<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1994 33-31940
33-39345
33-57052
</TABLE>
------------------------
PROTECTIVE LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TENNESSEE 63-0169720
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal (Zip Code)
executive offices)
</TABLE>
Registrant's telephone number, including area code: (205) 879-9230
------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
------------------------
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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
Aggregate market value of voting stock held by nonaffiliates of the
registrant: None
Number of shares of Common Stock, $1.00 Par Value, outstanding as of March
10, 1995: 5,000,000
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION J(1)(A)
AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT PURSUANT TO GENERAL INSTRUCTION J(2).
DOCUMENTS INCORPORATED BY REFERENCE
None, except Exhibits
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
Protective Life Insurance Company ("Protective") is a wholly-owned and the
principal operating subsidiary of Protective Life Corporation ("PLC"), an
insurance holding company. Founded in 1907, Protective provides financial
services through the production, distribution, and administration of insurance
and investment products.
Protective markets individual life and health insurance and annuities
nationally through professional, independent general agents. Protective serves
the individual payroll deduction market by offering universal life and
supplemental insurance, and Protective distributes group life, health, and
dental insurance products through full-time field representatives who market to
employers and associations through agents and brokers. Protective markets
annuities and investment products, credit life, and disability products through
broker-dealers and financial institutions to their customers, and Protective
sells guaranteed investment contracts.
Over the last twenty-five years PLC has made several acquisitions of smaller
insurance companies or blocks of policies. Many of these transactions included
Protective. Additionally, PLC has from time to time merged other life insurance
companies it has acquired into Protective. PLC acquired a small life insurance
company and merged it into Protective in the first quarter of 1992. In the third
quarter of 1992, Protective assumed a block of credit life and credit accident
and health insurance business. In the third quarter of 1993, Protective acquired
a Wisconsin insurer and reinsured a block of universal life policies. In the
second quarter of 1994, Protective coinsured a small block of payroll deduction
policies. In the fourth quarter of 1994, Protective acquired through coinsurance
a block of 130,000 policies.
In 1991, Protective converted preferred stock into 80% of the common stock
of Southeast Health Plan, Inc. ("SEHP"). In January 1993, Protective's ownership
of SEHP was transferred to PLC.
ITEM 2. PROPERTIES
Protective's administrative office building is located at 2801 Highway 280
South, Birmingham, Alabama. This building includes the original 142,000
square-foot building which was completed in 1976 and a second contiguous 220,000
square-foot building which was completed in 1985. In addition, parking is
provided for approximately 1,000 vehicles.
Protective leases administrative space in 4 cities, substantially all under
leases for periods of three to five years. The aggregate monthly rent is
approximately $61 thousand.
Marketing offices are leased in 15 cities, substantially all under leases
for periods of three to five years with only two leases running longer than five
years. The aggregate monthly rent is approximately $28 thousand.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to the business of Protective, to which Protective or any
of its subsidiaries is a party or of which any of Protective's properties is
subject. For additional information regarding legal proceedings see Note G to
the consolidated financial statements included herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not required in accordance with General Instruction J(2)(c).
2
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Protective is a wholly-owned subsidiary of PLC which also owns all of the
redeemable preferred stock issued by Protective's subsidiary, American
Foundation Life Insurance Company ("American Foundation"). Therefore, neither
Protective's Common Stock nor American Foundation's Preferred Stock is publicly
traded.
At December 31, 1994, $321 million of consolidated stockholder's equity
excluding net unrealized gains and losses represented net assets of Protective
that cannot be transferred to PLC in the form of dividends, loans, or advances.
Also, distributions, including cash dividends to PLC in excess of approximately
$248 million would be subject to Federal income tax at rates then effective.
Protective does not anticipate involuntarily paying tax on such distributions.
In addition, insurers are subject to various state statutory and regulatory
restrictions on the insurers' ability to pay dividends. In general, dividends up
to specific levels are considered ordinary and may be paid thirty days after
written notice to the insurance commissioner of the state of domicile unless
such commissioner objects to the dividend prior to the expiration of such
period. Dividends in larger amounts are considered extraordinary and are subject
to affirmative prior approval by such commissioner. The maximum amount that
would qualify as ordinary dividends to PLC by its insurance subsidiaries in 1995
is estimated to be $62 million.
The American Foundation Preferred Stock pays, when and if declared, annual
minimum cumulative dividends of $0.1 million and noncumulative participating
dividends to the extent American Foundation's statutory earnings for the
immediately preceding fiscal year exceed $1 million.
In 1994 and 1993, respectively American Foundation paid preferred dividends
of $0.9 million and $1.5 million. During 1993, Protective transferred its
ownership interest in SEHP to PLC in the form of a common dividend. Protective
paid no other dividends to PLC during 1993 or 1994. Protective and American
Foundation expect to continue to be able to pay cash dividends, subject to their
earnings and financial condition and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
Not required in accordance with General Instruction J(2)(a).
ITEM 7. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
In accordance with General Instruction J(2)(a), Protective includes the
following analysis with the reduced disclosure format.
3
<PAGE>
REVENUES
The following table sets forth revenues by source for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED PERCENTAGE
DECEMBER 31 INCREASE
---------------------- -------------
1994 1993 (DECREASE)
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Premiums and Policy Fees........................... $ 402,772 $ 351,423 14.6%
Net Investment Income.............................. 408,933 354,165 15.5%
Realized Investment Gains (Losses)................. 6,298 5,054 24.6%
Other Income....................................... 11,977 4,756 151.8%
---------- ----------
$ 829,980 $ 715,398
---------- ----------
---------- ----------
</TABLE>
Premiums and policy fees increased $51.3 million or 14.6% in 1994 over 1993.
In the third quarter of 1993 Protective completed its acquisition of Wisconsin
National Life Insurance Company ("Wisconsin National") and reinsured a block of
universal life policies. This acquisition and reinsurance arrangement resulted
in an increase in premiums and policy fees of $10.5 million in 1994. The
reinsurance of a block of payroll deduction policies effective April 1, 1994
resulted in a $7.9 million increase. On October 3, 1994 Protective acquired
through coinsurance a block of policies from Reliance Standard Life Insurance
Company ("Reliance Standard"), which added $12.5 million of premiums in 1994.
Decreases in older acquired blocks of policies represented a $3.1 million
decrease in premiums and policy fees. Increases in premiums and policy fees from
the Financial Institutions, Group, and Individual Life (formerly, Agency)
Divisions represented increases of $10.7 million, $5.1 million, and $7.6
million, respectively.
Net investment income increased $54.8 million or 15.5% in 1994 over 1993
primarily due to an increase 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. Wisconsin National and other recent acquisitions represented
$23.9 million of the increase in net investment income in 1994. Protective's
percentage earned on average cash and investments was 8.2% for 1994, slightly
below the 8.4% for 1993.
Protective generally purchases its investments with the intent to hold to
maturity by purchasing investments that match future cash flow needs. However,
Protective has classified its fixed maturity investments as "available for sale"
because Protective might sell such investments in response to changes in
interest rates, needs for liquidity, and changes in the availability of
alternative investments. The sales of investments that have occurred generally
result from portfolio management decisions to maintain proper matching of assets
and liabilities.
In 1994, realized investment gains on the sale of equity securities and
other long-term investments of $14.9 million were partially offset by realized
investment losses of $8.6 million incurred from sales of fixed maturity
investments that occurred to maintain proper matching of assets and liabilities.
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $35.2 million at December 31, 1994. Additions
to the allowance are treated as realized investment losses.
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. During 1994, Protective recognized
approximately $8.2 million in settlement of litigation in which Protective was a
plaintiff relating to an acquisition made in 1974.
4
<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
-----------------------
YEAR ENDED DECEMBER 31
-----------------------
1994 1993
---------- --------
(IN THOUSANDS)
<S> <C> <C>
BUSINESS SEGMENT
Acquisitions......................................... $ 39,176 $ 29,845
Financial Institutions............................... 8,176 7,220
Group................................................ 11,169 10,435
Guaranteed Investment Contracts...................... 33,197 27,218
Individual Life...................................... 17,223 20,324
Investment Products.................................. 107 3,402
Corporate and Other.................................. (8,736) (14,208)
Unallocated Realized Investment Gains (Losses)....... 5,266 1,876
---------- --------
$ 105,578 $ 86,112
---------- --------
---------- --------
</TABLE>
Pretax earnings from the Acquisitions Division increased $9.3 million in
1994 as compared to 1993. Earnings from the Acquisitions Division are normally
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. The Wisconsin National acquisition and the reinsurance of a block of
universal life policies in 1993 added $9.2 million to the Division's 1994
earnings. The acquisition of a block of policies from Reliance Standard in the
1994 fourth quarter reduced earnings $1.3 million but should contribute to
earnings next year. The Division also experienced improved results in its other
blocks of acquired policies.
Pretax earnings of the Financial Institutions Division were $1.0 million
higher in 1994 as compared to 1993 due to premium growth and improved claims
ratios.
Group pretax earnings were $0.7 million higher in 1994 as compared to 1993.
Higher traditional group life and health earnings were complemented by higher
earnings from the Division's cancer and dental products. The Division's results
include approximately $3.0 million of expenses to establish a special marketing
unit to sell dental plans through mail and telephone solicitations.
The Guaranteed Investment Contracts ("GIC") Division had pretax earnings of
$33.2 million in 1994 and $27.2 million in 1993. GIC earnings have increased due
to the growth in GIC deposits placed with Protective. At December 31, 1994, GIC
deposits totaled $2.3 billion compared to $2.0 billion one year earlier.
The Individual Life Division had 1994 pretax earnings of $17.2 million, $3.1
million lower than 1993. Mortality experience, while still favorable, was
approximately $2.5 million less favorable than 1993. The Division also spent
approximately $3.0 million during 1994 to develop new ventures including a
special program for parents and guardians of persons with disabilities; a
special product for owners of privately held companies; and the sale of policies
in the life insurance brokerage market.
The Investment Products Division's pretax earnings were $3.3 million lower
in 1994 compared to 1993. These results are after approximately $2.0 million of
additional amortization of deferred policy acquisition costs related to the
compression of interest spreads caused by rising interest rates on the
Division's fixed annuities, and expenses of approximately $4.5 million related
to the development and introduction of the
5
<PAGE>
Division's variable annuity. Realized investment losses from the sale of
investments to maintain proper matching of assets and liabilities in 1994 were
$2.5 million compared to realized investment gains of $2.9 million last year.
Fixed annuity deposits totaled $983 million, and variable annuity deposits
totaled $171 million at December 31, 1994. Variable annuity deposits of $121
million are reported in the accompanying financial statements as "liabilities
related to separate accounts."
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 business segments (including interest on substantially all debt).
