemption, mandatory payment or prepayment or otherwise.

(b)    In the event that any Senior Nonmonetary Default shall have occurred and be continuing, then, upon the receipt by the Company and the Trustee of written notice of such Senior Nonmonetary Default from the holder of such Company Senior Indebtedness (or the agent, trustee or representative thereof), no Securities Payment shall be made, nor shall any property of the Company or any Subsidiary of the Company be applied to the purchase, acquisition, retirement or redemption of the Securities, during the period (the “ Payment Blockage Period ”) commencing on the date of such receipt of such written notice and ending (subject to any blockage of payments that may then or thereafter be in effect as the result of any Senior Payment Default) on the earlier of (i) the date on which the Company Senior Indebtedness to which such Senior Nonmonetary Default relates is discharged or such Senior Nonmonetary Default shall have been cured or waived in writing or shall have ceased to exist and any acceleration of Company Senior Indebtedness to which such Senior Nonmonetary Default relates shall have been rescinded or annulled or (ii) the 179th day after the date of such receipt of such written notice. No more than one Payment Blockage Period may be commenced with respect to the Securities during any period of 360 consecutive days and there shall be a period of at least 181 consecutive days in each period of 360 consecutive days when no Payment Blockage Period is in effect. Following the commencement of any Payment Blockage Period, the holders of any Company Senior Indebtedness will be precluded from commencing a subsequent Payment Blockage Period until the conditions set forth in the preceding sentence are satisfied. For all purposes of this paragraph, no Senior Nonmonetary Default that existed

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or was continuing on the date of commencement of any Payment Blockage Period with respect to the Company Senior Indebtedness initiating such Payment Blockage Period shall be, or be made, the basis for the commencement of a subsequent Payment Blockage Period by holders of Company Senior Indebtedness or their representatives unless such Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. “ Senior Nonmonetary Default ” means the occurrence or existence and continuance of any default (other than a Senior Payment Default) or any event which, after notice or lapse of time (or both), would become an event of default (other than a Senior Payment Default), under the terms of any instrument or agreement pursuant to which any Company Senior Indebtedness is outstanding, permitting (after notice or lapse of time or both) one or more holders of such Company Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare such Company Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable.

(c)    In the event that, notwithstanding the foregoing, the Company shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Company.

(d)    The provisions of this Section shall not apply to any Securities Payment with respect to which Section 13.02 hereof would be applicable.

Section 13.04 . Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent the Company, at any time except during the pendency of any Proceeding referred to in Section 13.02 hereof or under the conditions described in Section 13.03 hereof, from making Securities Payments.

Section 13.05 . Subrogation to Rights of Holders of Company Senior Indebtedness. Subject to the payment in full in cash of all Company Senior Indebtedness, the Holders of the Securities shall be subrogated (equally and ratably with the holders of all indebtedness of the Company which by its express terms is subordinated to Company Senior Indebtedness to substantially the same extent as the Securities are subordinated and is entitled to like rights of subrogation) to the rights of the holders of such Company Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Company Senior Indebtedness until the principal of and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Company Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Company Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Company, its creditors other than holders of Company Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Company to or on account of the Company Senior Indebtedness.

Section 13.06 . Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Company Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Company, its creditors other than holders of Company Senior Indebtedness and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Company Senior Indebtedness, is intended to rank equally with all other general obligations of the Company), to pay to the Holders of the Securities the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders of the Securities and creditors of the Company other than the holders of Company Senior

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Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Company Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder.

Section 13.07 . Trustee to Effectuate Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Company whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Company owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file a proper claim at least 30 days before the expiration of the time to file such claim, then the holders of the Company Senior Indebtedness and their agents, trustees or other representatives are authorized to do so (but shall in no event be liable for any failure to do so) for and on behalf of the Holders of the Securities.

Section 13.08 . No Waiver of Subordination Provisions.

(a)    No right of any present or future holder of any Company Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with.

(b)    Without in any way limiting the generality of the foregoing paragraph, the holders of Company Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Company Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Company Senior Indebtedness, or otherwise amend or supplement in any manner Company Senior Indebtedness or any instrument evidencing the same or any agreement under which Company Senior Indebtedness is outstanding; (ii) permit the Company to borrow, repay and then reborrow any or all of the Company Senior Indebtedness; (iii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Company Senior Indebtedness; (iv) release any Person liable in any manner for the collection of Company Senior Indebtedness; (v) exercise or refrain from exercising any rights against the Company and any other Person; and (vi) apply any sums received by them to Company Senior Indebtedness.

Section13.09 . Notice to Trustee.

(a)    The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Securities or that would end such prohibition. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities or that would end such prohibition, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company, any holder of Company Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.01 hereof, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the

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notice of any prohibition provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Security), then, anything herein contained to the contrary notwithstanding, but without limiting the rights and remedies of the holders of Company Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Any notice required or permitted to be given to the Trustee by a holder of Company Senior Indebtedness or by any agent, trustee or representative thereof shall be in writing and shall be sufficient for every purpose hereunder if in writing and either (i) sent via facsimile to the Trustee, the receipt of which shall be confirmed via telephone, or (ii) mailed, first class postage prepaid, or sent by overnight carrier, to the Trustee addressed to its Corporate Trust Office or to any other address furnished in writing to such holder of Company Senior Indebtedness by the Trustee

(b)    Subject to the provisions of Section 8.01 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Company Senior Indebtedness (or a trustee, fiduciary or agent therefore) to establish that such notice has been given by a holder of Company Senior Indebtedness or a trustee, fiduciary or agent therefor. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Company Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Company Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.

(c)    Notwithstanding anything else contained herein, no notice, request or other communication to or with the Trustee shall be deemed given unless received by a Responsible Officer at the Corporate Trust Office.

Section 13.10 . Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee, subject to the provisions of Section 8.01 hereof, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Company Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article, provided that the foregoing shall apply only if such court has been apprised of the provisions of this Article.

Section 13.11 . Trustee Not Fiduciary for Holders of Company Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Company Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Company or to any other Person cash, property or securities to which any holders of Company Senior Indebtedness shall be entitled by virtue of this Article or otherwise.

Section 13.12 . Rights of Trustee as Holder of Company Senior Indebtedness; Preservation of Trustee's Rights.


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(a)    The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Company Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Company Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.

(c)    Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to 8.07 hereof.

Section 13.13 . Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term “Trustee” as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 13.11 hereof shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.

ARTICLE 14
SUBORDINATION OF SUBSIDIARY GUARANTEE

Section 14.01 . Subsidiary Guarantee Subordinate to Subsidiary Guarantor Senior Indebtedness.

(a)    The Subsidiary Guarantor covenants and agrees, and each Holder of a Security, by his acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article (subject to Article 11), all payments with respect to such Subsidiary Guarantor's Subsidiary Guarantee are hereby expressly made subordinate and subject in right of payment to the prior payment in full in cash of all Subsidiary Guarantor Senior Indebtedness.

(b)    This Article 14 shall constitute a continuing offer to all Persons who become holders of, or continue to hold, Subsidiary Guarantor Senior Indebtedness, and such provisions are made for the benefit of the holders of Subsidiary Guarantor Senior Indebtedness and such holders are made obligees hereunder and any one or more of them may enforce such provisions. Holders of Subsidiary Guarantor Senior Indebtedness need not prove reliance on the subordination provisions hereof.

Section 14.02 . Payment Over of Proceeds Upon Dissolution, Etc.

(a)    Upon any payment or distribution of assets of the Subsidiary Guarantor to creditors upon (i) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding in connection therewith, relative to the Subsidiary Guarantor or to its assets, or (ii) any liquidation, dissolution or other winding up of the Subsidiary Guarantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (iii) any assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Subsidiary Guarantor, then and in any such event specified in (i), (ii) or (iii) above (each such event, if any, herein sometimes referred to as a “ Subsidiary Guarantor Proceeding ”);

(i)    the holders of Subsidiary Guarantor Senior Indebtedness shall be entitled to receive payment in full in cash of all amounts due on or to become due on or in respect of all Subsidiary Guarantor Senior Indebtedness, before the Holders of the Securities are entitled to receive any payment or distribution of any kind or character whether in cash, property or securities (including any payment or distribution which may be payable or deliverable to Holders of the Securities made in respect of any other indebtedness of the Subsidiary Guarantor subordinated to the payment of the Securities, such

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payment or distribution being hereinafter referred to as a “ Subsidiary Guarantor Junior Subordinated Payment ”), on account of Subsidiary Guarantor's Subsidiary Guarantee or on account of any purchase, redemption or other acquisition of Securities by the Subsidiary Guarantor, any Subsidiary of the Subsidiary Guarantor, the Trustee or any Paying Agent (all such payments, distributions, purchases, redemptions and acquisitions, whether or not in connection with a Proceeding, herein referred to, individually and collectively, as a “ Subsidiary Guarantor Securities Payment ”); and

(ii)    any payment or distribution of assets of the Subsidiary Guarantor of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders of the Securities or the Trustee would be entitled but for the provisions of this Article 14 (including, without limitation, any Subsidiary Guarantor Junior Subordinated Payment) shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Subsidiary Guarantor Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing any of such Subsidiary Guarantor Senior Indebtedness may have been issued, ratably according to the aggregate amounts remaining unpaid on account of the Subsidiary Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Subsidiary Guarantor Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment to the holders of such Subsidiary Guarantor Senior Indebtedness.

(b)    In the event that, notwithstanding the foregoing provisions of this Section, the Trustee or the Holder of any Security shall have received in connection with any Subsidiary Guarantor Proceeding any Subsidiary Guarantor Securities Payment before all Subsidiary Guarantor Senior Indebtedness is paid in full or payment thereof provided for in cash, then and in such event such Subsidiary Guarantor Securities Payment shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Subsidiary Guarantor for application to the payment of all Subsidiary Guarantor Senior Indebtedness remaining unpaid, to the extent necessary to pay all Subsidiary Guarantor Senior Indebtedness in full in cash after giving effect to any concurrent payment to or for the holders of Subsidiary Guarantor Senior Indebtedness.

(c)    For purposes of this Article only, the words “any payment or distribution of any kind or character, whether in cash, property or securities” shall not be deemed to include a payment or distribution of stock or securities of the Subsidiary Guarantor provided for by a plan of reorganization or readjustment authorized by an order or decree of a court of competent jurisdiction in a reorganization proceeding under any applicable bankruptcy law or of any other corporation provided for by such plan of reorganization or readjustment which stock or securities are subordinated in right of payment to all then outstanding Subsidiary Guarantor Senior Indebtedness to substantially the same extent, or to a greater extent than, such Subsidiary Guarantor's Subsidiary Guarantee is so subordinated as provided in this Article. The consolidation of the Subsidiary Guarantor with, or the merger of the Subsidiary Guarantor into, another Person or the liquidation or dissolution of the Subsidiary Guarantor following the conveyance or transfer of all or substantially all of its properties and assets as an entirety to another Person shall not be deemed a Subsidiary Guarantor Proceeding for the purposes of this Section if the Person formed by such consolidation or into which the Subsidiary Guarantor is merged or the Person which acquires by conveyance or transfer such properties and assets as an entirety, as the case may be, and the Company and the Subsidiary Guarantor shall, as a part of such consolidation, merger, conveyance or transfer, comply with Section 12.07.

Section 14.03 . No Payment When Subsidiary Guarantor Senior Indebtedness in Default .


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(a)    In the event that any Subsidiary Guarantor Senior Payment Default shall have occurred, then no Subsidiary Guarantor Securities Payment shall be made, nor shall any property of the Subsidiary Guarantor or any Subsidiary of the Subsidiary Guarantor be applied to the purchase, acquisition, retirement or redemption of the Securities, unless and until such Senior Payment Default shall have been cured or waived in writing or shall have ceased to exist or all amounts then due and payable in respect of such Subsidiary Guarantor Senior Indebtedness (including amounts that have become and remain due by acceleration) shall have been paid in full in cash. “ Subsidiary Guarantor Senior Payment Default ” means any default in the payment of principal of (or premium, if any) or interest on any Subsidiary Guarantor Senior Indebtedness when due, whether at the stated maturity of any such payment or by declaration of acceleration of maturity, call for redemption, mandatory payment or prepayment or otherwise.

(b))    In the event that any Subsidiary Guarantor Senior Nonmonetary Default shall have occurred and be continuing, then, upon the receipt by the Subsidiary Guarantor and the Trustee of written notice of such Subsidiary Guarantor Senior Nonmonetary Default from the holder of such Subsidiary Guarantor Senior Indebtedness (or the agent, trustee or representative thereof), no Subsidiary Guarantor Securities Payment shall be made, nor shall any property of the Subsidiary Guarantor or any Subsidiary of the Subsidiary Guarantor be applied to the purchase, acquisition, retirement or redemption of the Securities, during the period (the “ Subsidiary Guarantor Payment Blockage Period ”) commencing on the date of such receipt of such written notice and ending (subject to any blockage of payments that may then or thereafter be in effect as the result of any Subsidiary Guarantor Senior Payment Default) on the earlier of (i) the date on which the Subsidiary Guarantor Senior Indebtedness to which such Subsidiary Guarantor Senior Nonmonetary Default relates is discharged or such Subsidiary Guarantor Senior Nonmonetary Default shall have been cured or waived in writing or shall have ceased to exist and any acceleration of Subsidiary Guarantor Senior Indebtedness to which such Subsidiary Guarantor Senior Nonmonetary Default relates shall have been rescinded or annulled or (ii) the 179th day after the date of such receipt of such written notice. No more than one Subsidiary Guarantor Payment Blockage Period may be commenced with respect to the such Subsidiary Guarantor' Subsidiary Guarantee during any period of 360 consecutive days and there shall be a period of at least 181 consecutive days in each period of 360 consecutive days when no Subsidiary Guarantor Payment Blockage Period is in effect. Following the commencement of any Subsidiary Guarantor Payment Blockage Period, the holders of any Subsidiary Guarantor Senior Indebtedness will be precluded from commencing a subsequent Subsidiary Guarantor Payment Blockage Period until the conditions set forth in the preceding sentence are satisfied. For all purposes of this paragraph, no Subsidiary Guarantor Senior Nonmonetary Default that existed or was continuing on the date of commencement of any Subsidiary Guarantor Payment Blockage Period with respect to the Subsidiary Guarantor Senior Indebtedness initiating such Subsidiary Guarantor Payment Blockage Period shall be, or be made, the basis for the commencement of a subsequent Subsidiary Guarantor Payment Blockage Period by holders of Subsidiary Guarantor Senior Indebtedness or their representatives unless such Subsidiary Guarantor Senior Nonmonetary Default shall have been cured for a period of not less than 90 consecutive days. “ Subsidiary Guarantor Senior Nonmonetary Default ” means the occurrence or existence and continuance of any default (other than a Subsidiary Guarantor Senior Payment Default) or any event which, after notice or lapse of time (or both), would become an event of default (other than a Subsidiary Guarantor Senior Payment Default), under the terms of any instrument or agreement pursuant to which any Subsidiary Guarantor Senior Indebtedness is outstanding, permitting (after notice or lapse of time or both) one or more holders of such Subsidiary Guarantor Senior Indebtedness (or a trustee or agent on behalf of the holders thereof) to declare such Subsidiary Guarantor Senior Indebtedness due and payable prior to the date on which it would otherwise become due and payable.

(c)    In the event that, notwithstanding the foregoing, the Subsidiary Guarantor shall make any payment to the Trustee or the Holder of any Security prohibited by the foregoing provisions of this Section, and if such fact shall, at or prior to the time of such payment, have been made known to the Trustee or, as the

59


case may be, such Holder, then and in such event such payment shall be paid over and delivered forthwith to the Subsidiary Guarantor.

(d)    The provisions of this Section shall not apply to any Subsidiary Guarantor Securities Payment with respect to which Section 13.02 hereof would be applicable.

Section14.04 . Payment Permitted If No Default. Nothing contained in this Article or elsewhere in this Indenture or in any of the Securities shall prevent the Subsidiary Guarantor, at any time except during the pendency of any Proceeding referred to in Section 13.02 hereof or under the conditions described in Section 13.03 hereof, from making Subsidiary Guarantor Securities Payments.

Section 14.05 . Subrogation to Rights of Holders of Subsidiary Guarantor Senior Indebtedness. Subject to the payment in full in cash of all Subsidiary Guarantor Senior Indebtedness, the Holders of the Securities shall be subrogated (equally and ratably with the holders of all indebtedness of the Subsidiary Guarantor which by its express terms is subordinated to Subsidiary Guarantor Senior Indebtedness to substantially the same extent as such Subsidiary Guarantor's Subsidiary Guarantee is subordinated and is entitled to like rights of subrogation) to the rights of the holders of such Subsidiary Guarantor Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Subsidiary Guarantor Senior Indebtedness until the principal of and interest on the Securities shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of the Subsidiary Guarantor Senior Indebtedness of any cash, property or securities to which the Holders of the Securities or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Subsidiary Guarantor Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among the Subsidiary Guarantor, its creditors other than holders of Subsidiary Guarantor Senior Indebtedness and the Holders of the Securities, be deemed to be a payment or distribution by the Subsidiary Guarantor to or on account of the Subsidiary Guarantor Senior Indebtedness.

Section 14.06 . Provisions Solely to Define Relative Rights. The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Subsidiary Guarantor Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Securities is intended to or shall (a) impair, as among the Subsidiary Guarantor, its creditors other than holders of Subsidiary Guarantor Senior Indebtedness and the Holders of the Securities, the obligation of the Subsidiary Guarantor, which is absolute and unconditional (and which, subject to the rights under this Article of the holders of Subsidiary Guarantor Senior Indebtedness, is intended to rank equally with all other general obligations of the Subsidiary Guarantor), to pay to the Holders of the Securities the principal of and interest on the Securities as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Subsidiary Guarantor of the Holders of the Securities and creditors of the Subsidiary Guarantor other than the holders of Subsidiary Guarantor Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Subsidiary Guarantor Senior Indebtedness to receive cash, property and securities otherwise payable or deliverable to the Trustee or such Holder.

Section 14.07 . Trustee to Effectuate Subordination. Each Holder of a Security by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Subsidiary Guarantor whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Subsidiary Guarantor owing to such Holder

60


in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file a proper claim at least 30 days before the expiration of the time to file such claim, then the holders of the Subsidiary Guarantor Senior Indebtedness and their agents, trustees or other representatives are authorized to do so (but shall in no event be liable for any failure to do so) for and on behalf of the Holders of the Securities.

Section 14.08 . No Waiver of Subordination Provisions.

(a)    No right of any present or future holder of any Subsidiary Guarantor Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Subsidiary Guarantor or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Subsidiary Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with.

(b)    Without in any way limiting the generality of the foregoing paragraph, the holders of Subsidiary Guarantor Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Securities, without incurring responsibility to the Holders of the Securities and without impairing or releasing the subordination provided in this Article or the obligations hereunder of the Holders of the Securities to the holders of Subsidiary Guarantor Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, Subsidiary Guarantor Senior Indebtedness, or otherwise amend or supplement in any manner Subsidiary Guarantor Senior Indebtedness or any instrument evidencing the same or any agreement under which Subsidiary Guarantor Senior Indebtedness is outstanding; (ii) permit the Subsidiary Guarantor to borrow, repay and then reborrow any or all of the Subsidiary Guarantor Senior Indebtedness; (iii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Subsidiary Guarantor Senior Indebtedness; (iv) release any Person liable in any manner for the collection of Subsidiary Guarantor Senior Indebtedness; (v) exercise or refrain from exercising any rights against the Subsidiary Guarantor and any other Person; and (vi) apply any sums received by them to Subsidiary Guarantor Senior Indebtedness.

