<PAGE>
- - - -------------------------------------------------------------------------------
- - - -------------------------------------------------------------------------------
FORM 10-Q
------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Numbers 33-31940; 33-39345; 33-57052
PROTECTIVE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
TENNESSEE 63-0169720
(State of incorporation) (IRS Employer Identification Number)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices)
(205) 879-9230
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock, $1.00 par value, outstanding as of November 4,
1994: 5,000,000 shares.
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(A) AND
(B) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT PURSUANT TO GENERAL INSTRUCTION H(2).
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Report of Independent Accountants ...................................... 2
Consolidated Condensed Statements of Income for the Three and
Nine Months ended September 30, 1994 and 1993 (unaudited) ............ 3
Consolidated Condensed Balance Sheets as of September 30, 1994
(unaudited) and December 31, 1993 ................................... 4
Consolidated Condensed Statements of Cash Flows
for the Nine Months ended September 30, 1994 and 1993 (unaudited) ... 5
Notes to Consolidated Condensed Financial Statements (unaudited) ....... 6
Item 2. Management's Narrative Analysis of the Results of Operations ... 9
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K ............................... 14
Signature .................................................................. 14
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama
We have reviewed the accompanying consolidated condensed balance sheet of
Protective Life Insurance Company and subsidiaries as of September 30, 1994,
and the related consolidated condensed statements of income and cash flows
for the three-month and nine-month periods ended September 30, 1994 and 1993.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of income, stockholder's equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
14, 1994, we expressed an unqualified opinion which contains an explanatory
paragraph regarding the changes in accounting for certain investments in debt
and equity securities in 1993 and postretirement benefits other than pensions in
1992 on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated condensed balance sheet
as of December 31, 1993, is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
October 25, 1994
2
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
three months: 1994 - $50,714; 1993 - $33,045 $101,876 $ 94,421 $289,362 $254,273
nine months: 1994 - $121,462; 1993 - $93,927)
Net investment income 101,283 93,453 295,978 255,543
Realized investment gains 3,122 (39) 4,855 763
Other income 643 1,113 2,871 3,101
------- ------ ------- -------
206,924 188,948 593,066 513,680
------- ------- ------- -------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
three months: 1994 - $31,118; 1993 - $18,321 134,208 126,680 376,536 339,058
nine months: 1994 - $80,541; 1993 - $57,558)
Amortization of deferred policy acquisition costs 20,485 19,021 60,194 52,057
Other operating expenses (net of reinsurance ceded:
three months: 1994 - $3,793; 1993 - $3,368 24,859 23,596 81,457 63,723
nine months: 1994 - $9,842; 1993 - $8,900) ------- ------- ------- -------
179,552 169,297 518,187 454,838
------- ------- ------- -------
INCOME BEFORE INCOME TAX 27,372 19,651 74,879 58,842
Income tax expense 8,728 8,122 23,960 20,919
------- ------- -------- --------
NET INCOME $18,644 $ 11,529 $ 50,919 $ 37,923
------- ------- -------- --------
------- ------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1994 1993
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities $3,388,320 $3,051,292
Equity securities 45,197 40,596
Mortgage loans on real estate 1,394,367 1,408,444
Investment in real estate, net 29,407 21,928
Policy loans 139,462 141,136
Other long-term investments 28,404 22,760
Short-term investments 131,061 79,772
---------- ----------
Total investments 5,156,218 4,765,928
Cash 0 23,951
Accrued investment income 53,930 51,330
Accounts and premiums receivable, net 19,785 20,473
Reinsurance receivables 91,273 102,559
Deferred policy acquisition costs 374,359 299,307
Property and equipment, net 32,154 33,046
Receivables from related parties 120 382
Other assets 10,757 7,473
Assets held in separate accounts 88,533 3,400
