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BUSINESS SEGMENTS
 3 Months Ended
Mar. 31, 2022
Segment Reporting [Abstract]  
BUSINESS SEGMENTS
BUSINESS SEGMENTS

We view our operations as three insurance product lines (annuity, health and life) and the investment and fee revenue segments. Our segments are aligned based on their common characteristics, comparability of profit margins and the way management makes operating decisions and assesses the performance of the business.

Our insurance product line segments (annuity, health and life) include marketing, underwriting and administration of the policies our insurance subsidiaries sell. The business written in each of the three product categories through all of our insurance subsidiaries is aggregated allowing management and investors to assess the performance of each product category. When analyzing profitability of these segments, we use insurance product margin as the measure of profitability, which is: (i) insurance policy income; and (ii) net investment income allocated to the insurance product lines; less (i) insurance policy benefits and interest credited to policyholders; and (ii) amortization, non-deferred commissions and advertising expense. Net investment income is allocated to the product lines using the book yield of investments backing the block of business, which is applied to the average insurance liabilities, net of insurance intangibles, for the block in each period.

Income from insurance products is the sum of the insurance margins of the annuity, health and life product lines, less expenses allocated to the insurance lines. It excludes the income from our fee income business, investment income not allocated to product lines, net expenses not allocated to product lines (primarily holding company expenses) and income taxes. Management believes insurance product margin and income from insurance products help provide a better understanding of the business and a more meaningful analysis of the results of our insurance product lines.

We market our insurance products through the Consumer and Worksite Divisions that reflect the customers served by the Company.

The Consumer Division serves individual consumers, engaging with them on the phone, virtually, online, face-to-face with agents, or through a combination of sales channels. This structure unifies consumer capabilities into a single division and integrates the strength of our agent sales forces with one of the largest direct-to-consumer insurance businesses with proven experience in advertising, web/digital and call center support.

The Worksite Division focuses on worksite and group sales for businesses, associations, and other membership groups, interacting with customers at their place of employment and virtually. With a separate Worksite Division, we are bringing a sharper focus to this high-growth business while further capitalizing on the strength of our acquisitions of Web Benefits Design Corporation ("WBD") in April 2019 and DirectPath, LLC ("DirectPath") in February 2021. Sales in the Worksite Division have been particularly adversely impacted by the novel coronavirus ("COVID-19") pandemic given the challenges of interacting with customers at their place of employment.

The Consumer and Worksite Divisions are primarily focused on marketing insurance products, several types of which are sold in both divisions and underwritten in the same manner. Sales of group underwritten policies are currently not significant, but are expected to increase within the Worksite Division.

The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability of this segment is the total net investment income not allocated to the insurance products. Investment income not allocated to product lines represents net investment income less: (i) equity returns credited to policyholder account balances; (ii) the investment income allocated to our product lines; (iii) interest expense on notes payable and investment borrowings; (iv) expenses related to the funding agreement-backed note ("FABN") program; and (v) certain expenses related to benefit plans that are offset by special-purpose investment income. Investment income not allocated to product lines includes investment income on investments in excess of average insurance liabilities, investments held by our holding companies, the spread we earn from our Federal Home Loan Bank ("FHLB") investment borrowing and FABN programs and variable components of investment income (including call and prepayment income, adjustments to returns on structured securities due to cash flow changes, income (loss) from company-owned life insurance ("COLI") and alternative investments income not allocated to product lines), net of interest expense on corporate debt. The spread earned from our FHLB investment borrowing and FABN programs includes the investment income on the matched assets less interest on investment borrowings related to the FHLB investment borrowing program; and interest credited on funding agreements and amortization of deferred acquisition costs related to the FABN program.
Our fee income segment includes the earnings generated from sales of third-party insurance products, services provided by WBD (our on-line benefit administration firm), DirectPath (a national provider of year-round technology-driven employee benefits management services) and the operations of our broker-dealer and registered investment advisor.

Expenses not allocated to product lines include the expenses of our corporate operations, excluding interest expense on debt.

