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. 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 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 marketing organizations, and affinity groups.

•

The Acquisitions segment focuses on acquiring, converting, and/or 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 specialized ancillary products to protect consumers’ investments in automobiles and recreational vehicles. 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. 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.

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.

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, we previously 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 measures.

There were no significant intersegment transactions during the year ended December 31, 2016 (Successor Company), the period of February 1, 2015 to December 31, 2015 (Successor Company), the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company).

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 (Predecessor and Successor period are not comparable):



	Successor Company						Predecessor Company
	For The Year Ended December 31, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015			For The Year Ended December 31, 2014
	(Dollars In Thousands)						(Dollars In Thousands)
Revenues
Life Marketing	$	1,517,542		$	1,316,832		$	133,361		$	1,421,795
Acquisitions	1,676,017			1,333,430			139,761			1,720,179
Annuities	547,512			396,651			130,918			785,176
Stable Value Products	114,580			79,670			8,181			127,708
Asset Protection	306,237			294,657			24,566			305,396
Corporate and Other	131,821			65,802			22,859			103,953
Total revenues	$	4,293,709		$	3,487,042		$	459,646		$	4,464,207
Adjusted Operating Income (Loss)
Life Marketing	$	41,457		$	54,864		$	(2,271	)	$	116,875
Acquisitions	260,511			194,654			20,134			254,021
Annuities	174,362			146,828			11,363			204,015
Stable Value Products	61,294			56,581			4,529			73,354
Asset Protection	11,309			17,632			1,907			26,274
Corporate and Other	(161,820		)	(118,832		)	(16,662		)	(99,048		)
Pre-tax adjusted operating income	387,113			351,727			19,000			575,491
Realized investment (losses) gains - investments⁽¹⁾	48,522			(185,202		)	89,414			151,035
Realized investment (losses) gains - derivatives	87,046			87,663			24,433			12,263
Income before income tax	522,681			254,188			132,847			738,789
Income tax expense	(170,073		)	(74,491		)	(44,325		)	(246,838		)
Net income	$	352,608		$	179,697		$	88,522		$	491,951

Pre-tax adjusted operating income	$	387,113		$	351,727		$	19,000		$	575,491
Adjusted operating income tax (expense) benefit	(122,624		)	(108,629		)	(4,479		)	(189,684		)
After-tax adjusted operating income	264,489			243,098			14,521			385,807
Realized investment gains (losses)—investments⁽¹⁾	48,522			(185,202		)	89,414			151,035
Realized investment gains (losses)— derivatives	87,046			87,663			24,433			12,263
Income tax (expense) benefit on adjustments	(47,449		)	34,138			(39,846		)	(57,154		)
Net income	$	352,608		$	179,697		$	88,522		$	491,951

Investment gains (losses)	$	72,882		$	(193,928	)	$	80,672		$	198,027
Less: amortization related to DAC/VOBA and benefits and settlement expenses	24,360			(8,726		)	(8,742		)	46,992
Realized investment gains (losses)- investments	$	48,522		$	(185,202	)	$	89,414		$	151,035

Derivative gains (losses)	$	49,790		$	58,436		$	22,031		$	(13,492	)
Less: VA GLWB economic cost	(37,256		)	(29,227		)	(2,402		)	(25,755		)
Realized investment gains (losses)- derivatives	$	87,046		$	87,663		$	24,433		$	12,263

(1)

Includes credit related other-than-temporary impairments of $17.7 million, $27.0 million, $0.5 million, and $7.3 million for the year ended December 31, 2016 (Successor Company), for the period of February 1, 2015 to December 31, 2015 (Successor Company), for the period of January 1, 2015 to January 31, 2015 (Predecessor Company), and for the year ended December 31, 2014 (Predecessor Company), respectively.



	Successor Company						Predecessor Company
	For The Year Ended December 31, 2016			February 1, 2015 to December 31, 2015			January 1, 2015 to January 31, 2015			For The Year Ended December 31, 2014
	(Dollars In Thousands)						(Dollars In Thousands)
Net investment income
Life Marketing	$	523,989		$	446,518		$	47,622		$	553,006
Acquisitions	764,571			639,422			71,088			874,653
Annuities	318,511			296,839			37,189			465,849
Stable Value Products	107,010			78,459			6,888			107,170
Asset Protection	17,591			14,042			1,540			18,830
Corporate and Other	91,791			57,516			278			78,505
Total net investment income	$	1,823,463		$	1,532,796		$	164,605		$	2,098,013

Amortization of DAC and VOBA
Life Marketing	$	130,708		$	107,811		$	4,813		$	175,807
Acquisitions	8,178			2,035			5,033			60,031
Annuities	(11,031		)	(41,071		)	(6,999		)	47,448
Stable Value Products	1,176			43			25			380
Asset Protection	21,267			26,219			1,858			24,169
Corporate and Other	—			27			87			485
Total amortization of DAC and VOBA	$	150,298		$	95,064		$	4,817		$	308,320



Successor Company
	Operating Segment Assets As of December 31, 2016
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,050,905	$	19,679,690	$	20,076,818	$	3,373,646
Deferred policy acquisition costs and value of business acquired	1,218,944		106,532		655,618		5,455
Other intangibles	300,664		37,103		183,449		8,722
Goodwill	200,274		14,524		336,677		113,813
Total assets	$	15,770,787	$	19,837,849	$	21,252,562	$	3,501,636



	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	858,648	$	12,920,083	$	70,959,790
Deferred policy acquisition costs and value of business acquired	37,975		—		2,024,524
Other intangibles	143,865		13,545		687,348
Goodwill	128,182		—		793,470
Total assets	$	1,168,670	$	12,933,628	$	74,465,132



Successor Company
	Operating Segment Assets As of December 31, 2015
	(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