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2012 amb final_02_22_2012
- The document provides an overview of Presidential Life Insurance Company's strategic initiatives, products, and financial performance presented to A.M. Best. Key points include expanding into a national annuity and life insurance provider, diversifying products and distribution, and achieving an "A" financial strength rating. Deferred annuities represent over 70% of reserves and strategic plans include adding fixed indexed and market value annuities.
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- 1. Presidential Life Insurance Company A.M.Best Company Meeting February 27, 2012 “The New Era for Presidential Life has begun.” Donald L. Barnes, Vice Chairman of the Board, CEO and President
- 2. Presidential Life InsuranceCompany 2 Table of Contents Section Page(s) Executive Management Team 3 A.M Best's 2011 Expressed Concerns 4-9 Corporate Overview 10-15 Core Business Strategy 16-18 Execution of Strategic Initiatives 19-22 Annuity Contract Products 23-30 Life Insurance Products 31-33 Accident & Health Insurance Products 34-36 Marketing and Distribution Perspective 37-44 Investment Portfolio Overview 45-61 Actuarial Perspectives 62-69 Financial Projections and Dividend Strategy 70-73 Appendix 74-89
- 3. Presidential Life InsuranceCompany 3 Executive Management Team Donald L Barnes Vice Chairman of the Board, CEO and President P.B. (Pete) Pheffer Senior Vice President Chief Financial Officer and Treasurer Mark A. Abrams Executive Vice President Chief Investment Officer Mitchell R. Anderson Senior Vice President Chief Marketing Officer Paul A. Marsico Vice President of Human Resources and Administration Tara A. O’Dom Vice President of Operations Duncan Szeto Vice President Chief Actuary
- 4. 4 Presidential Life Insurance Company A.M.Best Company’s Public and Non-Public Expressed Concerns
- 5. AMB Public and Non-PublicStated Concerns • “The mono-line nature of Presidential Life's product line makes diversification of product and revenues a rating issue; however, it alone does not imply a rating ceiling for the company.” • “A concentration in geographic territories is an added concern as it is viewed as a possible hurdle for the company as it grows.” • “Reaching planned milestones in regards to the execution of the business plan will be key….” Presidential Life Insurance Company 5
- 6. AMB Public and Non-PublicStated Concerns (Continued) • Objective of this presentation is to address each of these concerns and any others that may emerge • Our goal is to achieve an “A” rated company status this year to enable us to successfully distribute our products and accelerate our strategic initiatives • We have conducted extensive comparative analyses to an 82 company universe of mono-line ordinary annuity providers to justify the merits of our position • Comprehensive content of this presentation is designed explicitly to achieve this critical milestone Presidential Life Insurance Company 6
- 7. Presidential Life InsuranceCompany 7 AMB Public and Non-Public Stated Concerns (Continued) • Two notch downgrade in October of 2002 to a “B+” FSR resulted in a predictable and sustained adverse impact • An AMB FSR of at least an “A-” is an empirically supported upgrade as we shall demonstrate $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Premiums&AnnuityConsiderations(millions) A & H Life SPIIA SPIA FPDA SPDA B+ B++ Composition of Premiums and Annuity Considerations by Product by Year
- 8. Presidential Life InsuranceCompany 8 2011 RBC and BCAR Capitalization Metrics & Trend Support an FSR Upgrade • RBC increased to 556%, its highest level in over a decade • BCAR metric reached an internally estimated 218%, its second highest level in over a decade • The only inconsistent data point is the AMB FSR • Further empirical analysis on this issue to follow 60% 80% 100% 120% 140% 160% 180% 200% 220% 240% 0% 100% 200% 300% 400% 500% 600% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 RBC BCAR Risk Based Capital (RBC) Best's Capital Adequacy Ratio (BCAR; 2Y) B+ B++
- 9. Presidential Life InsuranceCompany 9 Statutory Financial Perspective Based on NGFO (1) and Best’s Operating ROE (BOROE) (2) (1) After dividends to policyholders and federal income taxes and before realized capital gains or losses (2) NGFO / Average policyholder surplus • As of year-end 2011, statutory net gains from operations (NGFO) were $98.0 million and the BOROE was 31.9% • PLIC’s highest NGFO in over two decades • Across the two decade time horizon presented the average BOROE was 17.9% 0% 5% 10% 15% 20% 25% 30% 35% 40% $- $20 $40 $60 $80 $100 $120 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Best’sOperatingROE NetGainfromOperations(inmillions) NGFO Best's Operating ROE (2Y)
- 10.
- 11. Presidential Life InsuranceCompany 11 2011 Selected Financial Highlights • Statutory Data: • Net gains from operations $98.0 million, up 263% • Net Income $51.3 million, up 50% • Capital and Surplus $345.4 million, up 26.5% • A.M. Best’s Operating ROE 31.9%, up from 10.0% in 2010 • RBC: 556%; Internally estimated BCAR: 218% • Net admitted assets $3.6 billion • GAAP Data: • Net income $38.9 million, up 80.9% • Shareholders’ equity $787.9 million, up 15.5% • Total return on equity x-AOCI 6.7% • Total assets $4.0 billion • Equity market capitalization ~ $340 million
- 12. Presidential Life InsuranceCompany 12 Pro forma Organizational Chart Presidential Life Corporation Presidential Life Insurance Company Presidential Life Insurance Company USA (1) (1) Non-New York operating subsidiary; PLIC USA • PLIC-USA will provide catalyst toward national presence; a first in the Company’s history • Formation designed to accelerate product innovations and enhance competitive position
- 13. Presidential Life InsuranceCompany 13 2011 Premiums and Annuity Considerations by Product Type • Total premiums and annuity considerations were $94.5 million • Deferred and immediate annuities represented 66.8%, or $63.1 million of this total • The balance of 33.2%, or $31.4 million were derived from life and A & H products SPDA 29.2% FPDA 4.7% SPIA 10.2% SPIIA 22.7% Universal Life 1.2% Ordinary Life 21.7% A & H 10.3% Composition of Premiums and Annuity Considerations by Product 2011 Total: $94.5 Million
- 14. Presidential Life InsuranceCompany 14 Year-end 2011 Reserve Composition by Product • Deferred and immediate annuities represented 93.1% of gross GAAP reserves of $3,041.6 million at year-end 2011 • The balance of 6.9% of these reserves, or $209.9 million was dedicated to the life and A & H products SPDA 58.7% FPDA 7.1% SPIA 21.9% SPIIA 5.4% Universal Life 5.2% Ordinary Life 1.7% A & H 0.0% Composition of GAAP Reserves by Product 2011 Total: $3,041.6 Million
- 15. Presidential Life InsuranceCompany 15 2011 Premiums and Annuity Considerations by States and Territories • New York represented 47.9% of total premiums and annuity considerations* • Other jurisdictions were 31.7%, with the balance of 20.4% in Florida and Pennsylvania • Strategic initiatives explicitly designed to diversify sales composition nationally New York 47.9% Florida 14.9% Pennsylvania 5.5% Other Jurisdictions 31.7% Composition of Premiums and Annuity Considerations by States and Territories 2011 Total: $92.3 Million* * Statutory: Schedule T Line 59 sub-total
- 16. 16 Presidential Life Insurance Company CoreBusiness Strategy
- 17. Presidential Life InsuranceCompany 17 Core Business Strategy • Core business strategy is to expand our individual annuity business and to increase our risk-adjusted returns on invested capital by prudently managing investment spreads and investment risk • Expand regional platform into national platform • Broaden individual annuity product offerings to include all four major product types • Build on our distribution channels • Enhance investment spread capabilities • Focus of high quality service to agents and policyholders