Pre-tax losses for this segment were $5.5 million lower in 1994 as compared to
1993. The segment's 1994 results include approximately $8.2 million relating to
the settlement of litigation relating to an acquisition made in 1974, which was
partially offset by increases in other expenses.
INCOME TAX EXPENSE
The following table sets forth the effective income tax rates for the
periods shown:
<TABLE>
<CAPTION>
YEAR ENDED EFFECTIVE INCOME TAX
DECEMBER 31 RATES
------------- ---------------------
<S> <C>
1994..................................... 31.1%
1993..................................... 33.4
</TABLE>
In August 1993, the corporate income tax rate was increased from 34% to 35%,
which resulted in a one-time increase to income tax expense of $1.2 million due
to a recalculation of Protective's deferred income tax liability. The effective
income tax rate for 1993, excluding the one-time increase, was 33.4%. For the
year ended December 31, 1994, the effective income tax rate was 31.1%.
Management's estimate of the effective income tax rate for 1995 is 33%.
NET INCOME
The following table sets forth net income for the periods shown:
<TABLE>
<CAPTION>
NET INCOME
-------------------------------
YEAR ENDED PERCENTAGE
DECEMBER 31 AMOUNT INCREASE
------------- --------------- -------------
(IN THOUSANDS)
<S> <C> <C>
1994.................................... $ 72,723 29.5%
1993.................................... 56,155 39.6
</TABLE>
Compared to 1993, net income in 1994 increased 29.5%, reflecting improved
earnings in the Acquisitions, Financial Institutions, Group, and GIC Divisions
and Corporate and Other segment, and higher realized investment gains partially
offset by lower earnings in the Individual Life and Investment Products
Divisions.
RECENTLY ISSUED ACCOUNTING STANDARDS
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 Loan - Income Recognition and Disclosures."
Protective anticipates that the impact of adopting SFAS Nos. 114 and 118 on its
financial condition will be immaterial.
For additional information regarding recently issued accounting standards
see Note A to the consolidated financial statements included herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholder
Protective Life Insurance Company
Birmingham, Alabama
We have audited the consolidated financial statements and the financial
statement schedules of Protective Life Insurance Company and Subsidiaries listed
in the index on page 34 of this Form 10-K. These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Protective Life
Insurance Company and Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note A to the Consolidated Financial Statements, the Company
changed its method of accounting for certain investments in debt and equity
securities in 1993. Also, as discussed in Note L to the Consolidated Financial
Statements, the Company changed its method of accounting for postretirement
benefits other than pensions in 1992.
/s/ COOPERS & LYBRAND L.L.P.
February 13, 1995
7
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded: 1994 - $172,575; 1993 -
$126,912; 1992 - $109,355)................................................ $ 402,772 $ 351,423 $ 323,136
Net investment income...................................................... 408,933 354,165 274,991
Realized investment gains (losses)......................................... 6,298 5,054 (154)
Other income............................................................... 11,977 4,756 10,675
---------- ---------- ----------
829,980 715,398 608,648
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1994 -
$112,922; 1993 - $84,949; 1992 - $67,436)................................. 517,110 461,636 409,557
Amortization of deferred policy acquisition costs.......................... 88,089 73,335 48,403
Other operating expenses (net of reinsurance ceded: 1994 - $14,326; 1993 -
$10,759; 1992 - $7,468)................................................... 119,203 94,315 91,925
---------- ---------- ----------
724,402 629,286 549,885
---------- ---------- ----------
INCOME BEFORE INCOME TAX..................................................... 105,578 86,112 58,763
INCOME TAX EXPENSE
Current.................................................................... 37,586 33,039 19,475
Deferred................................................................... (4,731) (3,082) (2,082)
---------- ---------- ----------
32,855 29,957 17,393
---------- ---------- ----------
INCOME BEFORE MINORITY INTEREST.............................................. 72,723 56,155 41,370
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES................. 90
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE............ 72,723 56,155 41,280
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE (NET OF INCOME TAX:
$542)....................................................................... 1,053
---------- ---------- ----------
NET INCOME................................................................... $ 72,723 $ 56,155 $ 40,227
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1994-$3,698,370;
1993-$2,985,670)............................................................. $3,493,646 $3,051,292
Equity securities, at market (cost: 1994-$45,958; 1993-$33,331)............... 45,005 40,596
Mortgage loans on real estate................................................. 1,488,495 1,408,444
Investment real estate, net of accumulated depreciation (1994-$695;
1993-$3,126)................................................................. 20,170 21,928
Policy loans.................................................................. 147,608 141,136
Other long-term investments................................................... 50,751 22,760
Short-term investments........................................................ 54,683 79,772
---------- ----------
Total investments........................................................... 5,300,358 4,765,928
Cash............................................................................ 23,951
Accrued investment income....................................................... 55,630 51,330
Accounts and premiums receivable, net of allowance for uncollectible
amounts (1994-$2,464; 1993-$5,024)............................................. 28,928 20,473
Reinsurance receivables......................................................... 122,175 102,559
Deferred policy acquisition costs............................................... 434,200 299,307
Property and equipment, net..................................................... 33,185 33,046
Receivables from related parties................................................ 281 382
Other assets.................................................................... 11,802 7,473
Assets related to separate accounts............................................. 124,145 3,400
---------- ----------
$6,110,704 $5,307,849
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims............................................. $1,694,295 $1,380,845
Unearned premiums............................................................. 103,479 88,785
---------- ----------
1,797,774 1,469,630
Guaranteed investment contract deposits......................................... 2,281,673 2,015,075
Annuity deposits................................................................ 1,251,318 1,005,742
Other policyholders' funds...................................................... 144,461 141,975
Other liabilities............................................................... 94,181 74,375
Accrued income taxes............................................................ (4,699) 7,483
Deferred income taxes........................................................... (14,667) 69,118
Short-term debt................................................................. -- 20
Long-term debt.................................................................. -- 98
Indebtedness to related parties................................................. 39,443 48,943
Liabilities related to separate accounts........................................ 124,145 3,400
---------- ----------
Total liabilities......................................................... 5,713,629 4,835,859
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES -- NOTE G
REDEEMABLE PREFERRED STOCK, $1.00 par value, at redemption value
Shares authorized and issued: 2,000............................................ 2,000 2,000
---------- ----------
STOCKHOLDER'S EQUITY
Common Stock, $1.00 par value................................................... 5,000 5,000
Shares authorized and issued: 5,000,000
Additional paid-in capital...................................................... 126,494 126,494
Net unrealized gains on investments (Net of income tax: 1994-$(57,902);
1993-$19,774).................................................................. (107,532) 39,284
Retained earnings............................................................... 377,049 305,176
Note receivable from PLC Employee Stock Ownership Plan.......................... (5,936) (5,964)
---------- ----------
Total stockholder's equity................................................ 395,075 469,990
---------- ----------
$6,110,704 $5,307,849
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET NOTE
ADDITIONAL UNREALIZED RECEIVABLE TOTAL
COMMON PAID-IN GAINS (LOSSES) RETAINED FROM PLC STOCKHOLDER'S
STOCK CAPITAL ON INVESTMENTS EARNINGS ESOP EQUITY
------ ---------- --------------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991................... $5,000 $ 84,737 $ 3,981 $211,013 $ (6,263) $ 298,468
Net income for 1992........................ 40,227 40,227
Common dividends ($.38 per share).......... (1,904) (1,904)
Preferred dividends ($675 per share)....... (1,350) (1,350)
Decrease in net unrealized gains on
investments............................... (825) (825)
Sale of PLC Stock to PLC ESOP (728
shares)................................... 16 16
Sale of PLC Stock to PLC (39,688 shares)... 643 643
Transfer of assets from PLC................ 98 98
Decrease in note receivable from PLC
ESOP...................................... 143 143
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1992................... 5,000 85,494 3,156 247,986 (6,120) 335,516
Net income for 1993........................ 56,155 56,155
Preferred dividends ($750 per share)....... (1,500) (1,500)
Transfer of Southeast Health Plan, Inc.
common stock to PLC....................... 2,535 2,535
Increase in net unrealized gains on
investments............................... 36,128 36,128
Capital contribution from PLC.............. 41,000 41,000
Decrease in note receivable from PLC
ESOP...................................... 156 156
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1993................... 5,000 126,494 39,284 305,176 (5,964) 469,990
Net income for 1994........................ 72,723 72,723
Preferred dividends ($425 per share)....... (850) (850)
Decrease in net unrealized gains on
investments............................... (146,816) (146,816)
Decrease in note receivable from PLC
ESOP...................................... 28 28
------ ---------- --------------- -------- ---------- -------------
$5,000 $ 126,494 $ (107,532) $377,049 $ (5,936) $ 395,075
------ ---------- --------------- -------- ---------- -------------
------ ---------- --------------- -------- ---------- -------------
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
1994
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................................. $ 72,723
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs........................................................ 88,089
Capitalization of deferred policy acquisition costs...................................................... (127,566)
Depreciation expense..................................................................................... 4,280
Deferred income taxes.................................................................................... (4,731)
Accrued income taxes..................................................................................... (12,182)
Interest credited to universal life and investment products.............................................. 260,081
Policy fees assessed on universal life and investment products........................................... (85,532)
Change in accrued investment income and other receivables................................................ (32,242)
Change in policy liabilities and other policyholder funds of traditional life and health products........ 61,322
Change in other liabilities.............................................................................. 18,564
Other (net).............................................................................................. (1,475)
-----------
Net cash provided by operating activities.................................................................... 241,331
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale........................................................................... 386,498
Other.................................................................................................... 153,945
Sale of investments:
Investment available for sale............................................................................ 630,095
Other.................................................................................................... 59,550
Cost of investments acquired:
Investments available for sale........................................................................... (1,807,658)
Other.................................................................................................... (220,839)
Acquisitions and bulk reinsurance assumptions.............................................................. 106,435
Principal payments on subordinated debenture of PLC........................................................
Purchase of property and equipment......................................................................... (4,889)
Sale of property and equipment............................................................................. 470
-----------
Net cash used in investing activities........................................................................ (696,393)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit arrangements and long-term debt............................... 572,586
Proceeds from borrowing from PLC...........................................................................
Proceeds from surplus note to PLC..........................................................................
Capital contribution from PLC..............................................................................
Principal payments on line of credit arrangements and long-term debt....................................... (572,704)
Principal payment on surplus note to PLC................................................................... (9,500)
Dividends to stockholder................................................................................... (850)
Investment product deposits and change in universal life deposits.......................................... 1,417,980
Investment product withdrawals............................................................................. (976,401)
-----------
Net cash provided by financing activities.................................................................... 431,111
-----------
INCREASE(DECREASE) IN CASH................................................................................... (23,951)
CASH AT BEGINNING OF YEAR.................................................................................... 23,951
-----------
CASH AT END OF YEAR.......................................................................................... $ 0
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on notes and mortgages payable.................................................................. $ 5,029
Income taxes............................................................................................. $ 49,765
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Minority interest in consolidated subsidiary...............................................................
