Protective Reports Fourth Quarter and Full-Year 2012 Financial Results

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Protective Reports Fourth Quarter and Full-Year 2012 Financial Results

  • Record operating earnings for the year of $313 million
  • 2012 operating earnings per share of $3.78, up 15% from 2011
  • Operating earnings of $0.98 per share in 4Q12
  • Dividends per share increased 13% over 2011
  • 54% of 2012 earnings returned to shareowners through dividends and share repurchase

BIRMINGHAM, Ala.--(BUSINESS WIRE)-- Protective Life Corporation (NYS: PL) ("PLC" or "the Company") today reported results for the fourth quarter of 2012. Net income available to PLC's common shareowners for the fourth quarter of 2012 was $66.8 million or $0.82 per average diluted share, compared to $86.0 million or $1.02 per average diluted share in the fourth quarter of 2011. After-tax operating income was $79.7 million or $0.98 per average diluted share, compared to $81.8 million or $0.97 per average diluted share in the fourth quarter of 2011.

Net income available to PLC's common shareowners for the twelve months ended December 31, 2012 was $302.5 million or $3.66 per average diluted share, compared to $315.4 million or $3.65 per average diluted share for the twelve months ended December 31, 2011. After-tax operating income was $312.7 million or $3.78 per average diluted share, compared to $283.8 million or $3.28 per average diluted share for the twelve months ended December 31, 2011.


"We are delighted to report excellent results for the quarter and the year," said John D. Johns, Chairman, President and CEO. "Notwithstanding the headwinds presented by low interest rates and a challenging competitive environment, we delivered record operating earnings and an increase in our operating return on equity. Across the board, our team rose to the challenges and efficiently executed our business plans for the year. We believe that we are very well positioned to continue our strong earnings momentum and operating fundamentals in 2013."

Business Segment Results

The table below sets forth business segment operating income before income tax for the periods shown:

 
Operating Income Before Income Tax
($ in thousands)
  For the  For the
three months endedtwelve months ended
December 31,December 31,
2012  20112012  2011
Life Marketing$15,642$33,810$105,032$96,123
Acquisitions42,19141,545171,060157,393
Annuities45,34824,230119,09280,224
Stable Value Products18,67514,22660,32956,780
Asset Protection8596,70616,45425,407
Corporate & Other 928 (4,416) (3,203) 5,767
$123,643$116,101 $468,764 $421,694
 

The following table reconciles segment operating income to consolidated net income available to PLC's common shareowners:

 
  For the  For the
three months endedtwelve months ended

($ in thousands)

December 31,December 31,
2012  20112012  2011
Operating income before income tax$123,643$116,101$468,764$421,694
Realized investment gains (losses)(25,613)7,558(29,830)54,103
Less:

Related amortization of deferred policy acquisition costs and value of business acquired

(5,689)1,022(14,037)5,566
Income tax expense 36,923  36,603 150,519  154,839

Net income available to PLC's common shareowners

$66,796 $86,034$302,452 $315,392
 

Sales

The Company uses sales statistics to measure the relative progress of its marketing efforts. The Company derives these statistics from various sales tracking and administrative systems and not from its financial reporting systems or financial statements. These statistics measure only one of many factors that may affect future profitability of the business segments and therefore are not intended to be predictive of future profitability.

The table below sets forth business segment sales for the periods shown:

 

  For the  For the
three months endedtwelve months ended

($ in millions)

December 31,December 31,

 

2012  20112012  2011
Life Marketing$41.9$25.2$121.5$133.2
Annuities863.9689.53,326.73,381.2
Stable Value Products272.232.9621.6798.7
Asset Protection104.9105.9451.3415.6
 

Review of Business Segment Results

Life Marketing

Life Marketing segment pre-tax operating income was $15.6 million in the fourth quarter of 2012, representing a decrease of $18.2 million from the three months ended December 31, 2011. Some items contributing to the decrease were a $5.5 million decrease in earnings related to closing a reserve financing transaction and the related transfer of investment income to the Corporate & Other segment, unfavorable mortality experience, and higher operating expenses as a result of higher sales. Traditional life mortality was 92% of expected in the fourth quarter of 2012 compared to 86% of expected in the fourth quarter of 2011, resulting in an unfavorable change of $3.4 million. Universal life mortality experience was also unfavorable compared to the prior year's fourth quarter.

