<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 JUNE 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 require-
ments for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock, $1.00 par value, outstanding as of August 5,
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
PAGE NUMBER
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Report of Independent Accountants. . . . . . . . . . . . . . . . . .2
Consolidated Condensed Statements of Income for the Three and Six
Months ended June 30, 1994 and 1993 (unaudited). . . . . . . . . .3
Consolidated Condensed Balance Sheets as of June 30, 1994
(unaudited) and December 31, 1993. . . . . . . . . . . . . . . . .4
Consolidated Condensed Statements of Cash Flows
for the Six Months ended June 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. .8
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<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 June 30, 1994, and the
related consolidated condensed statements of income and cash flows for the
three-month and six-month periods ended June 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
Birmingham, Alabama
July 26, 1994
2
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1994 1993 1994 1993
--------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
three months: 1994 - $36,622; 1993 - $31,378 $ 98,049 $ 83,572 $187,486 $159,852
six months: 1994 - $70,748; 1993 - $60,882)
Net investment income 95,870 84,957 194,695 162,090
Realized investment gains (564) 677 1,733 802
Other income 1,476 480 2,228 1,988
--------- -------- -------- --------
194,831 169,686 386,142 324,732
--------- -------- -------- --------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
three months: 1994 - $25,313; 1993 - $20,143
six months: 1994 - $49,424; 1993 - $42,695) 126,452 109,607 242,328 212,378
Amortization of deferred policy acquisition costs 19,670 16,138 39,709 33,036
Other operating expenses (net of reinsurance ceded:
three months: 1994 - $3,318; 1993 - $3,365
six months: 1994 - $6,048; 1993 - $5,247) 30,326 19,680 56,598 40,127
-------- -------- -------- --------
176,448 145,425 338,635 285,541
-------- -------- -------- --------
INCOME BEFORE INCOME TAX 18,383 24,261 47,507 39,191
Income tax expense 5,912 8,128 15,232 12,797
-------- -------- -------- --------
NET INCOME $ 12,471 $ 16,133 $ 32,275 $ 26,394
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1994 1993
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities $3,187,360 $3,051,292
Equity securities 68,179 40,596
Mortgage loans on real estate 1,363,391 1,408,444
Investment in real estate, net 28,166 21,928
Policy loans 139,535 141,136
Other long-term investments 24,689 22,760
Short-term investments 138,029 79,772
---------- ----------
Total investments 4,949,349 4,765,928
Cash 13,711 23,951
Accrued investment income 54,381 51,330
Accounts and premiums receivable, net 14,925 20,473
Reinsurance receivables 105,778 102,559
Deferred policy acquisition costs 350,394 299,307
Property and equipment, net 30,938 33,046
Receivables from related parties 1,988 382
Other assets 9,049 7,473
Assets held in separate accounts 40,641 3,400
---------- ----------
TOTAL ASSETS $5,571,154 $5,307,849
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals $1,586,639 $ 1,469,630
Guaranteed investment contract deposits 2,138,550 2,015,075
Annuity deposits 1,114,811 1,005,742
Other policyholders' funds 158,106 141,975
Other liabilities 79,435 74,375
Accrued income taxes (140) 7,483
Deferred income taxes 9,833 69,118
Debt 80 118
Indebtedness to related parties 44,193 48,943
Liabilities related to separate accounts 40,641 3,400
---------- ----------
TOTAL LIABILITIES 5,172,148 4,835,859
---------- ----------
COMMITMENTS AND CONTINGENCIES - 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 - $(35,513); 1993 - $19,774) (65,953) 39,284
Retained earnings 337,401 305,176
Note receivable from PLC
Employee Stock Ownership Plan (5,936) (5,964)
---------- ----------
TOTAL STOCKHOLDER'S EQUITY 397,006 469,990
---------- ----------
$5,571,154 $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>
SIX MONTHS ENDED
JUNE 30
--------------------------
1994 1993
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 32,275 $ 26,394
Adjustments to reconcile net income to net cash provided by operating activities:
Net change in deferred policy acquisition costs (43,856) (14,356)
Depreciation expense 2,677 1,855
Deferred income taxes (59,285) (3,865)
Accrued income taxes (7,623) 423
Interest credited to universal life and investment products 119,559 101,468
Policy fees assessed on universal life and investment products (38,727) (27,815)
Change in accrued investment income and other receivables (2,328) (89,526)
Change in policy liabilities and other policyholders'
funds of traditional life and health products 48,391 116,960
Change in other liabilities 4,610 33,230