Section 14.09. Notice to Trustee.

(a)    The Subsidiary Guarantor shall give prompt written notice to the Trustee of any fact known to the Subsidiary Guarantor which would prohibit the making of any payment to or by the Trustee in respect of the Securities or that would end such prohibition. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Securities or that would end such prohibition, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Subsidiary Guarantor, any holder of Subsidiary Guarantor Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee, subject to the provisions of Section 8.01 hereof, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice of any prohibition provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Security), then, anything herein contained to the contrary notwithstanding, but without limiting the rights and remedies of the holders of Subsidiary Guarantor Senior Indebtedness or any trustee, fiduciary or agent therefor, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within two Business Days prior to such date. Any notice required or permitted to be given to the Trustee by a holder of Subsidiary Guarantor Senior Indebtedness or by any agent, trustee or representative thereof shall be in writing and shall be sufficient for every purpose hereunder if in writing and either (i) sent via facsimile

61


to the Trustee, the receipt of which shall be confirmed via telephone, or (ii) mailed, first class postage prepaid, or sent by overnight carrier, to the Trustee addressed to its Corporate Trust Office or to any other address furnished in writing to such holder of Subsidiary Guarantor Senior Indebtedness by the Trustee.

(b)    Subject to the provisions of Section 8.01 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Subsidiary Guarantor Senior Indebtedness (or a trustee, fiduciary or agent therefore) to establish that such notice has been given by a holder of Subsidiary Guarantor Senior Indebtedness or a trustee, fiduciary or agent therefor. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Subsidiary Guarantor Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Subsidiary Guarantor Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.

(c)    Notwithstanding anything else contained herein, no notice, request or other communication to or with the Trustee shall be deemed given unless received by a Responsible Officer at the Corporate Trust Office.

Section 14.10 . Reliance on Judicial Order or Certificate of Liquidating Agent. Upon any payment or distribution of assets of the Subsidiary Guarantor referred to in this Article, the Trustee, subject to the provisions of Section 8.01 hereof, and the Holders of the Securities shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such Proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Securities, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of the Subsidiary Guarantor Senior Indebtedness and other indebtedness of the Subsidiary Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article, provided that the foregoing shall apply only if such court has been apprised of the provisions of this Article.

Section 14.11 . Trustee Not Fiduciary for Holders of Subsidiary Guarantor Senior Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Subsidiary Guarantor Senior Indebtedness and shall not be liable to any such holders if it shall in good faith mistakenly pay over or distribute to Holders of Securities or to the Subsidiary Guarantor or to any other Person cash, property or securities to which any holders of Subsidiary Guarantor Senior Indebtedness shall be entitled by virtue of this Article or otherwise.

Section 14.12 . Rights of Trustee as Holder of Subsidiary Guarantor Senior Indebtedness; Preservation of Trustee's Rights.

(a)    The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Subsidiary Guarantor Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Subsidiary Guarantor Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.

(b)    Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 8.07 hereof.

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Section 14.13 . Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Subsidiary Guarantor and be then acting hereunder, the term “Trustee” as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 14.11 hereof shall not apply to the Subsidiary Guarantor or any Affiliate of the Subsidiary Guarantor if it or such Affiliate acts as Paying Agent.

ARTICLE 15
GENERAL GUARANTEE AGREEMENT

Section 15.01 . General Guarantee Agreement Inapplicable. Without in any way limiting the obligations of the Company or any Subsidiary Guarantor hereunder, the General Guarantee Agreement (as amended, the “ General Guarantee Agreement ”) dated April 17, 2012 by Lion Holdings in favor of each person to whom the Company may owe any obligations evidenced by senior unsecured debentures, notes or similar debt instruments issued by the Company shall be inapplicable to the Securities. The Trustee shall not be entitled to enforce any rights under the General Guarantee Agreement with respect to any Securities or other obligation under this Indenture. The Trustee waives all rights and remedies it may have under the General Guarantee Agreement with respect to any obligation under this Indenture. For the avoidance of doubt, any obligation under this Indenture is not an obligation as defined in the General Guarantee Agreement. This Article 15 does not in any way limit any obligation of the Company under any Securities or any Subsidiary Guarantor under its Subsidiary Guarantee.

This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
[ remainder of page intentionally left blank; signature pages follow ]

63


[ Signature Page to Indenture ]

    
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the date first above written.
ING U.S., INC.
By:
/s/ Alain M. Karaoglan
 
Name: Alain M. Karaoglan
 
Title: Executive Vice President and Chief Operating Officer

By:
/s/ Ewout L. Steenbergen
 
Name: Ewout L. Steenbergen
 
Title: Executive Vice President and Chief Financial Officer

LION CONNECTICUT HOLDINGS INC.
By:
/s/ Alain M. Karaoglan
 
Name: Alain M. Karaoglan
 
Title: Executive Vice President and Chief Operating Officer

By:
/s/ Ewout L. Steenbergen
 
Name: Ewout L. Steenbergen
 
Title: Executive Vice President and Chief Financial Officer


U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
/s/ Earl W. Dennison Jr.
 
Name: Earl W. Dennison Jr.
 
Title: Vice President



64


EXHIBIT A
[Form of Supplemental Indenture for New Subsidiary Guarantor]
[NUMBER] SUPPLEMENTAL INDENTURE
[NUMBER] SUPPLEMENTAL INDENTURE (this “ [Number] Supplemental Indenture ”), dated as of _____, 20__ among _____ (a “ New Subsidiary Guarantor ”), a _____ corporation and a subsidiary of ING U.S., INC., a Delaware corporation (the “ Company ”), and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as trustee under the Indenture referred to below (the “ Trustee ”).
RECITALS
WHEREAS, the Company and the initial Subsidiary Guarantor have heretofore executed and delivered to the Trustee a Junior Subordinated Indenture dated as of May 16, 2013 (as supplemented by the [Number] Supplemental Indenture, dated as of _____, 20__, among the Company, the Subsidiary Guarantor party thereto and the Trustee, and as further amended, supplemented or modified, the “ Indenture ”), providing for the issuance of the Company's ____________ (the “ Notes ”);
WHEREAS, Section 12.07 of the Indenture provides that under certain circumstances the New Subsidiary Guarantor shall execute and deliver to the Trustee a supplemental indenture pursuant to which the New Subsidiary Guarantor shall unconditionally guarantee all of the Company's Guaranteed Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “ Subsidiary Guarantee ”); and
WHEREAS, pursuant to Section 10.01 of the Indenture, the Trustee and the Company are authorized to execute and deliver this Supplemental Indenture.
NOW, THEREFORE, for value received, the Company, the New Subsidiary Guarantor and the Trustee mutually covenant and agree, for the equal and proportionate benefit of all Holders of the Notes, as follows:
1.      Defined Terms . Defined terms used herein without definition shall have the meanings assigned to them in the Indenture.
2.      Agreement to Guarantee . The New Subsidiary Guarantor hereby agrees, jointly and severally with all existing Subsidiary Guarantors (if any), to provide an unconditional and irrevocable guarantee on the terms and subject to the conditions set forth in Article 12 of the Indenture and to be bound by all other applicable provisions of the Indenture and the Notes and to perform all of the obligations and agreements of a Subsidiary Guarantor under the Indenture.
3.      No Recourse Against Others . No director, officer, agent, employee, incorporator, stockholder, partner, member or manager of the Company or any Subsidiary Guarantor shall have any liability for any obligations of the Company or any Subsidiary Guarantor under any Notes, the Indenture, any Subsidiary Guarantee or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder, by accepting a Note, waives and releases all such liability and acknowledges that the waiver and release are part of the consideration for issuance of the Notes.
4.      Ratification of Indenture, Supplemental Indentures Part of Indenture . Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Supplemental Indenture shall form a part of the

A- 1


Indenture for all purposes, and every Holder of the Notes heretofore or hereafter authenticated and delivered shall be bound hereby.
5.      Governing Law . THE INDENTURE, THE NOTES AND THE GUARANTEES, AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THE INDENTURE, THE NOTES OR THE GUARANTEES, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
6.      Counterparts . The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
7.      Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.
8.      Trustee Makes No Representation . The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture.
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
[ remainder of page intentionally left blank; signature pages follow ]
    

A- 2



IN WITNESS WHEREOF, the parties hereto have caused this [Number] Supplemental Indenture to be duly executed as of the date first above written.
ING U.S., INC.
By:
 
 
Name:
 
Title:

[NEW SUBSIDIARY GUARANTOR]
By:
 
 
Name:
 
Title:

U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
 
 
Name:
 
Title:



A- 3








ING U.S., INC.
LION CONNECTICUT HOLDINGS INC.
5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053
FIRST SUPPLEMENTAL INDENTURE
Dated as of May 16, 2013
to the Junior Subordinated Indenture Dated as of May 16, 2013
U.S. BANK NATIONAL ASSOCIATION,
as Trustee






TABLE OF CONTENTS
Page


ARTICLE 1
DEFINITIONS
Section 1.01 . Certain Terms Defined in the Indenture; Additional Terms
2

ARTICLE 2
FORM AND TERMS OF THE NOTES
Section 2.01 . Form and Dating
8
Section 2.02 . Paying Agent; Depository
9
Section 2.03 . Registration, Transfer and Exchange
9
Section 2.04 . Restrictions on Transfer and Exchange
11
Section 2.05 . Temporary Offshore Global Notes
13
Section 2.06 . Terms of the Notes
14
Section 2.07 . Events of Default
17
Section 2.08 . Defeasance
18
Section 2.09 . Repurchases
18

ARTICLE 3
COVENANTS
Section 3.01 . Dividend and Other Payment Stoppages
18

ARTICLE 4
REDEMPTION
Section 4.01 . Redemption
19

ARTICLE 5
SUPPLEMENTAL INDENTURES
Section 5.01 . Supplemental Indentures Without Consent of Holders
20
Section 5.02 . Supplemental Indentures with Consent of Holders
21
Section 5.03 . Supplemental Indenture to Add Event of Default
22

ARTICLE 6
MISCELLANEOUS
Section 6.01 . Trust Indenture Act Controls
22
Section 6.02 . Governing Law
22
Section 6.03 . Payment of Notes
22




Section 6.04 . Multiple Counterparts
23
Section 6.05 . Severability
23
Section 6.06 . Relation to Indenture
23
Section 6.07 . Ratification
23
Section 6.08 . Effectiveness
23
Section 6.09 . Trustee Not Responsible for Recitals or Issuance of Securities
23

ARTICLE 6
GENERAL GUARANTEE AGREEMENT
Section 7.01 . General Guarantee Agreement Inapplicable
23

EXHIBITS
EXHIBIT A      Form of Note
EXHIBIT B      Restricted Legend
EXHIBIT C      DTC Legend
EXHIBIT D      Regulation S Certificate
EXHIBIT E      Rule 144A Certificate
EXHIBIT F      Certificate of Beneficial Ownership
EXHIBIT G      Temporary Offshore Global Note Legend




FIRST SUPPLEMENTAL INDENTURE
FIRST SUPPLEMENTAL INDENTURE (this “ First Supplemental Indenture ”), dated as of May 16, 2013, among ING U.S., INC., a Delaware corporation (the “ Company ”), having its principal executive offices at 230 Park Avenue, New York, New York 10169, LION CONNECTICUT HOLDINGS INC., a Connecticut corporation, as the initial Subsidiary Guarantor hereunder, and U.S. Bank National Association, a national banking association, as trustee (the “ Trustee ”).
RECITALS
WHEREAS, the Company, the initial Subsidiary Guarantor and the Trustee executed and delivered a Junior Subordinated Indenture, dated as of May 16, 2013 (the “ Base Indenture ” and, as amended and supplemented by this First Supplemental Indenture, and as it may be further amended or supplemented from time to time with respect to the Notes, the “ Indenture ”), to provide for the issuance by the Company from time to time of Securities to be issued in one or more series as provided in the Base Indenture;
WHEREAS, the issuance and sale of $750,000,000 aggregate principal amount of a new series of the Securities of the Company designated as its 5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053 and, if and when issued, any Additional Notes, together with any Exchange Notes issued therefor, as provided herein (the “ Notes ”), to be fully and unconditionally guaranteed by the Subsidiary Guarantors, have been authorized by resolutions adopted by the Board of Directors of the Company and the board of directors of the initial Subsidiary Guarantor;
WHEREAS, the Company desires to issue and sell $750,000,000 aggregate principal amount of the Notes on the date hereof, to be fully and unconditionally guaranteed by the Subsidiary Guarantors in accordance with Article 12 of the Base Indenture;
WHEREAS, Sections 2.01 and 10.01 of the Base Indenture provide that the Company, when authorized by a Board Resolution, and the Trustee may amend or supplement the Base Indenture to provide for the issuance of and to establish the form or terms and conditions of Securities of any series as permitted by the Base Indenture;
WHEREAS, the Company desires to establish the form, terms and conditions of the Notes; and
WHEREAS, all things necessary to make this First Supplemental Indenture a legal, valid and binding supplement to the Base Indenture according to its terms and the terms of the Base Indenture have been done;
NOW, THEREFORE, for and in consideration of the premises and the purchase of the Notes by the Holders thereof, the Company, the initial Subsidiary Guarantor and the Trustee mutually covenant and agree, for the equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1
DEFINITIONS
Section 1.01. Certain Terms Defined in the Indenture; Additional Terms.
(a) For purposes of this First Supplemental Indenture, all capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Base Indenture, as amended hereby.




(b) The following capitalized terms used herein shall be defined accordingly:
“ Additional Interest ” means additional interest owed to the Holders pursuant to a Registration Rights Agreement.
“ Agent Member ” means a member of, or a participant in, the Depository.
“ Additional Notes ” shall have the meaning set forth in Section 2.06(b).
“ Business Day ” means any day other than (i) a Saturday or Sunday, (ii) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed, (iii) a day on which the Corporate Trust Office is closed for business or (iv) on or after May 15, 2023, a day that is not a London Banking Day.
“ Calculation Agent ” means, with respect to the Notes, U.S. Bank National Association, or any other firm appointed by the Company, acting as calculation agent in respect of the Notes.
“ Certificated Note ” means a Note in registered individual certificated form without interest coupons.
“ Certificate of Beneficial Ownership ” means a certificate substantially in the form of Exhibit F.
“ Deferral Period ” means the period commencing on the first day of the first Interest Period with respect to which the Company elects to defer interest on the Notes pursuant to Section 2.06(e) and ending on the earlier of (i) the Interest Payment Date falling on or about the fifth anniversary of that day and (ii) the next Interest Payment Date on which the Company has paid all deferred and unpaid amounts (including compounded interest on such deferred amounts) and all other accrued interest on the Notes.
“ DTC Legend ” means the legend set forth in Exhibit C.
“ Exchange Notes ” means the Notes of the Company issued pursuant to the Indenture in exchange for, and in an aggregate principal amount equal to, the Initial Notes, in compliance with the terms of a Registration Rights Agreement and containing terms substantially identical to the Initial Notes (except that (i) such Exchange Notes will be registered under the Securities Act and will not be subject to transfer restrictions or bear the Restricted Legend, and (ii) the provisions relating to rights under the Registration Rights Agreement will be eliminated).
“ Exchange Offer ” means an offer by the Company to the Holders of the Initial Notes to exchange Outstanding Notes for Exchange Notes, as provided for in a Registration Rights Agreement.
“ Fixed-Rate Interest Payment Date ” has the meaning specified in Section 2.06(d)(ii).
“ Fixed-Rate Interest Period ” means the period beginning on, and including, the date hereof and ending on, but excluding, the first Fixed-Rate Interest Payment Date thereafter and each successive period beginning on, and including, a Fixed-Rate Interest Payment Date and ending on, but excluding, the next Fixed-Rate Interest Payment Date.
“ Floating-Rate Interest Payment Date ” shall have the meaning specified in Section 2.06(d)(ii).
“ Floating-Rate Interest Period ” means the period beginning on, and including, May 15, 2023 and ending on, but excluding, the next Floating-Rate Interest Payment Date and each successive period




beginning on, and including, a Floating-Rate Interest Payment Date and ending on, but excluding, the next Floating-Rate Interest Payment Date.
“ Global Note ” means a Note in registered global form without interest coupons.
“ Initial Additional Notes ” means Additional Notes issued in an offering not registered under the Securities Act and any Notes issued in replacement thereof, but not including any Exchange Notes issued in exchange therefor.
“ Initial Notes ” means the Notes issued on the Issue Date and any Notes issued in replacement thereof, but not including any Exchange Notes issued in exchange therefor.
“ Initial Purchasers ” means the initial purchasers party to a Purchase Agreement dated May 13, 2013 with the Company and the initial Subsidiary Guarantor relating to the sale of the Notes by the Company.
“ Interest Payment Date ” means a Fixed-Rate Interest Payment Date or a Floating-Rate Interest Payment Date, as the case may be.
“ Interest Period ” means a Fixed-Rate Interest Period or a Floating-Rate Interest Period, as the case may be.
“ Issue Date ” means the date on which the Notes are originally issued under the Indenture
“ LIBOR Determination Date ” means the second scheduled London Banking Day immediately preceding the first day of the relevant Floating-Rate Interest Period.
“ London Banking Day ” means any day on which commercial banks are open for general business (including dealings in foreign exchange and in deposits in U.S. dollars) in London, England.
“ Make-Whole Redemption Price ” means, with respect to a redemption of the Notes in whole prior to May 15, 2023, the present value of a principal payment on May 15, 2023 and scheduled payments of interest that would have accrued from the Redemption Date to May 15, 2023 on the Notes being redeemed (excluding any accrued and unpaid interest for the period prior to the Redemption Date), discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the Treasury Rate (as such Make-Whole Redemption Price shall be determined and provided to the Company by the Premium Calculation Agent) plus 0.50%;
“ Offering Memorandum ” means the offering memorandum dated May 13, 2013, relating to the offering and sale of the Notes.
“ Offshore Global Note ” means a Global Note representing Notes issued and sold pursuant to Regulation S.
“ Permanent Offshore Global Note ” means an Offshore Global Note that does not bear the Temporary Offshore Global Note Legend.
“ Premium Calculation Agent ” means an investment banking institution of national standing appointed by the Company.




