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. 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 not attributable to the segments above (including the impact of carrying 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 (excluding periodic settlements of derivatives associated with debt and certain investments) net of the related amortization of DAC and VOBA. Operating earnings exclude changes in the GMWB embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items.

In the first quarter of 2012, management revised the definition of operating income (loss) as it relates to certain features of our variable annuity contracts and related hedging activities, to better reflect the basis on which the performance of its business is internally assessed. Under the revised definition, the following items have been excluded from operating income for the historical periods presented within the document:

· Changes in GMWB embedded derivatives related to this rider feature of certain variable annuity products (excluding the portion attributed to economic costs). Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.). These features are considered embedded derivatives under ASC 815.

· Changes in value of certain derivative instruments used to mitigate the risk related to variable annuity contracts.

· That portion of the change in balance sheet components amortized over estimated gross profit that is attributed to the embedded GMWB derivative and related economic hedges (e.g. DAC amortization).

Prior periods have been revised to conform to the current period presentation for these changes.

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 year ended December 31, 2012, 2011, and 2010.

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

	For The Year Ended December 31,
	2012			2011			2010
	(Dollars In Thousands)
Revenues
Life Marketing	$	1,233,654		$	1,193,927		$	1,127,924
Acquisitions	1,064,295			982,821			761,344
Annuities	610,489			633,185			500,697
Stable Value Products	123,274			170,455			168,127
Asset Protection	294,146			282,587			269,597
Corporate and Other	130,202			145,610			109,295
Total revenues	$	3,456,060		$	3,408,585		$	2,936,984
Segment Operating Income (Loss)
Life Marketing	$	102,114		$	96,110		$	123,495
Acquisitions	171,060			157,393			111,143
Annuities	117,778			79,373			48,109
Stable Value Products	60,329			56,780			39,207
Asset Protection	9,765			16,892			24,267
Corporate and Other	1,119			6,985			(13,458		)
Total segment operating income	462,165			413,533			332,763
Realized investment (losses) gains - investments(1)(3)	188,729			194,866			134,559
Realized investment (losses) gains - derivatives(2)	(191,315		)	(133,124		)	(134,146		)
Income tax expense	(151,043		)	(151,519		)	(109,865		)
Net Income	$	308,536		$	323,756		$	223,311

(1) Realized investment (losses) gains - investments	$	174,692		$	200,432		$	117,056
Less: related amortization of DAC/VOBA	(14,037		)	5,566			(17,503		)
	$	188,729		$	194,866		$	134,559

(2) Realized investment gains (losses) - derivatives	$	(227,816	)	$	(155,005	)	$	(144,438	)
Less: settlements on certain interest rate swaps	—			—			168
Less: derivative activity related to certain annuities	(36,501		)	(21,881		)	(10,460		)
	$	(191,315	)	$	(133,124	)	$	(134,146	)

Net investment income
Life Marketing	$	486,374		$	446,014		$	387,953
Acquisitions	550,334			529,261			458,703
Annuities	504,342			507,229			482,264
Stable Value Products	128,239			145,150			171,327
Asset Protection	19,698			21,650			23,959
Corporate and Other	100,351			104,140			100,639
Total net investment income	$	1,789,338		$	1,753,444		$	1,624,845

Amortization of DAC and VOBA
Life Marketing	$	45,079		$	87,461		$	47,809
Acquisitions	77,251			75,041			64,410
Annuities	45,319			57,201			76
Stable Value Products	947			4,556			5,430
Asset Protection	22,569			22,607			25,077
Corporate and Other	1,018			2,654			1,694
Total amortization of DAC and VOBA	$	192,183		$	249,520		$	144,496

(3) Includes credit related other-than-temporary impairments of $58.1 million, $47.3 million, and $41.4 million for the year ended December 31, 2012, 2011, and 2010, respectively.

	Operating Segment Assets
	As of December 31, 2012
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,171,384	$	11,312,550	$	17,649,488	$	2,509,160
Deferred policy acquisition costs and value of business acquired	2,001,708		679,746		491,184		1,399
Goodwill	—		35,615		—		—
Total assets	$	14,173,092	$	12,027,911	$	18,140,672	$	2,510,559

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	740,153	$	9,446,057	$	19,662	$	53,848,454
Deferred policy acquisition costs and value of business acquired	50,253		1,066		—		3,225,356
Goodwill	48,158		—		—		83,773
Total assets	$	838,564	$	9,447,123	$	19,662	$	57,157,583

	Operating Segment Assets
	As of December 31, 2011
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	10,885,785	$	11,471,856	$	14,945,002	$	2,767,163
Deferred policy acquisition costs and value of business acquired	1,912,916		824,277		435,462		2,347
Goodwill	—		38,713		—		—
Total assets	$	12,798,701	$	12,334,846	$	15,380,464	$	2,769,510

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	707,181	$	7,894,614	$	21,491	$	48,693,092
Deferred policy acquisition costs and value of business acquired	46,606		1,612		—		3,223,220
Goodwill	48,158		—		—		86,871
Total assets	$	801,945	$	7,896,226	$	21,491	$	52,003,183