Protective Life Corporation (NYSE: PL) today reported results
for the fourth quarter of 2010 and for the twelve months ended
December 31, 2010.
Net income available to PLC’s common shareowners for the fourth
quarter of 2010 was $78.6 million, or $0.90 per average diluted
share, compared to $131.0 million, or $1.50 per average diluted
share, in the fourth quarter of 2009. Operating income, after tax,
for the fourth quarter of 2010 was $54.1 million, or $0.62 per
average diluted share, compared to $132.3 million, or $1.51 per
average diluted share, in the fourth quarter of 2009. Included in
the fourth quarter 2009 results is a $120.1 million pre-tax gain
generated from the repurchase of non-recourse funding obligations.
The fourth quarter of 2010 included a $5.7 million pre-tax gain on
the repurchase of non-recourse funding obligations.
Net income available to PLC’s common shareowners for the twelve
months ended December 31, 2010 was $260.2 million, or $2.97 per
average diluted share, compared to $271.5 million, or $3.34 per
average diluted share, for the twelve months ended December 31,
2009. Operating income, after tax, for the twelve months ended
December 31, 2010 was $239.0 million, or $2.73 per average diluted
share, compared to operating income, after tax, of $322.6 million,
or $3.97 per average diluted share, for the twelve months ended
December 31, 2009.
John D. Johns, Protective’s Chairman, President and Chief
Executive Officer commented:
“We are pleased to report strong financial results for the
fourth quarter and full year 2010 that exceeded our financial plan
for the year. Our focus in 2010 was on regaining sales and earnings
momentum in our retail business lines, finding opportunities to
leverage our industry-leading acquisitions capabilities and
strengthening our risk management infrastructure. We made
substantial progress in 2010 on all fronts. Our focus in 2011 will
be on creating shareholder value by improving returns on invested
capital and growing earnings while concurrently reducing leverage
and improving our overall risk profile.”
Other Highlights
- The acquisition of United Investors
Life Insurance Company closed on December 31, 2010. The estimated
capital investment, subject to the completion of 2010 statutory
results, for this transaction is expected to be approximately $260
million.
- During the fourth quarter of 2010, the
Company completed a funding of certain term life insurance reserves
utilizing a letter of credit (“LOC”) facility. These reserves arose
from policies written in 2008, 2009 and 2010. With the completion
of this transaction, substantially all of the Company’s redundant
term life insurance reserves are funded beyond the peak level of
those reserves.
Business Segment Results Fourth Quarter and Full
Year
The table below sets forth business
segment operating income (loss) before income tax for the periods
shown:
Operating (Loss) Income Before Income Tax (dollars in
thousands)
4Q10
4Q09 2010 2009
Life Marketing $ 40,169 $ 31,593 $ 147,470 $ 137,826 Acquisitions
21,718 32,037 111,143 133,760 Annuities 12,405 19,647 53,901 56,642
Stable Value Products 8,862 10,441 39,207 61,963 Asset Protection
5,060 6,562 29,897 23,229 Corporate & Other (9,703 )
104,405 (25,053 ) 81,980
$
78,511 $ 204,685 $
356,565 $ 495,400
The following table reconciles segment
operating income to consolidated net income available to PLC’s
common shareowners:
(dollars in
thousands)
4Q10 4Q09 2010 2009
Operating income before income tax $ 78,511
$ 204,685 $ 356,565 $
495,400 Realized investment gains (losses) 40,822 (5,476 )
38,052 (80,424 ) Less: Periodic settlements on derivatives 42 - 168
3,401
Related amortization of deferred policy
acquisition costs and value of business acquired
2,993 (3,559 ) 5,141 (5,203 ) Income tax expense 37,655
71,757 129,067 145,290
Net
income available to PLC's common shareowners $
78,643 $ 131,011 $
260,241 $ 271,488
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:
(dollars in
millions)
4Q10 4Q09 2010 2009 Life
Marketing $ 45.7 $ 44.4 $ 171.4 $ 162.6 Annuities 661.8 522.5
2,645.0 2,021.5 Stable Value Products 283.6 - 757.6 - Asset
Protection 85.3 74.2 342.7 305.0
Review of Business Segment Results for Fourth Quarter
Life Marketing
Life Marketing segment pre-tax operating income was $40.2
million in the fourth quarter of 2010 compared to $31.6 million in
the fourth quarter of 2009. The increase was primarily due to
higher investment income and lower funding costs, partially offset
by less favorable mortality. Favorable mortality of $4.2 million is
included in the results of the fourth quarter of 2010 compared to
$6.2 million of favorable mortality included in the results of the
fourth quarter of 2009.