“ Primary Treasury Dealer ” shall have the meaning set forth in the definition of “Treasury Dealers.”
“ Rating Agency ” shall have the meaning set forth in the definition of “Rating Agency Event.”
“ Rating Agency Event ” means that any nationally recognized statistical rating organization within the meaning of Section 3(a)(62) of the Exchange Act that then publishes a rating for the Company (a “ Rating Agency ”) amends, clarifies or changes the criteria it uses to assign equity credit to securities such as the Notes, which amendment, clarification or change results in:
(i) the shortening of the length of time the Notes are assigned a particular level of equity credit by that Rating Agency as compared to the length of time they would have been assigned that level of equity credit by that Rating Agency or its predecessor on the date hereof, or
(ii) the lowering of the equity credit (including up to a lesser amount) assigned to the Notes by that Rating Agency as compared to the equity credit assigned by that Rating Agency or its predecessor on the date hereof.
“ Registration Rights Agreement ” means (i) the Registration Rights Agreement dated as of May 16, 2013 between the Company, the initial Subsidiary Guarantor and the Initial Purchasers party thereto with respect to the Initial Notes, and (ii) with respect to any Additional Notes, any registration rights agreements between the Company, any Subsidiary Guarantor and the Initial Purchasers party thereto relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes or exchange them for Notes registered under the Securities Act.
“ Regulation S ” means Regulation S under the Securities Act.
“ Regulation S Certificate ” means a certificate substantially in the form of Exhibit D hereto.
“ Remaining Fixed Life ” shall have the meaning set forth in the definition of “Treasury Security.”
“ Restricted Legend ” means the legend set forth in Exhibit B.
“ Restricted Period ” means the relevant 40-day distribution compliance period as defined in Regulation S.
“ Reuters Page LIBOR01 ” means the display so designated on the Reuters 3000 Xtra (or such other page as may replace that page on that service, or such other service as may be nominated by the Company as the information vendor, for the purpose of displaying rates or prices comparable to the London Interbank Offered Rate for U.S. dollar deposits (or the successor to such rate if the British Bankers' Association is no longer making a London Interbank Offered Rate available)).
“ Rule 144A ” means Rule 144A under the Securities Act.
“ Rule 144A Certificate ” means (i) a certificate substantially in the form of Exhibit E hereto or (ii) a written certification addressed to the Company and the Trustee to the effect that the Person making such certification (x) is acquiring such Note (or beneficial interest) for its own account or one or more accounts with respect to which it exercises sole investment discretion and that it and each such account is a qualified institutional buyer within the meaning of Rule 144A, (y) is aware that the transfer to it or exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A, and (z) acknowledges that it has received such information




regarding the Company as it has requested pursuant to Rule 144A(d)(4) or has determined not to request such information.
“ Stated Maturity ” has the meaning specified in Section 2.06(c).
“ Tax Event ” means the receipt by the Company of an opinion of independent counsel experienced in such matters to the effect that, as a result of any:
(i) amendment to, clarification of or change (including any officially announced prospective change) in the laws or treaties of the United States or any political subdivision or taxing authority of or in the United States, or any regulations under those laws or treaties, that is enacted or effective on or after the date hereof;
(ii) administrative action, which means any judicial decision or any official administrative pronouncement, ruling, regulatory procedure, notice or other similar announcement, including any notice or announcement of intent to issue or adopt any administrative pronouncement, ruling, regulatory procedure or regulation, that is taken on or after the date hereof;
(iii) amendment to, clarification of or change in the official position or the interpretation of any administrative action or judicial decision or any interpretation or pronouncement that provides for a position with respect to an administrative action or judicial decision that differs from the previously generally accepted position, in each case by any legislative body, court, governmental authority or regulatory body, regardless of the time or manner in which that amendment, clarification or change is introduced or made known, that is enacted or effective on or after the date hereof; or
(iv) threatened challenge asserted in writing in connection with an audit of the Company, or a threatened challenge asserted in writing against any other taxpayer that has raised capital through the issuance of securities that are substantially similar to the Notes, which challenge is asserted against the Company or becomes publicly known on or after the date hereof,
there is more than an insubstantial risk that interest payable by the Company on the Notes is not, or within 90 days of the date of such opinion will not be, deductible, in whole or in part, by the Company for U.S. federal income tax purposes.
“ Temporary Offshore Global Note ” means an Offshore Global Note that bears the Temporary Offshore Global Note Legend.
“ Temporary Offshore Global Note Legend ” means the legend set forth in Exhibit G.
“ Three-Month LIBOR ” means, with respect to any Floating-Rate Interest Period, the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period commencing on the first day of that Floating-Rate Interest Period that appears on Reuters Page LIBOR01 as of 11:00 a.m., London time, on the LIBOR Determination Date for that Floating-Rate Interest Period. If such rate does not appear on Reuters Page LIBOR01, Three-Month LIBOR will be determined on the basis of the rates at which deposits in U.S. dollars for a three-month period commencing on the first day of that Floating-Rate Interest Period and in a principal amount of not less than $1,000,000 are offered to prime banks in the London interbank market by four major banks in the London interbank market selected by the Calculation Agent (after consultation with the Company), at approximately 11:00 a.m., London time, on the LIBOR Determination Date for that Floating-Rate Interest Period. The Calculation Agent will request the principal London office of each of these banks to provide a quotation of its rate. If at least two




such quotations are provided, Three-Month LIBOR with respect to that Floating-Rate Interest Period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of such quotations. If fewer than two quotations are provided, Three-Month LIBOR with respect to that Floating-Rate Interest Period will be the arithmetic mean (rounded upward if necessary to the nearest whole multiple of 0.00001%) of the rates quoted by three major banks in New York City selected by the Calculation Agent (after consultation with the Company), at approximately 11:00 a.m., New York City time, on the first day of that Floating-Rate Interest Period for loans in U.S. dollars to leading European banks for a three-month period commencing on the first day of that Floating-Rate Interest Period and in a principal amount of not less than $1,000,000. However, if fewer than three banks selected by the Calculation Agent to provide quotations provide quotes as described above, Three-Month LIBOR for that Floating-Rate Interest Period will be the same as Three-Month LIBOR as determined for the previous Floating-Rate Interest Period or, in the case of the first Floating-Rate Interest Period, 0.27%. The determination of Three-Month LIBOR for each Floating-Rate Interest Period by the Calculation Agent shall (in the absence of manifest error) be final and binding.
“ Treasury Dealer Quotations ” means, with respect to each Treasury Dealer and any Redemption Date, the average, as determined by the Premium Calculation Agent, of the bid and ask prices for the applicable Treasury Security (expressed in each case as a percentage of its principal amount) quoted in writing to the Premium Calculation Agent by such Treasury Dealer at 3:30 p.m., New York City time, on the third trading day preceding the Redemption Date.
“ Treasury Dealers ” means (1) each of Barclays Capital Inc., J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated (or their successors) or if any of the foregoing ceases to be a primary U.S. Government securities dealer (a “ Primary Treasury Dealer ”), a substitute nationally recognized investment banking firm that is a Primary Treasury Dealer specified by the Company for these purposes and (2) any other Primary Treasury Dealers selected by the Premium Calculation Agent after consultation with the Company.
“ Treasury Rate ” means the semi-annual equivalent yield to maturity of the Treasury Security that corresponds to the Treasury Price (calculated in accordance with standard market practice and computed by the Premium Calculation Agent as of the second trading day preceding the Redemption Date).
“ Treasury Price ” means with respect to a Redemption Date, (1) the average of the Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest Treasury Dealer Quotations, or (2) if the Premium Calculation Agent obtains fewer than four such Treasury Dealer Quotations, the average of all such quotations.
“ Treasury Security ” means the United States Treasury security or securities selected by the Premium Calculation Agent as having an actual or interpolated maturity comparable to the term remaining from such Redemption Date to May 15, 2023 (the “ Remaining Fixed Life ”) that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate notes of comparable maturity to the Remaining Fixed Life.
“ U.S. Global Note ” means a Global Note that bears the Restricted Legend representing Notes issued and sold pursuant to Rule 144A.
(c)    As used in the Indenture, for purposes of the Notes, the term “interest” shall be deemed to include (i) any “Additional Interest” payable as a consequence of a “Registration Default,” in each case as defined in, and in accordance with, a Registration Rights Agreement and (ii) interest on interest payments deferred pursuant to Section 2.06(e).






ARTICLE 2
FORM AND TERMS OF THE NOTES
Section 2.01. Form and Dating. (a) The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A attached hereto. The Notes shall be executed on behalf of the Company by any Officer and attested by its Secretary or one of its Assistant Secretaries. The signature of any of these Officers on the Notes may be manual or facsimile. The Notes may have notations, legends or endorsements required by law, stock exchange rules or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $2,000 and integral multiples of $1,000, in excess thereof.
The terms and notations contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture and the Company and the Trustee, by their execution and delivery of this First Supplemental Indenture, expressly agree to such terms and provisions and to be bound thereby.
(b)    (i) Except as otherwise provided in paragraph (c), Section 2.04(b)(iii), Section 2.04(b)(v), or Section 2.04(c) or Section 2.03(a)(iii), each Initial Note or Additional Note (other than a Permanent Offshore Global Note) will bear the Restricted Legend.
(ii)    Each Global Note, whether or not an Initial Note or Additional Note, will bear the DTC Legend.
(iii)    Each Temporary Offshore Global Note will bear the Temporary Offshore Global Note Legend.
(iv)    Initial Notes and Additional Notes offered and sold in reliance on Regulation S will be issued as provided in Section 2.05(a).
(v)    Initial Notes and Additional Notes offered and sold in reliance on any exception under the Securities Act other than Regulation S and Rule 144A will be issued, and upon the request of the Company to the Trustee, Initial Notes offered and sold in reliance on Rule 144A may be issued, in the form of Certificated Notes.
(c)    (i) If the Company determines (upon the advice of counsel and such other certifications and evidence as the Company may reasonably require) that a Note is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without compliance with any limits thereunder and that the Restricted Legend is no longer necessary or appropriate in order to ensure that subsequent transfers of the Note (or a beneficial interest therein) are effected in compliance with the Securities Act,
(ii)    after an Initial Note or any Initial Additional Note is (x) sold pursuant to an effective registration statement under the Securities Act, pursuant to a Registration Rights Agreement or otherwise, or (y) is validly tendered for exchange into an Exchange Note pursuant to an Exchange Offer,
the Company may instruct the Trustee in an Officers' Certificate to cancel the Note and issue to the Holder thereof (or to its transferee) a new Note of like tenor and amount, registered in the name of the Holder




thereof (or its transferee), that does not bear the Restricted Legend, and the Trustee will comply with such instruction.
(d)    By its acceptance of any Note bearing the Restricted Legend (or any beneficial interest in such a Note), each Holder thereof and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Note (and any such beneficial interest) set forth in this First Supplemental Indenture and in the Restricted Legend and agrees that it will transfer such Note (and any such beneficial interest) only in accordance with this First Supplemental Indenture and such legend.
Section 2.02. Paying Agent; Depository. (a) The Company appoints the Trustee as the initial Paying Agent of the Company for the payment of the principal of (and premium, if any) and interest on the Notes, and the office of the Trustee located in the City of New York, be and hereby is, designated as the office or agency where the Notes may be presented for payment and where notices to or demands upon the Company in respect of the Notes and the Indenture pursuant to which the Notes are to be issued may be served. The Company may at any time designate additional paying agents or rescind the designation of any paying agent or approve a change in the office through which the paying agent acts.
(b)    The Depository shall initially be DTC and any and all successors thereto appointed as Depository by the Company.
Section 2.03. Registration, Transfer and Exchange. (a) Each Global Note will be registered in the name of the Depository or its nominee and, so long as DTC is serving as the Depository thereof, will bear the DTC Legend.
(i) Each Global Note will be delivered to the Trustee as custodian for the Depository. Transfers of a Global Note (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, to the Depository, its successors or their respective nominees, except (y) as set forth in ý(iii) of this Section 2.03ý(a) and (z) transfers of portions thereof in the form of Certificated Notes may be made upon request of an Agent Member (for itself or on behalf of a beneficial owner) by written notice given to the Trustee by or on behalf of the Depository in accordance with customary procedures of the Depository and in compliance with this Section 2.03 and Section 2.04.
(ii) Agent Members will have no rights under this First Supplemental Indenture with respect to any Global Note held on their behalf by the Depository, and the Depository may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, the Depository or its nominee may grant proxies and otherwise authorize any Person (including any Agent Member and any Person that holds a beneficial interest in a Global Note through an Agent Member) to take any action which a Holder is entitled to take under this First Supplemental Indenture or the Notes, and nothing herein will impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security.
(iii) If (x) the Depository notifies the Company that it is unwilling or unable to continue as Depository for a Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (y) an Event of Default has occurred and is continuing and the Trustee has received a written request from the Depository, the Trustee will promptly exchange each beneficial interest in the Global Note for one or more Certificated Notes in authorized denominations having an equal aggregate principal amount registered in the name of the owner of




such beneficial interest, as identified to the Trustee by the Depository, and thereupon the Global Note will be deemed canceled. If such Note does not bear the Restricted Legend, then the Certificated Notes issued in exchange therefor will not bear the Restricted Legend. If such Note bears the Restricted Legend, then the Certificated Notes issued in exchange therefor will bear the Restricted Legend, provided that any Holder of any such Certificated Note issued in exchange for a beneficial interest in a Temporary Offshore Global Note will have the right upon presentation to the Trustee of a duly completed Certificate of Beneficial Ownership after the Restricted Period to exchange such Certificated Note for a Certificated Note of like tenor and amount that does not bear the Restricted Legend, registered in the name of such Holder.
(b)    Each Certificated Note will be registered in the name of the Holder thereof or its nominee.
(c)    (i) Global Note to Global Note . If a beneficial interest in a Global Note is transferred or exchanged for a beneficial interest in another Global Note, the Trustee will (y) record a decrease in the principal amount of the Global Note being transferred or exchanged equal to the principal amount of such transfer or exchange and (z) record a like increase in the principal amount of the other Global Note. Any beneficial interest in one Global Note that is transferred to a Person who takes delivery in the form of an interest in another Global Note, or exchanged for an interest in another Global Note, will, upon transfer or exchange, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest.
(ii)     Global Note to Certificated Note . If a beneficial interest in a Global Note is transferred or exchanged for a Certificated Note, the Trustee will (y) record a decrease in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (z) deliver one or more new Certificated Notes in authorized denominations having an equal aggregate principal amount to the transferee (in the case of a transfer) or the owner of such beneficial interest (in the case of an exchange), registered in the name of such transferee or owner, as applicable.
(iii)     Certificated Note to Global Note . If a Certificated Note is transferred or exchanged for a beneficial interest in a Global Note, the Trustee will (x) cancel such Certificated Note, (y) record an increase in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (z) in the event that such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more new Certificated Notes in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof.
(iv)     Certificated Note to Certificated Note . If a Certificated Note is transferred or exchanged for another Certificated Note, the Trustee will (x) cancel the Certificated Note being transferred or exchanged, (y) deliver one or more new Certificated Notes in authorized denominations having an aggregate principal amount equal to the principal amount of such transfer or exchange to the transferee (in the case of a transfer) or the Holder of the canceled Certificated Note (in the case of an exchange), registered in the name of such transferee or Holder, as applicable, and (z) if such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more Certificated Notes in authorized denominations having an aggregate principal amount equal to the untransferred or




unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof.
Section 2.04. Restrictions on Transfer and Exchange. (a) The transfer or exchange of any Note (or a beneficial interest therein) may only be made in accordance with this Section 2.04 and Section 2.03 and, in the case of a Global Note (or a beneficial interest therein), the applicable rules and procedures of the Depository. The Security Registrar shall refuse to register any requested transfer or exchange that does not comply with the preceding sentence.
(b)    Subject to paragraph (c) of this Section 2.04, the transfer or exchange of any Note (or a beneficial interest therein) of the type set forth in column A below for a Note (or a beneficial interest therein) of the type set forth opposite in column B below may only be made in compliance with the certification requirements (if any) described in the clause of this paragraph set forth opposite in column C below.
A
 
B
 
C
U.S. Global Note
 
U.S. Global Note
 
(i)
U.S. Global Note
 
Offshore Global Note
 
(ii)
U.S. Global Note
 
Certificated Note
 
(iii)
Offshore Global Note
 
U.S. Global Note
 
(iv)
Offshore Global Note
 
Offshore Global Note
 
(i)
Offshore Global Note
 
Certificated Note
 
(v)
Certificated Note
 
U.S. Global Note
 
(iv)
Certificated Note
 
Offshore Global Note
 
(ii)
Certificated Note
 
Certificated Note
 
(iii)

(i) No certification is required.
(ii) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Security Registrar a duly completed Regulation S Certificate; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Legend, then no certification is required.
(iii) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee (y) a duly completed Rule 144A Certificate or (z) a duly completed Regulation S Certificate, and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer or exchange is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Legend, then no certification is required. In the event that (y) the requested transfer or exchange takes place after the Restricted Period and a duly completed Regulation S Certificate is delivered to the Security Registrar or (z) a Certificated Note that does not bear the Restricted Legend is surrendered for transfer or exchange, upon transfer or exchange the Trustee will deliver a Certificated Note that does not bear the Restricted Legend.
(iv) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Security Registrar a duly completed Rule 144A Certificate.




(v) Notwithstanding anything to the contrary contained herein, no such exchange is permitted if the requested exchange involves a beneficial interest in a Temporary Offshore Global Note. If the requested transfer involves a beneficial interest in a Temporary Offshore Global Note, the Person requesting the transfer must deliver or cause to be delivered to the Security Registrar a duly completed Rule 144A Certificate or and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States. If the requested transfer or exchange involves a beneficial interest in a Permanent Offshore Global Note, no certification is required and the Trustee will deliver a Certificated Note that does not bear the Restricted Legend.
(c)    No certification is required in connection with any transfer or exchange of any Note (or a beneficial interest therein):
(i) after such Note is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need for current public information; provided that the Company has provided the Trustee with an Officers' Certificate to that effect, and the Company may require from any Person requesting a transfer or exchange in reliance upon this clause (i) an opinion of counsel and any other reasonable certifications and evidence in order to support such certificate; or
(ii) (y) sold pursuant to an effective registration statement, pursuant to the Registration Rights Agreement or otherwise or (z) which is validly tendered for exchange into an Exchange Note pursuant to an Exchange Offer.
Any Certificated Note delivered in reliance upon this paragraph will not bear the Restricted Legend.
(d)    The Trustee will retain copies of all certificates, opinions and other documents received in connection with the transfer or exchange of a Note (or a beneficial interest therein), and the Company will have the right to inspect and make copies thereof at any reasonable time upon written notice to the Trustee.
(e)    The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this First Supplemental Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depository participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the terms of, this First Supplemental Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
Section 2.05. Temporary Offshore Global Notes. (a) Each Note originally sold by the Initial Purchasers in reliance upon Regulation S will be evidenced by one or more Offshore Global Notes that bear the Temporary Offshore Global Note Legend.
(b)    An owner of a beneficial interest in a Temporary Offshore Global Note (or a Person acting on behalf of such an owner) may provide to the Trustee (and the Trustee will accept) a duly completed Certificate of Beneficial Ownership at any time after the Restricted Period (it being understood that the Trustee will not accept any such certificate during the Restricted Period). Promptly after acceptance of a Certificate of Beneficial Ownership with respect to such a beneficial interest, the Trustee will cause such beneficial interest to be exchanged for an equivalent beneficial interest in a Permanent Offshore Global




Note, and will (x) permanently reduce the principal amount of such Temporary Offshore Global Note by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Note by the amount of such beneficial interest.
(c)    Notwithstanding paragraph (b), if after the Restricted Period any Initial Purchaser owns a beneficial interest in a Temporary Offshore Global Note, such Initial Purchaser may, upon written request to the Trustee accompanied by a certification as to its status as an Initial Purchaser, exchange such beneficial interest for an equivalent beneficial interest in a Permanent Offshore Global Note, and the Trustee will comply with such request and will (x) permanently reduce the principal amount of such Temporary Offshore Global Note by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Note by the amount of such beneficial interest.
(d)    Notwithstanding anything to the contrary contained herein, any owner of a beneficial interest in a Temporary Offshore Global Note shall not be entitled to receive payment of principal or interest on such beneficial interest or other amounts in respect of such beneficial interest until such beneficial interest is exchanged for an interest in a Permanent Offshore Global Note or transferred for an interest in another Global Note or a Certificated Note.
Section 2.06. Terms of the Notes. The following terms relating to the Notes are hereby established:
(a) Title . The Notes shall constitute a series of Securities having the title “5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053.”
(b) Principal Amount . The aggregate principal amount of the Notes that may be initially authenticated and delivered under the Indenture shall be $750,000,000. The Company may from time to time, without the consent of the Holders of Notes, increase the principal amount of the Notes by issuing additional Notes (in any such case “ Additional Notes ”) on the same terms and conditions as the Notes in all respects, including any Exchange Notes issued in exchange for such Additional Notes, except for any difference in the issue date, public offering price, interest accrued prior to the issue date of the Additional Notes and the first Interest Payment Date; provided that, if such Additional Notes are not fungible for U.S. federal income tax purposes with the Notes they will be assigned a separate CUSIP number. Any Additional Notes and the existing Notes will rank equally and ratably in right of payment and constitute a single series for all purposes under the Indenture and all references to the relevant Notes shall include the Additional Notes unless the context otherwise requires.
(c) Stated Maturity . The Notes will mature on May 15, 2053 (the “ Stated Maturity ”).
(d) Interest Rate; Interest Payment Dates .
(i) Rate of Interest; Accrual . The Notes shall bear interest on their principal amount: (x) from, and including, May 16, 2013, to, but excluding, May 15, 2023, or any earlier Redemption Date, at the rate of 5.650% per annum, computed on the basis of a 360-day year consisting of twelve 30-day months, and (ii) from, and including, May 15, 2023, to, but excluding, the Stated Maturity, or any earlier Redemption Date, at an annual rate equal to Three-Month LIBOR plus 3.58%, computed on the basis of a 360-day year and the actual number of days elapsed. Defaulted Interest and interest deferred pursuant to Section 2.06(e) will bear interest, to the extent permitted by law, at the interest rate in effect from time to time provided in this Section 2.06(d)(i), from, and including, the relevant Interest Payment Date, compounded on each subsequent Interest Payment Date.




