How to Choose a Life Insurance Company Fulfilling Promises A 2013 Guide Through Relevant Industry Information Because the most important people in your life will depend on it, life insurance is one of the most significant purchases you will ever make. Yet, unlike purchasing a home, car, or computer, most people are completely unfamiliar with the critical questions they should ask before choosing a life insurer. In fact, most people spend far more time researching a vacation than life insurance, even though in the end they can hardly compare in importance. At Guardian, we want you to make the most informed decision possible when it comes to this essential part of your financial foundation. We hope that you find the following information helpful in evaluating the strength and stability of any life insurer. Table of Contents 1. The Importance of Strength and Stability. . . . . . . . . . . . . . . . . . . . Page 2 2.Mutuality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4 3. Capitalization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 4 4.Net Investment Yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 6 5. Total Underperforming Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 7 6. Bond and Mortgage Statutory Credit Results . . . . . . . . . . . . . . . . . Page 8 7. Investment Environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 9 8.Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 10 9. The Guardian Life Insurance Company of America. . . . . . . . . . . . Page 12 вЂ“ 2012 Financial Highlights вЂ“ Key 2012 Accomplishments вЂ“ Investment Philosophy вЂ“ Life Insurance Products 1 The Importance of Strength and Stability There are many places you can put your money to keep it safe and make it grow. But life insurance is the one place where you must be absolutely certain it is secure вЂ” secure today and for many years to come. Consequently, choosing a life insurance company is all about the firmвЂ™s long-term strength and stability. WHY? BECAUSE A POLICY IS A PROMISE. A promise is only as good as the company that can honor it. The values contained in a life insurance policy will be a major source of accumulated cash values and security for your family and your business. Quite distinct from most other types of financial instruments, such as savings accounts and short-term investments, a life insurance policy is expected to perform or fulfill your goals many years in the future. Therefore, the long-term financial viability of the life insurance company you are considering should be a major consideration. When you purchase life insurance, you are not just buying the coverage itself. You are also buying the experience, financial strength and services of the insurance company. With so much change in the financial and insurance industry вЂ” including some carriers exiting the marketplace altogether вЂ” a serious review of the underlying soundness of any company is crucial. That is why it is important to determine whether the companyвЂ™s track record is consistent with the statements made at the time of sale. 2 What should you know about a life insurance company when purchasing a policy? The financial strength and stability of the company. You should review the following during your life insurance selection process: вЂў Mutuality вЂ” A mutual company is owned by the policyholders, whereas a stock insurance companyвЂ™s primary owner is its stockholders. вЂў Capitalization Ratio вЂ” This is a measure of financial strength and an indicator of a companyвЂ™s ability to ride out uncertain economic times. вЂў Net Investment Yield вЂ” The yield represents the net earned rate on all invested assets, excluding realized and unrealized gains and losses. вЂў Total Underperforming Assets вЂ” This is an indicator of the quality of the asset portfolio supporting the policyholdersвЂ™ policies. вЂў Bond and Mortgage Statutory Credit Results вЂ” This is a good indicator of a companyвЂ™s risk management performance. вЂў Investment Environment вЂ” The way life insurers manage their assets can be very different from company to company ВвЂ” some can be more aggressive than others. You want to look at how an insurerвЂ™s portfolio has performed during market downturns and how much risk they are currently taking. вЂў Financial Ratings вЂ” All the factors above are evaluated for each life insurance company by independent ratings services. Their ratings are widely relied upon by institutions and individuals as essential indicators of financial strength and stability of insurance companies. Using the preceding indicators and measurements may help you in selecting a company focused on strength, integrity and performance. The charts on the following pages show life insurance carriers ranked by those measurements. All information in this document was obtained from the annual and quarterly statement filings with the National Association of Insurance Commissioners (NAIC) as of 12/31/12. 