<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, 1995 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
8, 1996: 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"), a stock life insurance
company was founded in 1907. Protective is a wholly-owned and the principal
operating subsidiary of Protective Life Corporation ("PLC"), an insurance
holding company whose common stock is traded on the New York Stock Exchange.
Protective provides financial services through the production, distribution, and
administration of insurance and investment products. Protective has six
operating divisions: Acquisitions, Financial Institutions, Group, Guaranteed
Investment Contracts, Individual Life, and Investment Products. Protective also
has an additional business segment which is described herein as Corporate and
Other. Unless the context otherwise requires "Protective" refers to the
consolidated group of Protective Life Insurance Company and its subsidiaries.
Protective markets individual life insurance; group life, health, dental,
and cancer insurance; annuities and investment products; credit life and
disability insurance; and guaranteed investment contracts. Its products are
distributed nationally through independent agents and brokers; through
broker-dealers and financial institutions to their customers; through full-time
sales representatives; and through other insurance companies. Protective also
seeks to acquire blocks of insurance policies from other insurers.
Over the last twenty-five years PLC has made several acquisitions of smaller
insurance companies or blocks of policies. Many of these transactions involved
Protective. Additionally, PLC has from time to time merged other life insurance
companies it has acquired into Protective. 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 the second quarter of 1995, Protective coinsured a block of 28,000
policies. In March 1996, Protective coinsured a block of 38,000 policies.
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 10 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 $23 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).
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, 1995, $329 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,
2
<PAGE>
loans, or advances. Also, distributions, including cash dividends to PLC in
excess of approximately $322 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 Protective in 1996 is estimated to
be $129 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 1995, Protective paid common dividends of $5.0 million to PLC. American
Foundation paid preferred dividends of $0.1 million and $0.9 million in 1995 and
1994, respectively. 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.
REVENUES
The following table sets forth revenues by source for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 PERCENTAGE
---------------------- INCREASE
1995 1994 (DECREASE)
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Premiums and Policy Fees........................... $ 369,888 $ 402,772 (8.2%)
Net Investment Income.............................. 458,433 408,933 12.1%
Realized Investment Gains (Losses)................. 1,951 6,298 (69.0%)
Other Income....................................... 3,543 11,977 (70.4%)
---------- ----------
$ 833,815 $ 829,980
---------- ----------
---------- ----------
</TABLE>
Premiums and policy fees decreased $32.9 million or 8.2% in 1995 over 1994.
Premiums and policy fees from the Financial Institutions Division decreased
$74.2 million. This resulted from a reinsurance arrangement begun in the 1995
first quarter whereby all of the Division's new credit insurance sales are being
ceded to a reinsurer. Increases in premiums and policy fees from the Group and
Individual Life Divisions represent increases of $11.4 million and $14.1
million, respectively. Policy fees related to Protective's annuity products
increased $2.9 million in 1995. The 1994 coinsurance of two blocks of policies
resulted in a $11.1 million increase in premiums and policy fees in 1995. On
June 15, 1995, Protective coinsured a block of policies which resulted in a $8.3
million increase in premiums and policy fees. Decreases in premiums and policy
fees in older acquired blocks resulted in a $7.2 million decrease.
Net investment income for 1995 was $49.5 million or 12.1% higher than for
the preceding year primarily due to increases in the average amount of invested
assets. Invested assets have increased primarily due to receiving annuity and
guaranteed investment contract (GIC) deposits and to acquisitions. (Annuity and
GIC deposits are not considered revenues in accordance with generally accepted
accounting principles.) The coinsurance of two blocks of policies in 1994 and
one block of policies in the second quarter of 1995 resulted in an increase in
net investment income of $8.9 million in 1995. The percentage earned on average
cash and investments was 7.9% in 1995 and 8.2% in 1994.
3
<PAGE>
Protective generally purchases its investments with the intent to hold to
maturity by purchasing investments that match future cash flow needs. However,
Protective may sell any of its investments to maintain proper matching of assets
and liabilities. Accordingly, Protective has classified its fixed maturities and
certain other investments as "available for sale." The sales of investments that
have occurred generally result from portfolio management decisions to maintain
proper matching of assets and liabilities.
In 1995, realized investment gains on the sale of fixed maturity and equity
securities of $6.2 million were partially offset by realized investment losses
of $4.2 million incurred from sales of mortgage loans and other investments that
occurred to maintain proper matching of assets and liabilities. Protective has
established an allowance for uncollectible amounts on investments. The allowance
totaled $32.7 million at December 31, 1995 and $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. Other income from all other
sources decreased $0.2 million in 1995 as compared to 1994.
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
-----------------------
1995 1994
---------- --------
(IN THOUSANDS)
<S> <C> <C>
BUSINESS SEGMENT
Acquisitions......................................... $ 52,136 $ 39,176
Financial Institutions............................... 8,212 8,176
Group................................................ 10,502 11,169
Guaranteed Investment Contracts...................... 30,555 33,197
Individual Life...................................... 17,713 17,223
Investment Products.................................. 11,951 107
Corporate and Other.................................. (14,257) (8,736)
Unallocated Realized Investment Gains (Losses)....... 921 5,266
---------- --------
$ 117,733 $105,578
---------- --------
---------- --------
</TABLE>
Pretax earnings from the Acquisitions Division increased $13.0 million in
1995 as compared to 1994. 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 two blocks of policies coinsured during 1994 and the block of policies
coinsured during the second quarter of 1995 represent $11.7 million of the
increase.
The Financial Institutions Division's 1995 pretax earnings were relatively
unchanged as compared to 1994. The Division has entered into a reinsurance
arrangement whereby all of the Division's new credit insurance sales are being
ceded to a reinsurer. In the 1995 second quarter the Division also ceded a block
of older policies. These reinsurance transactions are expected to improve the
Division's return on investment.
Group 1995 pretax earnings were $0.7 million lower than 1994. Although total
dental earnings were up $2.6 million, lower traditional group life and health
earnings offset the increase.
