<PAGE>
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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 0-9924
PROTECTIVE LIFE CORPORATION
(Exact name of Registrant as specified in its charter)
2801 HIGHWAY 280 SOUTH
BIRMINGHAM, ALABAMA 35223
(Address of principal executive offices, including zip code)
DELAWARE 95-2492236
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Registrant's telephone number, including area code (205) 879-9230
------------
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $0.50 PAR VALUE
JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK, $1.00 PAR VALUE
PLC CAPITAL L.L.C. 9% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A
(Title of class)
Name of each exchange
on which registered
-------------------
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
PREFERRED STOCK, $1.00 PAR VALUE
7.95% SENIOR NOTES DUE JULY 1, 2004
(Title of class)
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 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 the definitive proxy statement 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
as of March 10, 1995: $502,691,820
Number of shares of Common Stock, $0.50 Par Value, outstanding as of March 10,
1995: 13,723,224
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1994 Annual Report To Stockholders (the "1994
Annual Report To Stockholders") are incorporated by reference into Parts I, II,
and IV of this Report.
Portions of the Registrant's Proxy Statement dated March 24, 1995, are
incorporated by reference into Part III of this Report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PROTECTIVE LIFE CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1994
TABLE OF CONTENTS
PART I
PAGE
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . 19
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . . . 19
Item 6. Selected Financial Data. . . . . . . . . . . . . . . . . . . . . 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . 21
Item 8. Financial Statements and Supplementary Data. . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . . . 23
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 23
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . 25
2
<PAGE>
PART I
ITEM 1. BUSINESS
Protective Life Corporation is an insurance holding company, whose
subsidiaries provide financial services through the production, distribution,
and administration of insurance and investment products. Founded in 1907,
Protective Life Insurance Company ("Protective Life") is the Company's principal
operating subsidiary. Unless the context otherwise requires, the "Company"
refers to the consolidated group of Protective Life Corporation and its
subsidiaries. The Company has six operating divisions: Acquisitions, Financial
Institutions, Group, Guaranteed Investment Contracts, Individual Life, and
Investment Products. The Company also has an additional business segment which
is described herein as Corporate and Other.
Additional information concerning the Company's divisions may be found in
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - RESULTS OF OPERATIONS" and Note J to Consolidated Financial
Statements in the Company's 1994 Annual Report to Stockholders, which are
incorporated herein by reference.
ACQUISITIONS DIVISION
The Company actively seeks to acquire blocks of insurance policies. These
acquisitions may be accomplished through acquisitions of companies or through
the assumption or reinsurance of policies. Most acquisitions do not include the
Company's acquisition of an active sales force, but some do. Blocks of policies
acquired through the Acquisitions Division are usually administered as "closed"
blocks; i.e., no new policies are sold. Therefore, the amount of insurance in
force for a particular acquisition is expected to decline with time due to
lapses and deaths of the insureds. The experience of the Company has been that
acquired or reinsured business can be administered more efficiently by the
Company than by previous management.
More than twenty separate transactions were made between 1970 and 1987.
From 1987 through 1989, the Company encountered more competition concerning
acquisitions; however, it did not change its strategy concerning the margins it
sought from acquisitions. Consequently, no material transactions were entered
into from 1987 to 1989.
The environment for acquisitions has become more favorable since 1989 and
management believes that this favorable environment likely will continue into
the immediate future. Insurance companies are facing heightened regulatory and
market pressure to increase statutory capital and thus may seek to increase
capital by selling blocks of policies. Insurance companies also appear to be
selling blocks of policies in conjunction with programs to narrow strategic
focus. In addition, smaller companies may face difficulties in marketing and
thus may seek to be acquired.
Several states have enacted statutes that decreased the attractiveness of
assumption reinsurance transactions and increased the attractiveness of
coinsurance transactions, which has caused sellers to place more emphasis on
the financial condition and acquisition experience of the purchaser. Management
believes this trend will favorably impact the Company's competitive position.
However, it appears that other companies are entering this market; therefore,
the Company may face increased competition for future acquisitions.
3
<PAGE>
Total revenues and income before income tax from the Acquisitions Division
are expected to decline with time unless new acquisitions are made. Therefore,
the Division's revenues and earnings may fluctuate from year-to-year depending
upon the level of acquisition activity.
In the fourth quarter of 1990, Protective Life reinsured two separate
blocks of insurance. In the first quarter of 1992, Employers National Life
Insurance Company, a small Texas insurance company, was purchased and merged
into Protective Life. In the third quarter of 1993, Protective Life acquired
Wisconsin National Life Insurance Company and coinsured a small block of
universal life policies. In the second quarter of 1994, the Company coinsured a
small block of payroll deduction policies. In the fourth quarter of 1994, the
Company acquired through coinsurance a block of 130,000 policies.
FINANCIAL INSTITUTIONS DIVISION
The Financial Institutions Division specializes in marketing insurance
products through commercial banks, savings and loan associations, and mortgage
bankers. The Division markets an array of life and health products, the
majority of which cover consumer and mortgage loans made by financial
institutions located primarily in the southeastern United States. The Division
also markets life and health products through the consumer finance industry and
through automobile dealerships. The Division markets through employee field
representatives, independent brokers, and a wholly-owned subsidiary. The
Division also offers certain products through direct mail solicitation to
customers of financial institutions. The demand for credit life and credit
health insurance is related to the level of loan demand.
In July 1992, in a major expansion of the Division, the Company acquired
the credit insurance business of Durham Life Insurance Company ("Durham") which
more than doubled the reserves the Company then held for its existing credit
insurance activities. The acquisition provided significant market share in the
southeastern states not previously covered by the Company. The larger size of
the Division has allowed it to achieve economies of scale.
GROUP DIVISION
The Group Division manufactures, distributes, and services group, payroll
deduction, cancer, and dental insurance products. The Division offers
substantially all forms of group insurance customary in the industry, making
available complete packages of life and accident and health insurance to
employers. The life and accident and health insurance packages offered by this
Division include hospital and medical coverages as well as dental and disability
coverages. To address rising health care costs, the Division provides cost
containment services such as utilization review and catastrophic case
management.
The Division markets its group insurance products primarily in the
southeastern and southwestern United States using the services of brokers who
specialize in group products. Sales offices in Alabama, Florida, Georgia,
Illinois, Missouri, North Carolina, Ohio, Oklahoma, Tennessee, and Texas are
maintained to serve these brokers. Group policies are directed primarily at
employers and associations with between 25 and 1,000 employees. The Division
also markets group insurance to small employers through a marketing organization
affiliated with
4
<PAGE>
an insurer, and reinsures the business produced by the marketing organization.
The Division receives a ceding commission from these arrangements.
Group accident and health insurance is generally considered to be cyclical.
Profits rise or fall as competitive forces allow or prevent rate increases to
keep pace with changes in group health medical costs. The Company is placing
marketing emphasis on other health insurance products which have not been as
subject to medical cost inflation as traditional group health products. These
products include dental insurance policies and hospital indemnity policies which
are distributed nationally through the Division's existing distribution system,
as well as through joint marketing arrangements with independent marketing
organizations, and through reinsurance contracts with other insurers. These
products also include an individual cancer insurance policy marketed through a
nationwide network of agents. It is anticipated that a significant part of the
growth in the Company's health insurance premium income in the next several
years will be from products like dental and individual cancer insurance.
In 1993 the Division established a special marketing unit to sell dental
plans through mail and telephone solicitations. Additionally, the Company has
recently acquired National Health Care Systems of Florida, Inc., known as
"DentiCare", a Florida-based dental health maintenance organization. DentiCare
has over 260,000 members in the southeastern United States.
GUARANTEED INVESTMENT CONTRACTS DIVISION
In November 1989, the Company began selling guaranteed investment contracts
("GICs"). The Company's GICs are contracts, generally issued to a 401(k) or
other retirement savings plan, which guarantee a fixed return on deposits for a
specified period and often provide flexibility for withdrawals, in keeping with
the benefits provided by the plan. The Company also offers a related product
which is purchased primarily as a temporary investment vehicle by the trustees
of escrowed municipal bond proceeds. GICs are sold to customers through a
network of specialized GIC managers, consultants, and brokers.
The Company entered the GIC business in 1989 through a joint venture. The
joint venture arrangement was ended in 1991.
Life insurer credit concerns and a demand shift to non-traditional GIC
alternatives have generally caused the GIC market to contract somewhat.
Management believes that maintenance of strong claims-paying and financial
strength ratings is necessary for success in this market.
The Division's total revenues and income before income tax have
significantly increased each year since 1990 as GIC account balances have
increased. The rate of growth in GIC account balances will most likely
significantly decrease as the number of maturing contracts increases.
INDIVIDUAL LIFE DIVISION
Since 1983, the Individual Life Division (formerly, the Agency Division)
has utilized a distribution system based on experienced independent personal
producing general agents who are recruited by regional sales managers. At
December 31, 1994, there were 25 regional sales managers located throughout the
United States. Honors Club members, agents who produce at
5
<PAGE>
least $30 thousand of new premium per year, totalled 253 at December 31, 1994.
Honors Club members represent approximately 46% of the Division's new premium.
In 1993, the Division began distributing insurance products through stock
brokers. The Division also distributes insurance products through the payroll
deduction market.
Marketing efforts in the Individual Life Division are directed toward the
Company's various universal life products and products designed to compete in
the term marketplace. Universal life products combine traditional life
insurance protection with the ability to tailor a more flexible payment schedule
to the individual's needs, provide an accumulation of cash values on which
income taxes are deferred, and permit the Company to change interest rates
credited on policy cash values to reflect current market rates. The Company
currently emphasizes back-end loaded universal life policies which reward the
continuing policyholder and which should maintain the persistency of its
universal life business. The products designed to compete in the term
marketplace are term-like policies with guaranteed level premiums for the first
10, 15, or 20 years which provide a competitive net cost to the insured.
The Division is developing new ventures including a special program for
parents and guardians of persons with disabilities, a special product for owners
of privately-held companies, and the sale of policies in the life insurance
brokerage market.
The Division recently changed its name to describe more accurately its
functions of manufacturing, distributing, and servicing the Company's individual
life insurance products.
INVESTMENT PRODUCTS DIVISION
The Investment Products Division manufactures, sells, and supports annuity
products. These products are sold through stock brokers, financial
institutions, and the Individual Life Division.
In April 1990, the Company began sales of modified guaranteed annuity
products ("MGA products") which guarantee a compounded interest rate for a fixed
term. Because contract values are "market-value adjusted" upon surrender prior
to maturity, the MGA products afford the Company a measure of protection from
changes in interest rates.
In late 1992, the Division ceased most new sales of single premium deferred
annuities. In 1994, the Division introduced a variable annuity product to
broaden the Division's product line.
The Division also includes ProEquities, Inc. ("PES"), formerly, Protective
Equity Services, Inc., an affiliated securities broker-dealer. Through PES,
members of the Company's field force who are licensed to sell securities can
sell stocks, bonds, mutual funds, and investment products that may be
manufactured or issued by companies other than the Company. Some of the
Company's annuity products are also sold through PES. On January 1, 1995,
management responsibility for PES was transferred to the Individual Life
Division, and PES's financial results will be included in the Individual Life
Division beginning in 1995.
6
<PAGE>
CORPORATE AND OTHER
The Corporate and Other segment consists of several small insurance lines
of business, net investment income and expenses not attributable to the business
segments described above (including interest on substantially all debt), and the
operations of several small noninsurance subsidiaries. The earnings of this
segment may fluctuate from year to year.
In 1988, the Company acquired convertible preferred stock of Southeast
Health Plan, Inc. ("SEHP"), a Birmingham-based health maintenance organization.
In August 1991, the Company converted the preferred stock into 80% of the common
stock of SEHP. In August 1993, the Company sold its interest in SEHP.
In 1994, the Company entered into a joint venture arrangement with the
Lippo Group to enter the Hong Kong insurance market. The Company and the Lippo
Group jointly own a Hong Kong insurer which commenced business in early 1995.
Most of the Hong Kong insurer's products are similar to those currently being
offered by the Company. Management believes that this joint venture will
position the Company to market life insurance in mainland China when that
opportunity unfolds.
INSURANCE IN FORCE
The Company's total consolidated life insurance in force at
December 31, 1994 was $49.9 billion. The following table shows sales by face
amount and insurance in force for the Company's business segments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
1994 1993 1992 1991 1990
------ -------- -------- --------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
New Business Written
Financial Institutions. . . $ 2,524,212 $ 2,776,276 $ 1,149,265 $ 1,057,886 $ 1,095,595
Group . . . . . . . . . . . 184,429 252,345 328,258 390,141 852,893
Individual Life . . . . . . 6,329,630 4,440,510 4,877,038 4,244,903 3,581,071
----------- ----------- ----------- ----------- -----------
Total. . . . . . . . . $ 9,038,271 $ 7,469,131 $ 6,354,561 $ 5,692,930 $ 5,529,559
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Business Acquired
Acquisitions. . . . . . . . $ 4,756,371 $ 4,378,812 $ 1,302,330 $ 1,570,401
Financial Institutions. . . 1,432,338
----------- ----------- ----------- ----------- -----------
Total. . . . . . . . . $ 4,756,371 $ 4,378,812 $ 2,734,668 $ 0 $ 1,570,401
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Insurance in Force at End of Year(1)
Acquisitions. . . . . . . . $11,728,569 $ 8,452,114 $ 3,836,066 $ 4,385,948 $ 5,290,020
Financial Institutions. . . 4,841,318 4,306,179 3,690,610 2,446,815 2,319,150
Group . . . . . . . . . . . 7,464,501 6,716,724 6,315,410 7,088,931 6,817,663
Individual Life . . . . . . 25,843,232 22,975,577 20,634,927 16,655,923 13,850,255
----------- ----------- ----------- ----------- -----------
Total. . . . . . . . . $49,877,620 $42,450,594 $34,477,013 $30,577,617 $28,277,088
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<FN>
_______________
(1) Reinsurance assumed has been included; reinsurance ceded (1994-$8,639,272;
1993-$7,484,566; 1992-$6,982,127; 1991-$5,292,080; 1990-$3,597,097) has not
been deducted.
</TABLE>
The ratio of voluntary terminations of individual life insurance to
mean individual life insurance in force, which is determined by dividing the
amount of insurance terminated due to surrenders and lapses during the year by
the mean of the insurance in force at the
7
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beginning and end of the year, adjusted for the timing of major acquisitions and
assumptions was:
<TABLE>
<CAPTION>
RATIO OF
YEAR ENDED VOLUNTARY
DECEMBER 31 TERMINATIONS
----------- ------------
<S> <C>
1990 . . . . . . . . . . . . . 11.6%
1991 . . . . . . . . . . . . . 8.9
1992 . . . . . . . . . . . . . 9.0
1993 . . . . . . . . . . . . . 8.7
1994 . . . . . . . . . . . . . 7.0
</TABLE>
Net terminations reflect voluntary lapses and cash surrenders, some of
which may be due to the replacement of the Company's products with competitors'
products. Also, a higher percentage of voluntary lapses typically occurs in the
first 15 months of a policy, and accordingly, lapses will tend to increase or
decrease in proportion to the change in new insurance written during the
immediately preceding periods.
The amount of investment products in force is measured by account balances.
The following table shows guaranteed investment contract and annuity account
balances.
<TABLE>
<CAPTION>
GUARANTEED MODIFIED
YEAR ENDED INVESTMENT GUARANTEED FIXED VARIABLE
DECEMBER 31 CONTRACTS ANNUITIES ANNUITIES ANNUITIES
------------ ---------- ---------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
1990 $ 726,866 $ 37,063 $205,032
1991 1,264,603 115,477 324,662
1992 1,694,530 299,608 374,451
1993 2,015,075 468,689 537,053
1994 2,281,673 661,359 539,756 $171,088
</TABLE>
UNDERWRITING
The underwriting policies of the Company's insurance subsidiaries are
established by management. With respect to individual insurance, the
subsidiaries use information from the application and, in some cases, inspection
reports, attending physician statements, or medical examinations to determine
whether a policy should be issued as applied for, rated, or rejected. Medical
examinations of applicants are required for individual life insurance in excess
of certain prescribed amounts (which vary based on the type of insurance) and
for most ordinary insurance applied for by applicants over age 50. In the case
of "simplified issue" policies, which are issued primarily through the Financial
Institutions Division and the payroll deduction market, coverage is rejected if
the responses to certain health questions contained in the application indicate
adverse health of the applicant. For other than "simplified issue" policies,
medical examinations are requested of any applicant, regardless of age and
amount of requested coverage, if an examination is deemed necessary to
underwrite the risk. Substandard risks may be referred to reinsurers for full
or partial reinsurance of the substandard risk.
The Company's insurance subsidiaries require blood samples to be drawn with
ordinary insurance applications for coverage over $100,000 (ages 16-50) or
$150,000 (age 51 and above). Blood samples are tested for a wide range of
chemical values and are screened for antibodies
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to the HIV virus. Applications also contain questions permitted by law
regarding the HIV virus which must be answered by the proposed insureds.
Group insurance underwriting policies are administered by experienced group
underwriters. The underwriting policies are designed for single employer
groups. Initial premium rates are based on prior claim experience and manual
premium rates with relative weights depending on the size of the group and the
nature of the benefits.
INVESTMENTS
The types of assets in which the Company may invest are influenced by
state laws which prescribe qualified investment assets. Within the parameters
of these laws, the Company invests its assets giving consideration to such
factors as liquidity needs, investment quality, investment return, matching of
assets and liabilities, and the composition of the investment portfolio by asset
type and credit exposure. Because liquidity is important, the Company
continually balances maturity against yield and quality considerations in
selecting new investments.
The Company's asset/liability matching practices involve monitoring of
asset and liability durations for various product lines, cash flow testing under
various interest rate scenarios, and rebalancing of assets and liabilities with
respect to yield, risk, and cash-flow characteristics.
In accordance with generally accepted accounting principles, the Company's
fixed maturities, equity securities, and short-term investments are valued at
market. Mortgage loans, investment real estate, policy loans, and other long-
term investments are valued at amortized cost. The following table shows the
Company's investments at December 31, 1994, valued on the basis of generally
accepted accounting principles.
9
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<TABLE>
<CAPTION>
PERCENT OF TOTAL
ASSET VALUE INVESTMENTS
------------------ ----------------
(dollars in thousands)
<S> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities $1,898,321 35.8%
United States Government
and government agencies
and authorities 81,881 1.6
States, municipalities, and
political subdivisions 9,677 0.2
Public utilities 378,120 7.1
Convertibles and bonds
with warrants attached 385 ---
All other corporate bonds 874,428 16.5
Bank loan participations 244,881 4.6
Redeemable preferred stocks 5,953 0.1
---------- ----
Total fixed maturities 3,493,646 65.9
---------- ----
Equity securities:
Common stocks - industrial,
miscellaneous, and all other 24,797 0.5
Nonredeemable preferred stocks 20,208 0.4
---------- ----
Total equity securities 45,005 0.9
---------- ----
Mortgage loans on real estate 1,487,795 28.0
Investment real estate 20,303 0.4
Policy loans 147,608 2.8
Other long-term investments 48,013 0.9
Short-term investments 59,541 1.1
---------- ----
Total investments $5,301,911 100.0%
---------- -----
---------- -----
</TABLE>
A significant portion of the Company's bond portfolio is invested in
mortgage-backed securities. Mortgage-backed securities are constructed from
pools of residential mortgages, and may have cash flow volatility as a result
of changes in the rate at which prepayments of principal occur with respect to
the underlying loans. Prepayments of principal on the underlying residential
loans can be expected to accelerate with decreases in interest rates and
diminish with increases in interest rates.
In management's view, the overall quality of the Company's investment
portfolio continues to be strong. The Company obtains ratings of its fixed
maturities from Moody's Investor Service, Inc. ("Moody's") and Standard & Poor's
Corporation ("S&P"). If a bond is not rated by Moody's or S&P, the Company uses
ratings from the Securities Valuation Office of the National Association of
Insurance Commissioners ("NAIC"), or the Company rates the bond based upon a
comparison of the unrated issue to rated issues of the same issuer or rated
issues of other issuers with similar risk characteristics. At December 31,
1994, approximately 98% of bonds were rated by Moody's, S&P, or the NAIC.
The following table shows the approximate percentage distribution of the
Company's fixed maturities by rating category, utilizing S&P's rating
categories, at December 31, 1994:
10
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
FIXED
TYPE MATURITIES
---- ----------
<S> <C>
Bonds
AAA 57.6%
AA 5.5
A 12.5
BBB 14.9
BB or Less 2.3
Bank Loan Participations
Investment Grade 1.4
Non-Investment Grade 5.6
Redeemable Preferred Stock 0.2
-----
Total 100.0%
------
------
</TABLE>
At December 31, 1994, approximately $3,160.3 million of the Company's
$3,242.8 million bond portfolio was invested in U.S. Government-backed
securities or investment grade corporate bonds and only approximately $82.5
million of its bond portfolio was rated less than investment grade.
Approximately $269 million of bonds are not publicly traded.
Risks associated with investments in less than investment grade debt
obligations may be significantly higher than risks associated with investments
in debt securities rated investment grade. Risk of loss upon default by the
borrower is significantly greater with respect to such debt obligations than
with other debt securities because these obligations may be unsecured or
subordinated to other creditors. Additionally, there is often a thinly traded
market for such securities and current market quotations are frequently not
available for some of these securities. Issuers of less than investment grade
debt obligations usually have higher levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than investment-grade issuers.
