FORWARD FOCUS 2015 ANNUAL REPORT

Transcription

1 FORWARD FOCUS 2015 ANNUAL REPORT

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3 CONTENTS President s Letter to Shareholders Benchmarks Atlanta Life Financial Group 08 Atlanta Life Insurance Company 10 Atlanta Life General Agency 10 Herndon Capital Management 10 Financials Board of Directors

4 2015 ANNUAL REPORT TO OUR SHAREHOLDERS, CUSTOMERS, PARTNERS, AND EMPLOYEES and margins but enhance long term profitability and margins. Geoffrey C. Nnadi Roosevelt Giles We are pleased to present the results of your Company s operating performance for The year could be considered one of Atlanta Life Financial Group s (ALFG) more challenging years since Nonetheless, our company continued to show positive performances in operating margin, net income and cash flows. On a consolidated basis, ALFG reported an Operating Profit Margin before taxes of $4.99 million or 13%. After taxes, the company s Net Profit Margin was $4.7 million or 12%. Net cash provided by Operating activities was $3.8 million. Total Investments plus Cash and cash equivalents were $33.5 million, down by $3.7 million or 10% from the previous year. Consolidated Total Equity was $28.6 million down from $31.3 million by 8%. Return on Equity (on a consolidated basis) was 16%. On ALFGs shareholders stand-alone basis, stockholders equity was $26.9 million down from $27.3 million by 2.0%. Expense reductions continue to be a challenge as we explore and invest in new revenue generating ventures that may reduce short-term profitability Although our turnaround efforts continued for the sixth year in a row, 2015 was the year that challenged our stability, growth and customer retention strategies. The Company has accepted these challenges and has begun to make the necessary changes in its customer relationship strategies, organizational structure, client experience and retention, product development, product management, and product distribution. In acknowledging the need for innovation and adaptation in our dynamic environment and market place, ALFG postulates that It is not the biggest companies that survive in this new market place but it is those which are receptive to innovations and eagerly adapt to the changing and disruptive market place. Here are some of the 2015 financial and operational challenges and benchmarks: Revenue: Our revenue in 2015 was down by 17%, from $47.3 million to $39.3 million due primarily to the market changes and asset redemptions by clients that resulted in the erosion of our Assets Under Management from $9.7 billion in 2014 to $6.3 billion in Income from Operations before taxes: Our income from operations before taxes was down from last year by 12% due primarily to the initial costs in designing, building-out of Atlanta Life General Agency s (ALGA) jumpstart testing, ALGA Industry Segmentation Testing (IST), designing of the Value One Corporation (VOC) initiatives including sales force design, development & training, 04