The Guaranteed Investment Contracts ("GIC") Division had pretax operating
earnings of $34.5 million in 1995 and $30.2 million in 1994. Operating earnings
in 1995 were benefited by lower expenses and a favorable interest rate
environment. This increase was also partially due to the growth in GIC deposits
placed with Protective. At December 31, 1995, GIC deposits totaled $2.5 billion
compared to $2.3 billion one year earlier. Realized investment gains associated
with this Division in 1994 were $3.0 million as compared to
4
<PAGE>
realized investment losses of $3.9 million in 1995. As a result, total pretax
earnings were $33.2 million in 1994 and $30.6 million in 1995. The rate of
growth in GIC deposits has decreased as the amount of maturing contracts has
increased.
The Individual Life Division had 1995 pretax earnings of $17.7 million, $0.5
million higher than 1994. Favorable mortality experience and a growing amount of
business in force contributed to the increase, although lower investment income
allocated to the Division and expenses relating to the development of a new
variable universal life product largely offset the increase.
The Investment Products Division's 1995 pretax earnings of $12.0 million
were $11.8 million higher than 1994. During 1994 the Division completed the
amortization of the deferred policy acquisition costs related to its book value
annuities. Accordingly, 1995 operating earnings were $7.2 million higher due to
lower amortization. The Division also benefited from a favorable interest rate
environment. Realized investment losses, net of related amortization of deferred
policy acquisition costs were $0.8 million in 1994, as compared with realized
investment gains, net of amortization, of $3.4 million in 1995. Fixed annuity
deposits totaled $996 million and variable annuity deposits totaled $392 million
at December 31, 1995. Variable annuity deposits of $322 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).
Pretax losses for this segment were $5.5 million higher in 1995 as compared to
1994. The segment's 1994 results include approximately $8.2 million received in
settlement of litigation relating to an acquisition made in 1974. All other
expenses decreased approximately $2.7 million in 1995 as compared to 1994.
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>
1995..................................... 34.0%
1994..................................... 31.1
</TABLE>
For the year ended December 31, 1995, the effective income tax rate was
34.0%. Management's estimate of the effective income tax rate for 1996 is 34.0%.
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>
1995.................................... $ 77,696 6.8%
1994.................................... 72,723 29.5
</TABLE>
Compared to 1994, net income in 1995 increased 6.8%, reflecting improved
earnings in the Acquisitions, Financial Institutions, Individual Life, and
Investment Products Divisions, and higher investment income partially offset by
lower earnings in the Group and GIC Divisions and the Corporate and Other
segment as well as lower realized investment gains.
RECENTLY ISSUED ACCOUNTING STANDARDS
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
5
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants...................................................... 7
Consolidated Statements of Income for the years ended December 31, 1995, 1994, and
1993.................................................................................. 8
Consolidated Balance Sheets as of December 31, 1995 and 1994........................... 9
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1995, 1994, and 1993..................................................... 10
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994, and
1993.................................................................................. 11
Notes to Consolidated Financial Statements............................................. 12
Financial Statement Schedules:
Schedule III -- Supplementary Insurance Information.................................. 29
Schedule IV -- Reinsurance........................................................... 30
</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.
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 6 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, 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.
/s/ COOPERS & LYBRAND L.L.P.
February 12, 1996
Birmingham, Alabama
7
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded: 1995 - $333,173; 1994 -
$172,575; 1993 - $126,912)................................................ $ 369,888 $ 402,772 $ 351,423
Net investment income...................................................... 458,433 408,933 354,165
Realized investment gains (losses)......................................... 1,951 6,298 5,054
Other income............................................................... 3,543 11,977 4,756
---------- ---------- ----------
833,815 829,980 715,398
---------- ---------- ----------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded: 1995 -
$247,224; 1994 - $112,922; 1993 - $84,949)................................ 509,506 517,110 461,636
Amortization of deferred policy acquisition costs.......................... 84,500 88,089 73,335
Other operating expenses (net of reinsurance ceded: 1995 - $84,855; 1994 -
$14,326; 1993 - $10,759).................................................. 122,076 119,203 94,315
---------- ---------- ----------
716,082 724,402 629,286
---------- ---------- ----------
INCOME BEFORE INCOME TAX..................................................... 117,733 105,578 86,112
INCOME TAX EXPENSE
Current.................................................................... 47,009 37,586 33,039
Deferred................................................................... (6,972) (4,731) (3,082)
---------- ---------- ----------
40,037 32,855 29,957
---------- ---------- ----------
NET INCOME................................................................... $ 77,696 $ 72,723 $ 56,155
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
8
<PAGE>
PROTECTIVE LIFE INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1995-$3,798,868;
1994-$3,698,370)............................................................. $3,891,932 $3,493,646
Equity securities, at market (cost: 1995-$35,498;1994-$45,958)................ 38,711 45,005
Mortgage loans on real estate................................................. 1,835,057 1,488,495
Investment real estate, net of accumulated depreciation (1995-$1,032;
1994-$695)................................................................... 20,788 20,170
Policy loans.................................................................. 143,372 147,608
Other long-term investments................................................... 43,875 50,751
Short-term investments........................................................ 46,891 54,683
---------- ----------
Total investments........................................................... 6,020,626 5,300,358
Cash............................................................................ 6,198
Accrued investment income....................................................... 61,004 55,630
Accounts and premiums receivable, net of allowance for uncollectible
amounts (1995-$2,342; 1994-$2,464)............................................. 35,492 28,928
Reinsurance receivables......................................................... 271,018 122,175
Deferred policy acquisition costs............................................... 410,183 434,200
Property and equipment, net..................................................... 34,211 33,185
Receivables from related parties................................................ 1,961 281
Other assets.................................................................... 13,096 11,802
Assets related to separate accounts............................................. 324,904 124,145
---------- ----------
$7,178,693 $6,110,704
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals:
Future policy benefits and claims............................................. $1,928,154 $1,694,295
Unearned premiums............................................................. 193,767 103,479
---------- ----------
2,121,921 1,797,774
Guaranteed investment contract deposits......................................... 2,451,693 2,281,673
Annuity deposits................................................................ 1,280,069 1,251,318
Other policyholders' funds...................................................... 134,380 144,461
Other liabilities............................................................... 109,538 94,181
Accrued income taxes............................................................ 838 (4,699)
Deferred income taxes........................................................... 67,420 (14,667)
Indebtedness to related parties................................................. 34,693 39,443
