The Phoenix Companies' CEO Discusses Q1 2012 Results - Earnings Call Transcript

The Phoenix Companies, Inc. (PNX)

Q1 2012 Earnings Conference Call

May 2, 2012 11:00 AM ET


Jim Wehr – President and CEO

Peter Hofmann – Chief Financial Officer

Chris Wilkos – Chief Investment Officer

Phil Polkinghorn – Senior Executive Vice President for Business Development

David Pellerin – Chief Accounting Officer.

Naomi Kleinman – Head of Investor Relations


Bob Glasspiegel – Langen McAlenney

Dan Alter [ph] – FBR

Steven Schwartz – Raymond James

Greg Drechsler - Metropolitan Capital



Welcome to the Phoenix First Quarter 2012 Earnings Conference call. (Operator Instructions) I would now like to turn the call over to the Head of Phoenix Investor Relations, Naomi Kleinman. You may begin Ma'am, thank you.

Naomi Kleinman

Good morning and thank you for joining us. I'm 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. After that, Peter Hofmann, our Chief Financial Officer will provide a financial review and Chris Wilkos, our Chief Investment Officer will comment on the investment portfolio. Also joining us on the call, Phil Polkinghorn, Senior EVP for Business Development and David Pellerin, 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

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 filing. Our actual results may differ materially from such forward-looking statements. We assume no obligation to update these 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'll turn the call over to Jim.

Jim Wehr

Thanks, Naomi, and good morning everyone. This morning I’ll give my perspective about the quarter and what we see for Phoenix, in the near term.

Looking at our operating income of $6.5 million, you can see the tax has continued to add volatility to our results, as Peter will discuss later. But if you focus on the fundamentals of our performance, the first quarter is a continuation of many of the favorable trends, we established last year. Let me walk you through a few of these trends.

The investment portfolio produced sound results with continued low impairments, and improved asset evaluations. In addition, net investment income increased 6% over the fourth quarter, and is up year over year. Policy persistency remained strong after returning to more normal levels in 2011. We continue to right size our cross structure and carefully manage expenses. While we are growing our businesses, we have been holding the line in uncontrollable expenses, and believe we can get more work done here.

Our mortality experience remains very good, statutory surplus grew further to $882 million, even after a $24 million dividend to the holding company. RBC improved a 371%, its worth reminding everybody that it wasn’t that long ago, that we aspired to 300% RBC, and now we are well beyond that. All these numbers say one main thing to me, and should to you, Phoenix has a very strong balance sheet, and we plan to keep it that way with sound management and a profit driven business strategy.

That statement, ‘profit driven business strategy’ brings me to the trends in our growth initiatives. We’ve guided to fixed index annuity sales of 1 to 1.4 billion for the year. We are not changing that guidance though, we will likely recommend at the lower end of the range.

First quarter sales of 227 million were consistent with our 2011 run rate, but put us slightly below our target for 2012. So what happened? We continued to stick to our profitable growth strategy, with a focus on preserving solid margins and do business. Even in the phase of price competition and the potential for a dip in sales. We have demonstrated that discipline with two reprising actions since October, and while these actions were prudently aligned with lower interest rates, they almost certainly caused us some sales. However, we are still competitive and we have seen other companies modify their pricing, subsequent to our changes. Also we are adding new benefits and features in June, which should broadly appeal of our product portfolio.

In short, we are confident our offerings will continue to generate strong sales that also meet our profitability targets.

Saybrus also showed steady progress, with increasing profitability. In fact, its results have improved every quarter, since there was established in late 2009, and we continue to believe that the Saybrus model has a lot of potential. As a final note, we believe it’s important for our long term success that we rebuild our life portfolio to balance our growing annuity and distribution businesses.

During the quarter, we launched an indexed dual product for the middle market to be sold through IMO’s. As is the case with any new product launch, results in the initial quarter were quite modest. But we have selling agreements with eight distributors, and expect sales to grow incrementally over the next several quarters.

As we look towards 2013, we are currently pursuing additional product offerings and distribution relationships. In some you’re hearing a lot of the same themes today, as you’ve heard in the last several quarterly calls, solid balance sheet, good persistency expense management and profitable growth.

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