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 and makes adjustments to its segment reporting as needed. A brief description of each segment follows.


•	The Life Marketing segment markets fixed UL, IUL, VUL, 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 distribution organizations, and affinity groups.

•

The Acquisitions segment focuses on acquiring, converting, and servicing policies and contracts 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 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, 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.

After-tax adjusted operating income (loss) is derived from pre-tax adjusted operating income (loss) with the inclusion of income tax expense or benefits associated with pre-tax adjusted operating income. Income tax expense or benefits is allocated to the items excluded from pre-tax adjusted operating income (loss) at the statutory federal income tax rate for the associated period. For periods ending on and prior to December 31, 2017, a rate of 35% was used. Beginning in 2018, a statutory federal income tax rate of 21% will be used to allocate income tax expense or benefits to items excluded from pre-tax adjusted operating income (loss). Income tax expense or benefits allocated to after-tax adjusted operating income (loss) can vary period to period based on changes in the Company's effective income tax rate.

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.

During 2016, the Company modified its labeling of its non-GAAP measures presented herein as "Adjusted operating income (loss)" or "Pre-tax adjusted operating income (loss)". In previous filings, the Company referred to "Pre-tax adjusted operating income (loss)" as "Pre-tax operating income, "Operating income before tax", or "Segment operating income". In addition, the Company 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.

There were no significant intersegment transactions during the year ended December 31, 2017 (Successor Company), the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), and the period of January 1, 2015 to January 31, 2015 (Predecessor Company).

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 (Predecessor and Successor periods are not comparable):



	Successor Company									Predecessor Company
	For The Year Ended December 31, 2017			For The Year Ended December 31, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015
	(Dollars In Thousands)									(Dollars In Thousands)
Revenues
Life Marketing	$	1,667,118		$	1,627,848		$	1,426,090		$	145,595
Acquisitions	1,569,083			1,676,017			1,333,430			139,761
Annuities	450,306			574,934			443,419			7,884
Stable Value Products	190,006			114,580			79,670			8,181
Asset Protection	327,573			269,145			261,693			21,953
Corporate and Other	214,706			221,423			166,367			17,535
Total revenues	$	4,418,792		$	4,483,947		$	3,710,669		$	340,909
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	50,778		$	39,745		$	57,414		$	(1,618	)
Acquisitions	249,749			260,511			194,654			20,134
Annuities	213,080			213,293			180,231			13,164
Stable Value Products	105,261			61,294			56,581			4,529
Asset Protection	24,356			16,487			20,627			2,420
Corporate and Other	(136,332		)	(87,961		)	(25,067		)	(10,144		)
Pre-tax adjusted operating income	506,892			503,369			484,440			28,485
Realized gains (losses) on investments and derivatives	(71,835		)	90,628			(84,598		)	(27,303		)
Income before income tax	435,057			593,997			399,842			1,182
Income tax (benefit) expense	(671,475		)	200,968			131,543			(327		)
Net income	$	1,106,532		$	393,029		$	268,299		$	1,509

Pre-tax adjusted operating income	$	506,892		$	503,369		$	484,440		$	28,485
Adjusted operating income tax benefit (expense)	646,333			(169,247		)	(161,153		)	(9,228		)
After-tax adjusted operating income	1,153,225			334,122			323,287			19,257
Realized gains (losses) on investments and derivatives	(71,835		)	90,628			(84,598		)	(27,303		)
Income tax (expense) benefit on adjustments	25,142			(31,721		)	29,610			9,555
Net income	$	1,106,532		$	393,029		$	268,299		$	1,509

Realized investment (losses) gains:
Derivative financial instruments	$	(305,828	)	$	(40,288	)	$	29,997		$	(123,274	)
All other investments	121,428			90,659			(166,886		)	81,153
Net impairment losses recognized in earnings	(11,742		)	(17,748		)	(26,993		)	(481		)
Less: related amortization⁽¹⁾	(39,480		)	24,360			(8,726		)	(9,143		)
Less: VA GLWB economic cost	(84,827		)	(82,365		)	(70,558		)	(6,156		)
Realized (losses) gains on investments and derivatives	$	(71,835	)	$	90,628		$	(84,598	)	$	(27,303	)

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



	Successor Company									Predecessor Company
	For The Year Ended December 31, 2017			For The Year Ended December 31, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015
	(Dollars In Thousands)									(Dollars In Thousands)
Net investment income
Life Marketing	$	553,999		$	525,495		$	446,439		$	47,460
Acquisitions	752,520			764,571			639,422			71,088
Annuities	321,844			322,608			297,114			37,189
Stable Value Products	186,576			107,010			78,459			6,888
Asset Protection	27,325			22,082			17,459			1,878
Corporate and Other	209,324			200,690			154,055			10,677
Total net investment income	$	2,051,588		$	1,942,456		$	1,632,948		$	175,180
Amortization of DAC and VOBA
Life Marketing	$	120,753		$	130,708		$	107,811		$	4,813
Acquisitions	(6,939		)	8,178			2,035			5,033
Annuities	(54,471		)	(11,031		)	(41,071		)	(7,706		)
Stable Value Products	2,354			1,176			43			25
Asset Protection	16,524			20,033			25,211			1,820
Corporate and Other	—			—			27			87
Total amortization of DAC and VOBA	$	78,221		$	149,064		$	94,056		$	4,072



Successor Company
	Operating Segment Assets As of December 31, 2017
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,914,418	$	19,588,133	$	20,938,409	$	4,569,639
DAC and VOBA	1,320,776		74,862		772,634		6,864
Other intangibles	282,361		34,548		170,117		8,056
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	16,717,829	$	19,712,067	$	22,217,837	$	4,698,372



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	918,952	$	15,043,597	$	75,973,148
DAC and VOBA	24,441		—		2,199,577
Other intangibles	133,234		35,256		663,572
Goodwill	128,182		—		793,470
Total assets	$	1,204,809	$	15,078,853	$	79,629,767



Successor Company
	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