PL Planet Labs PBC

Protective Life Corporation (NYSE: PL) today reported results for the first quarter of 2010. Net income available to PL’s common shareowners for the first quarter of 2010 was $69.8 million, or $0.80 per diluted share, compared to net income available to PL’s common shareowners of $22.1 million, or $0.31 per diluted share, in the first quarter of 2009. Operating income, after tax, for the first quarter of 2010 was $67.7 million, or $0.78 per diluted share, compared to $61.6 million, or $0.86 per average diluted share, in the first quarter of 2009.

John D. Johns, Protective’s Chairman, President and Chief Executive Officer commented:

“Protective delivered solid financial results in the first quarter. Across the board, our operating segments produced results that were in line with or exceeded our expectations. As compared to the first quarter of last year, total life insurance sales increased 17%, universal life sales increased 65% (and exceeded term sales in this quarter), annuity sales increased 30% and extended service contract sales increased 9.3%. Mortality also continued to trend favorably in the quarter. As we look to the remainder of the year, we expect to enjoy continued positive momentum as we move forward with our plans to introduce innovative, differentiated products to our markets, invest excess liquidity, optimize capital deployment and grow our distribution networks.”

Net income available to PL’s common shareowners for the first quarter of 2010 included:

• Net realized investment gains, after tax, of $2.0 million, or $0.02 per diluted share, compared to net realized investment losses, after tax, of $39.4 million, or $0.55 per diluted share, in the first quarter of 2009.
• Pre-tax other-than-temporary impairments of $11.9 million, or $0.09 per diluted share, are included in the $0.02 per share of net realized investment gains in the first quarter of 2010.

Business Segment Results

The table below sets forth business segment operating income before income tax for the periods shown:

Operating Income Before Income Tax ($ in thousands)         1Q10         1Q09         $ Var         % Var Life Marketing $ 40,678 $ 42,510 $ (1,832 ) -4.3 % Acquisitions 31,369 33,621 (2,252 ) -6.7 % Annuities 18,187 (575 ) 18,762 n/m Stable Value Products 11,027 20,207 (9,180 ) -45.4 % Asset Protection 13,067 6,280 6,787 108.1 % Corporate & Other   (16,132 )   (9,247 )   (6,885 ) 74.5 % $ 98,196   $ 92,796   $ 5,400   5.8 %  

The following table reconciles segment operating income to consolidated net income available to PL’s common shareowners:

($ in thousands)         1Q10             1Q09 Operating income before income tax $ 98,196 $ 92,796 Realized investment gains (losses) 3,409 (58,324 ) Less: Periodic settlements on derivatives 42 2,238

Related amortization of deferred policy acquisition costs, value of businesses acquired

214 78 Income tax expense   31,570   10,021   Net Income available to PL's common shareowners $ 69,779 $ 22,135    

Sales

The Company uses sales statistics to measure the relative progress of its marketing efforts. The Company derives these statistics from various sales tracking and administrative systems and not from its financial reporting systems or financial statements. These statistics measure only one of many factors that may affect future profitability of the business segments and therefore are not intended to be predictive of future profitability.

The table below sets forth business segment sales for the periods shown:

($ in millions)                                 1Q10 1Q09 $ Var % Var Life Marketing $ 43.0 $ 36.6 $ 6.4 17.5 % Annuities 568.0 436.7 131.3 30.1 % Stable Value Products 151.0 - 151.0 n/m Asset Protection 71.7 68.3 3.4 5.0 %  

Review of Business Segment Results for First Quarter

Life Marketing

Life Marketing segment pre-tax operating income was $40.7 million in the first quarter of 2010 compared to $42.5 million in the first quarter of 2009. The decrease was primarily due to lower allocated investment income on the traditional line of business and higher operating expenses, partially offset by more favorable mortality results. Favorable mortality of $14.5 million is included in the results of the first quarter of 2010 as compared to $2.0 million of favorable mortality included in the results of the first quarter of 2009.

Sales were $43.0 million in the first quarter of 2010, an increase of 17.5% compared to $36.6 million in the first quarter of 2009. Universal life insurance sales (including variable universal life) exceeded term insurance sales in the current quarter and were $22.2 million, compared to $13.5 million in the first quarter of 2009. Term insurance sales in the current quarter were $20.8 million compared to $23.2 million in the prior year’s quarter.

