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Original Source: FD (FAIR DISCLOSURE) WIRE
. Dennis Glass, Jefferson-Pilot Corporation, President & CEO . Terry Stone, Jefferson-Pilot Corporation, CFO & EVP, President - Jefferson-Pilot Communications Co. . Warren May, Jefferson-Pilot Corporation, EVP - Marketing & Distribution . Bob Bates, Jefferson-Pilot Corporation, President - Jefferson Pilot Benefit Partners
JP reported quarterly earnings of $0.98 per share for 2Q05. The Co. entered the funding agreement market during 2Q05 with a $300m issue, which is a new market segment for the Co. On a statutory basis, JP estimates that the compromise might require additional reserves in the range of $60m this year. Q&A Focus: Earnings, annuities, and sales.
A. Key Data From Call 1. 2Q05 EPS = $0.98 per share. 2. 2Q05 net income = $1.00 per share. 3. 2Q05 net income before realized gains - $133.9m.
S1. Business Review (D.G.) 1. Result Highlights: 1. JP's reported quarterly earnings of $0.98 per share and $1.00, excluding FAS 133 effects were solid. 1. Execution remained strong in each of the businesses and in the investment area. 2. Individual life sales momentum continued, reflecting in the expansion of the Co.'s wholesaling efforts, product introductions, and the general strengthening of its overall individual platform. 1. The Co. is achieving good growth, and maintained its expected returns on this new business. 3. JP is entering the mass affluent market segment and increasing its focus in the multi-life business to foster additional topline growth. 4. Annuity segment continued to be challenged by flat sales and high surrender levels. 1. The surrender activity caused a DAC write down affecting
earnings. 5. The Co. has maintained pricing discipline on the new business sold in a competitive market environment. 6. Aggressive efforts to expand distribution in the bank channel
where the Co.'s EIA product design is well positioned, are underway and JP has added two new banks with distribution systems that have the potential to significantly increase production within this channel. 7. JP entered the funding agreement market during 2Q05 with a $300m issue, which is a new market segment for the Co. 8. Benefit Partner sales growth was solid in 2Q05.
9. Premium income was flat, primarily relating to the higher-than-expected lapses on the Canada Life block. 10. The Co. saw somewhat of an adverse fluctuation in claim terminations in the LTD block, which raised the Co.'s LTD loss ratios. 1. The continued diligence in the management of the overall business offset this effect.
11. Investment results continued to be very good, although new
investment yields do remain lower than the Co.'s investment
portfolio yield. 1. During 2Q05, investments were made at about 90 BP less than the current fixed income portfolio yield.
2. 2Q05 reflected the fifth consecutive qtr. with no new defaulted bonds. 12. The Co. saw a pick up in credit rating downgrades, raising
JP's big portfolio to 6.41% of the total portfolio. 1. This change was driven by downgrades in the auto (Phonetic) sector and LBO activity. 2. Active management of the portfolio helped to mitigate the effect of the low interest rates. 13. Spread management in the life and annuity block was solid, further crediting rate actions helped to mitigate the effect of low interest rates along with the active investment portfolio management.
14. JPCC earnings rose through a combination of revenue growth
and expense management. 15. The Co. continued to buy stock back in significant quantity in 2Q05. 1. This cash returned to the shareholders is on top of the 10% cash dividend increase that the Co. implemented in 2Q05.
S2. Financial Review (T.S.) 1. 2Q05 Highlights: 1. At current trading levels, investors in the Co.'s stock enjoy a healthy 3.3% dividend yield. 2. In 1H05, JP has returned $222m in cash to shareholders. 1. $108m in the form of cash dividends and $114m in share buybacks. 2. $65m occurred in 2Q05. 3. Book value per share, excluding unrealized gains at 2Q05 end was $24.72, a 10% increase vs. 06/30/2004. 4. ROE for 2Q05 was 16.1% and 17.7% YTD. 5. JP's businesses consistently generated excess capital, and has about $400m of excess capital at mid-year. 2. 2Q05 Results: 1. In 2Q05, the Co. reported increased revenues and earning.
2. On a consolidated basis, excluding realized gains and losses,
revenues were up 2.1% vs. 2Q04, driven by: 1. Advances in investment income. 2. Universal Life product charges.
3. Broker/dealer concessions. 3. YTD, excluding realized gains, consolidated revenues increased 4.6%. 4. Benefit and expenses increased 2.7% for 2Q05, 2.9% YTD. 5. Net income before realized gains was down slightly to $133.9m. 1. The above-mentioned consolidated results were reduced by a $4m FAS 133 adjustment in the annuity line and also by lost earnings on the cash employed in share buybacks.
6. On an YTD basis, net income before realized gains in cumulative effect was up 11.6%. 7. On diluted per share basis before realized gains, the Co. earned $0.98, a 1% increase vs. 2Q04 and a 14.5% increase on an YTD basis before cumulative effect.
1. Adjusting for the FAS 133 item in both periods, per share
results were $1.01 for 2Q05 or 5.2% ahead of 2Q04. 8. Three of the Co.'s operating businesses, Individual, Benefit Partners and Communications, all showed positive earnings progression.
9. Reported results for the annuity business declined $4.2m vs.
reported 2Q04 results. 10. In the annuity segment, the quarterly after-tax swing of the FAS 133 adjustment totaled $4.9m negative, with $4m negative in 3Q05 vs. a $0.9m positive in 2Q05. 3. Segment Results: 1. In individual, after-tax results were $75.9m, a 1% increase vs. 2Q04. 1. YTD results were up 6.6%.
2. Core sales results were up a strong 25% and 21% for 2Q05 and
YTD. 3. Fund balances on Universal Life increased 4% for 2Q05 and YTD. 1. Universal Life's face amount was up around 2% for 2Q05 and YTD. 2. Profit margins in Individual were in line with the underlying fundamental with Universal Life progression offset by results in a declining traditional business. 4. Interest margin increased $1.8m for 2Q05 or 3.1%, and was ahead 0.3% for YTD. 5. For the last six quarters, for the Co. as a whole, had 4-24 BP of various types of incremental investment income above base. 1. Incremental investment income above base in the Individual line contributed 8 BP to spread in both 2005 and 2004.
2. When adjusted for the additional contribution of tax favored
investments which flows through as a $1.9m reduction in the income tax line in 2Q05 vs. a $0.9m reduction of the income tax line in 2004. 6. Interest margin was up 4.8%. 7. On an YTD basis, margins were only slightly positive, but would have advanced 2.5%, if the tax benefits were factored in. 1. This solid interest margin performance includes some …