3 Mutuality: What is a mutual life insurance company and why is it important to your buying decision? Unlike publicly held companies, mutual companies have no stockholders and therefore no conflicts between the short-term, quarter-to-quarter financial demands of Wall Street and the long-term interests of policyholders. We believe mutual companies are positioned to serve customersвЂ™ interests by delivering high-quality, low-net-cost life insurance with the greatest degree of financial strength possible. One of the most important ways that mutual companies can enrich the lives of their policyholders is through annual dividends that result in a lower, long-term net cost for their insurance policies. While dividends are not guaranteed, (they are declared annually by the CompanyвЂ™s Board of Directors) Guardian has paid dividends every year since 1868. Capitalization Ratio: What is it and why is it important to you? The capitalization ratio shows the companyвЂ™s capital as a percentage of net admitted assets. Most of the liabilities of any insurance company are composed of the reserves set aside to pay future claims. Capital represents the amount of assets in excess of those liabilities, and a high capitalization ratio indicates a greater proportion of these excess assets. It is calculated using the following formula: Capital Net Admitted Assets (Excluding Separate Account Assets) The following table lists the capitalization ratios* over the last five years of many of the major companies within the industry. 4 Ranked by Five-Year Average Capitalization Ratio* Five-Year Average Company 2008 2009 2010 2011 2012 Guardian Life Insurance Company of America 14.7% 15.9% 16.1% 15.5% 15.4% 15.5% State Farm Life Insurance Company 13.2% 14.1% 14.6% 15.0% 15.7% 14.5% New York Life Insurance Company 11.8% 13.6% 14.7% 14.8% 15.8% 14.1% Ohio National Life Insurance Company 11.7% 12.9% 13.6% 14.3% 16.1% 13.7% Massachusetts Mutual Life Insurance Company 11.4% 13.2% 14.1% 14.4% 14.8% 13.6% Pacific Life Insurance Company 8.2% 11.8% 13.7% 13.6% 14.5% 12.4% Northwestern Mutual Life Insurance Company 11.1% 11.0% 12.5% 12.1% 12.2% 11.8% Nationwide Life Insurance Company 8.7% 10.6% 12.3% 10.8% 11.5% 10.8% AXA Equitable Life Insurance Company 8.7% 9.6% 10.3% 10.7% 11.1% 10.1% Lincoln National Life Insurance Company 7.6% 9.2% 9.3% 9.0% 8.6% 8.8% Principal Life Insurance Company 8.0% 8.0% 8.1% 8.0% 7.6% 7.9% Prudential Insurance Company of America 5.9% 8.6% 7.9% 7.5% 7.7% 7.5% John Hancock Life Insurance Company (USA) 7.7% 6.8% 7.3% 6.8% 7.5% 7.2% Metropolitan Life Insurance Company 6.9% 6.7% 7.0% 7.6% 7.6% 7.2% Aviva Life & Annuity Company 6.0% 6.1% 5.8% 6.2% 6.2% 6.1% What this means to you isвЂ¦ The higher the capitalization ratio, the more confident you can be in making sure that the company that is issuing the policy: вЂў Has the financial endurance to handle severe market volatility; and вЂў Is in a position to honor the promise of the policy вЂ” to protect and insure when itвЂ™s needed most. *All information provided was obtained from each companyвЂ™s statutory statements. Results include surplus notes issued. 5 Net Investment Yield: What is it and why is it important to you? Net Investment Yield (NIY, also known as Net Yield on Mean Invested Assets) is net investment income expressed as a percent of cash and invested assets plus accrued investment income, minus borrowed money. Net Investment Yield comes from all invested assets. The table shown is ranked by percentage of yield over a five-year period. Ranked by Five-Year Net Investment Yield* 2008 2009 2010 2011 2012 AXA Equitable Life Insurance Company 6.48% 5.25% 6.21% 6.31% 5.60% 5.97% John Hancock Life Insurance Company (USA) 5.52% 7.62% 5.33% 5.58% 4.69% 5.75% Ohio National Life Insurance Company 6.10% 5.82% 5.64% 5.48% 5.30% 5.67% Aviva Life & Annuity Company 4.84% 6.02% 6.21% 5.49% 5.54% 5.62% Northwestern Mutual Life Insurance Company 5.96% 5.64% 5.63% 5.30% 5.10% 5.52% Guardian