Protective Life Earnings Call Insights: M&A Environment, Core EPS

On Wednesday, Protective Life Corp (NYSE:PL) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

M&A Environment

Christopher Giovanni – Goldman Sachs: John, can you maybe expand a little bit on your last comment, just on the M&A environment. Maybe, some of the deals that you’re looking at are they consistent with deals you’ve done in the past or is there anything new there and then how are you comparing those to sort of what you’ve consistently been doing, within the share repurchase market, would you have the ability to do both or is it just one or the other given some of the deal sizes you’re looking at?

John D. Johns – Chairman, President and CEO: Chris, we’re seeing an array of different kinds of deals, but we continue to think that our real distinctive competency and expertise is in the traditional block of business or company kind of acquisition within the space. Predominantly life insurance but sometimes annuities makes sense for us as well. I wish I could give you a little bit more color on specific deals, but as you know, it is our practice not to comment on specific transactions. In terms of allocation of capital between M&A versus share repurchase, again, it’s very specific, I mean, we’ll take a careful look at any of the opportunities out there. We’ll make a determination as to what level to bid depending on what we see when we review the facts and we’ll always have as an alternative share repurchase. So, we’ll carefully weigh which is the better use of capital in terms of creating long-term shareholder value.

Christopher Giovanni – Goldman Sachs: Then in terms of annuities, I guess on the variable annuity side, your sales sort of have been stabilizing here at a pretty good level over the past several quarters, and there has been talk of some companies either getting out or pulling back in the market. So, curious in terms of what your appetite is to trying grow that book of business further, and then some comments maybe of Ed around just in terms of how the hedging is performing, the cost to hedge relative to some of the writer charges that you have out there?

John D. Johns – Chairman, President and CEO: Chris, I’ll take the first part of the question and Rich, you can take the second part. We like the variable annuity business. We’re seeing an opportunity here to grow the book of business. We’re very focused though on the risk management aspects of it. We have like many companies have taken a number of steps over the last quarter or two to improve our margins and also to reduce the risk of the product. So, we want to be a good steady solid player in a business that we think is attractive. Rich?

Richard J. Bielen – Vice Chairman and CFO: Chris, with respect to hedging, our hedging performance is very much being in line with our budgets over the last number of quarters. When we look through the attribution of that $0.21what we saw is the economic hedges were actually modestly positive and then the negative was related to the tightening of credit spreads during the quarter which impacted everybody in the business.

John D. Johns – Chairman, President and CEO: Which we essentially didn’t hedge because it’s a non-economic component of that calculation.

Core EPS

Edward Spehar – Bank of America Merrill Lynch: Rich, the $0.85 to $0.90 sort of number that you suggested was the core EPS, does that include any assumption for a normalized level of, I guess, call it extra income, note repurchase gains, participating income etcetera?

Richard J. Bielen – Vice Chairman and CFO: Ed, that excludes any note repurchase gain. So, the math on that was $1.18, we had $0.28 of gain during the quarter that brings us down to $0.90, expenses were probably a little better than expected during the quarter so that’s why we are giving you a range of $0.85 to $0.90.

Edward Spehar – Bank of America Merrill Lynch: Then related question to that would be is that a normalized or core number for a first quarter results, which I think is a seasonally weak quarter, right. It’s not a normalized kind of average quarter for a year?

Richard J. Bielen – Vice Chairman and CFO: That’s correct.

Edward Spehar – Bank of America Merrill Lynch: Then final question is the $3 billion plan for annuity sales are you intentionally limiting sales to that number, I mean, could you do more or is there desire at all to cap production?

Richard J. Bielen – Vice Chairman and CFO: That same (block) kind of the natural level for us to be given our distribution, right products we sell. We are certainly not capping anything, but we are comfortable, I guess, with our plan for the year of about $3 billion.