- 18. Presidential Life InsuranceCompany 18 Corporate Focus • Transform company to a National annuity and life insurance provider • Diversify product portfolio and distribution channels to accelerate organic growth • Consistently deliver profitable earnings growth • Dramatically increase financial transparency; both externally and internally to ensure accountability • Achieve highest sustainable stock valuation for shareholders over time
- 19. 19 Presidential Life Insurance Company Executionof Strategic Initiatives
- 20. Execution of StrategicInitiatives Milestones • Individual fixed indexed annuity product in final stages of development • Preparation of filing with Interstate Compact simultaneously underway • Recruiting mid-size IMOs with a target of 40-50 under contract by fixed indexed product launch • New branding and logo initiatives coming to fruition • Revitalization and creation of new consumer and agent brochures being finalized Presidential Life Insurance Company 20
- 21. Execution of StrategicInitiatives Milestones (Continued) • Purchased and implementing the following insurance systems software • Policy Administration CSC Wealth Management Accelerator • Correspondence & Print Oracle Documaker • Illustration iPipeline Illustration • Contact Center Management Shoretel Contact Center Management Presidential Life Insurance Company 21
- 22. Execution of StrategicInitiatives Milestones (Continuing) • Financial systems to be upgraded and expanded to support PLIC-USA, enhancements include • Agency Management exL LifePro • Financial Accounting StoneRiver Freedom • Investment Accounting SS&C CAMRA • Valuation Polysystems AnnuityMaster Presidential Life Insurance Company 22
- 23. 23 Presidential Life Insurance Company AnnuityContract Products
- 24. Presidential Life InsuranceCompany 24 Annuity Contract Products Annuity Products Deferred Annuities Immediate Annuities Single Premium Flexible Premium Single Premium Immediate Income • Execution of our strategic plan will diversify this individual fixed annuity product offering to include Individual Fixed Indexed and Market Value annuity products
- 25. Presidential Life InsuranceCompany 25 Annuity Portfolio Perspective Annuity Considerations by Product by Year Annuity Considerations FPDA 7.0% SPDA 43.7% SPIA 15.3% SPIIA 34.0% 2011 Total: $63.1 Million $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Premiums&AnnuityConsiderations(millions) SPDA FPDA SPIA SPIIA B+ B++
- 26. Presidential Life InsuranceCompany 26 Annuity Portfolio Perspective Reserves by Product by Year $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 $4,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 AnnuitiesInForce(millions) SPDA FPDA SPIA SPIIA Annuity Reserves SPIA 23.5% FPDA 7.6% SPDA 63.0% SPIIA 5.8% 2011 Total: $2,831.5 Million
- 27. Presidential Life InsuranceCompany 27 Deferred Annuity Perspective Reserves and Annuity Considerations by Year • As of year-end 2011, deferred annuity reserves were $2,001.1 million or 70.7% of the total annuity portfolio • Deferred product annuity considerations in the same year were $32.0 million representing 50.7% of total annuity sales • Qualified and non- qualified products represented 45.1% and 54.9%, respectively $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Reserves(inmillions) $0 $100 $200 $300 $400 $500 $600 $700 $800 AnnuityConsiderations(inmillions) Reserves Annuity Considerations (2Y) B+ B++
- 28. Presidential Life InsuranceCompany 28 Deferred Annuity Surrenders, Surrender Rates and Percentage Subject to Surrender Charges • The absolute amount and rate of surrenders have declined in each of the last four years • At year-end 2011 the proportion of deferred annuities subject to surrender charges was 43.6% • The surrender rate was 5.5% or $114.9 million at year-end 2011; fourth consecutive year of decline $0 $100 $200 $300 $400 $500 $600 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 DollarAmountofSurrenders (inmillions) 0% 10% 20% 30% 40% 50% 60% 70% 80% SurrenderRate/PercentageSubject toSurrenderCharges Surrenders Surrender Rates (2Y) Percentage Subject to Surrender Charge (2Y)
- 29. Surrender Charge (SC)Perspective Account Value SC Expirations by Year 1.00% 5.75% 2.00% 0.57% 3.00% 29.25% 4.00% 21.84% 5.00% 26.70% 6.00% 15.19% 7.00% 0.61% 8.00% 0.07% 9.00% 0.01% Deferred Annuities in Surrender Period by Surrender Charge Percentage as of Year-end 2011 2011 Total: $766.8 Million 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% $- $50 $100 $150 $200 $250 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 CumulativeAccountValues SubjecttoSurrenderCharge AccountValues(inmillions) Account Values by Future Surrender Charge Expiration Year (in millions) Account Values % Subject to SC (2Y) Presidential Life Insurance Company 29
- 30. Presidential Life InsuranceCompany 30 Immediate Annuity Perspective Reserves and Annuity Considerations by Year $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $0 $200 $400 $600 $800 $1,000 $1,200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 AnnuityConsiderations(inmillions) ImmediateAnnuityReserves(inmillions) Reserves Annuuity Considerations (2Y) • As of year-end 2011, immediate annuity reserves were $830.4 million or 29.3% of the total annuity portfolio • Immediate annuity considerations in the same year were $31.1 million or 49.3% of the total annuity portfolio B+ B++
- 31. 31 Presidential Life Insurance Company LifeInsurance Products
- 32. Presidential Life InsuranceCompany 32 Life Insurance Products • Execution of the strategic plan will also diversify our life insurance offerings through the introduction of an Indexed Single Premium Whole Life insurance product Life Insurance Individual Life Group Life Continuing Graded Benefit Whole Life Simplified Issue Whole Life Group Term Insurance Market Contingent Closed Block Universal Life Whole Life Term Insurance Single Premium Universal Life
- 33. Presidential Life InsuranceCompany 33 Life Insurance Perspective Reserve Composition and Total Sales by Year Ordinary Life 24.7%Universal Life 75.3% 2011 Total: $209.0 Million Reserves $- $5 $10 $15 $20 $25 $30 $35 $40 $- $50 $100 $150 $200 $250 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 TotalSales(inmillions) Reserves(inmillions) UL Reserves OL Reserves Total Life Sales (2Y) B+ B++
- 34. 34 Presidential Life Insurance Company A& H Insurance Products
- 35. Presidential Life InsuranceCompany 35 A & H Insurance Products Accident & Health Insurance Individual Group New York Statutory Disability Benefits Medical Stop Loss Hospital Indemnity Impaired Risk Disability Accident, Emergency Room, Accidental Death & Dismemberment Dental
- 36. Presidential Life InsuranceCompany 36 A & H Insurance Perspective Premiums by Product by Year $0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GrossA&HPremiumsWritten(thousands) Group Accident, ER and AD & D Group Hospital Indemnity Individual Impaired Risk Disability Group Medical Stop Loss Group Dental GNYSDB (1) Group Hospital Indemnity 8% Group Accident, ER, AD & D 1% Individual Impaired Risk Disability 4% Group Dental 31% Group Medical Stop Loss 17% GNYSDB (1) 43% Total: $9,700.9 Thousand (1) GNYSDB: Group New York Statutory Disability Benefits B+ B++ 2011 Premium Composition
- 37. 37 Presidential Life Insurance Company Marketingand Distribution Perspective
- 38. Presidential Life InsuranceCompany 38 Current Distribution System • Presidential currently competes in the guaranteed traditional Fixed Book Value Deferred & Immediate Annuity marketplace • Products distributed by Independent Producer Channel • Presidential Life has 1,273 independent General Agents (GA) nationally • The composition of GA’s include brokerage general agencies, personal producing GAs as well as small and large Insurance Marketing Organizations (IMOs) • Currently we have over 9,000 independent agents