The Company also invests in bank loan participations. Generally, such
investments constitute the most senior debt incurred by the borrower in highly
leveraged transactions. They are generally unrated by the credit rating
agencies. Of the $244.9 million of bank loan participations owned by the
Company at December 31, 1994, $195.1 million were classified by the Company as
less than investment grade.
The Company also invests a significant portion of its portfolio in mortgage
loans. Results for these investments have been excellent due to careful
management and a focus on a specialized segment of the market. The Company
generally does not lend on speculative properties and has specialized in making
loans on either credit-oriented commercial properties, or credit-anchored strip
shopping centers.
11
<PAGE>
The following table shows a breakdown of the Company's mortgage loan
portfolio by property type:
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
PROPERTY TYPE ON REAL ESTATE
------------- --------------
<S> <C>
Retail 79.2%
Warehouses 7.8
Office Building 7.4
Apartments 2.7
Mixed-use 1.3
Other 1.6
----
Total 100.0%
-----
-----
</TABLE>
Credit-anchored strip shopping center loans are generally on strip shopping
centers located in smaller towns and anchored by one or more strong regional or
national retail stores. The anchor tenants enter into long-term leases with the
Company's borrowers. These centers provide the basic necessities of life, such
as food, pharmaceuticals, and clothing, and have been relatively insensitive to
changes in economic conditions. The following are some of the largest anchor
tenants (measured by the Company's exposure) in the strip shopping centers at
December 31, 1994:
<TABLE>
<CAPTION>
PERCENTAGE OF
MORTGAGE LOANS
ANCHOR TENANTS ON REAL ESTATE
-------------- --------------
<S> <C>
Food Lion 5%
K-Mart 5
Winn Dixie 4
Wal-Mart 4
Bi-Lo 3
Kroger 2
</TABLE>
The Company's mortgage lending criteria generally require that the loan-to-
value ratio on each mortgage be at or under 75% at the time of origination,
although in certain circumstances the Company will lend on the basis of an 85%
loan-to-value ratio. Projected rental payments from credit anchors (i.e.,
excluding rental payments from smaller local tenants) generally exceed 70% of
the property's projected operating expenses and debt service. The average size
mortgage loan in the Company's portfolio is approximately $1.5 million. The
largest single loan amount is $11.9 million.
Many of the Company's mortgage loans have call or interest rate reset
provisions after five to seven years. However, if interest rates were to
significantly increase, the Company may be unable to increase the interest rates
on its existing mortgage loans commensurate with the significantly increased
market rates, or call the loans.
At December 31, 1994, $24.0 million or 1.6% of the mortgage loan portfolio
was nonperforming. It is the Company's policy to cease to carry accrued
interest on loans that are over 90 days delinquent. For loans less than 90 days
delinquent, interest is accrued unless it is determined that the accrued
interest is not collectible. If a loan becomes over 90 days
12
<PAGE>
delinquent, it is the Company's general policy to initiate foreclosure
proceedings unless a workout arrangement to bring the loan current is in place.
As a general rule, the Company does not invest directly in real estate.
The investment real estate held by the Company consists largely of properties
obtained through foreclosures or the acquisition of other insurance companies.
At foreclosure, a new appraisal is obtained, and the value of real estate
acquired through foreclosure is valued at the lesser of the mortgage loan
balance plus costs of foreclosure or appraised value. In the Company's
experience, the appraised value of foreclosed properties often equals or exceeds
the mortgage loan balance on the property plus costs of foreclosure. Also,
foreclosed properties often generate a positive cash flow enabling the Company
to hold and manage the property until the property can be profitably sold.
The Company has established an allowance for uncollectible amounts on
investments. This allowance was $35.9 million at December 31, 1994.
A combination of futures contracts and options on treasury notes is
currently being used in connection with a hedging program which is designed to
hedge against rising interest rates for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest sensitive products such as GICs and individual annuities.
Realized investment gains and losses on such contracts are deferred and
amortized over the life of the hedged asset. The Company also uses interest
rate swap contracts to effectively convert certain investments from a variable
to a fixed rate of interest.
For further discussion regarding the Company's investments and the maturity
of and the concentration of risk among the Company's invested assets, see Note C
to the Consolidated Financial Statements.
The following table shows the investment results of the Company for the
years 1990 through 1994:
<TABLE>
<CAPTION>
CASH, ACCRUED PERCENTAGE
INVESTMENT INCOME, NET EARNED ON REALIZED
YEAR ENDED AND INVESTMENTS INVESTMENT AVERAGE OF CASH INVESTMENT
DECEMBER 31 AT DECEMBER 31 INCOME AND INVESTMENTS GAINS (LOSSES)
----------- ----------------- ---------- --------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C>
1990 $2,077,746 $136,995 9.4% $(3,154)
1991 2,837,278 233,502 9.4 (3,085)
1992 3,653,074 284,069 8.9 (14)
1993 4,845,167 362,130 8.7 5,054
1994 5,362,016 417,825 8.3 6,298
</TABLE>
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in the Company's 1994
Annual Report to Stockholders for certain information relating to the Company's
investments and liquidity.
13
<PAGE>
INDEMNITY REINSURANCE
As is customary in the insurance industry, the Company's insurance
subsidiaries cede insurance to other insurance companies. The ceding insurance
company remains contingently liable with respect to ceded insurance should any
reinsurer be unable to meet the obligations assumed by it. The Company sets a
limit on the amount of insurance retained on the life of any one person. In the
individual lines it will not retain more than $500,000, including accidental
death benefits, on any one life. Certain of the term-like plans of the Company
have a retention of $50,000 per life. For group insurance, the maximum amount
retained on any one life is $100,000. At December 31, 1994, the Company had
insurance in force of $49.9 billion of which approximately $8.6 billion was
ceded to reinsurers.
RESERVES
The applicable insurance laws under which the Company's insurance
subsidiaries operate require that each insurance company report policy reserves
as liabilities to meet future obligations on the outstanding policies. These
reserves are the amounts which, with the additional premiums to be received and
interest thereon compounded annually at certain assumed rates, are calculated in
accordance with applicable law to be sufficient to meet the various policy and
contract obligations as they mature. These laws specify that the reserves shall
not be less than reserves calculated using certain named mortality tables and
interest rates.
The reserves carried in the Company's financial reports (presented on the
basis of generally accepted accounting principles) differ from those specified
by the laws of the various states and carried in the insurance subsidiaries'
statutory financial statements (presented on the basis of statutory accounting
principles mandated by state insurance regulation). For policy reserves other
than those for universal life policies, annuity contracts, and GICs, these
differences arise from the use of mortality and morbidity tables and interest
rate assumptions which are deemed under generally accepted accounting principles
to be more appropriate for financial reporting purposes than those required for
statutory accounting purposes; from the introduction of lapse assumptions into
the reserve calculation; and from the use of the net level premium reserve
method on all business. Policy reserves for universal life policies, annuity
contracts, and GICs are carried in the Company's financial reports at the
account value of the policy or contract.
FEDERAL INCOME TAX CONSEQUENCES
The Company's insurance subsidiaries are taxed by the federal government in
a manner similar to companies in other industries. However, certain
restrictions on consolidating life insurance company income with noninsurance
income are applicable to the Company; thus, the Company is not able to fully
consolidate the operating results of its subsidiaries for federal income tax
purposes.
Under pre-1984 tax law, certain income of the Company was not taxed
currently, but was accumulated in the "Policyholders' Surplus Account" for each
insurance company subsidiary to be taxed only when such income was distributed
to the stockholders or when certain limits on accumulated amounts were exceeded.
Consistent with current tax law, amounts accumulated in the Policyholders'
Surplus Account have been carried forward, although no accumulated income
14
<PAGE>
may be added to these accounts. As of December 31, 1994, the combined
Policyholders' Surplus Accounts for the life insurance subsidiaries of the
Company and the estimated tax which would become payable on these amounts if
distributed to stockholders were $50.7 million and $17.7 million, respectively.
The Company does not anticipate any of its life insurance subsidiaries exceeding
applicable limits on amounts accumulated in these accounts and, therefore, does
not expect to involuntarily pay tax on the amounts held therein.
COMPETITION
The Company operates in a highly competitive industry. In connection with
the development and sale of its products, the Company encounters significant
competition from other insurance companies, many of which have financial
resources greater than those of the Company, as well as from other investment
alternatives available to its customers. 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. Management
believes that the Company's ability to compete is dependent upon, among other
things, its ability to attract and retain agents to market its insurance
products, its ability to develop competitive and profitable products, and its
maintenance of a high rating from rating agencies.
Nontraditional sources of health care coverages, such as health maintenance
organizations and preferred provider organizations, are developing rapidly in
the Company's operating territory and provide competitive alternatives to the
Company's group health products.
Banks, by offering bank investment contracts currently guaranteed by the
FDIC, provide competitive alternatives to GICs. Banks may also compete by
selling annuity products provided by other insurance companies. Also, in the
future banks and other financial institutions may be granted approval to
underwrite and sell annuities or other insurance products that compete directly
with the Company.
REGULATION
The Company's insurance subsidiaries are subject to government regulation
in each of the states in which they conduct business. Such regulation is vested
in state agencies having broad administrative power dealing with all aspects of
the insurance business, including rates, policy forms and capital adequacy, and
is concerned primarily with the protection of policyholders rather than
stockholders. The Company's management does not believe that the regulatory
initiatives currently under consideration would have a material adverse impact
on the Company or its insurance subsidiaries; however, the Company cannot
predict the form of any future proposals or regulation.
The Company's insurance subsidiaries are required to file detailed annual
reports with the supervisory agencies in each of the jurisdictions in which they
do business and their business and accounts are subject to examination by such
agencies at any time. Under the rules of the NAIC, insurance companies are
examined periodically (generally every three to five years) by one or more of
the supervisory agencies on behalf of the states in which they do business. To
date, no such insurance department examinations have produced any significant
adverse findings regarding any insurance subsidiary of the Company.
15
<PAGE>
A life insurance company's statutory capital is computed according to rules
prescribed by the NAIC as modified by the insurance company's state of domicile.
Statutory accounting rules are different from generally accepted accounting
principles and are intended to reflect a more conservative view. The NAIC's
risk-based capital requirements require insurance companies to calculate and
report information under a risk-based capital formula. These risk-based capital
requirements are intended to allow insurance regulators to identify inadequately
capitalized insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. Based upon the
December 31, 1994 statutory financial reports, management believes that the
Company's insurance subsidiaries are adequately capitalized under the formula.
Individual state guaranty associations assess insurance companies to pay
benefits to policyholders of insolvent or failed insurance companies. The
Company's insurance subsidiaries were assessed immaterial amounts in 1994, which
will be partially offset by credits against future state premium taxes. The
Company cannot predict the amount of any future assessments; however, most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength.
In addition, many states, including the states in which the Company's
insurance subsidiaries are domiciled, have enacted legislation or adopted
regulations regarding insurance holding company systems. These laws require
registration of and periodic reporting by insurance companies domiciled within
the jurisdiction which control or are controlled by other corporations or
persons so as to constitute an insurance holding company system. These laws
also affect the acquisition of control of insurance companies as well as
transactions between insurance companies and companies controlling them. Most
states, including Tennessee, where Protective Life is domiciled, require
administrative approval of the acquisition of control of an insurance company
domiciled in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Tennessee,
the acquisition of 10% of the voting securities of a person is generally deemed
to be the acquisition of control for the purpose of the insurance holding
company statute and requires not only the filing of detailed information
concerning the acquiring parties and the plan of acquisition, but also
administrative approval prior to the acquisition.
The Company's insurance subsidiaries are subject to various state statutory
and regulatory restrictions, applicable to insurance companies generally, that
limit the amount of cash dividends, loans and advances that those subsidiaries
may pay to the Company. The restrictions are generally based on certain levels
of surplus, investment income and operating income, as determined under
statutory insurance accounting practices. 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 the Company by its insurance subsidiaries in 1995 is
estimated to be $62 million as of December 31, 1994. No assurance can be given
that more stringent restrictions will not be adopted from time to time by states
in which the Company's insurance subsidiaries are domiciled, which restrictions
could have the effect, under certain circumstances,
16
<PAGE>
of significantly reducing dividends or other amounts payable to the Company by
such subsidiaries without affirmative prior approval by state regulatory
authorities.
The Company's insurance subsidiaries act as fiduciaries and are subject to
regulation by the Department of Labor ("DOL") when providing a variety of
products and services to employee benefit plans governed by the Employee
Retirement Income Security Act of 1974 ("ERISA"). Severe penalties are imposed
by ERISA on fiduciaries which violate ERISA's prohibited transaction provisions
by breaching their duties to ERISA covered plans. In a case decided by the
United States Supreme Court in December, 1993 (JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY V. HARRIS TRUST AND SAVINGS BANK) the Court concluded that an
insurance company general account contract that had been issued to a pension
plan should be divided into its guaranteed and nonguaranteed components and that
certain ERISA fiduciary obligations applied with respect to the assets
underlying the nonguaranteed components. Although the Company's insurance
subsidiaries have not issued contracts identical to the one involved in HARRIS
TRUST, some of its policies relating to ERISA-covered plans may be deemed to
have nonguaranteed components subject to the principles announced by the Court.
The full extent to which HARRIS TRUST makes the fiduciary standards and
prohibited transaction provisions of ERISA applicable to all or part of
insurance company general account assets, however, cannot be determined at this
time. The Supreme Court's opinion did not resolve whether the assets at issue
in the case may be subject to ERISA for some purposes and not others. The life
insurance industry is currently discussing with the DOL the possibility of
exemptions from the prohibited transaction provisions of ERISA in view of HARRIS
TRUST. In August of 1994, the DOL published a notice of a proposed class
exemption which, if adopted in final form, would exempt from the prohibited
transaction rules, prospectively and retroactively to January 1, 1995, certain
transactions engaged in by insurance company general accounts in which employer
benefit plans have an interest. The proposed exemption would not cover all such
transactions, and the insurance industry is seeking further relief. Until these
and other matters are clarified, the Company is unable to determine whether the
decision will result in any liability and, if so, its nature and scope.
Existing federal laws and regulations affect the taxation of life insurance
products and companies or their contractholders or policyowners and the relative
desirability of various personal investment vehicles. Congress has from time to
time considered proposals that, if enacted, would have had an adverse impact on
the federal income tax treatment of certain individual annuity and life
insurance policies offered by the Company's life insurance subsidiaries. If
these proposals were to be adopted, they would adversely affect the ability of
the Company's life insurance subsidiaries to sell such products and could result
in the surrender of existing contracts and policies. Although it cannot be
predicted whether future legislation will contain provisions that alter the
treatment of these products, such provisions are not part of any tax legislation
currently under active consideration in Congress.
The Federal Government has advocated changes to the current health care
delivery system which will address both affordability and availability issues.
The ultimate scope and effective date of any health care reform proposals are
unknown at this time and are likely to be modified as they are considered for
enactment by Congress. It is anticipated that these proposals may adversely
affect certain products in the Company's group health insurance business. In
addition to the federal initiatives, a number of states are considering
legislative programs that
17
<PAGE>
are intended to affect the accessibility and affordability of health care. Some
states have recently enacted health care reform legislation. These various
state programs (which could be preempted by any federal program) may also
adversely affect the Company's group health insurance business. However, in
light of the small relative proportion of the Company's earnings attributable to
group health insurance, management does not expect that either the federal or
state proposals will have a material adverse effect on the Company's earnings.
Additional issues related to regulation of the Company and its insurance
subsidiaries are discussed in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in the
Company's 1994 Annual Report to Stockholders.
EMPLOYEES
The Company had 1,094 full-time employees, including 919 in the Home Office
in Birmingham, Alabama at December 31, 1994. These employees are covered by
contributory major medical insurance, group life, and long-term disability
insurance plans. The cost of these benefits in 1994 amounted to approximately
$2.4 million for the Company. In addition, substantially all of the employees
are covered by a pension plan. The Company also matches employee contributions
to its 401(k) Plan. See Note K to Consolidated Financial Statements.
RECENT DEVELOPMENTS
The President and Congress are considering repealing the Glass-Steagall
Act, which would allow banks to diversify into securities and other businesses
including insurance. The ultimate scope and effective date of any proposals are
unknown at this time and are likely to be modified as they are considered for
enactment by Congress. It is anticipated that these proposals may increase
competition and, therefore, may adversely affect the Company.
In March 1995, the Company completed its previously announced acquisition
of National Health Care Systems of Florida, Inc. The purchase price, determined
at closing, was $38.3 million. In connection with the acquisition, the Company
will reissue approximately 658,000 shares of Company Common Stock now held as
treasury shares.
ITEM 2. PROPERTIES
The Company's Home 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.
The Company leases administrative space in 6 cities, substantially all
under leases for periods of three to five years. The aggregate monthly rent is
approximately $72 thousand.
Marketing offices are leased in 16 cities, substantially all under leases
for periods of three to five years with only three leases running longer than
five years. The aggregate monthly rent is approximately $35 thousand.
18
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business of the Company, to which the
Company or any of its subsidiaries is a party or of which any of the Company's
properties is the subject. See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES"
in the Company's 1994 Annual Report to Stockholders for certain information
relating to litigation involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1994 to a vote of
security holders of the Company.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed and principally traded on the New York
Stock Exchange (NYSE symbol: PL). Through October 1, 1993, the Company's
Common Stock was traded on the over-the-counter market (NASDAQ symbol: PROT)
and was quoted on the NASDAQ National Market System. The following table sets
forth the highest and lowest closing prices of the Company's Common Stock, $0.50
par value, as reported by the New York Stock Exchange and the NASDAQ during the
periods indicated, along with the dividends paid per share of Common Stock
during the same periods.
<TABLE>
<CAPTION>
RANGE DIVIDENDS
------------------- ---------
HIGH LOW
---- ---
<S> <C> <C> <C>
1993
First Quarter . . . . . $33-1/2 $27-1/2 $.23
Second Quarter. . . . . 37 30-3/4 .26
Third Quarter . . . . . 50-1/2 34-1/2 .26
Fourth Quarter. . . . . 52-3/8 41-7/8 .26
1994
First Quarter . . . . . $46-1/2 $40-1/2 $.26
Second Quarter. . . . . 46-7/8 36-7/8 .28
Third Quarter . . . . . 44-1/4 39-3/4 .28
Fourth Quarter. . . . . 48-5/8 39-3/4 .28
</TABLE>
At February 14, 1995, there were approximately 2,100 holders of record of
Company Common Stock.
The Company (or its predecessor) has paid cash dividends each year since
1926 and each quarter since 1934. The Company expects to continue to pay cash
dividends, subject to the earnings and financial condition of the Company and
other relevant factors. The ability of the Company to pay cash dividends is
dependent in part on cash dividends received by the Company from its life
insurance subsidiaries. See Item 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES"
in the Company's 1994 Annual Report to Stockholders. Such subsidiary dividends
are restricted by the various insurance laws of the states in which the
subsidiaries are incorporated. See Item 1 - "BUSINESS - REGULATION".
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars in thousands, except per share amounts)
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Premiums and policy fees . . . . . . . $402,772 $370,758 $323,136 $273,975 $248,448
Net investment income. . . . . . . . . 417,825 362,130 284,069 233,502 136,995
Realized investment gains(losses). . . 6,298 5,054 (14) (3,085) (3,154)
Other income . . . . . . . . . . . . . 21,553 21,695 18,835 11,556 8,197
-------- -------- -------- -------- --------
Total revenues . . . . . . . . $848,448 $759,637 $626,026 $515,948 $390,486
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Benefits and expenses. . . . . . . . . $742,275 $674,593 $566,079 $464,245 $350,204
Income tax expense . . . . . . . . . . $33,976 $28,475 $17,384 $14,477 $11,279
Minority interest. . . . . . . . . . . $1,796 $19 $90 $1,437 $870
Net income . . . . . . . . . . . . . . $70,401 $56,550(1) $41,420(2) $35,789 $28,133
PER SHARE DATA
Net income(3). . . . . . . . . . . . . $5.14 $4.13(1) $3.03(2) $2.62 $2.07
Cash dividends . . . . . . . . . . . . $1.10 $1.01 $0.90 $0.82 $0.73
Weighted average number of
shares outstanding . . . . . . . . 13,696,468 13,690,789 13,657,993 13,649,031 13,611,646
Stockholders' equity . . . . . . . . . $19.72 $26.34 $20.56 $18.44 $16.29
Stockholders' equity excluding net
unrealized gains and losses
on investments . . . . . . . . . . $27.56 $23.48 $20.32 $18.15 $16.33
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(dollars in thousands)
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Total assets . . . . . . . . . . . . . $6,130,284 $5,316,005 $4,006,667 $3,120,290 $2,331,197
Long-term debt . . . . . . . . . . . . $98,000 $137,598 $31,014 $23,548 $2,079
Total debt . . . . . . . . . . . . . . $98,000 $147,118 $88,248 $57,579 $81,145
Monthly Income
Preferred Securities. . . . . . . $55,000(4)
Stockholders' equity . . . . . . . . . $270,373 $360,733 $281,400 $251,745 $222,326
Stockholders' equity excluding
unrealized gains and losses
on investments. . . . . . . . . . $377,905 $321,449 $278,244 $247,764 $222,812
<FN>
____________
(1) Reduced by $1,261 or $.09 per share representing a one-time adjustment
to income tax expense due to the change in the corporate income tax
rate from 34% to 35%.
