OPERATING SEGMENTS

6 Months Ended

Jun. 30, 2013

OPERATING SEGMENTS

OPERATING SEGMENTS

16. OPERATINGSEGMENTS

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 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, money market funds, bank trust departments, and other institutional investors. The segment also issues funding agreements to the 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 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 assigned to the segments above (including the impact of carrying liquidity) and expenses not attributable to the segments above. 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 realized gains and losses on investments and derivatives net of the related amortization of deferred acquisition costs (“DAC”) and value of business acquired (“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 the related amortization of DAC attributed to each of these items.

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.

There were no significant intersegment transactions during the three or six months ended June 30, 2013 and 2012.

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

	For The						For The
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2013			2012			2013			2012
	(Dollars In Thousands)
Revenues
Life Marketing	$	317,549		$	310,244		$	656,228		$	625,750
Acquisitions	261,693			261,296			512,180			560,805
Annuities	101,062			181,197			265,415			320,259
Stable Value Products	34,608			34,785			66,528			69,441
Asset Protection	76,241			75,123			147,552			147,767
Corporate and Other	24,888			4,394			53,721			44,772
Total revenues	$	816,041		$	867,039		$	1,701,624		$	1,768,794
Segment Operating Income (Loss)
Life Marketing	$	23,870		$	29,796		$	47,347		$	59,793
Acquisitions	29,435			43,615			63,812			82,714
Annuities	33,566			28,364			76,435			63,823
Stable Value Products	22,464			15,958			40,308			28,604
Asset Protection	5,512			4,506			9,982			7,346
Corporate and Other	(8,041		)	(16,257		)	(27,937		)	5,009
Total segment operating income	106,806			105,982			209,947			247,289
Realized investment (losses) gains - investments(1)	(98,474		)	50,496			(108,331		)	72,926
Realized investment (losses) gains - derivatives	70,595			(39,413		)	87,125			(62,082		)
Income tax expense	(25,923		)	(35,438		)	(61,859		)	(80,650		)
Net Income	$	53,004		$	81,627		$	126,882		$	177,483
Investment gains (losses)(2)	$	(114,227	)	$	54,437		$	(123,057	)	$	71,324
Less: related amortization of DAC/VOBA	(15,753		)	3,941			(14,726		)	(1,602		)
Realized investment gains (losses) in investments	$	(98,474	)	$	50,496		$	(108,331	)	$	72,926
Derivative gains (losses)(3)	$	66,591		$	(47,768	)	$	70,198		$	(77,677	)
Less: VA GMWB economic cost	(4,004		)	(8,355		)	(16,927		)	(15,595		)
Realized investment gains (losses) - derivatives	$	70,595		$	(39,413	)	$	87,125		$	(62,082	)

(1)  Includes credit related other-than-temporary impairments of $4.0 million and $8.6 million for the three and six months ended June 30,  2013, respectively, as compared to $13.4 million and $32.0 million for the three and six months ended June 30, 2012, respectively.

(2)  Includes realized investment gains (losses) before related amortization.

(3)  Includes realized gains (losses) on derivatives before settlements on interest rate swaps and the VA GMWB economic cost.

	Operating Segment Assets
	As of June 30, 2013
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	12,645,616	$	11,147,145	$	18,750,589	$	2,577,950
Deferred policy acquisition costs and value of business acquired	2,070,988		674,028		510,305		1,222
Goodwill	—		34,066		—		—
Total assets	$	14,716,604	$	11,855,239	$	19,260,894	$	2,579,172

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	754,909	$	8,442,721	$	17,712	$	54,336,642
Deferred policy acquisition costs and value of business acquired	51,026		825		—		3,308,394
Goodwill	48,158		—		—		82,224
Total assets	$	854,093	$	8,443,546	$	17,712	$	57,727,260

	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