- 39. Presidential Life InsuranceCompany 39 2010 Industry Individual Fixed Annuity Sales Composition of $62.8 Billion by Distribution Channel* Large Regional BD, 4.2% Direct/Third Party, 3.4% Independent BD, 3.2% Other, 3.9% Wirehouses, 1.1% Captives, 12.2% Banks & S&Ls, 23.0% Independent Producers, 49.1% Sales Composition by Distribution Channel *Source: Beacon Annuity Research Total 2010 Sales: $62.8 Billion • In 2010, the Independent Producer channel owned 49.1% of the individual fixed annuity industry sales • Banks & S & Ls were the second largest distributor harboring 23.0% of the industry market share • Captives captured 12.2% of the market with the balance quite fragmented
- 40. Presidential Life InsuranceCompany 40 Industry Individual Fixed Annuity Market Sales Composition by Product by Year* Sales Composition by Product *Source: Beacon Annuity Research $0 $10 $20 $30 $40 $50 $60 $70 $80 $90 $100 2003 2004 2005 2006 2007 2008 2009 2010 TTM9/30/2011 Sales Composition by Product by Year (in billions) MVA Immediate Book Value Deferred Fixed Indexed Total 2010 Sales: $62.8 Billion Book Value Deferred 34.2% MVA 9.1% Fixed Indexed 45.4% Immediate 11.2%
- 41. Presidential Life InsuranceCompany 41 Independent Producer Individual Fixed Annuity Market Sales Composition by Product by Year* Sales Composition by Product MVA 8.8%Immediate 5.1% Fixed Indexed 79.2% Book Value Deferred 6.9% *Source: Beacon Annuity Research $0 $5 $10 $15 $20 $25 $30 $35 $40 2003 2004 2005 2006 2007 2008 2009 2010 TTM9/30/2011 Sales Composition by Product by Year (in billions) MVA Immediate Book Value Deferred Fixed Indexed Total 2010 Sales: $30.9 Billion
- 42. Broadening Distribution Channels •Diversification of distribution channels toward those actively selling Presidential’s current individual annuity product portfolio is an important strategic focus toward accelerating organic growth • Demand for individual book value deferred, immediate and fixed indexed annuities remains robust as the matrix below illustrates 42 Individual Fixed Annuity Product Distribution Channel BVD FIA MVA Immediate Total Banks/S&Ls 48.5% 6.4% 21.6% 13.2% 23.0% Captives Agents 20.1% 2.7% 6.3% 31.2% 12.2% Direct/Third Party 7.2% 0.0% 1.8% 6.7% 3.4% Independent B/Ds 3.6% 0.7% 4.9% 10.4% 3.2% Independent Producers 9.9% 85.6% 47.7% 22.3% 49.1% Large/Regional B/Ds 6.8% 0.1% 7.1% 10.7% 4.2% Other 3.4% 4.2% 6.3% 1.9% 3.9% Wirehouses 0.6% 0.2% 4.3% 3.5% 1.1% Total 100.0% 100.0% 100.0% 100.0% 100.0% Market Size (in billions) $ 21.5 $ 28.5 $ 5.7 $ 7.0 $ 62.8 (Source: 2010 Beacon Annuity Research)
- 43. New Product Introduction Progressto Date • PLIC-USA is the cornerstone to the broadening of individual fixed annuity portfolio to include fixed indexed and market value annuities • Indexed product in final stages of development and will be filed with Interstate Compact (41 states) • Branding initiatives almost complete; advertising agency engaged to assist in new brand and logo • New agent distribution contracts currently in review • Finalizing new consumer and agent brochures Presidential Life Insurance Company 43
- 44. New Product Introduction Progressto Date (Continued) • IMO distributors targeted; 40-50 IMOs anticipated by product launch • To accommodate agent training website initiative, Quest Education services was engaged • Launch meeting schedule to be finalized in April • Development of next product to begin in May following the Interstate Compact filing of our new Fixed Indexed Annuity (FIA) product • Presidential Life’s FIA design will capitalize on the mistakes of competitors and insights derived from our distributors Presidential Life Insurance Company 44
- 45. 45 Presidential Life Insurance Company InvestmentPortfolio Overview
- 46. Presidential Life InsuranceCompany 46 2011 Portfolio Activity • Maintained sector diversification within core portfolio • Since year-end 2008, maintained discount to par pricing discipline on new money investments of approximately $1.0 billion
- 47. Presidential Life InsuranceCompany 47 2011 Portfolio Activity (Continued) • Limited Partnership (LP) portfolio • Portfolio generated pre-tax income of $41.1 million with a corresponding yield of 24.13% • LP portfolio represented 4.37% of total cash & investments at year-end • Completed hedge fund redemptions of $27.7 million • No new LP commitments since April 2007 • Unfunded commitments of $41.7 million at year- end
- 48. Presidential Life InsuranceCompany 48 2011 Portfolio Activity (Continued) • Reinvestment strategy of proceeds from LP redemptions and returned capital • Externally managed, diversified asset portfolio • Residential MBS, high-yield bonds, leveraged loans and emerging market corporate debt • Target BB/B blended credit exposure • Lower capital requirements • More liquidity • Coupon securities • More transparency
- 49. Investment Grade Corporate 58.9% Public Utilities 12.7% States,Municipalities & Political Subdivisions 9.7% Limited Partnerships 4.4% Below Investment Grade Corporate 4.3% Mortgage Backed Securities 3.2% Cash and Short-term Investments 2.8% Investment Grade Preferred Stocks 1.3% U.S. Governments, Government Agencies and Authorities 1.2% Below-Investment Grade Preferred Stocks 0.8% Policy Loans 0.5% Derivatives 0.1% Equity Securities 0.0%Real Estate 0.0% Presidential Life Insurance Company 49 Composition of Cash & Investments by Category and Ratio of Investment Grade Quality to Total* 2011 Total: $3,819.5 million 85.58% 85.64% 87.29% 87.33% 88.88% 88.96% 2006 2007 2008 2009 2010 2011 InvestmentGradetoCash&Investments* GAAP metrics; Investment grade Moody’s based.
- 50. Historical Composition ofTotal Cash & Investments by Investment Category Presidential Life Insurance Company 50 (in millions) Period Ended, 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 Carrying % of Carrying % of Carrying % of Carrying % of Carrying % of Carrying % of Investment Category* Value Total Value Total Value Total Value Total Value Total Value Total Fixed maturities: U.S. government, government agencies & authorities $ 45.3 1.2% $ 167.5 4.5% $ 254.9 7.0% $ 356.1 10.6% $ 528.1 13.2% $ 472.8 10.6% States, municipalities and political subdivisions 371.6 9.7% 288.7 7.7% 99.9 2.8% - 0.0% - 0.0% - 0.0% Investment grade corporates 2,250.0 58.9% 2,088.3 56.0% 1,827.5 50.4% 1,590.2 47.5% 1,780.4 44.5% 1,798.0 40.1% Public utilities 485.8 12.7% 474.3 12.7% 444.3 12.3% 394.3 11.8% 444.6 11.1% 349.4 7.8% Below investment grade corporate 163.2 4.3% 111.7 3.0% 163.6 4.5% 104.7 3.1% 148.2 3.7% 227.3 5.1% Mortgage backed securities 122.5 3.2% 158.5 4.2% 197.2 5.4% 207.4 6.2% 268.8 6.7% 274.5 6.1% Total fixed maturities $ 3,438.5 90.0% $ 3,289.1 88.1% $ 2,987.4 82.4% $ 2,652.7 79.2% $ 3,170.1 79.2% $ 3,122.1 69.7% Preferred stock: Investment grade $ 50.3 1.3% $ 60.0 1.6% $ 76.0 2.1% $ 65.8 2.0% $ 101.4 2.5% $ 128.0 2.9% Below investment grade 32.0 0.8% 42.9 1.1% 23.6 0.7% 6.6 0.2% 10.7 0.3% 11.7 0.3% Total preferred stock $ 82.3 2.2% $ 102.9 2.8% $ 99.7 2.8% $ 72.4 2.2% $ 112.0 2.8% $ 139.7 3.1% Total fixed and preferred $ 3,520.8 92.2% $ 3,392.0 90.9% $ 3,087.0 85.2% $ 2,725.1 81.4% $ 3,282.1 82.0% $ 3,261.8 72.8% Common stock $ 1.3 0.0% $ 1.3 0.0% $ 1.9 0.1% $ 3.0 0.1% $ 9.7 0.2% $ 45.3 1.0% Other investments: Policy loans $ 18.4 0.5% $ 19.6 0.5% $ 19.0 0.5% $ 18.9 0.6% $ 19.2 0.5% $ 18.0 0.4% Real estate 0.4 0.0% 0.4 0.0% 0.4 0.0% 0.4 0.0% 0.4 0.0% 0.4 0.0% Limited partnerships 166.9 4.4% 195.5 5.2% 212.7 5.9% 253.8 7.6% 317.0 7.9% 286.1 6.4% Derivatives 3.4 0.1% 9.4 0.3% 0.4 0.0% 0.5 0.0% 7.0 0.2% 9.8 0.2% Short-term 61.2 1.6% 108.0 2.9% 293.1 8.1% 342.2 10.2% 363.1 9.1% 839.5 18.7% Total other investments $ 250.4 6.6% $ 332.9 8.9% $ 525.6 14.5% $ 615.9 18.4% $ 706.7 17.7% $ 1,153.8 25.7% Total investments $ 3,772.4 98.8% $ 3,726.2 99.8% $ 3,614.6 99.8% $ 3,343.9 99.9% $ 3,998.5 99.9% $ 4,460.8 99.6% Cash $ 47.1 1.2% $ 5.9 0.2% $ 8.8 0.2% $ 3.8 0.1% $ 3.6 0.1% $ 19.8 0.4% Total cash & investments $ 3,819.5 100.0% $ 3,732.1 100.0% $ 3,623.3 100.0% $ 3,347.8 100.0% $ 4,002.1 100.0% $ 4,480.7 100.0% * GAAP metrics; Investment grade Moody’s based.