(2) Reduced by $1,053 or $.08 per share representing the cumulative effect
of a change in accounting principle for the adoption of SFAS No. 106.
(3) Net income per share is computed using the weighted average number of
shares outstanding during each period.
(4) Reported as "minority interest in consolidated subsidiaries" in the
Company's financial statements.
</TABLE>
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information regarding the Company's financial condition and results of
operations is included under the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" in the Company's 1994 Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data for the Company and its
subsidiaries, which are included under the caption "CONSOLIDATED FINANCIAL
STATEMENTS" in the Company's 1994 Annual Report to Stockholders, are
incorporated herein by reference.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
Protective Life Corporation
Birmingham, Alabama
Our report on the consolidated financial statements of Protective Life
Corporation and Subsidiaries has been incorporated by reference in this Form 10-
K from page 59 of the 1994 Annual Report to Stockholders of Protective Life
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedules listed in the index
on page 26 of this Form 10-K.
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.
/s/ Coopers & Lybrand L.L.P.
Birmingham, Alabama
February 13, 1995
22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except for the information concerning executive officers of the Company set
forth below, the information called for by this Item 10 is incorporated herein
by reference to the section entitled "ELECTION OF DIRECTORS AND INFORMATION
ABOUT NOMINEES" in the Company's definitive proxy statement for the Annual
Meeting of Stockholders, May 1, 1995, to be filed with the Securities and
Exchange Commission by the Company pursuant to Regulation 14A within 120 days
after the end of its 1994 fiscal year.
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Drayton Nabers, Jr. 54 Chairman of the Board, President and
Chief Executive Officer and a Director
R. Stephen Briggs 45 Executive Vice President
John D. Johns 42 Executive Vice President and Chief
Financial Officer
Ormond L. Bentley 59 Senior Vice President, Group
Deborah J. Long 41 Senior Vice President and General
Counsel
Jim E. Massengale 52 Senior Vice President
Steven A. Schultz 41 Senior Vice President,
Financial Institutions
Wayne E. Stuenkel 41 Senior Vice President and Chief Actuary
A. S. Williams III 58 Senior Vice President,
Investments and Treasurer
Judy Wilson 36 Senior Vice President,
Guaranteed Investment Contracts
23
<PAGE>
Name Age Position
---- --- --------
Jerry W. DeFoor 42 Vice President and Controller,
and Chief Accounting Officer
All executive officers are elected annually and serve at the pleasure of
the Board of Directors. None is related to any director of the Company or to
any other executive officer.
Mr. Nabers has been Chairman of the Board, President and Chief Executive
Officer and a Director since May 1994. From May 1992 to May 1994, he was
President and Chief Executive Officer and a Director. Mr. Nabers was President
and Chief Operating Officer and a Director from August 1982 until May 1992.
From July 1981 to August 1982, he was Senior Vice President of the Company.
Since August 1982, he has also been President of Protective Life and had been
its Senior Vice President from September 1981 to August 1982. From February
1980 to September 1981, he served as Senior Vice President, Operations of
Protective Life. From 1979 to February 1980, he was Senior Vice President,
Operations and General Counsel of Protective Life. From February 1980 to March
1983, he served as President of Empire General Life Insurance Company, a
subsidiary, and from March 1983 to December 31, 1984, he was Chairman of the
Executive Committee of Empire General. He is also a director of Energen
Corporation and National Bank of Commerce of Birmingham.
Mr. Briggs has been Executive Vice President of the Company and of
Protective Life since October 1993. From January 1993 to October 1993, he was
Senior Vice President, Life Insurance and Investment Products of the Company and
of Protective Life. Mr. Briggs had been Senior Vice President, Ordinary
Marketing of the Company since August 1988 and of Protective Life since April
1986. From July 1983 to April 1986, he was President of First Protective
Insurance Group, Inc.
Mr. Johns has been Executive Vice President and Chief Financial Officer of
the Company and of Protective Life since October 1993. From August 1988 to
October 1993, he served as Vice President and General Counsel of Sonat, Inc. He
is a director of National Bank of Commerce of Birmingham and Parisian Services,
Inc.
Mr. Bentley has been Senior Vice President, Group of the Company since
August 1988 and of Protective Life since December 1978. Mr. Bentley has been
employed by Protective Life since October 1965.
Ms. Long has been Senior Vice President and General Counsel of the Company
and of Protective Life since February 1, 1994. From August 2, 1993 to January
31, 1994, Ms. Long served as General Counsel of the Company and from February
1984 to January 31, 1994 she practiced law with the law firm of Maynard, Cooper
& Gale, P.C.
Mr. Massengale has been Senior Vice President of the Company and of
Protective Life since May 1992. From May 1989 to May 1992, he was Senior Vice
President, Operations and Systems of the Company and Protective Life. From
January 1983 to May 1989, he served as Senior Vice President, Corporate Systems
of the Company and Protective Life.
24
<PAGE>
Mr. Schultz has been Senior Vice President, Financial Institutions of the
Company and of Protective Life since March 1993. Mr. Schultz served as Vice
President, Financial Institutions of the Company from February 1993 to March
1993 and of Protective Life from February 1989 to March 1993. From June 1977
through January 1989, he was employed by and served in a number of capacities
with The Minnesota Mutual Life Insurance Company, finally serving as Director,
Group Sales.
Mr. Stuenkel has been Senior Vice President and Chief Actuary of the
Company and of Protective Life since March 1987. Mr. Stuenkel is a Fellow of
the Society of Actuaries and has been employed by Protective Life since
September 1978.
Mr. Williams has been Senior Vice President, Investments and Treasurer of
the Company since July 1981. Mr. Williams also serves as Senior Vice President,
Investments and Treasurer of Protective Life. Mr. Williams has been employed by
Protective Life since November 1964.
Ms. Wilson has been Senior Vice President, Guaranteed Investment Contracts
of the Company and of Protective Life since January 1, 1995. From July 1991 to
December 31, 1994, she served as Vice President, Guaranteed Investment Contracts
of Protective Life. From October 1989 through July 1991, Ms. Wilson was
employed by an affiliated insurer who reinsured a percentage of each guaranteed
investment contract written through Protective Life.
Mr. DeFoor has been Vice President and Controller, and Chief Accounting
Officer of the Company and Protective Life since April 1989. Mr. DeFoor is a
certified public accountant and has been employed by Protective Life since
August 1982.
Certain of these executive officers also serve as executive officers and/or
directors of various other Company subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Items 11 through 13 is incorporated herein by
reference from the Company's definitive proxy statement for the Annual Meeting
of Stockholders, May 1, 1995, to be filed with the Securities and Exchange
Commission by the Company pursuant to Regulation 14A within 120 days after the
end of its 1994 fiscal year.
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:
25
<PAGE>
The following financial statements set forth in the
Company's 1994 Annual Report to Stockholders as indicated on
the following table are incorporated by reference (See
Exhibit 13).
PAGE
Report of Independent Accountants. . . . . . . . . . . . . . . . 59
Consolidated Statements of Income for the years
ended December 31, 1994, 1993, and 1992. . . . . . . . . . . . 39
Consolidated Balance Sheets as of December 31,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . 40
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1994, 1993,
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Consolidated Statements of Cash Flows
for the years ended December 31, 1994, 1993,
and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Notes to Consolidated Financial Statements . . . . . . . . . . . 44
2. Financial Statement Schedules:
The Report of Independent Accountants which covers the
financial statement schedules appears on page 22 of this
report. The following schedules are located in this report
on the pages indicated.
PAGE
Schedule I - Summary of Investments -
Other Than Investments in Related Parties. . . . . . . . . . . 33
Schedule II - Condensed Financial Information
of Registrant. . . . . . . . . . . . . . . . . . . . . . . . . 34
Schedule III - Supplementary Insurance Information . . . . . . . 38
Schedule IV - Reinsurance. . . . . . . . . . . . . . . . . . . . 39
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.
3. Exhibits:
Included as exhibits are the items listed below. The
Company will furnish a copy of any of the exhibits listed
upon the payment of $5.00 per exhibit to cover the cost of
the Company in furnishing the exhibit.
26
<PAGE>
ITEM NUMBER DOCUMENT
*3(a) 1985 Restated Certificate of Incorporation of the
Company filed as Exhibit 3(a) to the Company's Form
10-K Annual Report for the year ended December 31,
1993
*3(a)(1) Certificate of Amendment of 1985 Restated
Certificate of Incorporation of the Company filed as
Exhibit 3(a)(1) to the Company's Form 10-K Annual
Report for the year ended December 31, 1993
*3(a)(2) Certificate of Designation of Junior Participating
Cumulative Preferred Stock of the Company filed with
the Secretary of State of Delaware on July 14, 1987
and filed as Exhibit A to the Company's Form 8-K
Report filed July 15, 1987
*3(a)(3) Certificate of Correction of Certificate of
Designation of Junior Participating Cumulative
Preferred Stock of the Company filed with the
Secretary of State of Delaware on July 27, 1987 and
filed as Exhibit 3(a)(4) to the Company's Form 10-K
Annual Report for the year ended December 31, 1987
*3(a)(4) Certificate of Amendment of 1985 Restated
Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on May 5,
1994 and filed as Exhibit 3(a)(5) to the Company's
Form 10-Q Quarterly Report for the period ended
March 31, 1994
*3(b) By-laws of the Company filed as Exhibit C to the
Company's Form 10 Registration Statement filed
September 4, 1981
*3(b)(1) Amended By-laws of the Company filed as Exhibit B to
the Company's Form 8-K Report filed May 18, 1983
*4(a) 1985 Restated Certificate of Incorporation of the
Company filed as Exhibit 3(a) to the Company's Form
10-K Annual Report for the year ended December 31,
1993
*4(a)(1) Certificate of Amendment of 1985 Restated
Certificate of Incorporation of the Company filed as
Exhibit 3(a)(1) to the Company's Form 10-K Annual
Report for the year ended December 31, 1993
______________________
*incorporated by reference
27
<PAGE>
*4(a)(2) Certificate of Designation of Junior Participating
Cumulative Preferred Stock of the Company filed with
the Secretary of State of Delaware on July 14, 1987
and filed as Exhibit A to the Company's Form 8-K
Report filed July 15, 1987
*4(a)(3) Certificate of Correction of Certificate of
Designation of Junior Participating Cumulative
Preferred Stock of the Company filed with the
Secretary of State of Delaware on July 27, 1987 and
filed as Exhibit 3(a)(4) to the Company's Form 10-K
Annual Report for the year ended December 31, 1987
*4(a)(4) Certificate of Amendment of 1985 Restated
Certificate of Incorporation of the Company filed
with the Secretary of State of Delaware on May 5,
1994 and filed as Exhibit 3(a)(5) to the Company's
Form 10-Q Quarterly Report for the period ended
March 31, 1994
*4(c) Certificate of Formation of PLC Capital L.L.C. ("PLC
Capital") filed as Exhibit 4(c) to the Company and
PLC Capital's Registration Statement No. 33-52831
*4(d) Amended and Restated Limited Liability Company
Agreement of PLC Capital L.L.C. filed as Exhibit
4(d) to the Company and PLC Capital's Registration
Statement No. 33-52831
*4(e) Form of Action establishing series of Preferred
Securities (included as Annex A to Exhibit 4(d))
*4(f) Specimen Preferred Security Certificate (included as
Annex B to Exhibit 4(d))
*4(n) Rights Agreement, dated as of July 13, 1987, between
the Company and AmSouth Bank, as Rights Agent filed
as Exhibit 1 to the Company's Form 8-A filed July
15, 1987
*10(a) Management Incentive Plan filed as Exhibit 10(a) to
the Company's Form 10-K Annual Report for the year
ended December 31, 1984
*10(a)(1) Amendment to the Company's Management Incentive Plan
renamed as the Company's Annual Incentive Plan filed
as Exhibit 10(a)(1) to the Company's Form 10-Q
Report filed May 14, 1990
__________________________
*incorporated by reference
28
<PAGE>
*10(b) Performance Share Plan filed as Exhibit G to the
Company's Form 10 Registration Statement filed
September 4, 1981 (expired as to new grants)
*10(b)(1) 1983 Performance Share Plan filed as Exhibit C to
the Company's Form 8-K Report filed May 18, 1983
*10(b)(2) The Company's 1983 Performance Share Plan (as
amended March 19, 1990) filed as Exhibit 10(b)(2) to
the Company's Form 10-Q Report filed May 14, 1990
*10(b)(3) The Company's 1992 Performance Share Plan filed as
Exhibit 10(b)(3) to the Company's Form 10-Q filed
May 15, 1992
*10(c) Excess Benefit Plan filed as Exhibit 10(c) to the
Company's Form 10-K Annual Report for the year ended
December 31, 1984
*10(c)(1) Excess Benefit Plan amended and restated as of
January 1, 1989 filed as Exhibit 10(c)(1) to the
Company's Form 10-K Annual Report for the year ended
December 31, 1991
*10(d) Bond Purchase Agreement filed as Exhibit 10(d) to
the Company's Form 10-K Annual Report for the year
ended December 31, 1991
*10(d)(1) Escrow Agreement filed as Exhibit 10(d)(1) to the
Company's Form 10-K Annual Report for the year ended
December 31, 1991
*10(e) Indemnity Agreements filed as Exhibits to the
Company's Form 10-Q Report, filed August 14, 1986
*10(f) Preferred Share Purchase Rights Plan filed as
Exhibit 1 to the Company's Form 8-A Report filed
July 15, 1987, as amended July 23 and July 29, 1987
*10(i) Form of Severance Compensation Agreement filed as
Exhibit 10(i) to the Company's Form 10-K Annual
Report for the year ended December 31, 1991
*10(i)(1) Form of First Amendment to Severance Compensation
Agreement filed as Exhibit 10(i)(1) to the Company's
Form 10-K Annual Report for the year ended December
31, 1991
__________________________
*incorporated by reference
29
<PAGE>
*10(iii)(A)(1) The Company's Deferred Compensation Plan for
Directors who are not Employees of the Company filed
as Exhibit 4 to the Company's Form S-8 filed August
27, 1993
*10(iii)(A)(2) The Company's Deferred Compensation Plan for
Officers filed as Exhibit 4 to the Company's Form S-
8 filed January 13, 1994
13 1994 Annual Report To Stockholders
21 Organization Chart of the Company and Affiliates
23 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney
27 Financial Data Schedule
The following is a list of each management contract or compensatory
plan or arrangement required to be filed as an exhibit to this form
pursuant to Item 14(c) of this Form 10-K: Exhibit Item Numbers 10(a),
10(a)(1), 10(b), 10(b)(1), 10(b)(2), 10(b)(3), 10(c), 10(c)(1), 10(i),
10(i)(1), 10(iii)(A)(1), and 10(iii)(A)(2).
(b) Reports on Form 8-K:
(1) Form 8-K, dated February 14, 1994
- Item 5
(2) Form 8-K, dated April 26, 1994
- Item 5
(3) Form 8-K, dated June 17, 1994
- Item 7
(4) Form 8-K/A, dated June 20, 1994
- Item 7
(5) Form 8-K, dated July 1, 1994
- Item 7
(6) Form 8-K, dated July 27, 1994
- Item 5
(7) Form 8-K, dated October 25, 1994
- Item 5
(8) Form 8-K, dated November 14, 1994
- Item 5
__________________________
*incorporated by reference
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROTECTIVE LIFE CORPORATION
By:/s/Drayton Nabers, Jr.
---------------------------------
Drayton Nabers, Jr.
Chairman of the Board, President
and Chief Executive Officer
March 24, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
--------- ------------------------ ----
/s/Drayton Nabers, Jr. Chairman of the Board, March 24, 1995
------------------------- President and Chief Executive
DRAYTON NABERS, JR. Officer (Principal Executive
Officer) and Director
/s/John D. Johns Executive Vice President and March 24, 1995
------------------------- Chief Financial Officer
JOHN D. JOHNS (Principal Financial Officer)
/s/Jerry W. DeFoor Vice President and Controller, March 24, 1995
------------------------- and Chief Accounting Officer
JERRY W. DEFOOR (Principal Accounting Officer)
*
------------------------- Chairman Emeritus and March 24, 1995
WILLIAM J. RUSHTON III Director
*
------------------------- Director March 24, 1995
JOHN W. WOODS
31
<PAGE>
* Director March 24, 1995
-------------------------
CRAWFORD T. JOHNSON III
* Director March 24, 1995
-------------------------
WILLIAM J. CABANISS, JR.
* Director March 24, 1995
-------------------------
H. G. PATTILLO
* Director March 24, 1995
-------------------------
EDWARD L. ADDISON
* Director March 24, 1995
-------------------------
JOHN J. MCMAHON, JR.
* Director March 24, 1995
-------------------------
A. W. DAHLBERG
* Director March 24, 1995
-------------------------
JOHN W. ROUSE, JR.
* Director March 24, 1995
-------------------------
ROBERT T. DAVID
* Director March 24, 1995
-------------------------
RONALD L. KUEHN, JR.
* Director March 24, 1995
-------------------------
HERBERT A. SKLENAR
______________
*Drayton Nabers, Jr., by signing his name hereto, does sign this document
on behalf of each of the persons indicated above pursuant to powers of attorney
duly executed by such persons and filed with the Securities and Exchange
Commission.
By:/s/Drayton Nabers, Jr.
--------------------------------
DRAYTON NABERS, JR.
Attorney-in-fact
32
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
DECEMBER 31, 1994
(in thousands)
COL. A COL. B COL. C COL. D
------ ------ ------ ------
AMOUNT AT
WHICH SHOWN
IN BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
------------------ ---------- ----------- -----------
Fixed maturities:
Bonds:
Mortgage-backed securities $2,002,842 $1,898,321 $1,898,321
United States Government and
government agencies and
authorities 90,468 81,881 81,881
States, municipalities, and
political subdivisions 10,902 9,677 9,677
Public utilities 414,011 378,120 378,120
Convertibles and bonds with
warrants attached 687 385 385
All other corporate bonds 927,779 874,428 874,428
Bank loan participations 244,881 244,881 244,881
Redeemable preferred stocks 6,800 5,953 5,953
---------- ---------- ----------
Total fixed maturities 3,698,370 3,493,646 3,493,646
---------- ---------- ----------
Equity securities:
Common stocks - industrial,
miscellaneous, and all other 22,768 24,797 24,797
Nonredeemable preferred stocks 23,190 20,208 20,208
---------- ---------- ----------
Total equity securities 45,958 45,005 45,005
---------- ---------- ----------
Mortgage loans on real estate 1,487,795 ******** 1,487,795
Investment real estate 20,303 ******** 20,303
Policy loans 147,608 ******** 147,608
Other long-term investments 48,013 ******** 48,013
Short-term investments 59,541 ******** 59,541
---------- ----------
Total investments $5,507,588 ******** $5,301,911
---------- ----------
---------- ----------
33
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF INCOME
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
REVENUES
Dividends from subsidiaries* $ 1,885 $ (91) $ 6,261
Service fees from subsidiaries* 28,949 21,143 26,766
Realized investment gains 140
Investment income 5,339 4,276 2,976
Other income 1,582 3,662 154
------- ------- -------
37,755 28,990 36,297
------- ------- -------
EXPENSES
Operating and administrative 28,499 25,340 24,302
Interest - subsidiaries* 2,491 579
Interest - others 6,793 5,300 4,221
------- ------- -------
37,783 30,640 29,102
------- ------- -------
INCOME BEFORE FEDERAL INCOME
TAX AND OTHER ITEMS BELOW (28) (1,650) 7,195
INCOME TAX EXPENSE (BENEFIT) 128 (1,325) (503)
------- ------- -------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES (156) (325) 7,698
EQUITY IN UNDISTRIBUTED INCOME OF
SUBSIDIARIES BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE* 70,557 56,875 34,775
------- ------- -------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE 70,401 56,550 42,473
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE (1,053)
------- ------- -------
NET INCOME $70,401 $56,550 $41,420
------- ------- -------
------- ------- -------
<FN>
_____________________
*Eliminated in consolidation.
</TABLE>
See notes to condensed financial statements.
34
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
BALANCE SHEETS
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1994 1993
-------- --------
<S> <C> <C>
ASSETS
Investments:
Short-term investments $ 1,900 $ 1,997
Long-term investments 77
Investment real estate 133 133
Investments in subsidiaries (equity method)* 420,126 473,313
-------- --------
422,236 475,443
Cash 196 408
Receivables from subsidiaries* 41,188 50,285
Other receivables 1,024
Accrued income taxes 1,884 1,216
Other 4,090 1,225
-------- --------
Total Assets $470,618 $528,577
-------- --------
-------- --------
LIABILITIES
Accrued expenses and other liabilities $ 29,581 $ 19,027
Deferred income taxes 3,044 1,817
Short-term debt:
Banks 9,500
Long-term debt:
Subsidiaries* 69,620
Banks 23,000 137,500
Senior Notes 75,000
-------- --------
Total Liabilities 200,245 167,844
-------- --------
STOCKHOLDERS' EQUITY
Preferred Stock
Junior Participating Cumulative
Preferred Stock
Common Stock 7,834 7,834
Additional paid-in capital 71,295 70,469
Net unrealized gains (losses) on
investments (all from subsidiaries, net
of income tax: 1994 - $(57,902); 1993 - $19,774) (107,532) 39,284
Retained earnings (including undistributed
income of subsidiaries: 1994 - $378,390;
1993 - $307,833) 322,691 267,361
Treasury stock (18,323) (18,359)
Unallocated stock in Employee Stock Ownership Plan (5,592) (5,856)
-------- --------
Total Stockholders' Equity 270,373 360,733
-------- --------
$470,618 $528,577
-------- --------
-------- --------
<FN>
_____________________
*Eliminated in consolidation.
