Protective Life Corporation (PL)

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Protective Life Corporation (PL)

Q4 2011 Earnings Call

February 10, 2012 10:00 am ET

Executives

John D. Johns – Chairman, President and Chief Executive Officer

Richard J. Bielen – Vice Chairman and Chief Financial Officer

Edward M. Berko – Executive Vice President Chief Risk Officer

Eva Robertson – Vice President, Investor Relations

Carolyn Johnson – Executive Vice President and Chief Operating Officer

Carl Thigpen – Executive Vice President and Chief Investment Officer

Steven Walker – Senior Vice President, Controller and Chief Accounting Officer

Analysts

Edward A. Spehar – Bank of America/Merrill Lynch

Mark Finklestein – Evercore Partners

Jimmy S. Bhullar – J.P. Morgan

Steven Schwartz – Raymond James

John Nadel – Sterne, Agee & Leach, Inc.

Christopher Giovanni – Goldman Sachs

[Alec] – Citadel

Presentation

Operator

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2011 Protective Life Corporation Earnings Conference Call. My name is Lisa and I’ll be your operator for today. (Operator instructions) Later, we will conduct as question and answer session. I would now like to turn the conference over to your host for today, Ms. Eva Roberson, Vice President, Investor Relations. Please proceed.

Eva Robertson

Thank you, operator. Good morning, everyone, and welcome to Protective Life Corporation’s 2011 fourth quarter earnings call. Our call today is hosted by John Johns, Protective’s Chairman, President and CEO; as well as Rich Bielen, our Vice Chairman and CFO. Here in the room with us to help answer questions for you is Carl Thigpen, our Chief Investment Officer; Carolyn Johnson, our Chief Operations Officer; Steve Walker, our Chief Accounting Officer; and Ed Berko, our Chief Risk Officer.

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

Finally, today’s discussion will include forward-looking statements which express expectations of future events and/or results. The 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 report on Form 10-K and subsequent 10-Qs, 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 also be found in the supplemental financial information on our website.

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

John Johns

Thank you, Eva, and good morning everyone. We are very pleased to report a very strong fourth quarter as well as a very strong year. Operating earnings per share for the year are up 34% over last year. Net income reached a record level indicating that the earnings power of our franchise has returned to the level of pre-financial crisis. We continue to enjoy favorable mortality. Our investment portfolios performed very well and held up very well and were very resilient against the headwinds we see in terms of low interest rates.

Our recent acquisitions, Liberty Life and United Investors are coming along just fine, performed strongly in the quarter, and we’re very optimistic about those acquisitions going forward.

We did continue our commitment to a very prudent and rational and consistent capital allocation. 40% of our earnings during the year were returned to shareowners through a combination of dividends, as well as share repurchase. We maintained a very strong capital position in the quarter. We estimate that when we file our stat segments early next month, that our risk-based capital ratio will be in the range of 425%.

You will also recall that we set a goal to get our return on equity on a full year operating basis up in the double-digit range. We’re very pleased to say that in 2010 our operating ROE was 10%.

At this time, I’d like to turn the call over to our Chief Financial Officer, Rich Bielen. Rich will go through more detail.

Richard Bielen

Thank you, Johnny, and good morning. Operating income for the fourth quarter was $1.02 per share, compared to $0.62 in the fourth quarter of 2010. During the quarter, we had $0.04 of realized investment gains resulting in net income in the quarter of $1.06 in comparison to $0.90 in the fourth quarter of 2010.

If you turn to our reconciliation on slide five of the net realized investment gains and losses for the quarter, we recognize $24 million of gains related to our normal trading activity and portfolio rebalancing. We also have net realized gains of $9.4 million related to our ModCo reinsurance that related to the Chase transaction that we did in 2006. During the quarter we did take $22.5 million of impairments. $10 million of that related to residential mortgage backs that we continued to review the prepayment in loss severities there. That is very consistent with the prior quarters.

We also made the decision in the fourth quarter to liquidate some hybrid positions in the French banks, so we went ahead and took an impairment on those of approximately $12 million in the fourth quarter and have since liquidated those positions here in calendar year 2012.

The only other item of note is that we had $2 million of losses on commercial mortgages. The delinquency rate of our commercial mortgages continues to be very low at eight-tenths of one percent. That portfolio continues to perform very, very well in this environment given our loan types and our discipline.

Read the rest of this transcript for free on seekingalpha.com