- 51. Presidential Life InsuranceCompany 51 Historical Rating Composition of Fixed Maturities and Investment Grade Focus (in millions) Period Ended, 12/31/2011 12/31/2010 12/31/2009 12/31/2008 12/31/2007 12/31/2006 NAIC Rating/ Carrying % of Carrying % of Carrying % of Carrying % of Carrying % of Carrying % of Moody's Equivalent Value Total Value Total Value Total Value Total Value Total Value Total Investment grade: 1 / (Aaa, Aa, A) $ 1,670.2 48.6% $ 1,776.4 54.0% $ 1,612.4 54.0% $ 1,587.4 59.8% $ 1,947.7 61.4% $ 1,860.8 59.6% 2 / (Baa) 1,569.1 45.6% 1,366.7 41.6% 1,173.9 39.3% 923.0 34.8% 1,011.6 31.9% 986.5 31.6% Total investment grade $ 3,239.3 94.2% $ 3,143.1 95.6% $ 2,786.4 93.3% $ 2,510.4 94.6% $ 2,959.3 93.4% $ 2,847.3 91.2% Below investment grade: 3 / (Ba) $ 120.1 3.5% $ 107.9 3.3% $ 160.8 5.4% $ 99.5 3.8% $ 120.4 3.8% $ 168.9 5.4% 4 / (B) 55.2 1.6% 27.4 0.8% 22.5 0.8% 13.9 0.5% 59.9 1.9% 62.5 2.0% 5 / (Caa, Ca) 24.0 0.7% 8.1 0.2% 9.9 0.3% 19.0 0.7% 28.7 0.9% 33.0 1.1% 6 / (C) - 0.0% 2.7 0.1% 7.8 0.3% 9.9 0.4% 1.7 0.1% 10.5 0.3% Total non-investment grade $ 199.2 5.8% $ 146.0 4.4% $ 201.0 6.7% $ 142.3 5.4% $ 210.7 6.6% $ 274.9 8.8% Total fixed maturities $ 3,438.5 100.0% $ 3,289.1 100.0% $ 2,987.4 100.0% $ 2,652.7 100.0% $ 3,170.1 100.0% $ 3,122.1 100.0% Investment Grade Securities: Fixed Maturities $ 3,239.3 95.3% $ 3,143.1 94.8% $ 2,786.4 88.1% $ 2,510.4 85.9% $ 2,959.3 86.3% $ 2,847.3 74.3% Preferreds 50.3 1.5% 60.0 1.8% 76.0 2.4% 65.8 2.3% 101.4 3.0% 128.0 3.3% S-T Investments 61.2 1.8% 108.0 3.3% 293.1 9.3% 342.2 11.7% 363.1 10.6% 839.5 21.9% Cash & Cash Equivalents 47.1 1.4% 5.9 0.2% 8.8 0.3% 3.8 0.1% 3.6 0.1% 19.8 0.5% Total investment grade $ 3,397.9 100.0% $ 3,317.0 100.0% $ 3,164.3 100.0% $ 2,922.3 100.0% $ 3,427.4 100.0% $ 3,834.6 100.0% Total investment grade to total cash & investments 88.96% 88.88% 87.33% 87.29% 85.64% 85.58% Limited Partnerships $ 166.9 $ 195.5 $ 212.7 $ 253.8 $ 317.0 $ 286.1 Limited partnerships to otal cash & invested assets 4.37% 5.24% 5.87% 7.58% 7.92% 6.38%
- 52. Electric REV (TaxableMuni) Insr-Life Bank GO (Taxable Muni) Gas-Pipe Food Proc Insr-P&C CMBS Electrncs Enrg-Indp REIT Enrg-Intg Divfd Mfg Retail Media-Dfd Gas-Distr Railroads Chemicals Pharmctls Media-Cbl Aerospace Metl/Mine Health Info Tech Beverage TSY Enrg-Srvc Wireline Consumer Wireless Auto Mfg Tran Srvc Fin-Cnsmr Fin-Divfd Supermkts Bldg Prod Media-Oth Enrg-Refg Foreign ConstMach Insr-Hlth Othr-FIN Paper LocalAuth Ret-Drug Lodging Services Steel Othr-IND Veh Parts SEQ Restrnts LEAS Publishng Broker Gaming Envrnmntl FLT Package Home Bldg Airlines Textiles AGY Other PAC Water HEL SUP Leisure Insr-Mult • Pie chart gives emphasis to the broadly diversified composition of the core portfolio across 71 sectors • The average sector concentration was 1.4% at year-end • Largest sector concentration is Electric Utilities; represents 11.9% Composition of Fixed Maturities & Preferred Stock (Core Portfolio) by Sector Presidential Life Insurance Company 52 2011 Total: $3,520.8 Million Composition of Core Portfolio by Sector
- 53. Presidential Life InsuranceCompany 53 Composition of Core Portfolio by NAIC Rating NAIC 1 48.6% NAIC 2 45.6% NAIC 3 3.5% NAIC 4 1.6% NAIC 5 0.7% 2011 Total: $3,438.5 Million • As of year-end 2011, 94.2% or $3,239.3 million of the core portfolio was of investment grade quality
- 54. NY TX MD WI FL WA HI UT COCT OH PA NV VA AZ GA NJ MS NC KY MI MA AL IN MN CA DE NY TX MD WI FLWA HI UT CO CT OH PA NV VA AZ GA NJ MS NC KY MI MA AL IN MN CA DE NH NM SC DC WY TN VT RI LA OK AK Presidential Life Insurance Company 54 Taxable Municipal Bond Portfolio Geographically Diversified 2011 Total: $362.3 Million • Portfolio highly diversified across 38 states with an average concentration of 2.6% • Largest concentrations in NY, TX, MD, WI and FL representing 10.0%, 8.3%, 6.1%, 5.1 % and 4.8%, respectively, or 34.3% of the total asset class • Net of these states, the average concentration falls to less than 2.0% 2011 Composition of Taxable Municipal Bond Portfolio by State
- 55. Presidential Life InsuranceCompany 55 Taxable Municipal Bond Portfolio Composition by Category and Sector General Obligation Bonds 44.0% Revenue Bonds 56.0% Composition by Bond Category State 22.4% Local 21.6% Transportation 15.3% Education 15.1% Utilities 10.4% Development 5.4% Tax 4.1% Service 3.1% Leasing 1.0% Health 0.9% Housing 0.8% Composition by Sector 2011 Total: $362.3 Million
- 56. Taxable Municipal BondPortfolio Across Ratings by Sector $- $20 $40 $60 $80 $100 $120 $140 $160 InvestmentbySectorbyRating(inmillions) S & P Rating Housing Health Leasing Service Tax Development Utilities Education Transportation Local State Presidential Life Insurance Company 56 • Extremely high quality; NAIC 1 rating applicable to 94.0% of the $362.3 million portfolio; 152 bonds held • Diversified composition across sectors indicated • Well balanced between general obligation and revenue bonds
- 57. Presidential Life InsuranceCompany 57 Limited Partnership (LP) Portfolio Perspective LP Statutory Fair Value and Ratio to Adjusted Policyholder Surplus (APHS) • The LP asset class exposure down both nominally and as a percentage of APHS in 2011; as planned • The statutory fair value (SFV) of the LP portfolio at year-end was $166.9 million and represented 43.4% of APHS • Unfunded LP commitments were $41.7 million at year-end 2011 $0 $25 $50 $75 $100 $125 $150 $175 $200 $225 $250 $275 $300 $325 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 40% 50% 60% 70% 80% 90% 100% 110% 120% 130% LP Statutory Fair Value LPSFV/APHS LPSFVtoAPHS LPSFV(inmillions)
- 58. Infrastructure 17.9% Oil & Gas 10.4% RealEstate 5.5% LBO/Merchant Banking 34.4% Restructuring 25.1% Other 6.7% Presidential Life Insurance Company 58 Limited Partnership Portfolio Perspective Composition of Current and Unfunded Commitments Other 3.6% Restructuring 23.7% LBO/Merchant Banking 22.2% Real Estate 18.1% Oil & Gas 14.3% Infrastructure 13.5% Hedge Related 4.7% 2011 Total: $166.9 Million Current LP Portfolio by Category Unfunded Commitments by Category Total: $41.7 Million