Life Insurance Company of America 5.60% 5.65% 5.62% 5.42% 5.12% 5.48% Massachusetts Mutual Life Insurance Company 6.47% 5.09% 5.37% 5.37% 5.06% 5.47% Principal Life Insurance Company 6.01% 5.41% 5.40% 5.32% 5.11% 5.45% State Farm Life Insurance Company 5.67% 5.69% 5.42% 5.24% 4.93% 5.39% Prudential Insurance Company of America 5.29% 6.10% 5.14% 5.29% 4.93% 5.35% Lincoln National Life Insurance Company 5.75% 5.41% 5.45% 5.14% 4.96% 5.34% Metropolitan Life Insurance Company 5.77% 4.74% 5.13% 5.17% 4.89% 5.14% Nationwide Life Insurance Company 5.11% 5.36% 5.17% 4.95% 4.70% 5.06% New York Life Insurance Company 5.22% 5.23% 4.98% 4.77% 4.74% 4.99% Pacific Life Insurance Company 7.96% 1.61% 3.99% 4.18% 3.55% 4.26% What this means to you isвЂ¦ The yield represents the net earned rate on all invested assets, excluding realized and unrealized gains and losses. 6 Five-Year Average Company * All information provided was obtained from each companyвЂ™s statutory statements. Results include surplus notes issued. Total Underperforming Assets: What are they and why are they important? This is one measure of the quality of a life insurance companyвЂ™s asset portfolio that supports the policyholdersвЂ™ policies. Total underperforming assets measures: вЂў The amount of bonds in or near default; вЂў Mortgages with interest three months overdue; вЂў Mortgages in the process of foreclosure; вЂў Real estate acquired in satisfaction of debt; and вЂў Mortgage loans with restructured terms. A lower number indicates a lower degree of underperforming assets over time. Underperforming Assets as a Percentage of Capital* Five-Year Average Company 2008 2009 2010 2011 2012 Guardian Life Insurance Company of America 1.0% 0.7% 0.3% 0.4% 0.6% 0.6% New York Life Insurance Company 0.7% 1.0% 0.6% 0.6% 0.5% 0.7% State Farm Life Insurance Company 0.4% 0.6% 0.4% 1.2% 1.2% 0.8% Aviva Life & Annuity Company 0.8% 0.6% 1.1% 0.8% 1.2% 0.9% Metropolitan Life Insurance Company 0.9% 1.8% 0.8% 1.1% 1.2% 1.2% Northwestern Mutual Life Insurance Company 0.8% 1.9% 1.2% 1.2% 1.1% 1.3% Lincoln National Life Insurance Company 1.4% 2.9% 1.7% 1.0% 0.5% 1.5% Nationwide Life Insurance Company 3.4% 2.0% 0.6% 0.7% 0.7% 1.5% Massachusetts Mutual Life Insurance Company 2.0% 2.0% 1.5% 0.9% 0.9% 1.5% Pacific Life Insurance Company 1.4% 1.7% 1.5% 1.5% 2.1% 1.6% AXA Equitable Life Insurance Company 0.6% 0.8% 4.6% 2.9% 3.6% 2.5% Ohio National Life Insurance Company 3.6% 2.6% 3.0% 2.5% 1.4% 2.6% Principal Life Insurance Company 1.1% 3.4% 3.4% 2.9% 2.5% 2.7% John Hancock Life Insurance Company (USA) 0.8% 4.0% 4.2% 4.1% 2.8% 3.2% Prudential Insurance Company of America 5.3% 4.0% 2.0% 3.2% 2.0% 3.3% * All information provided was obtained from each companyвЂ™s statutory statements. 7 Bond and Mortgage Statutory Credit Results: Why are they important to your buying decision? What this means to you isвЂ¦ You want a company that can manage a portfolio to their intended investment philosophy вЂ” keeping your best interests top of mind. Bond and mortgage credit results sum the credit related gains/ (losses), including credit impairments. Bond and Mortgage Credit Loss Experience is important to your insurance buying decision. Bond and mortgage credit results are a good indicator of the companyвЂ™s risk management performance. A consumer should consider a companyвЂ™s investment and risk management results вЂ” and this is one way to look at it. Good credit analysis and risk management can minimize the actual loss experience. When reviewing credit loss, you should balance the risk associated with the companyвЂ™s ability to achieve income results with its ability to minimize risk and historical credit losses. Statutory Investment Credit Losses* The credit loss is calculated with the following formula: Pre-Tax Bond/Preferred Stock Gain/(Loss) - T ransfer to Interest Maintenance Reserve (IMR) + P re-Tax Mortgage Loan Realized & Change in Unrealized Gain/(Loss) Average Invested Assets 8 Company 2010 2011 2012 3-Year Total State Farm Life Insurance Company 0.03% -0.01% -0.02% 0.00% Guardian Life Insurance Company of America -0.03% -0.03% -0.03% -0.09% New York Life Insurance Company 0.00% -0.14% -0.02% -0.16% Northwestern Mutual Life Insurance Company -0.24% 0.04% -0.07% -0.26% Aviva Life & Annuity Company -0.27% 0.02% -0.06% -0.31% Pacific Life Insurance Company -0.05% -0.19% -0.08% -0.32% Ohio National Life Insurance Company -0.09% -0.17% -0.10% -0.36% Metropolitan Life Insurance