(ii) Interest Payment Dates . Subject to Section 2.06(e), accrued interest on the Notes shall be payable (x) semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2013 and ending on May 15, 2023 (each such date, a “ Fixed-Rate Interest Payment Date ”), or if any such day is not a Business Day, the next Business Day (but no interest will accrue as a result of that postponement), to the Holders of the Notes at the close of business on the immediately preceding May 1 or November 1 (whether or not a Business Day), as the case may be, and (ii) quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on August 15, 2023, or if any such day is not a Business Day, the next Business Day, or if the next Business Day is in the immediately succeeding calendar month, the immediately preceding Business Day (each such date, a “ Floating-Rate Interest Payment Date ”), to the Holders of the Notes at the close of business on the immediately preceding February 1, May 1, August 1 and November 1 (whether or not a Business Day), as the case may be.
(e) Deferral .
(i) Option to Defer Interest Payments .
(A) So long as no Event of Default with respect to the Notes has occurred or is continuing, the Company shall have the right, at any time and from time to time, to defer the payment of interest on the Notes for one or more consecutive Interest Periods for up to five years for any single Deferral Period, provided that no Deferral Period shall extend beyond the Stated Maturity, any earlier accelerated maturity date arising from an Event of Default or any earlier Redemption Date of the Notes. If the Company has paid all deferred interest (including compounded interest thereon) on the Notes, the Company shall have the right to elect to begin a new Deferral Period pursuant to this Section 2.06(e)(i).
(B) At the end of any Deferral Period, the Company shall pay all deferred interest (including compounded interest thereon) on the Notes to the Holders of the Notes registered in the Security Register at the close of business on the Regular Record Date with respect to the Interest Payment Date at the end of such Deferral Period.
(ii) Notice of Deferral . The Company shall give written notice of its election to commence or continue any Deferral Period to the Trustee and the Holders of the Notes at least two Business Day and not more than 60 Business Days before the next Interest Payment Date.
(f) Sinking Fund. The Notes shall not be subject to Article 4 of the Base Indenture.
(g) Subordination . The subordination provisions of Article 13 and Article 14 of the Base Indenture shall apply to the Notes and the Subsidiary Guarantee, respectively, except that solely for purposes of the Notes and the Subsidiary Guarantee with respect to the Notes, Section 13.03 and Section 14.03, respectively, of the Base Indenture shall be amended as follows:
(i) Clauses (a) and (b) of Section 13.03 of the Base Indenture shall be deleted and replaced with the following:
“(1) In the event and during the continuation of any default in the payment of principal, premium, if any, or interest on any Company Senior Indebtedness beyond any applicable grace period with respect thereto, (2) in the event that any event of default




with respect to any Company Senior Indebtedness shall have occurred and be continuing, permitting the direct holders of that Company Senior Indebtedness (or a trustee on behalf of the holders thereof) to accelerate the maturity of that Company Senior Indebtedness, whether or not the maturity is in fact accelerated (unless, in the case of either subclause (1) or (2) of this clause (a), the payment default or event of default has been cured or waived or ceased to exist and any related acceleration has been rescinded), or (3) in the event that any judicial proceeding shall be pending with respect to a payment default or event of default described in subclause (1) or (2) of this clause (a), no payment or distribution of any kind or character, whether in cash, securities or other property, shall be made by the Company on account of the principal of or interest on the Securities unless and until all amounts then due and payable in respect of such Company Senior Indebtedness, including any interest accrued after such event occurs, shall have been paid in full.”;
(ii) Clause “(c)” of Section 13.03 of the Base Indenture shall be renumbered clause “(b)” and clause “(d)” of Section 13.03 of the Base Indenture shall be renumbered clause “(c)”;
(iii) Clauses (a) and (b) of Section 14.03 of the Base Indenture shall be deleted and replaced with the following:
“(1) In the event and during the continuation of any default in the payment of principal, premium, if any, or interest on any Subsidiary Guarantor Senior Indebtedness beyond any applicable grace period with respect thereto, (2) in the event that any event of default with respect to any Subsidiary Guarantor Senior Indebtedness shall have occurred and be continuing, permitting the direct holders of that Subsidiary Guarantor Senior Indebtedness (or a trustee on behalf of the holders thereof) to accelerate the maturity of that Subsidiary Guarantor Senior Indebtedness, whether or not the maturity is in fact accelerated (unless, in the case of either subclause (1) or (2) of this clause (a), the payment default or event of default has been cured or waived or ceased to exist and any related acceleration has been rescinded), or (3) in the event that any judicial proceeding shall be pending with respect to a payment default or event of default described in subclause (1) or (2) of this clause (a), no payment or distribution of any kind or character, whether in cash, securities or other property, shall be made by the Subsidiary Guarantor on account of the Subsidiary Guarantee unless and until all amounts then due and payable in respect of such Subsidiary Guarantor Senior Indebtedness, including any interest accrued after such event occurs, shall have been paid in full.”; and
(iv) Clause “(c)” of Section 14.03 of the Base Indenture shall be renumbered clause “(b)” and clause “(d)” of Section 14.03 of the Base Indenture shall be renumbered clause “(c)”.
(h) Subsidiary Guarantee . The subsidiary guarantee provisions of Article 12 of the Base Indenture shall apply to the Notes.
(i) Currency . The currency of denomination of the Notes is United States Dollars. Payment of principal of and interest and premium, if any, on the Notes will be made in United States Dollars.




Section 2.07. Events of Default .
(a) Clauses (a) through (d) of Section 7.01 of the Base Indenture shall not apply to the Notes. Clauses (e) and (f) of Section 7.01 of the Base Indenture shall apply to the Notes, except that solely for purposes of the Notes, each such clause shall be amended by deleting each reference to “Subsidiary Guarantor” therein.
(b) Notwithstanding Section 7.02 of the Base Indenture, if an Event of Default specified in clause (e) or (f) of Section 7.01 of the Base Indenture, as amended by this First Supplemental Indenture, occurs, the principal amount of all the Notes shall automatically, and without any declaration or other action on the part of the Trustee or any Holder, become immediately due and payable; provided that in any such case the payment of principal of the Notes shall remain subordinated to the extent provided in Article 13 of the Base Indenture.
(c) The Trustee shall provide to the Holders of the Notes notice of any Event of Default or default with respect to the Notes within 90 days after the actual knowledge of a Responsible Officer of the Trustee of such Event of Default or default. However, except in the case of a default in payment on the Notes, the Trustee will be protected in withholding the notice if one of its Responsible Officers determines that withholding of the notice is in the interest of Holders.
(d) The Trustee shall have no right or obligation under the Indenture or otherwise to exercise any remedies on behalf of any Holders of the Notes in connection with any default, unless such remedies are available under the Indenture and the Trustee is directed to exercise such remedies pursuant to and subject to the conditions of Section 7.12 of the Base Indenture, provided , however , that this provision shall not affect the rights of the Trustee with respect to any Events of Default as set forth in Section 2.07(b) that may occur with respect to the Notes. In connection with any such exercise of remedies the Trustee shall be entitled to the same immunities and protections and remedial rights (other than acceleration) as if such default were an Event of Default.
(e) For purposes of this Section 2.07, the term “default” means any of the following events:
(i) default in the payment of interest, including compounded interest, in full on any Notes for a period of 30 days after the conclusion of a five-year period following the commencement of any Deferral Period if such Deferral Period has not ended prior to the conclusion of such five-year period;
(ii) default in the payment of principal of or premium (if any) on the Notes when due;
(iii) default in the observance or performance of any covenant or agreement contained in the Indenture or the Notes; or
(iv) default in the payment of interest for a period of 30 days after any Interest Payment Date if the Company shall not have given written notice of its election to commence or continue a Deferral Period pursuant to Section 2.06(e)(ii).
Section 2.08. Defeasance . The provisions of Section 11.03 of the Base Indenture (relating to discharge of the Base Indenture and this First Supplemental Indenture) shall apply to the Notes.
Section 2.09. Repurchases. The Company may, to the extent permitted by law, and directly or indirectly (regardless of whether such Notes are surrendered to the Company), repurchase Notes in the open market or otherwise, whether by the Company or its Subsidiaries or through a private or public




tender or exchange offer or through counterparties to private agreements, including by cash-settled swaps or other derivatives. The Company shall cause any Notes so repurchased (other than Notes repurchased pursuant to cash-settled swaps or other derivatives) to be surrendered to the Trustee for cancellation in accordance with Section 2.09 of the Base Indenture.
ARTICLE 3
COVENANTS
Section 3.01. Dividend and Other Payment Stoppages . (a) So long as any Notes remain Outstanding, if (a) the Company has given notice of its election to defer interest payments on the Notes but the related Deferral Period has not yet commenced, or (b) a Deferral Period is continuing, then, in either case, the Company shall not, and shall not permit any Subsidiary of the Company to:
(i) declare or pay any dividends or other distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of Capital Stock of the Company;
(ii) make any payment of principal of, or interest or premium, if any, on, or repay, purchase or redeem any of the Company's debt securities that rank upon the Company's liquidation on a parity with or junior to the Notes; or
(iii) make any guarantee payments regarding any guarantee issued by the Company of securities of any Subsidiary of the Company if the guarantee ranks upon the Company's liquidation on a parity with or junior to the Notes;
provided , however , the restrictions in clauses (i), (ii) and (iii) above shall not apply to:
(A) any purchase, redemption or other acquisition of shares of the Company's Capital Stock in connection with:
(1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors; or
(2) the satisfaction of the Company's obligations pursuant to any contract outstanding at the beginning of the applicable Deferral Period requiring such purchase redemption or other acquisition;
(B) any exchange, redemption or conversion of any class or series of the Company's Capital Stock, or the Capital Stock of one of its Subsidiaries, for any other class or series of the Company's Capital Stock, or of any class or series of the Company's indebtedness for any class or series of the Company's Capital Stock;
(C) any purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the securities being converted or exchanged;
(D) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto; or




(E) any dividend in the form of stock, warrants, options or other rights where the dividend stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks on parity with or junior to such stock; or
(F) any payment of current or deferred interest on Pari Passu Securities of the Company so long as the amounts paid, the amounts set aside at such time for payment of such Pari Passu Securities of the Company on the immediately following regularly scheduled interest payment dates therefor and the amounts paid or set aside at such time for payment on the Notes on the immediately following Interest Payment Date for the Notes, are in the same proportion to the full payment to which each series of such Pari Passu Securities of the Company and the Notes is then, or on such immediately following regularly scheduled interest payment dates will be, entitled to be paid in full.
(b) For the avoidance of doubt, notwithstanding anything herein to the contrary, no terms of the Notes will restrict in any manner the ability of any of the Subsidiaries of the Company to pay dividends or make any distributions to the Company or to any other Subsidiaries of the Company.
ARTICLE 4
REDEMPTION
Section 4.01. Redemption. (a) The provisions of Article 3 of the Base Indenture shall apply to the Notes, as modified by this Section 4.01.
(b) The Notes shall be redeemable
(i) in whole at any time or in part from time to time, on or after May 15, 2023, at 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest (including compounded interest) to, but excluding, the Redemption Date; provided that no partial redemption shall be effected unless (A) at least $25 million aggregate principal amount of the Notes, excluding any Notes held by the Company or any of its Affiliates, shall remain Outstanding after giving effect to such redemption and (B) all accrued and unpaid interest, including deferred interest, shall have been paid in full on all Outstanding Notes for all Interest Periods terminating on or before the Redemption Date; or
(ii) in whole, but not in part, at any time prior to May 15, 2023, within 90 days after the occurrence of a Tax Event or a Rating Agency Event at the greater of (A) 100% of the principal amount of the Notes being redeemed and (B) the Make-Whole Redemption Price, in each case plus accrued and unpaid interest (including compounded interest) to, but excluding, the Redemption Date.
(c) Notwithstanding Article 3 of the Base Indenture, the notice of redemption with respect to any redemption pursuant to Section 3.04 thereof need not set forth the Redemption Price but only the manner of calculation thereof as described above
(d) Notwithstanding Article 3 of the Base Indenture, notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at its registered address.
(e) Unless the Company defaults in payment of the Redemption Price, including any accrued interest and any compounded interest, interest on the Notes or portions thereof called for redemption will cease to accrue on the Redemption Date. On or before the Redemption Date for the Notes, the Company




will deposit with a Paying Agent, or the Trustee, funds sufficient to pay the Redemption Price of and accrued and unpaid interest on the Notes to be redeemed on such date. If less than all of the Notes are to be redeemed, the Trustee shall select the Notes or portions of the Notes to be redeemed by such method as the Trustee shall deem fair and appropriate. The Trustee may select for redemption Notes and portions of Notes in amounts of $2,000 and integral multiples of $1,000 in excess thereof, provided that the unredeemed portion of any Note to be redeemed in part will not be less than $2,000, and shall thereafter promptly notify the Company in writing of the numbers of Notes to be redeemed, in whole or in part.
ARTICLE 5
SUPPLEMENTAL INDENTURES

Section 5.01. Supplemental Indentures Without Consent of Holders . Solely for purposes of the Notes, Section 10.01 of the Base Indenture shall be deleted and replaced with the following:
“Section 10.01. Supplemental Indentures Without Consent of Holders . Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may supplement or amend the Indenture for any of the following purposes:
(a) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Notes; or
(b) to add to or modify the covenants of the Company for the benefit of the Holders of Notes or to surrender any right or power herein conferred upon the Company (including surrendering of the Company's right to redeem the Notes upon the occurrence of the Rating Agency Event); provided that no such amendment or modification may add Events of Default or acceleration events with respect to the Notes; or
(c) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Notes; or
(d) to cure any ambiguity, to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein or in any supplemental indenture, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action shall not adversely affect the interests of the Holders of Notes in any material respect;
(e) to add a Subsidiary Guarantor or remove a Subsidiary Guarantor if permitted under the terms of the Indenture; or
(f) to make any changes to the Indenture in order for the Indenture to conform to the “Description of Junior Subordinated Notes” section of the Offering Memorandum.”
Section 5.02. Supplemental Indentures with Consent of Holders . Solely for purposes of the Notes, clauses (i) through (ix) of Section 10.02(a) of the Base Indenture shall be deleted and replaced with the following clauses (i) through (viii):
“(i)      change the Stated Maturity of any payment of principal of or interest (including any compounded interest) on the Notes;




(ii) change the manner of calculating payments due on the Notes in a manner adverse to Holders;
(iii) reduce the requirements contained herein for quorum or voting;
(iv) change the place of payment for any payment on the Notes that is adverse to the Holders or change the currency in which any payment on the Notes is payable;
(v) impair the right of any Holder to institute suit for the enforcement of any payment on the Notes;
(vi) reduce the percentage in principal amount of Outstanding Notes, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver of compliance with the provisions hereof or defaults hereunder and their consequences;
(vii) reduce the principal amount of, the rate of interest on or any premium payable upon the redemption of the Notes;
(viii) modify any guarantee in a manner that would adversely affect the Holders of the Notes; or
(ix) modify any of the provisions of this Section.”
Section 5.03. Supplemental Indenture to Add Event of Default . The Company shall not enter into any supplemental indenture with the Trustee to add any additional Event of Default with respect to the Notes without the consent of the Holders of at least a majority in aggregate principal amount of Outstanding Notes.
ARTICLE 6
MISCELLANEOUS
Section 6.01. Trust Indenture Act Controls. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with another provision which is required to be included in this First Supplemental Indenture by the Trust Indenture Act, the required provision shall control. If any provision of this First Supplemental Indenture modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this First Supplemental Indenture as so modified or to be excluded, as the case may be.
Section 6.02. Governing Law. This First Supplemental Indenture and the Notes, and any claim, controversy or dispute arising under or related to this First Supplemental Indenture or the Notes, shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its principles of conflicts of laws.
Section 6.03. Payment of Notes. Payments in respect of the Notes represented by the Global Notes are to be made by wire transfer of immediately available funds to the accounts specified by the Holders of the Global Notes. With respect to Certificated Notes, the Company will make all payments of principal at the Corporate Trust Office and payments of interest (i) to a Holder having an aggregate principal amount of Notes of $1,000,000 or less, by check mailed to such Holder of Notes and (ii) to a Holder having an aggregate principal amount of Notes of more than $1,000,000, either by check mailed to such Holder or, upon application by such Holder to the Security Registrar not later than the relevant




Regular Record Date, by wire transfer in immediately available funds to such Holder's account within the United States, which application shall remain in effect until such Holder notifies, in writing, the Security Registrar to the contrary. The Company may also arrange for additional payment offices, and may cancel or change these offices, including the use of the Corporate Trust Office. The Company may also choose to act as its own paying agent. The Company must notify Holders of changes in the paying agents for the Notes.
Section 6.04. Multiple Counterparts. The parties may sign multiple counterparts of this First Supplemental Indenture. Each signed counterpart shall be deemed an original, but all of them together represent one and the same First Supplemental Indenture.
Section 6.05. Severability. Each provision of this First Supplemental Indenture shall be considered separable and if for any reason any provision which is not essential to the effectuation of the basic purpose of this First Supplemental Indenture or the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and a Holder shall have no claim therefor against any party hereto.
Section 6.06. Relation to Indenture. This First Supplemental Indenture constitutes a part of the Base Indenture, the provisions of which (as modified by this First Supplemental Indenture) shall apply to the series of Securities established by this First Supplemental Indenture but shall not modify, amend or otherwise affect the Base Indenture insofar as it relates to any other series of Securities or modify, amend or otherwise affect in any manner the terms and conditions of the Securities of any other series.
Section 6.07. Ratification. The Base Indenture, as supplemented and amended by this First Supplemental Indenture, is in all respects ratified and confirmed. The Base Indenture and this First Supplemental Indenture shall be read, taken and construed as one and the same instrument. All provisions included in this First Supplemental Indenture supersede any conflicting provisions included in the Base Indenture unless not permitted by law. The Trustee accepts the trusts created by the Base Indenture, as supplemented and amended by this First Supplemental Indenture, and agrees to perform the same upon the terms and conditions of the Base Indenture, as supplemented and amended by this First Supplemental Indenture.
Section 6.08. Effectiveness. The provisions of this First Supplemental Indenture shall become effective as of the date hereof.
Section 6.09. Trustee Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee or any Authenticating Agent assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture or of the Securities. The Trustee or any Authenticating Agent shall not be accountable for the use or application by the Company of Securities or the proceeds thereof.
ARTICLE 7
GENERAL GUARANTEE AGREEMENT

Section 7.01. General Guarantee Agreement Inapplicable. Without in any way limiting the obligations of the Company or any Subsidiary Guarantor hereunder, the General Guarantee Agreement dated April 17, 2012 by Lion Holdings in favor of each person to whom the Company may owe any obligations evidenced by senior unsecured debentures, notes or similar debt instruments issued by the




Company shall be inapplicable to the Securities. The Trustee shall not be entitled to enforce any rights under the General Guarantee Agreement with respect to any Securities or other obligation under this First Supplemental Indenture. The Trustee waives all rights and remedies it may have under the General Guarantee Agreement with respect to any obligation under this First Supplemental Indenture. For the avoidance of doubt, any obligation under this First Supplemental Indenture is not an obligation as defined in the General Guarantee Agreement. This Article 7 does not in any way limit any obligation of the Company under any Securities or any Subsidiary Guarantor under its Subsidiary Guarantee.