Liabilities related to separate accounts........................................ 324,904 124,145
---------- ----------
Total liabilities......................................................... 6,525,456 5,713,629
---------- ----------
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...................................................... 144,494 126,494
Net unrealized gains on investments (Net of income tax: 1995-$31,157;
1994-$(57,902))................................................................ 57,863 (107,532)
Retained earnings............................................................... 449,645 377,049
Note receivable from PLC Employee Stock Ownership Plan.......................... (5,765) (5,936)
---------- ----------
Total stockholder's equity................................................ 651,237 395,075
---------- ----------
$7,178,693 $6,110,704
---------- ----------
---------- ----------
</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, 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
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1994................... 5,000 126,494 (107,532) 377,049 (5,936) 395,075
Net income for 1995........................ 77,696 77,696
Common dividends ($1.00 per share)......... (5,000) (5,000)
Preferred dividends ($50 per share)........ (100) (100)
Increase in net unrealized gains on
investments............................... 165,395 165,395
Capital contribution from PLC.............. 18,000 18,000
Decrease in note receivable form PLC
ESOP...................................... 171 171
------ ---------- --------------- -------- ---------- -------------
Balance, December 31, 1995................... $5,000 $ 144,494 $ 57,863 $449,645 $ (5,765) $ 651,237
------ ---------- --------------- -------- ---------- -------------
------ ---------- --------------- -------- ---------- -------------
</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
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................... $ 77,696 $ 72,723 $ 56,155
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of deferred policy acquisition costs........................... 84,501 88,089 73,335
Capitalization of deferred policy acquisition costs......................... (89,266) (127,566) (92,935)
Depreciation expense........................................................ 4,317 4,280 2,660
Deferred income taxes....................................................... (6,971) (4,731) 16,987
Accrued income taxes........................................................ 5,537 (12,182) 5,040
Interest credited to universal life and investment products................. 286,710 260,081 220,772
Policy fees assessed on universal life and investment products.............. (100,840) (85,532) (67,314)
Change in accrued investment income and other receivables................... (161,924) (32,242) (91,864)
Change in policy liabilities and other policyholder funds of traditional
life and health products................................................... 201,353 61,322 47,212
Change in other liabilities................................................. (3,270) 18,564 11,970
Other (net)................................................................. (6,634) (1,475) 10,517
----------- ----------- -----------
Net cash provided by operating activities....................................... 291,209 241,331 192,535
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale.............................................. 2,014,060 386,498
Other....................................................................... 78,568 153,945 1,319,590
Sale of investments:
Investment available for sale............................................... 1,523,454 630,095
Other....................................................................... 141,184 59,550 244,683
Cost of investments acquired:
Investments available for sale.............................................. (3,626,877) (1,807,658)
Other....................................................................... (540,648) (220,839) (2,320,628)
Acquisitions and bulk reinsurance assumptions................................. 106,435 14,170
Principal payments on subordinated debenture of PLC...........................
Purchase of property and equipment............................................ (5,629) (4,889) (3,451)
Sale of property and equipment................................................ 286 470 1,817
----------- ----------- -----------
Net cash used in investing activities........................................... (415,602) (696,393) (743,819)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of credit arrangements and long-term
debt......................................................................... 1,162,700 572,586 574,423
Proceeds from surplus note to PLC............................................. 35,000
Capital contribution from PLC................................................. 18,000 41,000
Principal payments on line of credit arrangements and long-term debt.......... (1,162,700) (572,704) (577,767)
Principal payment on surplus note to PLC...................................... (4,750) (9,500) (22,500)
Dividends to stockholder...................................................... (5,100) (850) (1,500)
Investment product deposits and change in universal life deposits............. 908,063 1,417,980 1,198,263
Investment product withdrawals................................................ (785,622) (976,401) (683,251)
----------- ----------- -----------
Net cash provided by financing activities....................................... 130,591 431,111 563,668
----------- ----------- -----------
INCREASE(DECREASE) IN CASH...................................................... 6,198 (23,951) 12,384
CASH AT BEGINNING OF YEAR....................................................... 0 23,951 11,567
----------- ----------- -----------
CASH AT END OF YEAR............................................................. $ 6,198 $ 0 $ 23,951
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt............................................................ $ 6,029 $ 5,029 $ 3,803
Income taxes................................................................ $ 41,397 $ 49,765 $ 27,432
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Minority interest in consolidated subsidiary.................................. $ (1,311)
Reduction of principal on note from ESOP...................................... $ 171 $ 28 $ 156
Acquisitions and bulk reinsurance assumptions
Assets acquired............................................................. $ 613 $ 117,349 $ 423,140
Liabilities assumed......................................................... (21,800) (166,595) (429,580)
----------- ----------- -----------
Net......................................................................... $ (21,187) $ (49,246) $ (6,440)
----------- ----------- -----------
----------- ----------- -----------
</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.)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make various estimates
that affect the reported amounts of assets and liabilities, disclosures of
contingent assets and liabilities, as well as the reported amounts of revenues
and expenses.
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.
NATURE OF OPERATIONS
Protective markets individual life insurance; group life, health, dental,
and cancer insurance; annuities and investment products; credit life and
disability insurance; and guaranteed investment contracts. Its products are
distributed nationally through independent agents and brokers; through
broker-dealers and financial institutions to their customers; through full-time
sales representatives; and through other insurance companies. Protective also
seeks to acquire blocks of insurance policies from other insurers.
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, investment performance, maintenance of
insurance ratings, and other factors.
RECENTLY ISSUED ACCOUNTING STANDARDS
Protective adopted Statement of Financial Accounting Standards (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.
In 1995 Protective adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," and SFAS No. 118, "Accounting by Creditors for Impairment
of a Loan -- Income Recognition and Disclosures." Under these new standards, a
loan is considered impaired, based on current information and events, if it is
probable that Protective will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of impaired loans is generally based on the present
value of expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are measured for
impairment based on the fair value of the collateral.
Since Protective's mortgage loans are collateralized by real estate, any
assessment of impairment is based upon the estimated fair value of the real
estate. Based on Protective's evaluation of its mortgage loan portfolio,
Protective does not expect any material losses on its mortgage loans, and
therefore no allowance for losses is required under SFAS No. 114 at December 31,
1995.