---------- ----------
TOTAL ASSETS $5,827,129 $5,307,849
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals $1,620,586 $1,469,630
Guaranteed investment contract deposits 2,251,587 2,015,075
Annuity deposits 1,175,551 1,005,742
Other policyholders' funds 179,107 141,975
Other liabilities 79,469 74,375
Accrued income taxes 4,841 7,483
Deferred income taxes (11,813) 69,118
Debt 46 118
Indebtedness to related parties 46,051 48,943
Liabilities related to separate accounts 88,533 3,400
---------- ----------
TOTAL LIABILITIES 5,433,958 4,835,859
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE B
REDEEMABLE PREFERRED STOCK, $1 par value,
at redemption value; Shares authorized
and issued: 2,000 2,000 2,000
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock, $1 par value
Shares authorized and issued: 5,000,000 5,000 5,000
Additional paid-in capital 126,494 126,494
Net unrealized gains (losses) on investments
(Net of income tax: 1994 - $(48,694);
1993 - $19,774) (90,431) 39,284
Retained earnings 356,044 305,176
Note receivable from PLC
Employee Stock Ownership Plan (5,936) (5,964)
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 391,171 469,990
---------- ----------
$5,827,129 $5,307,849
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 50,919 $ 37,923
Adjustments to reconcile net income to net cash
provided by operating activities:
Net change in deferred policy acquisition costs (67,821) (21,137)
Depreciation expense 3,409 2,287
Deferred income taxes (80,931) (2,919)
Accrued income taxes (2,642) 5,195
Interest credited to universal life and
investment products 183,642 164,095
Policy fees assessed on universal life and
investment products (58,887) (44,328)
Change in accrued investment income and
other receivables 9,636 (97,972)
Change in policy liabilities and other policyholders'
funds of traditional life and health products 84,215 139,062
Change in other liabilities 6,502 28,232
Other (net) (2,168) 3,551
------------ -----------
Net cash provided by operating activities 125,874 213,989
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of investments acquired
Investments available for sale (1,227,707)
Other (112,964) (1,569,345)
Maturities and principal reductions of investments
Investments available for sale 325,243
Other 129,296 826,776
Sale of investments
Investments available for sale 349,944
Other 16,183 167,583
Acquisitions and bulk reinsurance assumptions 39,328 17,995
Purchase of property and equipment (2,933) (2,479)
Sale of property and equipment 1,817 236
----------- -----------
Net cash used in investing activities (481,793) (559,234)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit
arrangements and long-term debt 373,186 417,601
Capital Contribution from PLC 35,000
Principal payments on line of credit arrangements
and long-term debt (373,258) (401,923)
Principal payment on surplus note to PLC (4,750)
Dividends to PLC (50) (50)
Change in universal life and investment product deposits 336,840 326,021
----------- -----------
Net cash provided by financing activities 331,968 376,649
----------- -----------
INCREASE (DECREASE) IN CASH (23,951) 31,404
CASH AT BEGINNING OF PERIOD 23,951 11,567
----------- ------------
CASH AT END OF PERIOD $ 0 $ 42,971
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on notes and mortgages payable $(3,713) $ (773)
Income taxes $(37,687) $ (19,296)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Change in minority interest in consolidated subsidiary $ (1,311)
Reduction of principal on note from ESOP $ 28 $ 156
Transfer of SEHP to PLC $ 2,535
Acquisitions and bulk reinsurance assumptions
Assets acquired $ 41,818 $ 426,965
Liabilities assumed (49,049) (429,580)
----------- ----------
Net $ (7,231) $ (2,615)
----------- ----------
----------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements of Protective Life Insurance Company ("Protective
Life") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the disclosures required
by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation have been included. Operating results for the nine
month period ended September 30, 1994 are not necessarily indicative
of the results that may be expected for the year ending
December 31, 1994. For further information, refer to the consolidated
financial statements and notes thereto included in Protective Life's
annual report on Form 10-K for the year ended December 31, 1993.
Protective Life is a wholly-owned subsidiary of Protective
Life Corporation ("PLC").
NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES
At September 30, 1994, Protective Life was committed to fund
approximately $333.7 million of long-term investments. Also, PLC
has issued a guarantee in connection with the sale of certain tax
exempt mortgage loans which may be put to Protective Life in the
event of default. At September 30, 1994, the loans totaled $17.1
million.
Under insurance guaranty fund laws, in most states, insurance
companies doing business therein can be assessed up to prescribed
limits for policyholder losses incurred by insolvent companies.
Protective Life does not believe such assessments will be materially
different from amounts already provided for in the financial
statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an
insurer's own financial strength.
Protective Life and its subsidiaries, like other life and
health insurers, from time to time are involved in litigation.
To date, no such lawsuit has resulted in the award of any
significant amount of damages against Protective Life. There
are currently several lawsuits pending against Protective Life in
Alabama, one of which is a class action concerning the sale of
credit insurance. Although the outcome of any litigation cannot
be predicted with certainty, Protective Life believes that such
litigation will not have a material adverse effect on its
financial position.
6
<PAGE>
NOTE C - STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally
accepted accounting principles (i.e., GAAP) differ in some
respects from the statutory accounting practices prescribed or
permitted by insurance regulatory authorities. At September 30,
1994, Protective Life and its life insurance subsidiaries had
consolidated stockholder's equity and net income prepared in
conformity with statutory reporting practices of $311.3 million
and $32.6 million, respectively.
NOTE D - RECENTLY ADOPTED ACCOUNTING STANDARDS
At December 31, 1993, Protective Life adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." For purposes
of adopting SFAS No. 115 Protective Life has classified all of
its investments in fixed maturities, equity securities, and
short-term investments as "available for sale." As prescribed in
SFAS No. 115, these investments are recorded at their market
values with the resulting net unrealized gain or loss, net of
income tax, recorded as a component of stockholder's equity. The
effect of adopting SFAS No. 115 at December 31, 1993 was to
increase fixed maturities by $65.6 million, decrease deferred
policy acquisition costs by $12.4 million, increase the liability
for deferred income taxes by $18.6 million, and increase stockholder's
equity by $34.6 million. The effect of having adopted
SFAS No. 115 at September 30, 1994 (compared to financial statements
prepared under previous accounting standards) was to
decrease fixed maturities by $165.8 million, increase deferred
policy acquisition costs by $26.3 million, decrease the liability
for deferred income taxes by $48.8 million, and decrease stockholder's
equity by $90.7 million.
NOTE E - CONSOLIDATED PRO FORMA RESULTS
On July 30, 1993, Protective Life acquired Wisconsin National
Life Insurance Company ("Wisconsin National"). Summarized
below are the consolidated results of operations for the nine
months ended September 30, 1993, on an unaudited pro forma basis,
as if the Wisconsin National acquisition had occurred as of
January 1, 1993. The pro forma information is based on Protective
Life's historical consolidated results of operations for the
nine months ended September 30, 1993 and on data provided by
Wisconsin National, using financial statement classifications
consistent with those used by Protective Life after giving effect
to certain pro forma adjustments. The pro forma financial
information does not purport to be indicative of results of
operations that would have occurred had the transactions occurred
on the basis assumed above nor are they indicative of the future
operations of the combined enterprises.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1993
------------------
(IN THOUSANDS)
(UNAUDITED)
<S> <C>
Total revenues $545,439
Net income $ 39,801
</TABLE>
7
<PAGE>
NOTE F - SUBSEQUENT EVENT
On October 3, 1994 Protective Life acquired, via a 100%
coinsurance transaction, a block of individual life insurance
policies. The statutory purchase price was approximately $41.5
million.
8
<PAGE>
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE
RESULTS OF OPERATIONS
Protective Life Insurance Company ("Protective Life") is a
wholly-owned and the principal operating subsidiary of Protective
Life Corporation ("PLC"), an insurance holding company whose
common stock is traded on the New York Stock Exchange. Founded
in 1907, Protective Life provides financial services through the
production, distribution, and administration of insurance and
investment products.