</TABLE>
See notes to condensed financial statements.
35
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
STATEMENTS OF CASH FLOWS
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
YEARS ENDED DECEMBER 31, 1994, 1993, AND 1992
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $70,401 $56,550 $41,420
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net income
of subsidiaries* (70,557) (56,875) (34,775)
Deferred income taxes 1,227 (2,381) 1,038
Gain on sale of subsidiary (3,522)
Other (net) 6,910 7,725 (6,209)
------- ------ ------
Net cash provided by operating activities 7,981 1,497 1,474
------- ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of and/or additional investments
in subsidiaries* (23,071) (41,806) (675)
Loan to subsidiary* (20,000) (19,700)
Principal payments received on loan
to subsidiary* 9,500 11,550 4,500
Sale of subsidiary 2,091
Change in other long-term
investments (77) 1,041 4,134
Change in short-term investments 97 (1,147) 499
------- ------ ------
Net cash used in investing activities (13,551) (48,271) (11,242)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowing under line of
credit arrangements and long-term debt 91,000 68,300 43,700
Principal payments on line of credit
arrangements and long-term debt (140,000) (7,500) (13,000)
Proceeds from borrowing under
long-term debt to subsidiary* 69,620
Principal payments on long-term debt
to subsidiary* (8,997)
Purchase of treasury stock (191)
Dividends to stockholders (15,071) (13,827) (12,304)
------- ------ ------
Net cash provided by financing
activities 5,358 46,973 9,399
------- ------ ------
INCREASE (DECREASE) IN CASH (212) 199 (369)
CASH AT BEGINNING OF YEAR 408 209 578
------- ------ ------
CASH AT END OF YEAR $ 196 $ 408 $ 209
------- ------ ------
------- ------ ------
<FN>
_____________________
*Eliminated in consolidation.
</TABLE>
See notes to condensed financial statements.
36
<PAGE>
SCHEDULE II - CONDENSED FINANCIAL INFORMATION
OF REGISTRANT
PROTECTIVE LIFE CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The Company publishes consolidated financial statements that are its primary
financial statements. Therefore, these parent company condensed financial
statements are not intended to be the primary financial statements of the
Company, and should be read in conjunction with the consolidated financial
statements and notes thereto of Protective Life Corporation and subsidiaries.
NOTE 1 - DEBT
At December 31, 1994, the Company had borrowed $23.0 million of its $60 million
revolving line of credit. Borrowings under the revolving line of credit become
due in 1997. In addition, $75 million of Senior Notes due 2004 and $69.6
million of subordinated debentures due 2024 were outstanding at December 31,
1994. The subordinated debentures were issued to PLC Capital L.L.C., an
affiliate, in connection with the issuance of Monthly Income Preferred
Securities by PLC Capital L.L.C.
NOTE 2 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
CASH PAID (RECEIVED) DURING THE YEAR FOR:
Interest Paid to Non-Affiliates $3,791 $5,540 $4,131
Interest Paid to Subsidiary* 2,490 613
------ ------ ------
$6,281 $5,540 $4,744
------ ------ ------
------ ------ ------
Income Taxes (reduced by amounts received
from affiliates under a tax sharing agreement) $ (431) $ (701) $ 437
------ ------ ------
------ ------ ------
NONCASH INVESTING AND FINANCING ACTIVITIES
Reissuance of Treasury Stock to ESOP $ 3 $ 3 $ 16
------ ------ ------
------ ------ ------
Unallocated Stock in ESOP $ 264 $ 344 $ 345
------ ------ ------
------ ------ ------
Reissuance of Treasury Stock $1,050 $ 135 $1,003
------ ------ ------
------ ------ ------
</TABLE>
NOTE 3 - SUBSIDIARY SURPLUS DEBENTURES
Protective Life Insurance Company ("Protective Life") has issued surplus
debentures to the Company in order to finance acquisitions and growth. At
December 31, 1994, the balance of the surplus debentures was $39.4 million. The
surplus debentures are included in receivables from subsidiaries. Protective
Life must obtain the approval of the Commissioner of Insurance before it may
repay any portion of the surplus debenture.
NOTE 4 - SALE OF SUBSIDIARY
On January 27, 1993, Protective Life contributed (in the form of a dividend) its
80% ownership interest in the common stock of Southeast Health Plan, Inc.
("SEHP"). Because SEHP was in a deficit position, the transaction was recorded
as a "negative" dividend by the Company. On August 6, 1993, the Company sold
its ownership interest in SEHP.
_____________________________
*Eliminated in consolidation.
37
<PAGE>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I COL. J
------ ------ ------ ------ ------ ----- ------ ------ ------ ------
GIC AND AMORT.
FUTURE ANNUITY OF
DEFERRED POLICY DEPOSITS & PREMS. REALIZED BENEFITS DEFERRED
POLICY BENEFITS OTHER AND NET INVEST. AND POLICY OTHER
ACQ. AND UNEARNED PLCYHLDRS' POLICY INVEST. GAINS STLMNT ACQ. OPERATING
SEGMENT COSTS CLAIMS PREMIUMS FUNDS FEES INC.(1) (LOSSES) EXPENSES COSTS EXPS.(1)
------- ---------- --------- -------- ---------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994:
Acquisitions $110,202 $ 856,889 $ 381 $ 266,828 $ 86,376 $ 83,750 $ 532 $ 97,649 $14,460 $ 19,374
Financial Institutions 68,060 43,198 99,798 2,758 98,027 9,224 0 46,360 36,592 15,873
Group 22,685 116,324 2,905 84,689 131,096 14,381 0 98,930 2,724 35,574
Guaranteed Investment
Contracts 996 0 0 2,281,674 0 180,591 3,000 147,383 893 5,172
Individual Life 162,186 571,070 320 13,713 84,925 37,319 0 67,451 18,771 19,254
Investment Products 70,298 102,705 0 1,027,527 1,635 80,780 (2,500) 58,424 14,679 16,201
Corporate and Other 17 4,109 75 263 713 11,780 0 913 3 25,595
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0 0 5,266 0 0 0
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
TOTAL $434,444 $1,694,295 $103,479 $3,677,452 $402,772 $417,825 $ 6,298 $517,110 $88,122 $137,043
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
Year Ended
December 31, 1993:
Acquisitions $ 69,942 $ 705,487 $ 501 $ 259,513 $ 58,561 $ 65,290 $ 0 $ 73,463 $ 7,832 $ 12,715
Financial Institutions 59,163 39,508 85,042 2,913 87,355 8,956 0 42,840 31,202 15,273
Group 20,520 99,412 2,786 83,522 126,027 14,522 0 101,266 2,271 29,492
Guaranteed Investment
Contracts 1,464 0 0 2,015,075 0 166,058 1,175 137,379 1,170 3,279
Individual Life 129,265 483,604 368 11,762 77,338 34,154 0 55,973 18,069 17,548
Investment Products 19,210 52,516 0 789,668 856 66,706 2,003 49,569 12,822 14,793
Corporate and Other 20 318 88 339 20,621 6,444 0 13,394 239 34,004
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0 0 1,876 0 0 0
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
TOTAL $299,584 $1,380,845 $ 88,785 $3,162,792 $370,758 $362,130 $ 5,054 $473,884 $73,605 $127,104
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
Year Ended
December 31, 1992:
Acquisitions $ 65,868 $428,991 $ 655 $ 80,458 $ 48,068 $ 45,543 $ 0 $ 56,901 $ 7,404$ 9,298
Financial Institutions 49,684 20,207 71,878 3,246 56,990 6,084 0 25,342 22,121 11,502
Group 14,801 66,551 2,422 77,671 112,985 12,620 0 93,380 1,664 27,003
Guaranteed Investment
Contracts 2,256 0 0 1,694,530 0 137,654 962 117,321 1,267 5,495
Individual Life 110,408 382,025 2 8,847 62,776 27,723 0 49,755 11,493 16,457
Investment Products 30,517 27,051 0 626,171 586 46,618 473 37,021 4,517 9,629
Corporate and Other 1,678 4,767 220 439 41,731 7,827 0 29,837 485 28,187
Unallocated Realized
Investment Gains (Losses) 0 0 0 0 0 0 (1,449) 0 0 0
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
TOTAL $275,212 $929,592 $75,177 $2,491,362 $323,136 $284,069 $ (14) $409,557 $48,951 $107,571
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
-------- ---------- -------- ---------- -------- -------- ------- -------- ------- --------
<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>
38
<PAGE>
SCHEDULE IV - REINSURANCE
PROTECTIVE LIFE CORPORATION AND SUBSIDIARIES
(dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
------ ------ ------ ------ ------ ------
PERCENTAGE
CEDED TO ASSUMED FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED TO
AMOUNT COMPANIES COMPANIES AMOUNT NET
------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended
December 31, 1994:
Life insurance
in force $40,909,454 $8,639,272 $8,968,166 $41,238,348 21.7%
----------- ---------- ---------- ----------- ----
----------- ---------- ---------- ----------- ----
Premiums and
policy fees:
Life insurance $ 256,840 $ 46,029 $ 31,032 $ 241,843 12.8%
Accident/health
insurance 283,883 126,545 3,591 160,929 2.2%
----------- ---------- ---------- -----------
TOTAL $ 540,723 $ 172,574 $ 34,623 $ 402,772
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Year Ended
December 31, 1993:
Life insurance
in force $40,149,017 $7,484,566 $2,301,577 $34,966,028 6.6%
----------- ---------- ---------- ----------- ----
----------- ---------- ---------- ----------- ----
Premiums and
policy fees:
Life insurance $ 230,706 $ 37,995 $ 8,329 $ 201,040 4.1%
Accident/health
insurance 254,672 88,917 3,963 169,718 2.3%
----------- ---------- ---------- -----------
TOTAL $ 485,378 $ 126,912 $ 12,292 $ 370,758
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Year Ended
December 31, 1992:
Life insurance
in force $33,811,280 $6,982,127 $ 665,733 $27,494,886 2.4%
----------- ---------- ---------- ----------- ----
----------- ---------- ---------- ----------- ----
Premiums and
policy fees:
Life insurance $ 180,018 $ 34,824 $ 16,092 $ 161,286 10.0%
Accident/health
insurance 228,192 74,531 8,189 161,850 5.1%
----------- ---------- ---------- -----------
TOTAL $ 408,210 $ 109,355 $ 24,281 $ 323,136
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
39
<PAGE>
EXHIBITS TO FORM 10-K
OF
PROTECTIVE LIFE CORPORATION
FOR THE
FISCAL YEAR ENDED DECEMBER 31, 1994
INDEX TO EXHIBITS
PAGE
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
PREMIUMS AND POLICY FEES
The following table sets forth for the periods shown the amount of premiums and
policy fees and the percentage change from the prior period:
<TABLE>
<CAPTION>
PREMIUMS AND POLICY FEES
YEAR ENDED AMOUNT PERCENTAGE
DECEMBER 31 (IN THOUSANDS) INCREASE
<S> <C> <C>
1992 $323,136 17.9%
1993 370,758 14.7
1994 402,772 8.6
</TABLE>
Premiums and policy fees increased $47.6 million or 14.7% in 1993 over
1992. On July 30, 1993, the Company completed its acquisition of Wisconsin
National Life Insurance Company (Wisconsin National). The acquisition increased
premiums and policy fees by $11.7 million. The reinsurance of a block of
universal life policies on July 1, 1993 resulted in a $3.2 million increase.
Decreases in older acquired blocks of policies represented a $4.5 million
decrease in premiums and policy fees. Increases in premiums and policy fees from
the Financial Institutions, Group, and Individual Life Divisions represent
increases of $30.4 million, $13.0 million, and $14.6 million, respectively.
Effective July 1, 1992, the Financial Institutions Division assumed Durham Life
Insurance Company's (Durham) credit business. The Durham acquisition represents
$17.8 million of the Financial Institutions Division's $30.4 million increase.
On August 6, 1993, the Company completed the sale of its ownership interest in
Southeast Health Plan, Inc. (SEHP), a Birmingham-based health maintenance
organization, in which the Company had an investment since 1988. The sale of
SEHP decreased premiums and policy fees $21.2 million in 1993.
Premiums and policy fees increased $32.0 million or 8.6% in 1994 over 1993.
Wisconsin National and the reinsured block of universal life policies
represented $10.5 million of the increase in premiums and policy fees in 1994.
The reinsurance of a block of payroll deduction policies effective April 2, 1994
resulted in a $7.9 million increase. On October 3, 1994 the Company acquired
through coinsurance a block of policies from Reliance Standard Life Insurance
Company (Reliance Standard), which added $12.5 million of premiums in 1994.
Decreases in older acquired blocks of policies represented a $3.1 million
decrease in premiums and policy fees. Increases in premiums and policy fees from
the Financial Institutions, Group, and Individual Life Divisions represent
increases of $10.7 million, $5.1 million, and $7.6 million, respectively. The
1993 sale of SEHP decreased 1994 premiums and policy fees $19.3 million.
NET INVESTMENT INCOME
The following table sets forth for the periods shown the amount of net
investment income, the percentage change from the prior period, and the
percentage earned on average cash and investments:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
PERCENTAGE EARNED
YEAR ENDED AMOUNT PERCENTAGE ON AVERAGE CASH
DECEMBER 31 (IN THOUSANDS) INCREASE AND INVESTMENTS
<S> <C> <C> <C>
1992 $284,069 21.7% 8.9%
1993 362,130 27.5 8.7
1994 417,825 15.4 8.3
</TABLE>
Net investment income for 1993 was $78.1 million or 27.5% higher, and for
1994 was $55.7 million or 15.4% 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. These
deposits are included in the liability section of the balance sheet. The
Wisconsin National acquisition resulted in an increase in 1993 net investment
income of $14.5 million. Wisconsin National and other recent acquisitions
represented $23.9 million of the increase in net investment income in 1994.
The Company's percentage earned on average cash and investments decreased
in 1993 primarily due to the general decline in interest rates, the effect of
which was partially offset by following a "falling interest rate strategy" of
using temporary borrowings to fund investments ahead of receiving GIC and
annuity deposits. The percentage earned on average cash and investments
decreased in 1994 primarily due to ending the strategy of funding
<PAGE>
investments ahead of receiving deposits on account of rising interest rates and
an increase in the amount of investments with short durations in order to bring
the durations of assets and liabilities into balance.
REALIZED INVESTMENT GAINS (LOSSES)
The Company generally purchases its investments with the intent to hold to
maturity by purchasing investments that match future cash flow needs. However,
the Company has classified its fixed maturity investments as "available for
sale" because the Company might sell such investments in response to changes in
interest rates, needs for liquidity, and changes in the availability of
alternative investments. The sales of investments that have occurred generally
result from portfolio management decisions to maintain proper matching of assets
and liabilities.
The following table sets forth realized investment gains or losses for the
periods shown:
<TABLE>
<CAPTION>
REALIZED INVESTMENT GAINS (LOSSES)
YEAR ENDED AMOUNT
DECEMBER 31 (IN THOUSANDS)
<S> <C>
1992 $ (14)
1993 5,054
1994 6,298
</TABLE>
The Company maintains an allowance for uncollectible amounts on
investments. The allowance totaled $35.9 million at December 31, 1993 and 1994.
Additions to the allowance are treated as realized investment losses. During
1992, the Company added $9.7 million to this allowance which offset $9.7 million
of net realized investment gains. During 1993, the Company added $8.7 million to
this allowance which partially offset $13.8 million of net realized investment
gains. In 1994, realized investment gains on the sale of equity securities and
other long-term investments of $14.9 million were partially offset by realized
investment losses of $8.6 million incurred from sales of fixed maturity
investments that occurred to maintain proper matching of assets and liabilities.
Recently, rising interest rates have caused market values to fall below
amortized cost for many of the Company's fixed maturity investments. Therefore,
some realized investment losses may be incurred upon future sales of investments
to maintain proper matching of assets and liabilities. The Company does not
anticipate such realized investment losses will be material.
OTHER INCOME
The following table sets forth other income for the periods shown:
<TABLE>
<CAPTION>
OTHER INCOME
YEAR ENDED AMOUNT
DECEMBER 31 (IN THOUSANDS)
<S> <C>
1992 $18,835
1993 21,695
1994 21,553
</TABLE>
Other income consists primarily of revenues of the Company's broker-dealer
subsidiary, fees from administrative-services-only types of group accident and
health insurance contracts, and revenues of the Company's wholly owned insurance
marketing organizations and other small noninsurance subsidiaries. The sale of
SEHP reduced 1993 other income approximately $2.0 million which was more than
offset by a $3.5 million gain on the sale of SEHP. The sale of SEHP reduced
other income in 1994 approximately $5.0 million, which was partially offset by a
$4.2 million final payment relating to the sale of SEHP. During 1994, the
Company also recognized approximately $8.2 million in settlement of litigation
in which the Company was a plaintiff relating to an acquisition made in 1974.
Other income was reduced in 1994 by losses of approximately $3.0 million
relating to the Company's joint venture with the Lippo Group in Hong Kong, which
is accounted for using the equity method. Other income from recurring sources
increased $1.4 million in 1993 and decreased $4.6 million in 1994. The 1994
decrease mostly related to a decrease in revenues of the Company's broker-dealer
subsidiary.
<PAGE>
INCOME BEFORE INCOME TAX
The following table sets forth income or loss before income tax by business
segment for the periods shown:
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE INCOME TAX
YEAR ENDED DECEMBER 31
(IN THOUSANDS)
BUSINESS SEGMENT 1992 1993 1994
<S> <C> <C> <C>
Acquisitions $20,031 $29,845 $ 39,176
Financial Institutions 5,411 8,196 9,581
Group 7,731 10,394 11,085
Guaranteed Investment Contracts 14,533 25,405 30,143
Individual Life 12,985 20,064 16,976
Investment Products 4,601 2,931 (1,602)
Corporate and Other* (3,896) (13,667) (4,452)
Unallocated Realized
Investment Gains (Losses) (1,449) 1,876 5,266
-------- ------- --------
$59,947 $85,044 $106,173
======== ======= ========
<FN>
* INCOME BEFORE INCOME TAX FOR THE CORPORATE AND OTHER SEGMENT HAS NOT BEEN
REDUCED BY PRETAX MINORITY INTEREST OF $90 IN 1992, $19 IN 1993, AND $2,764 IN
1994.
</TABLE>
In 1993, the Company changed the method used to apportion net investment
income within the Company. Prior to 1993, the Company used an approximation
method to apportion net investment income. Beginning in 1993, net investment
income was apportioned based upon specific portfolios of investments. This
change resulted in increased income attributable to the Acquisitions, Individual
Life, and Investment Products Divisions of $2.6 million, $3.0 million, and $2.0
million, respectively, while decreasing income of the Corporate and Other
segment.
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. In the ordinary
course of business, the Acquisitions Division regularly considers acquisitions
of smaller insurance companies or blocks of policies. The Acquisitions Division
had pretax earnings of $29.8 million for 1993, $9.8 million higher than 1992.
The 1993 acquisition of Wisconsin National and reinsurance of a block of
universal life policies contributed $5.1 million to the Division's 1993
earnings. The Division also experienced improved results in its other blocks of
acquired policies. 1994 pretax earnings from the Acquisitions Division of $39.2
million were $9.3 million higher than 1993. The two acquisitions completed in
1993 added $9.2 million to the Division's 1994 earnings. The acquisition of a
block of policies from Reliance Standard in the 1994 fourth quarter reduced
earnings $1.3 million but should contribute to earnings next year. The remaining
increase was due to improved claims experience in the Division's other blocks of
acquired policies.
The Financial Institutions Division's 1993 pretax earnings of $8.2 million
were up $2.8 million from 1992. The Durham acquisition represented $0.7 million
of the increase. The balance of the increase was due to premium growth and
improved claims ratios in the Division's other lines. The Division's 1994 pretax
earnings of $9.6 million were $1.4 million higher than 1993 primarily due to
premium growth and improved claims ratios.
Group 1993 pretax earnings of $10.4 million were $2.7 million higher than
1992. Group life and annuity earnings improved by $1.7 million, and group health
earnings improved by $1.0 million primarily due to higher earnings from cancer
and dental products. 1994 Group pretax earnings of $11.1 million were $0.7
million higher than 1993. Higher traditional group life and health earnings were
complemented by higher earnings from the Division's cancer and dental products.
The Division's results include approximately $3.0 million of expenses to
establish a special marketing unit to sell dental plans through mail and
telephone solicitations.
The Company's Group Division has agreed to acquire National Health Care
Systems of Florida, Inc., a Florida-based dental health maintenance organization
with over 260,000 members in the Southeast. The acquisition is anticipated to
close in the first quarter of 1995.
