The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting estimates are reflective of significant judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
See Note 14 to our consolidated financial statements under Item 8 “Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for additional disclosures of our fair value methodologies.
For debt securities, the other-than-temporarily impaired amount is separated into the amount related to a credit loss and is reported as net realized investment losses included in earnings, and any amounts related to other factors are recognized in OCI. The credit loss component represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. Subsequent to the recognition of an OTTI, the impaired security is accounted for as if it had been purchased on the date of impairment at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. We will continue to estimate the present value of future expected cash flows and, if significantly greater than the new cost basis, we will accrete the difference as investment income on a prospective basis once the Company has determined that the interest income is likely to be collected.
The following tables present certain information with respect to our gross unrealized gains and losses related to our investments in debt securities as of December 31, 2011. We separately present information that is applicable to unrealized losses both outside and inside the closed block. See Note 8 to our consolidated financial statements under “Item 8: Financial Statements and Supplementary Data” in this Annual Report on Form 10-K for more information regarding the closed block. Applicable deferred policy acquisition costs and deferred income taxes further reduce the effect of unrealized gains and losses on our comprehensive income.
Cash flows used for operations related to discontinued operations declined as a result of the sale of PFG in the second quarter of 2010. This was offset by the increase in cash flows for investing activities in assets held to back higher discontinued group accident and health reinsurance reserves reported to us by certain ceding companies. See Note 21 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 discontinued operations.
Variable universal life funds on deposit decreased $132.5 million compared to a decrease of $16.9 million during the years ended December 31, 2011 and 2010. The larger decline in 2011 was primarily driven by lower market performance partially offset by lower surrenders.
Variable universal life funds on deposit decreased for the year ended December 31, 2010 compared to an increase during the year ended December 31, 2009. Market performance was lower in 2010 compared to 2009 while surrenders were slightly higher. Deposits and fees and cost of insurance remained relatively flat.
We provide our employees with post-employment benefits that include retirement benefits, through pension and savings plans, and other benefits, including health care and life insurance. Employee benefit expense related to these plans totaled $13.2 million, $20.1 million and $46.7 million for 2011, 2010 and 2009, respectively.