Acquisitions

Acquisitions segment pre-tax operating income was $31.4 million in the first quarter of 2010 compared to $33.6 million in the first quarter of 2009, primarily due to expected runoff of the blocks of business and less favorable mortality results.

Annuities

Annuities segment pre-tax operating income was $18.2 million in the first quarter of 2010 compared to an operating loss of $0.6 million in the first quarter of 2009. The current quarter included $4.1 million of positive fair value changes, representing an unfavorable $7.4 million variance compared to the prior year’s quarter. The segment experienced continued growth in the single premium deferred annuity and variable annuity lines during the first quarter. The first quarter of 2009 included a $19.2 million unlocking charge related to the variable annuity line of business.

Annuity account values reached a record $10.9 billion as of March 31, 2010, an increase of 27.1% over the prior year. Net cash flows for the segment remained positive during the quarter.

Sales in the first quarter of 2010 were $568.0 million compared to $436.7 million in the first quarter of 2009. The increase was primarily due to record variable annuity sales, partially offset by lower fixed annuity sales. Variable annuity sales were $349.9 million in the first quarter of 2010, an increase of approximately 151.7%, compared to $139.1 million in the first quarter of 2009. Fixed annuity sales were $218.0 million in the first quarter of 2010 compared to $297.7 million in the prior year’s first quarter.

Stable Value Products

Stable Value Products segment pre-tax operating income was $11.0 million in the first quarter of 2010 compared to $20.2 million in the first quarter of 2009. The decrease was a result of an expected decline in average account values and a decline in operating spreads. Included in operating income during the first quarter of 2009 was $1.5 million of other income resulting from the early retirement of funding agreements. There were no early funding agreement retirements in the first quarter of 2010. Excluding the effect of this gain, the spread decreased 39 basis points to 126 basis points for the three months ended March 31, 2010, compared to the prior year’s quarter.

Deposit balances as of March 31, 2010 were $3.5 billion. Total sales were $151.0 million for the three months ended March 31, 2010.

Asset Protection

Asset Protection segment pre-tax operating income was $13.1 million in the first quarter of 2010 compared to $6.3 million in the first quarter of 2009. The current quarter earnings included a $7.8 million reserve release related to a final settlement in Lender’s Indemnity, a runoff line of business.

Sales in the first quarter of 2010 were $71.7 million, an increase of $3.4 million, or 5.0%, compared to the first quarter of 2009. The increase in sales was driven by a $4.5 million increase in service contract sales. Credit insurance sales decreased $0.8 million compared to the prior year’s quarter. The decline in the other products line was primarily the result of the discontinuation of the Inventory Protection Product.

Corporate & Other

Corporate & Other segment pre-tax operating loss was $16.1 million in the first quarter of 2010 compared to a $9.2 million loss in the first quarter of 2009. The variance was primarily due to an increase in interest expense of $11.9 million. Partially offsetting this decrease was an improvement in investment income compared to the first quarter of 2009. The trading portfolio positively impacted operating income by $7.5 million for the three months ended March 31, 2010, a $0.7 million more favorable impact than in the prior year’s quarter.

Investments

• Total cash and investments were $30.2 billion as of March 31, 2010. This includes $0.9 billion of cash and short-term investments.
• The net unrealized gain position on investments was a positive $4 million, after tax and DAC offsets, an improvement of $1.6 billion or approximately 100.3%, compared to March 31, 2009.
• During the first quarter of 2010, the Company recorded an $11.9 million pre-tax loss on credit related other-than-temporary impairments.
• Delinquent mortgage loans and foreclosed properties were $45.2 million as of March 31, 2010, representing 0.9% of the commercial mortgage loan portfolio. This amount includes $16.1 million of loans that were being restructured under the terms of a pooling and servicing agreement.