Company -0.18% -0.21% -0.10% -0.49% Prudential Insurance Company of America -0.31% -0.03% -0.15% -0.49% Lincoln National Life Insurance Company -0.21% -0.20% -0.20% -0.61% John Hancock Life Insurance Company (USA) -0.25% -0.02% -0.35% -0.62% Principal Life Insurance Company -0.45% -0.34% 0.15% -0.64% Nationwide Life Insurance Company -0.45% -0.22% -0.10% -0.78% AXA Equitable Life Insurance Company -0.75% -0.14% -0.27% -1.16% Massachusetts Mutual Life Insurance Company -0.27% -0.65% -0.29% -1.20% Source: Annual Statements *Results are reported and calculated based on the annual statutory financial statements. Investment Environment: How does market performance impact your buying decision? Since life insurance has longer-term benefits, you should think carefully about what you want your policy to do for you over time and what your comfort level is with exposing your coverage to market fluctuations. If you are not comfortable with market fluctuations, then understanding a companyвЂ™s investment philosophy and historical experience is extremely important. You may want to consider doing business with a company that: вЂў Is defensively positioned to withstand market swings; вЂў Is relatively conservative in taking insurance premium dollars and investing in a strong, well-diversified portfolio; вЂў Is known for thorough due diligence and an independent research process; вЂў Avoids risky investments; and вЂў Executes a risk management plan to protect capital in volatile financial markets. This philosophy lends itself to building and maintaining the kind of strong capital and liquidity needed to pay death claims. What this means to you isвЂ¦ Independent rating agencies look well beyond company financials. They also have face-to-face interviews with senior executives of each firm they rate in order to get a sense of their vision and philosophy вЂ“ and to help determine the integrity and foundation of their companyвЂ™s values. 9 Ratings: What are they and why are they important? Independent, third-party rating services provide measures of the qualifications of insurance companies that might be under consideration. As you have seen, there are many financial facts to evaluate when choosing a solid life insurance company. Because this is a time-consuming task even for professionals, many years ago independent rating services were developed to evaluate the latest strength and stability of virtually all insurers. These rating services are impartial in their evaluations and provide a common ground for valid comparisons. There are four major rating agencies that evaluate and publish ratings for life insurance companies: вЂў MoodyвЂ™s вЂў Standard & PoorвЂ™s вЂў Fitch вЂў A.M. Best Company For each insurance company being rated, each agency evaluates the firmвЂ™s financial statements, interviews their management, and subsequently develops ratings based upon statistical models and certain qualitative measures. The cumulative result is a relative ranking of all the insurance companies that they have evaluated. The benefit of having several companies produce their own ratings is that overall, there is less chance of something being missed or overlooked. Illustrating this point is a table called the Comdex Rankings. Comdex is not a rating, but a composite of all ratings that a company has received. Comdex percentile ranks the companies, on a scale of 1 to 100 (with 100 being the best). For perspective, experts who write about the insurance industry will tell you that a Comdex of 95 or higher is considered an вЂњextremely safeвЂќ company, 90 represents a вЂњsafeвЂќ company and a ranking of 85 indicates a вЂњreasonably safeвЂќ company.* Contact your Guardian representative to review rating reports and narratives from the major rating agencies. 10 Comdex Rankings as of April 2013* A.M. Best Company S&P MoodyвЂ™s Fitch Comdex Northwestern Mutual Life Insurance Company A++ AA+ Aaa AAA 100 New York Life Insurance Company A++ AA+ Aaa AAA 100 Guardian Life Insurance Company of America A++ AA+ Aa2 AA+ 98 Massachusetts Mutual Life Insurance Company A++ AA+ Aa2 AA+ 98 State Farm Life Insurance Company A++ AA Aa1 AA+ 98 Penn Mutual Life Insurance Company A+ AA- Aa3 Metropolitan Life Insurance Company A+ AA- Aa3 Ohio National Life Insurance Company A+ AA A1 AXA Equitable Life Insurance Company A+ A+ Aa3 AA- 93 John Hancock Life Insurance Company (USA) A+ AA- A1 AA- 93 Principal Life Insurance Company A+ A+ Aa3 AA- 93 Lincoln National Life Insurance Company A+ AA- A2 A+ 89 Pacific Life Insurance Company A+ A+ A1 A+ 89 Prudential Insurance Company of America A+ AA- A2 A+ 89 Nationwide Life Insurance Company A+ A+ A1 A 87 Hartford Life Insurance Company A- A- A3 A- 67 Sun Life Assurance Company (U.S.) A- BBB Baa2 A- 64 Aviva Life & Annuity Company A- A- Company 96 AA- 95 94 63 What this means to you isвЂ¦ Industry experts find that the difference between choosing a company with a Comdex of 98 versus 93 is the difference between вЂњextremely safeвЂќ versus вЂњsafe.