The Phoenix Companies, Inc. Q2 2010 Earnings Call Transcript

The Phoenix Companies, Inc. Q2 2010 Earnings Call Transcript
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The Phoenix Companies, Inc. (PNX)

Q2 2010 Earnings Call Transcript

August 5, 2010 12:00 pm ET

Executives

Naomi Kleinman – Head, IR

Jim Wehr – President and CEO

Peter Hofmann – Senior EVP and CFO

Chris Wilkos – EVP and Chief Investment Officer

Analysts

Bob Glasspiegel – Langen McAlenney

Steven Schwartz – Raymond James & Associates

Presentation

Operator

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Previous Statements by PNX
» The Phoenix Companies, Inc. Q1 2010 Earnings Call Transcript
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» Phoenix Companies Inc. Q3 2009 Earnings Call Transcript

Welcome to the Phoenix second quarter 2010 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session. (Operator Instructions) Today's call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to the Head of Phoenix Investor Relations, Naomi Kleinman. You may begin.

Naomi Kleinman

Thank you. Good afternoon 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 Executive VP for Business Development; and Mike Hanrahan, Chief Accounting Officer.

Our second quarter earnings release, our quarterly financial supplements and the second quarter earnings review presentation are available on our website at PhoenixWM.com. Slide two of the presentation contains 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 second 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 the financial supplement. Now, I will turn the call over to Jim.

Jim Wehr

Thanks, Naomi and good afternoon to everyone. We appreciate you taking the time to join our second quarter call. We'll conduct today's call as in the past. I will provide an overview and my perspective on the quarter. Peter will take everyone through the numbers in detail. Chris will talk about our investment results and then we'll take questions.

For several quarters now, we have been saying there are a lot of moving parts and how they come together will provide solid signals for Phoenix's future and that current quarter results put us in a position to make more progress in the coming quarters and that is what's happening.

We continue to make headway against the strategic goals of balance sheet strength, policy holder security, expense management and growth. In short, we have demonstrated we can deliver results in areas that are critical to our long-term success. Statutory surplus, risk-based capital, investment performance and expense management are key measures where Phoenix has steadily improved.

Further, persistency is significantly better relative to last year. And as we continue to benefit from our stable revenue base, our growth initiatives are gaining traction, particularly in annuity sales. However, the quarter was not all good news. Although we had net income of about $10 million, we had an operating loss of almost $20 million.

The loss was a product of the negative equity markets as well as some Phoenix specific events, including a renegotiated life reinsurance contract and adverse results in our Phoenix Accumulator Universal Life or PAUL product. This experience largely related to lapses. That being said, the actions we have taken have produced a base of strength that gets us past the inevitable bumps in the road, whether they come from the market environment or elsewhere.

Let me provide a few concrete examples of our progress and expand on them. We have positive results relating to the balance sheet and overall financial strength as evidenced by growth in statutory surplus and RBC for the second straight quarter. RBC is now estimated at 290%, up 67 points from year end 2009.

Statutory surplus increased 24% to $715 million from $574 million at year end. Another element of balance sheet strength is the overall health of our investment portfolio. We moved into an unrealized gain position this quarter and had higher net investment income and lower credit impairments. In sum, we feel good about our financial strength and our balance sheet.

Conservation is another area where we put a lot of effort and improving persistency has been the result. Both life and annuity surrenders remain significantly lower than the levels in 2009 and life persistency improved again this quarter.

We also continue our focus on expenses as demonstrated by an almost 8% reduction in core GAAP expenses compared to last quarter and an 18% reduction year-over-year. Our progress in reducing expenses has contributed to improved profitability.

We returned the company to positive GAAP and statutory net income this year. At the same time, we recognize the need to build consistency in our operating results.

Let me give you a little more detail what happened this quarter and what we're doing to address these issues. The impact of the negative equity markets our annuity line was certainly a key factor in our operating loss. While we can't control the equity markets, our continuing efforts to strengthen the company will allow us to better withstand the effects of ongoing market volatility.

Operating income was also impacted in a couple of ways by the PAUL series of policies in our universal life block. As I mentioned, overall life persistency continued to improve, but we did see an increase in lapses in the PAUL block this quarter.

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