Penn Mutual Life Insurance 2017 Annual Report
$1.3 Billion paid to policyholders or beneficiaries
85 Years in-a-row rated “A” or higher by A.M. Best
10 Years in-a-row of growing or maintaining our annual dividend scale
$217 Million in new life insurance sales
$2.9 Billion in revenue
$232 Million in consolidated net income
$142 Billion of life insurance in force
To Our Valued Policyholders
“Do not go where the path may lead, go instead where there is no path and leave a trail.”— Ralph Waldo Emerson
For over 170 years, Penn Mutual has consistently delivered on our promises to policyholders through our hallmarks of mutuality and financial strength. I’m proud to report that 2017 was another record year for Penn Mutual!
- 2017 was our best year ever for life insurance sales. GAAP net income grew for our eighth (8th) consecutive year.
- We achieved our tenth (10th) consecutive year of growing or maintaining our annual dividend scale. Penn Mutual is the only company among other major whole life insurance providers that has not decreased its dividend scale in the post-recession era.
- We once again earned membership on A.M. Best's listing of companies rated “A” or higher for 75 years. Penn Mutual has been on that list for 85 straight years!
- We were awarded the Regional Ernst and Young (EY) “Entrepreneur of the Year Award” for “Transformation,” and were a National Finalist in the “Financial Services” category in recognition of the industry-leading innovations we continue to make in our business.
Penn Mutual is blazing the trail. Penn Mutual has been an innovator in life insurance, because we believe in its power and its importance to your financial plan. Through our network of advisers, we are committed to delivering innovative products and services that meet your ever-changing needs.
I encourage you to read more about our story and our results in the pages that follow, and see how your life insurance company — Penn Mutual — is blazing the trail to deliver you great value.
On behalf of the entire team here at Penn Mutual, thank you for the confidence you have placed in us.
Blazing the Trail in the Life Insurance Experience
“It's amazing that so many people don't know that simple fact, but once they do, their eyes are really opened to all the possibilities that life insurance offers.”
Jethro Kollie, an adviser with Concord Wealth Management, Penn Mutual's Boston agency, is passionate about life insurance.
Jethro knows that life insurance can provide financial peace of mind for his clients. That’s why one of his top goals is making sure his clients understand the complete value of life insurance. Says Jethro:
Permanent life insurance can mean so much more than the death benefit. Through its accumulating cash value, life insurance can provide the flexibility and wherewithal to help my clients achieve their dreams while they’re alive. It’s amazing that so many people don’t know that simple fact, but once they do, their eyes are really opened to all the possibilities that life insurance offers.
But in his young career, Jethro has also learned that once the education bridge is crossed, many prospective clients become hesitant because of the life insurance purchase experience.
Traditionally, buying life insurance has been a long process that could take 30 days or more, due to the paperwork and delays in the process, says Jethro.
In addition, some clients are hesitant with the medical testing process.
Penn Mutual has revolutionized the life insurance purchasing experience with a new automated, accelerated client experience that requires no medical testing for many people, and can take as little as 24 hours from application to payment—a dramatic reduction from the industry norm.
According to Jethro,
When I introduced this experience to my clients — that we'd be able to complete much of the process by the end of the day, they were really amazed by how smooth, simple and secure the experience was. It's faster, less intrusive, and more convenient. That's exactly what today's consumers expect when using online financial services tools.
As an emerging adviser, Jethro also believes that the new experience is a competitive edge for him and other Penn Mutual advisers.
The accelerated client experience frees up more time to build my practice and helps get more people insured, giving them the financial freedom they need for their families and businesses, he says.
For example, one of Jethro's small business clients had a life insurance policy pending with another carrier, due to medical testing delays. But Jethro told him,
Let's go through the Penn Mutual accelerated process, which he did. My client was impressed by the entire experience, and was able to get his life insurance needs met quickly and efficiently, without medical testing.
It's all about innovation.
Penn Mutual knows that being nimble and looking at new ways to insure more Americans and protect their futures is key to blazing a new trail in the life insurance industry. It's the reason why in 2017 we were proud to be honored with Ernst & Young's (EY) Regional Entrepreneur of the Year Award for “Transformation,” and were a National Finalist in the EY Financial Services category, in recognition of our innovative approach to life insurance.