Over the last twenty-five years PLC has made over thirty
acquisitions of smaller insurance companies or blocks of policies.
Many of these transactions included Protective Life.
Additionally, PLC has from time to time merged other life insurance
companies it has acquired into Protective Life. In July
1993, Protective Life acquired Wisconsin National Life Insurance
Company ("Wisconsin National") and acquired by reinsurance a
block of universal life policies. In April 1994, Protective Life
acquired by reinsurance a block of payroll deduction policies.
In accordance with General Instruction H(2)(a), Protective
Life includes the following analysis with the reduced disclosure
format.
REVENUES
The following table sets forth revenues by source for the
period shown:
<TABLE>
<CAPTION>
NINE MONTHS PERCENTAGE
ENDED INCREASE
SEPTEMBER 30 (DECREASE)
------------- --------------
(IN THOUSANDS)
1994 1993
---- ----
<S> <C> <C> <C>
Premiums and policy fees $289,362 $254,273 13.8%
Net investment income 295,978 255,543 15.8
Realized investment gains 4,855 763 536.3
Other income 2,871 3,101 (7.4)
-------- --------
$593,066 $513,680
-------- --------
-------- --------
</TABLE>
Premiums and policy fees increased $35.1 million or 13.8% in
the first nine months of 1994 over the first nine months of 1993.
Increases in premiums and policy fees from the Agency and Financial
Institutions Divisions represent increases of $7.2 million
and $12.4 million, respectively. The Wisconsin National acquisition
resulted in an $8.6 million increase in premiums and policy
fees and the reinsurance in 1993 of a block of universal life
policies resulted in a $3.4 million increase. The reinsurance of
a block of payroll deduction policies effective April 2, 1994
resulted in a $6.0 million increase. Decreases in older acquired
blocks of policies represent a $2.8 million decrease in premiums
and policy fees.
9
<PAGE>
Net investment income in the first nine months of 1994 increased
by $40.4 million or 15.8% over the corresponding period
of the preceding year, primarily due to increases in the average
amount of invested assets. Invested assets have increased
primarily due to receiving annuity and guaranteed investment
contract ("GIC") deposits and to acquisitions. Annuity and GIC
deposits are not considered revenues in accordance with generally
accepted accounting principles. These deposits are included in
the liability section of the balance sheet. The Wisconsin
National acquisition and the reinsurance of a block of universal
life policies and a block of payroll deduction policies resulted
in an increase in net investment income of $16.0 million in the
first nine months of 1994.
Protective Life generally purchases its investments with the
intent to hold to maturity by purchasing investments that match
future cash-flow needs. However, the Company may sell any of its
investments to maintain proper matching of assets and liabilities.
Accordingly, Protective Life has classified its fixed
maturities as "available for sale." The sales of investments
that have occurred have largely resulted from portfolio management
decisions to maintain proper matching of assets and liabilities.
Realized investment gains for the first nine months of 1994
were $4.1 million higher than the corresponding period of 1993.
Realized investment gains in the first nine months of 1993 were
reduced by an $8.7 million increase in Protective Life's allowance
for uncollectible amounts on investments (primarily relating
to mortgage loans) which were recorded as a realized investment
loss. In 1994, realized investment gains on the sale of equity
securities were partially offset by realized investment losses
incurred from sales of fixed maturity investments that occurred
to maintain proper matching of assets and liabilities.
Recently, rising interest rates have caused market values to
fall below amortized cost for many of Protective Life's fixed
maturity investments. Therefore, some realized investment losses
may be incurred upon future sales of investments to maintain
proper matching of assets and liabilities. Protective Life does
not anticipate such realized investment losses will be material.
Other income consists primarily of fees from administrative-
services-only types of group accident and health insurance
contracts, and from rental of space in its administrative building to PLC.