In 1995 PLC adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
which changes the way stock-based compensation expense is measured and requires
additional disclosures relating to PLC's stock-based compensation plans. The
adoption of this accounting standard did not have a material effect on PLC's or
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)
In 1995 the Financial Accounting Standards Board issued: SFAS No. 120,
"Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance
Enterprises for Certain Long-Duration Participating Contracts;" SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of;" and SFAS No. 122, "Accounting for Mortgage Servicing Rights."
Protective anticipates that the impact of adopting these three accounting
standards will be immaterial to its financial condition.
INVESTMENTS
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 $5.2 million in bank
deposits voluntarily restricted as to withdrawal.
As prescribed by SFAS No. 115, certain investments are recorded at their
market values with the resulting unrealized gains and losses reduced by a
related adjustment to deferred policy acquisition costs, net of income tax,
reported as a component of stockholder's equity. The market values of fixed
maturities increase or decrease as interest rates fall or rise. Therefore,
although the adoption of SFAS No. 115 does not affect Protective's operations,
its reported stockholders' equity will fluctuate significantly as interest rates
change.
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)
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>
1995 1994
------------ ------------
<S> <C> <C>
Total investments................................................. $ 5,915,357 $ 5,499,511
Deferred policy acquisition costs................................. 426,432 400,480
All other assets.................................................. 747,884 376,146
------------ ------------
$ 7,089,673 $ 6,276,137
------------ ------------
------------ ------------
Deferred income taxes............................................. $ 36,263 $ 43,235
All other liabilities............................................. 6,458,036 5,728,296
------------ ------------
6,494,299 5,771,531
Redeemable preferred stock........................................ 2,000 2,000
Stockholder's equity.............................................. 593,374 502,606
------------ ------------
$ 7,089,673 $ 6,276,137
------------ ------------
------------ ------------
</TABLE>
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 losses of
$15.2 million were deferred in 1995 and net realized gains of $7.9 million were
deferred in 1994. At December 31, 1995 and 1994, open futures contracts with
notional amounts of $25.0 million and $137.5 million, respectively, had net
unrealized losses of $0.6 million and $0.4 million respectively.
Protective uses interest rate swap contracts to convert certain investments
from a variable to a fixed rate of interest. At December 31, 1995, related open
interest rate swap contracts with a notional amount of $170.3 million were in a
$1.3 million net unrealized gain position. 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.
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.
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)
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Home office building.................................................... $ 35,284 $ 35,321
Other, principally furniture and equipment.............................. 30,356 25,687
--------- ---------
65,640 61,008
Accumulated depreciation................................................ 31,429 27,823
--------- ---------
$ 34,211 $ 33,185
--------- ---------
--------- ---------
</TABLE>
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.
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)
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance beginning of year................................ $ 79,462 $ 77,191 $ 68,203
Less reinsurance....................................... 5,024 3,973 3,809
---------- ---------- ----------
Net balance beginning of year............................ 74,438 73,218 64,394
---------- ---------- ----------
Incurred related to:
Current year............................................. 217,366 203,453 194,394
Prior year............................................... (8,337) (6,683) (5,123)
---------- ---------- ----------
Total incurred....................................... 209,029 196,770 189,271
---------- ---------- ----------
Paid related to:
Current year............................................. 164,321 148,548 141,361
Prior year............................................... 48,834 47,002 39,086
---------- ---------- ----------
Total paid........................................... 213,155 195,550 180,447
---------- ---------- ----------
Net balance end of year.................................. 70,312 74,438 73,218
Plus reinsurance....................................... 3,330 5,024 3,973
---------- ---------- ----------
Balance end of year...................................... $ 73,642 $ 79,462 $ 77,191
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- 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 1995.
At December 31, 1995, Protective estimates the fair value of its
guaranteed investment contracts to be $2,660.0 million using discounted
cash flows. The surrender value of Protective's annuities which
approximates fair value was $1,296.7 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. Under 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 makes certain assumptions
regarding the mortality, persistency, expenses, and interest rates it
expects to experience in future periods. 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.
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.
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)
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 $102.5 million and $84.4 million at
December 31, 1995 and 1994, respectively. During 1995 $26.5 million of
present value of future profits on acquisitions made during the year was
capitalized, and $3.2 million was amortized. The unamortized present value
of future profits for all acquisitions was $123.9 million at December 31,
1995 and $110.3 million at December 31, 1994.
PARTICIPATING POLICIES
Participating business comprises approximately 1% of the individual life
insurance in force and 2% of the individual life insurance premium income.
Policyholder dividends totaled $2.6 million in 1995, 1994, and 1993.