This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
[ remainder of page intentionally left blank; signature pages follow ]






IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed as of the date first above written.


ING U.S., INC.
By:
/s/ Alain M. Karaoglan
 
Name: Alain M. Karaoglan
 
Title: Executive Vice President and Chief Operating Officer

By:
/s/ Ewout L. Steenbergen
 
Name: Ewout L. Steenbergen
 
Title: Executive Vice President and Chief Financial Officer

LION CONNECTICUT HOLDINGS INC.
By:
/s/ Alain M. Karaoglan
 
Name: Alain M. Karaoglan
 
Title: Executive Vice President and Chief Operating Officer

By:
/s/ Ewout L. Steenbergen
 
Name: Ewout L. Steenbergen
 
Title: Executive Vice President and Chief Financial Officer


U.S. BANK NATIONAL ASSOCIATION,
as Trustee
By:
/s/ Earl W. Dennison Jr.
 
Name: Earl W. Dennison Jr.
 
Title: Vice President




[Signature Page to First Supplemental Indenture]
EXHIBIT A
[Form of Note]
ING U.S., Inc.




5.650% Fixed-to-Floating Rate Junior Subordinated Note due 2053
Fully and Unconditionally Guaranteed by Lion Connecticut Holdings Inc.
Principal Amount: $_____
No.
CUSIP: [45685E AF3] 1  
[U45717 AC6] 2  
    
ISIN:      [US45685EAF34] 1
[USU45717AC65] 2  
ING U.S., Inc., a Delaware corporation (herein called the “ Company ,” which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ______________, or registered assigns, the principal sum of $_____ on May 15, 2053 (the “ Stated Maturity ”) (except to the extent redeemed or repaid prior to the Stated Maturity). The Company further promises to pay interest on said principal sum from May 16, 2013 (the “ Original Issue Date ”) to, but excluding, May 15, 2023, at the annual rate of 5.650%, (computed on the basis of a 360-day year consisting of twelve 30-day months) semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2013 (each, a “ Fixed-Rate Interest Payment Date ”), subject to deferral as set forth herein. In the event that any Fixed-Rate Interest Payment Date falls on a day that is not a Business Day, the interest payment due on that date will be postponed to the next day that is a Business Day, and no interest will accrue as a result of that postponement. From, and including, May 15, 2023 until the principal thereof is paid or made available for payment, the Company promises to pay such interest at an annual rate equal to Three-Month LIBOR plus 3.58%, (computed on the basis of a 360-day year and the actual number of days elapsed) quarterly in arrears on February 15, May 15, August 15 and November 15, beginning on August 15, 2023, or if any of these days is not a Business Day, on the next Business Day, except that if such Business Day is in the next succeeding calendar month, the immediately preceding Business Day (each, a “ Floating-Rate Interest Payment Date ”, and each Fixed Rate Interest Payment Date and each Floating Rate Interest Payment Date being hereinafter referred to as an “ Interest Payment Date ”), subject to deferral as set forth herein.
Payment of Interest . The interest so payable, and punctually paid or made available for payment, on any Interest Payment Date, will, as provided in the Indenture, be paid, in immediately available funds, to the Person in whose name this Note (or one or more predecessor securities) is registered at the close of business on May 1 or November 1 (whether or not a Business Day), as the case may be, immediately preceding the relevant Fixed-Rate Interest Payment Date, or February 1, May 1, August 1 or November 1 (whether or not a Business Day), as the case may be, immediately preceding the relevant Floating-Rate Interest Payment Date (the “ Regular Record Date ”). Any such interest not punctually paid or duly
 
 
1  

For Rule 144A Note(s).
2  

For Regulation S Note(s).
provided for when due (“ Defaulted Interest ”) will forthwith cease to be payable to the Holder on such Regular Record Date, and such Defaulted Interest, may be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a special record date (the “ Special Record Date ”) for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than ten days prior to such Special Record Date, or




may be paid at any time in any other lawful manner not inconsistent with requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Deferral . So long as no Event of Default with respect to this Note has occurred or is continuing, the Company shall have the right at any time during the term of this Note to defer the payment of interest on this Note for one or more consecutive Interest Periods for up to five years for any single Deferral Period, at the end of which the Company shall pay all interest then accrued and unpaid; provided, however, that no Deferral Period shall extend beyond the Stated Maturity, any earlier accelerated maturity date arising from an Event of Default or any date of redemption of this Note.
Upon the termination of any Deferral Period and upon the payment of all deferred interest then due, the Company may elect to begin a new Deferral Period, subject to the above requirements. The Company shall give written notice of its election to commence or continue any Deferral Period to the Trustee and the Holders of all Notes then Outstanding at least two Business Day and not more than 60 Business Days before the next Interest Payment Date.
Dividend and Other Payment Stoppages . So long as any Notes remain Outstanding, if the Company has given notice of its election to defer interest payments on the Notes but the related Deferral Period has not yet commenced or a Deferral Period is continuing, the Company shall not, and shall not permit any Subsidiary to, (i) declare or pay any dividends or other distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any shares of the Company's Capital Stock, (ii) make any payment of principal of, or interest or premium, if any, on or repay, purchase or redeem any debt securities of the Company that rank upon the Company's liquidation on a parity with this Note or junior to this Note or (iii) make any guarantee payments regarding any guarantee issued by the Company of securities of any Subsidiary if the guarantee ranks upon the Company's liquidation on a parity with or junior to this Note (other than (a) any purchase, redemption or other acquisition of shares of the Company's Capital Stock in connection with (1) any employment contract, benefit plan or other similar arrangement with or for the benefit of any one or more of its employees, officers, directors, consultants or independent contractors or (2) the satisfaction of the Company's obligations pursuant to any contract outstanding at the beginning of the applicable Deferral Period requiring such purchase, redemption or other acquisition, (b) any exchange, redemption or conversion of any class or series of the Company's Capital Stock, or the Capital Stock of one of its Subsidiaries, for any other class or series of its Capital Stock, or of any class or series of its indebtedness for any class or series of its Capital Stock, (c) any purchase of fractional interests in shares of the Company's Capital Stock pursuant to the conversion or exchange provisions of such Capital Stock or the securities being converted or exchanged, (d) any declaration of a dividend in connection with any shareholder rights plan, or the issuance of rights, stock or other property under any shareholder rights plan, or the redemption or purchase of rights pursuant thereto, (e) any dividend in the form of stock, warrants, options or other rights where the dividend or stock issuable upon exercise of such warrants, options or other rights is the same stock as that on which the dividend is being paid or ranks on parity with or junior to such stock, or (f) any payment of current or deferred interest on Pari Passu Securities of the Company with respect to this Note so long as the amounts paid, the amounts set aside at such time for payment of such Pari Passu Securities on the immediately following regularly scheduled interest payment dates therefor and the amounts paid or set aside at such time for payment on the Notes on the immediately following Interest Payment Date for the Notes, are in the same proportion to the full payment to which each series of such Pari Passu Securities of the Company and this Notes is then, or on such immediately following regularly scheduled interest payment dates will be, entitled to be paid in full.




Place of Payment . Payment of principal of this Note will be made at the Corporate Trust Office. If this Note is a Certificated Note, payments of interest on this Note will be made if the Holder of this Note has an aggregate principal amount of Notes of (i)  $1,000,000 or less, by check mailed to the Holder or (ii) more than $1,000,000, either by check mailed to the Holder or, upon application by the Holder to the Security Registrar not later than the relevant Regular Record Date, by wire transfer in immediately available funds to the Holder's account within the United States, which application shall remain in effect until the Holder notifies, in writing, the Security Registrar to the contrary.
General . This Note is one of a duly authorized issue of Securities of the Company, issued and to be issued in one or more series under a Junior Subordinated Indenture (the “ Base Indenture ”), dated as of May 16, 2013, among the Company, Lion Connecticut Holdings Inc., as the initial Subsidiary Guarantor, and U.S. Bank National Association (herein called the “ Trustee ,” which term includes any successor Trustee under the Indenture with respect to a series of which this Note is a part), as supplemented and amended by a First Supplemental Indenture thereto, dated as of May 16, 2013 (the “ First Supplemental Indenture ” and the Base Indenture, as amended and supplemented by the Supplemental Indenture, the “ Indenture ”), among the Company, the Subsidiary Guarantors party thereto from time to time and the Trustee. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Subsidiary Guarantors, the Trustee and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. This Note is one of a duly authorized series of Securities designated as “5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053” (collectively, the “ Notes ”), initially limited in aggregate principal amount to $750,000,000.
Further Issuance . The Company may from time to time, without the consent of the Holders of Notes, increase the principal amount of the Notes by issuing additional Notes (in any such case “ Additional Notes ”) in the future on the same terms and conditions as the Notes in all respects, including any Exchange Notes issued in exchange for such Additional Notes, except for any difference in the issue date, public offering price, interest accrued prior to the issue date of the Additional Notes and the first Interest Payment Date; provided that, if such additional Notes are not fungible for U.S. federal income tax purposes with the Notes they will be assigned a separate CUSIP number. Any Additional Notes and the existing Notes will rank equally and ratably in right of payment and constitute a single series for all purposes under the Indenture and all references to the relevant Notes shall include the Additional Notes unless the context otherwise requires.
Events of Default . As provided in and subject to the provisions of the Indenture, if an Event of Default as set forth in the Indenture occurs, the principal amount of the Notes shall automatically become due and payable; provided that in any such case the payment of principal of the Notes shall remain subordinated to the extent provided in Article 13 of the Indenture.
Sinking Fund . The Notes are not subject to any sinking fund.
Redemption and Repurchase . The Notes are subject to redemption at the election of the Company in accordance with the terms of the Indenture. In particular, this Note is redeemable: (a) in whole at any time or in part from time to time, on or after May 15, 2023, at a redemption price equal to 100% of the principal amount of the Notes being redeemed, plus accrued and unpaid interest (including compounded interest) to, but excluding, the Redemption Date; provided that if the Notes are not redeemed in whole, at least $25 million aggregate principal amount of the Outstanding Notes remain Outstanding after giving effect to such redemption or (b) in whole, but not in part, at any time prior to May 15, 2023, within 90 days after the occurrence of a Tax Event or a Rating Agency Event, at a redemption price equal to the greater of (i) 100% of the principal amount of the Notes being redeemed or (ii) the Make-Whole




Redemption Price, in each case plus accrued and unpaid interest (including compounded interest) to, but excluding, the Redemption Date.
Notwithstanding the foregoing, the Company may not redeem the Notes of in part unless all accrued and unpaid interest, including deferred interest, has been paid in full on all Outstanding Notes for all Interest Periods terminating on or before the Redemption Date.
In the event of a redemption of this Note in part only, a new Note or Notes of a like tenor for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.
Defeasance . The Indenture contains provisions for satisfaction and discharge of the entire indebtedness of the Company on this Note upon compliance by the Company with certain conditions set forth in the Indenture, which provisions apply to this Note.
Modification and Waivers; Obligations of the Company Absolute . The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Notes. Such amendment may be effected under the Indenture at any time by the Company, and the Trustee with the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes affected thereby. The Indenture also contains provisions permitting the Holders of not less than a majority in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all Outstanding Notes, to waive compliance by the Company with certain provisions of the Indenture. Furthermore, provisions in the Indenture permit the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes to waive on behalf of all of the Holders of Notes certain past defaults under the Indenture and their consequences. Any such consent or waiver shall be conclusive and binding upon the Holder of this Note and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange hereof or in lieu hereof, whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Note at the time, place, and rate, and in the currency, herein prescribed.
Subsidiary Guarantees . This Note will be entitled to the benefits of certain Subsidiary Guarantees made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Subsidiary Guarantors, the Trustee and the Holders.
Registration Rights . The Note will be entitled to the benefits of the Registration Rights Agreement, dated May 16, 2013, between the Company, the initial Subsidiary Guarantor and the Initial Purchasers named therein, including the right to receive Additional Interest (as defined in the Registration Rights Agreement) as and when set forth therein. 3
 
 
 
3  

Include only for Initial Note or Additional Note
No Recourse Against Others . No director, officer, agent, employee, incorporator, stockholder, partner, member, or manager of the Company or any Subsidiary Guarantor shall have any liability for any obligations of the Company or any Subsidiary Guarantor under any Notes, the Indenture or any Subsidiary Guarantee or for any claim based on, in respect of, or by reason of, such obligations or their creation.




Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
Limitation on Suits . As set forth in, and subject to, the provisions of the Indenture, no Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default with respect to this series, the Holders of not less than 25% in principal amount of the Outstanding Notes shall have made written request, and offered indemnity satisfactory to the Trustee to institute such proceedings as Trustee, and the Trustee shall not have received from the Holders of a majority in principal amount of the Outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days; provided, however , that such limitations do not apply to a suit instituted by the Holder hereof for the enforcement of payment of the principal of or interest on this Note on or after the respective due dates expressed herein.
Authorized Denominations . The Notes are issuable only in registered form without coupons in minimum denominations of $2,000 and integral multiples of $1,000 in excess thereof.
Registration of Transfer or Exchange . As provided in the Indenture and subject to certain limitations herein and therein set forth, the transfer of this Note is registrable in the register of the Notes maintained by the Security Registrar upon surrender of this Note for registration of transfer, at the office or agency of the Company in any place where the principal of and interest on this Note are payable, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar, duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
As provided in the Indenture and subject to certain limitations herein and therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of different authorized denominations, as requested by the Holders surrendering the same.
No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Holder as the owner hereof for all purposes (except with respect to certain payments of Defaulted Interest), whether or not this Note be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
Defined Terms . All terms used in this Note, which are defined in the Indenture and are not otherwise defined herein, shall have the meanings assigned to them in the Indenture.
Governing Law . This Note, and any claim, controversy or dispute arising under this Note, shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to its principles of conflicts of law.
Unless the certificate of authentication hereon has been executed by the Trustee by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
[remainder of page intentionally left blank]




IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed and its seal to be hereunto affixed and attested.
Dated: ______________
ING U.S., INC.
 
 
By:
 
 
Name:
 
Title:

By:
 
 
Name:
 
Title:

Attest:
 
 
By:
 
 
Name:
 
Title:




TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture, as such is supplemented by the within-mentioned First Supplemental Indenture.
Dated: ______________
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
 
 
By:
 
 
Name:
 
Title: Authorized Signatory




ASSIGNMENT FORM
I or we assign and transfer this Note to
__________________________________________________________________
__________________________________________________________________
(Print or type name, address and zip code of assignee or transferee)
__________________________________________________________________
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint ______________________________________________
agent to transfer this Note on the books of the Company. The agent may substitute
another to act for him.

Dated: ____________________      Signed:
___________________________
(Sign exactly as name appears on
the other side of this Note)

Signature Guarantee:      ___________________________
Participant in a recognized
Signature Guarantee Medallion
Program (or other signature
guarantor program reasonably
acceptable to the Trustee)





    
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES BEARING A RESTRICTED LEGEND]
In connection with any transfer of this Note occurring prior to ______________, the undersigned confirms that such transfer is made without utilizing any general solicitation or general advertising and further as follows:
Check One
¨      (1) This Note is being transferred to a “qualified institutional buyer” in compliance with Rule 144A under the Securities Act of 1933, as amended, and certification in the form of Exhibit E to the First Supplemental Indenture is being furnished herewith.
¨      (2) This Note is being transferred to a Non-U.S. Person in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Regulation S thereunder, and certification in the form of Exhibit D to the First Supplemental Indenture is being furnished herewith.
or
¨      (3) This Note is being transferred other than in accordance with (1) or (2) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee is not obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in the Indenture have been satisfied.
Date: ____________________    ______________________
Seller
    
By ___________________


NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.







Signature Guarantee: 1  
 

By
 
To be executed by an executive officer





















 
 
 
 
1 Signatures must be guaranteed by an “ eligible guarantor institution ” meeting the requirements of the Security Registrar, which requirements include membership or participation in the Securities Transfer Association Medallion Program (“ STAMP ”) or such other “ signature guarantee program ” as may be determined by the Security Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.




[Attach to Global Note only]
SCHEDULE OF INCREASES AND DECREASES IN GLOBAL NOTE
ING U.S., Inc.
5.650% Fixed-to-Floating Rate Junior Subordinated Note due 2053
Fully and Unconditionally Guaranteed by Lion Connecticut Holdings Inc.
The initial principal amount of this Global Note is $ . The following increases or decreases in this Global Note have been made:
Date
 
Amount of decrease in Principal Amount of this Global Note
 
Amount of increase in Principal Amount of this Global Note
 
Principal Amount of this Global Note following such decrease or increase
 
Signature of authorized signatory of Trustee or Note Custodian
 
 
 
 
 
 
 
 
 

































EXHIBIT B

RESTRICTED LEGEND
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER
(1)      REPRESENTS THAT
(A)      IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A “QUALIFIED INSTITUTIONAL BUYER” (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT, OR
(B)      IT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND
(2)      AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT AND ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ONLY
(A)      TO THE COMPANY,
(B)      PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT,
(C)      TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(D)      IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR
(E)      PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(C) OR (D) ABOVE, A DULY COMPLETED AND SIGNED CERTIFICATE (THE FORM OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) MUST BE DELIVERED TO THE TRUSTEE. PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY RULE 144 EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.     





EXHIBIT C
DTC LEGEND
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“ DTC ”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS A BENEFICIAL INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE TRANSFER PROVISIONS OF THE INDENTURE.