Commitment to Community
Penn Mutual and our associates across the country are committed to helping people live life confidently through our community outreach efforts. Whether it's supporting disaster relief, families in crisis, veterans in transition, or children in need, we actively contribute to the well-being and development of the communities in which we live and work.
2017 Financial Results
For over 170 years, Penn Mutual has consistently delivered on our promises to policyholders through our hallmarks of mutuality and financial strength. 2017 was our best year ever for life insurance sales. GAAP net income grew for our eighth (8th) consecutive year.
Over seven years (2010 – 2016), Penn Mutual has outpaced the industry in several key categories, measured in compound annual growth rate.
Condensed, Consolidated Balance Sheets; for the year ended (in thousands)
|Assets||Dec. 31, 2017||Dec. 31, 2016|
|Debt securities, at fair value||$14,605,018||$12,533,118|
|Equity securities, at fair value||104,287||123,225|
|Real estate, net of accumulated depreciation||39,375||38,507|
|Other invested assets||1,856,748||1,829,033|
|Separate account assets||8,085,889||7,356,965|
|Reserves and funds for payment of future benefits||$14,358,965||$12,913,340|
|Accrued income tax payable||496,845||703,992|
|Separate account liabilities||8,085,889||7,356,965|
|Total liabilities and equity||$31,659,984||$28,757,208|
|Accumulated other comprehensive income||576,228||260,150|
Condensed, Consolidated Income Statements; for the year ended (in thousands)
|Revenues||Dec. 31, 2017||Dec. 31, 2016|
|Premium and other product revenue||$1,280,952||$1,164,693|
|Broker-Dealer Fees and Commissions||731,770||630,828|
|Other revenue (including realized capital gains and (losses))||71,770||82,177|
|Benefits and Expenses|
|Net income attributable to Penn Mutual1||$593,974||$210,816|
|Change in reserve for payment of future benefits||603,369||576,060|
|Broker-Dealer sales expense||415,207||364,315|
|Income before income taxes||285,642||279,149|
|Income tax expenses||(310,567)||67,455|
|Net income attributable to noncontrolling interest||(2,235)||(878)|
- The 2017 Tax Cuts and Jobs Act signed into law in December 2017, reduced the corporate tax rate, which resulted in an estimated one-time impact related to the re-measurement of our deferred tax liability. The impact increased net income by $362,100.
Penn Mutual is passionate about serving our policyholders. Along with our team of advisers, we empower our clients to make sound financial decisions now and into the future. We are a pioneer of mutual life insurance in America, and believe that life insurance is the center of a sound financial plan.
Because of our mutual structure, our decisions are always made with our policyholders’ long-term best interests in mind.
Because of our financial strength, we have faithfully kept all our promises to our policyholders and contract owners. Benefits paid to our policyholders or their beneficiaries in 2017 totaled $1.3 billion — the fulfillment of our promises to them.
Because we are a relationship-based company, we are a valued partner to our advisers, who help their clients make smart decisions and offer the support, solutions and guidance to make good things in life possible.
By staying true to these foundational elements, we have always been there for our policyholders, their families and businesses. Penn Mutual is proud that as we enter our 171st year of service to policyholders, the story behind our strength continues, and positions us for a bright future.
One of our foundational elements is, and always will be, our financial strength and stability. That foundation begins with capital strength.
Total Surplus (Capital) was a very strong $1.9 billion1 as of December 31, 2017. Total surplus is the amount set aside for unexpected losses from operations, and is our financial protection against business volatility. Our surplus position is a testament to our high-quality investment portfolio and our ability to manage the guarantees we provide our policyholders and contract owners through appropriate investment techniques.
As detailed in rating agency outlooks, Penn Mutual remains very well capitalized. Additionally, surplus is one of the key indicators of the company’s long-term financial strength and stability, which helps ensure we continue to meet the future obligations to policyholders.
Total Statutory Assets Under Management, including the funds we safeguard for our policyholders, was $24.6 billion, an increase of $2.3 billion from 2016.
- Total Surplus decreased by the estimated impact of the re-measurement of our deferred tax asset at the lower corporate tax rate.
We manage our investments with one goal in mind: to fulfill our obligations to policyholders while protecting the long-term viability of Penn Mutual. Our investment philosophy stresses rigorous asset/liability management diversification, good liquidity, and a conservative approach to portfolio risk. This philosophy has provided us with strong and superior performance for our policyholders. Because of our mutual structure, we can take a longer-term view of the economy, which helps us mitigate market volatility.