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 the bases of assets and liabilities
determined for financial reporting purposes and the bases determined for 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
-------------------------------- --------------------------------
1995 1994 1993 1995 1994 1993
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory reporting
practices:
Protective Life Insurance Company........... $ 105,744 $ 54,812 $ 41,471 $ 322,416 $ 304,858 $ 263,075
Wisconsin National Life Insurance Company... 10,954 10,132 9,591 62,529 57,268 50,885
American Foundation Life Insurance
Company.................................... 3,330 3,072 1,415 18,781 20,327 18,290
Capital Investors Life Insurance Company.... 182 170 207 1,315 1,125 824
Empire General Life Assurance Corporation... 1,003 690 408 20,685 21,270 10,588
Protective Life Insurance Corporation of
Alabama.................................... 546 69 16 2,675 2,133 2,064
Consolidation elimination................... (6,500) 30 (103,985) (100,123) (80,651)
---------- --------- --------- ---------- --------- ---------
115,259 68,945 53,138 324,416 306,858 265,075
Additions (deductions) by adjustment:
Deferred policy acquisition costs, net of
amortization............................... (765) 41,718 25,686 410,183 434,200 299,307
Policy liabilities and accruals............. (48,330) (34,632) (15,586) (186,512) (140,298) (69,844)
Deferred income tax......................... 6,972 4,731 3,081 (67,420) 14,667 (69,118)
Asset Valuation Reserve..................... 105,769 24,925 43,398
Interest Maintenance Reserve................ (1,235) (1,716) (1,432) 14,412 3,583 10,489
Nonadmitted items........................... 20,603 21,445 7,742
Timing and valuation differences on mortgage
loans on real estate and fixed maturity
investments................................ (619) (961) 1,645 25,060 6,877 7,350
Net unrealized gains and losses on
investments................................ 57,863 (107,532) 39,284
Realized investment gains (losses).......... 6,781 (6,664) (7,860)
Noninsurance affiliates..................... (22) (12) 9 31
Consolidation elimination................... 2,515 (4,415) (2,107) (46,222) (162,835) (65,620)
Other adjustments, net...................... (2,860) 5,717 (398) (4,924) (4,815) 1,896
---------- --------- --------- ---------- --------- ---------
In conformity with generally accepted
accounting principles........................ $ 77,696 $ 72,723 $ 56,155 $ 653,237 $ 397,075 $ 469,990
---------- --------- --------- ---------- --------- ---------
---------- --------- --------- ---------- --------- ---------
</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>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities......................................... $ 272,942 $ 237,264 $ 211,566
Equity securities........................................ 1,338 2,435 1,519
Mortgage loans on real estate............................ 162,135 141,751 130,262
Investment real estate................................... 1,855 1,950 2,119
Policy loans............................................. 8,958 8,397 7,558
Other, principally short-term investments................ 40,348 35,062 18,779
---------- ---------- ----------
487,576 426,859 371,803
Investment expenses...................................... 29,143 17,926 17,638
---------- ---------- ----------
$ 458,433 $ 408,933 $ 354,165
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities.......................................... $ 6,118 $ (8,646) $ 10,508
Equity securities......................................... 44 7,735 2,230
Mortgage loans and other investments...................... (4,211) 7,209 (7,684)
---------- ---------- ----------
$ 1,951 $ 6,298 $ 5,054
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Protective has established an allowance for uncollectible amounts on
investments. The allowance totaled $32.7 million at December 31, 1995 and $35.2
million at December 31, 1994. Additions to the allowance are included in
realized investment gains (losses). Without such additions/reductions,
Protective had realized investment losses of $0.5 million in 1995 and realized
investment gains of $6.3 million and $13.8 million in 1994 and 1993,
respectively.
In 1995, gross gains on the sale of investments available for sale (fixed
maturities, equity securities and short-term investments) were $18.0 million and
gross losses were $11.8 million. In 1994, gross gains were $15.2 million and
gross losses were $16.4 million. In 1993, gross gains on the sale of fixed
maturities were $8.3 million and gross losses were $0.4 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
1995 COST GAINS LOSSES VALUES
- ----------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities........... $ 2,006,858 $ 46,934 $ 4,017 $ 2,049,775
United States Government and
authorities......................... 105,388 2,290 101 107,577
States, municipalities, and political
subdivisions........................ 10,888 702 0 11,590
Public utilities..................... 322,110 5,904 770 327,244
Convertibles and bonds with
warrants............................ 638 0 145 493
All other corporate bonds............ 1,126,318 50,103 7,573 1,168,848
Bank loan participations............... 220,811 0 0 220,811
Redeemable preferred stocks............ 5,857 61 324 5,594
------------ ----------- ----------- ------------
3,798,868 105,994 12,930 3,891,932
Equity securities........................ 35,448 6,438 3,175 38,711
Short-term investments................... 46,891 0 0 46,891
------------ ----------- ----------- ------------
$ 3,881,207 $ 112,432 $ 16,105 $ 3,977,534
------------ ----------- ----------- ------------
------------ ----------- ----------- ------------
</TABLE>
<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>
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>
1995
- -----------------------------------------------------------------------
Due in one year or less.............................................. $ 410,489 $ 411,839
Due after one year through five years................................ 1,090,323 1,101,226
Due after five years through ten years............................... 1,481,248 1,524,555
Due after ten years.................................................. 816,808 854,312
------------ ------------
$ 3,798,868 $ 3,891,932
------------ ------------
------------ ------------
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
------------ ------------
------------ ------------
</TABLE>
The approximate percentage distribution of Protective's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1995 1994
- ------------------------------------------------------------ ------ ------
<S> <C> <C>
AAA......................................................... 56.1% 57.6%
AA.......................................................... 4.5 5.5
A........................................................... 12.6 12.5
BBB
Bonds..................................................... 19.0 14.9
Bank loan participations.................................. 0.4 1.4
BB or Less
Bonds..................................................... 2.0 2.3
Bank loan participations.................................. 5.3 5.6
Redeemable preferred stocks................................. 0.1 0.2
------ ------
100.0% 100.0%
------ ------
------ ------
</TABLE>
At December 31, 1995 and 1994, Protective had bonds which were rated less
than investment grade of $75.7 million and $82.5 million, respectively, having
an amortized cost of $82.2 million and $89.4 million, respectively.
Additionally, Protective had bank loan participations which were rated less than
investment grade of $206.0 million and $195.1 million, respectively, having an
amortized cost of $206.0 million and $195.1 million, respectively.
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>
1995 1994 1993
---------- ----------- ---------
<S> <C> <C> <C>
Fixed maturities........................................... $ 193,562 $ (175,723) $ 1,198
Equity securities.......................................... $ 2,740 $ (5,342) $ 1,565
</TABLE>
At December 31, 1995, all of Protective's mortgage loans were commercial
loans of which 81% were retail, 7% were warehouses, and 6% 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
21
<PAGE>
NOTE C -- INVESTMENT OPERATIONS (CONTINUED)
in smaller towns and cities. No single tenant's leased space represents more
than 4% of mortgage loans. Approximately 82% of the mortgage loans are on
properties located in the following states listed in decreasing order of
significance: South Carolina, Georgia, Alabama, Tennessee, Texas, Florida, North
Carolina, Virginia, California, Mississippi, Colorado, Ohio, Kentucky,
Louisiana, Indiana, and Illinois.
Many of the mortgage loans have call provisions after five to seven years.
Assuming the loans are called at their next call dates, approximately $174.3
million would become due in 1996, $497.3 million in 1997 to 2000, and $275.7
million in 2001 to 2005.