    



















EXHIBIT D
Regulation S Certificate
_________, ____
U.S. Bank National Association, as Trustee
Earl Dennison, Jr.
U.S. Bank Corporate Trust Services
One Federal Street, 3 rd Floor
Boston, Ma 02110
Phone#  (617) 603-6567
Fax#      (617) 603-6667
earl.dennison@usbank.com

 
ING U.S., Inc. 5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053 (the “ Notes ”) issued under the Junior Subordinated Indenture dated May 16, 2013 (the “ Base Indenture ”), as supplemented by the First Supplemental Indenture dated as of May 16, 2013 (the “ First Supplemental Indenture ” and, together with the Base Indenture, the “ Indenture ”), relating to the Notes

Ladies and Gentlemen:
Terms are used in this Certificate as used in Regulation S (“Regulation S”) under the Securities Act of 1933, as amended (the “Securities Act”), except as otherwise stated herein.
[CHECK A OR B AS APPLICABLE.]
  ¨   A.
This Certificate relates to our proposed transfer of $____ principal amount of Notes issued under the Indenture. We hereby certify as follows:
1.
The offer and sale of the Notes was not and will not be made to a person in the United States (unless such person is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by it for which it is acting is excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3)) and such offer and sale was not and will not be specifically targeted at an identifiable group of U.S. citizens abroad.
2.
Unless the circumstances described in the parenthetical in paragraph 1 above are applicable, either (a) at the time the buy order was originated, the buyer was outside the United States or we and any person acting on our behalf reasonably believed that the buyer was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market, and neither we nor




any person acting on our behalf knows that the transaction was pre-arranged with a buyer in the United States.
3.
Neither we, any of our affiliates, nor any person acting on our or their behalf has made any directed selling efforts in the United States with respect to the Notes.
4.
The proposed transfer of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act.
5.
If we are a dealer or a person receiving a selling concession, fee or other remuneration in respect of the Notes, and the proposed transfer takes place during the Restricted Period (as defined in the First Supplemental Indenture), or we are an officer or director of the Company or an Initial Purchaser (as defined in the First Supplemental Indenture), we certify that the proposed transfer is being made in accordance with the provisions of Rule 904(b) of Regulation S.
   ¨ B.
This Certificate relates to our proposed exchange of $____ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. We hereby certify as follows:
1.
At the time the offer and sale of the Notes was made to us, either (i) we were not in the United States or (ii) we were excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(vi) or the account held by us for which we were acting was excluded from the definition of “U.S. person” pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3); and we were not a member of an identifiable group of U.S. citizens abroad.
2.
Unless the circumstances described in paragraph 1(ii) above are applicable, either (a) at the time our buy order was originated, we were outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and we did not pre-arrange the transaction in the United States.
3.
The proposed exchange of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act.
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)]
 
 
By:
 
 
Name:
 
 
Title:
 
 
Address:
 

Date: ______________




EXHIBIT E
Rule 144A Certificate
_________, ____
U.S. Bank National Association, as Trustee
Earl Dennison, Jr.
U.S. Bank Corporate Trust Services
One Federal Street, 3 rd Floor
Boston, Ma 02110
Phone#  (617) 603-6567
Fax#      (617) 603-6667
earl.dennison@usbank.com

 
ING U.S., Inc. 5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053 (the “ Notes ”) issued under the Junior Subordinated Indenture dated May 16, 2013 (the “ Base Indenture ”), as supplemented by the First Supplemental Indenture dated as of May 16, 2013 (the “ First Supplemental Indenture ” and, together with the Base Indenture, the “ Indenture ”), relating to the Notes

Ladies and Gentlemen:
This Certificate relates to:
[CHECK A OR B AS APPLICABLE.]
  ¨ A.
Our proposed purchase of $____ principal amount of Notes issued under the Indenture.
  ¨   B.
Our proposed exchange of $____ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us.
We and, if applicable, each account for which we are acting in the aggregate owned and invested more than $100,000,000 in securities of issuers that are not affiliated with us (or such accounts, if applicable), as of _________, 20__, which is a date on or since close of our most recent fiscal year. We and, if applicable, each account for which we are acting, are a qualified institutional buyer within the meaning of Rule 144A (“Rule 144A”) under the Securities Act of 1933, as amended (the “Securities Act”). If we are acting on behalf of an account, we exercise sole investment discretion with respect to such account. We are aware that the transfer of Notes to us, or such exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Prior to the date of this Certificate we have received such information regarding the Company as we have requested pursuant to Rule 144A(d)(4) or have determined not to request such information.




You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)]
 
 
By:
 
 
Name:
 
 
Title:
 
 
Address:
 


Date: _________________







EXHIBIT F
[COMPLETE FORM I OR FORM II AS APPLICABLE.]

[FORM I]

Certificate of Beneficial Ownership
To:      U.S. Bank National Association, as Trustee
Earl Dennison, Jr.
U.S. Bank Corporate Trust Services
One Federal Street, 3 rd Floor
Boston, Ma 02110
Phone#  (617) 603-6567
Fax#      (617) 603-6667
earl.dennison@usbank.com

OR
[Name of DTC Participant]
 
ING U.S., Inc. 5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053 (the “ Notes ”) issued under the Junior Subordinated Indenture dated May 16, 2013 (the “ Base Indenture ”), as supplemented by the First Supplemental Indenture dated as of May 16, 2013 (the “ First Supplemental Indenture ” and, together with the Base Indenture, the “ Indenture ”), relating to the Notes

Ladies and Gentlemen:
We are the beneficial owner of $____ principal amount of Notes issued under the Indenture and represented by a Temporary Offshore Global Note (as defined in the First Supplemental Indenture).
We hereby certify as follows:
[CHECK A OR B AS APPLICABLE.]
¨ A.
We are a non-U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended).
¨ B.
We are a U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended) that purchased the Notes in a transaction that did not require registration under the Securities Act of 1933, as amended.




You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours,
[NAME OF SELLER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)]
 
 
By:
 
 
Name:
 
 
Title:
 
 
Address:
 


Date: _________________




[FORM II]

Certificate of Beneficial Ownership
 
U.S. Bank National Association, as Trustee
Earl Dennison, Jr.
U.S. Bank Corporate Trust Services
One Federal Street, 3 rd  Floor
Boston, Ma 02110
Phone#  (617) 603-6567
Fax#      (617) 603-6667
earl.dennison@usbank.com
 
ING U.S., Inc. 5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053 (the “ Notes ”) issued under the Junior Subordinated Indenture dated May 16, 2013 (the “ Base Indenture ”), as supplemented by the First Supplemental Indenture dated as of May 16, 2013 (the “ First Supplemental Indenture ” and, together with the Base Indenture, the “ Indenture ”), relating to the Notes

Ladies and Gentlemen:
This is to certify that based solely on certifications we have received in writing, by tested telex or by electronic transmission from Institutions appearing in our records as persons being entitled to a portion of the principal amount of Notes represented by a Temporary Offshore Global Note issued under the above-referenced Indenture, that as of the date hereof, $____ principal amount of Notes represented by the Temporary Offshore Global Note being submitted herewith for exchange is beneficially owned by persons that are either (i) non-U.S. persons (within the meaning of Regulation S under the Securities Act of 1933, as amended) or (ii) U.S. persons that purchased the Notes in a transaction that did not require registration under the Securities Act of 1933, as amended.
We further certify that (i) we are not submitting herewith for exchange any portion of such Temporary Offshore Global Note excepted in such certifications and (ii) as of the date hereof we have not received any notification from any Institution to the effect that the statements made by such Institution with respect to any portion of such Temporary Offshore Global Note submitted herewith for exchange are no longer true and cannot be relied upon as of the date hereof.








You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.


Yours faithfully,
[Name of DTC Participant]
 
 
By:
 
 
Name:
 
 
Title:
 
 
Address:
 

Date: _________________







EXHIBIT G
THIS NOTE IS A TEMPORARY GLOBAL NOTE. PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD APPLICABLE HERETO, BENEFICIAL INTERESTS HEREIN MAY NOT BE HELD BY ANY PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A U.S. PERSON THAT PURCHASED SUCH INTEREST IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”). BENEFICIAL INTERESTS HEREIN ARE NOT EXCHANGEABLE FOR PHYSICAL NOTES OTHER THAN A PERMANENT GLOBAL NOTE IN ACCORDANCE WITH THE TERMS OF THE INDENTURE. TERMS IN THIS LEGEND ARE USED AS USED IN REGULATION S UNDER THE SECURITIES ACT.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNTIL SUCH BENEFICIAL INTEREST IS EXCHANGED OR TRANSFERRED FOR AN INTEREST IN ANOTHER NOTE.









REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated May 16, 2013 (this “ Agreement ”) is entered into by and among ING U.S., INC., a Delaware corporation (the “ Company ”), LION CONNECTICUT HOLDINGS INC. (the “ Initial Guarantor ”) and BARCLAYS CAPITAL INC., J.P. MORGAN SECURITIES LLC and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED (collectively with, and for and on behalf of, the other “ Initial Purchasers ” named in the Purchase Agreement referred to below, the “ Initial Purchasers ”).
The Company, the Initial Guarantor and the Initial Purchasers are parties to the Purchase Agreement dated May 13, 2013 (the “ Purchase Agreement ”), which provides for the sale by the Company to the Initial Purchasers of $750,000,000 aggregate principal amount of the Company’s 5.650% Fixed-to-Floating Rate Junior Subordinated Notes due 2053 (the “ Securities ”) which will be guaranteed on an unsecured, junior subordinated basis by the Guarantor. As an inducement to the Initial Purchasers to enter into the Purchase Agreement, the Company and the Guarantor have agreed to provide to the Initial Purchasers and their direct and indirect transferees the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1.     Definitions . As used in this Agreement, the following terms shall have the following meanings:
“ 2018 Notes ” shall mean the Company’s 2.9% Senior Notes due 2018.
“ 2018 Registration Rights Agreement ” shall mean the registration rights agreement dated February 11, 2013 among the Company, the Initial Guarantor, and Deutsche Bank Securities Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC and SunTrust Robinson Humphrey, Inc.
“ 2022 Notes ” shall mean the Company’s 5.5% Senior Notes due 2022.
“ 2022 Registration Rights Agreement ” shall mean the registration rights agreement dated July 13, 2012 among the Company, the Initial Guarantor, and Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. LLC.
“ Additional Guarantor ” shall mean any subsidiary of the Company that executes a Guarantee under the Indenture after the date of this Agreement.
“ Additional Interest ” shall have the meaning set forth in Section 2(e)(i) hereof.
“ Business Day ” shall mean any day that is not a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to remain closed.
“ Company ” shall have the meaning set forth in the preamble and shall also include the

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Company’s successors.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.
“ Exchange Dates ” shall have the meaning set forth in Section 2(a)(ii) hereof.
“ Exchange Offer ” shall mean the exchange offer by the Company and the Guarantor of Exchange Securities for Registrable Securities pursuant to Section 2(a) hereof.
“ Exchange Offer Registration ” shall mean a registration under the Securities Act effected pursuant to Section 2(a) hereof.
“ Exchange Offer Registration Statement ” shall mean an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form) and all amendments and supplements to such registration statement, in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and any document incorporated by reference therein.
“ Exchange Securities ” shall mean unsecured, junior subordinated notes issued by the Company and guaranteed by the Guarantor under the Indenture containing terms identical to the Securities (except that the Exchange Securities will not be subject to restrictions on transfer or to any increase in annual interest rate for failure to comply with this Agreement) and to be offered to Holders of Securities in exchange for Securities pursuant to the Exchange Offer.
“ FINRA ” means the Financial Industry Regulatory Authority, Inc.
“ Free Writing Prospectus ” means each free writing prospectus (as defined in Rule 405 under the Securities Act) prepared by or on behalf of the Company or used or referred to by the Company in connection with the sale of the Registrable Securities or the Exchange Securities.
“ Guarantees ” shall mean the guarantee of the Securities and guarantee of the Exchange Securities by the Guarantor under the Indenture.
“ Guarantor ” shall mean the Initial Guarantor and any other subsidiary of the Company that Guarantees the Securities pursuant to the Indenture.
“ Holders ” shall mean the Initial Purchasers, for so long as they own any Registrable Securities, and each of their successors, assigns and direct and indirect transferees who become owners of Registrable Securities under the Indenture; provided that, for purposes of Section 4 and Section 5 hereof, the term “ Holders ” shall include Participating Broker-Dealers.
“ Indemnified Holders ” shall have the meaning set forth in Section 5(c) hereof.
“ Indemnified Offering Documents ” shall have the meaning set forth in Section 5(a) hereof.
“ Indemnified Person ” shall have the meaning set forth in Section 5(c) hereof.

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“ Indemnified Registration Statement ” shall have the meaning set forth in Section 5(a) hereof.
“ Indemnifying Person ” shall have the meaning set forth in Section 5(c) hereof.
“ Indenture ” shall mean the junior subordinated indenture dated as of May 16, 2013 among the Company, the Initial Guarantor and U.S. Bank National Association, as trustee (the “ Trustee ”), as supplemented by the First Supplemental Indenture dated May 16, 2013 among the Company, the Initial Guarantor and the Trustee relating to the Securities, and as the same may be amended from time to time in accordance with the terms thereof.
“ Initial Purchasers ” shall have the meaning set forth in the preamble.
“ Inspector ” shall have the meaning set forth in Section 3(a)(xiv) hereof.
“ Issue Date ” shall mean May 16, 2013.
“ Issuer Information ” shall have the meaning set forth in Section 5(a) hereof.
“ Majority Holders ” shall mean the Holders of a majority of the aggregate principal amount of the outstanding Registrable Securities; provided that whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, any Registrable Securities owned directly or indirectly by the Company or any of its affiliates shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage or amount; and provided , further , that if the Company shall issue any additional Securities under the Indenture prior to consummation of the Exchange Offer or, if applicable, the effectiveness of any Shelf Registration Statement, such additional Securities and the Registrable Securities to which this Agreement relates shall be treated together as one class for purposes of determining whether the consent or approval of Holders of a specified percentage of Registrable Securities has been obtained.
“ Notice and Questionnaire ” shall mean a notice of registration statement and selling security holder questionnaire distributed to a Holder by the Company upon receipt of a Shelf Request from such Holder.
“ Participating Broker-Dealers ” shall have the meaning set forth in Section 4(a) hereof.
“ Participating Holder ” shall mean any Holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 2(b) hereof.
“ Person ” shall mean an individual, partnership, limited liability company, corporation, trust or unincorporated organization, or a government or agency or political subdivision thereof.
“ Prospectus ” shall mean the prospectus included in, or, pursuant to the rules and regulations of the Securities Act, deemed a part of, a Registration Statement, including any preliminary prospectus, and any such prospectus as amended or supplemented by any prospectus supplement, including a prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by a Shelf Registration Statement, and by all other amendments

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and supplements to such prospectus, and in each case including any document incorporated by reference therein.
“ Prospectus Delivery Period ” shall have the meaning set forth in Section 4(b) hereof.
“ Purchase Agreement ” shall have the meaning set forth in the preamble.
“ Registrable Securities ” shall mean the Securities; provided that the Securities shall cease to be Registrable Securities (i) when a Registration Statement with respect to such Securities has become effective under the Securities Act and such Securities have been exchanged or disposed of pursuant to such Registration Statement, provided , that Securities not disposed of pursuant to a Shelf Registration Statement shall cease to be Registrable Securities one year from the date the Shelf Registration Statement is declared effective by the SEC (with such one-year period to be extended by the duration of any Suspension Period that shall occur prior to the expiration of such period), (ii) when such Securities cease to be outstanding or (iii) except in the case of Securities that otherwise remain Registrable Securities and that are held by an Initial Purchaser and that are ineligible to be exchanged in the Exchange Offer, when the Exchange Offer is consummated.
“ Registration Default ” shall mean the occurrence of any of the following: (i) the Exchange Offer Registration Statement has not been filed with the SEC by the Target Filing Date, (ii) the Exchange Offer is not completed on or prior to the Target Completion Date, (iii) the Shelf Registration Statement, if required pursuant to Section 2(b)(i) or Section 2(b)(ii) hereof, has not become effective on or prior to the Target Completion Date, (iv) if the Company receives a Shelf Request pursuant to Section 2(b)(iii) hereof, the Shelf Registration Statement required to be filed thereby has not become effective by the later of (a) the Target Completion Date and (b) 90 days after delivery of such Shelf Request, (v) the Shelf Registration Statement, if required by this Agreement, has become effective and thereafter ceases to be effective or the Prospectus contained therein ceases to be usable, in each case whether or not permitted by this Agreement, within a period of one year from such effectiveness (or such shorter period as any Registrable Securities are outstanding); provided that it shall not be a Registration Default under this clause (v) if the period or periods during which the Shelf Registration Statement ceases to be effective or the Prospectus ceases to be usable (each such period, a “ Suspension Period ”) are less than, in aggregate, 90 days in length; and provided, further, that such one year period shall be extended by one day for each day of a Suspension Period, or (vi) if a “Shelf Registration Statement” (as defined in the 2018 Registration Rights Agreement or the 2022 Registration Rights Agreement) has become effective and no Shelf Registration Statement registering the Registrable Securities for sale has yet become effective.
“ Registration Expenses ” shall mean any and all expenses incident to performance of or compliance by the Company and the Guarantor with this Agreement, including without limitation: (i) all SEC, stock exchange or FINRA registration and filing fees, (ii) all fees and expenses incurred in connection with compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel for any Underwriters in connection with blue sky qualification of any Registrable Securities sold pursuant to a Shelf Registration Statement), (iii) all expenses of any Persons in preparing or assisting in preparing, word processing, printing and distributing any Registration Statement, any Prospectus, any Free Writing Prospectus and any amendments or supplements thereto, any underwriting agreements, securities sales agreements or other similar agreements and any other documents relating to the performance of and compliance with this

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Agreement, (iv) all rating agency fees, (v) all fees and disbursements relating to the qualification of the Indenture under applicable securities laws, (vi) the fees and disbursements of the Trustee and its counsel, (vii) the fees and disbursements of counsel for the Company and the Guarantor and, in the case of a Shelf Registration Statement, the fees and disbursements of one counsel for the Participating Holders (which counsel shall be selected by the Participating Holders holding a majority of the aggregate principal amount of Registrable Securities held by such Participating Holders and which counsel shall be reasonably acceptable to the Company) and (viii) the fees and disbursements of the independent registered public accountants of the Company and the Guarantor, including the expenses of any special audits or “comfort” letters required by or incident to the performance of and compliance with this Agreement, but excluding fees and expenses of counsel to the Underwriters (other than fees and expenses set forth in clause (ii) above) or the Holders and underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities by a Holder.
“ Registration Statement ” shall mean any registration statement of the Company and the Guarantor that covers any of the Exchange Securities or Registrable Securities pursuant to the provisions of this Agreement and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and any document incorporated by reference therein.
“ SEC ” shall mean the United States Securities and Exchange Commission.
“ Securities ” shall have the meaning set forth in the preamble.
“ Securities Act ” shall mean the Securities Act of 1933, as amended from time to time.
“ Senior Notes Registration Statement ” means an “Exchange Offer Registration Statement” (as defined in the 2018 Registration Rights Agreement or the 2022 Registration Rights Agreement).
“ Shelf Effectiveness Period ” shall have the meaning set forth in Section 2(b) hereof.
“ Shelf Registration ” shall mean a registration effected pursuant to Section 2(b) hereof.
“ Shelf Registration Statement ” shall mean a “shelf” registration statement of the Company and the Guarantor that covers all or a portion of the Registrable Securities on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the Prospectus contained therein or deemed a part thereof, all exhibits thereto and any document incorporated by reference therein.
“ Shelf Request ” shall have the meaning set forth in Section 2(b) hereof.
“ Staff ” shall mean the staff of the SEC.
“ Suspension Period ” shall have the meaning set forth in the definition of the term “Registration Default.”

