Protective Life's CEO Discuses Q1 2012 Results - Earnings Call Transcript

Protective Life Corporation (PL)

Q1 2012 Earnings Call

May 9, 2012 10:00 am ET

Executives

Eva Roberson - VP, IR

John Johns - Chairman, President and CEO

Rich Bielen - Vice Chairman, and CFO

Carl Thigpen - CIO

Carolyn Johnson - COO

Steve Walker - CAO

Analysts

Chris Giovanni - Goldman Sachs

Ed Spehar - Bank of America-Merrill Lynch

Steven Schwartz - Raymond James

Mark Finkelstein - Evercore Partners

Jimmy Bhullar - JPMorgan

Presentation

Operator

Good day, ladies and gentlemen and welcome to the first quarter 2012 Protective Life Corporation earnings conference call. (Operator Instructions) I would now like to turn the conference over to, Ms. Eva Roberson, Vice President of Investor Relations. Please proceed.

Eva Roberson

Thank you. Good morning, everyone, and welcome to Protective Life Corporation's 2012 first quarter earnings call. Today our call is hosted by John Johns, Protective's Chairman, President and CEO and Rich Bielen, our Vice Chairman and CFO. Here with us also in the room we Carl Thigpen, our Chief Investment Officer; Carolyn Johnson, our Chief Operations Officer; and Steve Walker, our Chief Accounting Officer.

Yesterday we released our earnings press release as well as the supplemental financial information, and both of these documents are posted on our website at www.protective.com. In addition to the information we released yesterday we are using a slide presentation with our discussion this morning and that slide deck is being webcast from our link in the Investor Relations page of our website and our file is available for download at that location.

Finally, today's discussion will include forward-looking statements that express our expectations of future events and results. Actual events and results may differ materially from these expectations. You can refer to our press release and the risk and uncertainties, as well as risk factors section of the company's most recent Form 10-K, for more information about the factors that may affect our future results.

Our discussion also includes non-GAAP financial information and reconciliation to the GAAP measures can be found in the supplemental financial information on our website.

At this time, I would like to turn the call over to John Johns.

John Johns

Eva, thank you and thanks to everyone for joining us on the call this morning. We are very pleased today to report another very good quarter, a very solid quarter, both operating and net earnings where $1.18 per share in the quarter. Our pre-tax operating earnings were up 56% over the first quarter of last year and 30% over the prior quarter.

The performance this quarter is positively influenced by better than expected investment income resulting in improved spreads in life marketing, annuities and stable value.

We also enjoy the benefit of stronger than expected equity market performance in our variable annuity product line. As we have previously announced, we did receive a gain of $35.5 million upon the repurchase of some notes that we issued a few years ago in connection with the securitization transaction.

Our mortality results are still good overall, were mixed among segments during the quarter. We are also pleased to report that we were able to return 39% of our after-tax earnings to share owners through a combination of share repurchase and dividends. We also are pleased that our statutory balance sheet is still very strong, we estimate and we finally closed our statutory books that our risk based capital ratio into the quarter will be in the range for about 450% to 420%.

I'm now going to turn the call over to Chief Financial Officer, Rich Bielen to give you more detail on the quarter.

Rich Bielen

Thank you, Johnny, and good morning everyone. If you turn to Slide 5, operating income for the quarter was $1.18 versus $0.71 a year ago. We had realized investment gains of $0.18 offset by a derivative loss of $0.18 resulting in net income available to our shareholders of a $1.18. Our after-tax operating income for the quarter was $99 million and our net income was $99 million.

Moving to Slide 6, to reconcile the net realized investments in derivative gains and losses, you can see in the first quarter we had $0.16 of net realized gain on our securities pursuing to just normal trading activity. Also related to the Chase transaction of 2006m, we had $0.22 of realized gains in the Modco.

We had $0.15 of impairments during the quarter, $7 million of that related to our residential mortgage back portfolio and $12 million of that was related to some corporate bonds that we've made the decision to impair.

The next line item, I'll just pull out for a second. That is the derivative activity related to VA contracts, it is a loss of $0.21, that represents that non-performance risk related to the timing of credit spreads during the quarter.

This is the first quarter in which we have moved that item from our operating income down below the line to the net realized investment gains and losses and we believe this is consistent with the other players in the industry. There is a recasting of prior year's earnings in the supplement you can refer to that we have adjusted that for all the prior periods.

On the commercial mortgage side, we had $0.02 of losses during the quarter and our current non-performance is 0.3% at the end of the quarter on the commercial mortgage loan portfolio. So delinquencies are extremely well.

Turning to Slide 7, our reported book value is $46.74, if we exclude the accumulated other comprehensive income of $12.37, that results in a book value excluding AOCI of $34.37.

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