Protective Life Corporation (NYSE: PL) (“PLC” or “the Company”)
today reported results for the fourth quarter of 2011. Net income
available to PLC’s common shareowners for the fourth quarter of
2011 was $89.9 million or $1.06 per average diluted share, compared
to $78.6 million or $0.90 per average diluted share in the fourth
quarter of 2010. After-tax operating income was $86.5 million or
$1.02 per average diluted share, compared to $54.1 million or $0.62
per average diluted share in the fourth quarter of 2010.
Net income available to PLC’s common shareowners for the twelve
months ended December 31, 2011 was $339.1 million or $3.92 per
average diluted share, compared to $260.2 million or $2.97 per
average diluted share for the twelve months ended December 31,
2010. After-tax operating income was $316.1 million or $3.65 per
average diluted share, compared to $239.0 million or $2.73 per
average diluted share for the twelve months ended December 31,
2010.
John D. Johns, Protective’s Chairman, President and Chief
Executive Officer commented:
“We finished 2011 on a very strong note. For the year, operating
earnings were up 32%, net income reached a record level and we
achieved a full-year operating ROE of 10%. The earnings momentum of
our franchise returned to pre-financial crisis levels, and we well
exceeded our financial plans for the year. In addition, our retail
product segments achieved or exceeded our sales goals for the year;
credit quality improved and yields were resilient in our investment
portfolio; we successfully managed the integration of two major
acquisitions; we repurchased 4.1 million shares; and we estimate
our statutory RBC ratio to be approximately 425% at year end.
Notwithstanding a challenging macroeconomic environment, we are off
to a good start in 2012, and we expect our positive momentum to
continue during the year.”
Business Segment Results
Fourth Quarter and Full Year
The table below sets forth business
segment operating income before income tax for the periods
shown:
Operating Income Before Income Tax
(dollars in thousands)
4Q11 4Q10 2011 2010 Life Marketing $
36,010 $ 40,169 $ 116,274 $ 147,470 Acquisitions 41,545 21,718
157,393 111,143 Annuities 29,482 12,405 110,726 53,901 Stable Value
Products 14,226 8,862 56,780 39,207 Asset Protection 6,571 5,060
24,662 29,897 Corporate & Other (4,416 ) (9,703 )
5,767 (25,053 )
$ 123,418
$ 78,511 $ 471,602 $
356,565
The following table reconciles segment operating income to
consolidated net income available to PLC’s common shareowners:
(dollars in thousands)
4Q11 4Q10 2011 2010
Operating income before income tax $ 123,418
$ 78,511 $ 471,602 $
356,565 Realized investment gains (losses) 6,656 40,822
38,045 38,052 Less: Periodic settlements on derivatives - 42 - 168
Related amortization of deferred policy
acquisition costs and value of business acquired
1,493 2,993 2,740 5,141 Income tax expense 38,710
37,655 167,837 129,067
Net income available to
PLC's common shareowners $ 89,871 $
78,643 $ 339,070 $ 260,241
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)
4Q11 4Q10 2011
2010 Life Marketing $ 25.2 $ 45.7 $ 133.2 $ 171.4 Annuities
689.5 661.8 3,381.2 2,645.0 Stable Value Products 32.9 283.6 798.7
757.6 Asset Protection 105.9 85.3 415.6 342.7
Review of Business Segment Results for Fourth Quarter
Life Marketing
Life Marketing segment pre-tax operating income was $36.0
million in the fourth quarter of 2011 compared to $40.2 million in
the fourth quarter of 2010. The decrease was primarily the result
of higher legal and other expenses of $5.1 million that were
recorded in the fourth quarter of 2011. This was partially offset
by more favorable traditional life mortality experience. Actual
traditional life mortality was 86% of expected in the fourth
quarter of 2011 compared to 95% of expected in the fourth quarter
of 2010.
Sales were $25.2 million in the current quarter, a decrease of
45% compared to $45.7 million in the fourth quarter of 2010.