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“ Target Completion Date ” shall mean the earliest of (i) the date which is 30 days after the effectiveness of a Senior Notes Registration Statement, (ii) the date which is 120 days after the Issue Date and (iii) the earlier of (a) the date on which the Company’s exchange offer for the 2018 Notes pursuant to the 2018 Registration Rights Agreement is completed and (b) the date on which the Company’s exchange offer for the 2022 Notes pursuant to the 2022 Registration Rights Agreement is completed.
“ Target Filing Date ” shall have the meaning set forth in Section 2(a) hereof.
“ Trust Indenture Act ” shall mean the Trust Indenture Act of 1939, as amended from time to time.
“ Trustee ” shall mean the trustee with respect to the Securities under the Indenture.
“ Underwriter ” shall have the meaning set forth in Section 3(e) hereof.
“ Underwritten Offering ” shall mean an offering in which Registrable Securities are sold to an Underwriter for reoffering to the public.
2.     Registration Under the Securities Act . (a) To the extent not prohibited by any applicable law or applicable interpretations of the Staff, the Company and the Guarantor shall use their reasonable best efforts to (x) cause to be filed an Exchange Offer Registration Statement with the SEC within 45 days after the Issue Date (or, if earlier, on the date the Company files a Senior Notes Registration Statement; such earliest date, the “ Target Filing Date ”), covering an offer to the Holders of the Registrable Securities to exchange the Registrable Securities for Exchange Securities and (y) have such Registration Statement become and remain effective until 180 days after the last Exchange Date (as defined below) for use by one or more Participating Broker-Dealers pursuant to Section 4(b) hereof. The Company and the Guarantor shall use their reasonable best efforts to complete the Exchange Offer not later than the Target Completion Date.
The Company and the Guarantor shall commence the Exchange Offer by mailing the related Prospectus and other accompanying documents to each Holder stating, in addition to such other disclosures as are required by applicable law, substantially the following:
(i)
that the Exchange Offer is being made pursuant to this Agreement and that all Registrable Securities validly tendered and not properly withdrawn will be accepted for exchange;
(ii)
the dates of acceptance for exchange (which shall be a period of at least 20 Business Days from the date such notice is mailed) (the “ Exchange Dates ”);
(iii)
that any Registrable Security not tendered will remain outstanding and continue to accrue interest but will not retain any rights under this Agreement, except as otherwise specified in Section 2(b) hereof;
(iv)
that any Holder electing to have a Registrable Security exchanged pursuant to the Exchange Offer will be required to (A) surrender such Registrable Security, together with appropriate accompanying documents, to the institution and at the address and in the manner specified in the notice, or (B) effect such exchange otherwise in compliance with the applicable

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procedures of the depositary for such Registrable Security, in each case prior to the close of business on the last Exchange Date; and
(v)
that any Holder will be entitled to withdraw its election, not later than the close of business on the last Exchange Date, by (A) sending to the institution and at the address specified in the notice, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Registrable Securities delivered for exchange and a statement that such Holder is withdrawing its election to have such Securities exchanged or (B) effecting such withdrawal in compliance with the applicable procedures of the depositary for the Registrable Securities.
As a condition to participating in the Exchange Offer, a Holder will be required to represent to the Company and the Guarantor that (1) any Exchange Securities to be received by it will be acquired in the ordinary course of its business, (2) at the time of the commencement of the Exchange Offer it has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Securities in violation of the provisions of the Securities Act, (3) it is not an “affiliate” (within the meaning of Rule 405 under the Securities Act) of the Company or the Guarantor and (4) if such Holder is a broker-dealer that will receive Exchange Securities for its own account in exchange for Registrable Securities that were acquired as a result of market-making or other trading activities, then such Holder will deliver a Prospectus (or, to the extent permitted by law, make available a Prospectus to purchasers) in connection with any resale of such Exchange Securities.
As soon as practicable after the last Exchange Date, the Company and the Guarantor shall:
(I)
accept for exchange Registrable Securities or portions thereof validly tendered and not properly withdrawn pursuant to the Exchange Offer; and
(II)
deliver, or cause to be delivered, to the Trustee for cancellation all Registrable Securities or portions thereof so accepted for exchange by the Company and issue, and cause the Trustee to promptly authenticate and deliver to each Holder, Exchange Securities equal in principal amount to the principal amount of the Registrable Securities tendered by such Holder.
The Company and the Guarantor shall use their reasonable best efforts to complete the Exchange Offer as provided above and shall comply with the applicable requirements of the Securities Act, the Exchange Act and other applicable laws and regulations in connection with the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate any applicable law or applicable interpretations of the Staff.
For the avoidance of doubt, notwithstanding any provision of this Section 2(a) purporting to require physical mailing, delivery or acceptance of any document or instrument, the Company and the Guarantor may conduct the Exchange Offer exclusively through the automated tender offer program of the Depository Trust Company or any successor or similar system permitting electronic transmittal, tender and acceptance of documents and instruments, provided that this provision shall apply only to Registrable Securities held in the form of beneficial interests in a global note deposited with (or held by a custodian for) the Depository Trust Company.

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(b)    If (i) the Company and the Guarantor determine that the Exchange Offer may not be completed as soon as practicable after the last Exchange Date because completion of the exchange would violate any applicable law or applicable interpretations of the Staff, (ii) the Exchange Offer is not for any other reason completed by the Target Completion Date or (iii) upon receipt of a written request (a “ Shelf Request ”) from any Initial Purchaser representing that it holds Registrable Securities that are or were ineligible to be exchanged in the Exchange Offer, in each case unless the Company and Guarantor shall have previously done so, the Company and the Guarantor shall use their reasonable best efforts to cause to be filed as soon as practicable after the Target Completion Date or, if later, the date of the Shelf Request, a Shelf Registration Statement providing for the sale of all the Registrable Securities by the Holders thereof and to have such Shelf Registration Statement become effective; provided that no Holder will be entitled to have any Registrable Securities included in any Shelf Registration Statement, or entitled to use the prospectus forming a part of such Shelf Registration Statement, until such Holder shall have delivered a completed and signed Notice and Questionnaire and provided such other information regarding such Holder to the Company as is contemplated by Section 3(b) hereof.
In the event that the Company and the Guarantor are required to file a Shelf Registration Statement pursuant to clause (iii) of the preceding sentence, the Company and the Guarantor shall use their reasonable best efforts to file and have become effective both an Exchange Offer Registration Statement pursuant to Section 2(a) hereof with respect to all Registrable Securities and a Shelf Registration Statement (which may be a combined Registration Statement with the Exchange Offer Registration Statement) with respect to offers and sales of Registrable Securities held by the Initial Purchasers after completion of the Exchange Offer.
The Company and the Guarantor agree to use their reasonable best efforts to keep the Shelf Registration Statement continuously effective until the Securities cease to be Registrable Securities (the “ Shelf Effectiveness Period ” ). The Company and the Guarantor further agree to supplement or amend the Shelf Registration Statement, the related Prospectus and any Free Writing Prospectus if required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or by any other rules and regulations thereunder or if reasonably requested by a Holder of Registrable Securities with respect to information relating to such Holder, and to use their reasonable best efforts to cause any such amendment to become effective, if required, and such Shelf Registration Statement, Prospectus or Free Writing Prospectus, as the case may be, to become usable as soon as thereafter practicable. The Company and the Guarantor agree to furnish to the Participating Holders copies of any such supplement or amendment promptly after its being used or filed with the SEC.
(c)    The Company and the Guarantor shall pay all Registration Expenses in connection with any registration pursuant to Section 2(a) or Section 2(b) hereof. Each Holder shall pay all underwriting discounts and commissions, brokerage commissions and transfer taxes, if any, relating to the sale or disposition of such Holder’s Registrable Securities pursuant to the Shelf Registration Statement.
(d)    An Exchange Offer Registration Statement pursuant to Section 2(a) hereof will not be deemed to have become effective unless it has been declared effective by the SEC. A Shelf

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Registration Statement pursuant to Section 2(b) hereof will not be deemed to have become effective unless it has been declared effective by the SEC or is automatically effective upon filing with the SEC as provided by Rule 462 under the Securities Act.
(e)    (i) If a Registration Default occurs, the interest rate on the Registrable Securities will be increased by the following amounts (hereinafter referred to as “ Additional Interest ”) (A) 0.25% per annum for the first 90-day period beginning on the day immediately following such Registration Default and (B) an additional 0.25% per annum with respect to each subsequent 90-day period, in each case until and including the date such Registration Default ends, provided that the maximum increase shall be 1.00% per annum.
(ii)    A Registration Default ends when the Securities cease to be Registrable Securities or, if earlier, (1) in the case of a Registration Default under clause (i) of the definition thereof, when the Exchange Offer Registration Statement or the Shelf Registration Statement is filed with the SEC, (2) in the case of a Registration Default under clause (ii) of the definition thereof, when the Exchange Offer is completed or when the Shelf Registration Statement becomes effective, (3) in the case of a Registration Default under clause (iii) or (iv) of the definition thereof, when the Shelf Registration Statement becomes effective, (4) in the case of a Registration Default under clause (v) of the definition thereof, when the Shelf Registration Statement again becomes effective or the Prospectus again becomes usable, or (5) in the case of a Registration Default under clause (vi) of the definition thereof, when a Shelf Registration Statement registering the Registrable Securities becomes effective (subject to clause (v) of the “Registration Default” definition). If at any time more than one Registration Default has occurred and is continuing, then, until the next date that there is no Registration Default, the increase in interest rate provided for by this paragraph shall apply as if there occurred a single Registration Default that begins on the date that the earliest such Registration Default occurred and ends on such next date that there is no Registration Default.
(f)    The payment of Additional Interest as provided in Section 2(e)(i) hereof shall be the sole and exclusive remedy available to any Holder or Initial Purchaser for a Registration Default. For the avoidance of doubt, no Holder, Initial Purchaser or other party shall seek or be entitled to specific performance of the Company’s or Guarantor’s obligations hereunder.
3.     Registration Procedures . (a) In connection with their obligations pursuant to Section 2(a) and Section 2(b) hereof, the Company and the Guarantor shall as expeditiously as possible:
(i)    prepare and file with the SEC a Registration Statement on the appropriate form under the Securities Act, which form (A) shall be selected by the Company and the Guarantor, (B) shall, in the case of a Shelf Registration, be available for the sale of the Registrable Securities by the Holders thereof and (C) shall comply as to form in all material respects with the requirements of the applicable form and include (including through incorporation by reference, if available to the Company and Guarantor) all financial statements required by the SEC to be filed therewith;
(ii)    prepare and file with the SEC such amendments and post-effective amendments to each Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period in accordance with Section 2 hereof and cause each Prospectus to be supplemented by any required prospectus supplement and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act;

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(iii)    to the extent any Free Writing Prospectus is used, comply with Rule 433 under the Securities Act in connection therewith;
(iv)    in the case of a Shelf Registration, furnish to each Participating Holder and to each Underwriter of an Underwritten Offering of Registrable Securities, if any, without charge, as many copies of each Prospectus, preliminary prospectus or Free Writing Prospectus, and any amendment or supplement thereto, as such Participating Holder, counsel or Underwriter may reasonably request in order to facilitate the sale or other disposition of the Registrable Securities thereunder; and, subject to Section 3(c) hereof, the Company and the Guarantor consent to the use of such Prospectus, preliminary prospectus or such Free Writing Prospectus and any amendment or supplement thereto in accordance with applicable law by each of the Participating Holders and any such Underwriters in connection with the offering and sale of the Registrable Securities covered by and in the manner described in such Prospectus, preliminary prospectus or such Free Writing Prospectus or any amendment or supplement thereto in accordance with applicable law;
(v)    in the case of a Shelf Registration, use their reasonable best efforts to register or qualify the Registrable Securities under all applicable state securities or blue sky laws of such jurisdictions as any Participating Holder shall reasonably request in writing by the time the applicable Registration Statement becomes effective; cooperate with such Participating Holders in connection with any filings required to be made with FINRA; and do any and all other acts and things that may be reasonably necessary or advisable to enable each Participating Holder to complete the disposition in each such jurisdiction of the Registrable Securities owned by such Participating Holder; provided that neither the Company nor the Guarantor shall be required to (1) qualify as a foreign corporation or other entity or as a dealer in securities in any such jurisdiction where it would not otherwise be required to so qualify, (2) consent to service of process in any such jurisdiction or (3) subject itself to taxation in any such jurisdiction if it is not otherwise subject to such taxation;
(vi)    in the case of a Shelf Registration, notify each Participating Holder promptly and, if requested by any such Participating Holder, confirm such advice in writing (1) when a Shelf Registration Statement has become effective, when any post-effective amendment thereto has been filed and becomes effective, when any Free Writing Prospectus covering Registrable Securities has been filed or any amendment or supplement to the Prospectus or any Free Writing Prospectus covering Registrable Securities has been filed, (2) of the issuance by the SEC or any state securities authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose, including the receipt by the Company of any notice of objection of the SEC to the use of a Shelf Registration Statement or any post-effective amendment thereto pursuant to Rule 401(g)(2) under the Securities Act, (3) if the Company or the Guarantor receives any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation of any proceeding for such purpose, or (4) of the happening of any event during the Shelf Effectiveness Period that makes any statement made in the Shelf Registration Statement or the related Prospectus or any Free Writing Prospectus covering Registrable Securities untrue in any material respect or that requires the making of any changes in the Shelf Registration Statement or the related Prospectus or any Free Writing Prospectus covering Registrable Securities in order to make the statements therein not misleading;
(vii)    use their reasonable best efforts to obtain the withdrawal of any order suspending

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the effectiveness of a Registration Statement or, in the case of a Shelf Registration, the resolution of any objection of the SEC pursuant to Rule 401(g)(2) under the Securities Act, including by filing an amendment to such Registration Statement on the proper form, and provide prompt notice to each Holder or Participating Holder of the withdrawal of any such order or such resolution;
(viii)    in the case of a Shelf Registration, furnish to each Participating Holder, without charge, at least one conformed copy of each Registration Statement and any post-effective amendment thereto (without any documents incorporated therein by reference or exhibits thereto, unless requested);
(ix)    in the case of a Shelf Registration, cooperate with the Participating Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold and not bearing any restrictive legends and enable such Registrable Securities to be issued in such denominations and registered in such names (consistent with the provisions of the Indenture) as such Participating Holders may reasonably request at least two Business Days prior to the closing of any sale of Registrable Securities;
(x)    upon the occurrence of any event contemplated by Section 3(a)(vi)(4) hereof, use their reasonable best efforts to prepare and file with the SEC a supplement or post-effective amendment to the applicable Exchange Offer Registration Statement or Shelf Registration Statement or the related Prospectus or any Free Writing Prospectus covering Registrable Securities or any document incorporated therein by reference or file any other required document so that, as thereafter delivered (or, to the extent permitted by law, made available) to purchasers of the Registrable Securities, such Prospectus or Free Writing Prospectus, as the case may be, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company and the Guarantor shall notify the Participating Holders (in the case of a Shelf Registration Statement) and any Participating Broker-Dealers known to the Company (in the case of an Exchange Offer Registration Statement) to suspend use of the Prospectus or any Free Writing Prospectus covering Registrable Securities as promptly as practicable after the occurrence of such an event, and such Participating Holders and Participating Broker-Dealers, as applicable, hereby agree to suspend use of the Prospectus or any Free Writing Prospectus, as the case may be, until the Company and the Guarantor have amended or supplemented the Prospectus or the Free Writing Prospectus, as the case may be, to correct such misstatement or omission;
(xi)    in the case of a Shelf Registration Statement, a reasonable time prior to the filing of any Shelf Registration Statement, any Prospectus contained therein, any Free Writing Prospectus relating to Registrable Securities, any amendment to a Shelf Registration Statement or amendment or supplement to a Prospectus contained therein or a Free Writing Prospectus relating to Registrable Securities or of any document that is to be incorporated by reference into a Shelf Registration Statement, a Prospectus contained therein or a Free Writing Prospectus relating to Registrable Securities after the initial filing of a Shelf Registration Statement, provide copies of such document to the Initial Purchasers, as representatives of the Participating Holders and make such of the representatives of the Company and the Guarantor as shall be reasonably requested by the Initial Purchasers available for discussion of such document; and the Company and the Guarantor shall not, at any time after initial filing of a Shelf Registration Statement, use or file any Prospectus

11


contained therein, any Free Writing Prospectus relating to Registrable Securities, any amendment of or supplement to a Shelf Registration Statement or a Prospectus contained therein or a Free Writing Prospectus relating to Registrable Securities, or any document that is to be incorporated by reference into a Shelf Registration Statement, a Prospectus contained therein or a Free Writing Prospectus relating to Registrable Securities, of which the Initial Purchasers shall not have previously been advised and furnished a copy or to which the Initial Purchasers shall reasonably object; provided that the requirements of this paragraph shall not apply to the Company’s annual report on Form 10-K, its quarterly reports on Form 10-Q, its current reports on Form 8-K or any other documents filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act;
(xii)    obtain a CUSIP number for all Exchange Securities or Registrable Securities, as the case may be, not later than the initial effective date of a Registration Statement;
(xiii)    cause the Indenture to be qualified under the Trust Indenture Act in connection with the registration of the Exchange Securities or Registrable Securities, as the case may be; cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for the Indenture to be so qualified in accordance with the terms of the Trust Indenture Act; and execute, and use their reasonable best efforts to cause the Trustee to execute, all documents as may be required to effect such changes and all other forms and documents required to be filed with the SEC to enable the Indenture to be so qualified in a timely manner;
(xiv)    in the case of a Shelf Registration, upon reasonable notice make available for inspection by a representative of the Participating Holders (an “ Inspector ”), any Underwriter participating in any disposition pursuant to such Shelf Registration Statement, any attorney or accountant designated by a majority in aggregate principal amount of the Securities held by the Participating Holders and any attorney or accountant designated by such Underwriter, at reasonable times and in a reasonable manner, all pertinent financial and other records, documents and properties of the Company and its subsidiaries, and cause the respective officers, directors and employees of the Company and the Guarantor to supply all information reasonably requested by any such Inspector, Underwriter, attorney or accountant in connection with a Shelf Registration Statement; provided that such Inspector, Underwriter, attorneys or accountants shall be acceptable to the Company in its judgment reasonably exercised and shall agree to enter into a written confidentiality agreement mutually acceptable to the Company and such Inspector, Underwriter, attorneys or accountants regarding any records, information or documents that are designated by the Company as confidential unless (a) such records, information or documents are available to the public or (b) disclosure of such records, information or documents is required by a court or administrative or other governmental or regulatory order after the exhaustion of appeals therefrom, and to use such information obtained pursuant to this provision only in connection with the transaction for which such information was obtained, and not for any other purpose;
(xv)    if reasonably requested by any Participating Holder, promptly include in a Prospectus supplement or post-effective amendment such information with respect to such Participating Holder as such Participating Holder reasonably requests to be included therein and make all required filings of such Prospectus supplement or such post-effective amendment as soon as the Company has received notification of the matters to be so included in such filing;
(xvi)    in the case of a Shelf Registration, upon the request of the Holders of a majority in

