OPERATING SEGMENTS

3 Months Ended

Mar. 31, 2014

OPERATING SEGMENTS

OPERATING SEGMENTS

17. 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 fixed universal life (“UL”), 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, 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 blocks of business where 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), 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 available to the Company’s shareowner and assets. Segment operating income (loss) is income before income tax, excluding realized gains and losses on investments and derivatives net of the amortization related to deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), and benefits and settlement expenses. 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. During 2013, the Company began allocating realized gains and losses to certain of its segments to better reflect the economics of the investments supporting those segments. This change had no material impact to segment operating income. 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 months ended March 31, 2014, and 2013.

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

	For The Three Months Ended March 31,
	2014			2013
	(Dollars In Thousands)
Revenues
Life Marketing	$	352,823		$	338,679
Acquisitions	426,948			250,487
Annuities	191,975			164,353
Stable Value Products	27,851			31,920
Asset Protection	72,846			71,311
Corporate and Other	16,906			28,833
Total revenues	$	1,089,349		$	885,583
Segment Operating Income (Loss)
Life Marketing	$	22,497		$	23,477
Acquisitions	60,996			34,377
Annuities	45,328			42,869
Stable Value Products	17,397			17,844
Asset Protection	4,809			4,470
Corporate and Other	(23,681		)	(19,896		)
Total segment operating income	127,346			103,141
Realized investment (losses) gains - investments (1)	57,930			(9,857		)
Realized investment (losses) gains - derivatives	(33,665		)	16,530
Income tax expense	(49,062		)	(35,936		)
Net Income	$	102,549		$	73,878
(2)Investment gains (losses)	$	70,555		$	(8,830	)
Less: amortization related to DAC/VOBA and benefits and settlement expenses	12,625			1,027
Realized investment gains (losses) in investments	$	57,930		$	(9,857	)
(3)Derivative gains (losses)	$	(39,574	)	$	3,607
Less: VA GMWB economic cost	(5,909		)	(12,923		)
Realized investment gains (losses) - derivatives	$	(33,665	)	$	16,530

(1) Includes credit related other-than-temporary impairments of $1.6 million and $4.6 million for the three months ended March 31, 2014, and 2013, respectively.

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

(3)Includes realized gains (losses) on derivatives before the VA GMWB economic cost.

	Operating Segment Assets
	As of March 31, 2014
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	13,386,623	$	20,154,237	$	20,336,853	$	2,536,603
Deferred policy acquisition costs and value of business acquired	2,013,199		711,429		529,756		901
Goodwill	—		31,742		—		—
Total assets	$	15,399,822	$	20,897,408	$	20,866,609	$	2,537,504

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	787,646	$	8,950,499	$	16,158	$	66,168,619
Deferred policy acquisition costs and value of business acquired	46,831		552		—		3,302,668
Goodwill	48,158		—		—		79,900
Total assets	$	882,635	$	8,951,051	$	16,158	$	69,551,187

	Operating Segment Assets
	As of December 31, 2013
	(Dollars In Thousands)
	Life						Stable Value
	Marketing		Acquisitions		Annuities		Products
Investments and other assets	$	13,135,914	$	20,201,081	$	20,029,310	$	2,558,551
Deferred policy acquisition costs and value of business acquired	2,071,470		813,239		554,974		1,001
Goodwill	—		32,517		—		—
Total assets	$	15,207,384	$	21,046,837	$	20,584,284	$	2,559,552

	Asset		Corporate				Total
	Protection		and Other		Adjustments		Consolidated
Investments and other assets	$	777,388	$	8,006,256	$	16,762	$	64,725,262
Deferred policy acquisition costs and value of business acquired	49,275		646		—		3,490,605
Goodwill	48,158		—		—		80,675
Total assets	$	874,821	$	8,006,902	$	16,762	$	68,296,542