- Penn Mutual holds a high-quality portfolio of assets, with investment grade bonds representing the single largest class of investments. As of December 31, 2017, 83.9 percent, or $12.3 billion, of the company’s total invested assets of $14.7 billion (excluding policy loans), represented cash, short-term and investment grade bonds.
- Our second largest asset class, “Other Invested Assets and Alternative Assets,” represents 10 percent of the investment portfolio (excluding policy loans). Included in this growing asset class is our investment in Janney Montgomery Scott LLC, one of our broker-dealer affiliates; investments in limited partnerships, focused on other investment opportunities like venture capital and private equity; and hedging assets that protect the company against fluctuation in equity markets and interest rates.
Our policyholders can take comfort in knowing that Penn Mutual avoids risk that might jeopardize our ability to keep the promises we make to our valued policyholders.
With an average credit quality rating of A, Penn Mutual holds a higher percentage of NAIC 1 bonds than the industry, as classified by the National Association of Insurance Commissioners (NAIC). And, Penn Mutual holds a lower percentage of below investment grade bonds than the industry.
This is the story behind our strength. You can be confident that your life insurance policy or annuity contract has the full backing of a company with an incomparable record of integrity — a company with a 171-year history of safety, stability and security.
Through challenging economic and investment cycles, we built and maintained financial strength and stability. As a result, we were able to take advantage of opportunities to build on our strong foundation and deliver a positive financial performance for 2017.
Our results for the 12 months ended December 31, 2017, underscore our continued focus on and commitment to meeting our obligations to our policyholders and contract owners and protecting Penn Mutual’s long-term viability. We achieved solid financial results for the year, following our strong performance in 2016.
Total Revenue for the year was $2.9 billion. This includes premium and product revenue from life and annuity products, investment income on our assets, and broker-dealer fees and commissions, which have shown solid growth over the past five years.
Consolidated Net Income, which includes income from all business segments — Insurance Products, Broker-Dealer and Corporate — was a record $232 million1, for the year ended December 31, 2017, compared to $211 million in 2016.
We continue to be very pleased that throughout the economic and market challenges, the underlying operations of Penn Mutual continue to perform well and remain strong.
- Excludes estimated one-time impact of 2017 Tax Cuts and Jobs Act
Individual Life Insurance In Force, the amount of life insurance protection we provide to policyholders, reached a new high of $142 billion, a very strong 11 percent increase over 2016. This growth demonstrates that policyholders value the protection and living benefits offered by Penn Mutual products based on the advice of their trusted advisers.
Life insurance sales for the year were a record $217 million. This premium measures life sales based on internal formulas for specific products. Individual New Life Premiums were $565 million. Our results are evidence of our laser focus on life insurance as a key component of a financial plan.
New annuity sales were a strong $402 million in 2017. We continue to manage annuity sales in the current rate environment and the role they play in our clients' financial plans.
Our Family of Companies and Leadership
The Penn Insurance & Annuity Company (PIA) is a wholly owned life insurance subsidiary of Penn Mutual. Domiciled in Delaware, PIA maintains its operations in Horsham, PA and is licensed to do business in 49 states and the District of Columbia. It markets its products through Penn Mutual’s distribution systems and has its in force business serviced by the parent company.
— Eileen C. McDonnell, Chairman & Chief Executive Officer
Penn Mutual Asset Management, LLC (PMAM), a registered investment adviser and a wholly owned subsidiary of Penn Mutual, is focused on risk-based institutional asset management, advisory and fund operation services. PMAM offers a wide range of tailored investment strategies and solutions to help meet the investment goals of their clients, while focusing on their mission to provide exceptional experience and service. PMAM manages the investment portfolios of Penn Mutual and its subsidiaries’ general account. In addition, PMAM serves as an investment adviser and manager of manager for the Penn Series Funds, Inc., a proprietary fund complex that offers diverse investment options within Penn Mutual’s variable life and annuity products.
— David M. O’Malley, Chairman & Chief Executive Officer
Hornor, Townsend & Kent, Inc. (HTK), is a wholly owned broker-dealer subsidiary of Penn Mutual. HTK provides a superior support network for enabling financial advisers to serve individuals and businesses through all life’s stages. HTK financial advisers enjoy broad product choices, innovative technology tools and exciting networking events designed to build a successful practice that supports clients investment needs. HTK also advances a better understanding of how life insurance and investments work together to help clients protect and grow their financial resources.
