Phoenix Cos. CEO: Sales, Cost-Cutting Leading to ‘Sustainable Growth’
August 12, 2015 by Dennis Gorski, managing editor-online, BestWeek: Dennis.Gorski@ambest.com
HARTFORD, Conn. – Phoenix Cos. Chief Executive Officer James Wehr said life and annuity sales increased as it narrowed its second-quarter net loss.
Net loss narrowed to $22.4 million from a loss of $73 million. Total revenue rose to $422 million, from $413.1 million.
“The quarter was marked by mixed financial results,” James Wehr, president and CEO, said in a conference call. But “statutory surplus grew significantly, life and annuity sales were higher, and (subsidiary) Saybrus’ revenues and earnings increased to record levels. We remain sharply focused on executing our strategy and actively managing the business for sustainable growth.”
The net loss was driven primarily by unfavorable mortality and elevated financial reporting expenses, he said. “Death claims have been historically volatile, and we’ve now had two consecutive quarters of unfavorable mortality,” Wehr said. “But this has not changed our outlook” that the line will remain profitable over the long term, he added.
The second-quarter unfavorable mortality developed primarily from several large claims in universal life, according to Bonnie Malley, executive vice president and chief financial officer, which “translated to approximately $35 million of negative impact,” she said. Five of the claims were for $5 million or larger, she noted.
The company has begun a three-year campaign to cut $110 million in “controllable” operating expenses by 2017, Malley said – $75 million of external financial reporting expenses and $35 million of other operating expenses.
Phoenix also executed an intercompany reinsurance treaty between subsidiaries Phoenix Life Insurance Co. and PHL Variable Insurance Co., and subsequently de-stacked them to become direct subsidiaries of Phoenix Cos. The action improved statutory capital and increased the risk-based ratios to 356% for Phoenix Life and 201% for PHL Variable, Wehr said.
Wehr briefly noted that Phoenix had settled a federal class-action lawsuit for $48.5 million over objections to cost-of-insurance rate hikes made to some premium-adjustable universal life policies in 2010 and 2011 (Best’s News Service, June 4, 2015). He said that 19% of those who had standing in the lawsuit have opted out of the settlement.
Parent holding company Phoenix has about $65 million in cash and securities, Wehr said, but it will not enter into a stock buyback program to boost its market valuation. “We need to be very careful about how we use capital. It’s not as simple (to repurchase shares) in the environment we’re operating in with a keen focus on conserving capital.”
Phoenix targets the middle income and mass affluent markets. In 2014, the company’s insurance units reported a combined $1.24 billion in net premium written, 59% from individual annuities and almost 40% from ordinary life, according to BestLink. Net income in 2014 was $91.1 million, according to BestLink.
Phoenix’s products are distributed through Saybrus Partners, its stand-alone life and annuity distribution and marketing company. Saybrus has agreements with financial services firms Edward Jones, Wells Fargo, Farmers Insurance, John Hancock, Pacific Life, Eagle Life and others, according to BestLink.
The company’s products are sold in the United States, Canada, Puerto Rico and the Virgin Islands.
Phoenix Co.’s two operating insurance subsidiaries, Phoenix Life Insurance Co. and PHL Variable Insurance Co., have a current Best’s Financial Strength Rating of B (Fair).
In afternoon trading Aug. 11, shares of the Phoenix Cos. (NYSE: PNX) were $11.65, down 11.41% from their previous close.