               

Net Realized Investment/Derivative Activity

($ per average diluted share) 1Q 2010 1Q 2009   Impairments/Credit related losses $ (0.09 ) $ (0.82 ) Modco net realized gain 0.10 0.12 Net realized gains/(losses)-excluding Modco 0.05 0.06 Interest rate related derivatives (0.02 ) 0.14 Credit default swaps - (0.04 ) All other   (0.02 )   (0.01 ) Total $ 0.02   $ (0.55 )  

Operating income differs from the GAAP measure, net income, in that it excludes realized investment gains (losses) and related amortization. The tables below reconcile operating income to net income available to PL’s common shareowners:

 

Consolidated Results

        1Q 2010           1Q 2009   ($ in thousands; net of income tax) After-tax Operating Income $ 67,730 $ 61,551

Realized investment gains (losses) and related amortization

Investments 23,280 (85,636 ) Derivatives   (21,231 )   46,220   Net Income available to PL's common shareowners $ 69,779   $ 22,135       1Q 2010 1Q 2009 ($ per average diluted share; net of income tax) After-tax Operating Income $ 0.78 $ 0.86

Realized investment gains (losses) and related amortization

Investments 0.26 (1.20 ) Derivatives   (0.24 )   0.65   Net Income available to PL's common shareowners $ 0.80   $ 0.31    

For information relating to non-GAAP measures (operating income, total Protective Life Corporation’s shareowners’ equity per share excluding other comprehensive income (loss), operating return on average equity, and net income available to PL’s common shareowners return on average equity) in this press release, please refer to the disclosure at the end of this press release. All per share results used throughout this press release are presented on a diluted basis, unless otherwise noted.

        Rolling Twelve Months Ended March 31, 2010           2009   Operating Income Return on Average Equity 12.2 % 10.0 %  

Net Income available to PL's common shareowners Return on Average Equity

11.9 % -2.2 %  

Operating income return on average equity and net income available to PL’s common shareowners return on average equity are measures used by management to evaluate the Company’s performance. Operating income return on average equity for the twelve months ended March 31, 2010 was calculated by dividing operating income for this period by the average ending balance of total Protective Life Corporation’s shareowners’ equity (excluding accumulated other comprehensive income (loss)) for the five most recent quarters. Net income available to PL’s common shareowners return on average equity for the twelve months ended March 31, 2010, was calculated by dividing net income available to PL’s common shareowners for this period by the average ending balance of total Protective Life Corporation’s shareowners’ equity (excluding accumulated other comprehensive income (loss)) for the five most recent quarters.

        Reconciliation of Total Protective Life Corporation's Shareowners' Equity, Excluding Accumulated Other Comprehensive Income (Loss) ($ in thousands)           March 31, December 31, 2010 2009 Total Protective Life Corporation's shareowners' equity $ 2,821,033 $ 2,478,821

Less: Accumulated other comprehensive income (loss)

  (55,716 )   (321,169 ) Total Protective Life Corporation's shareowners' equity excluding accumulated other comprehensive income (loss) $ 2,876,749   $ 2,799,990         Reconciliation of Total Protective Life Corporation's Shareowners' Equity per share, Excluding Accumulated Other Comprehensive Income (Loss) per share ($ per common share oustanding) March 31, December 31, 2010 2009 Total Protective Life Corporation's shareowners' equity $ 32.96 $ 28.96

Less: Accumulated other comprehensive income (loss)

  (0.65 )   (3.76 ) Total Protective Life Corporation's shareowners' equity excluding accumulated other comprehensive income (loss) $ 33.61   $ 32.72        

2010 Guidance

Protective will not provide 2010 earnings guidance but will discuss the outlook for the remainder of 2010 during its first quarter 2010 earnings call as scheduled below.

Conference Call

There will be a conference call for management to discuss the quarterly results with analysts and professional investors on May 6, 2010 at 9:00 a.m. Eastern. Analysts and professional investors may access this call by dialing 1-866-831-6267 (international callers 1-617-213-8857) and entering the conference passcode: 90696661. A recording of the call will be available from 12:00 p.m. Eastern May 6, 2010 until midnight May 20, 2010. The recording may be accessed by calling 1-888-286-8010 (international callers 1-617-801-6888) and entering the passcode: 40123083.

The public may access a live webcast of the call, along with a call presentation, on the Company's website at www.protective.com.

A recording of the webcast will also be available from 12:00 p.m. Eastern May 6, 2010 until midnight May 20, 2010.

Supplemental financial information and the conference call presentation are available on the Company’s website at www.protective.com in the Analyst/Investor section under Financial Information/Quarterly & Other Reports.