Sale of PLC stock to PLC...................................................................................
Sale of PLC stock to ESOP..................................................................................
Reduction of principal on note from ESOP................................................................... $ 28
Acquisitions and bulk reinsurance assumptions
Assets acquired.......................................................................................... $ 117,349
Liabilities assumed...................................................................................... (166,595)
-----------
Net...................................................................................................... $ (49,246)
-----------
-----------
<CAPTION>
1993
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................................. $ 56,155
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs........................................................ 73,335
Capitalization of deferred policy acquisition costs...................................................... (92,935)
Depreciation expense..................................................................................... 2,660
Deferred income taxes.................................................................................... 16,987
Accrued income taxes..................................................................................... 5,040
Interest credited to universal life and investment products.............................................. 220,772
Policy fees assessed on universal life and investment products........................................... (67,314)
Change in accrued investment income and other receivables................................................ (91,864)
Change in policy liabilities and other policyholder funds of traditional life and health products........ 47,212
Change in other liabilities.............................................................................. 11,970
Other (net).............................................................................................. 10,517
-----------
Net cash provided by operating activities.................................................................... 192,535
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale...........................................................................
Other.................................................................................................... 1,319,590
Sale of investments:
Investment available for sale............................................................................
Other.................................................................................................... 244,683
Cost of investments acquired:
Investments available for sale...........................................................................
Other.................................................................................................... (2,320,628)
Acquisitions and bulk reinsurance assumptions.............................................................. 14,170
Principal payments on subordinated debenture of PLC........................................................
Purchase of property and equipment......................................................................... (3,451)
Sale of property and equipment............................................................................. 1,817
-----------
Net cash used in investing activities........................................................................ (743,819)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit arrangements and long-term debt............................... 574,423
Proceeds from borrowing from PLC...........................................................................
Proceeds from surplus note to PLC.......................................................................... 35,000
Capital contribution from PLC.............................................................................. 41,000
Principal payments on line of credit arrangements and long-term debt....................................... (577,767)
Principal payment on surplus note to PLC................................................................... (22,500)
Dividends to stockholder................................................................................... (1,500)
Investment product deposits and change in universal life deposits.......................................... 1,198,263
Investment product withdrawals............................................................................. (683,251)
-----------
Net cash provided by financing activities.................................................................... 563,668
-----------
INCREASE(DECREASE) IN CASH................................................................................... 12,384
CASH AT BEGINNING OF YEAR.................................................................................... 11,567
-----------
CASH AT END OF YEAR.......................................................................................... $ 23,951
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on notes and mortgages payable.................................................................. $ 3,803
Income taxes............................................................................................. $ 27,432
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Minority interest in consolidated subsidiary............................................................... $ (1,311)
Sale of PLC stock to PLC...................................................................................
Sale of PLC stock to ESOP..................................................................................
Reduction of principal on note from ESOP................................................................... $ 156
Acquisitions and bulk reinsurance assumptions
Assets acquired.......................................................................................... $ 423,140
Liabilities assumed...................................................................................... (429,580)
-----------
Net...................................................................................................... $ (6,440)
-----------
-----------
<CAPTION>
1992
-----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................................................................. $ 40,227
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred policy acquisition costs........................................................ 48,403
Capitalization of deferred policy acquisition costs...................................................... (81,160)
Depreciation expense..................................................................................... 2,974
Deferred income taxes.................................................................................... (3,280)
Accrued income taxes..................................................................................... 2,368
Interest credited to universal life and investment products.............................................. 173,658
Policy fees assessed on universal life and investment products........................................... (46,383)
Change in accrued investment income and other receivables................................................ (2,135)
Change in policy liabilities and other policyholder funds of traditional life and health products........ 4,307
Change in other liabilities.............................................................................. 6,230
Other (net).............................................................................................. (3,377)
-----------
Net cash provided by operating activities.................................................................... 141,832
-----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale...........................................................................
Other.................................................................................................... 881,795
Sale of investments:
Investment available for sale............................................................................
Other.................................................................................................... 338,850
Cost of investments acquired:
Investments available for sale...........................................................................
Other.................................................................................................... (1,997,470)
Acquisitions and bulk reinsurance assumptions.............................................................. 23,274
Principal payments on subordinated debenture of PLC........................................................ 3,678
Purchase of property and equipment......................................................................... (2,679)
Sale of property and equipment............................................................................. 181
-----------
Net cash used in investing activities........................................................................ (752,371)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit arrangements and long-term debt............................... 297,300
Proceeds from borrowing from PLC........................................................................... 4,700
Proceeds from surplus note to PLC.......................................................................... 15,000
Capital contribution from PLC..............................................................................
Principal payments on line of credit arrangements and long-term debt....................................... (297,331)
Principal payment on surplus note to PLC................................................................... (4,500)
Dividends to stockholder................................................................................... (3,254)
Investment product deposits and change in universal life deposits.......................................... 871,251
Investment product withdrawals............................................................................. (263,530)
-----------
Net cash provided by financing activities.................................................................... 619,636
-----------
INCREASE(DECREASE) IN CASH................................................................................... 9,097
CASH AT BEGINNING OF YEAR.................................................................................... 2,470
-----------
CASH AT END OF YEAR.......................................................................................... $ 11,567
-----------
-----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on notes and mortgages payable.................................................................. $ 326
Income taxes............................................................................................. $ 17,278
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Minority interest in consolidated subsidiary............................................................... $ 90
Sale of PLC stock to PLC................................................................................... $ 643
Sale of PLC stock to ESOP.................................................................................. $ 16
Reduction of principal on note from ESOP................................................................... $ 143
Acquisitions and bulk reinsurance assumptions
Assets acquired.......................................................................................... $ 103,557
Liabilities assumed...................................................................................... (130,008)
-----------
Net...................................................................................................... $ (26,451)
-----------
-----------
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Insurance Company and subsidiaries ("Protective") are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after
intercompany eliminations, of Protective Life Insurance Company and its
wholly-owned subsidiaries including Wisconsin National Life Insurance Company
("Wisconsin National") and American Foundation Life Insurance Company ("American
Foundation"). Protective is a wholly-owned subsidiary of Protective Life
Corporation ("PLC"), an insurance holding company.
Additionally, the financial statements include the accounts of
majority-owned subsidiaries. The ownership interest of the other stockholders of
these subsidiaries is called a minority interest and is reported as a liability
of Protective and as an adjustment to income.
PLC has from time to time merged other life insurance companies it has
acquired (or formed) into Protective. Acquisitions have been accounted for as
purchases by PLC. The results of such mergers have been included in the
accompanying financial statements as if the mergers into Protective had occurred
on the dates the merged companies were acquired (or formed) by PLC. Such mergers
into Protective have been accounted for in a manner similar to that in
pooling-of-interests accounting.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1992, Protective adopted Statement of Financial Accounting Standards
("SFAS") No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 106 was accounted for as a change in accounting principle
with the cumulative effect reported as a reduction to income.
Protective adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," at December 31, 1993, which requires Protective to carry
its investment in fixed maturities and certain other securities at market value
instead of amortized cost. As prescribed by SFAS No. 115, these investments are
recorded at their market values with the resulting unrealized gains and losses,
net of income tax, reported as a component of stockholder's equity reduced by a
related adjustment to deferred policy acquisition costs. The market values of
fixed maturities increase or decrease as interest rates fall or rise. Therefore,
although the adoption of SFAS No. 115 does not affect Protective's operations,
its reported stockholder's equity will fluctuate significantly as interest rates
change.
In 1994, Protective adopted SFAS No. 119 "Disclosure about Derivative
Financial Instruments and Fair Values of Financial Instruments," which requires
additional disclosures related to derivative financial instruments. Also, in
1994, Protective adopted new disclosure requirements required by Statement of
Position 94-4 of the Accounting Standards Division of the American Institute of
Certified Public Accountants concerning disclosures related to Protective's
liability for unpaid claims. The adoption of these accounting standards had no
effect on Protective's financial statements.
12
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
For purposes of adopting SFAS No. 115 Protective has classified all of its
investments in fixed maturities, equity securities, and short-term investments
as "available for sale."
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, bank loan participations, and redeemable
preferred stocks) -- at current market value.
- Equity securities (common and nonredeemable preferred stocks) -- at
current market value.
- Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
- Investment real estate -- at cost, less allowances for depreciation
computed on the straight-line method. With respect to real estate acquired
through foreclosure, cost is the lesser of the loan balance plus
foreclosure costs or appraised value.
- Policy loans -- at unpaid balances.
- Other long-term investments -- at a variety of methods similar to those
listed above, as deemed appropriate for the specific investment.
- Short-term investments -- at cost, which approximates current market
value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $9.7 million in bank
deposits voluntarily restricted as to withdrawal.
Protective's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<TABLE>
<CAPTION>
1994 1993
------------ ------------
<S> <C> <C>
Total investments................................................. $ 5,499,511 $ 4,693,041
Deferred policy acquisition costs................................. 400,480 311,757
All other assets.................................................. 376,146 242,614
------------ ------------
$ 6,276,137 $ 5,247,412
------------ ------------
------------ ------------
Deferred income taxes............................................. $ 43,235 $ 47,965
All other liabilities............................................. 5,728,296 4,766,741
------------ ------------
5,771,531 4,814,706
Redeemable preferred stock........................................ 2,000 2,000
Stockholder's equity.............................................. 502,606 430,706
------------ ------------
$ 6,276,137 $ 5,247,412
------------ ------------
------------ ------------
</TABLE>
13
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
Protective does not use derivative financial instruments for trading
purposes.
Combinations of futures contracts and options on treasury notes are
currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest-sensitive products such as guaranteed investment contracts and
individual annuities. Realized investment gains and losses on such contracts are
deferred and amortized over the life of the hedged asset. Net realized gains of
$7.9 million were deferred in 1994. At December 31, 1994, open futures contracts
with a notional amount of $137.5 million were in a $0.4 million net unrealized
loss position.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1994, related open
interest rate swap contracts with a notional amount of $230.0 million were in an
$8.9 million net unrealized loss position. At December 31, 1993, related open
interest rate swap contracts with a notional amount of $245.0 million were in a
$9.0 million net unrealized gain position.
CASH
Cash includes all demand deposits reduced by the amount of outstanding
checks and drafts.