At December 31, 1994, the average mortgage loan was $1.6 million, and the
weighted average interest rate was 9.3%. The largest single mortgage loan was
$13.1 million. While Protective's mortgage loans do not have quoted market
values, at December 31, 1995 and 1994, Protective estimates the market value of
its mortgage loans to be $2,001.1 million and $1,535.3 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1995 and 1994, Protective's problem mortgage loans and
foreclosed properties totaled $26.1 million and $24.0 million, respectively.
Protective expects no significant loss of principal.
Certain investments, principally real estate, with a carrying value of $9.5
million were nonincome producing for the twelve months ended December 31, 1995.
Mortgage loans to affiliates of both Fletcher Bright and Edens & Avant
totaled $95.4 million and $69.1 million, respectively, at December 31, 1995.
Most of such loans were not made to, or in reliance on the credit of, Mr. Bright
or Edens & Avant.
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.
NOTE D -- FEDERAL INCOME TAXES
Protective's effective income tax rate varied from the maximum federal
income tax rate as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate applied to pretax income.. 35.0% 35.0% 35.0%
Dividends received deduction and tax-exempt interest........ (0.5) (0.4) (0.5)
Low-income housing credit................................... (0.7) (0.7)
Tax benefits arising from prior acquisitions and other
adjustments................................................ 0.2 (2.8) (1.1)
--- --- ---
Effective income tax rate................................... 34.0% 31.1% 33.4%
--- --- ---
--- --- ---
</TABLE>
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>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Deferred policy acquisition costs......................... $ (11,606) $ 34,561 $ 8,861
Benefit and other policy liability changes................ 52,496 (52,288) (10,416)
Temporary differences of investment income................ (34,175) 15,524
Other items............................................... (13,687) (2,528) (1,527)
---------- ---------- ----------
$ (6,972) $ (4,731) $ (3,082)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
22
<PAGE>
NOTE D -- FEDERAL INCOME TAXES (CONTINUED)
The components of Protective's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves.......................... $ 63,830 $ 116,326
Unrealized loss on investments...................................... 23,485
Other............................................................... 2,303
---------- ----------
66,133 139,811
---------- ----------
Deferred income tax liabilities:
Deferred policy acquisition costs................................... 102,154 113,760
Unrealized gain on investments...................................... 31,399
Other............................................................... 11,384
---------- ----------
133,553 125,144
---------- ----------
Net deferred income tax liability................................... $ 67,420 $ (14,667)
---------- ----------
---------- ----------
</TABLE>
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, 1995 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
$322 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, 1995 Protective has an unused capital loss carryforward of
$5.7 million which will expire in 2000.
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
At December 31, 1995, 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, 1995, the balance of the three
surplus debentures combined was $34.7 million. Future maturities of these
debentures are $14.7 million in 1996 and $20.0 million in 2003.
Interest expense totaled $6.0 million, $5.0 million, and $5.0 million, in
1995, 1994, and 1993, respectively.
NOTE F -- ACQUISITIONS
In April 1994 Protective acquired through coinsurance a block of payroll
deduction policies. In October 1994, Protective acquired through coinsurance a
block of individual life insurance policies. In June 1995 Protective acquired
through coinsurance a block of term 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.
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
23
<PAGE>
NOTE G -- COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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. Although the outcome of
any litigation cannot be predicted with certainty, Protective is not aware of
any litigation that will have a material adverse effect on the financial
position of Protective.
NOTE H -- STOCKHOLDER'S EQUITY AND RESTRICTIONS
At December 31, 1995, approximately $329 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. In general, dividends up to specified 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 Protective in 1996 is estimated to be $129 million.
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
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 $0.1 million, $0.9 million, and $1.5
million were paid to PLC in 1995, 1994, and 1993, respectively.
NOTE J -- RELATED PARTY MATTERS
Receivables from related parties consisted of receivables from affiliates
under control of PLC in the amounts of $2.0 million and $0.3 million at December
31, 1995 and 1994, 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, $5.8 million at
December 31, 1995, 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 $3.1 million in 1995, $2.8 million in 1994, and $2.8 million in
1993. Protective purchases data processing, legal, investment and management
services from affiliates. The costs of such services were $38.1 million, $29.8
million, and $20.4 million in 1995, 1994, and 1993, respectively. Commissions
paid to affiliated marketing organizations of $10.9 million, $10.1 million, and
$5.8 million in 1995, 1994, and 1993, 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 $21.2 million,
24
<PAGE>
NOTE J -- RELATED PARTY MATTERS (CONTINUED)
$21.1 million, and $10.3 million in 1995, 1994, and 1993, respectively.
Protective and/or PLC paid commissions, interest, and service fees to these same
corporations totaling $5.3 million, $4.9 million, and $6.1 million, in 1995,
1994, and 1993, 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.
There are no significant intersegment transactions.