Information Relating to Non-GAAP Measures

Throughout this press release, GAAP refers to accounting principles generally accepted in the United States of America. Consolidated and segment operating income (loss) are defined as income (loss) before income tax excluding net realized investment gains (losses) net of the related amortization of deferred policy acquisition costs (“DAC”), and value of businesses acquired (“VOBA”), and participating income from real estate ventures. Periodic settlements of derivatives associated with corporate debt and certain investments and annuity products are included in realized gains (losses) but are considered part of consolidated and segment operating income because the derivatives are used to mitigate risk in items affecting consolidated and segment operating income (loss). Management believes that consolidated and segment operating income (loss) provides relevant and useful information to investors, as it represents the basis on which the performance of the Company’s business is internally assessed. Although the items excluded from consolidated and segment operating income (loss) may be significant components in understanding and assessing the Company’s overall financial performance, management believes that consolidated and segment operating income (loss) enhances an investor’s understanding of the Company’s results of operations by highlighting the income (loss) attributable to the normal, recurring operations of the Company’s business. As prescribed by GAAP, certain investments are recorded at their fair values with the resulting unrealized gains (losses) affected by a related adjustment to DAC and VOBA, net of income tax, reported as a component of total Protective Life Corporation’s shareowners’ equity. The fair value of fixed maturities generally increase or decrease as interest rates change. The Company believes that an insurance company’s shareowners’ equity per share may be difficult to analyze without disclosing the effects of recording accumulated other comprehensive income (loss), including unrealized gains (losses) on investments.

     

Calculation of Operating Income Return on Average Equity

Rolling Twelve Months Ended March 31, 2010

 

($ in thousands)           Twelve     Three Months Ended Months Ended NUMERATOR: 6/30/2009 9/30/2009 12/31/2009 3/31/2010 3/31/2010   Net Income available to PLC's common shareowners $ 90,757 $ 27,585 $ 131,011 $ 69,779 $ 319,132 Net of:

Realized investment gains (losses), net of income tax

Investments 82,439 87,495 (6,251 ) 23,420 187,103 Derivatives (72,400 ) (108,339 ) 2,692 (21,204 ) (199,251 )

Related amortization of DAC and VOBA, net of income tax

612 507 2,313 (140 ) 3,292 Add back:

Derivative gains related to Corp. debt and investments, net of income tax

756 - - 27 783   Operating Income $ 80,862   $ 47,922   $ 132,257   $ 67,730   $ 328,771       Total Protective Life Corporation's Total Shareowners' Protective Life Accumulated Equity Excluding Corporation's Other Accumulated Other Shareowners' Comprehensive Comprehensive DENOMINATOR: Equity Income (Loss) Income (Loss)   March 31, 2009

$

783,178

$

(1,660,204 )

$

2,443,382 June 30, 2009 1,628,375 (1,031,719 ) 2,660,094 September 30, 2009 2,302,799 (375,472 ) 2,678,271 December 31, 2009 2,478,821 (321,169 ) 2,799,990 March 31, 2010 2,821,033 (55,716 )   2,876,749     Total $ 13,458,486     Average $ 2,691,697     Operating Income Return on Average Equity 12.2 %            

Calculation of Operating Income Return on Average Equity

Rolling Twelve Months Ended March 31, 2009

 

              Twelve Three Months Ended Months Ended NUMERATOR: 6/30/2008 9/30/2008 12/31/2008 3/31/2009 3/31/2009   Net Income (Loss) $ 38,184 $ (100,008 ) $ (15,913 ) $ 22,135 $ (55,602 ) Net of:

Realized investment gains (losses), net of income tax

Investments (73,068 ) (228,215 ) (60,407 ) (85,585 ) (447,275 ) Derivatives 43,510 66,543 (10,574 ) 47,675 147,154

Related amortization of DAC and VOBA, net of income tax

322 457 (632 ) (51 ) 96 Add back:

Derivative gains related to Corp. debt and investments, net of income tax

1,161 1,245 1,020 1,455 4,881   Operating Income $ 68,581   $ 62,452   $ 56,720   $ 61,551  

$

249,304

      Shareowners' Accumulated Equity Excluding Other Accumulated Other Shareowners' Comprehensive Comprehensive DENOMINATOR: Equity Income (Loss) Income (Loss)   March 31, 2008

