OPERATING SEGMENTS

9 Months Ended

Sep. 30, 2019

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, however, some recent acquisitions have included ongoing new business activities. Ongoing new product sales written by the Company from these acquisitions are included in the Life Marketing and/or Annuities segment. As a result, 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 and recreational vehicles. 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. 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. 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, 2019 and 2018.

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,
	2019		2018		2019		2018
	(Dollars In Thousands)
Revenues
Life Marketing	$	441,108	$	407,708	$	1,274,496	$	1,195,074
Acquisitions	859,524		581,054		2,136,497		1,469,787
Annuities	210,114		110,386		542,736		321,880
Stable Value Products	59,954		59,328		187,118		158,944
Asset Protection	88,696		90,926		266,345		266,747
Corporate and Other	22,597		20,561		90,083		90,686
Total revenues	$	1,681,993	$	1,269,963	$	4,497,275	$	3,503,118
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	(24,669)	3,647		(22,481)		$	(18,326)
Acquisitions	103,210		93,648		247,932		208,206
Annuities	27,684		36,249		109,886		112,234
Stable Value Products	20,863		27,126		71,208		76,198
Asset Protection	9,637		7,051		26,945		16,991
Corporate and Other	(36,563)		(41,927)		(119,675)		(119,474)
Pre-tax adjusted operating income	100,162		125,794		313,815		275,829
Realized gains (losses) on investments and derivatives	139,679		(30,624)		288,476		(97,829)
Income before income tax	239,841		95,170		602,291		178,000
Income tax expense	(49,417)		(16,646)		(115,355)		(28,933)
Net income	$	190,424	$	78,524	$	486,936	$	149,067

Pre-tax adjusted operating income	$	100,162	$	125,794	$	313,815	$	275,829
Adjusted operating income tax expense	(20,085)		(23,077)		(54,775)		(49,477)
After-tax adjusted operating income	80,077		102,717		259,040		226,352
Realized gains (losses) on investments and derivatives	139,679		(30,624)		288,476		(97,829)
Income tax (expense) benefit on adjustments	(29,332)		6,431		(60,580)		20,544
Net income	$	190,424	$	78,524	$	486,936	$	149,067

Realized investment (losses) gains:
Derivative financial instruments	$	42,286	$	(26,710)	$	(86,288)	$	37,176
All other investments	88,217		(20,156)		317,254		(157,350)
Net impairment losses recognized in earnings	(10,818)		(14)		(14,658)		(3,664)
Less: related amortization⁽¹⁾	(6,205)		(5,859)		(37,406)		5,060
Less: VA GLWB economic cost	(13,789)		(10,397)		(34,762)		(31,069)
Realized gains (losses) on investments and derivatives	$	139,679	$	(30,624)	$	288,476	$	(97,829)

(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, 2019
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	15,788,380	$	52,877,466	$	21,092,340	$	5,324,149
DAC and VOBA	1,467,866		885,600		895,121		6,019
Other intangibles	247,958		37,287		161,509		6,889
Goodwill	215,254		23,862		343,247		113,924
Total assets	$	17,719,458	$	53,824,215	$	22,492,217	$	5,450,981


	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	866,349	$	17,928,512	$	113,877,196
DAC and VOBA	172,984		—		3,427,590
Other intangibles	114,703		27,473		595,819
Goodwill	129,224		—		825,511
Total assets	$	1,283,260	$	17,955,985	$	118,726,116


	Operating Segment Assets
	As of December 31, 2018
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	14,607,822	$	31,859,520	$	20,160,279	$	5,107,334
DAC and VOBA	1,499,386		458,977		889,697		6,121
Other intangibles	262,181		31,975		156,785		7,389
Goodwill	215,254		23,862		343,247		113,924
Total assets	$	16,584,643	$	32,374,334	$	21,550,008	$	5,234,768


	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	827,416	$	12,356,003	$	84,918,374
DAC and VOBA	172,149		—		3,026,330
Other intangibles	122,590		31,934		612,854
Goodwill	129,224		—		825,511
Total assets	$	1,251,379	$	12,387,937	$	89,383,069