Current and prior period operating income results within the Annuities segment have been updated to reflect the Company’s revised definition of operating income (loss) as it relates to embedded derivatives on our variable annuity contracts and related hedging activities. This change was incorporated in the first quarter of 2012 and did not impact its comparable GAAP measure income before income tax.
See information relating to non-GAAP measures at the end of this press release.
There will be a conference call for management to discuss the quarterly results with analysts and professional investors on February 7, 2013 at 10:00 a.m. Eastern. Analysts and professional investors may access this call by dialing 1-866-800-8651 (international callers 1-617-614-2704) and entering the conference passcode: 13471518. A recording of the call will be available from 12:00 p.m. Eastern February 7, 2013 until midnight February 21, 2013. The recording may be accessed by calling 1-888-286-8010 (international callers 1-617-801-6888) and entering the passcode: 91637929.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. Segment operating income (loss) is income before income tax, excluding net realized investment gains and losses (excluding periodic settlements of derivatives associated with debt and certain investments) net of the related amortization of deferred acquisition costs (“DAC”) and value of business acquired (“VOBA”). Operating earnings exclude changes in the guaranteed minimum withdrawal benefits (“GMWB”) embedded derivatives (excluding the portion attributed to economic cost), realized and unrealized gains (losses) on derivatives used to hedge the VA product, actual GMWB incurred claims and net of the related amortization of DAC attributed to each of these items. In the first quarter of 2012, management revised the definition of operating income (loss) as it relates to certain features of our variable annuity contracts and related hedging activities, to better reflect the basis on which the performance of its business is internally assessed. Under the revised definition, the following items will be excluded from operating income:
- Changes in GMWB embedded derivatives related to this rider feature of certain variable annuity products (excluding the portion attributed to economic costs). Economic cost is the long-term expected average cost of providing the product benefit over the life of the policy based on product pricing assumptions. These include assumptions about the economic/market environment, and elective and non-elective policy owner behavior (e.g. lapses, withdrawal timing, mortality, etc.). These features are considered embedded derivatives under ASC 815.
- Changes in value of certain derivative instruments used to mitigate the risk related to variable annuity contracts.
- That portion of the change in balance sheet components amortized over estimated gross profit that is attributed to the embedded GMWB derivative and related economic hedges (e.g. DAC amortization).
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