MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Approximately $2.5 million of the total unrealized losses were  related to securities issued by the airline, automotive, telecommuni- cation, and utility sectors. These securities have generally been adversely affected by overall economic conditions. The Company believes that the analysis of each such security whose price has been below market indicates that the financial strength, liquidity, leverage, future outlook and/or recent management actions support the view that the security was not other-than-temporarily impaired as of December 31, 2003. The following table presents the total gross unrealized losses for 425 fixed maturity securities where the estimated fair value had declined and remained below amortized cost by the indicated amount (in thousands): Mortgage loans represented approximately 5.4% and 3.4% of the Company’s investments as of December 31, 2003 and 2002, respectively. As of December 31, 2003, all mortgages are U.S.- based. The Company invests primarily in mortgages on commercial offices and retail locations. The Company’s mortgage loans generally range in size from $0.3 million to $11.4 million, with the average mortgage loan investment as of December 31, 2003 totaling approximately $4.5 million. The mortgage loan portfolio was  diversified by geographic region and property type as discussed  further in Note 5 of the Notes to Consolidated Financial Statements. Substantially all mortgage loans are performing and no valuation allowance has been established as of December 31, 2003 or 2002. While all of these securities are monitored for potential impairment, the Company’s experience indicates that the first two categories do not present as great a risk of impairment, and often, fair values recover over time. These securities have generally been adversely affected by overall economic conditions.  All gross unrealized losses have been outstanding less than 12 months. The following table presents the fair value and total gross unrealized losses for 425 fixed maturity securities as of December 31, 2003, by class of security, and broken out between investment and non-investment grade securities (in thousands): Policy loans comprised approximately 10.2% and 12.6% of the Company’s investments as of December 31, 2003 and 2002, respectively. These policy loans present no credit risk because the amount of the loan cannot exceed the obligation due the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. Because policy loans represent premature distributions of policy liabilities, they have the effect of reducing future disintermediation risk. In  addition, the Company earns a spread between the interest  rate earned on policy loans and the interest rate credited to  corresponding liabilities. Under Issue B36, the Company’s funds withheld receivable under certain reinsurance arrangements incorporate credit risk exposures that are unrelated or only partially related to the creditworthiness  of the obligor include an embedded derivative feature that is not clearly and closely related to the host contract. Therefore, the Funds withheld at interest  Policy loans Mortgage loans on real estate Fair Unrealized Value Losses Investment grade securities: Commercial and industrial $ 381,730 $ 7,553 Public utilities 126,550 2,517 Asset-backed securities 6,835 295 Canadian and Canadian  provincial governments 32,734 1,276 Foreign governments 38,158 1,303 Mortgage-backed securities 144,263 511 Finance 295,764 2,733 U.S. government and agencies 79,549 4,059 Investment grade securities 1,105,583 20,247 Non-investment grade securities: Commercial and industrial 654 46 Public utilities 2,945 50 Non-investment grade securities 3,599 96 Total $1,109,182 $20,343 At December 31, 2003 Gross Unrealized % of Losses Total Less than 20% $20,343 100% 20% or more for less than six months – 0% 20% or more for six months or greater – 0% Total $20,343 100% THIS IS RGA. 2003 ANNUAL REPORT 41