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.

•

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, 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 and nine months ended September 30, 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 September 30,						For The Nine Months Ended September 30,
	2018			2017			2018			2017
	(Dollars In Thousands)
Revenues
Life Marketing	$	438,585		$	424,165		$	1,288,455		$	1,252,603
Acquisitions	581,054			375,819			1,469,787			1,164,650
Annuities	129,280			97,488			413,170			318,452
Stable Value Products	59,328			49,933			158,944			132,863
Asset Protection	79,158			83,597			233,347			246,142
Corporate and Other	59,763			53,386			193,205			162,042
Total revenues	$	1,347,168		$	1,084,388		$	3,756,908		$	3,276,752
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	2,521		$	8,969		$	(23,065	)	$	51,157
Acquisitions	93,648			62,880			208,206			184,825
Annuities	45,587			62,000			142,052			161,585
Stable Value Products	27,126			27,992			76,198			74,258
Asset Protection	8,029			6,963			21,413			19,098
Corporate and Other	(19,937		)	(26,870		)	(58,413		)	(67,466		)
Pre-tax adjusted operating income	156,974			141,934			366,391			423,457
Realized (losses) gains on investments and derivatives	(20,255		)	(31,084		)	(39,102		)	(74,490		)
Income before income tax	136,719			110,850			327,289			348,967
Income tax expense	(26,619		)	(28,308		)	(61,582		)	(106,743		)
Net income	$	110,100		$	82,542		$	265,707		$	242,224

Pre-tax adjusted operating income	$	156,974		$	141,934		$	366,391		$	423,457
Adjusted operating income tax (expense) benefit	(30,873		)	(39,187		)	(69,793		)	(132,815		)
After-tax adjusted operating income	126,101			102,747			296,598			290,642
Realized (losses) gains on investments and derivatives	(20,255		)	(31,084		)	(39,102		)	(74,490		)
Income tax benefit (expense) on adjustments	4,254			10,879			8,211			26,072
Net income	$	110,100		$	82,542		$	265,707		$	242,224

Realized investment (losses) gains:
Derivative financial instruments	$	(27,465	)	$	(82,341	)	$	62,859		$	(260,407	)
All other investments	(19,869		)	18,150			(157,070		)	94,708
Net impairment losses recognized in earnings	(14		)	(273		)	(3,664		)	(10,889		)
Less: related amortization⁽¹⁾	(5,859		)	(12,123		)	5,060			(38,570		)
Less: VA GLWB economic cost	(21,234		)	(21,257		)	(63,833		)	(63,528		)
Realized (losses) gains on investments and derivatives	$	(20,255	)	$	(31,084	)	$	(39,102	)	$	(74,490	)

(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, 2018
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,687,943	$	32,234,422	$	21,118,911	$	5,083,328
DAC and VOBA	1,468,989		455,343		876,390		7,001
Other intangibles	267,684		32,622		160,118		7,556
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	16,624,890	$	32,736,911	$	22,492,096	$	5,211,698



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	1,026,634	$	13,222,621	$	87,373,859
DAC and VOBA	166,570		—		2,974,293
Other intangibles	125,251		33,193		626,424
Goodwill	128,182		—		793,470
Total assets	$	1,446,637	$	13,255,814	$	91,768,046



	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