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In addition to generally accepted accounting principles, we use non-GAAP financial measures to evaluate our financial results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our press release and financial supplement.Now, I'll turn the call over to Jim. J im Wehr Thanks, Naomi, and thanks to everyone for joining our fourth quarter 2011 call. This morning I'll focus primarily on our full year results in my comments. Peter and Chris will amplify with quarterly perspectives as well. We are pleased to report strongest year we have had since 2007. Particularly notable is operating income of about $42 million, but it goes far beyond earnings. We've developed a sustainable path to rebuild Phoenix into a successful enterprise. It is with confidence that we say we have returned Phoenix to stability and growth. Virtually all financial measures are improving. Our progress with the rating agencies validates that statement. After several favorable changes over the past year-and-a-half, two outlooks turned out positive and one is stable. Collectively, the rating agencies acknowledge our improving financial profile and capital adequacy as well as emerging earnings momentum. They also take note of our reduced surrender activity, expense management and continued de-risking of the investment portfolio. And perhaps most importantly, they believe we can grow. And I'm obviously pleased to see the rating agencies acknowledge our progress, I remain frustrated that this progress is not yet reflected in our share price. To me there is a clear disconnect between the fundamental value of this company and where our stock is trading. As we head into 2012, we are very focused on enhancing that fundamental value and believe improved valuation should follow. Let me give you some highlights on where we stand at the end of 2011, which support my assertion that our stock is undervalued. First, our capital position is solid. When we established our four strategic pillars, I emphasize that regaining balance sheet strength was pillar number one.
Now, as we end 2011, our statutory surplus is up to $846 million and our risk based capital is estimated at 363%. That's up from 223% at the end of '09 and 282% at yearend 2010.While our emphasis is on growth, we continue to take action to build a strong and flexible capital position. In the fourth quarter we entered into a close block reinsurance agreement to further enhance flexibility. At yearend we had over $100 million in cash and securities at the holding company. Our investment portfolio continues to perform well, despite the challenges of the low interest rate environment. Impairments were half of what they were in 2010 and we further reduced a proportion of below investment grade holdings. On the other side of the balance sheet, we've put significant focus on managing legacy exposures. Our discontinued reinsurance business has largely run-off and we are negotiating commutations of a significant portion of the remaining exposure. We have increased reserves in anticipation of finalizing these. Similarly, we are monitoring the experience emerging in a block of UL business and as a high concentration of older-age insureds that represents about 8% of our gross life insurance in-force. We've taken action where appropriate including cost of insurance increases. My point here is though we are actively managing these exposures, so they do not distort the fundamental value of our franchise. We addressed two other legacy issues in the fourth quarter that had a combined impact on operating earnings of about $15 million. The larger item was retirement benefit liability that predates our 2001 demutualization. The smaller item was the impact of unclaimed death benefits that we identified during our New York Section 308 review. Peter will provide more detail on both of these. Moving on to our other strategic pillars. The policyholder service pillar is focused on both persistency and customer service. Here we returned a normal persistency level. The full year surrender rates for life at 6.5% and for annuities at 11.4%. This has take tremendous effort at all levels of the company and is a testament to the ability of our team to focused on an objective and the deliver. Read the rest of this transcript for free on seekingalpha.com