- 59. Presidential Life InsuranceCompany 59 Limited Partnership Portfolio Perspective, 12/31/2011 Highly Diversified Across 57 LPs in 9 Investment Categories $37.1 $30.2 $22.6 $7.8 $5.9 $39.5 $23.8 0% 5% 10% 15% 20% 25% 30% 0 5 10 15 20 Number of Limited Partnerships PercentageofTotalLPPortfolio Limited Partnership (LP) Investment Category L e g e n d Category Metrics Statutory Fair Value (millions) Number of LPs Restructuring $ 39.5 9 LBO/Merchant 37.1 9 Real Estate 30.2 17 Oil & Gas 23.8 6 Infrastructure 22.6 3 Hedge Related 7.8 5 Other* 5.9 8 Total $166.9 57 Bubbles denote proportional size of LP statutory fair value by investment category * Includes debt/CBO, mezzanine/ senior debt & equity/secondary
- 60. Presidential Life InsuranceCompany 60 Impact of MBS Re-rates Blackrock Modeling NAIC Rate Designation, 12/31/2011 Market MV Percent Market MV Percent NAIC Rating Book Value Value (MV) of Total Book Value Value of Total NAIC 1 62.98$ 65.82$ 53.7% 111.85$ 118.53$ 96.8% NAIC 2 32.70 36.42 29.7% 2.45 2.46 2.0% Investment Grade 95.68$ 102.23$ 83.5% 114.30$ 120.99$ 98.8% NAIC 3 11.24 11.14 9.1% 0.69 0.68 0.6% NAIC 4 2.54 2.58 2.1% 0.77 0.80 0.7% NAIC 5 6.30 6.52 5.3% 0.00 0.00 0.0% NAIC 6 - - 0.0% 0.00 0.00 0.0% Below Investment Grade 20.08$ 20.24$ 16.5% 1.46$ 1.48$ 1.2% Total CMBS 115.76$ 122.47$ 100.0% 115.76$ 122.47$ 100.0% After Blackrock ModelingBefore Blackrock Modeling (Amounts in millions, except percentage data) • Impact of MBS re-rates remains positive • As the table below indicates, after implementation of the Blackrock modeling methodology, 96.8% of MBS exposures were rated NAIC 1
- 61. Sensitivity Analysis ofBCAR Core and Limited Partnership Portfolio Stress Tests • Internally estimated BCAR at year-end 2011: 218% Presidential Life Insurance Company 61 Stress Test Results AMB BCAR Guideline BCAR FSR Core Portfolio Downward Rating Migration BCAR Sensitivity (1) Stress Test Scenario I: 25% downward rating migration 185% A++ Stress Test Scenario II: 50% downward rating migration 161% A+ Limited Partnership Portfolio Write-down BCAR Sensitivity (2) Stress Test Scenario III: 25% write-down 196% A++ Stress Test Scenario IV: 50% write-down 180% A++ (1) Assumes percentage of core portfolio that experiences an NAIC rating downward shift (e.g., NAIC 1 falls to NAIC 2 , NAIC 2 falls to NAIC 3 and so forth) (2) Assumes percentage of limited partnership portfolio written down; does not reflect potential corresponding tax benefits.
- 62. 62 Presidential Life Insurance Company ActuarialPerspectives
- 63. Presidential Life InsuranceCompany 63 Historical & Current Crediting Rates Period Ended, 12/31/2008 12/31/2009 12/31/2010 12/31/2011 Deferred 4.54% 4.48% 4.40% 4.36% Immediate 6.01% 6.01% 5.96% 5.94% Combined 5.00% 4.95% 4.88% 4.83%
- 64. Presidential Life InsuranceCompany 64 Statutory Reserve Changes by Product by Year (Amounts in millions) Period Ended, Product 12/31/2008 12/31/2009 12/31/2010 12/31/2011 Deferred Annuities $ (166) $ 26 $ (29) $ (54) Immediate Annuities (36) (12) (3) (48) Single Premium UL and UL 1 1 (1) (6) Traditional Life and Other 11 (20) 1 1 Total $ (190) $ (5) $ (31) $ (107)
- 65. Presidential Life InsuranceCompany 65 Annuity Surrender Charge and Liquidity Characteristics (Amounts in millions) Period Ended, Product 12/31/2008 12/31/2009 12/31/2010 12/31/2011 Deferred Annuities without Surrender Charge $ 1,168 $ 1,183 $ 1,191 $ 1,250 Deferred Annuities with Surrender Charge 893 905 867 760 Immediate Annuities 937 925 922 874 Total $ 2,998 $ 3,013 $ 2,980 $ 2,884
- 66. Presidential Life InsuranceCompany 66 Summary of Effective Duration Period Ended, Assets Liabilities Difference 12/31/2007 4.9 4.8 0.1 6/30/2008 5.2 4.7 0.5 12/31/2008 4.7 4.8 -0.1 6/30/2009 4.9 5.3 -0.4 12/31/2009 4.9 5.3 -0.4 6/30/2010 5.3 5.7 -0.4 12/31/2010 5.6 5.8 -0.2 6/30/2011 5.7 5.7 0.0 12/31/2011 5.9 6.6 -0.7
- 67. Presidential Life InsuranceCompany 67 Asset/Liability Matching Analysis Cash Flow Testing Summary of Projection Results as of December 31, 2011 Present Value of Ending Market Surplus (in millions) Base Scenario Interest Description of Present Value Rate Interest Rate of Ending Market Scenario Scenario Surplus 1 Level 108.4 2 Up 5% Over 10 Years 61.7 3 Up 5% Down 5% 39.2 4 Pop Up 3% 86.9 5 Down 5% Over 10 Years 96.5 6 Down 5% Up 5% 87.1 7 Pop Down 3% 96.3 8 Up 3% Over 10 Years 112.8 9 Pop Up 2% 117.4 10 Pop Up 1% 125.2
- 68. Presidential Life InsuranceCompany 68 Deferred Book Value Annuities Minimum Guaranteed Crediting Rates (MGCR) $32.7 $4.5 $39.7 $899.3 $1.3 $563.8 $464.9 -10% 0% 10% 20% 30% 40% 50% 60% 0% 1% 2% 3% 4% 5% 6% PercentageofBookValueDeferredAccount ValueatYear-end2011 Minimum Guaranteed Crediting Rates Bubbles Denote Proportional Size of 2011 Account Values (millions) at MGCR 2011 Allocation of MGCR by % of Account Value Percentage of MGCR Account Account Values Values to MGCR (in millions) Total 1.1% $ 32.7 1.6% 1.5% 4.5 0.2% 2.0% 39.7 2.0% 3.0% 899.3 44.8% 3.5% 1.3 0.1% 4.0% 563.8 28.1% 5.5% 464.9 23.2% Total $ 2,006.3 100.0% L e g e n d
- 69. Presidential Life InsuranceCompany 69 Reinsurance Programs and Retention • Total ceded reinsurance policy reserves approximately $20.7 million • Less than 1% of direct policy reserves of $3.1 billion • Term life’s ceded reserves approximately $11.2 million, with the last program 90% of death benefits ceded out to four reinsurers • Graded Benefit Life’s ceded reserves approximately $4.7 million • Currently 50% of death benefits ceded to one reinsurer
- 70. 70 Presidential Life Insurance Company FinancialProjections and Dividend Strategy
