Protective Life Corporation (PL)

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Protective Life Corporation (PL)

2012 Investor Conference Transcript

December 4, 2012 9:00 AM ET

Executives

Eva Robertson - Vice President, Investor Relations

John Johns - Chairman, President and CEO

Scott Adams - SVP and Chief HR Officer

Rich Bielen - Vice Chairman and CFO

Lance Black - Senior Vice President and Treasurer

Steve Callaway - Senior Counsel and Chief Compliance Officer

Paul Eder - Second Vice President, Agency Services

Brent Griggs - SVP and In-Charge, Asset Protection Division

Rebecca Horsley - Investor Relations, Administrator

Carolyn Johnson - EVP and COO, Life and Annuity Businesses

Carolyn King - SVP, Acquisitions and Corporate Development

Debbie Long - EVP and General Counsel

Wayne Stuenkel - Senior Vice President and Chief Actuary

Mike Temple - EVP and Chief Risk Officer

Carl Thigpen - Executive Vice President and CIO

Steve Walker - SVP, Controller and Chief Accounting Officer

Judy Wilson - SVP and Stable Value Business

Analysts

John Fox - Fenimore Asset Management

Tom Gallagher - Credit Suisse

Eric Berg - RBC Capital Markets

Steven Schwartz - Raymond James

John Nadel - Sterne, Agee

Mark Finkelstein - Evercore

Sean Dargan - Macquarie

John Hall - Wells Fargo

Joanne Smith - Scotia Capital

Dan Bergman - UBS

Sarah Dewitt - Barclays

Jonathan Haynes - Sun Life Insurance Company

Presentation

Eva Robertson

Well, I’d like to officially say good morning. And welcome to the 2012 Protective Life Corporation Investor Conference. We are glad you are here with us in New York City and those who are joining us via webcast, we are glad that you’ve decided to spend your morning with us also. We hope its productive conversation. We certainly worked to make it so.

This morning we’ll start off with Johnny Johns, our Chairman. He will start off with just an overview of the day to let you kind of know the direction we are going. He will be followed by Carl Thigpen, our Chief Investment Officer, who will give you an update on the portfolio.

We’ll take a brief break after that time. And afterwards, Carolyn Johnson, our Chief Operations Officer will update you on the Life marketing and Annuities business. Our final presenter for the day will be Rich Bielen. He is going to give you our look ahead, our financial plans and some sensitivity about what’s been in the market lately.

After each session we will take a few minutes and answer one or two questions. We’ll try to keep that time brief, but we know sometimes there are burning issues that maybe we didn’t touch on and help to get those handle pretty quickly.

When our presenters are done, Johnny will come back to the podium and we will open it for another Q&A session. We want to really focus on making certain you got your answers today and that we really heard the things you are concerned about, trying to make sure that we’ve explained what we can about what’s going on at Protective.

I want to point out that there is a slide presentation that’s being webcast on the internet at protective.com in the Investor Relations section. So that is of course to accompany our comments this morning. The file is posted there for download.

And finally, today’s discussion does include forward-looking statements which express expectations of future events and/or results. Actual events and results may differ materially from these expectations.

You can refer to our press releases and the risks and uncertainties, as well as Risk Factors section of the company's most recent report on Form 10-K and subsequent 10-Q, for more information about factors that may affect our results.

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

And with that, I’d like to introduce, John Johns, our Chairman, President and Chief Executive Officer.

John Johns

Eva, thank you very much and good morning to each of you. Once again, we’d like to extend our welcome and thanks for coming this morning to hear the Protective story and I think you’ll find a very interesting morning indeed.

Let me first introduce our management team who are here today with me and with you, and this is an alphabetical order. If you will, just kind of raise hand when I’ll call your name.

First is Scott Adams. He is our Senior Vice President and Chief HR Officer. Next is Rich Bielen, who is our Vice Chairman and Chief Financial Officer; Lance Black, Senior Vice President and Treasurer; Steve Callaway, Senior Counsel, Chief Compliance Officer; Paul Eder, Second Vice President, Agency Services; Brent Griggs, Senior Vice President, In-Charge of our Asset Protection Division; Rebecca Horsley, who works with Eva Robertson in our Investor Relations Group as an Administrator.

We also have Carolyn Johnson, who is our Executive Vice President and Chief Operating Officer, and responsible for all of our Life and Annuity Businesses; Carolyn King, Senior Vice President, Acquisitions and Corporate Development; Debbie Long, our EVP and General Counsel. You’ve met Eva. We also have Wayne Stuenkel, who is a Senior Vice President and our Chief Actuary.

We also have new to the team, in fact, this is his really first official day on the job is Mike Temple, who is Executive Vice President and Chief Risk Officer. Mike comes to us after almost three decades of experience in the industry, most recently as the Chief Risk Officer at Unum.

Carl Thigpen, he is our Executive Vice President and Chief Investment Officer; Steve Walker, Senior Vice President, Controller and our Chief Accounting Officer; and Judy Wilson, Senior Vice President. She runs our Stable Value business as well. So thank you all and again, we’ll all participate in the program to the extent, you have questions and so on later in the day.

Again, as Eva indicated, my role here at the beginning of the program is really just to give you an overview of where the company is, how we see the business, where we’re headed and what shadow will be at what we’ll hear from others later in the presentation.

I’ll start by noting and very pleased to note, needless to say that we do expect this year to finish on a strong note. We expect to have operating earnings at a record or near-record level around $300 billion after tax. We think our operating earnings per share if the plan falls into places, we think it will. We’ll be well ahead of the plan that we laid out for you when we were standing here last year.

