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 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 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.

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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.

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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 products are designed to cover the difference between the scheduled 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 deferred policy acquisition costs ("DAC"), value of business acquired ("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.

There were no significant intersegment transactions during the three months ended March 31, 2018 and 2017.

The following tables present 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 March 31,
	2018			2017
	(Dollars In Thousands)
Revenues
Life Marketing	$	434,916		$	421,392
Acquisitions	379,094			401,367
Annuities	150,713			108,642
Stable Value Products	53,868			40,843
Asset Protection	76,375			80,083
Corporate and Other	70,866			52,970
Total revenues	$	1,165,832		$	1,105,297
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	(17,849	)	$	18,945
Acquisitions	55,520			53,667
Annuities	40,531			53,007
Stable Value Products	29,080			23,899
Asset Protection	6,218			5,599
Corporate and Other	(20,679		)	(19,728		)
Pre-tax adjusted operating income	92,821			135,389
Realized (losses) gains on investments and derivatives	(1,023		)	(23,040		)
Income before income tax	91,798			112,349
Income tax expense	(17,686		)	(36,935		)
Net income	$	74,112		$	75,414

Pre-tax adjusted operating income	$	92,821		$	135,389
Adjusted operating income tax (expense) benefit	(18,044		)	(44,999		)
After-tax adjusted operating income	74,777			90,390
Realized (losses) gains on investments and derivatives	(1,023		)	(23,040		)
Income tax benefit (expense) on adjustments	358			8,064
Net income	$	74,112		$	75,414

Realized investment (losses) gains:
Derivative financial instruments	$	78,059		$	(69,878	)
All other investments	(87,599		)	22,841
Net impairment losses recognized in earnings	(3,645		)	(7,831		)
Less: related amortization⁽¹⁾	9,156			(10,744		)
Less: VA GLWB economic cost	(21,318		)	(21,084		)
Realized (losses) gains on investments and derivatives	$	(1,023	)	$	(23,040	)

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



	Operating Segment Assets As of March 31, 2018
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,744,343	$	19,275,508	$	20,535,539	$	4,571,793
DAC and VOBA	1,374,149		90,466		800,941		6,133
Other intangibles	277,489		33,909		166,784		7,889
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	16,596,255	$	19,414,407	$	21,839,941	$	4,699,628



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	1,016,586	$	13,988,814	$	74,132,583
DAC and VOBA	162,465		—		2,434,154
Other intangibles	130,573		35,063		651,707
Goodwill	128,182		—		793,470
Total assets	$	1,437,806	$	14,023,877	$	78,011,914



	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