OPERATING SEGMENTS

12 Months Ended

Dec. 31, 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 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 distribution 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 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 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.

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% was 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 years ended December 31, 2019, 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 Year Ended December 31,
	2019		2018		2017
	(Dollars In Thousands)
Revenues
Life Marketing	$	1,694,618	$	1,567,857	$	1,556,207
Acquisitions	2,901,650		2,027,195		1,569,083
Annuities	623,854		478,114		486,847
Stable Value Products	246,587		219,501		190,006
Asset Protection	353,896		355,501		370,449
Corporate and Other	131,464		110,848		140,075
Total revenues	$	5,952,069	$	4,759,016	$	4,312,667
Pre-tax Adjusted Operating Income (Loss)
Life Marketing	$	(26,697)	$	(13,726)	$	55,152
Acquisitions	346,825		282,715		249,749
Annuities	145,578		129,155		171,269
Stable Value Products	93,183		102,328		105,261
Asset Protection	37,205		24,371		17,638
Corporate and Other	(161,248)		(156,722)		(189,645)
Pre-tax adjusted operating income	434,846		368,121		409,424
Realized gains (losses) on investments and derivatives	248,602		(120,533)		54,584
Income before income tax	683,448		247,588		464,008
Income tax expense (benefit)	130,464		53,661		(718,409)
Net income	$	552,984	$	193,927	$	1,182,417

Pre-tax adjusted operating income	$	434,846	$	368,121	$	409,424
Adjusted operating income tax (expense) benefit	(78,257)		(78,973)		737,513
After-tax adjusted operating income	356,589		289,148		1,146,937
Realized gains (losses) on investments and derivatives	248,602		(120,533)		54,584
Income tax (expense) benefit on adjustments	(52,207)		25,312		(19,104)
Net income	$	552,984	$	193,927	$	1,182,417

Realized investment gains (losses):
Derivative financial instruments	$	(131,459)	$	79,097	$	(137,041)
All other investments	342,998		(223,276)		121,087
Net impairment losses recognized in earnings	(34,453)		(29,724)		(9,112)
Less: related amortization⁽¹⁾	(23,021)		(11,856)		(39,480)
Less: VA GLWB economic cost	(48,495)		(41,514)		(40,170)
Realized gains (losses) on investments and derivatives	$	248,602	$	(120,533)	$	54,584

(1)Includes amortization of DAC/VOBA and benefits and settlement expenses that are impacted by realized gains (losses).


	For The Year Ended December 31,
	2019		2018		2017
	(Dollars In Thousands)
Net investment income
Life Marketing	$	571,654	$	552,697	$	550,714
Acquisitions	1,532,605		1,108,218		752,520
Annuities	367,650		335,382		316,582
Stable Value Products	243,775		217,778		186,576
Asset Protection	28,291		25,070		22,298
Corporate and Other	74,855		99,757		94,366
Total net investment income	$	2,818,830	$	2,338,902	$	1,923,056

Amortization of DAC and VOBA
Life Marketing	$	157,854	$	116,917	$	120,753
Acquisitions	10,693		18,690		(6,939)
Annuities	(58,907)		24,274		(54,471)
Stable Value Products	3,382		3,201		2,354
Asset Protection	62,631		62,984		17,746
Corporate and Other	—		—		—
Total amortization of DAC and VOBA	$	175,653	$	226,066	$	79,443


	Operating Segments As of December 31, 2019
	(Dollars In Thousands)
	Life Marketing		Acquisitions		Annuities		Stable Value Products
Investments and other assets	$	16,013,892	$	54,074,450	$	21,434,347	$	5,317,885
DAC and VOBA	1,486,699		924,090		929,917		5,221
Other intangibles	243,210		36,321		157,968		6,722
Goodwill	215,254		23,862		343,247		113,924
Total assets	$	17,959,055	$	55,058,723	$	22,865,479	$	5,443,752


	Asset Protection		Corporate and Other		Total Consolidated
Investments and other assets	$	878,386	$	17,830,217	$	115,549,177
DAC and VOBA	173,628		—		3,519,555
Other intangibles	112,032		27,173		583,426
Goodwill	129,224		—		825,511
Total assets	$	1,293,270	$	17,857,390	$	120,477,669


	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