10
<PAGE>
INCOME BEFORE INCOME TAX
The following table sets forth income or loss before income
tax by business segment for the periods shown:
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE INCOME TAX
NINE MONTHS ENDED SEPTEMBER 30
(IN THOUSANDS)
-------------------------------
BUSINESS SEGMENT 1994 1993
- - - ---------------- ---- ----
<S> <C> <C>
Agency $ 12,699 $14,021
Group 7,103 8,649
Financial Institutions 6,055 5,126
Investment Products 4,091 2,344
Guaranteed Investment Contracts 28,329 15,423
Acquisitions 28,605 19,013
Corporate and Other (12,477) (8,536)
Unallocated Realized Investment
Gains (Losses) 474 2,802
---------- ---------
$ 74,879 $58,842
---------- ---------
---------- ---------
</TABLE>
Agency pretax earnings were $1.3 million lower in the first
nine months of 1994 as compared to the first nine months of 1993
primarily due to $1.8 million of expenses to develop new marketing
ventures.
Group pretax earnings were $1.5 million lower in the first
nine months of 1994 as compared to the first nine months of 1993
due to start up expenses of approximately $2.1 million related to
the establishment of a special marketing unit to sell dental
plans through mail and telephone solicitations. Lower traditional
group life and health earnings were offset by improved earnings
from dental products.
Pretax earnings of the Financial Institutions Division were
$0.9 million higher in the first nine months of 1994 as compared
to the same period in 1993 due to the growth in premiums and
policy fees.
Investment Products Division pretax earnings were $1.7 million
higher in the first nine months of 1994 compared to the same
period of 1993. The Division's earnings have increased due to
the growth in annuity deposits, though the increase was largely
offset by realized investment losses from the sale of investments
to maintain proper matching of assets and liabilities, and
increased expenses of approximately $1.7 million related to the
development and introduction of a variable annuity. Variable
annuity deposits are reported in the accompanying financial
statements as "liabilities related to separate accounts."
The Guaranteed Investment Contract ("GIC") Division had
pretax earnings of $28.3 million in the first nine months of 1994
and $15.4 million in the corresponding period of 1993. Realized
investment gains associated with this Division were $7.6 million
higher in the first nine months of 1994 as compared to the same
period last year. GIC earnings have also increased due to
improved investment results and to the growth in deposits placed
with Protective Life. At September 30, 1994, GIC deposits
totaled $2.3 billion compared to $2.0 billion one year earlier.
11
<PAGE>
Pretax earnings from the Acquisitions Division increased
$9.6 million in the first nine months of 1994 as compared to the
same period of 1993. Earnings from the Acquisitions Division are
expected to decline over time (due to the lapsing of policies
resulting from deaths of insureds or terminations of coverage)
unless new acquisitions are made. As previously discussed,
Protective Life completed its acquisition of Wisconsin National
and acquired by reinsurance a block of universal life policies
during the 1993 third quarter. These two acquisitions represent
all of the increase.
In the ordinary course of business, the Acquisitions Division
regularly considers acquisitions of smaller insurance companies
or blocks of policies. On April 2, 1994 the Division acquired by
reinsurance a small block of payroll deduction policies. On
October 3, 1994 the Division announced it had acquired, through a
coinsurance transaction, a block of 130,000 individual life
insurance policies from Reliance Standard Life Insurance Company.
The statutory purchase price paid was approximately $41.5 million.
The block of policies currently generates approximately
$25 million in annual premiums and involves $110 million in
reserves.
The Corporate and Other segment consists of several small
insurance lines of business, net investment income and other
operating expenses not identified with the preceding operating
divisions (including interest on substantially all debt), and the
operations of a small noninsurance subsidiary. Pretax earnings
for this segment were $3.9 million lower in the first nine months
of 1994 as compared to the first nine months of 1993 primarily
due to higher expenses.
INCOME TAXES
The following table sets forth the effective tax rates for
the periods shown:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED ESTIMATED EFFECTIVE
SEPTEMBER 30 INCOME TAX RATES
------------ -------------------
<S> <C>
1994 32.0%
1993 33.5
</TABLE>
In August, 1993, the corporate income tax rate was increased
from 34% to 35%, which resulted in an increase to income tax
expense of $1.2 million due to a recalculation of Protective
Life's deferred income tax liability. The effective income tax
rate for the first nine months of 1993 was 33.5%. Management's
estimate of the effective income tax rate for 1994 is 32.0%.