The Guaranteed Investment Contracts (GIC) Division had pretax earnings of
$25.4 million in 1993 compared to $14.5 million in 1992. Through 1994 GIC
earnings have significantly increased due to the growth in GIC deposits placed
with the Company. The GIC Division's 1994 pretax earnings were $30.1 million,
$4.7 million above 1993. GIC earnings increased due to the growth in GIC
deposits and $1.8 million higher realized investment gains. GIC deposits totaled
$2.3 billion at December 31, 1994. The rate of growth in GIC deposits will most
likely decrease as the number of maturing contracts increases.
<PAGE>
Individual Life 1993 pretax earnings of $20.1 million were $7.1 million
higher than 1992. The improvement was due primarily to a growing block of
business, brought about by sales, continued strong persistency, and favorable
mortality experience. The Individual Life Division had 1994 pretax earnings of
$17.0 million, $3.1 million lower than 1993. Mortality experience, while still
favorable, was approximately $2.5 million less favorable than 1993. The Division
also spent approximately $3.0 million during 1994 to develop new ventures
including a special program for parents and guardians of persons with
disabilities; a special product for owners of privately held companies; and the
sale of policies in the life insurance brokerage market.
In 1994, the Individual Life Division reduced the statutory policy
liabilities for certain of its term-like products to be more consistent with
current regulation and industry practice. This change released statutory capital
to invest in an acquisition, which will reduce investment income and thus
reported earnings in this Division next year.
The Investment Products Division's 1993 pretax earnings of $2.9 million
were $1.7 million lower than 1992. These results reflect an increase of $3.2
million of amortization of deferred policy acquisition costs, in part to shorten
the amortization period on book value annuities, sales of which were
substantially discontinued in 1992. The Division reported a pretax loss of $1.6
million for 1994. These results are after approximately $2.0 million of
additional amortization of deferred policy acquisition costs related to the
compression of interest spreads caused by rising interest rates on the
Division's fixed annuities, and expenses of approximately $4.5 million related
to the development and introduction of the Division's variable annuity. Realized
investment losses from the sale of investments to maintain proper matching of
assets and liabilities in 1994 were $2.5 million compared to realized investment
gains of $2.9 million last year. Fixed annuity deposits totaled $983 million,
and variable annuity deposits totaled $171 million at December 31, 1994.
Variable annuity deposits of $121 million are reported in the accompanying
financial statements as "liabilities related to separate accounts."
The Corporate and Other segment consists of several small insurance lines
of business, net investment income and other operating expenses not identified
with the preceding operating divisions (including interest on substantially all
debt), and the operations of several small noninsurance subsidiaries (including
SEHP). Pretax losses of this segment were $9.8 million higher in 1993 as
compared to 1992 primarily due to the aforementioned reapportionment of net
investment income within the Company. On August 6, 1993, the Company sold its
ownership interest in SEHP. The sale has been accounted for in a manner similar
to an installment sale. The segment's 1993 results include a gain of $3.5
million attributable to the sale of SEHP which was more than offset by higher
expenses. 1994 pretax losses of this segment were $4.5 million. The segment's
1994 results include a $4.2 million final payment relating to the sale of SEHP
and approximately $8.2 million relating to the settlement of litigation relating
to an acquisition made in 1974. The segment also includes a loss of
approximately $3.0 million relating to the Company's Hong Kong joint venture.
Increases in other expenses of $3.0 million were partially offset by a decrease
in expenses of $2.8 million representing the dividends on the Company's Monthly
Income Preferred Securities (the proceeds of which were used to repay debt),
which are reported as minority interest in net income of consolidated
subsidiaries rather than expenses of the Corporate and Other segment.
INCOME TAX EXPENSE
The following table sets forth the effective income tax rates for the periods
shown:
<TABLE>
<CAPTION>
INCOME TAX EXPENSE
YEAR ENDED DECEMBER 31 EFFECTIVE INCOME TAX RATES
<S> <C>
1992 29%
1993 32
1994 32
</TABLE>
In August 1993, the corporate income tax rate was increased from 34% to 35%
which resulted in a one-time increase to income tax expense of $1.3 million or
$.09 per share due to a recalculation of the Company's deferred income tax
liability. The effective income tax rate for 1993, excluding the one-time
increase, was 32%. The effective income tax rate for 1994 was also 32%.
Management's estimate of the effective income tax rate for 1995 is 33%.
<PAGE>
NET INCOME
The following table sets forth net income and net income per share for the
periods shown:
<TABLE>
<CAPTION>
NET INCOME
YEAR ENDED AMOUNT PER PERCENTAGE
DECEMBER 31 (IN THOUSANDS) SHARE INCREASE
<S> <C> <C> <C>
1992 $41,420 $3.03 15.6%
1993 56,550 4.13 36.3
1994 70,401 5.14 24.4
</TABLE>
Net income per share in 1993 was 36.3% higher than 1992, reflecting
improved earnings in the Acquisitions, Financial Institutions, Group, GIC, and
Individual Life Divisions, and higher realized investment gains. Net income per
share in 1994 was 24.4% higher than 1993, reflecting improved earnings in the
Acquisitions, Financial Institutions, Group, and GIC Divisions and Corporate and
Other segment, and higher realized investment gains partially offset by lower
earnings in the Individual Life and Investment Products Divisions.
KNOWN TRENDS AND UNCERTAINTIES
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. Certain known trends and uncertainties which may
affect future reported results of the Company are discussed more fully below.
COMPETITION. The Company operates in a highly competitive industry. In
connection with the development and sale of its products, the Company encounters
significant competition from other insurance companies, many of which have
financial resources greater than those of the Company, as well as from other
investment alternatives available to its customers. The insurance industry is a
mature industry. In recent years, the industry has experienced no growth in life
insurance sales, though the aging population has increased the demand for
retirement savings products.
Management believes that the Company's ability to compete is dependent
upon, among other things, its ability to attract and retain agents to market its
insurance products, its ability to develop competitive and profitable products,
and its maintenance of a high rating from rating agencies.
Banks, by offering bank investment contracts currently guaranteed by the
FDIC, provide competitive alternatives to the Company's GICs and annuities.
Banks may also compete by selling annuity products provided by other insurance
companies. In addition, in the future banks and other financial institutions may
be granted approval to underwrite and sell annuities or other insurance products
that compete directly with the Company. Likewise, nontraditional sources of
healthcare coverages, such as health maintenance organizations and preferred
provider organizations, provide competitive alternatives to the Company's
traditional group health products.
RATINGS. Ratings have become an increasingly important factor in establishing
the competitive position of insurance companies. Rating organizations continue
to review the financial performance and condition of insurers, including the
Company's insurance subsidiaries. A downgrade in the ratings of the Company's
subsidiaries could materially adversely affect its business operations,
particularly its ability to attract annuity and guaranteed investment contract
deposits and its ability to compete for attractive acquisition opportunities.
Rating organizations assign ratings based upon several factors. While most
of the considered factors relate to the rated company, some of the factors
relate to general economic conditions and other factors outside the rated
company's control. Therefore, ratings downgrades may result for reasons other
than a deterioration in a rated company's financial condition or competitive
position.
POLICY CLAIMS FLUCTUATIONS. The Company's results may fluctuate from year to
year on account of fluctuations in policy claims received by the Company during
the year. Due to the long-term nature of the insurance business, there should be
a review of operating results for a period of several years in order to obtain a
more accurate indication of performance.
INTEREST RATE FLUCTUATIONS. The Company's investment policy with regard to fixed
maturity investments is generally to buy investment grade securities that match
future cash flow needs and to hold them to maturity.
Rising interest rates could cause disintermediation of GIC and annuity
deposits and individual life policy cash values. In addition, the market value
of the Company's fixed maturity investments would generally decrease, and the
Company may be unable to fully enforce the call provisions of its mortgage
loans. The difference between the interest rate earned on investments and the
interest rate credited to interest-sensitive products may also be adversely
affected by rising interest rates.
<PAGE>
Falling interest rates could cause some of the Company's corporate bonds
that have call features to be called, which could cause the Company to have to
reinvest the proceeds at lower interest rates.
The Company's mortgage loans are entered into, and mortgage-backed
securities are purchased, based on assumptions regarding rates of prepayments.
To the extent that actual prepayments are earlier or later than anticipated due
to falling or rising interest rates, the Company may not receive cash flows when
expected. Most of the Company's mortgage loans, however, have significant
prepayment penalties.
CONTINUING SUCCESS OF ACQUISITION STRATEGY. The Company has actively pursued a
strategy of acquiring blocks of insurance policies. This acquisition strategy
has increased the Company's earnings in part by allowing the Company to position
itself to realize certain unit cost reductions and operating efficiencies
associated with economies of scale. There can be no assurance, however, that
suitable acquisitions, presenting opportunities for continued growth and
operating efficiencies, will continue to be available to the Company, or that
the Company will realize the anticipated financial results from its
acquisitions.
REGULATION AND TAXATION. The Company's insurance subsidiaries are subject to
government regulation in each of the states in which they conduct business. Such
regulation is vested in state agencies having broad administrative power dealing
with all aspects of the insurance business, including rates, policy forms, and
capital adequacy, and is concerned primarily with the protection of
policyholders rather than stockholders. The design and administration of the
Company's insurance products, the conduct of the Company's agents, and the
content of advertising and other sales materials are also regulated by these
agencies. The Company's management does not believe that the regulatory
initiatives currently under consideration would have a material adverse impact
on the Company or its insurance subsidiaries; however, the Company cannot
predict the form of any future proposals or regulation.
Under insurance guaranty fund laws in most states, insurance companies
doing business in a participating state can be assessed up to prescribed limits
for policyholder losses incurred by insolvent or failed insurance companies.
Although the Company cannot predict the amount of any future assessments, the
Company does not believe that any such assessments will be materially different
from amounts already provided for in the financial statements. Most insurance
guaranty fund laws currently provide that an assessment may be excused or
deferred if it would threaten an insurer's financial strength.
Under the Internal Revenue Code of 1986, as amended (the Code), income tax
payable by policyholders on investment earnings is deferred during the
accumulation period of certain life insurance and annuity products. This
favorable tax treatment may give certain of the Company's products a competitive
advantage over other retirement products that do not offer this benefit. To the
extent that the Code is revised to reduce the tax-deferred status of life
insurance and annuity products, or to increase the tax-deferred status of
competing products, the Company's competitive position may be adversely
affected.
The President and Congress have advocated changes to the current healthcare
delivery system which will address both affordability and availability issues.
The ultimate scope and effective date of any healthcare reform proposals are
unknown at this time and are likely to be modified as they are considered for
enactment by Congress. It is anticipated that these proposals may adversely
affect certain products in the Company's group health insurance business. In
addition to the federal initiatives, a number of states are considering
legislative programs that are intended to affect the accessibility and
affordability of health care. Some states have recently enacted healthcare
reform legislation. These various state programs (which could be preempted by
any federal program) may also adversely affect the Company's group health
insurance business. However, in light of the small relative proportion of the
Company's earnings attributable to group health insurance, management does not
expect that either the federal or state proposals will have a material adverse
effect on the Company's earnings.
The Company cannot predict what future initiatives the President or
Congress may propose which may affect the Company.
RELIANCE UPON THE PERFORMANCE OF OTHERS. The Company has entered into various
ventures involving other parties. Examples include, but are not limited to: the
Investment Products Division's variable annuity deposits are invested in funds
managed by Goldman, Sachs & Co.; approximately 64% of the Investment Products
Division's fixed annuity sales come from four broker-dealers; a portion of the
sales in the Financial Institutions and Group Divisions comes from arrangements
with unrelated marketing organizations; and the Company has entered the Hong
Kong insurance market in a joint venture with the Lippo Group. Therefore the
Company's results may be affected by the performance of others.
INDEMNITY REINSURANCE. As is customary in the insurance industry, the Company's
insurance subsidiaries cede insurance to other insurance companies. The ceding
insurance company remains contingently liable with respect to ceded insurance
should any reinsurer be unable to meet the obligations assumed by it. The
Company sets a limit on the amount of insurance retained on the life of any one
person. In the individual lines it will not retain more than $500,000, including
accidental death benefits, on any one life. Certain of the term-like plans of
the Company have a retention of $50,000 per life. For group insurance, the
maximum amount retained on any one life is $100,000. At December 31, 1994, the
Company had insurance in force of $49.9 billion of which approximately $8.6
billion was
<PAGE>
ceded to reinsurers.
RECENTLY ISSUED ACCOUNTING STANDARDS.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," at
December 31, 1993, which requires the Company to carry its investment in fixed
maturities and certain other securities at market value instead of amortized
cost. As prescribed by SFAS No. 115, these investments are recorded at their
market values with the resulting unrealized gains and losses, net of income tax,
reported as a component of stockholders' equity reduced by a related adjustment
to deferred policy acquisition costs. The market values of fixed maturities
increase or decrease as interest rates fall or rise. Therefore, although the
adoption of SFAS No. 115 does not affect the Company's operations, its reported
stockholders' equity will fluctuate significantly as interest rates change.
During 1994, interest rates rose approximately three percentage points.
Even though the Company believes its asset/liability matching practices and
certain product features provide significant protection for the Company against
the effects of changes in interest rates, the new accounting rule required
reporting a $146.8 million decrease in stockholders' equity at December 31, 1994
as compared to December 31, 1993.
In 1994, the Company adopted SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," which requires
additional disclosures related to derivative financial instruments. Also, in
1994, the Company adopted new disclosure requirements required by Statement of
Position 94-4 of the Accounting Standards Division of the American Institute of
Certified Public Accountants concerning disclosures related to the Company's
liability for unpaid claims. The adoption of these accounting standards had no
effect on the Company's financial statements.
In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS
No. 114, "Accounting by Creditors for Impairment of a Loan." In October 1994,
the FASB amended SFAS No. 114 with the issuance of SFAS No. 118, "Accounting by
Creditors for Impairment of Loan - Income Recognition and Disclosures." The
Company anticipates that the impact of adopting SFAS Nos. 114 and 118 on its
financial condition will be immaterial.
The American Institute of Certified Public Accountants has issued Statement
of Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans"
(ESOP). Under certain "grandfathering" provisions in the Statement, employers
may elect not to apply the new accounting rules to shares acquired by ESOPs
before December 31, 1992. The Company does not plan to apply the new rules to
its existing ESOP.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations usually produce a positive cash flow. This cash flow is
used to fund an investment portfolio to finance future benefit payments
including those arising from various types of deposit contracts. Since future
benefit payments largely represent long-term obligations reserved using certain
assumed interest rates, the Company's investments are predominantly in medium
and long-term, fixed-rate investments such as bonds and mortgage loans which
provide a sufficient return to cover these obligations.
Many of the Company's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. With
respect to such products, surrender charges are generally sufficient to cover
the Company's unamortized, deferred policy acquisition costs with respect to the
policy being surrendered. GICs and certain annuity contracts have market value
adjustments which protect the Company against investment losses if interest
rates are higher at the time of surrender as compared to interest rates at the
time of issue.
In accordance with SFAS No. 115, the Company's investments in debt and
equity securities are reported at market value, and investments in mortgage
loans are reported at amortized cost. At December 31, 1994, the fixed maturity
investments (bonds, bank loan participations, and redeemable preferred stocks)
had a market value of $3,493.6 million, which is 5.5% below amortized cost (less
allowances for uncollectible amounts on investments) of $3,698.4 million. The
Company had $1,487.8 million in mortgage loans at December 31, 1994. While the
Company's mortgage loans do not have quoted market values, at December 31, 1994,
the Company estimates the market value of its mortgage loans to be $1,535.3
million(using discounted cash flows from the next call date) which is 3.2% in
excess of amortized book value. Most of the Company's mortgage loans have
significant prepayment penalties. These assets are invested for terms
approximately corresponding to anticipated future benefit payments. Thus, market
fluctuations should not adversely affect liquidity.
At December 31, 1994, problem mortgage loans and foreclosed properties were
$24.0 million or 0.4% of assets. Bonds rated less than investment grade were
$82.5 million or 1.3% of assets. Additionally, the Company had bank loan
participations that were less than investment grade, representing $195.1 million
or 3.2% of assets. The Company does not expect these investments to adversely
affect its liquidity or ability to hold its other investments to maturity. The
Company's allowance for uncollectible amounts on investments was $35.9 million
at December 31, 1994.
Policy loans at December 31, 1994 were $147.6 million, a decrease of $4.6
million from December 31, 1993 after
<PAGE>
considering the $11.1 million of policy loans obtained through acquisitions in
1994. Policy loan rates are generally in the 4.5% to 8.0% range. Such rates at
least equal the assumed interest rates used for future policy benefits.
The Company believes its asset/liability matching practices and certain
product features provide significant protection for the Company against the
effects of changes in interest rates. However, approximately 21% of the
Company's liabilities relate to products (primarily whole life insurance) the
profitability of which may be affected by changes in interest rates. The effect
of such changes in any one year is not expected to be material. Additionally,
the Company believes its asset/liability matching practices provide sufficient
liquidity to enable it to fulfill its obligation to pay benefits under its
various insurance and deposit contracts.
The Company's asset/liability matching practices involve the monitoring of
asset and liability durations for various product lines; cash flow testing under
various interest rate scenarios; and the continuous rebalancing of assets and
liabilities with respect to yield, risk, and cash flow characteristics.
It is the Company's policy to maintain asset and liability durations within
10% of one another. During 1994, interest rates rose approximately three
percentage points. Rising interest rates during 1994 caused the duration of the
Company's assets to increase somewhat above the duration of its liabilities. As
a result, the estimated modified duration of the Company's corporate bonds and
collateralized mortgage obligations has increased from approximately 3.0 years
at the beginning of 1994 to 3.6 years at the end of 1994 while the duration of
its mortgages and liabilities increased only slightly. The Company responded to
the duration mismatch by adjusting the composition of its assets to bring the
durations of assets and liabilities into balance.
The Company does not use derivative financial instruments for trading
purposes.
Combinations of futures contracts and options on treasury notes are
sometimes 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 GICs and annuities. Realized investment gains and
losses of such contracts are deferred and amortized over the life of the hedged
asset. Net realized gains of $7.9 million were deferred in 1994. At December 31,
1994, open futures contracts with a notional amount of $137.5 million were in a
$0.4 million net unrealized loss position.
The Company uses interest rate swap contracts to convert certain
investments from a variable rate of interest to a fixed rate of interest. At
December 31, 1994, related open interest rate swap contracts with a notional
amount of $230.0 million were in an $8.9 million net unrealized loss position.
The Company also uses interest rate swap contracts to convert its Senior Notes
and Monthly Income Preferred Securities from a fixed rate to a variable rate of
interest. At December 31, 1994, related open interest rate swap contracts with a
notional amount of $95.0 million were in a $4.8 million net unrealized loss
position.
The Company entered the GIC market in late 1989. Most GIC contracts written
by the Company have maturities of 3 to 5 years. Prior to 1993, few GIC contracts
were maturing because the contracts were newly written. Beginning in 1993, and
continuing into 1994, GIC contracts began to mature as contemplated when the
contracts were sold. Withdrawals related to GIC contracts were approximately
$700 million during 1994. Withdrawals related to GIC contracts are estimated to
be approximately $600 million in 1995. The Company's asset/liability matching
practices take into account maturing contracts. Accordingly, the Company does
not expect maturing contracts to have an unusual effect on the future operations
and liquidity of the Company.
In anticipation of receiving GIC and annuity deposits, the life insurance
subsidiaries were committed at December 31, 1994 to fund mortgage loans and to
purchase fixed maturity and other long-term investments in the amount of $231.2
million. The Company's subsidiaries held $61.9 million in cash and short-term
investments at December 31, 1994. Protective Life Corporation had an additional
$2.1 million in cash and short-term investments available for general corporate
purposes.
While the Company generally anticipates that the cash flows of its
subsidiaries will be sufficient to meet their investment commitments and
operating cash needs, the Company recognizes that investment commitments
scheduled to be funded may from time to time exceed the funds then available.
Therefore, the Company has arranged sources of credit for its insurance
subsidiaries to utilize to fund investments in such circumstances. The Company
expects that the rate received on its investments will equal or exceed its
borrowing rate. Additionally, the Company may from time to time sell short-
duration GICs to complement its cash management practices.
On June 10, 1994, a special purpose finance subsidiary of the Company, PLC
Capital L.L.C. (PLC Capital), issued $55 million of 9% Cumulative Monthly Income
Preferred Securities, Series A (MIPS), guaranteed by the Company. Net proceeds
of approximately $52.3 million were used to repay a term note and other bank
borrowings. PLC Capital was formed solely to issue MIPS and other securities and
lend the proceeds thereof to the Company in exchange for subordinated debentures
of the Company. The Company has the right under the subordinated debentures to
extend interest payment periods up to 60 months, and, as a consequence, monthly
dividends on the MIPS may be deferred (but will continue to accumulate, together
with additional dividends on any accumulated but unpaid dividends at the
dividend rate) by PLC Capital during any such extended interest payment period.
The MIPS are redeemable by PLC Capital at any time on or after June 30, 1999.