Universal life insurance sales (including variable universal life
and bank-owned life insurance) represented 99% of total sales this
quarter.
Acquisitions
Acquisitions segment pre-tax operating income was $41.5 million
in the fourth quarter of 2011 compared to $21.7 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 together added $20.1 million of operating income,
partially offset by expected runoff in other blocks of acquired
business. In addition, the fourth quarter of 2010 included a
planned one-time payment of $5.2 million to complete insourcing the
administration of a block of business.
Annuities
Annuities segment pre-tax operating income was $29.5 million in
the fourth quarter of 2011 compared to $12.4 million in the fourth
quarter of 2010. The current quarter included a favorable $0.8
million impact related to guaranteed benefits of certain variable
annuity (“VA”) contracts, as compared to an unfavorable $10.0
million impact in the fourth quarter last year. The remaining
increase in the fourth quarter of 2011 resulted from higher VA fees
on a 36% higher balance and higher spreads on fixed annuities.
Net cash flows for the segment remained positive during the
quarter. Annuity account values were a record $14.8 billion as of
December 31, 2011, an increase of 17% over the past twelve
months.
Sales in the fourth quarter of 2011 were $689.5 million compared
to $661.8 million in the fourth quarter of 2010. Variable annuity
sales were $498.6 million compared to $515.7 million in the fourth
quarter of 2010. Fixed annuity sales were $190.9 million compared
to $146.1 million in the prior year’s fourth quarter.
Stable Value Products
Stable Value Products segment pre-tax operating income was $14.2
million in the fourth quarter of 2011 compared to $8.9 million in
the fourth quarter of 2010. The increase in operating earnings was
primarily due to higher operating spreads offset by a decline in
the average account balance. In addition, the fourth quarter of
2010 included $2.0 million of accelerated DAC amortization related
to certain retail notes that were called during the quarter. The
operating spread was 201 basis points for the three months ended
December 31, 2011, an increase of 83 basis points over the same
quarter last year.
Account balances as of December 31, 2011 were $2.8 billion.
Total sales were $32.9 million for the three months ended December
31, 2011, compared to $283.6 million in the fourth quarter of
2010.
Asset Protection
Asset Protection segment pre-tax operating income was $6.6
million in the fourth quarter of 2011 compared to $5.1 million in
the fourth quarter of 2010. The increase was primarily the result
of an increase in guaranteed asset protection (“GAP”) earnings due
to higher volume and lower expenses. In addition, the fourth
quarter of 2010 included $1.2 million of litigation settlement
costs. These favorable variances were partially offset by higher
loss ratios and lower investment income within the service contract
product line.
Sales in the current quarter were $105.9 million, an increase of
24%, compared to the fourth quarter of 2010. Service contract sales
increased $17.8 million, or 28%, and sales of the GAP product
increased $3.2 million, or 23%, compared to the prior year’s
quarter.
Corporate & Other
Corporate & Other segment pre-tax operating loss was $4.4
million in the fourth quarter of 2011 compared to an operating loss
of $9.7 million in the fourth quarter of 2010. The favorable
variance was primarily due to growth in core investment income. For
the fourth quarter of 2011, $3.1 million of pre-tax gains were
generated from the repurchase of non-recourse funding obligations
compared to $5.7 million of pre-tax gains generated by similar
repurchases during the fourth quarter of 2010.
Tax Rate
The effective tax rate for the fourth quarter of 2011 was
approximately 30.1%. This resulted in a $0.07 per share increase to
operating earnings when compared to our planned tax rate of
34.6%.
Share Repurchase Program
During the fourth quarter of 2011, the Company repurchased 1.1
million shares, at a total cost of $24.2 million. For the twelve
months ended December 31, 2011, the Company repurchased 4.1 million
shares, at a total cost of $82.7 million. The Company has $276
million of remaining capacity under its existing share repurchase
program, which extends through December 31, 2014.
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 $1.0 billion, after tax and DAC offsets, an
improvement of $688 million compared to December 31, 2010.
