Protective Life Corporation (NYSE: PL) (“PLC” or “the Company”)
today reported results for the third quarter of 2011. Net income
available to PLC’s common shareowners for the third quarter of 2011
was $88.6 million, or $1.03 per average diluted share, compared to
$70.4 million, or $0.80 per average diluted share, in the third
quarter of 2010. Operating income, after tax, was $84.3 million, or
$0.98 per average diluted share, compared to $62.8 million, or
$0.71 per average diluted share, in the third quarter of 2010.
Net income available to PLC’s common shareowners for the nine
months ended September 30, 2011 was $249.2 million, or $2.86 per
average diluted share, compared to $181.6 million, or $2.07 per
average diluted share, for the nine months ended September 30,
2010. Operating income, after tax, was $229.6 million, or $2.64 per
average diluted share, compared to operating income, after tax, of
$184.9 million, or $2.11 per average diluted share, for the nine
months ended September 30, 2010.
John D. Johns, Protective’s Chairman, President and Chief
Executive Officer commented:
“In the third quarter we demonstrated again the resilience and
strength of our core franchise. Notwithstanding a challenging
macroeconomic environment, we are pleased to report that operating
earnings were up 34% compared to the same quarter last year and are
up 24% on a year-to-date basis. Core segment results were solid
across the board, and were especially strong in our Annuity,
Acquisitions and Stable Value segments. As we look to the balance
of the year, we are optimistic about our ability to stay on plan
and deliver solid results for the year.”
Business Segment Results
The table below sets forth business segment operating income
before income tax for the periods shown:
Operating Income Before Income Tax (dollars in
thousands)
3Q11 3Q10 $ Variance %
Variance Life Marketing $ 20,321 $ 30,868 $ (10,547 ) -34 %
Acquisitions 44,028 27,866 16,162 58 % Annuities 43,784 22,704
21,080 93 % Stable Value Products 14,217 8,339 5,878 70 % Asset
Protection 6,019 5,154 865 17 % Corporate & Other (3,815
) 405 (4,220 ) n/m
$ 124,554
$ 95,336 $ 29,218 31 %
The following table reconciles segment operating income to
consolidated net income available to PLC’s common shareowners:
(dollars in
thousands)
3Q11 3Q10 Operating income before
income tax $ 124,554 $ 95,336
Realized investment gains (losses) 7,150 13,386 Less: Periodic
settlements on derivatives - 42
Related amortization of deferred policy
acquisition costs and value of business acquired
501 1,606 Income tax expense 42,589 36,626
Net
income available to PLC's common shareowners $
88,614 $ 70,448
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)
3Q11 3Q10
$ Variance % Variance Life Marketing $ 27.7 $ 39.8 $
(12.1 ) -30 % Annuities 859.8 677.2 182.6 27 % Stable Value
Products 430.0 66.5 363.5 n/m Asset Protection 110.6 97.3 13.3 14 %
Review of Business Segment Results for Third Quarter
Life Marketing
Life Marketing segment pre-tax operating income was $20.3
million in the third quarter of 2011 compared to $30.9 million in
the third quarter of 2010. The decrease was primarily due to the
impact of unlocking(1) which reduced operating income by $12.0
million in the third quarter of 2011 and increased operating income
by $2.3 million in the same quarter last year. This decrease was
partially offset by more favorable traditional life mortality
experience. Actual traditional life mortality was 91% of expected
in the third quarter of 2011 compared to 94% of expected in the
third quarter of 2010.
Sales were $27.7 million in the current quarter, a decrease of
30% compared to $39.8 million in the third quarter of 2010.
Consistent with our strategy to shift our sales mix, universal life
insurance sales (including variable universal life and bank-owned
life insurance) represented 98% of total sales this quarter.
Acquisitions
Acquisitions segment pre-tax operating income was $44.0 million
in the third quarter of 2011 compared to $27.9 million in the same
quarter last year. The increase was primarily due to the addition
of United Investors Life Insurance Company (“United Investors”) and
the Liberty Life Insurance Company (“Liberty Life”) coinsurance
business, which added $18.7 million of operating income, partially
offset by expected runoff in other blocks of acquired business.