PROPERTY AND EQUIPMENT
Property and equipment are reported at cost. Protective uses both
accelerated and straight-line methods of depreciation based upon the estimated
useful lives of the assets. Major repairs or improvements are capitalized and
depreciated over the estimated useful lives of the assets. Other repairs are
expensed as incurred. The cost and related accumulated depreciation of property
and equipment sold or retired are removed from the accounts, and resulting gains
or losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 35,321 $ 35,284
Other, principally furniture and equipment.............................. 25,687 21,576
--------- ---------
61,008 56,860
Accumulated depreciation................................................ 27,823 23,814
--------- ---------
$ 33,185 $ 33,046
--------- ---------
--------- ---------
</TABLE>
14
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
Protective operates separate accounts, some in which Protective bears the
investment risk and others in which the investments risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
Protective does not bear the investment risk are valued at market and reported
separately as assets and liabilities related to separate accounts in the
accompanying consolidated financial statements.
REVENUES, BENEFITS, CLAIMS, AND EXPENSES
- Traditional Life and Health Insurance Products -- Traditional life
insurance products consist principally of those products with fixed and
guaranteed premiums and benefits and include whole life insurance
policies, term life insurance policies, limited-payment life insurance
policies, and certain annuities with life contingencies. Life insurance
and immediate annuity premiums are recognized as revenue when due. Health
insurance premiums are recognized as revenue over the terms of the
policies. Benefits and expenses are associated with earned premiums so
that profits are recognized over the life of the contracts. This is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred policy acquisition costs.
Liabilities for future policy benefits on traditional life insurance
products have been computed using a net level method including assumptions
as to investment yields, mortality, persistency, and other assumptions
based on Protective's experience modified as necessary to reflect
anticipated trends and to include provisions for possible adverse
deviation. Reserve investment yield assumptions are graded and range from
2.5% to 7.0%. The liability for future policy benefits and claims on
traditional life and health insurance products includes estimated unpaid
claims that have been reported to Protective and claims incurred but not
yet reported. Policy claims are charged to expense in the period that the
claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 77,191 $ 68,203 $ 49,851
Less reinsurance....................................... 3,973 3,809 3,685
---------- ---------- ----------
Net balance beginning of year............................ 73,218 64,394 46,166
---------- ---------- ----------
Incurred related to:
Current year............................................. 203,453 194,394 178,604
Prior year............................................... (6,683) (5,123) 5,753
---------- ---------- ----------
Total incurred....................................... 196,770 189,271 184,357
---------- ---------- ----------
Paid related to:
Current year............................................. 148,548 141,361 127,859
Prior year............................................... 47,002 39,086 38,270
---------- ---------- ----------
Total paid........................................... 195,550 180,447 166,129
---------- ---------- ----------
Net balance end of year.................................. 74,438 73,218 64,394
Plus reinsurance....................................... 5,024 3,973 3,809
---------- ---------- ----------
Balance end of year...................................... $ 79,462 $ 77,191 $ 68,203
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
15
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment
contracts, deferred annuities, and annuities without life contingencies.
Revenues for universal life and investment products consist of policy fees
that have been assessed against policy account balances for the costs of
insurance, policy administration, and surrenders. That is, universal life
and investment product deposits are not considered revenues in accordance
with generally accepted accounting principles. Benefit reserves for
universal life and investment products represent policy account balances
before applicable surrender charges plus certain deferred policy
initiation fees that are recognized in income over the term of the
policies. Policy benefits and claims that are charged to expense include
benefit claims incurred in the period in excess of related policy account
balances and interest credited to policy account balances. Interest credit
rates for universal life and investment products ranged from 3.0% to 9.4%
in 1994.
At December 31, 1994, Protective estimates the fair value of its
guaranteed investment contracts to be $2,200 million using discounted cash
flows. The surrender value of Protective's annuities which approximates
fair value was $1,221 million.
- Policy Acquisition Costs -- Commissions and other costs of acquiring
traditional life and health insurance, universal life insurance, and
investment products that vary with and are primarily related to the
production of new business have been deferred. Traditional life and health
insurance acquisition costs are amortized over the premium-payment period
of the related policies in proportion to the ratio of annual premium
income to total anticipated premium income. Acquisition costs for
universal life and investment products are being amortized over the lives
of the policies in relation to the present value of estimated gross
profits from surrender charges and investment, mortality, and expense
margins. Additionally, relating to SFAS No. 115, these costs have been
adjusted by an amount equal to the amortization that would have been
recorded if unrealized gains or losses on investments associated with
Protective's universal life and investment products had been realized.
At the time it adopted SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," Protective made certain assumptions
regarding the mortality, persistency, expenses, and interest rates it
expected to experience in future periods. Under SFAS No. 97, these
assumptions are to be best estimates and are to be periodically updated
whenever actual experience and/or expectations for the future change from
initial assumptions. Accordingly, Protective has substituted its actual
experience to date for that previously assumed.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred
policy acquisition costs, discounted at interest rates averaging 15%. For
acquisitions occurring after 1988, Protective amortizes the present value
of future profits over the premium payment period including accrued
interest at 8%. The unamortized present value of future profits for such
acquisitions was approximately $84.4 million and $39.4 million at December
31, 1994 and 1993, respectively. During 1994 $56.0 million of present
value of future
16
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
profits on acquisitions made during the year was capitalized, and $11.0
million was amortized. The unamortized present value of future profits for
all acquisitions was $110.3 million at December 31, 1994 and $69.9 million
at December 31, 1993.
PARTICIPATING POLICIES
Participating business comprises approximately 4% of the individual life
insurance in force and 4% of the individual life insurance premium income.
Policyholder dividends totaled $2.6 million in 1994, 1993, and 1992.
INCOME TAXES
Protective uses the asset and liability method of accounting for income
taxes. Income tax provisions are generally based on income reported for
financial statement purposes. Deferred federal income taxes arise from the
recognition of temporary differences between income determined for financial
reporting purposes and income tax purposes. Such temporary differences are
principally related to the deferral of policy acquisition costs and the
provision for future policy benefits and expenses.
RECLASSIFICATIONS
Certain reclassifications have been made in the previously reported
financial statements and accompanying notes to make the prior year amounts
comparable to those of the current year. Such reclassifications had no effect on
net income, total assets, or stockholder's equity.
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted
accounting principals ("GAAP") differ in some respects from the statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. The most significant differences are: (a) acquisition costs of
obtaining new business are deferred and amortized over the approximate life of
the policies rather than charged to operations as incurred, (b) benefit
liabilities are computed using a net level method and are based on realistic
estimates of expected mortality, interest, and withdrawals as adjusted to
provide for possible unfavorable deviation from such assumptions, (c) deferred
income taxes are provided for temporary differences between financial and
taxable earnings, (d) the Asset Valuation Reserve and Interest Maintenance
Reserve are restored to stockholder's equity, (e) furniture and equipment,
agents' debit balances, and prepaid expenses are reported as assets rather than
being charged directly to surplus (referred to as nonadmitted items), (f)
certain items of interest income, principally accrual of mortgage and bond
discounts are amortized differently, and (g) bonds are stated at market instead
of amortized cost.
17
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE B -- RECONCILIATION WITH STATUTORY REPORTING PRACTICES (CONTINUED)
The reconciliations of net income and stockholder's equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<TABLE>
<CAPTION>
NET INCOME STOCKHOLDER'S EQUITY
------------------------------- --------------------------------
1994 1993 1992 1994 1993 1992
--------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting
practices:
Protective Life Insurance Company............ $ 54,812 $ 41,471 $ 25,138 $ 304,858 $ 263,075 $ 206,476
Wisconsin National Life Insurance Company.... 10,132 9,591 57,268 50,885
American Foundation Life Insurance Company... 3,072 1,415 2,155 20,327 18,290 18,394
Capital Investors Life Insurance Company..... 170 207 1,125 824
Empire General Life Assurance Corporation.... 690 408 (201) 21,270 10,588 5,178
National Deposit Life Insurance Company1..... 5,386
Protective Life Insurance Acquisition
Corporation2................................ 22
Protective Life Insurance Corporation of
Alabama..................................... 69 16 2,133 2,064
Consolidation elimination.................... 30 (74) (100,123) (80,651) (21,572)
--------- --------- --------- ---------- --------- ---------
68,945 53,138 32,426 306,858 265,075 208,476
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization................................ 41,718 25,686 33,476 434,200 299,307 274,923
Policy liabilities and accruals.............. (34,632) (15,586) (26,486) (140,298) (69,844) (45,583)
Deferred income tax.......................... 4,731 3,081 2,082 14,667 (69,118) (51,842)
Asset Valuation Reserve...................... 24,925 43,398 25,341
Interest Maintenance Reserve................. (1,716) (1,432) (93) 3,583 10,489 1,634
Nonadmitted items............................ 21,445 7,742 (10,178)
Timing differences on mortgage loans on real
estate and fixed maturity investments....... (961) 1,645 1,296 6,877 7,350 (11,608)
Net unrealized gains and losses on
investments, net of income tax.............. (107,532) 39,284 3,156
Realized investment losses................... (6,664) (7,860) (2,565)
Noninsurance affiliates...................... (12) 934 31 (2,535)
Consolidation elimination.................... (4,415) (2,107) (5,310) (162,835) (65,620) (53,450)
Minority interest in consolidated
subsidiaries................................ (90) (1,311)
Other adjustments, net....................... 5,717 (398) 4,557 (4,815) 1,896 (1,507)
--------- --------- --------- ---------- --------- ---------
In conformity with generally accepted
accounting principles....................... $ 72,723 $ 56,155 $ 40,227 $ 397,075 $ 469,990 $ 335,516
--------- --------- --------- ---------- --------- ---------
--------- --------- --------- ---------- --------- ---------
<FN>
--------------------------
(1) Merged into Protective in September 1992.
(2) Formed to facilitate Protective's acquisition of Employers National Life
Insurance Company. See Note F.
</TABLE>
18
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31
are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 237,264 $ 211,566 $ 174,051
Equity securities........................................ 2,435 1,519 939
Mortgage loans on real estate............................ 141,751 130,262 108,128
Investment real estate................................... 1,950 2,119 1,848
Policy loans............................................. 8,397 7,558 6,781
Other, principally short-term investments................ 35,062 18,779 3,799
---------- ---------- ----------
426,859 371,803 295,546
Investment expenses...................................... 17,926 17,638 20,555
---------- ---------- ----------
$ 408,933 $ 354,165 $ 274,991
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- ---------- ---------
<S> <C> <C> <C>
Fixed maturities............................................ $ (8,646) $ 10,508 $ 8,163
Equity securities........................................... 7,735 2,230 3,688
Mortgage loans and other investments........................ 7,209 (7,684) (12,005)
--------- ---------- ---------
$ 6,298 $ 5,054 $ (154)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $35.2 million at December 31, 1994 and 1993.
