Take a look at their annual report SEC filings. There is a lot of detail on this.
I personally feel pretty good about what they've got here. As I recall, they have less than 1% in any investment and also rode out the 2008 / 2009 market with minimal losses. They've got minimal subprime exposure.
The derivatives are used to offset the market gains sold in their variable annuities. They are essentially call options on the S&P 500 to pay for these gains. They manage these very conservatively.