- Total cash and investments were $35.2
billion as of December 31, 2011. This includes $0.4 billion of cash
and short-term investments.
- During the fourth quarter of 2011, the
Company had $22.5 million of pre-tax other-than-temporary
impairment losses recognized in earnings.
- Delinquent mortgage loans and
foreclosed properties were $41.4 million as of December 31, 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 $3.4 million, or $0.04 per average diluted share, were
recorded in the fourth quarter of 2011, compared to net realized
investment gains, after tax, of $24.6 million, or $0.28 per average
diluted share, in the fourth quarter of 2010.
Net Realized Investment/Derivative Activity
(dollars per average
diluted share)
4Q 2011 4Q 2010 2011
2010 Net realized gain $ 0.18 $ 0.19 $ 0.67 $ 0.42
Modco net realized gain 0.07 0.13 0.23 0.32 Impairments (0.17 )
(0.04 ) (0.36 ) (0.31 ) Derivative activity - interest rate related
(0.01 ) 0.04 (0.11 ) (0.06 ) All other (0.03 ) (0.04
) (0.16 ) (0.13 )
Total $ 0.04
$ 0.28 $ 0.27
$ 0.24
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
2011 4Q 2010 2011
2010 After-tax Operating Income
$ 86,515 $ 54,081 $ 316,122 $ 238,956
Realized investment gains (losses) and
related amortization
Investments 6,071 (52,159 ) 120,076 70,016 Derivatives
(2,715 ) 76,721 (97,128 ) (48,731 )
Net income available to PLC's common shareowners $
89,871 $ 78,643 $
339,070 $ 260,241
(dollars per average diluted share; net of income tax)
4Q
2011 4Q 2010 2011 2010 After-tax
Operating Income $ 1.02 $ 0.62 $ 3.65 $ 2.73
Realized investment gains (losses) and
related amortization
Investments 0.07 (0.59 ) 1.39 0.80 Derivatives (0.03 )
0.87 (1.12 ) (0.56 )
Net income
available to PLC's common shareowners $ 1.06
$ 0.90 $ 3.92
$ 2.97
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 OtherComprehensive
Income
(dollars in millions)
December
31, December 31, 2011 2010 PLC's
shareowners' equity $ 4,220 $ 3,331 Less: Accumulated other
comprehensive income 966 293
PLC's shareowners'
equity, excluding accumulated other comprehensive income
$ 3,254 $ 3,038
Reconciliation of PLC's Shareowners'
Equity per share, Excluding AccumulatedOther Comprehensive
Income per share
(dollars per common share outstanding)
December 31,
December 31, 2011 2010 PLC's shareowners'
equity $ 51.68 $ 38.88 Less: Accumulated other comprehensive income
11.83 3.42
PLC's shareowners' equity excluding
accumulated other comprehensive income $ 39.85
$ 35.46
Conference Call
There will be a conference call for management to discuss the
quarterly results with analysts and professional investors on
February 10, 2012 at 10:00 a.m. Eastern. Analysts and professional
investors may access this call by dialing 1-866-761-0749
(international callers 1-617-614-2707) and entering the conference
passcode: 20640606. A recording of the call will be available from
1:00 p.m. Eastern February 10, 2012 until midnight February 23,
2012. The recording may be accessed by calling 1-888-286-8010
(international callers 1-617-801-6888) and entering the passcode:
75152178.
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.
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, pandemics, malicious acts, terrorist acts,
and climate change; (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
our assumptions regarding the fair value and future performance of
our investments differ from actual experience; (9) our 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; (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; (15) changes in tax law or
interpretations of existing tax law could adversely affect us; (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) we, 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; (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, information security breaches, disasters, or
unanticipated events could affect our data processing systems or
those of our business partners as service providers; (26) our
ability to grow depends in large part upon the continued
availability of capital; (27) new accounting rules or changes to
existing accounting rules could impact our reported earnings; (28)
credit market volatility or disruption could adversely impact us;
(29) difficult general economic conditions 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 for more information about these
factors.
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