Other (net) 1,574 1,419
---------- ----------
Net cash provided by operating activities 57,267 146,187
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of investments acquired
Investments available for sale (786,785)
Other (65,223) (1,033,482)
Maturities and principal reductions of investments
Investments available for sale 264,967
Other 118,561 535,335
Sale of investments
Investments available for sale 176,941
Other 2,249 164,988
Acquisitions and bulk reinsurance assumptions 39,328
Purchase of property and equipment (1,818) (1,990)
Sale of property and equipment 1,249 36
---------- ----------
Net cash used in investing activities (250,531) (335,113)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and long-term debt (38) 196,200
Principal payments on line of credit arrangements and long-term debt (196,217)
Principal payment on surplus note to PLC (4,750)
Dividends to PLC (50)
Change in universal life and investment product deposits 187,862 216,445
---------- ----------
Net cash provided by financing activities 183,024 216,428
---------- ----------
INCREASE (DECREASE) IN CASH (10,240) 27,502
CASH AT BEGINNING OF PERIOD 23,951 11,567
---------- ----------
CASH AT END OF PERIOD $ 13,711 $ 39,069
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on notes and mortgages payable $ (2,593) $ (309)
Income taxes $ (25,473) $ (16,296)
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
Liabilities assumed (49,049)
-----------
Net $ (7,231)
----------
----------
</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 six month period ended June 30, 1994 are not necessarily
indicative of the results that may be expected for the year ending Decem-
ber 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 June 30, 1994, Protective Life was committed to fund approximately
$252.6 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 June 30, 1994, the loans totaled
$21.7 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 June 30, 1994, Protective Life and its life insurance
subsidiaries had consolidated net income and stockholder's equity prepared in
conformity with statutory reporting practices of $17.9 million and $262.4
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 June 30, 1994
(compared to financial statements prepared under previous accounting standards)
was to decrease fixed maturities by $120.6 million, increase deferred policy
acquisition costs by $17.0 million, decrease the liability for deferred income
taxes by $36.3 million, and decrease stockholder's equity by $67.3 million.
NOTE E - CONSOLIDATED PRO FORMA RESULTS
Summarized below are the consolidated results of operations for the six
months ended June 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 six months ended June 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>
SIX MONTHS ENDED
JUNE 30, 1993
----------------
(In thousands)
(Unaudited)
<S> <C>
Total revenues $ 356,491
Net income $ 28,272
</TABLE>
7
<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>
SIX MONTHS
ENDED JUNE 30 PERCENTAGE
(IN THOUSANDS) INCREASE
-------------------- ----------
1994 1993
-------- --------
<S> <C> <C> <C>
Premiums and policy fees $187,486 $159,852 17.3%
Net investment income 194,695 162,090 20.1
Realized investment gains 1,733 802 116.1
Other income 2,228 1,988 12.1
-------- --------
$386,142 $324,732
-------- --------
-------- --------
</TABLE>
Premiums and policy fees increased $27.6 million or 17.3% in the first six
months of 1994 over the first six months of 1993. Increases in premiums and
policy fees from the Agency and Financial Institutions Divisions represent
increases of $4.1 million, and $8.3 million, respectively. The Wisconsin
National acquisition resulted in a $9.9 million increase in premiums and policy
fees and the reinsurance in 1993 of a block of universal life policies resulted
in a $3.6 million increase. The reinsurance of a block of payroll deduction
policies effective April 2, 1994 resulted in a $3.2 million increase. Decreases
in older acquired blocks of policies represent a $1.4 million decrease in
premiums and policy fees.
Net investment income in the first six months of 1994 increased by $32.6
million or 20.1% 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
8
<PAGE>
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 $16.2 million in the first six 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. The
sales of investments that have occurred result from portfolio management
decisions to maintain proper matching of assets and liabilities.
Realized investment gains for the first six months of 1994 were $0.9
million higher than the corresponding period of 1993. Realized investment gains
in the first six months of 1993 were reduced by a $4.4 million increase in
Protective Life's allowance for uncollectible accounts on investments (primarily
relating to mortgage loans) which was recorded as a realized investment loss.
