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Protective Releases 4Q And Full-Year 2013 Financial Results

Proquest LLC

Protective Life Corp. reported results for the fourth quarter of 2013.

In a release on February 11, the Company noted that net income available to PLC's common shareowners for the fourth quarter of 2013 was $118.9 million or $1.47 per average diluted share, compared to $66.8 million or $0.82 per average diluted share in the fourth quarter of 2012. After-tax operating income was $115.9 million or $1.43 per average diluted share, compared to $79.7 million or $0.98 per average diluted share in the fourth quarter of 2012.

Net income available to PLC's common shareowners for the twelve months ended December 31, 2013 was $393.5 million or $4.86 per average diluted share, compared to $302.5 million or $3.66 per average diluted share for the twelve months ended December 31, 2012. After-tax operating income was $344.6 million or $4.26 per average diluted share, compared to $312.7 million or $3.78 per average diluted share for the twelve months ended December 31, 2012.

"We are delighted to report a record level of operating earnings and net income in 2013 - with a stronger than expected finish in the fourth quarter capping a truly outstanding year at Protective," said John D. Johns, Chairman, President, and CEO. "Our differentiated and balanced business model, which combines the strength of our industry- leading acquisition capabilities with our highly efficient retail business segments, once again produced solid earnings results. In fact, this marks the fifth consecutive year in which our results have exceeded our ambitious annual earnings plans. As we look ahead to 2014, we expect another solid year of earnings growth, increased book value and ROE improvement driven by the successful integration of the MONY acquisition, our innovative retail growth initiatives, our focus on careful and rational allocation of capital and our constant attention to rigorous expense management."

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.

Review of Business Segment Results

Life Marketing

Life Marketing segment pre-tax operating income was $32.7 million in the fourth quarter of 2013, representing an increase of $17.1 million from the three months ended December 31, 2012. The increase was primarily related to favorable mortality as compared to the fourth quarter of 2012. Traditional life mortality was 89 percent of expected for the fourth quarter of 2013 resulting in a $9.2 million favorable variance compared to the prior year's fourth quarter. Universal life mortality was 88 percent of expected for the fourth quarter of 2013 compared to 111 percent in the fourth quarter of 2012.

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Sales were $30.2 million for the quarter compared to $41.9 million in the fourth quarter of 2012.

Acquisitions

Acquisitions segment pre-tax operating income was $60.8 million in the fourth quarter of 2013 compared to $42.2 million in the fourth quarter of 2012. The increase was primarily due to the addition of MONY Life Insurance Company and the MONY Life Insurance Company of America reinsurance transaction (collectively "MONY) which added $25.2 million of operating income on a pre-tax basis. This favorable increase was partially offset by expected runoff.

Annuities

Annuities segment pre-tax operating income was a record $53.5 million in the fourth quarter of 2013 compared to $45.3 million in the fourth quarter of 2012.

Fixed annuity pre-tax operating income was $18.2 million compared to $26.4 million in the prior year's fourth quarter. This decrease was primarily due to an unfavorable change of $6.6 million in the single premium immediate annuity (SPIA) mortality variance. In addition, the fixed annuity block experienced lower spreads which included a $5.1 million decline in participating mortgage income compared to the three months ended December 31, 2012.

Variable annuity (VA) pre-tax operating income was $35.3 million compared to $18.9 million in the fourth quarter of 2012. The increase was primarily due to a favorable change of $13.0 million in revenue driven by higher policy fees and other income associated with the growth in account balances and a $3.3 million favorable change in unlocking compared to the prior year's fourth quarter.

Net cash flows for the segment remained positive during the quarter. Annuity account balances were $20.3 billion as of December 31, 2013, an increase of 16 percent over the past twelve months. Total sales in the fourth quarter of 2013 were $469.4 million compared to $863.9 million in the fourth quarter of 2012. Variable annuity sales were $210.4 million compared to $733.2 million in the fourth quarter of 2012. Fixed annuity sales were $259.0 million compared to $130.7 million in the prior year's fourth quarter.

Stable Value Products

Stable Value Products segment pre-tax operating income was $21.0 million in the fourth quarter of 2013 compared to $18.7 million in the fourth quarter of 2012. The increase in operating earnings resulted from higher operating spreads and a $0.8 million market value adjustment (MVA) gain due to the early termination of a guaranteed investment contract. These favorable variances were partially offset by a decrease in participating mortgage income. Participating mortgage income for the three months ended December 31, 2013 was $2.6 million compared to $2.8 million for the three months ended December 31, 2012. The adjusted operating spread, which excludes participating income and the MVA gain, increased by 17 basis points to 277 basis points in the quarter over the prior year, due primarily to a decline in credited interest.

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Account balances as of December 31, 2013 totaled $2.6 billion. Sales were $97.1 million for the three months ended December 31, 2013 compared to $272.2 million in the fourth quarter of 2012.

Asset Protection

Asset Protection segment pre-tax operating income was $6.5 million in the fourth quarter of 2013 compared to $0.9 million in the fourth quarter of 2012. The increase was primarily due to a $4.1 million write-off of previously capitalized software development costs recorded within the service contract product line in the fourth quarter of 2012. Excluding the software write-off, service contract earnings increased $0.7 million compared to the prior year's fourth quarter. Guaranteed asset protection (GAP) earnings increased by $0.7 million. The favorable variances in these product lines were primarily related to higher volume and lower expenses.

Sales were $109.2 million for the three months ended December 31, 2013 compared to $104.9 million in the fourth quarter of 2012. Service contract sales were $85.5 million compared to $83.8 million in the fourth quarter of 2012. Sales of the GAP product were $16.3 million compared to $14.1 million in the prior year's fourth quarter. Credit insurance sales were $7.3 million compared to $6.9 million in the fourth quarter of 2012.

Corporate & Other

Corporate & Other segment pre-tax operating loss was $5.5 million in the fourth quarter of 2013 compared to pre-tax operating income of $0.9 million in the fourth quarter of 2012. The decrease was primarily due to a $2.0 million unfavorable variance in mortgage loan prepayment fees and participation income, a $3.9 million unfavorable variance in called securities as compared to the fourth quarter of 2012, and lower investment income related to the deployment of capital in the MONY acquisition. In addition, the segment experienced a $5.9 million increase in other operating expenses compared to the fourth quarter of 2012. Partially offsetting these decreases was a $13.7 million favorable variance related to $16.7 million of gains on the repurchase of non-recourse funding obligations compared to $3.0 million of gains in the fourth quarter of 2012.

Share Repurchase Program

During the twelve months ended December 31, 2013, the Company did not repurchase any of its common stock. The Company has $170 million of remaining capacity under its existing share repurchase program, which extends through December 31.

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.

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Investments

-The net unrealized gain position on investments was $0.5 billion, after tax and DAC offsets, a decline of $1.3 billion compared to December 31, 2012.

-Total cash and investments were $44.3 billion as of December 31, 2013. This includes $0.6 billion of cash and short-term investments.

-During the fourth quarter of 2013, the Company had $5.2 million of pre-tax other-than-temporary impairment losses recognized in earnings.

-Nonperforming mortgage loans equaled $12.7 million as of December 31, 2013, representing 0.2 percent of the commercial mortgage loan portfolio.

Operating income differs from the GAAP measure, net income, in that it excludes realized gains (losses) on investments and derivatives and related amortization.

More information:

www.protective.com

((Comments on this story may be sent to newsdesk@closeupmedia.com))

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