Additions to the allowance are included in realized investment losses. Without
such additions, Protective had realized investment gains of $6.3 million, $13.8
million, and $9.5 million in 1994, 1993, and 1992, respectively.
In 1994, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $15.2 million and
gross losses were $16.4 million. In 1993, gross gains were $8.3 million and
gross losses were less than $0.4 million. In 1992, gross gains on the sale of
fixed maturities were $12.8 million and gross losses were $1.7 million.
19
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of Protective's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUES
----------------------------------------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities........... $ 2,002,842 $ 7,538 $ 112,059 $ 1,898,321
United States Government and
authorities......................... 90,468 290 8,877 81,881
States, municipalities, and political
subdivisions........................ 10,902 5 1,230 9,677
Public utilities..................... 414,011 1,091 36,982 378,120
Convertibles and bonds with
warrants............................ 687 0 302 385
All other corporate bonds............ 927,779 3,437 56,788 874,428
Bank loan participations............... 244,881 0 0 244,881
Redeemable preferred stocks............ 6,800 37 884 5,953
------------ ---------- ---------- ------------
3,698,370 12,398 217,122 3,493,646
Equity securities........................ 45,958 3,994 4,947 45,005
Short-term investments................... 54,683 0 0 54,683
------------ ---------- ---------- ------------
$ 3,799,011 $ 16,392 $ 222,069 $ 3,593,334
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1993 COST GAINS LOSSES VALUES
----------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities........... $ 1,531,012 $ 31,532 $ 957 $ 1,561,587
United States Government and
authorities......................... 89,372 2,818 0 92,190
States, municipalities, and political
subdivisions........................ 15,024 133 2 15,155
Public utilities..................... 339,613 4,262 252 343,623
Convertibles and bonds with
warrants............................ 1,421 0 167 1,254
All other corporate bonds............ 822,505 28,799 688 850,616
Bank loan participations............... 151,278 0 0 151,278
Redeemable preferred stocks............ 35,445 226 82 35,589
------------ ----------- ----------- ------------
2,985,670 67,770 2,148 3,051,292
Equity securities........................ 33,331 8,560 1,295 40,596
Short-term investments................... 79,772 0 0 79,772
------------ ----------- ----------- ------------
$ 3,098,773 $ 76,330 $ 3,443 $ 3,171,660
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
20
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The amortized cost and estimated market values of fixed maturities at
December 31, by expected maturity, are shown below. Expected maturities are
derived from rates of prepayment that may differ from actual rates of
prepayment.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUES
------------ ------------
<S> <C> <C>
1994
-----------------------------------------------------------------------
Due in one year or less.............................................. $ 577,146 $ 540,223
Due after one year through five years................................ 1,351,435 1,299,248
Due after five years through ten years............................... 994,994 929,764
Due after ten years.................................................. 774,795 724,411
------------ ------------
$ 3,698,370 $ 3,493,646
------------ ------------
------------ ------------
1993
-----------------------------------------------------------------------
Due in one year or less.............................................. $ 517,179 $ 524,100
Due after one year through five years................................ 1,118,089 1,142,613
Due after five years through ten years............................... 777,058 797,093
Due after ten years.................................................. 573,344 587,486
------------ ------------
$ 2,985,670 $ 3,051,292
------------ ------------
------------ ------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1994 1993
------------------------------------------------------------ ------ ------
<S> <C> <C>
AAA......................................................... 57.6% 52.5%
AA.......................................................... 5.5 7.8
A........................................................... 12.5 15.1
BBB
Bonds..................................................... 14.9 16.2
Bank loan participations.................................. 1.4 1.0
BB or Less
Bonds..................................................... 2.3 2.2
Bank loan participations.................................. 5.6 4.0
Redeemable preferred stocks................................. 0.2 1.2
------ ------
100.0% 100.0%
------ ------
------ ------
</TABLE>
At December 31, 1994 and 1993, Protective had bonds which were rated less
than investment grade of $82.5 million and $67.3 million, respectively, having
an amortized cost of $89.4 million and $66.7 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $195.1 million and $121.7 million, respectively, having an
amortized cost of $195.1 million and $121.7 million, respectively.
21
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
The change in unrealized gains (losses), net of income tax, on fixed
maturity and equity securities for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- --------- ---------
<S> <C> <C> <C>
Fixed maturities.............................................. $ (175,723) $ 1,198 $ 76
Equity securities............................................. $ (5,342) $ 1,565 $ (825)
</TABLE>
At December 31, 1994, all of Protective's mortgage loans were commercial
loans of which 79% were retail, 8% were warehouses, and 7% were office
buildings. Protective specializes in making mortgage loans on either
credit-oriented or credit-anchored commercial properties, most of which are
strip shopping centers in smaller towns and cities. No single tenant's leased
space represents more than 5% of mortgage loans. Approximately 84% of the
mortgage loans are on properties located in the following states listed in
decreasing order of significance: Alabama, South Carolina, Tennessee, Texas,
Georgia, North Carolina, Florida, Mississippi, Virginia, California, Colorado,
Louisiana, Illinois, Ohio, Kentucky, and Indiana.
Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $107.9
million would become due in 1995, $478.0 million in 1996 to 1999, and $233.9
million in 2000 to 2004.
At December 31, 1994, the average mortgage loan was $1.5 million, and the
weighted average interest rate was 9.6%. The largest single mortgage loan was
$11.9 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1994 and 1993, Protective estimates the market value of
its mortgage loans to be $1,535.3 million and $1,524.2 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1994 and 1993, Protective's problem mortgage loans and
foreclosed properties totaled $24.0 million and $27.1 million, respectively.
Protective expects no significant loss of principal.
Certain investments, principally real estate, with a carrying value of $6.7
million were nonincome producing for the twelve months ended December 31, 1994.
Mortgage loans to Fletcher Bright and Edens & Avant, totaling $99.4 million
and $65.6 million, respectively, exceeded ten percent of stockholder's equity at
December 31, 1994.
Mortgage-backed securities consist primarily of sequential and planned
amortization class (PAC) securities. Mortgage-backed securities issued by
Independent National Mortgage Corporation totaling $54.9 million exceeded ten
percent of stockholder's equity at December 31, 1994.
Protective believes it is not practicable to determine the fair value of its
policy loans since there is no stated maturity, and policy loans are often
repaid by reductions to policy benefits. Policy loan interest rates generally
range from 4.5% to 8.0%. The fair values of Protective's other long-term
investments approximate cost.
22
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax
income..................................................... 35.0% 35.0% 34.0%
Amortization of nondeductible goodwill...................... 0.4
Dividends received deduction and tax-exempt interest........ (0.4) (0.5) (1.0)
Low-income housing credit................................... (0.7)
Tax benefits arising from prior acquisitions and other
adjustments................................................ (2.8) (1.1) (3.8)
------ ------ ------
Effective income tax rate................................... 31.1% 33.4% 29.6%
------ ------ ------
------ ------ ------
</TABLE>
In August 1993, the corporate income tax rate was increased from 34% to 35%
which resulted in a one-time increase to income tax expense of $1.2 million due
to a recalculation of Protective's deferred income tax liability. The effective
income tax rate for 1993 of 33.4% excludes the one-time increase.
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for income tax purposes.
Details of the deferred income tax provision for the years ended December 31
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
<S> <C> <C> <C>
Deferred policy acquisition costs........................... $ 34,561 $ 8,861 $ 7,351
Benefit and other policy liability changes.................. (52,288) (10,416) (9,005)
Temporary differences of investment income.................. 15,524 336
Other items................................................. (2,528) (1,527) (764)
---------- ---------- ---------
$ (4,731) $ (3,082) $ (2,082)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves........................... $ 116,326 $ 25,123
Unrealized loss on investments....................................... 23,485
Other................................................................ 4,484
---------- ---------
139,811 29,607
---------- ---------
Deferred income tax liabilities:
Deferred policy acquisition costs.................................... 113,760 79,199
Unrealized gain on investments....................................... 19,526
Other................................................................ 11,384
---------- ---------
125,144 98,725
---------- ---------
Net deferred income tax liability.................................... $ (14,667) $ 69,118
---------- ---------
---------- ---------
</TABLE>
23
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
Under pre-1984 life insurance company income tax laws, a portion of
Protective's gain from operations which was not subject to current income
taxation was accumulated for income tax purposes in a memorandum account
designated as Policyholders' Surplus. The aggregate accumulation in this account
at December 31, 1994 was approximately $50.7 million. Should the accumulation in
the Policyholders' Surplus account exceed certain stated maximums, or should
distributions including cash dividends be made to PLC in excess of approximately
$248 million, such excess would be subject to federal income taxes at rates then
effective. Deferred income taxes have not been provided on amounts designated as
Policyholders' Surplus. Protective does not anticipate involuntarily paying
income tax on amounts in the Policyholders' Surplus accounts.
At December 31, 1994 Protective has no material unused income tax loss
carryforwards.
Protective's income tax returns are included in the consolidated income tax
returns of PLC. The allocation of income tax liabilities among affiliates is
based upon separate income tax return calculations.
NOTE E -- DEBT
Short-term and long-term debt at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
--------- -----
<S> <C> <C>
Short-term debt:
Current portion of mortgage and other notes payable.................................... None $ 20
--------- ---
--------- ---
Long-term debt:
Mortgage and other notes payable less current portion.................................. None $ 98
--------- ---
--------- ---
</TABLE>
At December 31, 1994, PLC had borrowed under a term note that contains,
among other provisions, requirements for maintaining certain financial ratios,
and restrictions on indebtedness incurred by PLC's subsidiaries including
Protective. Additionally, PLC, on a consolidated basis, cannot incur debt in
excess of 50% of its total capital.
Included in indebtedness to related parties are three surplus debentures
issued by Protective to PLC. At December 31, 1994, the balance of the three
surplus debentures combined was $39.4 million.
Interest expense totaled $5.0 million, $5.0 million, and $3.3 million, in
1994, 1993, and 1992, respectively.
NOTE F -- ACQUISITIONS
In July 1993, Protective acquired Wisconsin National Life Insurance Company
("Wisconsin National"). Also in 1993, Protective acquired through reinsurance a
block of universal life policies.
In April 1994, Protective acquired through reinsurance a block of payroll
deduction policies. In October 1994, Protective acquired through reinsurance a
block of individual life insurance policies.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
Summarized below are the consolidated results of operations for 1993 and
1992, on an unaudited pro forma basis, as if the Wisconsin National acquisition
had occurred as of January 1, 1992. The pro forma
24
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE F -- ACQUISITIONS (CONTINUED)
information is based on Protective's consolidated results of operations for 1993
and 1992 and on data provided by Wisconsin National, 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 transaction occurred on the basis assumed above nor are they indicative of
results of the future operations of the combined enterprises.
