OPERATING SEGMENTS

The Company has several operating segments, each having a strategic focus. An operating segment is distinguished by products, channels of distribution, and/or other strategic distinctions. The Company periodically evaluates its operating segments, as prescribed in the ASC Segment Reporting Topic, and makes adjustments to its segment reporting as needed. A brief description of each segment follows.

•

The Life Marketing segment markets fixed universal life (“UL”), indexed universal life ("IUL"), variable universal life (“VUL”), bank-owned life insurance (“BOLI”), and level premium term insurance (“traditional”) products on a national basis primarily through networks of independent insurance agents and brokers, broker-dealers, financial institutions, independent marketing organizations, and affinity groups.

•

The Acquisitions segment focuses on acquiring, converting, and servicing policies acquired from other companies. The segment’s primary focus is on life insurance policies and annuity products that were sold to individuals. The level of the segment’s acquisition activity is predicated upon many factors, including available capital, operating capacity, potential return on capital, and market dynamics. Policies acquired through the Acquisitions segment are typically blocks of business where no new policies are being marketed. Therefore earnings and account values are expected to decline as the result of lapses, deaths, and other terminations of coverage unless new acquisitions are made.


•	The Annuities segment markets fixed and VA products. These products are primarily sold through broker-dealers, financial institutions, and independent agents and brokers.

•

The Stable Value Products segment sells fixed and floating rate funding agreements directly to the trustees of municipal bond proceeds, money market funds, bank trust departments, and other institutional investors. This segment also issues funding agreements to the FHLB, and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. The Company also has an unregistered funding agreement-backed notes program which provides for offers of notes to both domestic and international institutional investors.

•

The Asset Protection segment markets extended service contracts, guaranteed asset protection ("GAP") products, credit life and disability insurance, and other specialized ancillary products to protect consumers’ investments in automobiles, recreational vehicles, watercraft, and powersports. GAP covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss. Each type of specialized ancillary product protects against damage or other loss to a particular aspect of the underlying asset.

•

The Corporate and Other segment primarily consists of net investment income on assets supporting our equity capital, unallocated corporate overhead and expenses not attributable to the segments above (including interest on corporate debt). This segment includes earnings from several non-strategic or runoff lines of business, various financing and investment-related transactions, and the operations of several small subsidiaries.

The Company's management and Board of Directors analyzes and assesses the operating performance of each segment using "pre-tax adjusted operating income (loss)" and "after-tax adjusted operating income (loss)". Consistent with GAAP accounting guidance for segment reporting, pre-tax adjusted operating income (loss) is the Company's measure of segment performance. Pre-tax adjusted operating income (loss) is calculated by adjusting "income (loss) before income tax", by excluding the following items:


•	realized gains and losses on investments and derivatives,


•	changes in the GLWB embedded derivatives exclusive of the portion attributable to the economic cost of the GLWB,


•	actual GLWB incurred claims, and


•	the amortization of DAC, VOBA, and certain policy liabilities that is impacted by the exclusion of these items.

The items excluded from adjusted operating income (loss) are important to understanding the overall results of operations. Pre-tax adjusted operating income (loss) and after-tax adjusted operating income (loss) are not substitutes for income before income taxes or net income (loss), respectively. These measures may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax and after-tax adjusted operating income (loss) enhances management's and the Board of Directors' understanding of the ongoing operations, the underlying profitability of each segment, and helps facilitate the allocation of resources.

In determining the components of the pre-tax adjusted operating income (loss) for each segment, premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC and VOBA are attributed directly to each operating segment. Net investment income is allocated based on directly related assets required for transacting the business of that segment. Realized investment gains (losses) and other operating expenses are allocated to the segments in a manner that most appropriately reflects the operations of that segment. Investments and other assets are allocated based on statutory policy liabilities net of associated statutory policy assets, while DAC/VOBA and goodwill are shown in the segments to which they are attributable.

In filings prior to the Company's 2016 Form 10-K, "Pre-tax adjusted operating income (loss)" was referred to as "Pre-tax operating income", "Operating income before tax", or "Segment operating income". In addition, we referred to "After-tax adjusted operating income (loss)" as "After-tax operating income" or "Operating earnings". The definition of these labels remains unchanged, but the Company has modified the labels to provide further clarity that these measures are non-GAAP measures.