Sales were $41.9 million for the quarter, up 66% compared to $25.2 million in the fourth quarter of 2011.

Acquisitions

Acquisitions segment pre-tax operating income was $42.2 million in the fourth quarter of 2012 compared to $41.5 million in the same quarter last year. The increase was primarily due to favorable mortality and lower transition expenses related to the United Investors Life Insurance Company ("United Investors") and the Liberty Life Insurance Company ("Liberty Life") blocks as compared to the fourth quarter of 2011. This favorable increase was partially offset by expected runoff.

Annuities

Annuities segment pre-tax operating income was a record $45.3 million in the fourth quarter of 2012 compared to $24.2 million in the fourth quarter of 2011.

Fixed annuity operating income was $26.4 million, compared to $11.0 million in the prior year. This increase was primarily due to a favorable change of $7.0 million in the single premium immediate annuity ("SPIA") mortality variance and higher spreads, which included a $5.6 million impact from participating mortgage income for the three months ended December 31, 2012.

Variable annuity operating income was $18.9 million, compared to $13.2 million in the fourth quarter of 2011. The increase included a favorable change of $17.6 million in revenue driven by higher policy fees associated with the growth in account balances. Offsetting this was a $5.9 million increase in non-deferred expenses primarily resulting from higher marketing and maintenance expenses due to growth in this product line as compared to the fourth quarter of 2011.

Net cash flows for the segment remained positive during the quarter. Annuity account balances were $17.5 billion as of December 31, 2012, an increase of 18% over the past twelve months. Sales in the fourth quarter of 2012 were $863.9 million compared to $689.5 million in the fourth quarter of 2011. Variable annuity sales were $733.2 million compared to $498.6 million in the fourth quarter of 2011. Fixed annuity sales were $130.7 million compared to $190.9 million in the prior year's fourth quarter.

Stable Value Products

Stable Value Products segment pre-tax operating income was $18.7 million in the fourth quarter of 2012 compared to $14.2 million in the fourth quarter of 2011. Included in the fourth quarter of 2012 results is $2.8 million of participating mortgage income compared to $0.1 million in the fourth quarter of 2011. In addition, the segment experienced a 60 basis point increase in the adjusted operating spread, which excludes participating income, due to a decline in credited interest. These favorable items were partially offset by lower average account balances.

Account balances as of December 31, 2012 totaled $2.5 billion. Sales were $272.2 million for the three months ended December 31, 2012, compared to $32.9 million in the fourth quarter of 2011.

Asset Protection

Asset Protection segment pre-tax operating income was $0.9 million in the fourth quarter of 2012 compared to $6.7 million in the fourth quarter of 2011. The decrease was primarily due to a $4.1 million write-off of previously capitalized software development costs recorded within the service contract product line. Excluding the software write-off, service contract earnings decreased $1.2 million compared to the prior year's fourth quarter primarily due to higher operating expenses.

Sales were $104.9 million for the three months ended December 31, 2012, compared to $105.9 million in the fourth quarter of 2011. Service contract sales were $83.8 million compared to $80.5 million in the fourth quarter of 2011. Credit insurance sales were $6.9 million compared to $8.4 million in the fourth quarter of 2011. Sales of the GAP product were $14.1 million compared to $17.0 million in the prior year's fourth quarter.

Corporate & Other

Corporate & Other segment pre-tax operating income was $0.9 million in the fourth quarter of 2012 compared to an operating loss of $4.4 million in the fourth quarter of 2011. The increase was primarily due to an $8.9 million increase in investment income related to a transfer from the Life Marketing segment and higher mortgage loan prepayment fee income compared to the fourth quarter of 2011. For the fourth quarter of 2012, $3.0 million of pre-tax gains were generated from the repurchase on non-recourse funding obligations compared to $3.1 million of pre-tax gains during the fourth quarter of 2011.

