Correction due to revisions in the Income Taxes, Net Loss, Operating Loss and Total Stockholders' Equity figures. The corrected release reads: THE PHOENIX COMPANIES, INC. (PNX) ANNOUNCES CORRECTED ESTIMATED THIRD QUARTER 2012 RESULTS; CHANGES TO INCOME TAXES, NET LOSS, OPERATING LOSS AND TOTAL STOCKHOLDERS’ EQUITY
- Third quarter 2012 net loss of $45.8 million, operating loss of $62.6 million and pre-tax operating loss of $80.7 million
- Loss driven by charge related to annual actuarial assumption review and adverse mortality
- Phoenix Life Insurance Company statutory surplus and asset valuation reserve at $944.4 million and estimated risk-based capital ratio at 391% at Sept. 30, 2012
- Holding company liquidity of $124.0 million at Sept. 30, 2012
Phoenix reported a third quarter 2012 operating loss, a non-GAAP measure, of $62.6 million, or $10.98 per share. The third quarter 2012 operating loss before taxes was $80.7 million, or $14.16 per share, driven primarily by a $63.4 million charge resulting from the company’s annual review of actuarial assumptions and an estimated $23 million of adverse mortality.Per share amounts reflect the 1-for-20 reverse stock split effected on August 10, 2012. “We are working diligently to complete the restatement. In the meantime, we believe it is important to report our estimated third quarter 2012 results to the extent possible before our financial statements are filed with the SEC,” said James D. Wehr, president and chief executive officer. “While we had a GAAP loss this quarter, we delivered solid performance in our key fundamentals and took several actions that enhance the company’s financial position and support growth initiatives. The largest driver of the loss, the charge resulting from our annual actuarial assumption review, reflects our projection that the sustained low interest rate environment will continue. Adverse mortality, the other major earnings driver, is expected to happen from time to time, but our long-term mortality experience remains favorable to expectations,” Mr. Wehr said. “This quarter, Phoenix continued to generate statutory capital, maintain strong persistency rates and deliver profitable annuity sales against the headwinds of the low interest rate environment. In addition, Saybrus Partners made further progress in its third-party business,” he said. “We began redeploying some of the capital built over the past two and half years, combining debt and planned share repurchases in order to reduce leverage and increase book value per share, earnings per share and return on equity,” Mr. Wehr said. “We understand the importance of balancing capital management activities with a strong capital position,” he added. “The management team is committed to building on these strengths and opportunities to position us more effectively to grow the business," Mr. Wehr concluded.
THIRD QUARTER ESTIMATED EARNINGS SUMMARY
|($ in millions)||ThirdQuarter2012|
|Loss From Continuing Operations Before Income Taxes||$(50.0)|
|Income Tax Benefit||(4.1)|
|Loss From Continuing Operations||$(45.9)|
|Income From Discontinued Operations, Net of Income Taxes||0.1|
|Net Realized Investment Gains1||22.8|
|Fixed Indexed Annuity Derivatives2||(6.1)|
|Operating Loss 4||$(62.6)|
|Applicable Income Tax Benefit||(18.1)|
|Operating Loss Before Taxes4||$(80.7)|
|Earnings Per Share Summary|
|Net Loss Per Share|
|Operating Loss Per Share|
|Operating Loss Before Taxes Per Share|
|Weighted Average Shares Outstanding5 (in millions)|
- The third quarter 2012 operating loss before taxes of $80.7 million was driven primarily by a $63.4 million charge resulting from the annual actuarial assumption review and an estimated $23 million of adverse mortality.
- Third quarter 2012 total individual life surrenders were at an annualized rate of 5.2%, and closed block life policies were at an annualized rate of 5.0%.
- Third quarter 2012 annuity surrenders were at an annualized rate of 9.7%.
- While adverse mortality experience contributed an estimated $23 million to the third quarter 2012 loss, long-term mortality results remain favorable to expectations. Third quarter 2012 mortality in the closed block was favorable.
- Annuity deposits were $211.1 million for the third quarter of 2012, driven by sales of updated products launched in June 2012, which are gaining traction in the marketplace. The company expects to finish the year with approximately $850 million of annuity deposits, compared with its previously stated target of approximately $1 billion.