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions.................................................. $ 193,544 $ 170,659 $ 123,855
Financial Institutions........................................ 33,152 107,194 96,443
Group......................................................... 159,263 148,313 143,423
Guaranteed Investment Contracts............................... 199,468 183,591 167,233
Individual Life............................................... 139,424 122,248 111,497
Investment Products........................................... 104,984 79,773 69,550
Corporate and Other........................................... 3,059 12,936 1,521
Unallocated Realized Investment Gains (Losses)................ 921 5,266 1,876
------------ ------------ ------------
$ 833,815 $ 829,980 $ 715,398
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 23.2% 20.6% 17.3%
Financial Institutions........................................ 4.0 12.9 13.5
Group......................................................... 19.1 17.9 20.0
Guaranteed Investment Contracts............................... 23.9 22.1 23.4
Individual Life............................................... 16.7 14.7 15.6
Investment Products........................................... 12.6 9.6 9.7
Corporate and Other........................................... 0.4 1.6 0.2
Unallocated Realized Investment Gains (Losses)................ 0.1 0.6 0.3
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
25
<PAGE>
NOTE K -- BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
INCOME BEFORE INCOME TAX
Acquisitions.................................................. $ 52,136 $ 39,176 $ 29,845
Financial Institutions........................................ 8,212 8,176 7,220
Group......................................................... 10,502 11,169 10,435
Guaranteed Investment Contracts............................... 30,555 33,197 27,218
Individual Life............................................... 17,713 17,223 20,324
Investment Products........................................... 11,951 107 3,402
Corporate and Other........................................... (14,257) (8,736) (14,208)
Unallocated Realized Investment Gains (Losses)................ 921 5,266 1,876
------------ ------------ ------------
$ 117,733 $ 105,578 $ 86,112
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 44.3% 37.1% 34.6%
Financial Institutions........................................ 7.0 7.7 8.4
Group......................................................... 8.9 10.6 12.1
Guaranteed Investment Contracts............................... 26.0 31.5 31.6
Individual Life............................................... 15.0 16.3 23.6
Investment Products........................................... 10.1 0.1 4.0
Corporate and Other........................................... (12.1) (8.3) (16.5)
Unallocated Realized Investment Gains (Losses)................ 0.8 5.0 2.2
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
IDENTIFIABLE ASSETS
Acquisitions.................................................. $ 1,255,542 $ 1,204,883 $ 1,076,182
Financial Institutions........................................ 265,132 211,652 189,943
Group......................................................... 240,222 215,904 208,790
Guaranteed Investment Contracts............................... 2,536,939 2,211,079 2,041,463
Individual Life............................................... 887,927 752,168 641,992
Investment Products........................................... 1,578,789 1,284,186 876,691
Corporate and Other........................................... 414,142 230,832 272,788
------------ ------------ ------------
$ 7,178,693 $ 6,110,704 $ 5,307,849
------------ ------------ ------------
------------ ------------ ------------
Acquisitions.................................................. 17.5% 19.7% 20.3%
Financial Institutions........................................ 3.7 3.5 3.6
Group......................................................... 3.3 3.5 3.9
Guaranteed Investment Contracts............................... 35.3 36.2 38.5
Individual Life............................................... 12.4 12.3 12.1
Investment Products........................................... 22.0 21.0 16.5
Corporate and Other........................................... 5.8 3.8 5.1
------------ ------------ ------------
100.0% 100.0% 100.0%
------------ ------------ ------------
------------ ------------ ------------
</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.
26
<PAGE>
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>
1995 1994
--------- ---------
<S> <C> <C>
Accumulated benefit obligation, including vested benefits of $16,676 in 1995 and
$11,992 in 1994.................................................................. $ 17,415 $ 12,348
--------- ---------
Projected benefit obligation for service rendered to date......................... $ 24,877 $ 20,302
Plan assets at fair value (group annuity contract with Protective)................ 18,254 15,679
--------- ---------
Plan assets less than the projected benefit obligation............................ (6,623) (4,623)
Unrecognized net loss from past experience different from that assumed............ 4,882 2,400
Unrecognized prior service cost................................................... 805 905
Unrecognized net transition asset................................................. (84) (101)
--------- ---------
Net pension liability recognized in balance sheet................................. $ (1,020) $ (1,419)
--------- ---------
--------- ---------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned during the year............... $ 1,540 $ 1,433 $ 1,191
Interest cost on projected benefit obligation................. 1,636 1,520 1,396
Actual return on plan assets.................................. (1,358) (1,333) (1,270)
Net amortization and deferral................................. 114 210 704
--------- --------- ---------
Net pension cost.............................................. $ 1,932 $ 1,830 $ 2,021
--------- --------- ---------
--------- --------- ---------
</TABLE>
Protective's share of the net pension cost was $1.2 million, $1.2 million,
and $1.5 million, in 1995, 1994, and 1993, respectively.
Assumptions used to determine the benefit obligations as of December 31 were
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate................................... 7.25% 8.00% 7.50%
Rates of increase in compensation level.......................... 5.25% 6.00% 5.50%
Expected long-term rate of return on assets...................... 8.50% 8.50% 8.50%
</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, 1995, the projected benefit obligation
of this plan totaled $5.7 million.
In addition to pension benefits, PLC provides limited healthcare benefits to
eligible retired employees until age 65. The postretirement benefit is provided
by an unfunded plan. At December 31, 1995, the liability for such benefits
totaled $1.5 million. The expense recorded by PLC was $0.2 million in 1995,
1994, and 1993. PLC's obligation is not materially affected by a 1% change in
the healthcare 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.
PLC sponsors a defined contribution plan which covers substantially all
employees. Employee contributions are made on a before-tax basis as provided by
Section 401(k) of the Internal Revenue Code. In 1990, PLC established an
Employee Stock Ownership Plan to match employee contributions to PLC's 401(k)
Plan. In 1994, a stock bonus was added to the 401(k) Plan for employees who are
not otherwise under a bonus
27
<PAGE>
NOTE L -- EMPLOYEE BENEFIT PLANS (CONTINUED)
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, 1995,
PLC had committed 70,088 shares to be released to fund employee benefits. The
expense recorded by PLC for this employee benefit was $0.7 million, $0.6 million
and $0.2 million in 1995, 1994, and 1993, 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,
generally, will not carry more than $500,000 individual life insurance on a
single risk.
Protective has reinsured approximately $17.5 billion, $8.6 billion, and $7.5
billion, in face amount of life insurance risks with other insurers representing
$116.1 million, $46.0 million, and $37.9 million of premium income for 1995,
1994, and 1993, respectively. Protective has also reinsured accident and health
risks representing $217.1 million, $126.5 million and $88.9 million, of premium
income for 1995, 1994, and 1993, respectively. In 1995 and 1994, policy and
claim reserves relating to insurance ceded of $232.3 million and $120.0 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, 1995 and 1994,
Protective had paid $4.1 million and $5.4 million, respectively, of ceded
benefits which are recoverable from reinsurers.
During 1995 the Company entered into a reinsurance agreement whereby all of
the Company's new credit insurance sales are being ceded to a reinsurer.
Included in the preceding paragraph are credit life and credit accident and
health insurance premiums of $68.2 million and $57.6 million respectively, and
reserves totaling $100.8 million which were ceded during 1995.
