Planning Phoenix’s Future

When James D. Wehr took over the top job at the Phoenix Cos. last month, he knew he was stepping into a difficult position.

The headlines haven’t been pretty lately for the Hartford-based life insurer. It posted a $726 million net loss in 2008, and has experienced several ratings downgrades, causing some of the company’s major distributors, including State Farms, to jump ship.

The company has seen its stock price dip below $1 in recent weeks, down from its 52-week high price of nearly $14.

Despite the bleak news, Wehr, who is replacing outgoing Chief Executive Officer Dona D. Young, said he sees a future for the 158-year-old life insurer and is somewhat hopeful that he could lead it to better days, while maintaining its independence.

But Wehr, also realizes that the company will have to operate as a smaller, more efficient organization than it did in the past.

Wehr, 51, joined Phoenix in 1981 and has held a series of increasingly senior investment positions, including credit research, trading and portfolio management. He has served as chief investment officer since 2004, was named executive vice president in 2005, and senior executive vice president in 2007.

What was your original reaction when you were asked to become the new CEO? Did you have any reservations considering the company’s recent struggles?

I was excited. I looked at this as a great opportunity to serve the company albeit in a challenging environment. As the former chief investment officer, I was very close to the problems that are currently plaguing all financial services companies. Therefore, I never really had reservations about taking the job because I felt it was the right opportunity for me at the right time.

What changes can the company expect under your leadership?

There will be no major changes other than we need to improve our results. We have a four point plan strategy in place that we are focused on implementing. First we need to maintain balance sheet health. Right now we have a very healthy balance sheet with no pending debt maturity, modest debt to capital ratio, and adequate liquidity. We are also focused on policyholder security and reducing expenses. We are putting together a plan for sustainable future growth in light of that fact that we are a lower-rated company. My job is going to be to manage this company through a smaller expense base.

Can the Phoenix Cos. remain independent considering all of its recent problems?

Our objective is to function and remain independent. I’m very hopeful we can do that. Our strategy is to position the company for the future. We are taking actions to deal with the short term and position the company for the long term.

The company recently lost some major distributors including State Farm. Is the company seeking new distribution channels?

We are always seeking new distributors, but they may have a different profile than they did in the past. We are looking for a distribution partner that is more focused on product attributes and less focused on ratings.

A lot of life insurance companies have had problems with their variable annuity business, especially with the guaranteed benefits attached to them. What’s the outlook on the annuity business going forward and are you looking to make adjustments to those products?

We have sold annuity products, but it is not as meaningful a portion to our overall liability portfolio as it is for other life insurance companies. But we are going to do a combination of limiting those types of guaranteed benefits and re-pricing the products to reflect true costs. We assumed a level of market volatility and realized that the annuities were underpriced. The guarantees attached to the annuities were a new innovation in the market so they are always subject to revision.

Several life insurers, including the Hartford, have asked state regulators for some relief on their regulatory capital requirements. Did the Phoenix make a similar request?

We have not received any regulatory relief in any domicile.

How will the Financial Accounting Standards Board’s recent decision to relax certain fair value accounting standards impact the company’s bottom line?

We are not really in a position to comment on that. We are still sorting through the rules. Ultimately the rule change should be somewhat of a positive for the financial services industry. It will allow for more judgment on certain asset values and not force institutions to use distressed markets to value those assets.

The company recently announced that it would withdraw its application for participation in the Troubled Asset Relief Program (TARP). Is this option totally closed?

We withdrew our application which effectively takes us out of the process. I have mixed views on TARP. We always positioned this as an option we were looking into, but it was never something we were committed too. It was an option that could have provided some financial flexibility, but it was always a risky venture.

With the state facing an $8.7 billion budget deficit, how concerned is the company with the threat of paying higher taxes?

Higher taxes are always a concern whether you are a business or an individual. It’s understandable that the legislature would put everything on the table, but we are concerned about it. We’d be staring at a tax increase when we can least afford it. It would certainly increase our challenges.