There were no significant intersegment transactions during the three and nine months ended September 30, 2017 and 2016.

The following tables presents a summary of results and reconciles pre-tax adjusted operating income (loss) to consolidated income before income tax and net income:



	For The Three Months Ended September 30,						For The Nine Months Ended September 30,
	2017			2016			2017			2016
	(Dollars In Thousands)
Revenues
Life Marketing	$	424,165		$	409,423		$	1,252,603		$	1,231,397
Acquisitions	375,819			391,017			1,164,650			1,269,672
Annuities	97,488			174,798			318,452			410,455
Stable Value Products	49,933			27,380			132,863			83,519
Asset Protection	83,597			69,306			246,142			201,041
Corporate and Other	53,386			51,722			162,042			170,876
Total revenues	$	1,084,388		$	1,123,646		$	3,276,752		$	3,366,960
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	8,969		$	(1,306	)	$	51,157		$	36,957
Acquisitions	62,880			70,157			184,825			184,095
Annuities	62,000			53,666			161,585			164,196
Stable Value Products	27,992			14,700			74,258			44,326
Asset Protection	6,963			5,455			19,098			16,216
Corporate and Other	(26,870		)	(29,774		)	(67,466		)	(60,231		)
Pre-tax adjusted operating income	141,934			112,898			423,457			385,559
Realized (losses) gains on investments and derivatives	(31,084		)	20,181			(74,490		)	88,023
Income before income tax	110,850			133,079			348,967			473,582
Income tax expense	(28,308		)	(39,785		)	(106,743		)	(152,820		)
Net income	$	82,542		$	93,294		$	242,224		$	320,762

Pre-tax adjusted operating income	$	141,934		$	112,898		$	423,457		$	385,559
Adjusted operating income tax (expense) benefit	(39,187		)	(32,722		)	(132,815		)	(121,982		)
After-tax adjusted operating income	102,747			80,176			290,642			263,577
Realized (losses) gains on investments and derivatives	(31,084		)	20,181			(74,490		)	88,023
Income tax benefit (expense) on adjustments	10,879			(7,063		)	26,072			(30,838		)
Net income	$	82,542		$	93,294		$	242,224		$	320,762

Realized investment (losses) gains:
Derivative financial instruments	$	(82,341	)	$	116		$	(260,407	)	$	(156,749	)
All other investments	18,150			24,152			94,708			194,663
Net impairment losses recognized in earnings	(273		)	(3,308		)	(10,889		)	(6,892		)
Less: related amortization⁽¹⁾	(12,123		)	21,532			(38,570		)	4,409
Less: VA GLWB economic cost	(21,257		)	(20,753		)	(63,528		)	(61,410		)
Realized (losses) gains on investments and derivatives	$	(31,084	)	$	20,181		$	(74,490	)	$	88,023


(1) Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).



	Operating Segment Assets As of September 30, 2017
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,700,406	$	19,681,306	$	20,617,917	$	4,664,251
DAC and VOBA	1,295,708		77,157		752,540		7,605
Other intangibles	287,120		35,187		173,450		8,222
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	16,483,508	$	19,808,174	$	21,880,584	$	4,793,891



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	914,658	$	14,773,285	$	75,351,823
DAC and VOBA	25,806		—		2,158,816
Other intangibles	135,895		33,714		673,588
Goodwill	128,182		—		793,470
Total assets	$	1,204,541	$	14,806,999	$	78,977,697



	Operating Segment Assets As of December 31, 2016
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,050,170	$	19,679,690	$	20,243,333	$	3,373,646
DAC and VOBA	1,218,944		106,532		655,618		5,455
Other intangibles	301,399		37,103		183,449		8,722
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	15,770,787	$	19,837,849	$	21,419,077	$	3,501,636



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	1,013,399	$	13,141,759	$	71,501,997
DAC and VOBA	33,280		—		2,019,829
Other intangibles	143,865		13,545		688,083
Goodwill	128,182		—		793,470
Total assets	$	1,318,726	$	13,155,304	$	75,003,379