Operating expenses. Non-deferred operating expenses excluding Saybrus increased $5.3 million to $234.6 million in 2012, compared to $229.3 million in 2011. The increase in operating expenses was a result of higher professional fees, outside services and commissions which were offset by lower compensation related expenses.
During the third quarter of every year, we complete a comprehensive assumption review where management makes a determination of best estimate assumptions based on a comprehensive review of recent experience and industry trends. Assumption changes resulting from this review change our estimate of EGPs in the deferred policy acquisition cost and unearned revenue amortization models, as well as projections within the death benefit and other insurance benefit reserving models. The deferred policy acquisition cost asset, the unearned revenue reserves and death benefit and other insurance benefit reserves are then adjusted with an offsetting benefit or charge to income to reflect such changes in the period of the revision. Throughout the year, we may also update the assumptions and adjust the deferred policy acquisition cost, SIA, URR and certain guaranteed minimum income and death benefit balances if emerging data indicate a change is warranted. Our process to assess the reasonableness of the EGPs used for this purpose uses internally developed models together with consideration of applicable recent experience, analysis of market and industry trends and other events. Actual gross profits that vary from management’s estimates in a given reporting period may also result in increases or decreases in the rate of amortization recorded in the period.
Three months ended June 30, 2012 compared with three months ended June 30, 2011
The following discussion includes both liquidity and capital resources as these subjects are interrelated.
Cash flows provided by financing activities increased $748.5 million during the year ended December 31, 2011 compared to the year ended December 31, 2010 primarily as a result of increase in policyholder deposits related to sales of fixed indexed annuities. See Note 10 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional information on financing activities.
Separate accounts decreased as a result of the transfer of pension assets from a Phoenix separate account to the direct control of the plan’s trustee during the second quarter of 2012. Variable annuity surrenders and lower market performance also contributed to the decline.
Policyholder deposit funds increased during the 12 months ended December 31, 2012 primarily as a result of continued sales growth of fixed indexed annuities as illustrated in the table below entitled “Annuity Funds on Deposit.”
Universal life funds on deposit decreased $66.1 million and $161.8 million during the years ended December 31, 2011 and 2010, respectively. The declines were lower in 2011 as compared to 2010 as a result of the increase in deposits as well as a decrease in surrenders.
We use reinsurance agreements to limit potential losses, reduce exposure to larger risks and provide capital relief with regard to certain reserves. We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to the Company. Since we bear the risk of nonpayment, on a quarterly basis we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. Based on our review of their financial statements, reputation in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance. At December 31, 2012, five major reinsurance companies account for approximately 64% of the reinsurance recoverable.
The RBC of Phoenix Life as of December 31, 2012 was in excess of 250% of the Company Action Level.