The Phoenix Companies, Inc. (NYSE:PNX) today reported second quarter 2012 operating income, a non-GAAP measure, of $1.0 million, or $0.01 per diluted share, compared with second quarter 2011 operating income of $7.9 million, or $0.07 per diluted share. The decline from the prior year was primarily driven by lower fee income and the weak equity market. Operating income before taxes for the second quarter of 2012 of $7.9 million, or $0.07 per diluted share, reflects a quarter with good mortality experience and positive persistency trends and investment performance. Second quarter 2011 operating income before taxes was $24.1 million, or $0.20 per diluted share.
Phoenix reported a second quarter 2012 net loss of $13.2 million, or $0.11 per share, driven by realized losses primarily related to fixed indexed annuity hedges, a charge in the company’s discontinued group accident and health reinsurance business and an elevated GAAP tax rate due to strong taxable income. Second quarter 2011 net income was $15.2 million, or $0.13 per diluted share.
Given the significant volatility in the company’s GAAP tax provision, operating comparisons are provided on both a pre-tax and after-tax basis. Beginning in the second quarter of 2012, operating income includes certain adjustments related to fixed indexed annuity derivatives in order to better reflect the economics of this line of business. Periods prior to the first quarter of 2012 have not been revised as adjustments for those periods were not significant. See “Other Items” below for additional detail.
“It was a mixed quarter for Phoenix, but we continued to make progress in key areas of the business,” said James D. Wehr, president and chief executive officer.“This quarter, fundamentals, especially investment performance, mortality and persistency, remained solid as demonstrated by the strength of our statutory earnings and continued capital generation. At the same time, lower fee income, the weak equity market and a continued high tax provision drove down operating income,” he said. “We significantly reduced exposure to the discontinued group accident and health reinsurance block, resulting in a modest charge that further affected net income.