- 71. 71 Presidential Life Corporationand Subsidiaries 2012-2016 Strategic Plan Consolidated GAAP Statements of Income (in thousands) Actual Projected Line Items 2010 2011 2012 2013 2014 2015 2016 REVENUES: Insurance Revenues: Premiums $ 19,316 $ 19,584 $ 20,300 $ 20,100 $ 22,900 $ 26,700 $ 30,400 Annuity considerations 51,198 9,636 12,000 23,000 47,000 70,000 132,000 Universal life and investment type policy fee income 2,090 3,519 3,700 3,400 3,800 5,000 7,500 Equity in earnings (loss) on L.P.'s (5,450) 2,156 600 700 600 600 600 Net investment income 198,568 194,289 184,900 181,500 192,700 216,500 265,100 Realized investment gains, excluding other than temporary impairment (“OTTI”) losses 28,302 45,585 13,600 12,500 12,400 11,300 9,000 Total OTTI losses recognized in earnings (1,392) (10,258) (4,700) (4,600) (4,600) (5,000) (5,700) Other income 4,391 2,932 2,400 2,300 2,200 2,100 2,000 TOTAL REVENUES $ 297,023 267,443 $ 232,800 $ 238,900 $ 277,000 $ 327,200 $ 440,900 BENEFITS AND EXPENSES: Death and other life insurance benefits $ 19,463 $ 19,947 $ 18,700 $ 18,000 $ 19,600 $ 22,100 $ 24,400 Annuity benefits 81,743 83,498 78,600 76,000 74,200 77,100 85,800 Interest credited to policyholders' account balances 106,341 101,568 97,600 89,700 90,800 97,800 120,200 Interest expense on notes payable - - - - - - - Other interest and other charges 1,280 1,603 1,000 1,000 1,000 1,000 1,000 Increase in liability for future policy benefits 20,811 (28,113) (22,100) (12,000) 13,900 36,100 93,800 Commissions to agents, net 7,156 4,340 12,100 36,100 55,100 81,300 121,200 Costs related to consent revocation solicitation and related matters 1,525 - - - - - - General expenses and taxes 18,584 22,468 23,700 24,300 25,500 26,600 28,600 Change in deferred policy acquisition costs 5,305 6,260 1,400 (21,300) (40,700) (65,800) (99,300) TOTAL BENEFITS AND EXPENSES $ 262,208 $ 211,571 $ 211,000 $ 211,800 $ 239,400 $ 276,200 $ 375,700 Income (loss) before income taxes $ 34,815 $ 55,872 $ 21,800 $ 27,100 $ 37,600 $ 51,000 $ 65,200 Provision (benefit) for income taxes: Current 14,120 19,792 7,500 9,400 13,000 17,600 22,500 Deferred (845) (2,858) 0 0 0 0 0 Total Provision (benefit) for income taxes: $ 13,275 $ 16,934 $ 7,500 $ 9,400 $ 13,000 $ 17,600 $ 22,500 NET INCOME $ 21,540 $ 38,938 $ 14,300 $ 17,700 $ 24,600 $ 33,400 $ 42,700 Earnings per common share, diluted $ 0.73 $ 1.32 $ 0.48 $ 0.60 $ 0.83 $ 1.13 $ 1.44 Weighted average number of shares outstanding during the period, diluted 29,575 29,575 29,575 29,575 29,575 29,575 29,575
- 72. 72 Presidential Life Corporationand Subsidiaries 2012-2016 Strategic Plan Consolidated GAAP Balance Sheets (in thousands except per share data) Actual Projected 2010 2011 2012 2013 2014 2015 2016 ASSETS: Investments: Fixed Maturities, at amortized cost $ 3,209,803 $ 3,206,884 $ 3,217,300 $ 3,326,300 $ 3,636,300 $ 4,221,300 $ 5,285,300 Unrealized Gain in Fixed Maturites 182,195 313,871 315,700 300,300 277,200 246,500 215,700 Common stocks: 1,279 1,302 1,200 1,200 1,200 1,200 1,200 Derivatives 9,402 3,358 4,100 4,100 4,100 4,100 4,100 Real Estate 415 415 400 400 400 400 400 Policy Loans 19,607 18,442 17,100 16,100 15,300 14,300 13,500 Short-term investments 107,958 61,233 100,000 90,000 80,000 70,000 60,000 Limited partnerships 195,501 166,923 166,800 149,500 129,700 106,700 81,200 Total Investments $ 3,726,160 $ 3,772,428 $ 3,822,600 $ 3,887,900 $ 4,144,200 $ 4,664,500 $ 5,661,400 Cash and Cash equivalents 5,924 47,110 2,700 2,800 4,500 6,100 7,700 Accrued investment income 42,757 47,289 46,100 46,100 47,100 49,100 53,100 Amounts due from security transactions 49,005 23,880 1,300 1,300 1,300 1,300 1,300 Federal income tax recoverable 2,627 - Deferred policy acqusition costs 57,298 41,746 39,000 62,400 105,400 175,300 279,400 Furniture and equipment, net 376 1,065 2,900 2,500 2,100 1,800 1,500 Amounts due from reinsurers 16,644 19,116 18,300 18,300 18,300 18,300 18,300 Other assets 1,495 1,649 3,300 3,300 3,300 3,300 3,300 TOTAL ASSETS $ 3,902,286 $ 3,954,283 $ 3,936,200 $ 4,024,600 $ 4,326,200 $ 4,919,700 $ 6,026,000 Policy Liabilities: Policyholders' account balances 2,401,482 2,323,364 2,292,900 2,393,900 2,696,900 3,253,900 4,226,900 Future policy benefits: Annuity 663,456 634,397 616,900 605,900 615,900 654,900 779,900 Life and Accident and Health 81,081 83,855 81,700 81,700 81,200 81,600 82,200 Other policy liabilities 11,718 20,633 14,600 18,000 12,700 14,100 16,300 Total policy liabilities $ 3,157,737 $ 3,062,249 $ 3,006,100 $ 3,099,500 $ 3,406,700 $ 4,004,500 $ 5,105,300 Deposits on policies to be issued 1,166 490 800 800 1,100 1,600 2,600 General expenses and taxes accrued 1,573 2,521 1,900 1,900 1,900 1,900 1,900 Federal income taxes payable 1,411 10,500 10,500 10,500 10,500 10,500 Deferred federal income taxes, net 45,157 82,355 88,500 83,100 75,000 64,200 53,400 Amounts due for security transactions - 268 - - - - - Other Liabilities 14,745 17,045 15,600 15,600 15,600 15,600 15,600 TOTAL LIABILITIES $ 3,220,378 $ 3,166,339 $ 3,123,400 $ 3,211,400 $ 3,510,800 $ 4,098,300 $ 5,189,300 Capital Stock 296 296 300 300 300 300 300 Additional paid in capital 7,123 7,408 7,400 7,400 7,400 7,400 7,400 Accumulated other comprehe income (loss) 118,609 192,815 211,300 201,300 186,300 166,300 146,300 Retained earnings 555,880 587,425 593,800 604,200 621,400 647,400 682,700 TOTAL SHAREHOLDERS' EQUITY $ 681,908 $ 787,944 $ 812,800 $ 813,200 $ 815,400 $ 821,400 $ 836,700 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,902,286 $ 3,954,283 $ 3,936,200 $ 4,024,600 $ 4,326,200 $ 4,919,700 $ 6,026,000
- 73. Presidential Life InsuranceCompany 73 Dividend Strategy • Presidential Life Corporation expects to continue its policy of paying regular cash dividends • Payment of future dividends cannot be assured • Dependent on future earnings, capital requirements and the financial condition of the Company • Company intends to up-stream statutory maximum dividends to holding company
- 74.
- 75. Presidential Life InsuranceCompany 75 Table of Contents Section Page(s) Financial Strength Rating Discussion and Analysis 76-87 Outstanding Litigation/Compliance Issues 88-89
- 76. 76 Presidential Life Insurance Company FinancialStrength Rating Discussion and Analysis
- 77. Empirically Based FSRAnalysis Empirically based comparative analysis offers invaluable insights into Presidential Life Insurance Company’s warranted FSR upgrade relative to a selected universe of mono-line ordinary annuity companies rated by A.M. Best Company based on 2010 statutory filings (1) Presidential Life Insurance Company 77 (1) Data updated as of September 30, 2011 includes financial strength rating, BCAR, ratings outlook and financial size category. Source: AMB Custom Reports.