вЂќ** You have a choice вЂ“ if not a responsibility вЂ“ in choosing an insurance company based on your personal tolerance for company strength and safety. * Vital Signs as of April 2013. Not all companies are ranked by all four rating agencies. ** Source: Richard M. Weber, MBA, CLU, AEP; and Chris Hause, FSA, MAAA, CLU; Life Insurance as an Asset Class: Managing a Valuable Asset. 11 Choose GUARDIANВ® What this means to you isвЂ¦ These are the results that you should be basing your decisions on when choosing a life insurance company. GuardianвЂ™s track record is consistent with the statements we have made. When you choose Guardian, thereвЂ™s less need to worry. Because as a mutual company, our decisions are measured based on serving the best interests of our policyholders. Now that you have the tools to evaluate the strength and stability and performance of a life insurer, letвЂ™s see how Guardian stacks up. Since our founding in 1860, The Guardian Life Insurance Company of America, as a mutual company, has been able to manage for the long term, allowing us to avoid risky business practices in the pursuit of short-term profits. Striking the right balance between managing risk and generating healthy long-term returns is one of our highest priorities вЂ” and a practice that paid off very well in 2012. Guardian has staying power. When you compare the key financial strength indicators across companies, Guardian is on top: вЂў Top Tier Comdex Ranking: 98 вЂў Top 3% in insurance company ratings and rankings* вЂў Best-in-class Capitalization Ratio over 5 years: 15.5% вЂў Surplus Growth Rate over 5 years: 4.8% 2012 Financial Highlights** As of December 31, 2012 Net Investment Income $1,728 Total Revenues $7,967 Policyholder Dividends Incurred $792 Gain from Operations Before Taxes and Realized Losses $284 Net Income $253 Total Invested Assets $35,478 Total Admitted Assets $37,529 Total Surplus $4,752 * Vital Signs as of March 2013. Vital Signs, a collection of published industry research, provides financial analysis of 695 participating carriers. Of those 695 companies, only 106 are rated by all four independent rating agencies. Out of those 106 companies, only 21 have ratings equal to or better than GuardianвЂ™s. And the top four mutual life insurance companies (including Guardian) are among the TOP 3% of the 695 rated insurance companies. ** Financial information concerning The Guardian Life Insurance Company of America as of 12/31/12 on a statutory basis: Admitted Assets = $37.5 Billion; Liabilities = $32.8 Billion (including $28.6 Billion of Reserves); and Surplus = 4.7 Billion. 12 GuardianвЂ™s Key 2012 Accomplishments вЂў Declared, in November 2012, a 2013 dividend payout* of $805 million to our policyholders вЂ” the largest declared dividend in GuardianвЂ™s history. вЂў In 2012, paid $4.7 billion** in total benefits to policyholders, demonstrating our ability to continuously operate for the benefit of policyholders. вЂў All four major crediting rating agencies affirmed our already strong ratings. вЂў Obtained a capitalization ratio of 15.4%, which is among the best in the industry. вЂў Increased life insurance in force to $289 billion, reflecting our overall 2012 $5,762 business growth. $5,460 2011 $5,343 2010 вЂњ $4,256 2 CAPITAL Results in $ millions ST BE Re $805 $1,165 $795 $5,762 $1,101 2012 2012 2011 2012 2011 2 $5,460 $740 $1,082 2011 2010 2010 2 $712 $5,343 $1,015 $4,920 $723 $986 2 2 $4,256 need to earn your confidence each and every day. We will continue to make our 2 2011 policyholdersвЂ™ needs, and delivery on our $795 $740 long-term promises, our highest priorityвЂ” $712 2009 through the quality of the decisions we$723 2008 WHOLE LIFE DIVIDENDS DECLARED Results in $ millions make, and the integrity, hard work, вЂќ ST BE Re $805 2012 and dedication of our people. 