12
<PAGE>
NET INCOME
The following table sets forth net income for the periods
shown:
<TABLE>
<CAPTION>
NET INCOME
NINE MONTHS ------------------------------
ENDED TOTAL PERCENTAGE
SEPTEMBER 30 (IN THOUSANDS) INCREASE
------------- -------------- ----------
<S> <C> <C>
1994 $50,919 34.3%
1993 37,923 28.7
</TABLE>
Compared to the same period in 1993, net income in the first
nine months of 1994 increased $13.0 million, reflecting improved
earnings in the Financial Institutions, Investment Products, GIC,
and Acquisitions Divisions, which were partially offset by lower
earnings in the Agency and Group Divisions and the Corporate and
Other segment.
RECENTLY ISSUED ACCOUNTING STANDARDS
Protective Life recently adopted Statement of Financial
Accounting Standards ("SFAS") No. 115 which requires Protective
Life to carry its investment in fixed maturities and certain
other securities at market value instead of amortized cost.
Under SFAS No. 115, unrealized gains and losses, net of income
tax, on such investments are reported as a component of stockholder's
equity. The market values of fixed maturities increase or
decrease as interest rates fall or rise. Therefore, although the
adoption of SFAS No. 115 will not affect Protective Life's
operations, its reported stockholder's equity may fluctuate
significantly as interest rates change.
During the first nine months of 1994, interest rates rose
over two percentage points. Even though Protective Life believes
its asset/liability matching practices and certain product
features provide significant protection for Protective Life
against the effects of changes in interest rates, the new accounting
rule required reporting a $125.3 million decrease in
stockholder's equity.
In May 1993, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan." In October 1994, the FASB amended SFAS No. 114 with
the issuance of SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures."
Protective Life anticipates that the impact of adopting SFAS Nos.
114 and 118 on its financial condition will be immaterial.
In October 1994, the FASB issued SFAS No. 119, "Disclosure
About Derivative Financial Instruments and Fair Value of Financial
Instruments." The Company anticipates that the impact of
adopting SFAS No. 119 on its financial condition and presentation
will be immaterial.
13
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial data schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PROTECTIVE LIFE INSURANCE COMPANY
Date: November 11, 1994 /s/ Jerry W. DeFoor
Jerry W. DeFoor ----------------------------
Vice President and Controller,
and Chief Accounting Officer
(Duly authorized officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statement of income and condensed consolidated
balance sheet on pages 3 and 4 of Protective Life's Form 10-Q for the
quarterly period ended September 30, 1994 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 3,388,320
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,197
<MORTGAGE> 1,394,367
<REAL-ESTATE> 29,407
<TOTAL-INVEST> 5,156,218
<CASH> 0
<RECOVER-REINSURE> 91,273
<DEFERRED-ACQUISITION> 374,359
<TOTAL-ASSETS> 5,827,129
<POLICY-LOSSES> 1,520,348
<UNEARNED-PREMIUMS> 100,238
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 179,107
<NOTES-PAYABLE> 46
<COMMON> 5,000
2,000
0
<OTHER-SE> 386,171
<TOTAL-LIABILITY-AND-EQUITY> 5,827,129
289,362
<INVESTMENT-INCOME> 295,978
<INVESTMENT-GAINS> 4,855
<OTHER-INCOME> 2,871
<BENEFITS> 376,536
<UNDERWRITING-AMORTIZATION> 60,194
<UNDERWRITING-OTHER> 81,457
<INCOME-PRETAX> 74,879
<INCOME-TAX> 23,960
<INCOME-CONTINUING> 50,919
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,919
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Protective Life is a wholly owned subsidiary of Protective Life
Corporation and therefore no earnings per share is presented.
</FN>
</TABLE>
