OPERATING SEGMENTS

12 Months Ended

Dec. 31, 2011

OPERATING SEGMENTS

OPERATING SEGMENTS

21.          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. A brief description of each segment follows.

·The Life Marketing segment markets UL, variable universal life, 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, stockbrokers, and independent marketing organizations.

·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. In the ordinary course of business, the Acquisitions segment regularly considers acquisitions of blocks of policies or insurance companies. 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 “closed” blocks of business (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 variable annuity 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, institutional investors, bank trust departments, and money market funds. The segment also issues funding agreements to the Federal Home Loan Bank (“FHLB”), and markets guaranteed investment contracts (“GICs”) to 401(k) and other qualified retirement savings plans. Additionally, the Company has contracts outstanding pursuant to a funding agreement-backed notes program registered with the United States Securities and Exchange Commission (the “SEC”) which offered notes to both institutional and retail investors.

·The Asset Protection segment markets extended service contracts and credit life and disability insurance to protect consumers’ investments in automobiles, watercraft, 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 (including the impact of carrying excess liquidity), expenses not attributable to the segments above and a trading portfolio that was previously part of a variable interest entity. 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 uses the same accounting policies and procedures to measure segment operating income (loss) and assets as it uses to measure consolidated net income and assets. Segment operating income (loss) is income before income tax excluding net realized investment gains and losses (net of the related amortization of DAC and VOBA and participating income from real estate ventures), and the cumulative effect of change in accounting principle. Periodic settlements of derivatives associated with corporate debt and certain investments and annuity products are included in realized gains and losses but are considered part of operating income because the derivatives are used to mitigate risk in items affecting consolidated and segment operating income (loss). Segment operating income (loss) represents the basis on which the performance of the Company’s business is internally assessed by management. Premiums and policy fees, other income, benefits and settlement expenses, and amortization of DAC/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.

During the first quarter of 2010, the Company recorded a $7.8 million decrease in reserves related to the final settlement in the runoff Lender’s Indemnity line of business within the Asset Protection Division.

During the first quarter of 2011, the Company recorded $8.5 million of pre-tax earnings in the Corporate and Other business segment relating to the settlement of a dispute with respect to certain investments.

There were no significant intersegment transactions during the years ended December 31, 2011, 2010, and 2009.

The following tables summarize financial information for the Company’s segments:

	For The Year Ended December 31,
	2011			2010			2009
	(Dollars In Thousands)
Revenues
Life Marketing	$	1,193,927		$	1,127,924		$	1,016,321
Acquisitions	982,821			761,344			777,181
Annuities	633,185			500,697			507,267
Stable Value Products	170,455			168,127			220,857
Asset Protection	282,587			269,597			271,749
Corporate and Other	145,610			109,295			134,713
Total revenues	$	3,408,585		$	2,936,984		$	2,928,088
Segment Operating Income (Loss)
Life Marketing	$	116,261		$	147,101		$	139,385
Acquisitions	157,393			111,143			133,760
Annuities	109,875			49,847			53,258
Stable Value Products	56,780			39,207			61,963
Asset Protection	16,147			22,673			16,114
Corporate and Other	6,985			(13,458		)	92,238
Total segment operating income	463,441			356,513			496,718
Realized investment (losses) gains - investments(1)(3)	197,692			111,915			129,021
Realized investment (losses) gains - derivatives(2)	(149,182		)	(81,161		)	(200,705		)
Income tax (expense) benefit	(164,517		)	(129,029		)	(147,563		)
Net income	$	347,434		$	258,238		$	277,471
(1) Realized investment (losses) gains - investments	$	200,432		$	117,056		$	123,818
Less: related amortization of DAC	2,740			5,141			(5,203		)
	$	197,692		$	111,915		$	129,021
(2) Realized investment gains (losses) - derivatives	$	(155,005	)	$	(144,438	)	$	(176,880	)
Less: settlements on certain interest rate swaps	—			168			1,205
Less: derivative activity related to certain annuities	(5,823		)	(63,445		)	22,620
	$	(149,182	)	$	(81,161	)	$	(200,705	)
Net investment income
Life Marketing	$	446,014		$	387,953		$	361,921
Acquisitions	529,261			458,703			479,743
Annuities	507,229			482,264			440,096
Stable Value Products	145,150			171,327			221,688
Asset Protection	21,650			23,959			28,448
Corporate and Other	104,140			100,639			71,167
Total net investment income	$	1,753,444		$	1,624,845		$	1,603,063
Amortization of DAC and VOBA
Life Marketing	$	120,884		$	91,363		$	144,125
Acquisitions	75,041			64,410			59,025
Annuities	71,060			(3,182		)	81,928
Stable Value Products	4,556			5,430			3,471
Asset Protection	26,255			29,540			29,908
Corporate and Other	2,654			1,694			1,900
Total amortization of DAC and VOBA	$	300,450		$	189,255		$	320,357

(3) Includes other-than-temporary impairments of $47.3 million, $41.4 million, and $179.9 million for the year ended December 31, 2011, 2010, and 2009, respectively.

	Operating Segment Assets
	As of December 31, 2011
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	10,453,448	$	11,471,856	$	14,872,173	$	2,767,163
Deferred policy acquisition costs and value of business acquired	2,582,687		824,277		548,494		2,347
Goodwill	—		38,713		—		—
Total assets	$	13,036,135	$	12,334,846	$	15,420,667	$	2,769,510

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	703,399	$	8,403,562	$	21,491	$	48,693,092
Deferred policy acquisition costs and value of business acquired	52,519		1,612		—		4,011,936
Goodwill	48,158		—		—		86,871
Total assets	$	804,076	$	8,405,174	$	21,491	$	52,791,899

	Operating Segment Assets
	As of December 31, 2010
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	9,623,944	$	10,270,540	$	12,603,533	$	3,069,330
Deferred policy acquisition costs and value of business acquired	2,475,621		810,681		471,163		6,903
Goodwill	—		41,812		—		—
Total assets	$	12,099,565	$	11,123,033	$	13,074,696	$	3,076,233

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	677,297	$	7,295,429	$	23,686	$	43,563,759
Deferred policy acquisition costs and value of business acquired	54,707		3,497		—		3,822,572
Goodwill	48,158		—		—		89,970
Total assets	$	780,162	$	7,298,926	$	23,686	$	47,476,301