The Phoenix Companies, Inc. Q1 2010 Earnings Call Transcript

The Phoenix Companies, Inc. Q1 2010 Earnings Call Transcript
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The Phoenix Companies, Inc. (PNX)

Q1 2010 Earnings Call

May 4, 2010 11:00 am ET

Executives

Naomi Kleinman – Head Investor Relations

James Wehr – President, Chief Executive Officer

Peter Hofmann – Sr. Vice President, Chief Financial Officer

Christopher Wilkos – Chief Investment Officer

Phillip Polkinghorn – Senior Vice President Business Development

Analysts

[Alex Obsevich – Credit Suisse]

Robert Glasspiegel – Langen McAlenney

Andrew Kligerman – UBS

Eric Berg – Barclays Capital

Presentation

Operator

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Welcome to the Phoenix first quarter 2010 earnings conference call. (Operator Instructions) I will now turn the call over to the head of Phoenix Investor Relations, Naomi Kleinman.

Naomi Klei

n

man

Good morning and thank you for joining us. I am going to start with the required disclosures and then turn it over to Jim Wehr, our President and CEO for an overview of the quarter. With us today are Peter Hofmann, Chief Financial Officer, Chris Wilkos, Chief Investment Officer, Phil Polkinghorn, Senior Vice President for Business Development and Mike Hammerhand, Chief Accounting Officer.

Our first quarter earnings release, our quarterly financial supplement and the first quarter earnings review presentation are available on our website at phoenixwm.com. Slide 2 of the presentation contains the important disclosures. We may make forward-looking statements on this call that are subject to certain risks and uncertainties. These risks and uncertainties are discussed in detail in our first quarter earnings release and our latest SEC filings. Our actual results may differ materially from such forward-looking statements.

In addition to generally accepted accounting principles, we use non-GAAP financial measures to evaluate our financial results. Reconciliations of these non-GAAP financial measures to the applicable GAAP measures are included in our press release and financial supplement.

Now I will turn the call over to Jim.

James Wehr

Thanks, Naomi and good morning to everyone. We appreciate you taking the time to join us for our first quarter call. This morning I’ll provide some perspective on our results and Phoenix’s progress and then Peter will take everyone through the details of the numbers. Chris will follow with the investment results and then we’ll proceed to questions.

Last quarter I said the signs pointed to a better year ahead for four key reasons; first, that we expected the results of our aggressive expense reduction efforts to kick in, second capital would grow organically, third, investment performance was improving on all fronts and would continue to improve and fourth, our growth initiatives would begin to gain more traction.

Our first quarter results show continued progress in all four areas and provide early signs that 2010 will be a better year for Phoenix. We produced GAAP net income and statutory net income for Phoenix Life in the quarter, and this is the first time we’ve had both since the second quarter of 2008.

As you can see from the earnings release, our balance sheet is notably stronger. Statutory surplus grew by $85 million and we added 45 points to our RBC, now standing at 268%. On our last earnings call we projected we would add 40 percentage points from organic capital growth this year, and as you just heard, it increased by more than that in the first quarter.

We’re pleased with that positive development, but it was driven by some unusual items so we’re not projecting that pace of capital growth for RBC improvement through the remainder of 2010. Peter will provide additional detail behind the increase. Suffice it say these are good developments and ones that enhance our ability to focus on growth.

I am particularly pleased with our investment performance and its contribution to the balance sheet, which strengthens the base from which we can grow this company. We had a big drop in unrealized losses, lower impairments and lower below investment grade holdings as well as continued solid net investment income.

This portfolio and balance sheet improvement gives us time to analyze, develop and execute on the right growth initiatives. Prudent action is critical here and we have no appetite for blind alleys or missteps, but prudent action doesn’t mean sitting on our hands.

As evidence of our commitment to generate profitable growth, I’ve asked Phil Polkinghorn to take on a new assignment and focus all his energy on our growth pillar. This includes expanding in the middle market and repositioning our product portfolio including alternative retirement solutions.

Phil and his team are fully engaged in fueling growth at the company along with Ed Cassidy who leads our new distribution company, Saybrus Partners. Our initial accomplishments appear to validate this prudent approach.

Saybrus Partners, which we launched in the fourth quarter, is developing nicely as we ramp up third party insurance sales in the Edward Jones system. We are optimistic about its success and expect Saybrus to generate positive cash flow by the end of this year.

At the same time, we’re developing new relationships with middle market distributors including independent marketing organizations. And as you know from our call last quarter, we’ve added nearly two dozen new distribution agreements with IMO’s.

The growth initiative right now is focused primarily on our repositioned annuity products. Although sales are still modest, 40% of annuity deposits in the first quarter came through new relationships and we expect to expand life distribution further as we reposition that portfolio.

It’s important to note that despite the current low level of new sales, our revenue base is stable due to the strong performance of our investment portfolio and year over year growth in fee income which offset lower levels of premium from our In force business.

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