Share Repurchase Program

During the fourth quarter of 2012, the Company repurchased 1,047,084 shares at a total cost of approximately $27.4 million. For the twelve months ended December 31, 2012, the Company repurchased 3,923,336 shares at a total cost of approximately $106 million. The Company has $170 million of remaining capacity under its existing share repurchase program, which extends through December 31, 2014.

Future repurchase activity will depend on many factors, including capital levels, liquidity needs, rating agency expectations, and the relative attractiveness of alternative uses for capital.

Investments

  • The net unrealized gain position on investments was $1.8 billion, after tax and DAC offsets, an improvement of $754 million compared to December 31, 2011.
  • Total cash and investments were $37.3 billion as of December 31, 2012. This includes $0.6 billion of cash and short-term investments.
  • During the fourth quarter of 2012, the Company had $18.0 million of pre-tax other-than-temporary impairment losses recognized in earnings.
  • Nonperforming mortgage loans equaled $23.9 million as of December 31, 2012, representing 0.5% of the commercial mortgage loan portfolio.
    
Net Realized Investment/Derivative Activity
($ per average diluted share)4Q122012
 
Net realized gain on securities$0.07$0.53
Modco net realized gain0.060.37
Impairments(0.14)(0.46)
Derivatives related to VA contracts(0.13)(0.38)
Mortgage/real estate losses(0.01)(0.11)
All other (0.01) (0.07)
Total$(0.16)$(0.12)
 

Operating income differs from the GAAP measure, net income, in that it excludes realized investment gains (losses) and related amortization.The tables below reconcile operating income to net income available to PLC's common shareowners:

Fourth Quarter and Full-Year Consolidated Results

        

For the

For the

three months ended

twelve months ended

December 31,

December 31,
($ in thousands; net of income tax)2012201120122011
 
After-tax operating income$79,746$81,786$312,716$283,844

Realized investment gains (losses) and related amortization

Investments(3,320)6,377121,022118,239
Derivatives (9,630) (2,129) (131,286) (86,691)

Net income available to PLC's common shareowners

$66,796 $86,034 $302,452 $315,392 
 
 

For the

For the

three months ended

twelve months ended

December 31,

December 31,

($ per average diluted share; net of income tax)2012201120122011
 
After-tax operating income$0.98$0.97$3.78$3.28

Realized investment gains (losses) and related amortization

Investments(0.04)0.081.471.37
Derivatives (0.12) (0.03) (1.59) (1.00)

Net income available to PLC's common shareowners

$0.82 $1.02 $3.66 $3.65 
 

For information relating to non-GAAP measures (operating income and PLC's shareowners' equity per share excluding other comprehensive income (loss)) in this press release, please refer to the disclosure at the end of this press release and to the Company's Supplemental Financial Information located on the Company's website atwww.protective.com.All per share results in this press release are presented on a diluted basis, unless otherwise noted.

    

Reconciliation of PLC's Shareowners' Equity, Excluding Accumulated Other Comprehensive Income

 
($ in millions)December 31,December 31,
20122011

PLC's shareowners' equity

$4,615$3,711
Less: Accumulated other comprehensive income 1,737 985

PLC's shareowners' equity, excluding accumulated other comprehensive income

$2,878$2,726
 
 
 
 

Reconciliation of PLC's Shareowners' Equity per share, Excluding Accumulated Other Comprehensive Income per share

 
($ per common share outstanding)December 31,December 31,
20122011

PLC's shareowners' equity

$59.06$45.45
Less: Accumulated other comprehensive income 22.22 12.07

PLC's shareowners' equity excluding accumulated other comprehensive income

$36.84$33.38
 

Accounting Changes

Results for the current and all prior periods reflect th

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