2 2008 LIFEPRE-TAX WHOLE DIVIDENDS DECLARED STATUTORY OPERATING INCOME Results inDIVIDENDS $ millions (on a consolidated basis) BEFORE Results in $ millions CAPITAL Results in $ millions CAPITAL Results in $ millions 2010 2 $4,920 2009 2009 2008 2008 $4,256 My colleagues and I know we 2008 2 $5,343 2010 2009 2010 2009 $4,920 2009 2 $5,460 2011 2008 вЂў Continued to maintain a highly diversified, high-quality investment portfolio of more than $35 billion. $5,762 2012 $805 2012 $795 2011 2010 $740 2009 $712 2008 $723 WHOLE LIFE DIVIDENDS DECLARED Results in $ millions Deanna M. Mulligan President and Chief Executive Officer * Dividends are not guaranteed. They are declared annually by GuardianвЂ™s Board of Directors. ** On a consolidated basis. 13 GuardianвЂ™s Investment Philosophy: What is it and why should you consider it? In 2012, the majority of GuardianвЂ™s total investment portfolio was comprised of public fixed income, private placement debt and commercial mortgages. The portfolio continued to perform well in 2012. GuardianвЂ™s investment philosophy focuses on maintaining a well-diversified portfolio, with a long-term orientation that provides the most attractive and consistent dividends to our policyholders. Our investment objectives are clear and focused, and remain as they have been for many years. We start with sound asset allocation and diversification strategies. GuardianвЂ™s portfolio managers employ a disciplined investment decision-making process, which is based on proprietary research and analysis, rather than being overly reliant on ratings agencies or quantitative risk models. Additionally, our asset liability investment management process carefully integrates asset maturities with prudent funding of insurance liabilities. Despite market volatility in recent years, GuardianвЂ™s investment team successfully managed the economic crisis, delivering strong investment performance and results. Why did GuardianвЂ™s investment portfolio perform so well in 2012? The ongoing success of our investment strategy is a result of active portfolio and risk-management practices, executed by an experienced team of professionals who have worked through previous periods of market turbulence. They thoroughly and independently research every decision, while keeping a close watch on macroeconomic, political, and competitive developments. GuardianвЂ™s investment risk management has been and continues to be principally focused on managing and mitigating potential capital losses by actively managing credit risk, executing hedging strategies that protect capital and constructing well-diversified portfolios that reduce correlated risk. We remain diligent about assessing emerging risks and stress-testing the portfolio to better understand how to mitigate risks, which currently include uncertainties associated with recession and debt problems in Europe, political turbulence in the Middle East, North Africa, and the Korean Peninsula ВвЂ” as well as the possibility that interest rates could either remain exceptionally low for an extended period or rise more sharply than anticipated. We expect continued market volatility and are positioning our portfolio to deal with a wide range of contingencies. 14 Statutory Basis Balance Sheets As of December 31 (in millions) Statutory Basis Statements of Operations 2012 2011* ADMITTED ASSETS For the year ended December 31 (in millions) 2012 2011* $5,998 $5,860 1,728 1,715 241 169 7,967 7,744 REVENUES $25,186 $23,057 978 1,110 Investments in affiliates 1,008 886 Mortgage loans 3,069 3,156 Private and real estate equity 1,368 1,247 Policy loans 3,000 2,889 Receivable for securities and other invested assets 579 457 Benefit payments to policyholders and beneficiaries 3,333 3,401 Cash and short-term investments 290 221 Net increase to policy benefit reserves 1,889 1,638 TOTAL INVESTED ASSETS 35,478 33,023 Due and accrued investment income 340 341 Commissions and operating expenses 1,669 1,633 Premiums deferred and uncollected 892 874 Net deferred tax asset 642 639 TOTAL BENEFITS AND EXPENSES 6,891 6,672 Other assets 177 250 Gain from operations before policyholder dividends and taxes 1,076 1,072 $37,529 $35,127 Policyholder dividends incurred (792) (785) Gain from operations before taxes and realized losses 284 287 Income tax expense (60) (81) Income from operations before net realized capital losses 224 206 29 (10) $253 $196 Bonds Unaffiliated common and preferred stocks TOTAL ADMITTED ASSETS LIABILITIES AND SURPLUS 28,621 26,732 1,927 1,903 Interest maintenance reserve 