- Net annuity flows (deposits less surrenders) were $93.3 million for the third quarter of 2012. Annuity funds under management were $5.0 billion at Sept. 30, 2012.
- Life insurance annualized premium was $0.8 million for the third quarter of 2012. Gross life insurance in-force at Sept. 30, 2012 was $116.5 billion.
- Saybrus Partners had $0.7 million of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), including inter-company revenues, for the third quarter of 2012. Saybrus revenues were $5.9 million for the third quarter of 2012, driven by strong third-party revenues.
Net unrealized gains on fixed income securities were $938.7 million at Sept. 30, 2012.ESTIMATED BALANCE SHEET AND LIQUIDITY At Sept. 30, 2012, cash and securities at the holding company were $124.0 million. Phoenix Life Insurance Company paid a $15.0 million dividend to the holding company in the third quarter of 2012. The proportion of below investment grade bonds in the portfolio was 8.0% at Sept. 30, 2012. Debt-to-total-capital was 27.0% at Sept. 30, 2012, reflecting the repurchase of surplus notes in the third quarter of 2012. Phoenix has no debt maturities until 2032. Total stockholders’ equity at Sept. 30, 2012 was $889.5 million. THIRD QUARTER 2012 STATUTORY RESULTS FOR PHOENIX LIFE INSURANCE COMPANY Phoenix Life Insurance Company, the principal operating subsidiary of The Phoenix Companies, Inc., is domiciled in New York and files quarterly and annual statutory financial statements with the New York Department of Financial Services. Phoenix Life Insurance Company filed its third quarter 2012 statutory financial statements on Nov. 9, 2012. The errors to be corrected by the restatement of Phoenix’s GAAP financial results are not expected to have a material impact on Phoenix Life Insurance Company's statutory financial results or any subsidiaries’ risk-based capital computations. As previously reported, the following are Phoenix Life Insurance Company's third quarter 2012 statutory highlights:
- Statutory net gain from operations was $17.5 million and statutory net income was $16.8 million for the third quarter of 2012.
- Statutory surplus and asset valuation reserve was $944.4 million at Sept. 30, 2012, net of the $54.0 million in dividends paid to the holding company during the first nine months of the year.
- Estimated risk-based capital ratio was 391% at Sept. 30, 2012.
- The company conducted its annual actuarial assumption review during the third quarter of 2012 and updated its best estimate assumptions used in calculating deferred policy acquisition costs, policy reserves and unearned revenues. Major updated projection assumptions include investment income, interest margins, reinsurance recapture, lapses and premium persistency. The review incorporated Phoenix’s experience, industry studies and market conditions. Assumption changes resulted in a $63.4 million charge driven primarily by the expectation that the sustained low interest rate environment will continue. This charge excludes $9.1 million in favorable adjustments related to fixed indexed annuities that are not included in operating income.
- On Nov. 8, 2012, the company filed a Current Report on Form 8-K with the Securities and Exchange Commission disclosing under Item 4.02 that it will restate its GAAP financial statements for the years ended December 31, 2011, 2010 and 2009, the interim periods for 2011, and the first and second quarters of 2012.
- The restatement will correct certain errors relating to the classification of items on the consolidated statement of cash flows in these prior periods. Management does not expect the restatement to have a material impact on beginning and ending balances or the total change in cash and cash equivalents that were previously reported for the periods. As part of the restatement, the company will adjust the financial statements for errors identified and corrected during prior periods, recording the adjustments in the appropriate historical period. Additional errors identified subsequent to the filing of Form 10-Q for the period ended June 30, 2012, which may affect prior periods, will be assessed for materiality and corrected in connection with the restatement.
- The company is delaying the filing of its third quarter 2012 Form 10-Q pending the filing of the restated financial results with the Securities and Exchange Commission, which is expected to be prior to the timely filing of its Annual Report on Form 10-K for the year ended December 31, 2012.
- The company previously announced two capital management actions:
- On Sept. 21, 2012, Phoenix Life Insurance Company repurchased a total of $48.3 million par amount of its outstanding 7.15% surplus notes due 2034 for the aggregate consideration of $36.2 million.
- On Sept. 20, 2012, Phoenix’s Board of Directors authorized a program to repurchase outstanding shares of common stock up to an aggregate amount of $25 million. The company does not intend to commence the program until after filing its restated financial statements.