5 product partner research and negotiations, partner contracting and integration processes. Poor investment performance impacted short and intermediate term performance rankings for Herndon Capital Management (HCM). As a result, client redemptions that started in 2014, continued to have a stronghold in 2015 with the combination of Assets Under Management (AUM) and Assets Under Advisement (AUA) falling by $3.4 billion*. Based on the 1st Quarter results in 2016, it appears the redemption has continued as clients re-assess their relationship with HCM following three to 5 years of difficult performances when compared to the indices. For example, HCM s Assets Under Management peaked in June 2014 with AUM of $8.6 billion and AUA of $1.7 billion for combined AUM/AUA of $10.3 billion. It closed out 2014 with AUM of $8.04 billion and AUA of $1.75 billion for combined AUM/AUA of $9.79 billion and as of December 2015, it ended the year with AUM of $5.1 billion and AUA of $1.2 billion for combined AUM/ AUA of $6.3 billion. It is important to note that 2015 was a down year for many asset managers. On a positive note, HCM attained a 13-year track record on Domestic Strategies and an 11-year track record on International. HCM s International ACWI Strategy outperformed its benchmark, net of withholding taxes, by 228 basis points for the year. The firm s Mid Cap Growth Strategy won its first non-affiliate asset allocation of $3 million. The firm expects 2016 to be another challenging year following a difficult period of poor performance for our strategies. Additionally in 2016, HCM s primary objective will be to continue to cultivate/nurture existing relationships while striving to incubate new products that will be introduced to their clients. Progress towards the institutionalization of HCM continues while its efforts towards minimizing enterprise risks via product diversification, acquisitions/mergers and bench strength become paramount. Also in 2016, the firm will focus on building solid relationships, which is as important as superior performance. HCM continues to be the top financial performer within the ALFG holding company system posting $27 million in Revenue and $9.8 million in Net Income. *AUM fell $2.94 billion, while AUA fell $550 million. Atlanta Life Insurance Company (ALIC) had several operating accomplishments. ALIC maintained a B- rating with positive outlook during the year with Risk Based Capital (RBC) of about 500% more than the required 200%. The Georgia State Insurance Department approved two new products Contestable Period Coverage for Structured Settlements and Contestable Period Coverage for Key Man Insurance. ALIC continues to add to Retained Earnings through earnings two years in a row. It is worth noting that current market and economic pressures like low interest rates continue to impact investment options. In addition, the lack of capital and the risk of surplus strain limit ALIC s ability to create new proprietary products and ventures. Despite the aforementioned 2015 challenges, ALIC posted an Operating profit of $0.24 million. Additionally, the Company sub-leased the 26th floor to further reduce the expenses and improve its earnings over the next several years. Growth is possible and in light of the constraints of limited capital, we believe that strategic partnerships that result in fronting fees and Group Reinsurance Revenues are the best options. As such, we have continued to investigate further fronting fee arrangements with other Reinsurers to enhance the revenues of the company. Atlanta Life General Agency (ALGA) reported an operational loss of $0.56 million for the year. This was primarily due to the Jumpstart and Industry segmentation testing and the marketing expenses related to it conducted during the year. In 2016, ALGA will only be a repository for all 2015 policy and premium renewals, a repository for all individual licenses, be a partner for all value one insurance transactions, hold client policy book, and be responsible for all insurance carriers appointments. 05

6 2015 ANNUAL REPORT 2015 BENCHMARKS Looking into the future, ALFG continues to explore new opportunities for a predictable revenue, gross profit, and income growth. We registered a new company, Value One Corporation (VOC), a new branded multi-product financial services platform that will become a One Stop Shop for small and mid-sized businesses. This company will provide Property and Casualty Insurance, Working Capital, Merchant Processing, Payroll processing plus tax reporting services, investments plus wealth management advisory services and commercial credit monitoring services. REVENUE BY BUSINESS ALGA $132,470 According to Frederick Douglas, Without a struggle, there can be no progress. We have learned from our struggle and in doing so, we are making the necessary improvements and changes to establish another viable revenue source. We submit to you that although the long term outlook may be challenging at times, the overall result envisioned for ALFG is stability, profitability, predictability and longevity. ALIC $12,203,917 HCM $27,000,831 Sincerely, Herndon Capital Management Geoffrey C. Nnadi President and Chief Executive Officer Atlanta Life Financial Group Atlanta Life Insurance Company Atlanta Life General Agency Roosevelt Giles Chairman of the Board of Directors Atlanta Life Financial Group Chief Executive Officer EndPoint Consulting Group, LLC 06

7 ALFG OPERATING PERFORMANCE TRENDS Actual Actual Actual Actual Actual Actual Revenue 55,445,704 60,425,453 50,729,592 51,788,831 47,288,901 39,337,218 Expenses 54,006,445 58,024,828 42,062,294 40,520,740 39,183,537 34,349,515 Income (loss) from Oper. 1,439,259 2,400,625 8,667,298 11,268,091 8,105,364 4,987,703 Operating 3% 4% 17% 22% 17% 13% Profit Margin 70,000,000 60,000, ,000, ,000, ,000,000 20,000,000 10,000, Actual 2011 Actual 2012 Actual 2013 Actual 2014 Actual 2015 Actual Revenue Expenses Income (loss) from Oper. 07

8 2015 ANNUAL REPORT It is not the biggest and the strongest companies that survive the vagaries and volatility of the market and economic forces, but it is only those companies which are receptive and adaptive to change. Geoffrey C. Nnadi President & CEO Atlanta Life Financial Group WE ARE Vision Statement Building wealth for a secure future. 08

9 Mission Statement To build upon a century of exceptional service as a trusted adviser by partnering with our clients to reach their financial goals through: THOUGHT-LEADERSHIP CUSTOMIZED SOLUTIONS UNPARALLELED EXECUTION 09