— Timothy Donahue, President & Chief Executive Officer
Janney Montgomery Scott LLC (Janney), a member of the Penn Mutual family since 1982, serves a national client base of individuals, corporations, institutions, and municipalities. Janney provides strategic advice and innovative solutions through the firm’s experienced Private Client Group Financial Advisers, and Capital Markets professionals. Janney is committed to delivering superior advice, service, and solutions to help its clients reach their long-term financial goals.
— Timothy C. Scheve, President & Chief Executive Officer
Janney Montgomery Scott LLC is a member of the New York Stock Exchange (NYSE), the Financial Industry Regulatory Authority (FINRA), and the Securities Investor Protection Corporation (SIPC).
Leap Systems, LLC, an affiliate of Penn Mutual, is a leading provider of innovative financial systems for advisers throughout the United States and Canada. Since its founding in 1980, Leap has been recognized by many of the world’s top financial institutions as a leader and trusted resource for achieving superior results and delivering an end-to-end financial solution.
— Ande B. Frazier, CLU®, ChFC®, RICP, Chair of the Leap Board of Managers, President & Chief Executive Officer
Vantis Life Insurance Company, established in 1942, became part of the Penn Mutual family in 2016. From its inception. Vantis Life’s primary goal has been to provide families with affordable life insurance and annuity products. The company markets its products through financial institutions and direct to the consumer. Vantis Life prides itself on providing simple, easy-to-afford products to hard working American families, and supporting these products with attentive and personal customer service.
— Peter L. Tedone, CLU®, Chairman, President & Chief Executive Officer
Eileen C. McDonnell
Chairman & Chief Executive Officer
David M. O'Malley
President & Chief Operating Officer
Susan T. Deakins, FSA, MAAA
Executive Vice President, Chief Financial Officer & Treasurer
Thomas H. Harris, CLU®, ChFC®, FLMI
Executive Vice President, Chief Distribution Officer
Raymond Caucci, FSA, MAAA, ChFC®
Senior Vice President, Product Management, Underwriting & Advanced Markets
Senior Vice President, Service Operations & Chief Information Officer
Nina M. Mulroony, CLU®, CPA, FLMI
Senior Vice President & General Auditor
Kevin T. Reynolds
Senior Vice President, Human Resources & Chief Legal Officer
President UM Holdings, Ltd.
Edmond F. Notebaert
Former Healthcare Executive
Robert E. Chappell
Retired Chairman The Penn Mutual Life Insurance Company
David M. O’Malley
President & Chief Operating Officer The Penn Mutual Life Insurance Company
William R. Cook
Retired Chairman BetzDearborn Inc.
Helen P. Pudlin
Retired Executive Vice President & General Counsel PNC Financial Services Group, Inc.
James S. Hunt
Retired Executive Vice President & Chief Financial Officer Disney Parks and Resorts Worldwide
Robert H. Rock
Chairman MLR Holdings LLC
Charisse R. Lillie
Former Vice President, Community Investment President Comcast Foundation
Anthony M Santomero
Former President Federal Reserve Bank of Philadelphia
Eileen C. McDonnell
Chairman & Chief Executive Officer The Penn Mutual Life Insurance Company
Susan D. Waring
Retired Executive Vice President & Chief Administrative Officer State Farm Life Insurance Company
The 2019 Election of Trustees
Penn Mutual’s annual election of trustees will be held on Tuesday, March 5, 2019, at 10:00 a.m. in the company’s office at 600 Dresher Road, Horsham, PA.
All policyholders with policies in force at the time of the election are eligible to vote. Voting can be done by mail, online or telephone. Proxy forms or additional information may be obtained through the Secretary’s office, 600 Dresher Road, Horsham, PA 19044.
Our legacy of financial strength, our mutual structure, and our long-term perspective continue to stand the test of time and are foundational to the company and our success. The rating agencies recognize this and have, once again, given us a vote of confidence in 2018, with a stable outlook, despite the challenging economy.
Our continued financial strength is not possible without your confidence in our ability to help you meet your financial needs to protect your life and unlock the value of all of life’s possibilities. On behalf of Penn Mutual’s executive team, advisers, and all of our field and home office associates, we thank you for that strong vote of confidence and pledge to keep earning your trust in the years to come.