And in our RBC ratio which is statutory, regulatory capital ratio is we believe at the end of this year, we’ll approach 500% which would be in the record area as well for our company. You will hear from call that our investment portfolio is very solid. We really don’t have much to talk about with respect to investments but thought you would be interested in just our perspective on it. But that’s what you will hear in a moment.

We are very well positioned in terms of our capital as well as our capabilities to do a major accretive acquisition. Also, this is a point that I’m going to emphasize because I’m not sure this is really something that’s well understood, is that we now are in a such capital. We’ve done a position that we believe we can do a $500 million acquisition without impeding our existing share repurchase plan.

So it’s not really a choice for us between doing an acquisition, repurchase shares. We think we have the capacity to do both. Our business model is evolving. As you know, in our primary retail businesses, Life Insurance, Annuities and Asset Protection products, we’re very kind of focused on the fact that particularly in the Life Insurance and Annuity business segments, there seems to be a disconnect in that business. It’s a business that’s not working.

I mean, I might even go so far as to stay I think the business model may be brokering in that Life Insurance Annuity space in the United States right now. That’s a pretty bold statement. But I think there is ample evidence that it is true. The problem is we see it. It’s both in the case of the need for debt protection, mortality protection as well as the need for retirement savings. There is an enormous pent-up need and desire on the part of consumers to do a better job of protecting their families and protecting themselves.

This is extremely clear when you look at the date of that LIMRA, the marketing trade association that most insurance companies remember. Their data shows that the ownership of individual Life Insurance in this country per family is at the lowest level it’s been since that’s been measured, which you go back 40 years or so.

When LIMRA goes out and interviews people on the street with their focus group to surveys, they find that there are about half the people they ask this question, do you need more Life Insurance, they say yes. That’s a 117 million people adults working around everyday saying, hey, I’m not doing a job I need to be doing to take care of my family.

If you flip it around and look at retirement side, I mean, this country is headed for retiring rate. We have retirement savings crisis that’s coming vast majority of people who are baby boomers, light baby boomers like me who are just totally unprepared for retirement. The numbers are just staggering and yet at the same time, if you look at our industry, the performance as you know, your investors and that your analyst can cover it, it’s not been stellar.

Most Life Insurance companies, publicly traded companies that are trading at or below book value which is a sure indication I think that investors are skeptical about our ability to earn the cost of capital and accrete shareholder value. And so you got to ask the question, why? I mean, why do you have so much talent in capital and really with intention in our industry on one hand, you have so much of a need back in service on the other and yet the training is not meeting if you will.

We think this because we’ve allowed our industry to become commoditized that most companies now are copying each other, competing on price, making things too complicated for consumers to really understand, not focusing enough on enhancing the efficiency and the quality of distribution. Everybody is just chasing, seems to be chasing market share with the focus on price.

And as you know in commodity businesses, margins tend to erode and overtime they’re forcing the consolidation and notices of natural kind of lifecycle to businesses that allow themselves to become commoditize. Our strategic objective and we’re not going to talk too much about that. Carolyn Johnson will touch on it because this is not really a strategy session. This is not what we’re here to talk about long-term strategy. This is more of financial presentation for you.

But our strategic objective is to differentiate Protective in a way where people will buy our products based on a complete value proposition and not just where they on a spreadsheet, where the cheap is by two pennies for that particular product.

So we’re spending a lot of time, we’re spending a fair amount of money and we’re very focused and committed to this but more to come on that. I don't think that’s something that you really need to be too focused on as we focus on our earnings plans for next year and so on.

But again the good news is that we’ve had -- we've seen downward trend in Life Insurance sales over the last year or so, mostly because we haven't chased market share. We recognized that 18 months ago that we’re in a new interest rate environment. We stepped up and repriced our products to take into account the current reality of the Feds quantitatively using operation to risk those sorts of things that intentional effort by the Fed to low interest rates and flat in the yield curve.

We say that’s the world we live in. So let’s don’t go sell Life Insurance products that have a 40-year life and take a single premium upfront and make an integrated assumption that’s totally out of sync with the world around us. So we’ve given it up but we’ve also saying now the competition become more other way. Other companies I think have come to the same awakening we came to a year and half ago and you’re seeing some repricing of products as you will see in Carolyn’s presentation, we now actually see a trend of increasing Life sales, which is a good thing.

We’re actually over short a bit on our variable Annuity business. We have in mind company that has more balanced portfolio of liabilities and businesses, and we think it’s important to have some exposure to the equity markets, some upside overtime as equity markets go up in fee income and variable products go up but we’re over short, quite honestly our targets for this year, not because we wanted to. But because as we changed our product designs and features and pricing for our riders, the competition did the same and they did it little more aggressively than we did.

So we are seeing that reversed to. You’re starting to see and Carolyn will touch on this. We’re seeing a trend for VA sales to come back down in a trajectory that we’ll take in back in line with where we want them to be. Again, Carolyn will go into that.

Asset Production division, again their sales, their products are primarily sell through auto dealers. Their products are extended service contracts and the gap product that covers a car owner if their car is stolen or destroyed in an accident. Their sales are still quite sensitive to the level of auto sales. And again if you saw the news this week, auto sales in U.S. were at a five-year high and seem to be trending upward. So there is a good trend. There is a good fundamental macroeconomic trend behind APD as well.

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