Annuities
Annuities segment pre-tax operating income was $43.8 million in
the third quarter of 2011 compared to $22.7 million in the third
quarter of 2010. The current quarter included a favorable $19.4
million impact related to guaranteed benefits of certain variable
annuity (“VA”) contracts, as compared to an unfavorable $1.0
million impact in the third quarter last year. The remaining
increase in the third quarter of 2011 resulted from higher VA fees,
higher spreads, and favorable single premium immediate annuities
(“SPIA”) mortality, offset by unfavorable unlocking(1) compared to
the prior year’s third quarter. Unlocking(1) reduced operating
income by $8.8 million in the third quarter of 2011 and increased
operating income by $2.4 million in the same quarter last year.
Net cash flows for the segment remained positive during the
quarter. Annuity account values were $14.0 billion as of September
30, 2011, an increase of 18% over the past twelve months.
Sales in the third quarter of 2011 were $859.8 million compared
to $677.2 million in the third quarter of 2010. Variable annuity
sales were $573.2 million, compared to $436.4 million in the third
quarter of 2010. Fixed annuity sales were $286.6 million compared
to $240.9 million in the prior year’s third quarter.
Stable Value Products
Stable Value Products segment pre-tax operating income was $14.2
million in the third quarter of 2011 compared to $8.3 million in
the third quarter of 2010. The increase in operating earnings was
primarily due to higher operating spreads offset by a decline in
the average account balance. The current quarter results included
$1.2 million of participating mortgage and bank loan fee income.
The third quarter of 2010 included an impact of $0.1 million
related to participating mortgage and bank loan fee income. The
operating spread was 210 basis points for the three months ended
September 30, 2011, an increase of 110 basis points over the same
quarter last year.
Account balances as of September 30, 2011 were $2.8 billion.
Total sales were $430.0 million for the three months ended
September 30, 2011, compared to $66.5 million in the third quarter
of 2010.
Asset Protection
Asset Protection segment pre-tax operating income was $6.0
million in the third quarter of 2011 compared to $5.2 million in
the third quarter of 2010. The increase was primarily the result of
an increase in earnings from the guaranteed asset protection
(“GAP”) product line due to higher volume and favorable loss
experience and an increase in credit insurance earnings due to
favorable loss experience and lower expenses. These increases were
partially offset by higher expenses, including those related to new
initiatives, within the service contract product line.
Sales in the current quarter were $110.6 million, an increase of
14%, compared to the third quarter of 2010. Service contract sales
increased $11.7 million and sales of the GAP product increased $2.7
million compared to the prior year’s quarter.
Corporate & Other
Corporate & Other segment pre-tax operating loss was $3.8
million in the third quarter of 2011 compared to operating income
of $0.4 million in the third quarter of 2010. The decrease was
primarily the result of a $6.5 million reduction in investment
income versus the prior year’s third quarter. Partially offsetting
this decrease was a $6.3 million pre-tax gain from the repurchase
of non-recourse funding obligations, an increase of $2.4 million as
compared to the third quarter of 2010.
(1) The Company periodically reviews and updates as appropriate
key assumptions on products using the ASC Financial
Services-Insurance Topic, including future mortality, expenses,
lapses, premium persistency, investment yields, interest spreads,
and equity market returns. Changes to these assumptions result in
adjustments which increase or decrease DAC amortization and/or
benefits and expenses. The periodic review and updating of
assumptions is referred to as “unlocking”.
Share Repurchase Program
During the third quarter of 2011, the Company repurchased 1.9
million shares, at a total cost of $33.6 million. For the nine
months ended September 30, 2011, the Company repurchased 3.0
million shares, at a total cost of $58.5 million.
On October 31, 2011, the Board of Directors authorized a new
share repurchase program that replaces the remaining capacity under
the previously authorized program. The October 2011 authorization
allows repurchases totaling up to $300 million through December 31,
2014. Consistent with the previously authorized share repurchase
program, future repurchase activity will depend on many factors,
including capital levels, liquidity needs, rating agency
expectations, and the relative attractiveness of alternative uses
for capital.
Investments
- The net unrealized gain position on
investments was $945 million, after tax and DAC offsets, an
improvement of $592 million compared to December 31, 2010.
- Total cash and investments were $35.2
billion as of September 30, 2011. This includes $0.4 billion of
cash and short-term investments.
- During the third quarter of 2011, the
Company had $9.8 million of pre-tax other-than-temporary impairment
losses recognized in earnings.