10 2015 ANNUAL REPORT WE ARE Atlanta Life Insurance Company (ALIC) is the oldest member of Atlanta Life Financial Group s Family of Companies. Capabilities include reinsurance of group life insurance and dental benefits, and GAP coverage on unstructured settlements and Key Man Insurance. Atlanta Life General Agency (ALGA), a subsidiary of Atlanta Life Insurance Company, is a multi-line insurance broker that offers personal and commercial lines of property & casualty coverage, including E&O and D&O as well as life, health and other financial service products. For more information, please visit and respectively. Founded and registered with the SEC in 2001, Herndon Capital Management (HCM), is an institutional investment management firm specializing in quality, dynamic, active equity strategies. The Herndon Capital Management offerings include six investment products: Large Cap Core International, managed by Kenneth R. Holley, CFA, with Associate Portfolio Manager, Anuja Singha, CFA; Large Cap US Growth, managed by Drake J. Craig, CFA and co-managed by James Nelson, CFA; Mid Cap US Growth, managed by Drake J. Craig, CFA, and co-managed by James Nelson, CFA; Large Cap US Value, managed by Randell A. Cain, Jr., CFA, with Associate Portfolio Manager, J. Keith Buchanan, CFA; Mid Cap US Value, managed by Randell A. Cain, Jr., CFA, with Associate Portfolio Manager, J. Keith Buchanan, CFA; and Large Cap US Core, managed by Holley, Craig, Cain, and Nelson collectively. The firm co-brands and acts as sub-adviser for the Aston/Herndon Large Cap Value Mutual Fund [Fund Manager, Aston Asset Management, Ticker: AALIX], and the Nationwide Herndon Mid Cap Value mutual fund [Fund Manager, Nationwide, Ticker: NWWPX]. In addition, the firm sub-advises the Nationwide Diverse Managers Large Cap Value sleeve [Fund Manager, Nationwide], the Parvest Equity USA Large Cap Value fund [Fund Manager, Parvest], co-sub-advises for the Optimum Large Cap Value Fund [Fund Manager, Delaware Management Company, Ticker: OALVX], and sub-advises the AST Herndon Large Cap Value annuity product [offered by Prudential Investments] Please visit

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12 CONSOLIDATED BALANCE SHEETS (GAAP BASIS) Atlanta Life Financial Group, Inc. December ASSETS Invested Assets Fixed maturities, available-for-sale at fair value (amortized cost of 2015: $12,572,369; 2014: $12,354,844) $ 13,189,998 $ 13,168,400 Equity securities, available-for-sale at fair value (cost of 2015: $644,991; 2014: $622,041) 789, ,144 Equity-method investment 101,789 Policy loans 1,200,650 1,245,123 Total Invested Assets $ 15,180,293 $ 15,329,456 Cash and cash equivalents 18,359,417 21,922,080 Accrued investment income 156, ,863 Premiums and other receivables 18,894,282 16,722,993 Reinsurance recoverable 71,769,239 73,001,428 Investment management fees receivable 4,544,391 7,136,839 Income tax receivable 118,068 Deferred income taxes 1,951,085 1,970,795 Property and equipment, net 1,826,857 2,088,567 Funded status of pension plan 4,047,261 4,296,865 Assets withheld by reinsured counterparties 8,007,880 8,512,224 Other assets 730, ,126 Total Assets $ 145,467,698 $ 152,014,804 LIABILITIES AND EQUITY Liabilities Future policy benefits $ 103,049,461 $ 104,058,464 Commissions payable 3,935,185 2,721,242 Deferred income 390, ,798 Accrued bonus 4,299,421 7,547,366 Other liabilities 5,150,608 5,965,461 Total Liabilities $ 116,825,414 $ 120,739,331 EQUITY Common stock, no par value; 1,000,000 shares authorized; 110,441 and 109,901 shares issued at December 31, 2015 and 2014 Additional paid-in capital 1,310,863 1,004,117 Retained earnings 23,173,623 23,356,206 Accumulated other comprehensive income 3,172,093 3,497,461 Treasury stock, at cost; 56,247 and 55,761 shares at December 31, 2015 and 2014 (757,151) (520,704) Total Stockholders Equity 26,899,428 27,337,080 Non-controlling interests 1,742,856 3,938,393 Total Equity 28,642,284 31,275,473 TOTAL LIABILITIES AND EQUITY $ 145,467,698 $ 152,014,