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(UNAUDITED)
<S> <C> <C>
Total revenues.................................................................. $ 747,157 $ 676,572
Net income...................................................................... $ 58,033 $ 44,109
</TABLE>
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES
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 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.
A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which Protective does business involving the
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. Some of the lawsuits have resulted in the
award of substantial judgments against the insurer, including material amounts
of punitive damages. In some states, juries have substantial discretion in
awarding punitive damages in these circumstances. Protective and its
subsidiaries, like other life and health insurers, from time to time are
involved in such litigation. To date, no such lawsuit has resulted in the award
of any significant amount of damages against Protective. Among the litigation
currently pending is a class action filed in the state of Alabama concerning the
sale of credit insurance for which a proposed settlement agreement has been
filed with the supervising court for approval. Although the outcome of any
litigation cannot be predicted with certainty, Protective believes that such
litigation will not have a material adverse effect on the financial position of
Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1994, approximately $321 million of consolidated
stockholder's equity excluding net unrealized gains and losses represented net
assets of Protective that cannot be transferred in the form of dividends, loans,
or advances to PLC. Generally, the net assets of Protective available for
transfer to PLC are limited to the amounts that Protective's net assets, as
determined in accordance with statutory accounting practices, exceed certain
minimum amounts. However, payments of such amounts as dividends may be subject
to approval by regulatory authorities.
NOTE I -- REDEEMABLE PREFERRED STOCK
PLC owns all of the 2,000 shares of redeemable preferred stock issued by
Protective's subsidiary, American Foundation. The entire issue was reissued in
1991 and will be redeemed September 30, 1996 for $1 thousand per share, or $2
million. The stock pays, when and if declared, annual minimum cumulative
25
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE I -- REDEEMABLE PREFERRED STOCK (CONTINUED)
dividends of $50 per share, and noncumulative participating dividends to the
extent American Foundation's statutory earnings for the immediately preceding
fiscal year exceed $1 million. Dividends of $0.9 million, $1.5 million, and $1.4
million were paid to PLC in 1994, 1993, and 1992, respectively.
NOTE J -- RELATED PARTY MATTERS
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amounts of $0.3 million and $0.4 million at December
31, 1994 and 1993, respectively. Protective routinely receives from or pays to
affiliates under the control of PLC reimbursements for expenses incurred on one
another's behalf. Receivables and payables among affiliates are generally
settled monthly.
On August 6, 1990, PLC announced that its Board of Directors approved the
formation of an Employee Stock Ownership Plan ("ESOP"). On December 1, 1990,
Protective transferred to the ESOP 520,000 shares of PLC's common stock held by
it in exchange for a note. The outstanding balance of the note, $5.9 million at
December 31, 1994, is accounted for as a reduction to stockholder's equity. The
stock will be used to match employee contributions to PLC's existing 401(k)
Plan. The ESOP shares are dividend paying. Dividends on the shares are used to
pay the ESOP's note to Protective.
Protective leases furnished office space and computers to affiliates. Lease
revenues were $2.8 million in 1994, $2.8 million in 1993, and $2.6 million in
1992. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $29.8 million, $20.4
million, and $27.5 million in 1994, 1993, and 1992, respectively. Commissions
paid to affiliated marketing organizations of $10.1 million, $5.8 million, and
$4.8 million in 1994, 1993, and 1992, respectively, were included in deferred
policy acquisition costs.
Certain corporations with which PLC's directors were affiliated paid
Protective premiums and policy fees for various types of group insurance. Such
premiums and policy fees amounted to $21.1 million, $10.3 million, and $10.9
million in 1994, 1993, and 1992, respectively.
For a discussion of indebtedness to related parties, see Note E.
NOTE K -- BUSINESS SEGMENTS
Protective operates predominantly in the life and accident and health
insurance industry. The following table sets forth total revenues, income before
income tax, and identifiable assets of Protective's business segments. The
primary components of revenues are premiums and policy fees, net investment
income, and realized investment gains and losses. Premiums and policy fees are
attributed directly to each business segment. Net investment income is allocated
based on directly related assets required for transacting that segment of
business.
Realized investment gains (losses) and expenses are allocated to the
segments in a manner which most appropriately reflects the operations of that
segment. Unallocated realized investment gains (losses) are deemed not to be
associated with any specific segment.
Assets are allocated based on policy liabilities and deferred policy
acquisition costs directly attributable to each segment.
26
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
There are no significant intersegment transactions.
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions.................................................. $ 170,659 $ 123,855 $ 93,634
Financial Institutions........................................ 107,194 96,443 63,041
Group......................................................... 148,313 143,423 129,778
Guaranteed Investment Contracts............................... 183,591 167,233 138,617
Individual Life............................................... 122,248 111,497 90,516
Investment Products........................................... 79,773 69,550 47,678
Corporate and Other........................................... 12,936 1,521 46,973
Unallocated Realized Investment Gains (Losses)................ 5,266 1,876 (1,589)
------------ ------------ ------------
$ 829,980 $ 715,398 $ 608,648
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 20.6% 17.3% 15.4%
Financial Institutions........................................ 12.9 13.5 10.4
Group......................................................... 17.9 20.0 21.3
Guaranteed Investment Contracts............................... 22.1 23.4 22.8
Individual Life............................................... 14.7 15.6 14.9
Investment Products........................................... 9.6 9.7 7.8
Corporate and Other........................................... 1.6 0.2 7.7
Unallocated Realized Investment Gains (Losses)................ 0.6 0.3 (0.3)
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
INCOME BEFORE INCOME TAX
Acquisitions.................................................. $ 39,176 $ 29,845 $ 20,031
Financial Institutions........................................ 8,176 7,220 4,669
Group......................................................... 11,169 10,435 7,762
Guaranteed Investment Contracts............................... 33,197 27,218 18,266
Individual Life............................................... 17,223 20,324 12,976
Investment Products........................................... 107 3,402 4,191
Corporate and Other*.......................................... (8,736) (14,208) (7,543)
Unallocated Realized Investment Gains (Losses)................ 5,266 1,876 (1,589)
------------ ------------ ------------
$ 105,578 $ 86,112 $ 58,763
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 37.1% 34.6% 34.1%
Financial Institutions........................................ 7.7 8.4 7.9
Group......................................................... 10.6 12.1 13.2
Guaranteed Investment Contracts............................... 31.5 31.6 31.1
Individual Life............................................... 16.3 23.6 22.1
Investment Products........................................... 0.1 4.0 7.1
Corporate and Other........................................... (8.3) (16.5) (12.8)
Unallocated Realized Investment Gains (Losses)................ 5.0 2.2 (2.7)
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
27
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS
Acquisitions.................................................. $ 1,282,478 $ 1,145,357 $ 599,022
Financial Institutions........................................ 211,652 189,943 145,014
Group......................................................... 215,904 208,790 161,445
Guaranteed Investment Contracts............................... 2,211,079 2,041,463 1,696,786
Individual Life............................................... 752,168 641,992 507,449
Investment Products........................................... 1,160,041 876,691 683,450
Corporate and Other........................................... 277,382 203,613 206,991
------------ ------------ ------------
$ 6,110,704 $ 5,307,849 $ 4,000,157
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 21.0% 21.6% 15.0%
Financial Institutions........................................ 3.5 3.6 3.6
Group......................................................... 3.5 3.9 4.0
Guaranteed Investment Contracts............................... 36.2 38.5 42.4
Individual Life............................................... 12.3 12.1 12.7
Investment Products........................................... 19.0 16.5 17.1
Corporate and Other........................................... 4.5 3.8 5.2
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
<FN>
------------------------
* Income before income tax for the Corporate and Other segment has not been
reduced by pretax minority interest of $90 in 1992.
</TABLE>
NOTE L -- EMPLOYEE BENEFIT PLANS
PLC has a defined benefit pension plan covering substantially all of its
employees. The plan is not separable by affiliates participating in the plan.
However, approximately 80% of the participants in the plan are employees of
Protective. The benefits are based on years of service and the employee's
highest thirty-six consecutive months of compensation. PLC's funding policy is
to contribute amounts to the plan sufficient to meet the minimum funding
requirements of ERISA plus such additional amounts as PLC may determine to be
appropriate from time to time. Contributions are intended to provide not only
for benefits attributed to service to date but also for those expected to be
earned in the future.
28
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
The actuarial present value of benefit obligations and the funded status of
the plan taken as a whole at December 31 is as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $11,992 in 1994 and
$12,406 in 1993.................................................................. $ 12,348 $ 12,692
--------- ---------
Projected benefit obligation for service rendered to date......................... $ 20,302 $ 20,480
Plan assets at fair value (group annuity contract with Protective)................ 15,679 15,217
--------- ---------
Plan assets less than the projected benefit obligation............................ (4,623) (5,263)
Unrecognized net loss from past experience different from that assumed............ 2,400 2,244
Unrecognized prior service cost................................................... 905 2,069
Unrecognized net transition asset................................................. (101) (118)
--------- ---------
Net pension liability recognized in balance sheet................................. $ (1,419) $ (1,068)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............... $ 1,433 $ 1,191 $ 970
Interest cost on projected benefit obligation................. 1,520 1,396 1,257
Actual return on plan assets.................................. (1,333) (1,270) (1,172)
Net amortization and deferral................................. 210 704 130
--------- --------- ---------
Net pension cost.............................................. $ 1,830 $ 2,021 $ 1,185
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective's share of the net pension cost was $1.2 million, $1.5 million,
and $0.8 million, in 1994, 1993, and 1992, respectively.
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate....................................... 8.0% 7.5% 8.0%
Rates of increase in compensation level.............................. 6.0% 5.5% 6.0%
Expected long-term rate of return on assets.......................... 8.5% 8.5% 8.5%
</TABLE>
Assets of the pension plan are included in the general assets of Protective.
Upon retirement, the amount of pension plan assets vested in the retiree is used
to purchase a single premium annuity from Protective in the retiree's name.
Therefore, amounts presented above as plan assets exclude assets relating to
retirees.
PLC also sponsors an unfunded Excess Benefits Plan, which is a nonqualified
plan that provides defined pension benefits in excess of limits imposed by
federal income tax law. At December 31, 1994, the projected benefit obligation
of this plan totaled $4.7 million.
29
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
In addition to pension benefits, PLC provides limited health care benefits
to eligible retired employees until age 65. At January 1, 1992, PLC recognized a
$1.6 million accumulated postretirement benefit obligation, of which $0.9
million relates to current retirees and $0.7 million relates to active
employees. The $1.6 million (representing Protective's entire liability for such
benefits), net of $0.5 million tax, was accounted for as a cumulative effect of
a change in accounting principle and shown as a reduction to income. The
postretirement benefit is provided by an unfunded plan. At December 31, 1994,
the liability for such benefits totaled $1.6 million. The expense recorded by
Protective was $0.2 million in 1994, 1993 and 1992. PLC's obligation is not
materially affected by a 1% change in the health care cost trend assumptions
used in the calculation of the obligation.