422 241 Asset valuation reserve 608 489 1,199 1,189 32,777 30,554 4,356 4,177 396 396 $37,529 $35,127 Reserves for policy benefits Policyholder dividends payable and other contract liabilities Amounts due to brokers and other liabilities TOTAL LIABILITIES PolicyholdersвЂ™ surplus Surplus note TOTAL LIABILITIES AND SURPLUS Premiums, annuity considerations, and fund deposits Net investment income Other income TOTAL REVENUE BENEFITS AND EXPENSES Net realized capital gains (losses) NET INCOME Results Are Guardian Life Only (Not Consolidated) The condensed financial statements of The Guardian Life Insurance Company of America have been derived from audited statutory financial statements, which are available upon request. * Certain amounts from 2011 have been reclassified to conform to the current year presentation. 15 GuardianвЂ™s Life Insurance Product Offerings: What life insurance products does Guardian offer and how will they help you? The hallmark of GuardianвЂ™s individual life portfolio has long been our traditional life insurance products, which are designed with integrity and backed by the financial strength of Guardian. Individual insurance plays an integral role in helping families and business owners fulfill their lives, not only by removing some of the вЂњunknown,вЂќ but also by providing tax-smart wealth transfer opportunities.* GuardianвЂ™s wide range of life insurance options вЂ” including whole life, universal life, variable universal life and term life insurance вЂ” helps meet these objectives. The distinguishing difference between these types of insurance is the amount of market exposure (variable universal life having the most) and the price (term being the least expensive in the short term). We also offer products specifically for small business owners to help attract and retain top talent through sophisticated corporate-owned policies. Policyowners of participating whole life insurance benefit the most from GuardianвЂ™s financial strength. First, whole life insurance offers a death benefit вЂ” guaranteed вЂ” and guaranteed cash value that can be borrowed against to pay for expenses such as retirement or health care. Second, as a mutual company, Guardian is focused on long-term results for the benefit of its participating whole life policyholders, which are delivered in the form of dividends. Our payout of $805 million to the owners of these whole life policies in 2013 is evidence of GuardianвЂ™s commitment to provide the greatest amount of insurance for the lowest long-term cost, with the greatest amount of financial strength. Not-so-Trivial Trivia about Guardian Guardian declared, for 2013, a dividend payout of $805 million based on 2012 Company performance. This amount is the highest payout in the CompanyвЂ™s history. вЂў The Company has paid a dividend to its policyholders since 1868 вЂ” through good times and bad, including two World Wars, the Great Depression, the Great Recession and years of market volatility. вЂў Guardian was one of a handful of life insurance companies to have been upgraded by A.M. Best and Standard & PoorвЂ™s in 2008 (11/08 and 7/08, respectively), and our ratings were reaffirmed in 2009, 2010, 2011 and 2012. вЂў Our claims-paying ability has not been impaired by the market downturn. * G uardian, its subsidiaries, agents or employees do not give tax or legal advice. You should consult your tax or legal advisor. 16 Your Guardian Representative Can Tell You More As you can see, Guardian scores highly on all the preceding tests of strength and stability. But thereвЂ™s more to a company than just the numbers. ThereвЂ™s also integrity, innovation, and true commitment to the well-being of its clients. Guardian has demonstrated these attributes for over 150 years, which explains why we have become one of AmericaвЂ™s top life insurers. Most importantly, you can count on us maintain the highest strength and standards for as long as you need us. View GuardianвЂ™s most recent Annual Report at: www.ar.guardianlife.com/ Your Guardian representative can provide much more information about why you should choose Guardian. And now that you have the knowledge to compare the essential facts, youвЂ™ll feel more confident about your decision than ever. If you donвЂ™t have a representative, contact us at: www.guardianlife.com/contactus The Guardian Life Insurance Company of America 7 Hanover Square New York, NY 10004-4025 www.GuardianLife.com Pub 4316 (06/13) 2013вЂ”5861