Sales were $45.7 million in the fourth quarter of 2010, an
increase of 2.9% compared to $44.4 million in the fourth quarter of
2009. In accordance with our strategy to shift our new sales mix,
universal life insurance sales (including variable universal life
and bank-owned life insurance) represented 93% of total sales in
the current quarter.
Acquisitions
Acquisitions segment pre-tax operating income was $21.7 million
in the fourth quarter of 2010 compared to $32.0 million in the
fourth quarter of 2009. The decrease was primarily due to the
expected runoff in the block of business, less favorable mortality,
and a planned one-time payment of $5.2 million in the fourth
quarter of 2010 to complete insourcing the administration of a
block of business.
Annuities
Annuities segment pre-tax operating income was $12.4 million in
the fourth quarter of 2010 compared to $19.6 million in the fourth
quarter of 2009. The current quarter included a $9.8 million loss
on the combined impact of guaranteed benefits related to certain
variable annuity (“VA”) contracts and fair value changes on the
company’s equity indexed annuities. The impact of guaranteed
benefits related to certain VA contracts was a $10.0 million loss,
while fair value changes on the Company’s equity indexed annuities
was a $0.2 million gain. Partially offsetting the items above were
higher spreads and VA fee income.
Annuity account values reached a record $12.6 billion as of
December 31, 2010, an increase of 22% over the past twelve months,
primarily driven by continued growth in the account balance for the
single premium deferred annuity and variable annuity lines. Net
cash flows for the segment remained positive during the
quarter.
Sales in the fourth quarter of 2010 were $661.8 million compared
to $522.5 million in the fourth quarter of 2009. The increase was
primarily due to an increase in variable annuity sales. Variable
annuity sales were a record $515.7 million in the fourth quarter of
2010, compared to $285.5 million in the fourth quarter of 2009.
Fixed annuity sales were $146.1 million in the fourth quarter of
2010 compared to $237.0 million in the prior year’s fourth
quarter.
Stable Value Products
Stable Value Products segment pre-tax operating income was $8.9
million in the fourth quarter of 2010 compared to $10.4 million in
the fourth quarter of 2009. The decrease in operating earnings
primarily resulted from a decline in average account values. The
operating spread was 118 basis points for the three months ended
December 31, 2010, an increase of 2 basis points from the fourth
quarter of 2009.
Deposit balances as of December 31, 2010 were $3.1 billion.
Total sales were $283.6 million for the three months ended December
31, 2010, compared to no sales in the prior year’s fourth
quarter.
Asset Protection
Asset Protection segment pre-tax operating income was $5.1
million in the fourth quarter of 2010 compared to $6.6 million in
the fourth quarter of 2009. The decrease was primarily the result
of $1.2 million of litigation settlement costs included in the
fourth quarter of 2010.
Sales in the fourth quarter of 2010 were $85.3 million, an
increase of 15%, compared to the fourth quarter of 2009. Service
contract sales increased $5.2 million and credit insurance sales
increased $0.9 million compared to the prior year’s quarter. Sales
of the guaranteed asset protection (“GAP”) product increased $4.9
million, or 55%.
Corporate & Other
Corporate & Other segment pre-tax operating loss was $9.7
million in the fourth quarter of 2010 compared to pre-tax operating
income of $104.4 million for the fourth quarter of 2009. Included
in the results of the fourth quarter of 2009 is a $120.1 million
gain generated from the repurchase of non-recourse funding
obligations as compared to a $5.7 million pre-tax gain on the
repurchase of non-recourse funding obligations included in the
results of the fourth quarter of 2010.
