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The Phoenix Companies, Inc. (PNX)

Credit Suisse Group Financial Services Forum Conference Call

February 10, 2011 9:30 am ET


James D. Wehr – President, Chief Executive Officer & Director


Unidentified Analysts


James D. Wehr

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Really what you’re going to hear this morning is a turnaround story. We’re going to talk at a very high level. It’s a turnaround that’s in process. It’s clearly heading in the right direction but not complete so as I think about things from an investor perspective I think that’s an interesting time to understand or start to understand the story and it still gives you an opportunity to get involved as things evolve and continue in the right direction.

I’m going to condense this to just a couple of statements. Today’s presentation may contain-forward looking statements within the meaning of the Federal Securities Laws. Actual results may differ materially from those suggested by those forward-looking statements. I want to note that we plan to release fourth quarter earnings next Thursday, February 16


so results discussed today will be based on third quarter 2011 numbers.

So you can see the headline, “Dramatic transformation since 2009,” I’ve used the words comeback. Let me show you where we were when I took over as CEO in April of 2009 in the midst of the financial crisis and contrast those with where we are today. I think folks in the room know that 2009 was a brutal year. It certainly was for Phoenix, multiple rating downgrades, loss of major distributors which translated into further downgrades, a product portfolio with essentially no market. We’ll talk about that a little bit. Our stock price actually hit, in early March of ’09 a low of $0.21, Sam you should have been involved at that point. Large losses, shrinking capital, it really was a very challenging environment as it was for many financial services companies.

The question was, “Was it an unsustainable enterprise?” And the answer was if we didn’t change things and change them pretty quickly it was. But, we had the confidence and the inherent value of the Phoenix brand and franchise, and felt with the right plan and effective execution we could make the long road back.

Let’s bring it forward to today. Improved really in all the critical areas, ratings we’ll talk about that a little bit, distribution, financial strength, and stock price. We feel that we’re a company on a solid foundation, gaining traction on growth, and an interesting and opportunistic investment given the fact we’re trading at 24% of current book value.

So let’s talk a little bit about, and Sam I think you suggested you were interested in an overview of the company and then where we’re at from a product perspective. I’m not going to spend any more time on the past but I do want to give you that in the context of where we are at currently. So Phoenix today is a growing boutique insurance company. We’re serving the middle market, retirement, and protection needs and we’re selling our products primarily through independent distributors or IMOs.

We have a variety of life and annuity products but most of our recent sales have been in the fixed index annuity space. We have in addition to our current focus on fixed index annuities, a very large enforce life block with $127 billion face amount and about $4 billion of annuity assets under management.

As we look at ourselves in the current environment, we feel that our competitive strengths relate well in the middle market. We’ve found that our brand has translated well in the middle market. A lot of the strengths that we developed as a high net worth company have translated well. Our brand is well known and has been around for quite a long time and is appreciated and our products, particularly the fixed index annuity, is well designed and attractive in that middle market space.

We also have a very long history, dating back to 1851, that speaks to stability, and as I said, a brand that resonates well. So we feel positioned to grow but very cognoscente of pursuing new business in the context of we want to grow, we want sales, but we also know it’s important to manage our capital base and make sure that those sales and that growth is profitable.

When I took over in early 2009 we put together a pretty straightforward strategic plan based on four strategic initiatives or strategic pillars. You can see them on the page in front of you. We really spent most of 2009 focusing on the first three, so the balance sheet, policyholder service, and efficiency. We felt if we were able to manage all three of those well, that would position us down the road to restart the growth engine and to restart sales of new products. So as we head into 2012 the fourth pillar, profitable growth, as become much more important although the first three remain an important area of focus.

The next several pages I’m going to bring you up on where we’re at against each of those pillars. Balance sheet strength, as it is for most financial services companies and particular for us, back in 2009 was the first priority. You can see the progress that’s been made. We’ve compared as of the end of the third quarter 2011 back to end of ’09. You can see that statutory capital has grown by about 50% from $574 million to $864 million and our RBC ratio, which is a measure of capital adequacy has grown or increased by 86 points to 309%.

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