The MIPS and dividends thereon are reported
<PAGE>
in the accompanying financial statements as "minority interest in consolidated
subsidiaries." In related transactions, the Company entered into interest rate
swap agreements with two financial institutions which effectively converted the
MIPS from a fixed dividend rate to the floating, 30-day London Interbank Offered
Rate (LIBOR) plus 60.5 basis points, approximately 6.6% at December 31, 1994.
On July 1, 1994, the Company issued $75 million of 7.95% Senior Notes due
July 1, 2004. The notes are not redeemable by the Company prior to maturity. Net
proceeds of $74.4 million were used to repay bank borrowings. In related
transactions, the Company has entered into interest rate swap agreements to swap
$40 million of the notes from a fixed rate of interest to the floating, 30-day
LIBOR plus 34.5 basis points, approximately 6.3% at December 31, 1994.
At December 31, 1994, Protective Life Corporation had borrowed $23 million
of its $60 million revolving line of credit at an interest rate of 6.3%.
On November 7, 1994, the Company's Board of Directors authorized a program
for the repurchase of up to 300,000 shares of Company Common Stock. No shares
have been repurchased under the program.
The Company has agreed to acquire National Health Care Systems of Florida,
Inc. The purchase price, which is to be paid in a combination of cash (19.9%)
and Company Common Stock (80.1%), will be determined at closing and is estimated
to be approximately $39.5 million. The acquisition is anticipated to close in
the first quarter of 1995.
Protective Life Corporation's cash flow is dependent on cash dividends from
its subsidiaries, payments on surplus notes, revenues from investment, data
processing, legal, and management services rendered to the subsidiaries, and
investment income. At December 31, 1994, approximately $196 million of
consolidated stockholders' equity, excluding net unrealized investment gains and
losses, represented net assets of the Company's insurance subsidiaries that
cannot be transferred to the Company in the form of dividends, loans, or
advances. In addition, the Company's insurance subsidiaries are subject to
various state statutory and regulatory restrictions on the insurance
subsidiaries' ability to pay dividends to Protective Life Corporation. 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 the
Company by its insurance subsidiaries in 1995 is estimated to be $62 million.
Also, distributions, including cash dividends to Protective Life Corporation
from its life insurance subsidiaries, in excess of approximately $248 million,
would be subject to federal income tax at rates then effective. The Company does
not anticipate involuntarily making distributions that would be subject to tax.
For the foregoing reasons and due to the expected growth of the Company's
insurance sales, the Company will retain substantial portions of the earnings of
its life insurance subsidiaries in those companies primarily to support their
future growth. Because Protective Life Corporation's cash disbursements have
from time to time exceeded its cash receipts, such shortfalls have been funded
through various external financings. Therefore, Protective Life Corporation may
from time to time require additional external financing.
To give the Company flexibility in connection with future acquisitions and
other growth opportunities, the Company has registered debt securities,
preferred and common stock of Protective Life Corporation, and additional
preferred securities of PLC Capital L.L.C., under the Securities Act of 1933 on
a delayed (or shelf) basis.
A life insurance company's statutory capital is computed according to rules
prescribed by the National Association of Insurance Commissioners (NAIC), as
modified by the insurance company's state of domicile. Statutory accounting
rules are different from generally accepted accounting principles and are
intended to reflect a more conservative view by, for example, requiring
immediate expensing of policy acquisition costs. The achievement of long-term
growth will require growth in the statutory capital of the Company's insurance
subsidiaries. The subsidiaries may secure additional statutory capital through
various sources, such as internally generated statutory earnings or equity
contributions by the Company from funds generated through debt or equity
offerings.
The NAIC's risk-based capital requirements require insurance companies to
calculate and report information under a risk-based capital formula. These
requirements are intended to allow insurance regulators to identify inadequately
capitalized insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes components for asset
risk, liability risk, interest rate exposure, and other factors. Based upon
their December 31, 1994 statutory financial reports, the Company's insurance
subsidiaries are adequately capitalized under the formula.
A number of civil jury verdicts have been returned against life and health
insurers in the jurisdictions in which the Company 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
<PAGE>
awarding punitive damages in these circumstances. The Company 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 the Company. Among the litigation
currently pending is a class action filed in the state of Alabama concerning the
sale of credit insurance for which a proposed settlement agreement has been
filed with the supervising court for approval. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that such
litigation will not have a material adverse effect on the financial position of
the Company.
The Company is not aware of any material pending or threatened regulatory
action with respect to the Company or any of its subsidiaries.
IMPACT OF INFLATION
Inflation increases the need for insurance. Many policyholders who once had
adequate insurance programs increase their life insurance coverage to provide
the same relative financial benefits and protection. The effect of inflation on
medical costs leads to accident and health policies with higher benefits. Thus,
inflation has increased the need for life and accident and health products.
The higher interest rates that have traditionally accompanied inflation
also affect the Company's investment operation. Policy loans increase as policy
loan interest rates become relatively more attractive. As interest rates
increase, disintermediation of GIC and annuity deposits and individual life
policy cash values may increase, the market value of the Company's fixed-rate,
long-term investments may decrease, and the Company may be unable to implement
fully the interest rate reset and call provisions of its mortgage loans. The
difference between the interest rate earned on investments and the interest rate
credited to interest-sensitive products may also be adversely affected by rising
interest rates.
Inflation has increased the cost of health care. The adequacy of premium
rates in relation to the level of accident and health claims is constantly
monitored, and where appropriate, premium rates on such policies are increased
as policy benefits increase. Failure to make such increases commensurate with
healthcare cost increases may result in a loss from health insurance.
The Company does not believe the current rate of inflation will
significantly affect its operations.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1994 1993 1992
<S> <C> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
1994 -- $172,575; 1993 -- $126,912; 1992 -- $109,355) $402,772 $370,758 $323,136
Net investment income 417,825 362,130 284,069
Realized investment gains (losses) 6,298 5,054 (14)
Other income 21,553 21,695 18,835
-------- -------- --------
Total revenues 848,448 759,637 626,026
-------- -------- --------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
1994 -- $112,922; 1993 -- $84,949; 1992 -- $67,436) 517,110 473,884 409,557
Amortization of deferred policy acquisition costs 88,122 73,605 48,951
Other operating expenses (net of reinsurance ceded:
1994 -- $14,326; 1993 -- $10,759; 1992 -- $7,468) 137,043 127,104 107,571
-------- -------- --------
Total benefits and expenses 742,275 674,593 566,079
-------- -------- --------
INCOME BEFORE INCOME TAX 106,173 85,044 59,947
-------- -------- --------
INCOME TAX EXPENSE
Current 37,318 33,748 18,720
Deferred (3,342) (5,273) (1,336)
-------- -------- --------
Total income tax expense 33,976 28,475 17,384
-------- -------- --------
INCOME BEFORE MINORITY INTEREST 72,197 56,569 42,563
MINORITY INTEREST IN INCOME OF
CONSOLIDATED SUBSIDIARIES 1,796 19 90
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE 70,401 56,550 42,473
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE
(NET OF INCOME TAX: $542) (1,053)
-------- -------- --------
NET INCOME $ 70,401 $ 56,550 $ 41,420
-------- -------- --------
-------- -------- --------
INCOME PER SHARE BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE $ 5.14 $ 4.13 $ 3.11
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE PER SHARE (.08)
-------- -------- --------
NET INCOME PER SHARE $ 5.14 $ 4.13 $ 3.03
-------- -------- --------
-------- -------- --------
DIVIDENDS PAID PER SHARE $ 1.10 $ 1.01 $ .90
-------- -------- --------
-------- -------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
(DOLLARS IN THOUSANDS 1994 1993
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, at market (amortized cost: 1994 -- $3,698,370;
1993 -- $2,985,670) $3,493,646 $3,051,292
Equity securities, at market (cost: 1994 -- $45,958; 1993 -- $33,331) 45,005 40,596
Mortgage loans on real estate 1,487,795 1,407,744
Investment real estate, net of accumulated depreciation (1994 -- $2,052;
1993 -- $4,483) 20,303 22,061
Policy loans 147,608 141,135
Other long-term investments 48,013 20,191
Short-term investments 59,541 83,692
---------- ----------
Total investments 5,301,911 4,766,711
Cash 4,468 27,119
Accrued investment income 55,637 51,337
Accounts and premiums receivable, net of allowance for uncollectible amounts
(1994 -- $2,464; 1993 -- $5,024) 30,472 26,315
Reinsurance receivables 122,175 102,559
Deferred policy acquisition costs 434,444 299,584
Property and equipment, net 36,323 35,664
Other assets 20,709 3,316
Assets related to separate accounts 124,145 3,400
---------- ----------
TOTAL ASSETS $6,130,284 $5,316,005
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
LIABILITIES
Policy liabilities and accruals
Future policy benefits and claims $1,694,295 $1,380,845
Unearned premiums 103,479 88,785
---------- ----------
Total policy liabilities and accruals 1,797,774 1,469,630
Guaranteed investment contract deposits 2,281,673 2,015,075
Annuity deposits 1,251,318 1,005,742
Other policyholders' funds 144,461 141,975
Other liabilities 127,873 96,682
Accrued income taxes (6,238) 6,381
Deferred income taxes (14,095) 69,269
Short-term debt 9,520
Long-term debt 98,000 137,598
Liabilities related to separate accounts 124,145 3,400
Minority interest in consolidated subsidiaries 55,000
---------- ----------
Total liabilities 5,859,911 4,955,272
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES
-- Note G
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value
Shares authorized: 1994 -- 3,850,000; 1993 -- 850,000
Issued: none
Junior Participating Cumulative
Preferred Stock, $1 par value
Shares authorized: 150,000
Issued: none
Common Stock, $.50 par value 7,834 7,834
Shares authorized: 1994 -- 80,000,000; 1993 -- 20,000,000
Issued: 1994 and 1993 -- 15,668,231
Additional paid-in capital 71,295 70,469
Net unrealized gains (losses) on investments
(net of income tax: 1994 -- $(57,902); 1993 -- $19,774) (107,532) 39,284
Retained earnings 322,691 267,361
Treasury stock, at cost (1994 -- 1,954,972 shares; 1993 -- 1,974,987 shares) (18,323) (18,359)
Unallocated stock in Employee Stock Ownership Plan
(1994 -- 422,073 shares; 1993 -- 442,000 shares) (5,592) (5,856)
---------- ----------
Total stockholders' equity 270,373 360,733
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,130,284 $5,316,005
---------- ----------
---------- ----------
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
ADDITIONAL (LOSSES) UNALLOCATED TOTAL
(DOLLARS IN THOUSANDS COMMON PAID-IN ON RETAINED TREASURY STOCK IN STOCKHOLDERS'
EXCEPT PER SHARE AMOUNTS) STOCK CAPITAL INVESTMENTS EARNINGS STOCK ESOP EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 $7,834 $69,488 $ 3,981 $195,522 $(18,535) $(6,545) $251,745
Net income for 1992 41,420 41,420
Cash dividends
($.90 per share) (12,304) (12,304)
Decrease in net unrealized
gains on investments (825) (825)
Reissuance of treasury stock
to ESOP (728 shares) 16 (16) 0
Allocation of stock to employee
accounts (26,728 shares) 361 361
Reissuance of treasury stock
(39,688 shares) 831 172 1,003
------ ------- --------- -------- -------- ------- --------
Balance, December 31, 1992 7,834 70,335 3,156 224,638 (18,363) (6,200) 281,400
Net income for 1993 56,550 56,550
Cash dividends
($1.01 per share) (13,827) (13,827)
Increase in net unrealized
gains on investments 36,128 36,128
Reissuance of treasury stock
to ESOP (103 shares) 3 (3) 0
Allocation of stock to employee
accounts (26,103 shares) 347 347
Reissuance of treasury stock
(3,343 shares) 131 4 135
------ ------- --------- -------- -------- ------- --------
Balance, December 31, 1993 7,834 70,469 39,284 267,361 (18,359) (5,856) 360,733
Net income for 1994 70,401 70,401
Cash dividends
($1.10 per share) (15,071) (15,071)
Decrease in net unrealized
gains on investments (146,816) (146,816)
Purchase of treasury stock
(4,206 shares) (191) (191)
Reissuance of treasury stock
to ESOP (68 shares) 3 (3) 0
Allocation of stock to employee
accounts (19,995 shares) 267 267
Reissuance of treasury stock
(24,153 shares) 823 227 1,050
Balance, December 31, 1994
------ ------- --------- -------- -------- ------- --------
-- Note H $7,834 $71,295 $(107,532) $322,691 $(18,323) $(5,592) $270,373
------ ------- --------- -------- -------- ------- --------
------ ------- --------- -------- -------- ------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 70,401 $ 56,550 $ 41,420
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred policy acquisition costs 88,122 73,605 48,951
Capitalization of deferred policy acquisition costs (127,566) (104,014) (81,481)
Depreciation expense 5,601 3,742 3,946
Deferred income taxes (4,310) (5,272) (2,514)
Accrued income taxes (12,619) 6,230 691
Interest credited to universal life and investment products 260,081 220,772 173,658
Policy fees assessed on universal life and investment products (85,532) (67,314) (46,383)
Change in accrued investment income and other receivables (28,073) (97,908) (9,157)
Change in policy liabilities and other policyholders' funds of
traditional life and health products 61,322 42,901 4,307
Change in other liabilities 29,949 12,432 5,610
Other (net) (14,461) 14,959 (4,276)
----------- ----------- -----------
Net cash provided by operating activities 242,915 156,683 134,772
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments:
Investments available for sale 386,498
Other 153,945 1,341,818 882,950
Sale of investments:
Investments available for sale 630,660
Other 59,550 244,683 338,850
Cost of investments acquired:
Investments available for sale (1,807,756)
Other (220,839) (2,302,196) (1,991,950)
Acquisitions and bulk reinsurance assumptions 106,435 14,190 23,274
Purchase of property and equipment (6,743) (4,682) (3,731)
Sale of property and equipment 484 3,023 180
----------- ----------- -----------
Net cash used in investing activities (697,766) (703,164) (750,427)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit arrangements and long-term debt 663,587 719,173 341,000
Principal payments on line of credit arrangements and long-term debt (712,704) (661,717) (310,331)
Proceeds from issuance of Monthly Income Preferred Securities 55,000
Purchase of treasury stock (191)
Dividends to stockholders (15,071) (13,827) (12,304)
Investment product deposits and change in universal life deposits 1,417,980 1,198,263 871,251
Investment product withdrawals (976,401) (683,251) (263,530)
----------- ----------- -----------
Net cash provided by financing activities 432,200 558,641 626,086
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (22,651) 12,160 10,431
CASH AT BEGINNING OF YEAR 27,119 14,959 4,528
----------- ----------- -----------
CASH AT END OF YEAR $ 4,468 $ 27,119 $ 14,959
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year:
Interest on debt $ 7,745 $ 6,426 $ 4,457
Income taxes $ 49,935 $ 27,493 $ 18,007
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Change in minority interest in consolidated subsidiaries $ (1,311) $ 90
Reissuance of treasury stock to ESOP $ 3 $ 3 $ 16
Unallocated stock in ESOP $ 264 $ 344 $ 345
Reissuance of treasury stock $ 1,051 $ 135 $ 1,003
Acquisitions and bulk reinsurance assumptions:
Assets acquired $ 117,349 $ 423,167 $ 103,557
Liabilities assumed (166,595) (429,580) (130,008)
----------- ----------- -----------
Net $ (49,246) $ (6,413) $ (26,451)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements of Protective Life
Corporation and subsidiaries (the Company) are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ from
statutory reporting practices used by insurance companies in reporting to state
regulatory authorities. (See also Note B.)
ENTITIES INCLUDED
The consolidated financial statements include the accounts, after intercompany
eliminations, of Protective Life Corporation and its wholly owned subsidiaries.
Protective Life Insurance Company (Protective Life) is the Company's principal
operating subsidiary.
Additionally, the financial statements include the accounts of majority-
owned subsidiaries. The ownership interest of the other stockholders of these
subsidiaries is called a minority interest and is reported as a liability of the
Company and as an adjustment to income.
RECENTLY ISSUED ACCOUNTING STANDARDS
In 1992, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." SFAS No. 106 was accounted for as a change in accounting principle
with the cumulative effect reported as a reduction to income.
The Company adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," at December 31, 1993, which requires the Company to
carry its investment in fixed maturities and certain other securities at market
value instead of amortized cost. As prescribed by SFAS No. 115, these
investments are recorded at their market values with the resulting unrealized
gains and losses, net of income tax, reported as a component of stockholders'
equity reduced by a related adjustment to deferred policy acquisition costs. The
market values of fixed maturities increase or decrease as interest rates fall or
rise. Therefore, although the adoption of SFAS No. 115 does not affect the
Company's operations, its reported stockholders' equity will fluctuate
significantly as interest rates change.
In 1994, the Company adopted SFAS No. 119 "Disclosure about Derivative
Financial Instruments and Fair Values of Financial Instruments," which requires
additional disclosures related to derivative financial instruments. Also, in
1994, the Company adopted new disclosure requirements required by Statement of
Position 94-4 of the Accounting Standards Division of the American Institute of
Certified Public Accountants concerning disclosures related to the Company's
liability for unpaid claims. The adoption of these accounting standards had no
effect on the Company's financial statements.
INVESTMENTS
For purposes of adopting SFAS No. 115 the Company has classified all of its
investments in fixed maturities, equity securities, and short-term investments
as "available for sale."
Investments are reported on the following bases less allowances for
uncollectible amounts on investments, if applicable:
- Fixed maturities (bonds, bank loan participations, and redeemable preferred
stocks) -- at current market value.
- Equity securities (common and nonredeemable preferred stocks) -- at current
market value.
- Mortgage loans on real estate -- at unpaid balances, adjusted for loan
origination costs, net of fees, and amortization of premium or discount.
- Investment real estate -- at cost, less allowances for depreciation computed
on the straight-line method. With respect to real estate acquired through
foreclosure, cost is the lesser of the loan balance plus foreclosure costs or
appraised value.
- Policy loans -- at unpaid balances.
- Other long-term investments -- at a variety of methods similar to those listed
above, as deemed appropriate for the specific investment.
- Short-term investments -- at cost, which approximates current market value.
Substantially all short-term investments have maturities of three months or
less at the time of acquisition and include approximately $9.7 million in bank
deposits voluntarily restricted as to withdrawal.
The Company's balance sheets at December 31, prepared on the basis of
reporting investments at amortized cost rather than at market values, are as
follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Total investments $5,501,064 $4,693,824
Deferred policy acquisition costs 400,724 312,034
All other assets 393,929 249,710
---------- ----------
$6,295,717 $5,255,568
---------- ----------
---------- ----------
Deferred income taxes $ 43,806 $ 48,116
All other liabilities 5,874,006 4,886,003
---------- ----------
5,917,812 4,934,119
Stockholders' equity 377,905 321,449
---------- ----------
$6,295,717 $5,255,568
---------- ----------
---------- ----------
</TABLE>
Realized gains and losses on sales of investments are recognized in net
income using the specific identification basis.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company does not use derivative financial instruments for trading purposes.
Combinations of futures contracts and options on treasury notes are
currently being used as hedges for asset/liability management of certain
investments, primarily mortgage loans on real estate, and liabilities arising
from interest-sensitive products such as guaranteed investment contracts and
individual annuities. Realized investment gains and losses on such contracts are
deferred and amortized over the life of the hedged asset. Net realized gains of
$7.9 million were deferred in 1994. At December 31, 1994, open futures contracts
with a notional amount of $137.5 million were in a $0.4 million net unrealized
loss position.
The Company uses interest rate swap contracts to convert certain
investments from a variable to a fixed rate of interest. At December 31, 1994,
related open interest rate swap contracts with a notional amount of $230.0
million were in an $8.9 million net unrealized loss position. At December 31,
1993, related open interest rate swap contracts with a notional amount of $245.0
million were in a $9.0 million net unrealized gain position. The Company also
uses interest rate swap contracts to convert its Senior Notes and Monthly Income
Preferred Securities from a fixed rate to a variable rate of interest. At
December 31, 1994, related open interest rate swap contracts with a notional
amount of $95.0 million were in a $4.8 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. The Company uses both accelerated
and straight-line methods of depreciation based upon the estimated useful lives
of the assets. Major repairs or improvements are capitalized and depreciated
over the estimated useful lives of the assets. Other repairs are expensed as
incurred. The cost and related accumulated depreciation of property and
equipment sold or retired are removed from the accounts, and resulting gains or
losses are included in income.
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Home Office building $35,320 $35,284
Data processing equipment 17,877 13,301
Other, principally furniture and equipment 16,416 15,034
------- -------
69,613 63,619
Accumulated depreciation 33,290 27,955
------- -------
$36,323 $35,664
------- -------
------- -------
</TABLE>
SEPARATE ACCOUNTS
The Company operates separate accounts, some in which the Company bears the
investment risk and others in which the investment risk rests with the
contractholder. The assets and liabilities related to separate accounts in which
the Company 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
<PAGE>
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 the
Company'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 the Company and
claims incurred but not yet reported. Policy claims are charged to expense in
the period that the claims are incurred.
