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. There were no changes to the Company’s operating segments made or required to be made as a result of the Merger on February 1, 2015. 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 and credit life and disability insurance to protect consumers’ investments in automobiles and recreational vehicles. In addition, the segment markets a guaranteed asset protection (“GAP”) product. GAP coverage covers the difference between the loan pay-off amount and an asset’s actual cash value in the case of a total loss.

•

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. This segment includes earnings from several non-strategic or runoff lines of business, various investment-related transactions, the operations of several small subsidiaries, and the repurchase of non-recourse funding obligations.

The Company's management and PLC's Board of Directors analyzes and assesses the operating performance of each segment using "pre-tax operating income (loss)". Consistent with GAAP accounting guidance for segment reporting, pre-tax operating income (loss) is the Company's measure of segment performance. Pre-tax 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 GMWB embedded derivatives exclusive of the portion attributable to the economic cost of the GMWB,


•	actual GMWB incurred claims, and


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

These items are important to understanding the overall results of operations. Pre-tax operating income (loss) is not a substitute for net income (loss), and may not be comparable to similarly titled measures reported by other companies. The Company believes that pre-tax 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 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, 2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company), and the period of January 1, 2015 to January 31, 2015 (Predecessor Company).

The following tables summarize financial information for the Company’s segments (Predecessor and Successor periods are not comparable):



	Successor Company												Predecessor Company
	For The Three Months Ended September 30, 2016			For The Three Months Ended September 30, 2015			For The Nine Months Ended September 30, 2016			February 1, 2015 to September 30, 2015			January 1, 2015 to January 31, 2015
	(Dollars In Thousands)												(Dollars In Thousands)
Revenues
Life Marketing	$	382,224		$	358,194		$	1,148,121		$	960,807		$	133,361
Acquisitions	391,017			352,141			1,269,672			974,915			139,761
Annuities	139,265			200,798			546,378			293,610			130,918
Stable Value Products	27,380			17,065			83,519			44,063			8,181
Asset Protection	79,030			77,476			229,128			204,397			24,566
Corporate and Other	34,872			997			111,714			32,793			22,859
Total revenues	$	1,053,788		$	1,006,671		$	3,388,532		$	2,510,585		$	459,646
Pre-tax Operating Income (Loss)
Life Marketing	$	(512	)	18,758			37,712			$	28,711		$	(2,271	)
Acquisitions	70,157			59,016			184,095			132,962			20,134
Annuities	43,033			37,090			135,789			108,976			11,363
Stable Value Products	14,700			12,785			44,326			28,249			4,529
Asset Protection	4,099			4,415			12,496			12,938			1,907
Corporate and Other	(46,509		)	(34,557		)	(111,499		)	(84,888		)	(16,662		)
Pre-tax operating income	84,968			97,507			302,919			226,948			19,000
Realized investment (losses) gains - investments⁽¹⁾	(688		)	8,586			183,343			(150,063		)	89,414
Realized investment (losses) gains - derivatives	9,987			50,028			103,564			68,205			24,433
Income before income tax	94,267			156,121			589,826			145,090			132,847
Income tax expense	(20,965		)	(42,542		)	(185,114		)	(40,667		)	(44,325		)
Net income	$	73,302		$	113,579		$	404,712		$	104,423		$	88,522

All other investment gains (losses)	$	20,844		$	(4,755	)	$	187,752		$	(147,892	)	$	80,672
Less: amortization related to DAC/VOBA and benefits and settlement expenses	21,532			(13,341		)	4,409			2,171			(8,742		)
Realized investment gains (losses) - investments	$	(688	)	$	8,586		$	183,343		$	(150,063	)	$	89,414

Derivative financial instruments gains (losses)	$	532		$	41,895		$	75,988		$	47,513		$	22,031
Less: VA GMWB economic cost	(9,455		)	(8,133		)	(27,576		)	(20,692		)	(2,402		)
Realized investment gains (losses) - derivatives	$	9,987		$	50,028		$	103,564		$	68,205		$	24,433

(1) Includes credit related other-than-temporary impairments of $3.3 million, $6.9 million, $10.1 million, $15.8 million, and $0.5 million for the three and nine months ended September 30, 2016 (Successor Company), the three months ended September 30, 2015 (Successor Company), the period of February 1, 2015 to September 30, 2015 (Successor Company), and for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), respectively.



	Operating Segment Assets As of September 30, 2016 (Successor Company)
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,171,442	$	19,986,370	$	20,166,335	$	3,283,420
Deferred policy acquisition costs and value of business acquired	1,155,759		82,803		634,820		5,919
Other intangibles	305,403		37,741		186,781		8,889
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	15,832,878	$	20,121,438	$	21,324,613	$	3,412,041



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	828,946	$	13,876,152	$	72,312,665
Deferred policy acquisition costs and value of business acquired	35,087		—		1,914,388
Other intangibles	75,333		—		614,147
Goodwill	67,155		—		732,443
Total assets	$	1,006,521	$	13,876,152	$	75,573,643



	Operating Segment Assets As of December 31, 2015 (Successor Company)
	(Dollars In Thousands)
	Life Marketing		Acquisitions			Annuities		Stable Value Products
Investments and other assets	$	13,258,639	$	19,879,988		$	19,715,901	$	2,006,263
Deferred policy acquisition costs and value of business acquired	1,119,515		(178,662		)	578,742		2,357
Other intangibles	319,623		39,658			196,780		9,389
Goodwill	200,274		14,524			336,677		113,813
Total assets	$	14,898,051	$	19,755,508		$	20,828,100	$	2,131,822



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	766,294	$	9,464,906	$	65,091,991
Deferred policy acquisition costs and value of business acquired	40,421		—		1,562,373
Other intangibles	79,681		—		645,131
Goodwill	67,155		—		732,443
Total assets	$	953,551	$	9,464,906	$	68,031,938