Investments
- Total cash and investments were $31.6
billion as of December 31, 2010. This includes $0.6 billion of cash
and short-term investments.
- The net unrealized gain position on
investments was $353 million, after tax and DAC offsets, an
improvement of $609 million compared to December 31, 2009.
- During the fourth quarter of 2010, the
Company recorded $5.2 million of pre-tax other-than-temporary
impairment losses recognized in earnings.
- Delinquent mortgage loans and
foreclosed properties were $33.6 million as of December 31, 2010,
representing 0.7% of the commercial mortgage loan portfolio. This
amount includes $16.1 million of loans, representing 0.3% of the
commercial mortgage loan portfolio, that were restructured pursuant
to the terms of a pooling and servicing agreement.
- Net realized investment gains, after
tax, of $24.6 million, or $0.28 per average diluted share, were
recorded in the fourth quarter of 2010, compared to net realized
investment losses, after tax, of $1.2 million, or $0.01 per average
diluted share, in the fourth quarter of 2009.
Net
Realized Investment/Derivative Activity (dollars per average
diluted share)
4Q 2010 4Q 2009 2010
2009 Impairments $ (0.04 ) $ (0.13 ) $ (0.31 ) $
(1.44 ) Net realized gains (losses)-excluding Modco 0.19 (0.03 )
0.42 0.16 Modco net realized gain 0.13 0.03 0.32 0.26 Derivative
gains (losses) - interest rate related 0.04 0.08 (0.06 ) 0.37 All
other (0.04 ) 0.04 (0.13 ) 0.02
Total $ 0.28 $
(0.01 ) $ 0.24 $
(0.63 )
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 PLC’s common shareowners:
Fourth Quarter and Full Year Consolidated Results
(dollars in
thousands; net of income tax)
4Q 2010 4Q 2009
2010 2009 After-tax Operating Income $
54,081 $ 132,257 $ 238,956 $ 322,592
Realized investment gains (losses) and
related amortization
Investments (52,159 ) (3,938 ) 70,016 81,479 Derivatives
76,721 2,692 (48,731 ) (132,583
)
Net income available to PLC's common shareowners $
78,643 $ 131,011 $
260,241 $ 271,488
(dollars per average diluted share; net of income tax)
4Q
2010 4Q 2009 2010 2009 After-tax
Operating Income $ 0.62 $ 1.51 $ 2.73 $ 3.97
Realized investment gains (losses) and
related amortization
Investments (0.59 ) (0.04 ) 0.80 1.00 Derivatives 0.87
0.03 (0.56 ) (1.63 )
Net
income available to PLC's common shareowners $
0.90 $ 1.50 $ 2.97
$ 3.34
For information relating to non-GAAP measures (operating income,
PLC’s shareowners’ equity per share excluding other comprehensive
income (loss), operating return on average equity, and net income
available to PLC’s common shareowners return on average equity) in
this press release, please refer to the disclosure at the end of
this press release and to the Company’s Supplemental Financial
Information located on the Company’s website at www.protective.com.
All per share results used throughout this press release are
presented on a diluted basis, unless otherwise noted.
