Presidential Life 2011 Profit Up 81%, Plans Launch of Indexed Annuity

Presidential Life Corp.'s 2011 net income increased 81% in part on investment gains and a lower effective tax rate, while the company plans to launch an indexed annuity in the third quarter of this year.

Net income jumped to $38.9 million on $8.4 million in realized gains after other-than-temporary impairments, a lower effective tax rate to 30.3% from 38.1% in 2010 and an increase in equity in earnings on limited partnerships of $7.7 million.

The Nyack, N.Y.-based company, through its Presidential Life Insurance Co. subsidiary, sells fixed deferred and immediate annuities to individuals, life insurance and accident and health insurance to financial services professionals and their clients.

Total revenues for the year, though, dropped 10% to $267.4 million due to lower sales of fixed annuities amid the low interest rate environment.

"In 2011, we made substantial improvements in our financial strength while also commencing the execution of key initiatives to grow the business," said Donald Barnes, chief executive officer, president and vice chairman of the board, in a statement. The company began "forming the foundation for our national distribution platform and annuity product line expansion."

The initial launch of the company's indexed annuity is planned for the third quarter of this year, Barnes said.

Last June, A.M. Best Co. upgraded the financial strength rating to B++ (Good) from B+ (Good) and issuer credit rating to bbb from bbb- of Presidential Life Insurance. A.M. Best also upgraded the ICR to bb from bb- of the parent company, Presidential Life Corp. (NASDAQ: PLFE)

The rating upgrades reflected Presidential Life’s solid capitalization, profitable earnings achieved through strong, albeit volatile, investment income, resolution of litigation issues from prior management and shareholder proxy issues, along with a future business strategy underpinned by growth, which build on the company’s core competencies within the retail insurance annuity business segment (Best's News Service, June 8, 2011).

However, Presidential Life had a concentrated market profile operating as a monoline insurer writing predominantly fixed annuity business in a limited geographic area with a narrow product offering, among others, Best said at that time (Best's News Service, June 8, 2011).

Net realized investment gains for Presidential Life, including other-than-temporary impairments, were $35.3 million at Dec. 31, 2011. They included a $17 million gain from hedge fund redemptions within its limited partnership portfolio and other realized gains from limited partnerships, bonds and stocks of $5.4 million.

During 2011 and 2010, the company said it sold its hedge fund investments that had redemption rights.

Herbert Kurz, 89 years old in 2010, was the long-time CEO of Presidential Life until May 2009, when Barnes assumed the CEO position. Kurz, who founded the company, was replaced as part of a succession plan approved in 2008 (Best's News Service, Jan. 13, 2010). But in November 2009, Kurz went directly to shareholders through a consent solicitation, urging them to replace the current board, except himself, with a slate of nominees he proposed (Best's News Service, March 12, 2010).

Soon after, the board removed Kurz as chairman, saying a special committee of independent directors found irregularities in a 2007 tax return filed by the Kurz Family Foundation Ltd. Kurz, a director and stockholder of Presidential Life, also was an officer and director of the foundation at that time (BestWire, Dec. 11, 2009).

On the afternoon of March 15, shares of Presidential Life were trading at $11.27, up 0.9% from the previous close.

(By Fran Matso Lysiak, senior associate editor, BestWeek: [email protected])