Activity in the liability for unpaid claims is summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Balance beginning of year $ 77,191 $ 68,203 $ 49,851
Less reinsurance 3,973 3,809 3,685
-------- -------- --------
Net balance beginning of year 73,218 64,394 46,166
-------- -------- --------
Incurred related to:
Current year 203,453 194,394 178,604
Prior year (6,683) (5,123) 5,753
-------- -------- --------
Total incurred 196,770 189,271 184,357
-------- -------- --------
Paid related to:
Current year 148,548 141,361 127,859
Prior year 47,002 39,086 38,270
-------- -------- --------
Total paid 195,550 180,447 166,129
-------- -------- --------
Net balance end of year 74,438 73,218 64,394
Plus reinsurance 5,024 3,973 3,809
-------- -------- --------
Balance end of year $ 79,462 $ 77,191 $ 68,203
-------- -------- --------
-------- -------- --------
</TABLE>
- Universal Life and Investment Products -- Universal life and investment
products include universal life insurance, guaranteed investment contracts,
deferred annuities, and annuities without life contingencies. Revenues for
universal life and investment products consist of policy fees that have been
assessed against policy account balances for the costs of insurance, policy
administration, and surrenders. That is, universal life and investment product
deposits are not considered revenues in accordance with generally accepted
accounting principles. Benefit reserves for universal life and investment
products represent policy account balances before applicable surrender charges
plus certain deferred policy initiation fees that are recognized in income over
the term of the policies. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related policy
account balances and interest credited to policy account balances. Interest
credit rates for universal life and investment products ranged from 3.0% to 9.4%
in 1994.
At December 31, 1994, the Company estimates the market value of its
guaranteed investment contracts to be $2,200 million using discounted cash
flows. The surrender value of the Company's annuities which approximates market
value was $1,221 million.
- Policy Acquisition Costs -- Commissions and other costs of acquiring
traditional life and health insurance, universal life insurance, and investment
products that vary with and are primarily related to the production of new
business have been deferred. Traditional life and health insurance acquisition
costs are being 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 amortized over the lives of the policies in relation to the present
value of estimated gross profits from surrender charges and investment,
mortality, and expense margins. Additionally, relating to SFAS No. 115, these
costs have been adjusted by an amount equal to the amortization that would have
been recorded if unrealized gains or losses on investments associated with the
Company's universal life and investment products had been realized.
At the time it adopted SFAS No. 97, "Accounting and Reporting by Insurance
Enterprises for Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments," the Company made certain assumptions
regarding the mortality, persistency, expenses, and interest rates it expected
to experience in future periods. Under SFAS No. 97, these assumptions are to be
best estimates and are to be periodically updated whenever actual experience
and/or expectations for the future change from initial assumptions. Accordingly,
the Company has substituted its actual experience to date for that previously
assumed.
The cost to acquire blocks of insurance representing the present value of
future profits from such blocks of insurance is also included in deferred policy
acquisition costs, discounted at interest rates averaging 15%. For acquisitions
occurring after 1988, the Company amortizes the present value of future profits
over the premium payment period, including accrued interest at 8%. The
unamortized present value of future profits for such acquisitions was
approximately $84.4 million and $39.4 million at December 31, 1994 and 1993,
respectively. During 1994, $56.0 million of present value of future profits on
acquisitions made during the year was capitalized, and $11.0 million was
amortized.
The unamortized present value of future profits for all acquisitions was
$110.3 million at December 31, 1994 and $69.9 million at December 31, 1993.
<PAGE>
PARTICIPATING POLICIES
Participating business comprises approximately 4% of the individual life
insurance in force and 4% of the individual life insurance premium income.
Policyholder dividends totaled $2.6 million in 1994, 1993, and 1992.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Income tax provisions are generally based on income reported for financial
statement purposes. Deferred federal income taxes arise from the recognition of
temporary differences between income determined for financial reporting purposes
and income tax purposes. Such temporary differences are principally related to
the deferral of policy acquisition costs and the provision for future policy
benefits and expenses.
INCOME PER SHARE OF COMMON STOCK
Per share data are based on the weighted average number of shares of Common
Stock outstanding which was 13,696,468, 13,690,789, and 13,657,993, in 1994,
1993, and 1992, respectively.
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 previously
reported net income, total assets, or stockholders' equity.
NOTE B. RECONCILIATION WITH STATUTORY
REPORTING PRACTICES
Financial statements prepared in conformity with generally accepted accounting
principles (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 stockholders'
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.
The reconciliations of net income and stockholders' equity prepared in
conformity with statutory reporting practices to that reported in the
accompanying consolidated financial statements are as follows:
<PAGE>
<TABLE>
<CAPTION>
NET INCOME STOCKHOLDERS' EQUITY
1994 1993 1992 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
In conformity with statutory
reporting practices:
Protective Life Insurance Company $ 54,812 $ 41,471 $ 25,138 $ 304,858 $ 263,075 $ 206,476
American Foundation
Life Insurance Company 3,072 1,415 2,155 20,327 18,290 18,394
Capital Investors Life
Insurance Company 170 207 1,125 824
Empire General Life
Assurance Corporation 690 408 (201) 21,270 10,588 5,178
National Deposit Life
Insurance Company(1) 5,386
Protective Life Insurance
Acquisition Corporation(2) 22
Protective Life Insurance
Corporation of Alabama 69 16 2,133 2,064
Wisconsin National Life
Insurance Company 10,132 9,591 57,268 50,885
Consolidation elimination 30 (74) (100,123) (80,651) (21,572)
-------- -------- -------- ---------- --------- ---------
68,945 53,138 32,426 306,858 265,075 208,476
Additions (deductions) by adjustment:
Deferred policy acquisition
costs, net of amortization 41,686 25,392 32,928 434,444 299,584 275,212
Policy liabilities and accruals (34,632) (15,586) (26,486) (140,298) (69,844) (45,583)
Deferred income tax 3,342 5,273 1,336 14,095 (69,269) (54,727)
Asset Valuation Reserve 24,925 43,398 25,341
Interest Maintenance Reserve (1,716) (1,432) (93) 3,583 10,489 1,634
Nonadmitted items 21,445 7,742 (10,178)
Timing differences on
mortgage loans on
real estate and fixed
maturity investments (961) 1,645 1,296 6,877 7,350 (11,608)
Net unrealized gains and losses
on investments, net of
income tax (107,532) 39,284 3,156
Realized investment losses (6,664) (7,860) (2,550)
Noninsurance affiliates 5,877 (4,081) 2,990 149,750 87,693 100,435
Minority interest in
consolidated subsidiaries (1,796) (19) (90) (1,311)
Consolidation elimination (436,053) (262,408) (209,159)
Other adjustments, net (3,680) 80 (337) (7,721) 1,639 (288)
-------- -------- -------- ---------- --------- ---------
In conformity with generally
accepted accounting
principles $ 70,401 $ 56,550 $ 41,420 $ 270,373 $ 360,733 $ 281,400
-------- -------- -------- ---------- --------- ---------
-------- -------- -------- ---------- --------- ---------
<FN>
(1) MERGED INTO PROTECTIVE LIFE IN SEPTEMBER 1992.
(2) FORMED TO FACILITATE PROTECTIVE LIFE'S ACQUISITION OF EMPLOYERS NATIONAL
LIFE INSURANCE COMPANY.
</TABLE>
<PAGE>
NOTE C. INVESTMENT OPERATIONS
Major categories of net investment income for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Fixed maturities $242,510 $212,816 $172,919
Equity securities 2,435 1,519 939
Mortgage loans on real estate 141,751 130,262 108,128
Investment real estate 2,000 2,166 1,893
Policy loans 8,397 7,558 6,781
Other, principally
short-term investments 34,088 17,790 3,023
-------- -------- --------
431,181 372,111 293,683
Investment expenses 13,356 9,981 9,614
-------- -------- --------
$417,825 $362,130 $284,069
-------- -------- --------
-------- -------- --------
</TABLE>
Realized investment gains (losses) for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Fixed maturities $(8,646) $10,508 $ 8,163
Equity securities 7,735 2,230 3,688
Mortgage loans and other investments 7,209 (7,684) (11,865)
------- ------- --------
$ 6,298 $ 5,054 $ (14)
------- ------- --------
------- ------- --------
</TABLE>
The Company has established an allowance for uncollectible amounts on
investments. The allowance totaled $35.9 million at December 31, 1994 and 1993.
Additions to the allowance are included in realized investment losses. Without
such additions the Company had realized investment gains of $6.3 million, $13.8
million, and $9.7 million in 1994, 1993, and 1992, respectively.
In 1994, gross gains on the sale of investments available for sale (fixed
maturities, equity securities, and short-term investments) were $15.2 million,
and gross losses were $16.4 million. In 1993, gross gains were $8.3 million, and
gross losses were less than $0.4 million. In 1992, gross gains on the sale of
fixed maturities were $12.8 million, and gross losses were $1.7 million.
The amortized cost and estimated market values of the Company's investments
classified as available for sale at December 31 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1994 COST GAINS LOSSES VALUES
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities $2,002,842 $7,538 $112,059 $1,898,321
United States Government and authorities 90,468 290 8,877 81,881
States, municipalities, and political
subdivisions 10,902 5 1,230 9,677
Public utilities 414,011 1,091 36,982 378,120
Convertibles and bonds with warrants 687 0 302 385
All other corporate bonds 927,779 3,437 56,788 874,428
Bank loan participations 244,881 0 0 244,881
Redeemable preferred stocks 6,800 37 884 5,953
---------- ------- -------- ----------
3,698,370 12,398 217,122 3,493,646
Equity securities 45,958 3,994 4,947 45,005
Short-term investments 59,541 0 0 59,541
---------- ------- -------- ----------
$3,803,869 $16,392 $222,069 $3,598,192
---------- ------- -------- ----------
---------- ------- -------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
1993 COST GAINS LOSSES VALUES
<S> <C> <C> <C> <C>
Fixed maturities:
Bonds:
Mortgage-backed securities $1,531,012 $31,532 $ 957 $1,561,587
United States Government and authorities 89,372 2,818 0 92,190
States, municipalities, and political
subdivisions 15,024 133 2 15,155
Public utilities 339,613 4,262 252 343,623
Convertibles and bonds with warrants 1,421 0 167 1,254
All other corporate bonds 822,505 28,799 688 850,616
Bank loan participations 151,278 0 0 151,278
Redeemable preferred stocks 35,445 226 82 35,589
---------- ------- ------ ----------
2,985,670 67,770 2,148 3,051,292
Equity securities 33,331 8,560 1,295 40,596
Short-term investments 83,692 0 0 83,692
---------- ------- ------ ----------
$3,102,693 $76,330 $3,443 $3,175,580
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
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
1994 COST VALUES
<S> <C> <C>
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>
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
1993 COST VALUES
<S> <C> <C>
Due in one year or less $ 517,179 $ 524,100
Due after one year through five years 1,118,089 1,142,613
Due after five years through ten years 777,058 797,093
Due after ten years 573,344 587,486
---------- ----------
$2,985,670 $3,051,292
---------- ----------
---------- ----------
</TABLE>
The approximate percentage distribution of the Company's fixed maturity
investments by quality rating at December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1994 1993
<S> <C> <C>
AAA 57.6% 52.5%
AA 5.5 7.8
A 12.5 15.1
BBB
Bonds 14.9 16.2
Bank loan participations 1.4 1.0
BB or less
Bonds 2.3 2.2
Bank loan participations 5.6 4.0
Redeemable preferred stocks 0.2 1.2
----- -----
100.0% 100.0%
----- -----
----- -----
</TABLE>
<PAGE>
At December 31, 1994 and 1993, the Company had bonds which were rated less
than investment grade of $82.5 million and $67.3 million, respectively, having
an amortized cost of $89.4 million and $66.7 million, respectively.
Additionally, the Company had bank loan participations which were rated less
than investment grade of $195.1 million and $121.7 million, respectively, having
an amortized cost of $195.1 million and $121.7 million, respectively.
The change in unrealized gains (losses), net of income tax, on fixed
maturity and equity securities for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Fixed maturities $(175,725) $1,198 $ 76
Equity securities (5,342) 1,565 (825)
</TABLE>
At December 31, 1994, all of the Company's mortgage loans were commercial
loans of which 79% were retail, 8% were warehouses, and 7% were office
buildings. The Company specializes in making mortgage loans on either credit-
oriented or credit-anchored commercial properties, most of which are strip
shopping centers in smaller towns and cities. No single tenant's leased space
represents more than 5% of mortgage loans. Approximately 84% of the mortgage
loans are on properties located in the following states listed in decreasing
order of significance: Alabama, South Carolina, Tennessee, Texas, Georgia, North
Carolina, Florida, Mississippi, Virginia, California, Colorado, Louisiana,
Illinois, Ohio, Kentucky, and Indiana.
Many of the mortgage loans have call provisions after 5 to 7 years.
Assuming the loans are called at their next call dates, approximately $107.9
million would become due in 1995, $478.0 million in 1996 to 1999, and $233.9
million in 2000 to 2004.
At December 31, 1994, the average mortgage loan was $1.5 million, and the
weighted average interest rate was 9.6%. The largest single mortgage loan was
$11.9 million. While the Company's mortgage loans do not have quoted market
values, at December 31, 1994 and 1993, the Company estimates the market value of
its mortgage loans to be $1,535.3 million and $1,524.2 million, respectively,
using discounted cash flows from the next call date.
At December 31, 1994 and 1993, the Company's problem mortgage loans and
foreclosed properties totaled $24.0 million and $27.1 million, respectively. The
Company expects no significant loss of principal.
Certain investments, principally real estate, with a carrying value of $6.7
million, were nonincome producing for the twelve months ended December 31, 1994.
Mortgage loans to Fletcher Bright, Edens & Avant, Kenneth Karl, George
Huber, and Stewart Scothorn totaling $99.4 million, $65.6 million, $37.4
million, $30.8 million, and $27.5 million, respectively, exceeded ten percent of
stockholders' equity at December 31, 1994.
Mortgage-backed securities consist primarily of sequential and planned
amortization class (PAC) securities. Mortgage-backed securities issued by
Independent National Mortgage Corporation, Chase Manhattan Finance, and
Prudential Home Mortgage Securities totaling $54.9 million, $36.1 million, and
$27.1 million, respectively, exceeded ten percent of stockholders' equity at
December 31, 1994.
The Company believes it is not practicable to determine the market 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 market values of the Company's other long-term
investments approximate cost.
NOTE D. FEDERAL INCOME TAXES
The Company's effective income tax rate varied from the maximum federal income
tax rate as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory federal income tax rate
applied to pretax income 35.0% 35.0% 34.0%
Amortization of nondeductible goodwill 0.1 1.1
Dividends received deduction and
tax-exempt interest (0.4) (0.5) (1.3)
Low-income housing credit (0.7)
Tax benefits arising from prior
acquisitions and other adjustments (1.9) (2.6) (4.8)
----- ----- -----
32.0% 32.0% 29.0%
----- ----- -----
----- ----- -----
</TABLE>
In August 1993, the corporate income tax rate was increased from 34% to 35%
which resulted in a one-time increase to income tax expense of $1.3 million or
$.09 per share due to a recalculation of the Company's deferred income tax
liability. The effective income tax rate for 1993 of 32% excludes the one-time
increase.
The provision for federal income tax differs from amounts currently payable
due to certain items reported for financial statement purposes in periods which
differ from those in which they are reported for tax purposes.
Details of the deferred income tax provision for the years ended
December 31 are as follows:
<PAGE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Deferred policy
acquisition costs $ 34,561 $ 8,861 $ 7,164
Benefit and other
policy liability
changes (52,288) (10,416) (9,005)
Temporary
differences of
investment income 15,524 336
Other items (1,139) (3,718) 169
-------- -------- -------
$ (3,342) $ (5,273) $(1,336)
-------- -------- -------
-------- -------- -------
</TABLE>
The components of the Company's net deferred income tax liability as of
December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred income tax assets:
Policy and policyholder liability reserves $116,326 $25,123
Unrealized loss on investments 23,485
Other 4,333
-------- -------
139,811 29,456
-------- -------
Deferred income tax liabilities:
Deferred policy acquisition costs 113,760 79,199
Unrealized gain on investments 19,526
Other 11,956
-------- -------
125,716 98,725
-------- -------
Net deferred income tax liability $(14,095) $69,269
-------- -------
-------- -------
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of the
Company's gain from operations which was not subject to current income taxation
was accumulated for income tax purposes in a memorandum account designated as
Policyholders' Surplus. The aggregate accumulation in this account at December
31, 1994 was approximately $50.7 million. Should the accumulation in the
Policyholders' Surplus account of the life insurance subsidiaries exceed certain
stated maximums, or should distributions including cash dividends be made to
Protective Life Corporation in excess of approximately $248 million, such excess
would be subject to federal income taxes at rates then effective. Deferred
income taxes have not been provided on amounts designated as Policyholders'
Surplus. The Company does not anticipate involuntarily paying income tax on
amounts in the Policyholders' Surplus accounts.
At December 31, 1994, the Company had no material unused income tax loss
carryforwards.
NOTE E. DEBT AND PREFERRED SECURITIES
Short-term and long-term debt at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Short-term debt:
Current portion of long-term debt $ 9,520
--------
$ 9,520
--------
--------
Long-term debt less current portion:
Notes payable to banks $23,000 $137,500
7.95% Senior Notes 75,000
Other notes payable 98
------- --------
$98,000 $137,598
------- --------
------- --------
</TABLE>
Under a three-year revolving line of credit arrangement with several banks,
the Company can borrow up to $60 million on an unsecured basis. No compensating
balances are required to maintain the line of credit. At December 31, 1994, the
Company had borrowed $23 million under this credit arrangement at an interest
rate of 6.3%.
The aforementioned revolving line of credit arrangement contains, among
other provisions, requirements for maintaining certain financial ratios and
restrictions on indebtedness incurred by the Company and its subsidiaries.
Additionally, the Company, on a consolidated basis, cannot incur debt in excess
of 50% of its total capital.
The Company believes the market value of its bank borrowings approximates
book value due to the debt being either short-term or variable rate.
<PAGE>
On July 1, 1994, the Company issued $75 million of 7.95% Senior Notes due
July 1, 2004. The notes are not redeemable by the Company prior to maturity. Net
proceeds of $74.4 million were used to repay bank borrowings. In related
transactions, the Company has entered into interest rate swap agreements to swap
$40 million of the notes from a fixed rate of interest to the floating, 30-day
London Interbank Offered Rate (LIBOR) plus 34.5 basis points, approximately 6.3%
at December 31, 1994.
The Company believes the market value of its Senior Notes, including
related interest rate swaps, was $75.8 million at December 31, 1994.
Future maturities of the long-term debt are $23 million in 1997 and $75
million in 2004.
Interest expense on debt totaled $7.8 million, $6.3 million, and $4.8
million in 1994, 1993, and 1992, respectively.
On June 10, 1994, a special purpose finance subsidiary of the Company, PLC
Capital L.L.C. (PLC Capital), issued $55 million of 9% Cumulative Monthly Income
Preferred Securities, Series A (MIPS), guaranteed by the Company. Net proceeds
of approximately $52.3 million were used to repay a term note and other bank
borrowings. PLC Capital was formed solely to issue MIPS and other securities and
lend the proceeds thereof to the Company in exchange for subordinated debentures
of the Company. The Company has the right under the subordinated debentures to
extend interest-payment periods up to 60 months, and, as a consequence, monthly
dividends on the MIPS may be deferred (but will continue to accumulate, together
with additional dividends on any accumulated but unpaid dividends at the
dividend rate) by PLC Capital during any such extended interest payment period.
The MIPS are redeemable by PLC Capital at any time on or after June 30, 1999.
The MIPS and dividends thereon are reported in the accompanying financial
statements as "minority interest in consolidated subsidiaries." In related
transactions, the Company entered into interest rate swap agreements with two
financial institutions which effectively converted the MIPS from a fixed
dividend rate to the floating, 30-day LIBOR plus 60.5 basis points,
approximately 6.6% at December 31, 1994.
The MIPS had a market value of $54.7 million at December 31, 1994.
Dividends, net of tax, on the MIPS were $1.8 million in 1994 before
consideration of the interest rate swap agreements. On a swap-adjusted basis,
dividends were $1.1 million.
NOTE F. ACQUISITIONS AND SALE OF SUBSIDIARY
In July 1993, the Company acquired Wisconsin National Life Insurance Company
(Wisconsin National). Also in 1993, the Company acquired through reinsurance a
block of universal life policies.
In April 1994, the Company acquired through reinsurance a block of payroll
deduction policies. In October 1994, the Company acquired through reinsurance a
block of individual life insurance policies.
These transactions have been accounted for as purchases, and the results of
the transactions have been included in the accompanying financial statements
since the effective dates of the agreements.
The Company has agreed to acquire National Health Care Systems of Florida,
Inc. The purchase price, which is to be paid in a combination of cash (19.9%)
and Company Common Stock (80.1%), will be determined at closing and is estimated
to be approximately $39.5 million. The acquisition is anticipated to close in
the first quarter of 1995.
Summarized below are the consolidated results of operations for 1993 and
1992, on an unaudited pro forma basis, as if the Wisconsin National acquisition
had occurred as of January 1, 1992. The pro forma information is based on the
Company's consolidated results of operations for 1993 and 1992 and on data
provided by Wisconsin National, after giving effect to certain pro forma
adjustments. The pro forma financial information does not purport to be
indicative of results of operations that would have occurred had the transaction
occurred on the basis assumed above nor are they indicative of results of the
future operations of the combined enterprises.