13 CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS) Atlanta Life Financial Group, Inc. For The Years Ended December 31, 2015 and INCOME Premiums, net $ 11,585,332 $ 12,165,441 Net investment (loss) income 260,356 (261,931) Net investment realized gains 8,527 22,728 Investment management fees 27,000,831 34,602,553 Other income 482, ,110 Total Income $ 39,337,218 $ 47,288,901 EXPENSES Policyholder benefits and claims $ 8,884,251 $ 10,202,306 Commissions 3,622,108 3,262,572 Salaries, wages and employee benefits 13,365,546 16,490,732 Other expenses 8,477,610 9,227,927 Total Expenses 34,349,515 39,183,537 Income From Operations Before Income Tax 4,987,703 8,105,364 Income Tax (Benefit) 292, ,944 NET INCOME $ 4,695,054 $ 7,317,420 Net Income Attributed To Noncontrolling Interest 4,389,790 6,558,431 NET INCOME ATTRIBUTED TO THE COMPANY $ 305,264 $ 758,989 13

14 CONSOLIDATED STATEMENTS OF CASH FLOWS Atlanta Life Financial Group, Inc. For The Years Ended December 31, 2015 and CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 4,695,054 $ 7,317,420 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 337, ,713 Accretion of leasehold incentive (83,700) (83,700) Amortization of deferred income (56,059) (56,476) Deferred income tax benefit 161, ,531 Realized gain (loss) on available-for-sale investments (8,527) (22,728) Loss on equity-method investment 62, ,211 Loss on disposal of property and equipment (11,160) Stock compensation expense 157, ,208 Change in operating assets and liabilities: Premiums and other receivables $ (2,171,289) $ 12,976,942 Reinsurance recoverable 1,232,189 1,919,465 Investment management fees receivable 2,591, ,427 Income tax receivable 143,448 (118,068) Accrued investment income (3,052) (24,918) Assets withheld by reinsured counterparties 504,344 3,341,335 Other assets 19, ,391 Future policy benefits (1,009,003) (18,944,652) Commissions payable 1,213,943 (1,272,478) Accrued bonus (3,247,945) (159,099) Other liabilities (731,153) 1,164,242 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,809,734 $ 9,196,

15 CONSOLIDATED STATEMENTS OF CASH FLOWS Atlanta Life Financial Group, Inc. For The Years Ended December 31, 2015 and CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities and repayments of: Fixed maturities $ 10,129,887 $ 1,647,448 Equity securities 500, ,641 Purchase of: Fixed maturities (10,352,945) (6,979,960) Equity securities (492,185) (446,210) Equity-method investment (621,000) Property and equipment (80,347) (211,856) Distribution from equity method investment 38,924 Net change in policy loans 44,473 32,180 NET CASH PROVIDED BY INVESTING ACTIVITIES $ (211,646) $ (6,154,757) CASH FLOWS FROM FINANCING ACTIVITIES Distributions to noncontrolling interests $ (6,585,327) $ (6,557,949) Dividends paid to shareholders (487,847) (504,729) Purchase of treasury stock (87,577) NET CASH USED BY FINANCING ACTIVITIES (7,160,751) (7,062,678) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,562,663) (4,020,829) CASH AND CASH EQUIVALENTS, BEGINNING 21,922,080 25,942,909 CASH AND CASH EQUIVALENTS, ENDING $ 18,359,417 $ 21,922,080 SUPPLEMENTAL DISCLOSURE Cash paid during the year for income taxes $ 414,500 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Treasury stock payable $ (148,870) NOTE: The consolidated statements of Income, Operations, and Cash Flow are audited. 15

16 2015 ANNUAL REPORT Pictured from left to right: Steve Rabb Roosevelt Giles Maryann Bruce Chris Morris Geoffrey C. Nnadi 16

17 BOARD OF DIRECTORS Geoffrey C. Nnadi President and Chief Executive Officer Atlanta Life Financial Group Chris Morris Managing Partner Tatum Maryann Bruce Independent Director Roosevelt Giles Chairman of the Board of Directors Atlanta Life Financial Group President and Chief Executive Officer EndPoint Consulting Group, LLC Steve Rabb Chief Marketing and Revenue Officer Community Health Charities

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