Twelve Months Ended December 31,
2010 2009 Operating Income
Return on Average Equity 8.2% 12.4% Net Income available to
PLC's common shareowners' Return on Average Equity 8.9% 10.4%
Operating income return on average equity and net
income available to PLC’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 December 31, 2010 was calculated by
dividing operating income for this period by the average ending
balance of PLC’s shareowners’ equity (excluding accumulated other
comprehensive income (loss)) for the five most recent quarters. Net
income available to PLC’s common shareowners’ return on average
equity for the twelve months ended December 31, 2010, was
calculated by dividing net income available to PLC’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 PLC's Shareowners' Equity, Excluding
Accumulated Other Comprehensive Income (Loss) (dollars
in thousands)
December 31,
December 31, 2010 2009
PLC's shareowners'
equity
$ 3,331,087 $ 2,478,821 Less: Accumulated other comprehensive
income (loss) 293,254 (321,169 )
PLC's shareowners' equity, excluding
accumulated other comprehensive income (loss)
$ 3,037,833 $ 2,799,990
Reconciliation of PLC's Shareowners' Equity
per share, Excluding Accumulated Other Comprehensive Income (Loss)
per share (dollars per common share outstanding)
December 31, December 31, 2010 2009
PLC's shareowners' equity $ 38.88 $ 28.96 Less: Accumulated other
comprehensive income (loss) 3.42 (3.76 )
PLC's
shareowners' equity excluding accumulated other comprehensive
income (loss) $ 35.46 $ 32.72
Conference Call
There will be a conference call for management to discuss the
quarterly results with analysts and professional investors on
February 10, 2011 at 9:00 a.m. Eastern. Analysts and professional
investors may access this call by dialing 1-800-573-4840
(international callers 1-617-224-4326) and entering the conference
passcode: 26495002. A recording of the call will be available from
12:00 p.m. Eastern February 10, 2011 until midnight February 24,
2011. The recording may be accessed by calling 1-888-286-8010
(international callers 1-617-801-6888) and entering the passcode:
64011339.
The public may access a live webcast of the call, along with a
call presentation, in the Investor Relations section of the
Company's website at www.protective.com.
Supplemental financial information is available on the Company’s
website at www.protective.com in the Investor Relations section
under Financial Information.
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 business 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
Twelve Months Ended December 31,
2010
(Dollars In Thousands)
Three Months Twelve Months
3/31/2010 6/30/2010
9/30/2010 12/31/2010 12/31/2010
NUMERATOR: Net
income available to PLC's common shareowners $ 69,779 $ 41,371
$ 70,448 $ 78,643 $ 260,241 Less: Realized investment gains
(losses), net of income tax Investments 23,420 33,089 67,062
(50,214 ) 73,357 Derivatives (21,204 ) (45,806 ) (58,361 ) 76,748
(48,623 ) Related amortization of DAC and VOBA, net of income tax
(140 ) (212 ) (1,044 ) (1,945 ) (3,341 ) Add back:
Derivative gains related to Corp. debt and
investments, net of income tax
27 27
27 27 108
Operating Income $ 67,730 $ 54,327
$ 62,818 $ 54,081
$ 238,956
PLC's Shareowners' Accumulated Equity
Excluding PLC's Other Accumulated Other
Shareowners' Comprehensive Comprehensive
Equity Income (Loss) Income
(Loss) DENOMINATOR: December 31, 2009 $ 2,478,821 $
(321,169 ) $ 2,799,990 March 31, 2010 2,821,033 (55,716 ) 2,876,749
June 30, 2010 3,085,599 177,490 2,908,109 September 30, 2010
3,571,392 601,964 2,969,428 December 31, 2010 3,331,087 293,254
3,037,833 Total $ 14,592,109 Average
$ 2,918,422 Operating Income Return
on Average Equity 8.2 %
Calculation of Net Income Available to
PLC’s common shareowners Return on Average Equity
Twelve Months Ended December 31,
2010
(Dollars In Thousands)
Three Months Twelve Months
3/31/2010 6/30/2010
9/30/2010 12/31/2010 12/31/2010
NUMERATOR: Net
income available to PLC's common shareowners $ 69,779
$ 41,371 $ 70,448 $ 78,643
$ 260,241
PLC's
Shareowners' Accumulated Equity Excluding
PLC's Other Accumulated Other
Shareowners' Comprehensive Comprehensive
Equity Income (Loss) Income
(Loss) DENOMINATOR: December 31, 2009 $ 2,478,821 $
(321,169 ) $ 2,799,990 March 31, 2010 2,821,033 (55,716 ) 2,876,749
June 30, 2010 3,085,599 177,490 2,908,109 September 30, 2010
3,571,392 601,964 2,969,428 December 31, 2010 3,331,087 293,254
3,037,833 Total $ 14,592,109 Average
$ 2,918,422 Net income available to
PLC's common shareowners Return on Average Equity 8.9
%
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: (1) we are exposed to the risks of natural and
man-made catastrophes, including the possibility of climate change,
pandemics, malicious and terrorist acts; (2) our strategies for
mitigating risks arising from our day-to-day operations may prove
ineffective; (3) we operate in a mature, highly competitive
industry, which could limit our ability to gain or maintain our