Life insurance benefits for retirees are provided through the purchase of
life insurance policies upon retirement equal to the employees' annual
compensation. This plan is partially funded at a maximum of $50,000 face amount
of insurance.
In 1990, PLC established an Employee Stock Ownership Plan to match employee
contributions to PLC's existing 401(k) Plan. Previously, PLC matched employee
contributions in cash. In 1994, a stock bonus was added to the 401(k) Plan for
employees who are not otherwise under a bonus plan. Expense related to the ESOP
consists of the cost of the shares allocated to participating employees plus the
interest expense on the ESOP's note payable to Protective less dividends on
shares held by the ESOP. At December 31, 1994, PLC had committed 33,250 shares
to be released to fund employee benefits. The expense recorded by PLC for this
employee benefit was $0.6 million, $0.2 million and $0.4 million in 1994, 1993,
and 1992, respectively.
NOTE M -- REINSURANCE
Protective assumes risks from and reinsures certain parts of its risks with
other insurers under yearly renewable term, coinsurance, and modified
coinsurance agreements. Yearly renewable term and coinsurance agreements are
accounted for by passing a portion of the risk to the reinsurer. Generally, the
reinsurer receives a proportionate part of the premiums less commissions and is
liable for a corresponding part of all benefit payments. Modified coinsurance is
accounted for similarly to coinsurance except that the liability for future
policy benefits is held by the original company, and settlements are made on a
net basis between the companies. While the amount retained on an individual life
will vary based upon age and mortality prospects of the risk, Protective will
not carry more than $500,000 individual life insurance on a single risk.
Protective has reinsured approximately $8.6 billion, $7.5 billion, and $7.0
billion in face amount of life insurance risks with other insurers representing
$46.0 million, $37.9 million, and $34.8 million of premium income for 1994,
1993, and 1992, respectively. Protective has also reinsured accident and health
risks representing $126.5 million, $88.9 million, and $74.6 million of premium
income for 1994, 1993, and 1992, respectively. In 1994 and 1993, policy and
claim reserves relating to insurance ceded of $120.0 million and $97.8 million
respectively are included in reinsurance receivables. Should any of the
reinsurers be unable to meet its obligation at the time of the claim, obligation
to pay such claim would remain with Protective. At December 31, 1994 and 1993,
Protective had paid $5.4 million and $4.8 million, respectively, of ceded
benefits which are recoverable from reinsurers.
30
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN TABLES ARE IN THOUSANDS)
NOTE N -- ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amount and estimated market values of Protective's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
-------------------------- --------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities....................................... $ 3,493,646 $ 3,493,646 $ 3,051,292 $ 3,051,292
Equity securities...................................... 45,005 45,005 40,596 40,596
Mortgage loans on real estate.......................... 1,488,495 1,535,300 1,408,444 1,524,200
Short-term investments................................. 54,683 54,683 79,772 79,772
Cash..................................................... 23,951 23,951
Other (see Note A):
Futures contracts........................................ (416)
Interest rate swaps...................................... (8,952) 9,038
</TABLE>
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Not required in accordance with General Instruction J(2)(c).
ITEM 11. EXECUTIVE COMPENSATION
Not required in accordance with General Instruction J(2)(c).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not required in accordance with General Instruction J(2)(c).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not required in accordance with General Instruction J(2)(c).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements (Item 8)
2. Financial Statement Schedules (see index annexed)
3. Exhibits:
The exhibits listed in the Exhibit Index on page 41 of this Form
10-K are filed herewith or are incorporated herein by reference. No
management contract or compensatory plan or arrangement is required
to be filed as an exhibit to this form. The Registrant will furnish
a copy of any of the exhibits listed upon the payment of $5.00 per
exhibit to cover the cost of the Registrant in furnishing the
exhibit.
(b) Reports on Form 8-K:
None
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama on March 24, 1995.
PROTECTIVE LIFE INSURANCE COMPANY
By: /s/ DRAYTON NABERS, JR.
-----------------------------------
President
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, this report has been signed by the following persons in the capacities and
on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------ ------------------------------ --------------
<S> <C> <C> <C>
(i) Principal Executive Officer
/s/ DRAYTON NABERS, JR. President March 24, 1995
------------------------------
Drayton Nabers, Jr.
(ii) Principal Financial Officer
/s/ JOHN D. JOHNS Executive Vice President and March 24, 1995
------------------------------ Chief Financial Officer
John D. Johns
(iii) Principal Accounting Officer
/s/ JERRY W. DEFOOR Vice President and Controller, March 24, 1995
------------------------------ and Chief Accounting Officer
Jerry W. DeFoor
(iv) Board of Directors:
/s/ DRAYTON NABERS, JR. Director March 24, 1995
------------------------------
Drayton Nabers, Jr.
/s/ JOHN D. JOHNS Director March 24, 1995
------------------------------
John D. Johns
* Director March 24, 1995
------------------------------
Ormond L. Bentley
* Director March 24, 1995
------------------------------
R. Stephen Briggs
* Director March 24, 1995
------------------------------
Deborah J. Long
* Director March 24, 1995
------------------------------
Jim E. Massengale
* Director March 24, 1995
------------------------------
Steven A. Schultz
* Director March 24, 1995
------------------------------
Wayne E. Stuenkel
* Director March 24, 1995
------------------------------
A. S. Williams III
*By: /s/ JERRY W. DEFOOR
------------------------------
Jerry W. DeFoor
ATTORNEY-IN-FACT
</TABLE>
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... 7
Consolidated Statements of Income for the years ended December 31, 1994, 1993, and
1992.................................................................................. 8
Consolidated Balance Sheets as of December 31, 1994 and 1993........................... 9
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1994, 1993, and 1992..................................................... 10
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993, and
1992.................................................................................. 11
Notes to Consolidated Financial Statements............................................. 12
Financial Statement Schedules:
Schedule I -- Summary of Investments -- Other than Investments in Related Parties.... 35
Schedule III -- Supplementary Insurance Information.................................. 36
Schedule IV -- Reinsurance........................................................... 37
</TABLE>
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are not required under the related instructions or
are inapplicable and therefore have been omitted.
34
<PAGE>
SCHEDULE I -- SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D
-----------------------------------------------------------------------------------------------------------------
AMOUNT AT
WHICH SHOWN
IN BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
-------------------------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities...................................... $ 2,002,842 $ 1,898,321 $ 1,898,321
United States Government and government agencies and
authorities.................................................... 90,468 81,881 81,881
States, municipalities, and political subdivisions.............. 10,902 9,677 9,677
Public utilities................................................ 414,011 378,120 378,120
Convertibles and bonds with warrants attached................... 687 385 385
All other corporate bonds....................................... 927,779 874,428 874,428
Bank loan participations.......................................... 244,881 244,881 244,881
Redeemable preferred stocks....................................... 6,800 5,953 5,953
------------ ------------ ---------------
TOTAL FIXED MATURITIES........................................ 3,698,370 3,493,646 3,493,646
------------ ------------ ---------------
Equity securities:
Common stocks -- Industrial, miscellaneous, and all other......... 22,768 24,797 24,797
Nonredeemable preferred stocks.................................... 23,190 20,208 20,208
------------ ------------ ---------------
TOTAL EQUITY SECURITIES....................................... 45,958 45,005 45,005
------------ ------------ ---------------
Mortgage loans on real estate....................................... 1,488,495 1,488,495
Investment real estate.............................................. 20,170 20,170
Policy loans........................................................ 147,608 147,608
Other long-term investments......................................... 50,751 50,751
Short-term investments.............................................. 54,683 54,683
------------ ---------------
TOTAL INVESTMENTS............................................. $ 5,506,035 $ 5,300,358
------------ ---------------
------------ ---------------
</TABLE>
35
<PAGE>
SCHEDULE III -- SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
------------------------------------------------------------------------------------------------------------------------
GIC AND
FUTURE ANNUITY
DEFERRED POLICY DEPOSITS PREMIUMS
POLICY BENEFITS AND OTHER AND
ACQUISITION AND UNEARNED POLICYHOLDERS' POLICY
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES
------------------------------------------------------- ----------- ---------- --------- -------------- --------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994:
Acquisitions......................................... $110,203 $ 856,889 $ 381 $ 266,828 $86,376
Financial Institutions............................... 68,060 43,198 99,798 2,758 98,027
Group................................................ 22,685 116,324 2,905 84,689 131,096
Guaranteed Investment Contracts...................... 996 0 0 2,281,674 0
Individual Life...................................... 162,186 571,070 320 13,713 84,925
Investment Products.................................. 70,053 102,705 0 1,027,527 1,635
Corporate and Other.................................. 17 4,109 75 263 713
Unallocated Realized Investment Gains (Losses)....... 0 0 0 0 0
----------- ---------- --------- -------------- --------
TOTAL.............................................. $434,200 $1,694,295 $103,479 $3,677,452 $402,772
----------- ---------- --------- -------------- --------
----------- ---------- --------- -------------- --------
Year Ended
December 31, 1993:
Acquisitions......................................... $ 69,942 $ 705,487 $ 501 $ 259,513 $58,562
Financial Institutions............................... 59,163 39,508 85,042 2,913 87,355
Group................................................ 20,520 99,412 2,786 83,522 126,027
Guaranteed Investment Contracts...................... 1,464 0 0 2,015,075 0
Individual Life...................................... 129,265 483,604 368 11,762 77,338
Investment Products.................................. 18,934 52,516 0 789,668 856
Corporate and Other.................................. 19 318 88 339 1,285
Unallocated Realized Investment Gains (Losses)....... 0 0 0 0 0