$

2,163,860

$

(379,948 )

$

2,543,808 June 30, 2008 2,081,742 (486,222 ) 2,567,964 September 30, 2008 1,524,655 (928,205 ) 2,452,860 December 31, 2008 761,095 (1,667,056 ) 2,428,151 March 31, 2009 783,178 (1,660,204 )   2,443,382     Total $ 12,436,165     Average

$

2,487,233

    Operating Income Return on Average Equity 10.0 %            

Calculation of Net Income Available to PLC’s common shareowners Return on Average Equity

Rolling Twelve Months Ended March 31, 2010

 

($ in thousands)

          Twelve     Three Months Ended Months Ended NUMERATOR: 6/30/2009 9/30/2009 12/31/2009 3/31/2010 3/31/2010   Net Income available to PLC's common shareowners $ 90,757 $ 27,585 $ 131,011 $ 69,779   $ 319,132       Total Protective Life Corporation's Total Shareowners' Protective Life Accumulated Equity Excluding Corporation's Other Accumulated Other Shareowners' Comprehensive Comprehensive DENOMINATOR: Equity Income (Loss) Income (Loss)   March 31, 2009

$

783,178

$

(1,660,204 )

$

2,443,382 June 30, 2009 1,628,375 (1,031,719 ) 2,660,094 September 30, 2009 2,302,799 (375,472 ) 2,678,271 December 31, 2009 2,478,821 (321,169 ) 2,799,990 March 31, 2010 2,821,033 (55,716 )   2,876,749     Total $ 13,458,486     Average $ 2,691,697     Net Income available to PLC's common shareowners Return on Average Equity 11.9 %            

Calculation of Net Income (Loss) Return on Average Equity

Rolling Twelve Months Ended March 31, 2009

 

($ in thousands)

          Twelve     Three Months Ended Months Ended NUMERATOR: 6/30/2008 9/30/2008 12/31/2008 3/31/2009 3/31/2009   Net Income (Loss) $ 38,184 $ (100,008 ) $ (15,913 ) $ 22,135   $ (55,602 )     Shareowners' Accumulated Equity Excluding Other Accumulated Other Shareowners' Comprehensive Comprehensive DENOMINATOR: Equity Income (Loss) Income (Loss)   March 31, 2008

$

2,163,860

$

(379,948 )

$

2,543,808 June 30, 2008 2,081,742 (486,222 ) 2,567,964 September 30, 2008 1,524,655 (928,205 ) 2,452,860 December 31, 2008 761,095 (1,667,056 ) 2,428,151 March 31, 2009 783,178 (1,660,204 )   2,443,382     Total $ 12,436,165     Average $ 2,487,233     Net Income (Loss) Return on Average Equity (2.2 %)      