We measure segment performance by excluding total investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes related to the agent deferred compensation plan, income taxes and other non-operating items consisting primarily of earnings attributable to VIEs ("pre-tax operating earnings") because we believe that this performance measure is a better indicator of the ongoing business and trends in our business.  Our primary investment focus is on investment income to support our liabilities for insurance products as opposed to the generation of investment gains (losses), and a long-term focus is necessary to maintain profitability over the life of the business.

Investment gains (losses), fair value changes in embedded derivative liabilities (net of related amortization), fair value changes related to the agent deferred compensation plan and other non-operating items consisting primarily of earnings attributable to VIEs depend on market conditions or represent unusual items that do not necessarily relate to the underlying business of our segments.  Investment gains (losses) and fair value changes in embedded derivative liabilities (net of related amortization) may affect future earnings levels since our underlying business is long-term in nature and changes in our investment portfolio may impact our ability to earn the assumed interest rates needed to maintain the profitability of our business.

Operating information by segment is as follows (dollars in millions):

Three months ended
March 31,
 20222021
Revenues:  
Annuity:  
Insurance policy income$5.0 $5.4 
Net investment income115.1 115.7 
Total annuity revenues120.1 121.1 
Health:
Insurance policy income406.7 416.5 
Net investment income71.8 71.5 
Total health revenues 478.5 488.0 
Life:
Insurance policy income213.3 210.5 
Net investment income36.3 35.8 
Total life revenues249.6 246.3 
Change in market values of the underlying options supporting the fixed index annuity and life products (offset by market value changes credited to policyholder balances)(71.9)42.5 
Investment income not allocated to product lines49.7 64.9 
Fee revenue and other income:
Fee income40.3 32.3 
Amounts netted in expenses not allocated to product lines2.8 6.8 
Total segment revenues$869.1 $1,001.9 


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Three months ended
March 31,
 20222021
Expenses:
Annuity:
Insurance policy benefits$17.8 $6.2 
Interest credited41.3 38.7 
Amortization and non-deferred commissions16.4 18.3 
Total annuity expenses 75.5 63.2 
Health:
Insurance policy benefits301.3 306.6 
Amortization and non-deferred commissions52.4 56.7 
Total health expenses353.7 363.3 
Life:
Insurance policy benefits163.6 163.6 
Interest credited 11.6 10.6 
Amortization, non-deferred commissions and advertising expense54.6 45.0 
Total life expenses229.8 219.2 
Allocated expenses 144.8 141.1 
Expenses not allocated to product lines17.6 28.8 
Market value changes of options credited to fixed index annuity and life policyholders(71.9)42.5 
Amounts netted in investment income not allocated to product lines:
Interest expense 18.1 18.2 
Interest credited6.9 — 
Amortization.4 — 
Other expenses (4.2)3.7 
Expenses netted in fee revenue:
Commissions and other operating expenses30.4 25.0 
Total segment expenses801.1 905.0 
Pre-tax measure of profitability:
Annuity margin44.6 57.9 
Health margin124.8 124.7 
Life margin19.8 27.1 
Total insurance product margin189.2 209.7 
Allocated expenses(144.8)(141.1)
Income from insurance products44.4 68.6 
Fee income9.9 7.3 
Investment income not allocated to product lines28.5 43.0 
Expenses not allocated to product lines(14.8)(22.0)
Operating earnings before taxes 68.0 96.9 
Income tax expense on operating income 16.9 21.7 
Net operating income $51.1 $75.2 
A reconciliation of segment revenues and expenses to consolidated revenues and expenses and net income is as follows (dollars in millions):
Three months ended
March 31,
 20222021
Total segment revenues$869.1 $1,001.9 
Total investment losses(32.7)(2.8)
Revenues related to earnings attributable to VIEs6.5 6.9 
Consolidated revenues842.9 1,006.0 
Total segment expenses801.1 905.0 
Insurance policy benefits - fair value changes in embedded derivative liabilities
(123.9)(109.1)
Amortization related to fair value changes in embedded derivative liabilities
33.1 27.0 
Amortization related to investment gains (losses)(.1)— 
Expenses attributable to VIEs6.1 6.3 
Fair value changes related to agent deferred compensation plan(22.7)(13.2)
Consolidated expenses693.6 816.0 
Income before tax149.3 190.0 
Income tax expense on period income37.0 42.6 
Net income$112.3 $147.4