- 78. A++ A++ A+ A+ A+ A+ A A A A- A- A- A- A- B++ B++ B++ B+ B B B BB- C+ 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 -6 -5-4 -3 -2 -1 0 1 2 3 NumberofCompaniesbyFSRAcrossFSRBCARDeviation Magnitude of FSR BCAR Deviation Presidential Life Insurance Company 78 Analysis of AMB’s FSR Deviations to BCAR Guidelines(1) • Analysis based on 82 mono- line companies whose ordinary annuity sales averaged 81.7% of their total NPW(2) • Presidential Life’s FSR(3) of B++ is four deviations below the Life/Health BCAR guidelines wherein a FSR of A++ is warranted • Graphic depicts magnitude of PLIC FSR BCAR deviation (1) Life/Health BCAR Guidelines; (2) AMB Custom Products; (3) Financial Strength Rating Includes PLIC
- 79. Matrix of FSRBCAR Deviations across AMB FSR Presidential Life Insurance Company 79 Matrix of Ordinary Annuity of Companies' 2010 AMB FSR Deviations to Published BCAR Guidelines across Actual AMB FSRs AMB AMB FSR Deviations from Published BCAR Guidelines Grand FSR -6 -4 -3 -2 -1 0 1 2 3 Total A++ 7 1 8 A+ 20 2 3 4 29 A 14 2 2 18 A- 3 1 2 1 1 8 B++ 8 2 2 12 B+ 1 1 B 1 1 1 1 4 B- 1 1 C+ 1 1 Grand Total 1 9 5 17 24 13 6 6 1 82
- 80. -6-4 -4 -4 -4 -4-4 -3 -3 -3 -2 -2 -2 -2 -2 -2 -2 -2 -2 -1 -1 -1 -1 -1 -1 -1 0 0 0 0 1 1 1 2 2 2 3 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 IV V VI VII VIII IX X XI XII XIII XIV XV Analysis of 2010 FSR BCAR Deviations across AMB FSCs • In the AMB Financial Size Category range of IX-XV, PLIC is the only company with an FSR 4 deviations below the BCAR guidelines • As the chart indicates, the other 8 companies with the same deviation are all considerably smaller Presidential Life Insurance Company 80 Financial Size Category (FSC) NumberofCompaniesAcross FSCbyFSRBCARDeviation PLICFSR4DeviationsbelowBCARGuidelines
- 81. Matrix of AMBFSCs Across FSR BCAR Deviations to AMB Guidelines Presidential Life Insurance Company 81 Matrix of the Number of Companies' in the Ordinary Annuity Universe by 2010 Financial Strength Ratings Deviations to Published BCAR Guidelines across AMB Financial Size Categories AMB FSR Deviations from Published BCAR Guidelines Grand APHS Range FSC -6 -5 -4 -3 -2 -1 0 1 2 3 Total $5 - $10 IV 2 1 1 4 $10 - $25 V 1 3 2 1 7 $25 - $50 VI 1 1 1 3 $50 - $100 VII 1 1 1 1 1 5 $100 - $250 VIII 1 1 1 2 5 $250 - $500 IX 1 2 2 5 $500 - $750 X 2 1 3 6 $750 - $1,000 XI 5 5 $1,000 - $1,250 XII 1 2 3 $1,250 - $1,500 XIII 0 $1,500 - $2,000 XIV 2 2 2 2 8 $2,000 or Greater XV 2 13 9 3 4 31 Grand Total 1 0 9 5 17 24 13 6 6 1 82
- 82. Composition of OrdinaryAnnuity Universe by AMB FSR & FSC A+ 29 35.4% A 18 22.0% B++ 12 14.6% A++ 8 9.8% A- 8 9.8% B 4 4.9%B+ 1 1.2%B- 1 1.2%C+ 1 1.2% Composition of Universe by AMB FSR VI 3 3.7% XII 3 3.7% IV 4 4.9% VII 5 6.1% VIII 5 6.1% IX 5 6.1% XI 5 6.1% X 6 7.3% V 7 8.5% XIV 8 9.8% XV 31 37.8% Composition of Universe by AMB FSC Presidential Life Insurance Company 82 2010 Total: 82 Company Population PLIC PLIC
- 83. 0 0.0% 0 0.0% 0 0.0% A.M. Best's Composition byOutlook Stable 74 90.2% Negative 7 8.5% Positive 1 1.2% Composition by Outlook and FSR for Ordinary Annuity Company Universe as of 09/30/2011 Presidential Life Insurance Company 83 Total: 82 Company Population 8 29 18 8 12 1 4 1 1 0 5 10 15 20 25 30 35 A++ A+ A A- B++ B+ B B- C+ NumberofCompanies A.M. Best’s Financial Strength Ratings Distribution
- 84. Analysis of theOrdinary Annuity(OA) Universe of Companies with FSRs of “B++” Compared to Presidential Life Insurance Company Presidential Life Insurance Company 84 OA/ FSR BCAR Statutory Operating Return on Equity (2) AMB FSR Company Name FSC NPW BCAR Deviation 2010 2009 2008 2007 Average Outlook Universal Life Ins Co. (PR) V 89% 221 -4 7.1% 10.0% 51.9% -11.7% 14.3% Stable Presidential Life Ins Co. IX 78% 182 -4 10.0% 7.8% 13.1% 16.4% 11.8% Stable Fidelity & Grty Life Ins Co. XI 67% 149 -2 34.5% 7.4% 9.0% -6.1% 11.2% Stable Fidelity & Grty Life Ins (NY) XI 92% 149 -2 9.0% 6.1% 11.2% 14.0% 10.1% Stable Security Benefit Life Ins Co. X 79% 160 -3 11.2% 7.7% -4.9% 5.5% 4.9% Stable Charter National Life Life Ins Co. V 99% 999 -4 3.9% 4.3% 5.2% 6.0% 4.9% Stable Liberty Life Insurance Co. VIII 79% 201 -4 0.7% -4.0% 6.9% 9.8% 3.3% Stable Investors Insurance Corp. VI 100% 185 -4 11.2% -35.0% 15.7% 15.4% 1.8% Stable Great American Life Assr Co. IV 100% 999 -4 1.6% -7.6% 4.5% 5.5% 1.0% Stable Amer Retirement Life Ins Co. IV 68% 999 -4 0.0% -1.0% 2.1% 1.7% 0.7% Stable First Security Benefit Life Ins X 100% 160 -3 10.2% 10.0% -16.3% -2.2% 0.4% Stable EMC National Life Co. VII 59% 209 -4 41.9% -115.5% -50.4% -3.0% -31.7% Stable Average 11.8% -9.2% 4.0% 4.3% 2.7% Median 9.5% 5.2% 6.0% 5.5% 4.1% (1) Sources: FSR and BCAR: A.M. Best's Custom Reports; All other data: SNL Financial (derived from statutory filings) (2) Statutory net gains from operations divided by average policyholder surplus Note: According to AMB Custom Reports, companies with a 999 BCAR indicates the calculated ratio surpasses 1000.
