Phoenix Restatement of 2013 Results to Raise Net
February 10, 2015 by Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com
HARTFORD, Conn. – Phoenix Cos. Inc. said it will restate prior-period financial statements for the fourth quarter and year-end 2013, and the second quarter of last year as it identified errors determined to be “material.”
For the fourth quarter and year-ended Dec. 31, 2013, the restatement will correct errors relating to review of its annual actuarial assumptions for 2013. Together with taxes and other adjustments, the correction will increase the quarter and full-year 2013 net income by an estimated $15 million to $20 million. This reset of actuarial assumptions originally resulted in a $108.1 million unlock benefit driven by improved mortality assumptions. The corrected 2013 unlock benefit is about $19 million greater.
For the quarter ended June 30, 2014, however, in aggregate, the items have been determined to be “material,” the company said. The correction would lower second-quarter 2014 net income by about $10 million to $15 million.
Phoenix said its management believes that the errors identified in the fourth quarter and full year 2013, and in the second quarter 2014 financial statements are in areas of internal control previously disclosed in the 2013 Form 10-K as containing material weaknesses and not expected to result in a new material weakness.
However, it may identify other material weaknesses in internal control over financial reporting before filing its 2014 Form 10-K. “Further, the previously reported material weaknesses contributed to misstatements of prior period financial statements and disclosures and could result in additional errors that could lead to a material misstatement of the company’s financial statements,” Phoenix said.
The company will include restated financial statements for prior periods in its Annual Report on Form 10-K for year-end 2014, which is expected to be filed with the U.S. Securities and Exchange Commission by March 31.
The company is “confident we can make the necessary corrections and file our 2014 annual report by March 31, 2015,” James D. Wehr, president and chief executive officer, said in a statement.
In October 2014, A.M. Best Co. noted the inherent uncertainty related to Phoenix’s efforts to complete its prolonged restatement and filing catch-up process, which commenced in late 2012. A.M. Best said at that time it anticipated that the process is likely to continue until at least December of 2014, when the last required statement is scheduled to be filed with the SEC, making the company a “current filer.” (Best’s News Service, Oct. 4, 2014)
Phoenix Life Insurance Co., its principal operating subsidiary, is domiciled in New York and files quarterly and annual statutory financial statements with the New York Department of Financial Services. The company said it expects that Phoenix Life will file its annual 2014 statutory financial statements with the department on Feb. 27.
The company has not identified any material errors in the financial statements for 2012, the first three quarters of 2013, or the first or third quarters of last year.
In March 2014, Phoenix Cos. agreed to pay $750,000 to the SEC for failing to submit financial filings on time. The settlement covered filings submitted by it and its subsidiary PHL Variable Insurance Co. Each company was required to pay $375,000 as part of the settlement (Best’s News Service, March 25, 2014).
“While we are still addressing our previously reported material weaknesses, we have made progress over the last two years in strengthening our people, processes and technology that will help us complete this restatement quickly,” Wehr said in the statement.
The Hartford, Connecticut-based Phoenix Cos. helps financial professionals provide income strategies and insurance to families and individuals planning for or living in retirement. Its products and services are geared to the middle income and mass affluent markets. Its distribution subsidiary, Saybrus Partners offers sales support to financial professionals and represents Phoenix’s products among independent marketing organizations and brokerage general agencies.
According to A.M. Best, Saybrus Partners continues to be a key component of the group’s strategy to provide annuity and life insurance products to Phoenix’s target middle market. Also, while the organization’s sales are primarily fixed indexed annuities, Phoenix continues to invest in the growth of its life products, including several new product launches during 2014, A.M. Best said in October.
On the afternoon of Feb. 9, Phoenix Cos. Inc.’s (NYSE: PNX) stock was trading at $61.23 a share, down 4.21% from the previous close.
Phoenix Life Insurance Co. and PHL Variable Insurance Co. each currently has a Best’s Financial Strength Rating of B (Fair).