In 1994, realized investment gains have been reduced by realized investment
losses incurred from sales of 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.
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
SIX MONTHS ENDED JUNE 30
(IN THOUSANDS)
-------------------------------
BUSINESS SEGMENT 1994 1993
---------------- ------- -------
<S> <C> <C>
Agency $ 8,915 $ 9,318
Group 4,665 5,439
Financial Institutions 3,605 3,320
Investment Products 2,573 2,123
Guaranteed Investment Contracts 20,650 10,266
Acquisitions 19,428 12,883
Corporate and Other (10,679) (5,483)
Unallocated Realized Investment Gains (Losses) (1,650) 1,325
------- -------
$47,507 $39,191
------- -------
------- -------
</TABLE>
9
<PAGE>
Agency pretax earnings were $0.4 million lower in the first six months of
1994 as compared to the first six months of 1993 primarily due to higher
expenses.
Group pretax earnings were $0.8 million lower in the first six months of
1994 as compared to the first six months of 1993 due to start up expenses of
approximately $0.9 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 $0.3 million
higher in the first six months of 1994 as compared to the same period in 1993.
Increased earnings in certain lines of business were partially offset by
decreases in other lines.
Investment Products Division pretax earnings were $0.5 million higher in
the first six 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 $1.0 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
$20.7 million in the first six months of 1994 and $10.3 million in the
corresponding period of 1993. Realized investment gains associated with this
Division were $5.2 million higher in the first six 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 June 30, 1994, GIC deposits totaled $2.1 billion compared to $1.9 billion one
year earlier.
Pretax earnings from the Acquisitions Division increased $6.5 million in
the first six 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 approximately $6.3 million of the increase. The Division
also experienced improved results in its other blocks of acquired policies due
to improved mortality which more than offset earnings declines due to lapsing of
policies. On April 2, 1994 the Division acquired by reinsurance a small block
of payroll deduction policies which is expected to add slightly to earnings in
1994. As of the filing of this report, the Division is awaiting regulatory
approval to acquire another block of policies via a 100% coinsurance transaction
involving approximately $100 million of policy liabilities.
In the ordinary course of business, the Acquisitions Division regularly
considers acquisitions of smaller insurance companies or blocks of policies.
Among potential transactions, the Division is currently discussing the possible
purchase of a closely-held stock life insurance company having assets in excess
of $300 million that is primarily involved in ordinary and universal life
insurance, annuities and accident and health insurance. Protective Life is
considering using a combination of debt and equity to finance such acquisition
if it were to be consummated. Completion of this transaction is contingent on
10
<PAGE>
resolution of outstanding business issues with the prospective transferor,
satisfactory completion of due diligence, negotiation of definitive
documentation, receipt of board of directors and regulatory approvals, and
other conditions, and no assurances can be be given that the transaction will
be consummated.
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 $5.2 million lower in the first six months of 1994 as
compared to the first six 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>
SIX MONTHS
ENDED ESTIMATED
JUNE 30 EFFECTIVE TAX RATES
---------- -------------------
<S> <C> <C>
1994 32.1%
1993 32.7
</TABLE>
The effective income tax rate for the first six months of 1993 was 32.7%.
Management's estimate of the effective income tax rate for 1994 is 32.1%.
NET INCOME
The following table sets forth net income for the periods shown:
<TABLE>
<CAPTION>
NET INCOME
SIX MONTHS ---------------------------------
ENDED TOTAL PERCENTAGE
JUNE 30 (IN THOUSANDS) INCREASE
---------- -------------- ----------
<S> <C> <C> <C>
1994 $32,275 22.3%
1993 26,394 52.0
</TABLE>
Compared to the same period in 1993, net income in the first six months of
1994 increased $5.9 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
11
<PAGE>
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 six months of 1994, interest rates rose approximately 1.7
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 $101.9 million decrease in stockholder's
equity.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." Protective Life anticipates
that the impact of adopting SFAS No. 114 on its financial condition will be
immaterial.
12
<PAGE>
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: August 12, 1994 /s/ Jerry W. DeFoor
------------------------------
Jerry W. DeFoor
Vice President and Controller,
and Chief Accounting Officer
(Duly authorized officer)
13