position in the industry and negatively affect profitability; (4)
we operate as a holding company and depend on the ability of our
subsidiaries to transfer funds to us to meet our obligations and
pay dividends; (5) the policy claims of our insurance subsidiaries
may fluctuate from period to period resulting in earnings
volatility; (6) we may be adversely affected by a ratings downgrade
or other negative action by a ratings organization; (7) our 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 revisions over time; (8) our
financial condition and results of operations could be adversely
affected if the Company’s assumptions regarding the fair value and
future performance of its investments differ from actual
experience; (9) the use of reinsurance introduces variability in
our statements of income; (10) we could be forced to sell
investments at a loss to cover policyholder withdrawals; (11)
interest rate fluctuations or significant and sustained periods of
low interest rates could negatively affect our interest earnings
and spread income or otherwise impact our business; (12) equity
market volatility could negatively impact our business,
particularly with respect to our variable products; (13) our use of
derivative financial instruments within our risk management
strategy may not be effective or sufficient, particularly with
respect to our assumptions and estimates used in formulating or
executing our risk management strategy; (14) we are highly
regulated and subject to numerous legal restrictions, including
those imposed at both the state a federal level and we may become
subject to additional regulation under recently approved federal
law; (15) changes in tax law or interpretations of existing tax law
could adversely affect us and our ability to compete with
non-insurance financial products or reduce the demand for certain
insurance products; (16) we may be required to establish a
valuation allowance against our deferred tax assets; (17) we, like
other financial services companies, in the ordinary course of
business, are frequently the targets of litigation, including class
action litigation, which could result in substantial judgments;
(18) the company, as a publicly held company generally, and a
participant in the financial services industry in particular, may
be the target of law enforcement investigations and the focus of
increased regulatory scrutiny; (19) our ability to maintain
competitive unit costs is dependent upon the level of new sales and
persistency of existing business; (20) our investments are subject
to market, credit, legal, and regulatory risks and these risks
could be heightened during periods of extreme volatility or
disruption in financial and credit markets; (21) we may not realize
our anticipated financial results from our acquisition strategy;
(22) we are dependent upon the performance of others, including but
not limited to distributors, third-party administrators, fund
managers, reinsurers, and other service companies; (23) our ability
to conduct business is dependent upon confidence in our industry
and products; (24) our reinsurers could fail to meet assumed
obligations, increase rates, or otherwise be subject to adverse
developments; (25) our ability to compete is dependent upon the
availability of reinsurance or alternatives to reinsurance, such as
our use of captive reinsurers; (26) the occurrence of computer
viruses, network security breaches, disasters, or other
unanticipated events could affect our data processing systems or
those of our business partners; (27) our ability to grow depends in
large part upon the continued availability of capital; (28) new
GAAP and statutory accounting rules or changes to existing GAAP and
statutory accounting rules could impact our reported earnings; (29)
capital and credit market volatility or disruption could adversely
impact us in several ways, including but not limited to causing
market price and cash flow variability in our fixed income
portfolio, defaults on principal or interest payments by issuers of
our fixed income investments, other than temporary impairments of
our fixed income investments and our ability to efficiently access
the capital markets to finance its reserve, capital and liquidity
needs; (30) deterioration of general economic conditions could
result in a severe and extended economic recession, which could
materially adversely affect our business and results of operations;
(31) we may not be able to protect our intellectual property and
may be subject to infringement claims; (32) we could be adversely
affected by an inability to access our credit facility; and (33)
the amount of statutory capital we have and must hold to maintain
our financial strength and credit ratings and meet other
requirements can vary significantly and is sensitive to a number of
factors beyond our control. 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.
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