- 85. Analysis of theOrdinary Annuity(OA) Universe of Companies with FSRs of “A-” or Greater within FSCs of IX-XIV Compared to Presidential Life Insurance Company Presidential Life Insurance Company 85 Group OA/ FSR BCAR Statutory Operating Return on Equity Company Name FSR (g) FSC NPW BCAR Deviation 2010 2009 2008 2007 Average Outlook USAA Life Insurance Co. A++ XIV 60.2% 247 0 19.8% 14.4% 12.3% 15.1% 15.4% Stable Great American Life Ins Co. A XI 94.0% 208 -2 16.5% 9.1% 21.1% 11.7% 14.6% Stable Life Insurance Co. of the SW A g X 77.6% 213 -2 20.4% 20.4% 0.8% 15.8% 14.3% Stable State Life Insurance Co. A+ g XII 59.6% 241 -1 7.3% 14.9% 19.1% 15.5% 14.2% Stable Horace Mann Life Insurance Co. A IX 68.4% 180 -2 16.6% 13.2% 11.5% 11.8% 13.3% Stable Presidential Life Ins Co. B++ IX 78.2% 182 -4 10.0% 7.8% 13.1% 16.4% 11.8% Stable Amer Equity Invt Life Ins Co. A- XIV 99.7% 201 -3 14.5% 15.4% 11.2% 2.1% 10.8% Stable Symetra Life Insurance Co. A XIV 63.9% 221 -2 12.3% 10.0% 8.3% 10.9% 10.4% Stable Ohio National Life Ins Co. A+ XII 80.5% 241 -1 19.8% 18.1% -4.8% 5.5% 9.6% Stable USAA Life Insurance Co. of NY A++ g XIV 69.4% 247 0 13.4% 9.0% 9.1% 6.6% 9.5% Stable Auto-Owners Life Insurance Co. A+ IX 72.1% 213 -1 6.0% 5.7% 7.5% 9.2% 7.1% Stable National Western Life A XI 57.5% 268 -2 8.8% 10.6% 4.1% 4.2% 6.9% Stable Farm Bureau Life Ins Co. of MI A IX 60.9% 312 -2 6.3% 5.5% 3.6% 7.4% 5.7% Stable Annuity Investors Life Ins Co. A g XI 88.5% 208 -2 13.4% 10.6% -4.2% 0.5% 5.1% Stable Fidelity Invts Life Ins Co. A+ X 98.9% 574 -1 9.1% 1.8% 0.1% 7.7% 4.7% Stable Centurion Life Insurance Co. A XII 87.2% 999 -2 4.2% 4.1% 5.2% 4.6% 4.5% Negative Frst Symetra Natl Life Ins Co. A g XIV 83.4% 221 -2 12.8% -0.2% -6.8% 11.0% 4.2% Stable Empire Fidelity Invts Life Ins A+ g X 99.1% 574 -1 4.6% 3.4% 1.5% 6.2% 3.9% Stable Integrity Life Insurance Co. A+ g X 99.8% 274 -1 9.0% -0.8% -3.2% 2.8% 1.9% Stable National Integrity Life Ins Co A+ g IX 100.0% 274 -1 13.7% 7.5% -21.1% 7.0% 1.8% Stable Penn Mutual Life Insurance Co. A+ XIV 61.3% 328 -1 1.0% 5.5% -0.2% 0.5% 1.7% Stable COUNTRY Investors Life Assr Co A+ XIV 75.9% 348 -1 2.8% 1.2% 2.7% -1.0% 1.4% Stable Amer Eqty Invt Life Ins Co. NY A- g XIV 100.0% 201 -3 -6.4% -18.7% 4.3% 3.7% -4.3% Stable
- 86. Analysis of theOrdinary Annuity(OA) Universe of Companies within the XV FSC Compared to Presidential Life Insurance Company Presidential Life Insurance Company 86 OA/ FSR BCAR Statutory Operating Return on Equity Company Name FSR Group NPW BCAR Deviation 2010 2009 2008 2007 Average Outlook Protective Life & Annty Ins Co A+ g 90.6% 228 -1 22.3% 23.1% 14.8% 23.1% 20.8%Stable Jackson National Life A+ g 85.9% 158 1 34.7% 36.3% -7.4% 14.0% 19.4%Stable ING USA Annuity Life Insurance A g 80.7% 150 0 51.0% 49.4% -29.5% 1.8% 18.2%Negative Thrivent Life Insurance Co. A++ g 94.4% 247 0 14.1% 9.6% 14.4% 29.9% 17.0%Stable RiverSource Life Insurance Co. A+ 81.0% 279 -1 33.8% 60.9% -44.3% 17.2% 16.9%Stable MetLife Insurance Co. of CT A+ g 58.0% 138 2 10.5% 12.9% 15.0% 25.3% 15.9%Stable Trnsam Life Ins Co. of NY A+ g 86.7% 202 -1 17.0% 37.0% -22.1% 30.9% 15.7%Stable Protective Life Insurance Co. A+ 59.0% 228 -1 13.2% 32.2% -5.2% 22.1% 15.6%Stable RiverSource Life Ins Co. of NY A+ g 77.0% 279 -1 20.9% 40.7% -14.9% 11.3% 14.5%Stable MetLife Investors Insurance Co A+ g 99.6% 138 2 34.0% 16.2% -8.4% 13.1% 13.7%Stable Allianz Life Insurance Co. A 95.4% 170 -1 24.7% 10.8% 12.0% 4.9% 13.1%Negative Presidential Life Ins Co. B++ 78.2% 182 -4 10.0% 7.8% 13.1% 16.4% 11.8%Stable Teachers Ins & Annty Assn. A++ 62.5% 223 0 11.7% 14.2% 6.6% 9.5% 10.5%Stable Western National Life Ins Co. A g 99.9% 183 -2 13.5% 10.2% 6.8% 9.5% 10.0%Stable SunAmerica Life Insurance Co. A g 75.2% 183 -2 2.2% 10.6% 10.7% 16.3% 10.0%Stable Transamerica Advs Life Ins Co. A+ g 73.7% 202 -1 29.7% 59.5% -82.2% 27.6% 8.7%Stable Western-Southern Life Assr Co. A+ g 83.7% 274 -1 10.1% 9.9% 1.0% 12.6% 8.4%Stable Brooke Life Insurance Co. A+ 95.7% 158 1 7.8% 7.5% 9.3% 7.0% 7.9%Stable New York Life Ins & Annty Corp A++ g 72.4% 218 0 11.8% 8.2% -4.2% 14.1% 7.5%Stable Guardian Ins & Annty Co. A++ g 67.4% 278 0 17.5% 16.2% -14.8% 7.6% 6.6%Stable TIAA-CREF Life Insurance Co. A++ g 69.0% 223 0 7.2% 4.0% 3.8% 5.5% 5.1%Stable North American Co. for L&H Ins A+ g 66.3% 243 -1 10.0% 4.9% 1.1% 0.9% 4.2%Stable Pacific Life & Annuity Co. A+ g 96.3% 208 -1 12.7% 34.3% -32.5% 1.7% 4.0%Stable Aviva Life & Annuity Co. A 83.9% 145 0 8.6% 9.6% -5.7% 1.1% 3.4%Negative Pruco Life Insurance Co. of NJ A+ g 77.8% 173 0 28.0% 1.9% -15.8% -5.3% 2.2%Stable Pacific Life Insurance Co. A+ 59.5% 208 -1 12.7% 15.6% -36.5% 10.2% 0.5%Stable Pruco Life Insurance Co. A+ g 89.2% 173 0 28.3% 23.4% -78.0% 6.4% -5.0%Stable Allianz Life Ins Co. of NY A g 98.7% 170 -1 27.0% 51.6% -118.7% 4.6% -8.9%Negative Sun Life Ins & Annty Co. of NY A+ g 70.3% 198 -1 19.3% 12.8% -60.4% -12.7% -10.2%Stable Berkshire Hathaway Life Ins Co A++ 100.0% 168 1 -33.4% -95.4% 8.4% 6.5% -28.5%Stable First MetLife Investors Ins Co A+ g 91.1% 138 2 -12.6% -5.0% -87.1% -80.4% -46.3%Stable MetLife Investors USA Ins Co. A+ g 89.2% 138 2 3.3% 1.1% -66.4% -189.3% -62.8%Stable
- 87. Empirical Analysis Summary •PLIC’s 2007-2010 average Best’s ROE is among the highest and most stable relative to all segmented populations and collectively • The FSR BCAR deviation of PLIC is numerically inconsistent relative to the ordinary annuity company universe rated by AMB based on the empirically based analysis to all integral metrics • BCAR, RBC, statutory earnings consistency, stable profitability and financial size category Presidential Life Insurance Company 87
- 88. 88 Presidential Life Insurance Company OutstandingLitigation/ Compliance Issues
- 89. Presidential Life InsuranceCompany 89 Outstanding Litigation/Compliance Issues • From time to time, Presidential Life is involved in litigation relating to claims arising out of its operations in the normal course of business • Presidential Life is not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on the Corporation’s financial condition or results of operations