Forward-Looking Statements

This release includes “forward-looking statements” which express expectations of future events and/or results. All statements based on future expectations rather than on historical facts are forward-looking statements that involve a number of risks and uncertainties, and the Company cannot give assurance that such statements will prove to be correct. The factors which could affect the Company’s future results include, but are not limited to, general economic conditions and the following known risks and uncertainties: the Company is exposed to the risks of natural and man-made catastrophes, pandemics, malicious and terrorist acts that could adversely affect the Company’s operations; the Company operates in a mature, highly competitive industry, which could limit its ability to gain or maintain its position in the industry and negatively affect profitability; a ratings downgrade or other negative action by a ratings organization could adversely affect the Company; the Company’s policy claims fluctuate from period to period resulting in earnings volatility; the Company’s results may be negatively affected should actual experience differ from management’s assumptions and estimates which by their nature are imprecise and subject to changes and revision over time; the Company’s valuation of its investments could be adversely impacted by results that differ from its expectations or assumptions; the use of reinsurance, and any change in the magnitude of reinsurance, introduces variability in the Company’s statements of income; the Company could be forced to sell investments at a loss to cover policyholder withdrawals; interest rate fluctuations could negatively affect the Company’s spread income or otherwise impact its business, including, but not limited to, the volume of sales, the profitability of products, investment performance, and asset liability management; equity market volatility could negatively impact the Company’s business, particularly with respect to the Company’s variable products, including an increase in the rate of amortization of DAC and estimated cost of providing minimum death benefit and minimum withdrawal benefit guarantees relating to the variable products; insurance companies are highly regulated and subject to numerous legal restrictions and regulations, including, but not limited to, restrictions relating to premium rates, reserve requirements, marketing practices, advertising, privacy, policy forms, reinsurance reserve requirements, acquisitions, and capital adequacy, and the Company cannot predict whether or when regulatory actions may be taken that could adversely affect the Company or its operations; changes to tax law or interpretations of existing tax law could adversely affect the Company, including, but not limited to, the demand for and profitability of its insurance products and the Company’s ability to compete with non-insurance products; the Company may be required to establish a valuation allowance against its deferred tax assets, which could materially adversely affect the Company’s results of operations, financial condition and capital position; financial services companies are frequently the targets of litigation, including, but not limited to, class action litigation, which could result in substantial judgments, and the Company, like other financial services companies, in the ordinary course of business is involved in litigation and arbitration; publicly held companies in general and the financial services industry in particular are sometimes the target of law enforcement investigations and the focus of increased regulatory scrutiny; the Company’s ability to maintain competitive unit costs is dependent upon the level of new sales and persistency of existing business, and a change in persistency may result in higher claims and/or higher or more rapid amortization of deferred policy acquisition costs and thus higher unit costs and lower reported earnings; the Company’s investments, including, but not limited to, the Company’s invested assets, derivative financial instruments and commercial mortgage loan portfolio, are subject to market, credit, and regulatory risks, and these risks could be heightened during periods of extreme volatility or disruption in financial and credit markets; the Company may not realize its anticipated financial results from its acquisitions strategy, which is dependent on factors such as the availability of suitable acquisitions, the availability of capital to fund acquisitions and the realization of assumptions relating to the acquisition; the Company is dependent on the performance of others, including, but not limited to, distributors, third-party administrators, fund managers, reinsurers and other service providers, and, as with all financial services companies, its ability to conduct business is dependent upon consumer confidence in the industry and its products; the Company’s reinsurers could fail to meet assumed obligations, increase rates, or be subject to adverse developments that could affect the Company, and the Company’s ability to compete is dependent on the availability of reinsurance, which has become more costly and less available in recent years, or other substitute capital market solutions; the success of the Company’s captive reinsurance program and related marketing efforts is dependent on a number of factors outside the control of the Company, including, but not limited to, continued access to capital markets, a favorable regulatory environment, and the overall tax position of the Company; computer viruses or network security breaches could affect the data processing systems of the Company or its business partners, and could damage the Company’s business and adversely affect its financial condition and results of operations; the Company’s ability to grow depends in large part upon the continued availability of capital; new GAAP and statutory accounting rules or changes to existing GAAP and statutory accounting rules could negatively impact the Company; the Company’s risk management policies and procedures may leave it exposed to unidentified or unanticipated risk, which could negatively affect its business or result in losses; capital and credit market volatility or disruption could adversely impact the Company’s financial condition or results from operations in several ways, including but not limited to the following: causing market price and cash flow variability in the Company’s fixed income portfolio, defaults on principal or interest payments by issuers of the Company’s fixed income investments, other than temporary impairments of the Company’s fixed income investments; adversely impacting the Company’s ability to efficiently access the capital markets to finance its reserve, capital and liquidity needs; deterioration of general economic conditions could result in a severe and extended economic recession, which could materially adversely affect the Company’s business and results of operations; there can be no assurance that the actions of the U.S. Government or other governmental and regulatory bodies for the purpose of stabilizing the financial markets will achieve their intended effect; the Company may not be able to protect its intellectual property and may be subject to infringement claims; the Company could be adversely affected by an inability to access its credit facility; the amount of statutory capital the Company has and must hold to maintain its financial strength and credit ratings and meet other requirements can vary significantly and is sensitive to a number of factors; and the Company operates as a holding company and depends on the ability of its subsidiaries to transfer funds to it to meet its obligations and to pay dividends. Please refer to Part I, Item 1A, Risk Factors and Cautionary Factors that may Affect Future Results of the Company’s most recent Form 10-K and Part II, Item 1A, Risk Factors, of the Company’s subsequent quarterly reports on Form 10-Q for more information about these factors.