12


principal amount of the Registrable Securities covered by the Shelf Registration Statement, enter into such customary agreements in order to expedite or facilitate the disposition of such Registrable Securities in an Underwritten Offering and in such connection, use commercially reasonable efforts to (1) make such representations and warranties to the Underwriters of such Registrable Securities with respect to the business of the Company and its subsidiaries and the Shelf Registration Statement, Prospectus contained therein, any Free Writing Prospectus relating to Registrable Securities and documents incorporated by reference or deemed incorporated by reference, if any, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings, (2) obtain opinions of counsel to the Company and the Guarantor (which counsel and opinions, in form, scope and substance, shall be reasonably satisfactory to such Underwriters and their counsel) addressed to each Underwriter of Registrable Securities, covering the matters customarily covered in opinions requested in underwritten offerings, (3) obtain “comfort” letters from the independent registered public accountants of the Company and the Guarantor (and, if necessary, any other registered public accountant of any subsidiary of the Company or the Guarantor, or of any business acquired by the Company or the Guarantor for which financial statements and financial data are or are required to be included in the Shelf Registration Statement) addressed to each Underwriter of Registrable Securities, such letters to be in customary form and covering matters of the type customarily covered in “comfort” letters in connection with underwritten offerings, and (4) deliver such documents and certificates as may be reasonably requested by the Underwriters, and which are customarily delivered in underwritten offerings, to evidence the continued validity of the representations and warranties of the Company and the Guarantor made pursuant to clause (1) above and to evidence compliance with any customary conditions contained in an underwriting agreement, provided however , that the Company and Guarantor shall only be obligated to comply with this paragraph (xvi) with respect to one Underwritten Offering; and
(xvii)    so long as any Registrable Securities remain outstanding, cause each Additional Guarantor upon the creation or acquisition by the Company of such Additional Guarantor (or the effectiveness of the applicable Guarantee, if later), to execute a counterpart to this Agreement in the form attached hereto as Annex A and to deliver such counterpart, to the Initial Purchasers no later than five Business Days following the execution thereof.
(b)    In the case of a Shelf Registration Statement, the Company may require, as a condition to including a Holder’s Registrable Securities on the Shelf Registration Statement, each Holder of Registrable Securities to furnish to the Company a Notice and Questionnaire and such other information regarding such Holder and the proposed disposition by such Holder of such Registrable Securities as the Company and the Guarantor may from time to time reasonably request in writing.
(c)    Each Participating Holder and each Participating Broker-Dealer (as defined below) agrees that, upon receipt of any notice from the Company and the Guarantor of the happening of any event of the kind described in Section 3(a)(vi)(2) or Section 3(a)(vi)(4) hereof, such Participating Holder or Participating Broker-Dealer will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement until such Participating Holder’s or Participating Broker-Dealer’s receipt of the copies of the supplemented or amended Prospectus and any Free Writing Prospectus contemplated by Section 3(a)(x) hereof and, if so directed by the Company and the Guarantor, such Participating Holder or Participating Broker-Dealer will deliver to the Company

13


and the Guarantor all copies in its possession, other than permanent file copies then in such Participating Holder’s or Participating Broker-Dealer’s possession, of the Prospectus and any Free Writing Prospectus covering such Registrable Securities that is current at the time of receipt of such notice.
(d)    If the Company and the Guarantor shall give any notice to suspend the disposition of Registrable Securities pursuant to a Registration Statement, the Company and the Guarantor shall extend the period during which such Registration Statement shall be maintained effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date when the Holders of such Registrable Securities shall have received copies of the supplemented or amended Prospectus or any Free Writing Prospectus necessary to resume such dispositions. Any such suspensions shall constitute Suspension Periods subject to clause (v) of the definition of “Registration Default” in Section 1 hereof.
(e)    The Participating Holders who desire to do so may sell such Registrable Securities in an Underwritten Offering. In any such Underwritten Offering, the investment bank or investment banks and manager or managers (each an “ Underwriter ”) that will administer the offering will be selected by the Holders of a majority in principal amount of the Registrable Securities included in such offering, and shall be reasonably acceptable to the Company.
4.     Participation of Broker-Dealers in Exchange Offer . (a) The Staff has taken the position that any broker-dealer that receives Exchange Securities for its own account in the Exchange Offer in exchange for Securities that were acquired by such broker-dealer as a result of market-making or other trading activities (a “ Participating Broker-Dealer ”) may be deemed to be an “underwriter” within the meaning of the Securities Act and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Securities.
The Company and the Guarantor understand that it is the Staff’s position that if the Prospectus contained in the Exchange Offer Registration Statement includes a plan of distribution containing a statement to the above effect and the means by which Participating Broker-Dealers may resell the Exchange Securities, without naming the Participating Broker-Dealers or specifying the amount of Exchange Securities owned by them, such Prospectus may be delivered by Participating Broker-Dealers (or, to the extent permitted by law, made available to purchasers) to satisfy their prospectus delivery obligation under the Securities Act in connection with resales of Exchange Securities for their own accounts, so long as the Prospectus otherwise meets the requirements of the Securities Act.
(b)    In light of the above, the Company and the Guarantor agree to maintain the effectiveness of the Exchange Offer Registration Statement for a period (the “ Prospectus Delivery Period ”) of up to 180 days after the last Exchange Date (as such period may be extended pursuant to Section 3(d) hereof) for the benefit of any Participating Broker Dealers that shall have certified to the Company in writing that they are or anticipate that they will be Participating Broker-Dealers, and provided further that, each such Participating Broker-Dealer shall promptly notify the Company when they cease to hold any Registrable Securities. The Company and the Guarantor further agree that such Participating Broker-Dealers shall be authorized to deliver (or, to the extent permitted by law, make available) the Prospectus contained in the Exchange Offer Registration Statement, but

14


only during the Prospectus Delivery Period in connection with the resales contemplated by this Section 4.
(c)    The Initial Purchasers shall have no liability to the Company, the Guarantor or any Holder with respect to any request that they may make pursuant to Section 4(b) hereof.
5.     Indemnification and Contribution . (a) The Company and the Guarantor, jointly and severally, agree to indemnify and hold harmless each Participating Holder, each Participating Broker-Dealer authorized to deliver a Prospectus under Section 4(b) hereof and each Person, if any, who controls any such Participating Holder or Participating Broker-Dealer within the meaning of Section 15 of the Securities Act, from and against any and all losses, claims, damages and liabilities (including, without limitation, legal fees and other expenses incurred in connection with any suit, action or proceeding or any claim asserted, as such fees and expenses are incurred), joint or several, that arise out of, or are based upon, (1) any untrue statement or alleged untrue statement of a material fact contained in any Shelf Registration Statement (in the case of a Participating Holder) or the Exchange Offer Registration Statement (in the case of a Participating Broker-Dealer that has been so authorized under Section 4(b) hereof; such Registration Statement with respect to a Participating Holder or such a Participating Broker-Dealer being referred to herein as an “ Indemnified Registration Statement ”) or any omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, or (2) any untrue statement or alleged untrue statement of a material fact contained in any Prospectus contained in an Indemnified Registration Statement, any Free Writing Prospectus related to Registrable Securities (in the case of Participating Holders) or Exchange Securities (in the case of such Participating Broker-Dealers) or any “issuer information” (“ Issuer Information ”) filed or required to be filed pursuant to Rule 433(d) under the Securities Act and related to an offer of Registrable Securities (in the case of Participating Holders) or an offer of Exchange Securities (in the case of such Participating Broker-Dealers; the documents and filings referred to in this clause (2), together with each Indemnified Registration Statement, are referred herein collectively as the “ Indemnified Offering Documents ”), or any omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, in each case except insofar as such losses, claims, damages or liabilities arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to any Initial Purchaser or information relating to any Holder furnished to the Company in writing through the Initial Purchasers or any such Holder expressly for use therein. In connection with any Underwritten Offering of Registrable Securities for which the Company and Guarantor are subject to obligations under Section 3(xvi), the Company and the Guarantor, jointly and severally, will also indemnify the Underwriters, if any, and each Person who controls such Persons (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the Participating Holders, if requested in connection with any Indemnified Offering Documents used in connection with such Underwritten Offering.
(b)    Each Participating Holder and each Participating Broker-Dealer agrees, severally and not jointly, to indemnify and hold harmless the Company, the Guarantor, the other Participating Holders and the other Participating Broker-Dealers, the directors of the Company and the Guarantor, each officer of the Company and the Guarantor who signed the Registration Statement

15


that is part of the Indemnified Offering Documents and each Person, if any, who controls the Company, the Guarantor or any other Participating Holder and each Participating Broker-Dealer within the meaning of Section 15 of the Securities Act to the same extent as the indemnity set forth in paragraph (a) above, but only with respect to any losses, claims, damages or liabilities that arise out of, or are based upon, any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with any information relating to such Holder furnished to the Company in writing by such Holder expressly for use in any Indemnified Offering Documents
(c)    If any suit, action, proceeding (including any governmental or regulatory investigation), claim or demand shall be brought or asserted against any Person in respect of which indemnification may be sought pursuant to either paragraph (a) or (b) above, such Person (the “ Indemnified Person ”) shall promptly notify the Person against whom such indemnification may be sought (the “ Indemnifying Person ”) in writing; provided that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have under paragraph (a) or (b) above except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided , further , that the failure to notify the Indemnifying Person shall not relieve it from any liability that it may have to an Indemnified Person otherwise than under paragraph (a) or (b) above. If any such proceeding shall be brought or asserted against an Indemnified Person and it shall have notified the Indemnifying Person thereof, the Indemnifying Person shall retain counsel reasonably satisfactory to the Indemnified Person to represent the Indemnified Person and any others entitled to indemnification pursuant to this Section 5 that the Indemnifying Person may designate in such proceeding and shall pay the fees and expenses of such proceeding and shall pay the fees and expenses of such counsel related to such proceeding, as incurred. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the contrary; (ii) the Indemnifying Person has failed within a reasonable time to retain counsel reasonably satisfactory to the Indemnified Person; (iii) the Indemnified Person shall have reasonably concluded, based on the written advice of counsel, that there may be legal defenses available to it that are different from or in addition to those available to the Indemnifying Person; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the Indemnifying Person and the Indemnified Person and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. It is understood and agreed that the Indemnifying Person shall not, in connection with any proceeding or related proceeding in the same jurisdiction, be liable for the fees and expenses of more than one separate firm (in addition to any local counsel) for all Indemnified Persons, and that all such fees and expenses shall be reimbursed as they are incurred. Any such separate firm (x) for any Holder that is an Indemnified Person (“ Indemnified Holders ”) and any control Persons of such Indemnified Holder shall be designated in writing by the majority of the Indemnified Holders (voting based on the principal amount of Securities held by each that are covered by the Indemnified Registration Statement) and (y) in all other cases shall be designated in writing by the Company. The Indemnifying Person shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees to indemnify each Indemnified Person from and against any loss or liability by reason of such settlement or judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified Person shall have requested that an Indemnifying Person reimburse

16


the Indemnified Person for fees and expenses of counsel as contemplated by this paragraph, the Indemnifying Person shall be liable for any settlement of any proceeding effected without its written consent if (i) such settlement is entered into more than 30 days after receipt by the Indemnifying Person of such request and (ii) the Indemnifying Person shall not have reimbursed the Indemnified Person in accordance with such request prior to the date of such settlement. No Indemnifying Person shall, without the written consent of the Indemnified Person, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnification could have been sought hereunder by such Indemnified Person, unless such settlement (A) includes an unconditional release of such Indemnified Person, in form and substance reasonably satisfactory to such Indemnified Person, from all liability on claims that are the subject matter of such proceeding and (B) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnified Person.
(d)    If the indemnification provided for in paragraphs (a) and (b) above is unavailable to an Indemnified Person or insufficient in respect of any losses, claims, damages or liabilities referred to therein, then each Indemnifying Person under such paragraph, in lieu of indemnifying such Indemnified Person thereunder, shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Guarantor from the offering of the Securities and the Exchange Securities, on the one hand, and by the Indemnified Holders from receiving Securities or Exchange Securities registered under the Securities Act, on the other hand, or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative fault of the Company and the Guarantor on the one hand and the Indemnified Holders on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative fault of the Company and the Guarantor on the one hand and the Indemnified Holders on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company and the Guarantor or by the Indemnified Holders and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
(e)    The Company, the Guarantor and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 5 were determined by pro rata allocation (even if the Indemnified Holders were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in paragraph (d) above. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages and liabilities referred to in paragraph (d) above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses incurred by such Indemnified Person in connection with any such action or claim. Notwithstanding the provisions of this Section 5, in no event shall an Indemnified Holder be required to contribute any amount in excess of the amount by which the total price at which the Securities sold by such Indemnified Holder exceeds the amount of any damages that such Indemnified Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be

17


entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Indemnified Holders’ obligations to contribute pursuant to this Section 5 are several and not joint.
(f)    The remedies provided for in this Section 5 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any Indemnified Person at law or in equity.
(g)    The indemnity and contribution provisions contained in this Section 5 shall remain operative and in full force and effect regardless of (i) any termination of this Agreement, (ii) any investigation made by or on behalf of any Indemnified Holder or any Person controlling any Indemnified Holder, or by or on behalf of the Company or the Guarantor or the officers or directors of or any Person controlling the Company or the Guarantor, (iii) acceptance of any of the Exchange Securities and (iv) any sale of Registrable Securities pursuant to a Shelf Registration Statement.
6.     General .
(a)     No Inconsistent Agreements. The Company and the Guarantor represent, warrant and agree that (i) the rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of any other outstanding securities issued or guaranteed by the Company or the Guarantor under any other agreement and (ii) neither the Company nor the Guarantor has entered into, or on or after the date of this Agreement will enter into, any agreement that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof.
(b)     Amendments and Waivers. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company and the Guarantor have obtained the written consent of Holders of at least a majority in aggregate principal amount of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided that no amendment, modification, supplement, waiver or consent to any departure from the provisions of Section 5 hereof shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder.
(c)     Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, registered first-class mail, telecopier, or any courier guaranteeing overnight delivery (i) if to a Holder, at the most current address given by such Holder to the Company by means of a notice given in accordance with the provisions of this Section 6(c), which address initially is, with respect to the Initial Purchasers, the address set forth in the Purchase Agreement; (ii) if to the Company and the Guarantor, initially at the Company’s address set forth in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c); and (iii) to such other persons at their respective addresses as provided in the Purchase Agreement and thereafter at such other address, notice of which is given in accordance with the provisions of this Section 6(c). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt is acknowledged, if telecopied; and on the next Business Day if timely delivered to an air courier guaranteeing overnight delivery. Copies of all such notices, demands or other

18


communications shall be concurrently delivered by the Person giving the same to the Trustee, at the address specified in the Indenture.
(d)     Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders; provided that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Registrable Securities in violation of the terms of the Purchase Agreement or the Indenture. Any successor to the Company, whether by merger, consolidation or other transaction, shall expressly assume the obligations of the Company hereunder. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all the terms of this Agreement, and by taking and holding such Registrable Securities such Person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such Person shall be entitled to receive the benefits hereof. The Initial Purchasers (in their capacity as Initial Purchasers) shall have no liability or obligation to the Company or the Guarantor with respect to any failure by a Holder to comply with, or any breach by any Holder of, any of the obligations of such Holder under this Agreement.
(e)     Third Party Beneficiaries. Each Holder shall be a third party beneficiary to the agreements made hereunder between the Company and the Guarantor, on the one hand, and, the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of other Holders hereunder.
(f)     Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.
(g)     Headings. The headings in this Agreement are for convenience of reference only, are not a part of this Agreement and shall not limit or otherwise affect the meaning hereof.
(h)     Governing Law. This Agreement, and any claim, controversy or dispute arising under or related to this Agreement, shall be governed by and construed in accordance with the laws of the State of New York.
(i)     Entire Agreement; Severability. This Agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. If any term, provision, covenant or restriction contained in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable or against public policy, the remainder of the terms, provisions, covenants and restrictions contained herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated. The Company, the Guarantor and the Initial Purchasers shall endeavor in good faith negotiations to replace the invalid, void or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, void or unenforceable provisions.
[Signature Pages Follow]

19


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
ING U.S., INC.
By:    /s/ Alain M. Karaoglan
___________________________

Name:    Alain M. Karaoglan
Title:    Executive Vice President and
Chief Operating Officer

By:    /s/ Ewout L. Steenbergen
________________________________

Name:    Ewout L. Steenbergen
Title:    Executive Vice President and
Chief Financial Officer

LION CONNECTICUT HOLDINGS INC.
By:    /s/ Alain M. Karaoglan
___________________________

Name:    Alain M. Karaoglan
Title:    Executive Vice President and
Chief Operating Officer

By:    /s/ Ewout L. Steenbergen
________________________________

Name:    Ewout L. Steenbergen
Title:    Executive Vice President and
Chief Financial Officer




[ Signature Page to Registration Rights Agreement


The Initial Purchasers :
BARCLAYS CAPITAL INC.
By:    /s/ Travis Barnes
________________________________
Authorized Signatory


J.P. MORGAN SECURITIES LLC
By:    /s/ Robert Bottamedi
________________________________
Authorized Signatory
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By:    /s/ Elizabeth Rath
________________________________
Authorized Signatory
For and on behalf of the “Initial Purchasers” named in the within-mentioned Purchase Agreement.








[ Signature Page to Registration Rights Agreement


Annex A
Counterpart to Registration Rights Agreement
The undersigned hereby absolutely, unconditionally and irrevocably agrees as a Guarantor (as defined in the Registration Rights Agreement, dated May 16, 2013 by and among ING U.S., INC., a Delaware corporation, the Guarantors party thereto, and BARCLAYS CAPITAL INC., J.P. MORGAN SECURITIES LLC and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED on behalf of themselves and the other Initial Purchasers) to be bound by the terms and provisions of such Registration Rights Agreement.
IN WITNESS WHEREOF, the undersigned has executed this counterpart as of ________, ______.
[ GUARANTOR ]
By:    ________________________
Name:
Title:





Exhibit 31.1
 
CERTIFICATION
 
I, Rodney O. Martin, Jr., certify that:
 
1.      I have reviewed this quarterly report on Form 10-Q of ING U.S., Inc.;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
 
a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)     [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
 
c)      Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.      The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:
 
May 23, 2013
 
 
 
By:
/s/
Rodney O. Martin, Jr.
 
 
Rodney O. Martin, Jr.
Chairman and Chief Executive Officer
 
 
(Duly Authorized Officer and Principal Executive Officer)






Exhibit 31.2
 
CERTIFICATION
 
I, Ewout L. Steenbergen, certify that:
 
1.      I have reviewed this quarterly report on Form 10-Q of ING U.S., Inc.;
 
2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.      The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
 
a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b)     [Paragraph omitted in accordance with Exchange Act Rule 13a-14(a)];
 
c)      Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d)     Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.      The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
b)     Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date:
 
May 23, 2013
 
 
 
By:
/s/
Ewout L. Steenbergen
 
 
Ewout L. Steenbergen
Executive Vice President and Chief Financial Officer
 
 
(Duly Authorized Officer and Principal Financial Officer)





Exhibit 32.1
 
CERTIFICATION
 
Pursuant to 18 U.S.C. §1350, the undersigned officer of ING U.S., Inc. (the “Company”) hereby certifies that, to the officer's knowledge, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 

May 23, 2013
By:
/s/
Rodney O. Martin, Jr.
(Date)
 
 
Rodney O. Martin, Jr.
 
 
 
Chairman and Chief Executive Officer






Exhibit 32.2
 
CERTIFICATION
 
Pursuant to 18 U.S.C. §1350, the undersigned officer of ING U.S., Inc. (the “Company”) hereby certifies that, to the officer's knowledge, the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 

May 23, 2013
By:
/s/
Ewout L. Steenbergen
(Date)
 
 
Ewout L. Steenbergen
 
 
 
Executive Vice President and Chief Financial Officer