----------- ---------- --------- -------------- --------
TOTAL.............................................. $299,307 $1,380,845 $ 88,785 $3,162,792 $351,423
----------- ---------- --------- -------------- --------
----------- ---------- --------- -------------- --------
Year Ended
December 31, 1992:
Acquisitions......................................... $ 65,868 $ 428,991 $ 655 $ 80,458 $48,068
Financial Institutions............................... 49,684 20,207 71,878 3,246 56,990
Group................................................ 14,801 66,551 2,422 77,671 112,985
Guaranteed Investment Contracts...................... 2,256 0 0 1,694,530 0
Individual Life...................................... 110,408 382,025 2 8,847 62,776
Investment Products.................................. 30,228 27,051 0 626,171 586
Corporate and Other.................................. 1,678 4,767 220 439 41,731
Unallocated Realized Investment Gains (Losses)....... 0 0 0 0 0
----------- ---------- --------- -------------- --------
TOTAL.............................................. $274,923 $ 929,592 $ 75,177 $2,491,362 $323,136
----------- ---------- --------- -------------- --------
----------- ---------- --------- -------------- --------
<CAPTION>
------------------------------------------------------- ------------------------------------------------------------------
COL. A COL. G COL. H COL. I COL. J
-------------------------------------------------------
------------------------------------------------------------------
AMORTIZATION
REALIZED BENEFITS OF DEFERRED
NET INVESTMENT AND POLICY OTHER
INVESTMENT GAINS SETTLEMENT ACQUISITION OPERATING
SEGMENT INCOME (1) (LOSSES) EXPENSES COSTS EXPENSES (1)
------------------------------------------------------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994:
Acquisitions......................................... $ 83,750 $ 532 $ 97,649 $14,460 $ 19,374
Financial Institutions............................... 9,164 46,360 36,592 16,065
Group................................................ 14,381 98,930 2,724 35,490
Guaranteed Investment Contracts...................... 180,591 3,000 147,383 892 2,119
Individual Life...................................... 37,319 67,451 18,771 18,803
Investment Products.................................. 80,759 (2,500) 58,424 14,647 6,595
Corporate and Other.................................. 2,969 913 3 20,757
Unallocated Realized Investment Gains (Losses)....... 0 5,266 0 0 0
---------- --------- ---------- ------------ -------------
TOTAL.............................................. $408,933 $6,298 $517,110 $88,089 $119,203
---------- --------- ---------- ------------ -------------
---------- --------- ---------- ------------ -------------
Year Ended
December 31, 1993:
Acquisitions......................................... $ 65,290 $ 73,463 $ 7,831 $ 12,715
Financial Institutions............................... 8,921 42,840 31,202 15,181
Group................................................ 14,522 101,266 2,272 29,450
Guaranteed Investment Contracts...................... 166,058 $1,175 137,380 1,170 1,466
Individual Life...................................... 34,153 55,972 18,069 17,133
Investment Products.................................. 66,691 2,003 49,569 12,788 3,790
Corporate and Other.................................. (1,470) 1,146 3 14,580
Unallocated Realized Investment Gains (Losses)....... 0 1,876 0 0 0
---------- --------- ---------- ------------ -------------
TOTAL.............................................. $354,165 $5,054 $461,636 $73,335 $ 94,315
---------- --------- ---------- ------------ -------------
---------- --------- ---------- ------------ -------------
Year Ended
December 31, 1992:
Acquisitions......................................... $ 45,543 $ 56,901 $ 7,404 $ 9,299
Financial Institutions............................... 6,051 25,342 21,605 11,426
Group................................................ 12,620 93,380 1,664 26,972
Guaranteed Investment Contracts...................... 137,654 $ 962 117,321 1,267 1,763
Individual Life...................................... 27,723 49,755 11,493 16,292
Investment Products.................................. 46,618 473 37,021 4,485 1,980
Corporate and Other.................................. (1,218) 29,837 485 24,193
Unallocated Realized Investment Gains (Losses)....... 0 (1,589) 0 0 0
---------- --------- ---------- ------------ -------------
TOTAL.............................................. $274,991 $ (154) $409,557 $48,403 $ 91,925
---------- --------- ---------- ------------ -------------
---------- --------- ---------- ------------ -------------
<FN>
------------------------------
(1) Allocations of Net Investment Income and Other Operating Expenses are
based on a number of assumptions and estimates and results would change if
different methods were applied.
</TABLE>
36
<PAGE>
SCHEDULE IV -- REINSURANCE
PROTECTIVE LIFE INSURANCE COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E COL. F
------------------------------------------------------------------------------------------------------------------
PERCENTAGE
CEDED TO ASSUMED OF AMOUNT
GROSS OTHER FROM OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Life insurance in force.................. $ 40,909,454 $ 8,639,272 $ 8,968,166 $ 41,238,348 21.7%
------------- ------------ ------------ ------------- ---
------------- ------------ ------------ ------------- ---
Premiums and policy fees:
Life insurance......................... $ 256,840 $ 46,029 $ 31,032 $ 241,843 12.8%
Accident/health insurance.............. 283,883 126,545 3,591 160,929 2.2%
------------- ------------ ------------ -------------
TOTAL................................ $ 540,723 $ 172,574 $ 34,623 $ 402,772
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Year Ended December 31, 1993:
Life insurance in force.................. $ 40,149,017 $ 7,484,566 $ 2,301,577 $ 34,966,028 6.6%
------------- ------------ ------------ ------------- ---
------------- ------------ ------------ ------------- ---
Premiums and policy fees:
Life insurance......................... $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health insurance.............. 254,672 88,917 3,963 169,718 2.3%
------------- ------------ ------------ -------------
TOTAL................................ $ 485,378 $ 126,912 $ 12,292 $ 370,758
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
Year Ended December 31, 1992:
Life insurance in force.................. $ 33,811,280 $ 6,982,127 $ 665,733 $ 27,494,886 2.4%
------------- ------------ ------------ ------------- ---
------------- ------------ ------------ ------------- ---
Premiums and policy fees:
Life insurance......................... $ 180,018 $ 34,824 $ 16,092 $ 161,286 10.0%
Accident/health insurance.............. 228,192 74,531 8,189 161,850 5.1%
------------- ------------ ------------ -------------
TOTAL................................ $ 408,210 $ 109,355 $ 24,281 $ 323,136
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
37
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM
NUMBER DOCUMENT
--------------------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
** 1 -- Underwriting Agreement including Form of Distribution Agreement
**** 2 -- Stock Purchase Agreement
* 3(a) -- Articles of Incorporation
* 3(b) -- By-laws
** 4(a) -- Group Modified Guaranteed Annuity Contract
*** 4(b) -- Individual Certificate
** 4(h) -- Tax-Sheltered Annuity Endorsement
** 4(i) -- Qualified Retirement Plan Endorsement
** 4(j) -- Individual Retirement Annuity Endorsement
** 4(l) -- Section 457 Deferred Compensation Plan Endorsement
* 4(m) -- Qualified Plan Endorsement
** 4(n) -- Application for Individual Certificate
** 4(o) -- Adoption Agreement for Participation in Group Modified Guaranteed Annuity
*** 4(p) -- Individual Modified Guaranteed Annuity Contract
** 4(q) -- Application for Individual Modified Guaranteed Annuity Contract
** 4(r) -- Tax-Sheltered Annuity Endorsement
** 4(s) -- Individual Retirement Annuity Endorsement
** 4(t) -- Section 457 Deferred Compensation Plan Endorsement
** 4(v) -- Qualified Retirement Plan Endorsement
**** 4(w) -- Endorsement -- Group Policy
**** 4(x) -- Endorsement -- Certificate
**** 4(y) -- Endorsement -- Individual Contract
**** 4(z) -- Endorsement (Annuity Deposits) -- Group Policy
**** 4(aa) -- Endorsement (Annuity Deposits) -- Certificate
**** 4(bb) -- Endorsement (Annuity Deposits) -- Individual Contracts
***** 4(cc) -- Endorsement -- Individual
***** 4(dd) -- Endorsement -- Group Contract/Certificate
* 5 -- Opinion re Legality
* 10(a) -- Bond Purchase Agreement
* 10(b) -- Escrow Agreement
24 -- Power of Attorney
27 -- Financial Data Schedule
<FN>
------------------------
*Previously filed or incorporated by reference in Form S-1 Registration
Statement, Registration No. 33-31940.
**Previously filed or incorporated by reference in Amendment No. 1 to Form
S-1 Registration Statement, Registration No. 33-31940.
***Previously filed or incorporated by reference from Amendment No. 2 to Form
S-1 Registration Statement, Registration No. 33-31940.
****Previously filed or incorporated by reference from Amendment No. 2 to Form
S-1 Registration Statement, Registration No. 33-57052.
*****Previously filed or incorporated by reference from Amendment No. 3 to Form
S-1 Registration Statement, Registration No. 33-57052.
</TABLE>
38
<PAGE>
EXHIBIT 24
DIRECTORS' POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned Directors of
Protective Life Insurance Company, a Tennessee corporation, ("Company") by his
execution hereof or upon an identical counterpart hereof, does hereby constitute
and appoint John D. Johns, Deborah J. Long, Maria Gutierrez Matthews, or Jerry
W. DeFoor, to execute and sign the 1994 Annual Report on Form 10-K to be filed
by the Company with the Securities and Exchange Commission, pursuant to the
provisions of the Securities Exchange Act of 1934 and, further, to execute and
sign any and all amendments to such Annual Report, and to file same, with all
exhibits and schedules thereto and all other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all the acts of
said attorneys-in-fact and agents or any of them which they may lawfully do in
the premises or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 24th day of March, 1995.
WITNESS TO ALL SIGNATURES:
/s/ JOHN K. WRIGHT /s/ DRAYTON NABERS, JR.
--------------------------------- ---------------------------------
John K. Wright Drayton Nabers, Jr.
/s/ R. STEPHEN BRIGGS
---------------------------------
R. Stephen Briggs
/s/ JOHN D. JOHNS
---------------------------------
John D. Johns
/s/ ORMOND L. BENTLEY
---------------------------------
Ormond L. Bentley
/s/ DEBORAH J. LONG
---------------------------------
Deborah J. Long
/s/ JIM E. MASSENGALE
---------------------------------
Jim E. Massengale
/s/ STEVEN A. SCHULTZ
---------------------------------
Steven A. Schultz
/s/ WAYNE E. STUENKEL
---------------------------------
Wayne E. Stuenkel
/s/ A. S. WILLIAMS III
---------------------------------
A. S. Williams III
39
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Protective Life Insurance Company and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 3,493,646
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,005
<MORTGAGE> 1,488,495
<REAL-ESTATE> 20,170
<TOTAL-INVEST> 5,300,358
<CASH> 0
<RECOVER-REINSURE> 122,175
<DEFERRED-ACQUISITION> 434,200
<TOTAL-ASSETS> 6,110,704
<POLICY-LOSSES> 1,694,295
<UNEARNED-PREMIUMS> 103,479
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 144,461
<NOTES-PAYABLE> 39,443
<COMMON> 5,000
2,000
0
<OTHER-SE> 390,075
<TOTAL-LIABILITY-AND-EQUITY> 6,110,704
402,772
<INVESTMENT-INCOME> 408,933
<INVESTMENT-GAINS> 6,298
<OTHER-INCOME> 11,977
<BENEFITS> 517,110
<UNDERWRITING-AMORTIZATION> 88,089
<UNDERWRITING-OTHER> 119,203
<INCOME-PRETAX> 105,578
<INCOME-TAX> 32,855
<INCOME-CONTINUING> 72,723
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,723
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