<TABLE>
<CAPTION>
1993 1992
(UNAUDITED)
<S> <C> <C>
Total revenues $791,396 $693,950
Net income $ 58,428 $ 45,613
Net income per share $ 3.34 $ 4.27
</TABLE>
In August 1993, the Company sold its ownership interest in Southeast Health
Plan, Inc.
NOTE G. COMMITMENTS AND CONTINGENT
LIABILITIES
The Company is contingently liable to obtain a $20 million letter of credit
under indemnity agreements with its directors. Such agreements provide insurance
protection in excess of the directors' and officers' liability insurance in
force at the time up to $20 million. Should certain events occur constituting a
change in control of the Company, the Company must obtain the letter of credit
upon which directors may draw for defense or settlement of any claim relating to
performance of their duties as directors. The Company has similar agreements
with certain of its officers providing up to $10 million in indemnification
which are not secured by the obligation to obtain a letter of credit.
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. The Company does not believe such
assessments will
<PAGE>
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 the Company 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. The Company 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 the Company. Among the litigation
currently pending is a class action filed in the state of Alabama concerning the
sale of credit insurance for which a proposed settlement agreement has been
filed with the supervising court for approval. Although the outcome of any
litigation cannot be predicted with certainty, the Company believes that such
litigation will not have a material adverse effect on the financial position of
the Company.
NOTE H. STOCKHOLDERS' EQUITY AND RESTRICTIONS
The Company has adopted a Share Purchase Rights Plan that provides rights to
holders of the Company's Common Stock to receive Junior Participating Cumulative
Preferred Stock under certain circumstances. The Company can redeem the rights
at $.01 per right until ten business days following a public announcement that
20% or more of the Company's Common Stock has been acquired by one or more
related investors. If, after the rights become exercisable, the Company becomes
involved in a merger or certain other major corporate transactions, each right
then outstanding (other than those held by the 20% holder) would entitle its
holder to buy from the acquirer or the Company or its successor, Common Stock of
the acquirer or the Company or its successor worth twice the exercise price.
Stockholders have authorized 4,000,000 shares of Preferred Stock, $1.00 par
value. Other terms, including preferences, voting, and conversion rights, may be
established by the Board of Directors. In connection with the Share Purchase
Rights Plan, 150,000 of these shares have been designated as Junior
Participating Cumulative Preferred Stock, $1.00 par value, and were unissued at
December 31, 1994. The remaining 3,850,000 shares of Preferred Stock, $1.00 par
value, were also unissued at December 31, 1994.
During 1990, the Company's Board of Directors approved the formation of an
Employee Stock Ownership Plan (ESOP). In December 1990, 520,000 shares of the
Company's Common Stock, which had been held by Protective Life and accounted for
as treasury shares, were transferred to the ESOP in exchange for a $6.9 million
note. The stock is used to match employee contributions to the Company's 401(k)
Plan and to provide other employee benefits. The stock held by the ESOP that has
not yet been used is the unallocated stock shown as a reduction to stockholders'
equity. The ESOP shares are dividend-paying and therefore are considered
outstanding for earnings per share calculations. Dividends on the shares are
used to pay the ESOP's note to Protective Life. If certain events associated
with a change in control of the Company occur, any unallocated shares held by
the ESOP will become allocable to employee 401(k) accounts.
The Company may from time to time transfer or buy in the open market
additional shares of Common Stock to complete its 401(k) employer match
obligation. Accordingly, in 1993, the Company transferred 103 shares of Common
Stock to the ESOP and transferred another 68 shares during 1994.
The Company has established deferred compensation plans for directors and
officers. Compensation deferred is credited to the directors and officers in
cash or Company stock equivalents or a combination thereof. The Company may from
time to time issue or buy in the open market shares of Common Stock to fulfill
its obligation under the plans. At December 31, 1994, the plans had 50,838
shares of Company stock equivalents credited to directors and officers.
On November 7, 1994, the Company's Board of Directors authorized a program
for the repurchase of up to 300,000 shares of Company Common Stock. No shares
have been repurchased under the program.
At December 31, 1994, approximately $196 million of consolidated
stockholders' equity, excluding net unrealized losses on investments,
represented net assets of the Company's insurance subsidiaries that cannot be
transferred in the form of dividends, loans, or advances to the parent company.
Generally, the net assets of the Company's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the insurance
subsidiaries' net assets, as determined in accordance with statutory accounting
practices, exceed certain minimum amounts. However, payments of such amounts as
dividends may be subject to approval by regulatory authorities.
NOTE I. RELATED PARTY MATTERS
Certain corporations with which the Company's directors were affiliated paid the
Company premiums and policy fees for various types of group insurance. Such
premiums and policy fees amounted to $21.1 million, $10.3 million, and $10.9
million in 1994, 1993, and 1992, respectively.
NOTE J. BUSINESS SEGMENTS
The Company operates predominantly in the life and accident and health insurance
industry. The following table sets forth revenues, income before income tax, and
identifiable assets of the Company's business segments. The primary components
of
<PAGE>
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.
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) 1994 1993 1992
<S> <C> <C> <C>
TOTAL REVENUES
Acquisitions $ 170,659 $ 123,855 $ 93,634
Financial Institutions 108,406 97,511 64,376
Group 148,313 143,423 129,778
Guaranteed Investment Contracts 183,591 167,233 138,616
Individual Life 122,452 111,654 90,690
Investment Products 87,702 80,115 55,768
Corporate and Other 22,059 33,970 54,613
Unallocated Realized Investment Gains (Losses) 5,266 1,876 (1,449)
---------- ---------- ----------
$ 848,448 $ 759,637 $ 626,026
---------- ---------- ----------
---------- ---------- ----------
Acquisitions 20.1% 16.3% 15.0%
Financial Institutions 12.8 12.9 10.2
Group 17.5 18.9 20.7
Guaranteed Investment Contracts 21.6 22.0 22.2
Individual Life 14.5 14.7 14.5
Investment Products 10.3 10.6 8.9
Corporate and Other 2.6 4.4 8.7
Unallocated Realized Investment Gains (Losses) 0.6 0.2 (0.2)
---------- ---------- ----------
100.0% 100.0% 100.0%
---------- ---------- ----------
---------- ---------- ----------
INCOME BEFORE INCOME TAX
Acquisitions $ 39,176 $ 29,845 $ 20,031
Financial Institutions 9,581 8,196 5,411
Group 11,085 10,394 7,731
Guaranteed Investment Contracts 30,143 25,405 14,533
Individual Life 16,976 20,064 12,985
Investment Products (1,602) 2,931 4,601
Corporate and Other* (4,452) (13,667) (3,896)
Unallocated Realized Investment Gains (Losses) 5,266 1,876 (1,449)
---------- ---------- ----------
$ 106,173 $ 85,044 $ 59,947
---------- ---------- ----------
---------- ---------- ----------
Acquisitions 36.9% 35.1% 33.4%
Financial Institutions 9.0 9.6 9.0
Group 10.4 12.2 12.9
Guaranteed Investment Contracts 28.4 29.9 24.2
Individual Life 16.0 23.6 21.7
Investment Products (1.5) 3.5 7.7
Corporate and Other (4.2) (16.1) (6.5)
Unallocated Realized Investment Gains (Losses) 5.0 2.2 (2.4)
---------- ---------- ----------
100.0% 100.0% 100.0%
---------- ---------- ----------
---------- ---------- ----------
IDENTIFIABLE ASSETS
Acquisitions $1,282,478 $1,145,357 $ 599,022
Financial Institutions 215,878 192,486 146,713
Group 215,997 208,968 161,744
Guaranteed Investment Contracts 2,211,181 2,041,564 1,696,786
Individual Life 731,026 642,325 507,460
Investment Products 1,162,599 879,365 686,503
Corporate and Other 311,125 205,940 208,439
---------- ---------- ----------
$6,130,284 $5,316,005 $4,006,667
---------- ---------- ----------
---------- ---------- ----------
Acquisitions 20.9% 21.5% 15.0%
Financial Institutions 3.5 3.6 3.7
Group 3.5 3.9 4.0
Guaranteed Investment Contracts 36.1 38.4 42.3
Individual Life 11.9 12.1 12.7
Investment Products 19.0 16.6 17.1
Corporate and Other 5.1 3.9 5.2
---------- ---------- ----------
100.0% 100.0% 100.0%
---------- ---------- ----------
---------- ---------- ----------
<FN>
* INCOME BEFORE INCOME TAX FOR THE CORPORATE AND OTHER SEGMENT HAS NOT BEEN
REDUCED BY PRETAX MINORITY INTEREST OF $2,764 IN 1994, $19 IN 1993, AND $90 IN
1992.
</TABLE>
<PAGE>
NOTE K. EMPLOYEE BENEFIT PLANS
The Company has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's highest
thirty-six consecutive months of compensation. The Company's funding policy is
to contribute amounts to the plan sufficient to meet the minimum funding
requirements of ERISA plus such additional amounts as the Company 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.
The actuarial present value of benefit obligations and the funded status of
the plan at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Accumulated benefit obligation, including
vested benefits of $11,992 in 1994 and $12,406 in 1993 $ 12,348 $ 12,692
-------- --------
Projected benefit obligation for service rendered to date $ 20,302 $ 20,480
Plan assets at fair value
(group annuity contract with Protective Life) 15,679 15,217
-------- --------
Plan assets less than the projected benefit obligation (4,623) (5,263)
Unrecognized net loss from past experience different
from that assumed 2,400 2,244
Unrecognized prior service cost 905 2,069
Unrecognized net transition asset (101) (118)
-------- --------
Net pension liability recognized in balance sheet $(1,419) $(1,068)
-------- --------
-------- --------
</TABLE>
Net pension cost includes the following components for the years ended
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits earned during the year $1,433 $1,191 $ 970
Interest cost on projected benefit obligation 1,520 1,396 1,257
Actual return on plan assets (1,333) (1,270) (1,172)
Net amortization and deferral 210 704 130
------ ------ ------
Net pension cost $1,830 $2,021 $1,185
------ ------ ------
------ ------ ------
</TABLE>
Assumptions used to determine the benefit obligations as of December 31
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Weighted average discount rate 8.0% 7.5% 8.0%
Rates of increase in compensation level 6.0% 5.5% 6.0%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
Assets of the pension plan are included in the general assets of Protective
Life. Upon retirement, the amount of pension plan assets vested in the retiree
are used to purchase a single premium annuity from Protective Life in the
retiree's name. Therefore, amounts presented above as plan assets exclude assets
relating to retirees.
The Company also sponsors an unfunded Excess Benefits Plan, which is a
nonqualified plan that provides defined pension benefits in excess of limits
imposed by federal tax law. At December 31, 1994, the projected benefit
obligation of this plan totaled $4.7 million.
In addition to pension benefits, the Company provides limited healthcare
benefits to eligible retired employees until age 65. At January 1, 1992, the
Company recognized a $1.6 million accumulated postretirement benefit obligation,
of which $0.9 million relates to current retirees, and $0.7 million relates to
active employees. The $1.6 million (representing the Company's entire liability
for such benefits), net of $0.5 million tax, was accounted for as a cumulative
effect of a change in accounting principle and shown as a reduction to income.
The postretirement benefit is provided by an unfunded plan. At December 31,
1994, the liability for such benefits totaled $1.6 million. The expense recorded
by the Company was $0.2 million in 1994, 1993, and 1992. The Company'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.
In 1990, the Company established an Employee Stock Ownership Plan (ESOP) to
match employee contributions to the Company's existing 401(k) Plan. In 1994, a
stock bonus was added to the 401(k) Plan for employees who are not otherwise
under a bonus plan. Expense related to the ESOP consists of the cost of the
shares allocated to participating employees plus the interest expense on the
ESOP's note payable to the Company less dividends on shares held by the ESOP.
All shares held by the ESOP are treated as outstanding for purposes of computing
the Company's earnings per share. At December 31, 1994, the
<PAGE>
Company had committed 33,250 shares to be released to fund employee benefits.
The expense recorded by the Company for these employee benefits was $0.6
million, $0.3 million, and $0.4 million in 1994, 1993, and 1992, respectively.
NOTE L. REINSURANCE
The Company 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, the Company will
not carry more than $500,000 individual life insurance on a single risk.
The Company has reinsured approximately $8.6 billion, $7.5 billion, and
$7.0 billion in face amount of life insurance risks with other insurers
representing $46.0 million, $37.9 million, and $34.8 million of premium income
for 1994, 1993, and 1992, respectively. The Company has also reinsured accident
and health risks representing $126.5 million, $88.9 million, and $74.6 million
of premium income for 1994, 1993, and 1992, respectively. In 1994 and 1993,
policy and claim reserves relating to insurance ceded of $120.0 million and
$97.8 million, respectively, are included in reinsurance receivables. Should any
of the reinsurers be unable to meet its obligation at the time of the claim,
obligation to pay such claim would remain with the Company. At December 31, 1994
and 1993, the Company had paid $5.4 million and $4.8 million, respectively, of
ceded benefits which are recoverable from reinsurers.
NOTE M. ESTIMATED MARKET VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated market values of the Company's financial
instruments at December 31 are as follows:
<TABLE>
<CAPTION>
1994 1993
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNTS VALUES AMOUNTS VALUES
<S> <C> <C> <C> <C>
Assets (see Notes A and C):
Investments:
Fixed maturities $3,493,646 $3,493,646 $3,051,292 $3,051,292
Equity securities 45,005 45,005 40,596 40,596
Mortgage loans on real estate 1,487,795 1,535,300 1,407,744 1,524,200
Short-term investments 59,541 59,541 83,692 83,692
Cash 4,468 4,468 27,119 27,119
Liabilities (see Notes A and E):
Debt:
Notes payable to banks 23,000 23,000 147,000 147,000
Senior Notes 75,000 75,000
Monthly Income
Preferred Securities 55,000 54,700
Other (see Note A):
Futures contracts (416)
Interest rate swaps (13,715) 9,038
</TABLE>
NOTE N. CONSOLIDATED QUARTERLY RESULTS --
UNAUDITED
Protective Life Corporation's unaudited consolidated quarterly operating data
for the years ended December 31, 1994 and 1993 are presented below. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of quarterly results have been reflected in
the data which follow. It is also management's opinion, however, that quarterly
operating data for insurance enterprises are not indicative of results to be
achieved in succeeding quarters or years. In order to obtain a more accurate
indication of performance, there should be a review of operating results,
changes in stockholders' equity, and cash flows for a period of several years.
Fluctuation in short-term performance may be due to the long-term nature of the
insurance business, seasonal patterns in premium production and policy claims,
as well as to the varying yields obtained on invested assets. The data below
should be read in conjunction with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Premiums and policy fees $ 89,437 $ 98,049 $ 101,876 $ 113,410
Net investment income 100,248 98,637 105,762 113,178
Realized investment gains (losses) 2,297 (564) 3,122 1,443
Other income 3,562 7,647 2,185 8,159
----------- ----------- ----------- -----------
Total revenues 195,544 203,769 212,945 236,190
Benefits and expenses 171,165 179,316 184,311 207,483
----------- ----------- ----------- -----------
Income before income tax 24,379 24,453 28,634 28,707
Income tax expense 7,801 7,825 9,163 9,187
Minority interest 188 804 804
----------- ----------- ----------- -----------
Net income $16,578 $16,440 $18,667 $18,716
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $1.21 $1.20 $1.36 $1.37
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average shares outstanding 13,694,896 13,699,631 13,701,083 13,712,792
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
Premiums and policy fees $ 85,848 $ 93,340 $ 94,421 $ 97,149
Net investment income 81,196 85,180 95,697 100,057
Realized investment gains (losses) 125 677 (39) 4,291
Other income 4,930 5,392 6,607 4,766
----------- ----------- ----------- -----------
Total revenues 172,099 184,589 196,686 206,263
Benefits and expenses 154,804 164,484 176,654 178,651
----------- ----------- ----------- -----------
Income before income tax 17,295 20,105 20,032 27,612
Income tax expense 5,361 6,607 7,671 8,836
Minority interest 15 4
----------- ----------- ----------- -----------
Net income $11,919 $13,494 $12,361 $18,776
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $.87 $.99 $.90 $1.37
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average shares outstanding 13,689,861 13,689,901 13,690,119 13,693,244
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders of
Protective Life Corporation
Birmingham, Alabama
We have audited the accompanying consolidated balance sheets of Protective Life
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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
Corporation and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note A to the Consolidated Financial Statements, the
Company changed its method of accounting for certain investments in debt and
equity securities in 1993. Also as discussed in Note K, the Company changed its
method of accounting for postretirement benefits other than pensions in 1992.
/s/Coopers & Lybrand L.L.P.
BIRMINGHAM, ALABAMA
FEBRUARY 13, 1995
<PAGE>
EXHIBIT 21
TO
FORM 10-K
OF
PROTECTIVE LIFE CORPORATION
FOR
FISCAL YEAR
ENDED DECEMBER 31, 1994
The following wholly-owned subsidiary of Protective Life Corporation
is incorporated under the laws of the State of Tennessee and does business under
its corporate name:
Protective Life Insurance Company
The following wholly-owned subsidiary of Protective Life Insurance
Company is incorporated under the laws of the State of Alabama and does business
under its corporate name:
American Foundation Life Insurance Company
The following wholly-owned subsidiary of Protective Life Insurance
Company is incorporated under the laws of the State of Wisconsin and does
business under its corporate name:
Wisconsin National Life Insurance Company
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Protective Life Corporation on Form S-8 (File No. 2-91276) of our report, which
includes an explanatory paragraph with respect to changes in the Company's
methods of accounting for certain investments in debt and equity securities in
1993 and postretirement benefits other than pensions in 1992, dated February 13,
1995, on our audits of the consolidated financial statements and financial
statement schedules of Protective Life Corporation as of December 31, 1994 and
1993 and for the years ended December 31, 1994, 1993 and 1992 which report is
included or incorporated by reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
March 24, 1995
<PAGE>
DIRECTORS' POWER OF ATTORNEY EXHIBIT 24
KNOW ALL MEN BY THESE PRESENTS, That each of the undersigned Directors of
Protective Life Corporation, a Delaware corporation, ("Company") by his
execution hereof or upon an identical counterpart hereof, does hereby constitute
and appoint Drayton Nabers, Jr., John D. Johns, Deborah J. Long, or Jerry W.
DeFoor, and each or any of them, his true and lawful attorneys-in-fact and
agents, for him and in his name, place and stead, to execute and sign the 1994
Annual Report on Form 10-K to be filed by the Company with the Securities and
Exchange Commission, pursuant to the provisions of the Securities Exchange Act
of 1934 and, further, to execute and sign any and all amendments to such Annual
Report, and to file same, with all exhibits and schedules thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all the acts of said attorneys-in-fact and agents or any of them
which they may lawfully do in the premises or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has hereunto set his hand and
seal this 6th day of March, 1995.
WITNESS TO ALL SIGNATURES: /s/ William J. Rushton III
---------------------------------------------
William J. Rushton III
/s/ John K. Wright /s/ John W. Woods
------------------------------- ---------------------------------------------
John K. Wright John W. Woods
/s/ Crawford T. Johnson III
---------------------------------------------
Crawford T. Johnson III
/s/ William J. Cabaniss, Jr.
---------------------------------------------
William J. Cabaniss, Jr.
/s/ H. G. Pattillo
---------------------------------------------
H. G. Pattillo
/s/ Drayton Nabers, Jr.
---------------------------------------------
Drayton Nabers, Jr.
/s/ Edward L. Addison
---------------------------------------------
Edward L. Addison
/s/ John J. McMahon, Jr.
---------------------------------------------
John J. McMahon, Jr.
/s/ A. W. Dahlberg
---------------------------------------------
A. W. Dahlberg
/s/ John W. Rouse, Jr.
---------------------------------------------
John W. Rouse, Jr.
/s/ Robert T. David
---------------------------------------------
Robert T. David
/s/ Ronald L. Kuehn, Jr.
---------------------------------------------
Ronald L. Kuehn, Jr.
/s/ Herbert A. Sklenar
---------------------------------------------
Herbert A. Sklenar
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated financial statements of Protective Life Corporation
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 3,493,646
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 45,005
<MORTGAGE> 1,487,795
<REAL-ESTATE> 20,303
<TOTAL-INVEST> 5,301,911
<CASH> 4,468
<RECOVER-REINSURE> 122,175
<DEFERRED-ACQUISITION> 434,444
<TOTAL-ASSETS> 6,130,284
<POLICY-LOSSES> 1,694,295
<UNEARNED-PREMIUMS> 103,479
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 144,461
<NOTES-PAYABLE> 98,000
<COMMON> 7,834
0
0
<OTHER-SE> 262,539
<TOTAL-LIABILITY-AND-EQUITY> 6,130,284
402,772
<INVESTMENT-INCOME> 417,825
<INVESTMENT-GAINS> 6,298
<OTHER-INCOME> 21,553
<BENEFITS> 517,110
<UNDERWRITING-AMORTIZATION> 88,122
<UNDERWRITING-OTHER> 137,043
<INCOME-PRETAX> 106,173
<INCOME-TAX> 33,976
<INCOME-CONTINUING> 70,401<F1>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,401
<EPS-PRIMARY> 5.14
<EPS-DILUTED> 5.14
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>Net of minority interest in income of consolidated subsidiaries of $1,796.
</FN>
</TABLE>