- Delinquent mortgage loans and
foreclosed properties were $44.7 million as of September 30, 2011,
representing 0.8% 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 $4.3 million, or $0.05 per average diluted share, were
recorded in the third quarter of 2011, compared to net realized
investment gains, after tax, of $7.6 million, or $0.09 per average
diluted share, in the third quarter of 2010.
Net Realized
Investment/Derivative Activity (dollars per average diluted
share)
3Q 2011 3Q 2010 Net realized gain $
0.16 $ 0.13 Impairments (0.07 ) (0.06 ) Modco net realized gain
0.11 0.08 Derivative activity - interest rate related (0.08 ) (0.03
) All other (0.07 ) (0.03 )
Total $
0.05 $ 0.09
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:
Consolidated Results
(dollars in
thousands; net of income tax)
3Q 2011 3Q 2010
After-tax Operating Income $ 84,292 $ 62,818
Realized investment gains (losses) and
related amortization
Investments 83,135 66,018 Derivatives (78,813 )
(58,388 )
Net income available to PLC's common shareowners
$ 88,614 $ 70,448
(dollars per average diluted share; net of income tax)
3Q
2011 3Q 2010 After-tax Operating Income $
0.98 $ 0.71
Realized investment gains (losses) and
related amortization
Investments 0.97 0.76 Derivatives (0.92 ) (0.67 )
Net income available to PLC's common shareowners $
1.03 $ 0.80
For information relating to non-GAAP measures (operating income
and PLC’s shareowners’ equity per share excluding other
comprehensive income (loss)) 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.
Reconciliation of
PLC's Shareowners' Equity, Excluding Accumulated Other
Comprehensive Income (Loss) (dollars in thousands)
September 30, December 31, 2011 2010
PLC's shareowners' equity $ 4,082,235 $ 3,331,087 Less: Accumulated
other comprehensive income (loss) 884,452 293,254
PLC's shareowners' equity, excluding accumulated other
comprehensive income (loss) $ 3,197,783 $
3,037,833
Reconciliation of PLC's Shareowners' Equity per share, Excluding
Accumulated Other Comprehensive Income (Loss) per share
(dollars per common share outstanding)
September 30,
December 31, 2011 2010 PLC's shareowners'
equity $ 49.30 $ 38.88 Less: Accumulated other comprehensive income
(loss) 10.69 3.42
PLC's shareowners' equity
excluding accumulated other comprehensive income (loss)
$ 38.61 $ 35.46
Conference Call
There will be a conference call for management to discuss the
quarterly results with analysts and professional investors on
November 3, 2011 at 10:00 a.m. Eastern. Analysts and professional
investors may access this call by dialing 1-866-770-7125
(international callers 1-617-213-8066) and entering the conference
passcode: 55083509. A recording of the call will be available from
1:00 p.m. Eastern November 3, 2011 until midnight November 17,
2011. The recording may be accessed by calling 1-888-286-8010
(international callers 1-617-801-6888) and entering the passcode:
30345884.
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. The call presentation will
be available on the website beginning approximately 30 minutes
prior to the conference call.
Supplemental financial information is available on the Company’s
website at www.protective.com in the Investor Relations section
under Financial Information.
Investor Conference
Management will host the 2011 Annual Investor Conference on
November 30, 2011 from 9:00 a.m. Eastern to 12:30 p.m. Eastern in
New York City. The live webcast and presentation slides will be
available on the Company’s website at www.protective.com. For
meeting details, please contact Eva Robertson, Vice President of
Investor Relations, at 205-268-3912 or via email at
eva.robertson@protective.com.
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.
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; (14) we are highly
regulated and subject to numerous legal restrictions, including
those imposed at both the state and 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 and credit 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; (23) our
risk management policies, practices, and procedures could leave us
exposed to unidentified or unanticipated risks; (24) our reinsurers
could fail to meet assumed obligations, increase rates, or
otherwise be subject to adverse developments; (25) 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; (26) our ability to grow depends in
large part upon the continued availability of capital; (27) new
GAAP and statutory accounting rules or changes to existing GAAP and
statutory accounting rules could impact our reported earnings; (28)
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; (29) 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;
(30) we may not be able to protect our intellectual property and
may be subject to infringement claims; (31) we could be adversely
affected by an inability to access our credit facility; and (32)
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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