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>
1995 1994
-------------------------- --------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUES AMOUNT VALUES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities....................................... $ 3,891,932 $ 3,891,932 $ 3,493,646 $ 3,493,646
Equity securities...................................... 38,711 38,711 45,005 45,005
Mortgage loans on real estate.......................... 1,835,057 2,001,100 1,488,495 1,535,300
Short-term investments................................. 46,891 46,891 54,683 54,683
Cash..................................................... 6,198 6,198
Other (see Note A):
Futures contracts........................................ (633) (416)
Interest rate swaps...................................... 1,299 (8,952)
</TABLE>
28
<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, 1995:
Acquisitions..................... $123,889 $ 851,994 $ 590 $ 250,550 $98,501
Financial Institutions........... 36,283 84,162 189,973 1,495 23,875
Group............................ 24,974 123,279 2,806 85,925 142,483
Guaranteed Investment
Contracts....................... 993 68,704 0 2,451,693 0
Individual Life.................. 186,496 672,569 336 14,709 99,018
Investment Products.............. 37,534 127,104 0 1,061,507 4,566
Corporate and Other.............. 14 342 62 263 1,445
Unallocated Realized Investment
Gains (Losses).................. 0 0 0 0 0
----------- ---------- -------- -------------- --------
TOTAL.......................... $410,183 $1,928,154 $193,767 $3,866,142 $369,888
----------- ---------- -------- -------------- --------
----------- ---------- -------- -------------- --------
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
----------- ---------- -------- -------------- --------
----------- ---------- -------- -------------- --------
<CAPTION>
- ----------------------------------- ------------------------------------------------------------------
COL. A COL. G COL. H COL. I COL. J
- -----------------------------------
------------------------------------------------------------------
AMORTIZATION
REALIZED BENEFITS OF DEFERRED OTHER
NET INVESTMENT AND POLICY OPERATING
INVESTMENT GAINS SETTLEMENT ACQUISITION EXPENSES
SEGMENT INCOME (1) (LOSSES) EXPENSES COSTS (1)
- ----------------------------------- ---------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1995:
Acquisitions..................... $ 95,018 $ 0 $100,016 $20,601 $ 20,791
Financial Institutions........... 9,276 0 (19,574) 28,609 15,905
Group............................ 14,329 0 109,447 3,052 36,262
Guaranteed Investment
Contracts....................... 203,376 (3,908) 165,963 386 2,564
Individual Life.................. 40,237 0 80,067 20,403 21,241
Investment Products.............. 95,661 4,938 72,111 11,446 9,476
Corporate and Other.............. 536 0 1,476 3 15,837
Unallocated Realized Investment
Gains (Losses).................. 0 921 0 0 0
---------- ----------- ---------- ------------ -----------
TOTAL.......................... $458,433 $ 1,951 $509,506 $84,500 $122,076
---------- ----------- ---------- ------------ -----------
---------- ----------- ---------- ------------ -----------
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
---------- ----------- ---------- ------------ -----------
---------- ----------- ---------- ------------ -----------
<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>
29
<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, 1995:
Life insurance in force............... $ 50,346,719 $ 17,524,366 $ 11,537,144 $ 44,359,497 26.0%
------------- ------------- ------------- ------------- ---
------------- ------------- ------------- ------------- ---
Premiums and policy fees:
Life insurance...................... $ 287,526 $ 116,091 $ 66,565 $ 238,000 28.0%
Accident/health insurance........... 335,387 217,082 13,583 131,888 10.3%
------------- ------------- ------------- -------------
TOTAL............................. $ 622,913 $ 333,173 $ 80,148 $ 369,888
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
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
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
30
<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 33 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
31
<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 22, 1996.
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 22, 1996
------------------------------
Drayton Nabers, Jr.
(ii) Principal Financial Officer
/s/ JOHN D. JOHNS Executive Vice President and March 22, 1996
------------------------------ Chief Financial Officer
John D. Johns
(iii) Principal Accounting Officer
/s/ JERRY W. DEFOOR Vice President and Controller, March 22, 1996
------------------------------ and Chief Accounting Officer
Jerry W. DeFoor
(iv) Board of Directors:
/s/ DRAYTON NABERS, JR. Director March 22, 1996
------------------------------
Drayton Nabers, Jr.
/s/ JOHN D. JOHNS Director March 22, 1996
------------------------------
John D. Johns
* Director March 22, 1996
------------------------------
Ormond L. Bentley
* Director March 22, 1996
------------------------------
R. Stephen Briggs
* Director March 22, 1996
------------------------------
Carolyn King
* Director March 22, 1996
------------------------------
Deborah J. Long
* Director March 22, 1996
------------------------------
Jim E. Massengale
* Director March 22, 1996
------------------------------
Steven A. Schultz
* Director March 22, 1996
------------------------------
Wayne E. Stuenkel
* Director March 22, 1996
------------------------------
A. S. Williams III
*By: /s/ JERRY W. DEFOOR
------------------------------
Jerry W. DeFoor
ATTORNEY-IN-FACT
</TABLE>
32
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM
NUMBER DOCUMENT
- --------------------- --------------------------------------------------------------------------------------------------
<C> <S> <C>
* 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
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>
33
<PAGE>
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 and 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 1995 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 20th day of March, 1996.
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/ CAROLYN KING
---------------------------------
Carolyn King
/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
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 3,891,932
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 38,711
<MORTGAGE> 1,835,057
<REAL-ESTATE> 20,788
<TOTAL-INVEST> 6,020,626
<CASH> 6,198
<RECOVER-REINSURE> 271,018
<DEFERRED-ACQUISITION> 410,183
<TOTAL-ASSETS> 7,178,693
<POLICY-LOSSES> 1,928,154
<UNEARNED-PREMIUMS> 193,767
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 134,380
<NOTES-PAYABLE> 0
2,000
0
<COMMON> 5,000
<OTHER-SE> 646,237
<TOTAL-LIABILITY-AND-EQUITY> 7,178,693
369,888
<INVESTMENT-INCOME> 458,433
<INVESTMENT-GAINS> 1,951
<OTHER-INCOME> 3,543
<BENEFITS> 509,506
<UNDERWRITING-AMORTIZATION> 84,500
<UNDERWRITING-OTHER> 122,076
<INCOME-PRETAX> 117,733
<INCOME-TAX> 40,037
<INCOME-CONTINUING> 77,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 77,696
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Protective Live Insurance Company is a wholly-owned subsidiary of Protective
Life Corporation (NYSE:PL) and is not required to present EPS information.
</FN>
</TABLE>
